Callaway 2007 Annual Report Download - page 22

Successfully managing the frequent introduction of new products that satisfy changing consumer preferences
is very important to the Company’s success.
The Company’s main products, like those of its competitors, generally have life cycles of two years or less,
with sales occurring at a much higher rate in the first year than in the second. Factors driving these short product
life cycles include the rapid introduction of competitive products and quickly changing consumer preferences. In
this marketplace, a substantial portion of the Company’s annual revenues is generated each year by products that
are in their first year of life.
These marketplace conditions raise a number of issues that the Company must successfully manage. For
example, the Company must properly anticipate consumer preferences or its new products will not achieve
sufficient market success to compensate for the usual decline in sales experienced by products already in the
market. Second, the Company’s R&D and supply chain groups face constant pressures to design, develop, source
and supply new products—many of which incorporate new or otherwise untested technology, suppliers or inputs.
Third, for new products to generate equivalent or greater revenues than their predecessors, they must either
maintain the same or higher sales levels with the same or higher pricing, or exceed the performance of their
predecessors in one or both of those areas. Fourth, the relatively short window of opportunity for launching and
selling new products requires great expertise in forecasting demand and assuring that supplies are ready and
delivered during the critical selling periods. Finally, the rapid changeover in products creates a need to monitor
and manage the close out of obsolete products both at retail and in the Company’s own inventory.
Should the Company not successfully manage all of the risk factors associated with this rapidly moving
marketplace, the Company’s sales and earnings may be adversely affected.
A reduction in discretionary consumer spending could reduce sales of the Company’s products.
The Company sells golf clubs, golf balls and golf accessories. These products are recreational in nature and
are therefore discretionary purchases for consumers. Consumers are generally more willing to make discretionary
purchases of golf products during favorable economic conditions and when consumers are feeling confident and
prosperous. Discretionary spending is also affected by many other factors, including general business conditions,
interest rates, the availability of consumer credit, taxation and consumer confidence in future economic
conditions. Purchases of the Company’s products could decline during periods when disposable income is lower,
or during periods of actual or perceived unfavorable economic conditions. Any significant decline in general
economic conditions or uncertainties regarding future economic prospects that adversely affect discretionary
consumer spending, whether in the United States or in the Company’s international markets (which represent
almost half of the Company’s total sales), could result in reduced sales of the Company’s products.
A reduction in the number of rounds of golf played or in the number of golf participants could adversely affect
the Company’s sales.
The Company generates substantially all of its revenues from the sale of golf related products, including
golf clubs, golf balls and golf accessories. The demand for golf related products, generally, and golf balls in
particular, is directly related to the number of golf participants and the number of rounds of golf being played by
these participants. If golf participation or the number of rounds of golf played decreases, sales of the Company’s
products may be adversely affected. In the future, the overall dollar volume of the market for golf-related
products may not grow or may decline.
In addition, the demand for golf products is also directly related to the popularity of magazines, cable
channels and other media dedicated to golf, television coverage of golf tournaments and attendance at golf
events. The Company depends on the exposure of its products through advertising and the media or at golf
tournaments and events. Any significant reduction in television coverage of, or attendance at, golf tournaments
and events or any significant reduction in the popularity of golf magazines or golf channels, could reduce the
visibility of the Company’s brand and could adversely affect the Company’s sales.
9