Callaway 2005 Annual Report Download - page 98

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In Foulston, filed on November 4, 2002, plaintiff seeks to assert an alleged class action on behalf of Kansas
consumers who purchased Callaway Golf products covered by the NPIP and seeks damages and restitution for
the alleged class under Kansas law. The trial court in Foulston stayed the case in light of Lundsford I. The
Foulston court has not made any determination that the case may proceed in the form of a class action.
The complaint in Murray was filed on May 14, 2004, alleging that a retail golf business was damaged by the
alleged refusal of Callaway Golf Sales Company to sell certain products after the store violated the NPIP and by
the failure to permit plaintiff to sell Callaway Golf products on the Internet. The proprietor seeks compensatory
and punitive damages associated with the failure of his retail operation. Callaway Golf removed the case to the
United States District Court for the Western District of North Carolina and has answered the complaint denying
liability. The parties are currently engaged in discovery and motion practice. The original trial date of December
2005 was vacated due to pending motions filed by Callaway Golf. A new trial date has not yet been set.
Lundsford II was filed on September 28, 2004, and the complaint asserts that the NPIP constitutes an
unlawful resale price agreement and an attempt to monopolize golf club sales prohibited by federal antitrust law.
The complaint also alleges a violation of the state antitrust laws of Tennessee, Kansas, South Carolina and
Oklahoma. Lundsford II seeks to assert a nationwide class action consisting of all persons who purchased
Callaway Golf clubs subject to the NPIP on or after March 30, 2000. Plaintiff seeks treble damages under the
federal antitrust laws, compensatory damages under state law, and an injunction. The Lundsford II court
determined on July 20, 2005 that the case may not proceed in the form of a class action. The court also denied
plaintiff’s motion for summary judgment. On September 22, 2005, the United States Court of Appeals for the
Sixth Circuit denied plaintiff’s request to file an interim appeal of the class certification issue. The plaintiff’s
request to the district court for permission to appeal the adverse ruling on the summary judgment ruling is
pending. Trial has been set for the summer of 2006 with respect to the individual named plaintiff’s claim.
On February 9, 2006, the Company filed a complaint in the United States District Court for the District of
Delaware, Case No. C.A. 06-91, asserting claims against Acushnet Company for patent infringement.
Specifically, Callaway Golf asserts that Acushnet’s sale of the Titleist Pro V1 family of golf balls infringes four
golf ball patents that Callaway Golf acquired when it acquired the assets of Top-Flite. Callaway Golf is seeking
damages and an injunction to prevent future infringement by Acushnet.
The Company and its subsidiaries, incident to their business activities, are parties to a number of legal
proceedings, lawsuits and other claims, including the matters specifically noted above. Such matters are subject
to many uncertainties and outcomes are not predictable with assurance. Consequently, management is unable to
estimate the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance, or the
financial impact with respect to these matters. Subject to statements above concerning the NPIP litigation,
management believes at this time that the final resolution of these matters, individually and in the aggregate, will
not have a material adverse effect upon the Company’s consolidated annual results of operations, cash flows or
financial position.
Supply of Electricity and Energy Contracts
In 2001, the Company entered into an agreement with Pilot Power Group, Inc. (“Pilot Power”) as the
Company’s energy service provider and in connection therewith entered into a long-term, fixed-priced, fixed
capacity, energy supply contract (the “Enron Contract”) with Enron Energy Services, Inc. (“EESI”), a subsidiary
of Enron Corporation, as part of a comprehensive strategy to ensure the uninterrupted supply of energy while
capping electricity costs in the volatile California energy market. The Enron Contract provided, subject to the
other terms and conditions of the contract, for the Company to purchase 9 megawatts of energy per hour from
June 1, 2001 through May 31, 2006 (394,416 megawatts over the term of the contract). The total purchase price
for such energy over the full contract term would have been approximately $43,484,000.
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