Callaway 2008 Annual Report Download - page 30

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 of space. The Company owns five of these buildings, representing approximately 492,000 square feet of
space. An additional three properties, representing approximately 243,000 square feet of space, are leased and the
leases are scheduled to expire between November 2009 and November 2017. The Company is in the process of
converting its headquarters building to consolidate its campus into a more efficient layout. The Company also
owns a manufacturing plant, warehouse and offices that encompass approximately 869,000 square feet in
Chicopee, Massachusetts. In May 2008, the Company announced the closure of its golf ball manufacturing
facility in Gloversville, New York (approximately 70,000 square feet) following the Company’s decision to
consolidate its golf ball operations into other existing locations within and outside the U.S. As a result of the
closure, the Company recognized approximately $443,000 in pre-tax charges in order to ready the golf ball
manufacturing facility for sale and is currently committed to an active program to sell the property. 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. The Company is also active
internationally. For example, it has worked with other golf equipment manufacturers to encourage Chinese and
other foreign government officials to conduct raids of identified counterfeiters, resulting in the seizure and
destruction of counterfeit golf clubs and, in some cases, criminal prosecution of the counterfeiters. 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.
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 asserted 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. In its answer to the Complaint, Acushnet
responded that the patents at issue are invalid and not infringed by the Pro V1 family of golf balls. On
November 20, 2007, the District Court rejected various legal challenges by Acushnet as to the validity of the
patents, permitting Callaway Golf’s claims against Acushnet to proceed to trial, and ruled that the issues of
damages and willfulness would be decided in a second trial between the parties at a later date. On the eve of trial,
Acushnet stipulated that its Pro V1 family of golf balls collectively infringe the nine claims in the four patents
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