Callaway 2009 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2009 Callaway annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

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.
Goodwill and intangible assets represent a significant portion of our total assets and any impairment of these
assets could negatively impact our results of operations and shareholders’ equity.
The Company’s goodwill and intangible assets consist of goodwill from acquisitions, trade names,
trademarks, service marks, trade dress, patents, and other intangible assets.
Accounting rules require that the Company’s goodwill and intangible assets with indefinite lives be
evaluated for impairment at least annually. In addition, accounting rules require that the Company’s goodwill and
intangible assets, including intangible assets with definite lives, be evaluated for impairment whenever events or
changes in circumstances indicate that the carrying value of such assets may not be recoverable. Such indicators
include a sustained decline in the Company’s stock price or market capitalization, adverse changes in economic
or market conditions or prospects, and changes in the Company’s operations.
An asset is considered to be impaired when its carrying value exceeds its fair value. The fair value of an
asset is determined based upon the discounted cash flows expected to be realized from the use and ultimate
disposition of the asset. If in conducting an impairment evaluation the Company were to determine that the
carrying value of an asset exceeded its fair value, the Company would be required to record a non-cash charge
for the difference between the carrying value and the fair value of the asset. If a significant amount of the
Company’s goodwill and intangible assets were deemed to be impaired, the Company’s results of operations and
shareholders’ equity would be significantly adversely affected.
Changes in equipment standards under applicable Rules of Golf could adversely affect the Company’s
business.
The Company generally seeks to have its new golf club and golf ball products satisfy the standards
established by the USGA and the R&A in the Rules of Golf because these standards are generally followed by
golfers, both professional and amateur, within their respective jurisdictions. The USGA publishes rules that are
generally followed in the United States, Canada and Mexico, and the R&A publishes rules that are generally
followed in most other countries throughout the world. However, the Rules of Golf as published by the R&A and
the USGA are virtually the same, and are intended to be so pursuant to a Joint Statement of Principles issued in
2001.
The Company believes that all of its products conform to both USGA and R&A rules. However, there is no
guarantee that the Company’s future products will satisfy USGA and/or R&A standards, nor is there a guarantee
that existing USGA and/or R&A standards will not be altered in ways that adversely affect the sales of the
Company’s current or future products. If a change in rules were adopted and caused one or more of the
Company’s current or future products to be nonconforming, the Company’s sales of such products would be
adversely affected.
The USGA and the R&A recently changed the Rules of Golf to gradually eliminate the use of certain groove
designs that have been commonly used by the Company and other golf club manufacturers in irons and wedges.
While models introduced prior to 2010 will still be deemed to conform to the Rules of Golf until at least 2024 so
long as they are made and sold prior to 2011, models introduced in 2010 or thereafter will be required to meet the
new groove standards. It will be difficult for the Company to anticipate how consumer demand will be affected
by this change. There is no guarantee that the Company will properly anticipate demand for old versus new
versions of its clubs during the periods when both are available for purchase, which could result in imbalanced
inventories. This challenge will be made more difficult by the challenging macroeconomic environment affecting
15