Callaway 2010 Annual Report Download - page 25

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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. A significant or prolonged 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 ability 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 unfavorable changes in foreign currency
exchange rates could significantly affect the Company’s results of operations.
A significant portion of the Company’s purchases and sales are international purchases and sales, and the
Company conducts transactions in approximately 14 currencies worldwide. Conducting business in such various
currencies exposes the Company to fluctuations in foreign currency exchange rates relative to the U.S. dollar.
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
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