Callaway 2006 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2006 Callaway annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

International political instability and terrorist activities may decrease demand for the Company’s products
and disrupt its business.
The Company’s business has been adversely affected in recent years by terrorist activities and armed
conflicts, such as the attacks on the World Trade Center and the Pentagon, the incidents of Anthrax poisoning
and the military actions in the Middle East, including the war in Iraq. Similar events in the future or the threat of
future conflict could have an adverse effect upon the United States or worldwide economy and cause decreased
demand for the Company’s products as consumers’ attention and interest are diverted from golf and become
focused on issues relating to these events. If such events disrupt domestic or international air, ground or sea
shipments, the Company’s ability to obtain the materials necessary to produce and sell its products and to deliver
customer orders would be harmed. Furthermore, such events can negatively impact tourism, which could
adversely affect the Company’s sales to retailers at resorts and other vacation destinations.
The Company’s business could be harmed by the occurrence of natural disasters or pandemic diseases.
The occurrence of a natural disaster, such as an earthquake or hurricane, or the outbreak of a pandemic
disease, such as Severe Acute Respiratory Syndrome or the Avian Flu, could significantly adversely affect the
Company’s business. A natural disaster or a pandemic disease could significantly adversely affect both the
demand for the Company’s products as well as the supply of the components used to make the Company’s
products. Demand for golf products could be negatively affected as consumers in the affected regions restrict
their recreational activities and as tourism to those areas declines. If the Company’s suppliers experienced a
significant disruption in their business as a result of a natural disaster or pandemic disease, the Company’s ability
to obtain the necessary components to make its products could be significantly adversely affected. In addition,
the occurrence of a natural disaster or the outbreak of a pandemic disease generally restricts the travel to and
from the affected areas, making it more difficult in general to manage the Company’s international operations.
The Company has significant international sales and is exposed to currency exchange rate fluctuations.
A significant portion of the Company’s sales are international sales and the Company conducts transactions
in approximately 12 currencies worldwide. Conducting business in such various currencies exposes the Company
to fluctuations in foreign currency exchange rates relative to the U.S. dollar.
The Company’s financial results are reported in U.S. dollars. As a result, transactions conducted in foreign
currencies must be translated into U.S. dollars for reporting purposes based upon the applicable foreign currency
exchange rates. Fluctuations in these foreign currency exchange rates therefore may positively or negatively
affect the Company’s reported financial results.
The effect of the translation of foreign currencies on the Company’s financial results can be significant. The
Company therefore engages in certain hedging activities to mitigate over time the impact of the translation of
foreign currencies on the Company’s financial results. The Company’s hedging activities are designed to reduce,
but not to eliminate, the effects of foreign currency fluctuations. Factors that could affect the effectiveness of the
Company’s hedging activities include accuracy of sales forecasts, volatility of currency markets and the
availability of hedging instruments. Since the hedging activities are designed to reduce volatility, they not only
reduce the negative impact of a stronger U.S. dollar but also reduce the positive impact of a weaker U.S. dollar.
The Company’s future financial results could be significantly affected by the value of the U.S. dollar in relation
to the foreign currencies in which the Company conducts business. The degree to which the Company’s financial
results are affected will depend in part upon the effectiveness or ineffectiveness of the Company’s hedging
activities.
Foreign currency fluctuations can also affect the prices at which products are sold in the Company’s
international markets. The Company therefore adjusts its pricing based in part upon fluctuations in foreign
currency exchange rates. Significant unanticipated changes in foreign currency exchange rates make it more
12