Callaway 2007 Annual Report Download - page 26

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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
difficult for the Company to manage pricing in its international markets. If the Company is unable to adjust its
pricing in a timely manner to counteract the effects of foreign currency fluctuations, the Company’s pricing may
not be competitive in the marketplace and the Company’s financial results in its international markets could be
adversely affected.
The Company’s business and therefore operating results are subject to seasonal fluctuations.
The Company’s business is subject to seasonal fluctuations. The Company’s first quarter sales generally
represent the Company’s sell-in to the golf retail channel of its golf club products for the new golf season. Orders
for many of these sales are received during the fourth quarter of the prior year. The Company’s second and third
quarter sales generally represent re-order business for golf clubs. Sales of golf clubs during the second and third
quarters are significantly affected not only by the sell-through of the Company’s products that were sold into the
channel during the first quarter but also by the sell-through of products by the Company’s competitors. Retailers
are sometimes reluctant to re-order the Company’s products in significant quantity when they already have
excess inventory of products of the Company or its competitors. The Company’s sales of golf balls are generally
associated with the level of rounds played in the areas where the Company’s products are sold. Therefore, golf
ball sales tend to be greater in the second and third quarters, when the weather is good in most of the Company’s
key markets and rounds played are up. Golf ball sales are also stimulated by product introductions as the retail
channel takes on initial supplies. Like golf clubs, re-orders of golf balls depend on the rate of sell-through. The
Company’s sales during the fourth quarter are generally significantly less than the other quarters because in many
of the Company’s principal markets fewer people are playing golf during that time of year due to cold weather.
Furthermore, in the past, the Company announced its new product line at the beginning of each calendar year. In
recent years, the Company has departed from that practice and now generally announces its new product line in
the fourth quarter to allow retailers to plan better. Such early announcements of new products could cause
golfers, and therefore the Company’s customers, to defer purchasing additional golf equipment until the
Company’s new products are available. Such deferments could have a material adverse effect upon sales of the
Company’s current products or result in close out sales at reduced prices.
The seasonality of the Company’s business could exacerbate the adverse effects of unusual or severe weather
conditions on the Company’s business.
Because of the seasonality of the Company’s business, the Company’s business can be significantly
adversely affected by unusual or severe weather conditions. Unfavorable weather conditions generally result in
fewer golf rounds played, which generally results in reduced demand for golf products, generally, and golf balls
in particular. Furthermore, catastrophic storms can negatively affect golf rounds played both during the storms
and afterward, as storm damaged golf courses are repaired and golfers focus on repairing the damage to their
homes, businesses and communities. Consequently, sustained adverse weather conditions, especially during the
warm weather months, could materially affect the Company’s sales.
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