Callaway 2011 Annual Report Download - page 33

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 manufactures most 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.
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and
profitability.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective
income tax rate in the future could be adversely affected by a number of factors, including: changes in the mix of
earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and
liabilities, changes in tax laws, the outcome of income tax audits in various jurisdictions around the world, and
any repatriation of non-US earnings for which we have not previously provided for U.S. taxes. We regularly
assess all of these matters to determine the adequacy of our tax provision, which is subject to significant
discretion.
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