Callaway 2008 Annual Report Download - page 27

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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.
Changes in equipment standards under applicable Rules of Golf could adversely affect the Company’s
business.
New golf club and golf ball products generally seek to satisfy the standards established by the USGA and
R&A because these standards are generally followed by golfers within their respective jurisdictions. The USGA
rules are generally followed in the United States, Canada and Mexico, and the R&A rules are generally followed
in most other countries throughout the world.
The Rules of Golf as published by the R&A and the USGA are virtually the same. The Company believes
that all of its products conform to both the USGA and R&A rules.
The Company’s future products may not satisfy USGA and/or R&A standards or existing USGA and/or
R&A standards may be altered in ways that adversely affect the sales of the Company’s products or the
Company’s brand. If a change in rules were adopted and caused one or more of the Company’s current products
to be nonconforming, the Company’s sales of such products could be adversely affected. Furthermore, any such
new rules could restrict the Company’s ability to develop new products.
The Company’s sales could decline if professional golfers do not endorse or use the Company’s products.
The Company establishes relationships with professional golfers in order to evaluate and promote Callaway
Golf, Odyssey, Top-Flite and Ben Hogan branded products. The Company has entered into endorsement
arrangements with members of the various professional tours, including the Champions Tour, the PGA Tour, the
LPGA Tour, the PGA European Tour, the Japan Golf Tour and the Nationwide Tour. While most professional
golfers fulfill their contractual obligations, some have been known to stop using a sponsor’s products despite
contractual commitments. If certain of the Company’s professional endorsers were to stop using the Company’s
products contrary to their endorsement agreements, the Company’s business could be adversely affected in a
material way by the negative publicity or lack of endorsement.
The Company believes that professional usage of its golf clubs and golf balls contributes to retail sales. The
Company therefore spends a significant amount of money to secure professional usage of its products. Many
other companies, however, also aggressively seek the patronage of these professionals and offer many
inducements, including significant cash incentives and specially designed products. There is a great deal of
competition to secure the representation of tour professionals. As a result, it is becoming increasingly difficult
and more expensive to attract and retain such tour professionals. The inducements offered by other companies
could result in a decrease in usage of the Company’s products by professional golfers or limit the Company’s
ability to attract other tour professionals. A decline in the level of professional usage of the Company’s products
could have a material adverse effect on the Company’s sales and business.
If the Company is unable to enforce its intellectual property rights, its reputation and sales could be adversely
affected.
The golf club industry, in general, has been characterized by widespread imitation of popular club designs.
The Company has an active program of monitoring, investigating and enforcing its proprietary rights against
companies and individuals who market or manufacture counterfeits and “knock off” products. The Company
asserts its rights against infringers of its copyrights, patents, trademarks, and trade dress. However, these efforts
may not be successful in reducing sales of golf products by these infringers. Additionally, other golf club
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