Callaway 2009 Annual Report Download - page 22

Item 1A. Risk Factors
Certain Factors Affecting Callaway Golf Company
The financial statements contained in this report and the related discussions describe and analyze the
Company’s financial performance and condition for the periods presented. For the most part, this information is
historical. The Company’s prior results, however, are not necessarily indicative of the Company’s future
performance or financial condition. The Company has also included certain forward-looking statements
concerning the Company’s future performance or financial condition. These forward-looking statements are
based upon current information and expectations and actual results could differ materially. The Company
therefore has included the following discussion of certain factors that could cause the Company’s future
performance or financial condition to differ materially from its prior performance or financial condition or from
management’s expectations or estimates of the Company’s future performance or financial condition. These
factors, among others, should be considered in assessing the Company’s future prospects and prior to making an
investment decision with respect to the Company’s stock.
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 and design products that meet those
preferences while also complying with significant restrictions imposed by the Rules of Golf (see further
discussion of the Rules of Golf below) 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 that
perform better than their predecessors—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 precision 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 older 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
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