Callaway 2008 Annual Report Download - page 26

International political instability and terrorist activities may decrease demand for the Company’s products and
disrupt its business.
Terrorist activities and armed conflicts could have an adverse effect upon the United States or worldwide
economy and could 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, fire, flood 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 also 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’s business and 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 reorder 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 reorder 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, reorders 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, the Company 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
closeout 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 all golf products, and in particular, golf
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