Callaway 2010 Annual Report Download - page 33

Company’s brands could be damaged. The Company’s brands could also be damaged if a licensee becomes
insolvent or by any negative publicity concerning a licensee or if the licensee does not maintain good
relationships with its customers or consumers, many of which are also the Company’s customers and consumers.
Sales of the Company’s products by unauthorized retailers or distributors could adversely affect the
Company’s authorized distribution channels and harm the Company’s reputation.
Some of the Company’s products find their way to unauthorized outlets or distribution channels. This “gray
market” for the Company’s products can undermine authorized retailers and foreign wholesale distributors who
promote and support the Company’s products, and can injure the Company’s image in the minds of its customers
and consumers. On the other hand, stopping such commerce could result in a potential decrease in sales to those
customers who are selling the Company’s products to unauthorized distributors or an increase in sales returns
over historical levels. While the Company has taken some lawful steps to limit commerce of its products in the
“gray market” in both the United States and abroad, it has not stopped such commerce.
The Company has significant international operations and is exposed to risks associated with doing business
globally.
The Company’s management believes that controlling the distribution of its products in certain major
markets in the world has been and will be an element in the future growth and success of the Company. The
Company sells and distributes its products directly in many key international markets in Europe, Asia, North
America and elsewhere around the world. These activities have resulted and will continue to result in
investments in inventory, accounts receivable, employees, corporate infrastructure and facilities. In addition,
there are a limited number of suppliers of golf club components in the United States, and the Company has
increasingly become more reliant on suppliers and vendors located outside of the United States. The operation of
foreign distribution in the Company’s international markets, as well as the management of relationships with
international suppliers and vendors, will continue to require the dedication of management and other Company
resources. The Company also manufactures a substantial amount of its products outside of the United States.
As a result of this international business, the Company is exposed to increased risks inherent in conducting
business outside of the United States. In addition to foreign currency risks, these risks include:
• Increased difficulty in protecting the Company’s intellectual property rights and trade secrets;
• Unexpected government action or changes in legal or regulatory requirements;
• Social, economic or political instability;
• The effects of any anti-American sentiments on the Company’s brands or sales of the Company’s
products;
• Increased difficulty in ensuring compliance by employees, agents and contractors with the Company’s
policies as well as with the laws of multiple jurisdictions, including but not limited to the U.S. Foreign
Corrupt Practices Act, local international environmental, health and safety laws, and increasingly
complex regulations relating to the conduct of international commerce;
• Increased difficulty in controlling and monitoring foreign operations from the United States, including
increased difficulty in identifying and recruiting qualified personnel for its foreign operations; and
• Increased exposure to interruptions in air carrier or ship services.
Any significant adverse change in circumstances or conditions could have a significant adverse effect upon
the Company’s operations, financial performance and condition.
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