Callaway 2008 Annual Report Download - page 22

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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 closeout 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 results of operations, financial condition and cash flows could be significantly
adversely affected.
Unfavorable economic conditions could have a negative impact on consumer discretionary spending and
therefore 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, taxes 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 consumer discretionary
spending, whether in the United States or in the Company’s international markets, could result in reduced sales
of the Company’s products, which could have a negative impact on the Company’s results of operations,
financial condition and cash flows.
A severe or prolonged economic downturn could adversely affect our customers’ financial condition, their
levels of business activity and their ability to pay trade obligations.
The Company primarily sells its products to golf equipment retailers directly and through wholly owned
domestic and foreign subsidiaries, and to foreign distributors. The Company performs ongoing credit evaluations
of its customers’ financial condition and generally requires no collateral from these customers. Historically, the
Company’s bad debt expense has been low. However, a prolonged downturn in the general economy could
adversely affect the retail golf equipment market which in turn, would negatively impact the liquidity and cash
flows of our customers, including the inability of our customers to obtain credit to finance purchases of our
products and to pay their trade obligations. This could result in increased delinquent or uncollectible accounts for
some of the Company’s significant customers. A failure by the Company’s customers to pay on a timely basis a
significant portion of outstanding account receivable balances would adversely impact the Company’s results of
operations, financial condition and cash flows.
The Company has significant international sales and purchases, and is exposed to currency exchange rate
fluctuations.
A significant portion of the Company’s purchases and sales are international purchases and 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.
9