Callaway 2011 Annual Report Download - page 30

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, which could result in
fluctuations in its operating results and stock price.
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. 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
quantities 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 for the new golf season. 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.
Due to 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 balls.
Furthermore, catastrophic storms can negatively affect golf rounds played both during the storms and afterward,
as storm damaged golf courses are repaired and golfers focus on repairing the damage to their homes, businesses
and communities. Consequently, sustained adverse weather conditions, especially during the warm weather
months, could materially affect the Company’s sales.
Goodwill and intangible assets represent a significant portion of our total assets and any impairment of these
assets could negatively impact our results of operations and shareholders’ equity.
The Company’s goodwill and intangible assets consist of goodwill from acquisitions, trade names,
trademarks, service marks, trade dress, patents, and other intangible assets.
Accounting rules require that the Company’s goodwill and intangible assets with indefinite lives be
evaluated for impairment at least annually. In addition, accounting rules require that the Company’s goodwill and
intangible assets, including intangible assets with definite lives, be evaluated for impairment whenever events or
changes in circumstances indicate that the carrying value of such assets may not be recoverable. Such indicators
include a sustained decline in the Company’s stock price or market capitalization, adverse changes in economic
or market conditions or prospects, and changes in the Company’s operations.
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