Callaway 2000 Annual Report Download - page 27

Callaway Golf Company | 27
choose to play the Company’s golf ball products. The Company
does not plan to match the endorsement spending levels of the
leading manufacturer, and will instead rely more heavily upon
the performance of the ball and other factors to attract profes-
sionals to the product. In the future the Company may or may not
increase its tour spending in support of its golf ball. It is not clear
to what extent use by professionals is important to the commer-
cial success of the Company’s golf balls, but it is possible that the
results of the Company’s golf ball business could be significantly
affected by its success or lack of success in securing acceptance
on the professional tours.
Intellectual Property and Proprietary Rights
The golf club industry, in general, has been characterized by
widespread imitation of popular club designs. The Company has
an active program of enforcing its proprietary rights against com-
panies and individuals who market or manufacture counterfeits
and “knock off” products, and aggressively asserts its rights
against infringers of its copyrights, patents, trademarks, and
trade dress. However, there is no assurance that these efforts will
reduce the level of acceptance obtained by these infringers.
Additionally, there can be no assurance that other golf club man-
ufacturers will not be able to produce successful golf clubs which
imitate the Company’s designs without infringing any of the
Company’s copyrights, patents, trademarks, or trade dress.
An increasing number of the Company’s competitors have, like
the Company itself, sought to obtain patent, trademark, copyright
or other protection of their proprietary rights and designs for golf
clubs and golf balls. From time to time others have or may con-
tact the Company to claim that they have proprietary rights that
have been infringed by the Company and/or its products. The
Company evaluates any such claims and, where appropriate, has
obtained or sought to obtain licenses or other business arrange-
ments. To date, there have been no interruptions in the Company’s
business as a result of any claims of infringement. No assurance
can be given, however, that the Company will not be adversely
affected in the future by the assertion of intellectual property
rights belonging to others. This effect could include alteration or
withdrawal of existing products and delayed introduction of new
products.
Various patents have been issued to the Company’s competi-
tors in the golf ball industry. As the Company develops its golf
ball products, it attempts to avoid infringing valid patents or
other intellectual property rights. Despite these attempts, it
cannot be guaranteed that competitors will not assert and/or a
court will not find that the Company’s golf balls infringe certain
patent or other rights of competitors. If the Company’s golf balls
are found to infringe on protected technology, there is no assur-
ance that the Company would be able to obtain a license to use
such technology, and it could incur substantial costs to redesign
them and/or defend legal actions.
The Company has procedures to maintain the secrecy of its
confidential business information. These procedures include cri-
teria for dissemination of information and written confidential-
ity agreements with employees and vendors. Suppliers, when
engaged in joint research projects, are required to enter into
additional confidentiality agreements. While these efforts are
taken seriously, there can be no assurance that these measures
will prove adequate in all instances to protect the Company’s con-
fidential information.
Seasonality and Adverse Weather Conditions
In the golf club and golf ball industries, sales to retailers are gen-
erally seasonal due to lower demand in the retail market during
cold weather months. The Company’s golf club business has gen-
erally experienced these seasonal fluctuations and the Company
expects this to continue generally for both its golf club and golf
ball businesses. Furthermore, unusual or severe weather condi-
tions generally result in less golf rounds played, which generally
results in less demand for golf clubs and golf balls. Consequently,
sustained adverse weather conditions, especially during the warm
weather months, could materially affect the Company’s sales.
Product Returns
Golf Clubs. The Company supports all of its golf clubs with a lim-
ited two year written warranty. Since the Company does not rely
upon traditional designs in the development of its golf clubs, its
products may be more likely to develop unanticipated problems
than those of many of its competitors that use traditional designs.
For example, clubs have been returned with cracked clubheads,
broken graphite shafts and loose medallions. While any breakage
or warranty problems are deemed significant to the Company, the
incidence of clubs returned to date has not been material in rela-
tion to the volume of clubs that have been sold.
The Company monitors the level and nature of any golf club
breakage and, where appropriate, seeks to incorporate design
and production changes to assure its customers of the highest
quality available in the market. Significant increases in the inci-
dence of breakage or other product problems may adversely affect
the Company’s sales and image with golfers. While the Company