Callaway 2008 Annual Report Download - page 23

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 and can significantly affect period-over-period comparisons.
The effect of the translation of foreign currencies on the Company’s financial results can be significant. The
Company therefore from time to time 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 can
reduce, but will not eliminate, the effects of foreign currency fluctuations. The extent to which the Company’s
hedging activities mitigate the effects of foreign currency translation varies based upon many factors, including
the amount of transactions being hedged. The Company generally only hedges a limited portion of its
international transactions. Other 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.
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.
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.
The Company may have limited opportunities for future growth in sales of golf clubs and golf balls.
In order for the Company to significantly grow its sales of golf clubs or golf balls, the Company must either
increase its share of the market for golf clubs or balls, or the market for golf clubs or balls must grow. The
Company already has a significant share of worldwide sales of golf clubs and golf balls. Therefore, opportunities
for additional market share may be limited. The Company also believes that overall dollar volume of the
worldwide market for golf equipment sales has not experienced substantial growth in the past several years. In
the future, the overall dollar volume of worldwide sales of golf clubs or golf balls may not grow or may decline.
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