Callaway 2005 Annual Report Download - page 33

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The Company may from time to time provide investors with estimates of anticipated revenues and earnings
per share. If the Company provides such estimates, they will be based upon the information available and
management’s expectations at the time such estimates are made and actual results could differ materially. See
“Important Notice to Investors” on the inside cover of this report.
Item 1B. Unresolved SEC Comments
None.
Item 2. Properties
The Company and its subsidiaries conduct operations in both owned and leased properties. The Company’s
principal executive offices and domestic operations are located in Carlsbad, California. The eight buildings
utilized in the Company’s Carlsbad operations include corporate offices, as well as manufacturing, research and
development, warehousing and distribution facilities. These buildings comprise approximately 735,000 square
feet. The Company owns seven of these buildings, representing approximately 585,000 square feet of space. An
additional property, representing approximately 150,000 square feet of space, is leased and the lease is scheduled
to expire in November 2007. As part of the Top-Flite Acquisition, the Company acquired the Chicopee,
Massachusetts manufacturing plant, warehouse and offices that encompass approximately 869,000 square feet
and a manufacturing plant in Gloversville, New York comprising approximately 70,000 square feet. In addition,
the Company owns and leases a number of other properties domestically and internationally, including properties
in Australia, Canada, Japan, Korea, the United Kingdom and China. The Company’s operations at each of these
properties are used to some extent for both the golf club and golf ball businesses. The Company believes that its
facilities currently are adequate to meet its requirements.
Item 3. Legal Proceedings
In conjunction with the Company’s program of enforcing its proprietary rights, the Company has initiated or
may initiate actions against alleged infringers under the intellectual property laws of various countries, including,
for example, the U.S. Lanham Act, the U.S. Patent Act, and other pertinent laws. Defendants in these actions
may, among other things, contest the validity and/or the enforceability of some of the Company’s patents and/or
trademarks. Others may assert counterclaims against the Company. Historically, these matters individually and in
the aggregate have not had a material adverse effect upon the financial position or results of operations of the
Company. It is possible, however, that in the future one or more defenses or claims asserted by defendants in one
or more of those actions may succeed, resulting in the loss of all or part of the rights under one or more patents,
loss of a trademark, a monetary award against the Company or some other material loss to the Company. One or
more of these results could adversely affect the Company’s overall ability to protect its product designs and
ultimately limit its future success in the marketplace.
In addition, the Company from time to time receives information claiming that products sold by the
Company infringe or may infringe patent or other intellectual property rights of third parties. It is possible that
one or more claims of potential infringement could lead to litigation, the need to obtain licenses, the need to alter
a product to avoid infringement, a settlement or judgment, or some other action or material loss by the Company.
In the fall of 1999, the Company adopted a unilateral sales policy called the New Product Introduction
Policy (“NPIP”). The NPIP sets forth the basis on which the Company chooses to do business with its customers
with respect to the introduction of new products. The NPIP has been the subject of several legal challenges.
Currently pending cases, described below, include Lundsford v. Callaway Golf, Case No. 2001-24-IV, pending in
Tennessee state court (“Lundsford I”); Foulston v. Callaway Golf, Case No. 02C3607, pending in Kansas state
court (“Foulston”); Murray v. Callaway Golf Sales Company, Case No. 3:04CV274-H, pending in the United
States District Court for the Western District of North Carolina (“Murray”); and Lundsford v. Callaway Golf,
Civil Action No. 3:04-cv-442, pending in the United States District Court for the Eastern District of Tennessee
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