Callaway 2014 Annual Report Download - page 31

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In the future, existing USGA and/or R&A standards may 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 Company’s sales and business could be materially and adversely affected 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 and
Odyssey 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
Web.com 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 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, or a significant increase in the cost to
attract or retain endorsers, could have a material adverse effect on the Company’s sales and business.
The Company’s current senior management team and other key executives are critical to the Company’s success, and the
loss of, and failure to adequately replace, any such individual could significantly harm the Company’s business.
The Company’s ability to maintain its competitive position is dependent to a large degree on the efforts and skills of the
senior officers of the Company. The Company’s executives are experienced and highly qualified with strong reputations in
the golf industry, and the Company believes that its management team enables it to pursue the Company’s strategic goals. In
December 2014, the Company announced that Mr. Holiday plans to retire in 2015. The Company is currently conducting a
search for his successor, and Mr. Holiday has agreed to continue as the Company’s Chief Financial Officer until his replacement
has been identified and a smooth transition has been effected. The success of the Company’s business is dependent upon the
management and leadership skills of its senior management team and other key personnel. Competition for these individuals’
talents is intense, and the Company may not be able to attract and retain a sufficient number of qualified personnel in the
future. A prolonged delay in finding Mr. Holiday's replacement or the loss of one or more of these senior officers could have
a material adverse affect upon the Company and its ability to achieve its strategic goals.
Failure to adequately enforce the Company’s intellectual property rights could adversely affect its reputation and sales.
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 “knockoff” 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 manufacturers may be able to produce successful golf clubs which imitate the
Company’s designs without infringing any of the Company’s copyrights, patents, trademarks or trade dress. The failure to
prevent or limit such infringers or imitators could adversely affect the Company’s reputation and sales.
The Company may become subject to intellectual property lawsuits that could cause it to incur significant costs or pay
significant damages or that could prohibit it from selling its products.
The Company’s competitors also seek to obtain patent, trademark, copyright or other protection of their proprietary
rights and designs for golf clubs and golf balls. From time to time, third parties have claimed or may claim in the future that
the Company’s products infringe upon their proprietary rights. The Company evaluates any such claims and, where appropriate,
has obtained or sought to obtain licenses or other business arrangements. To date, there have been no significant interruptions
in the Company’s business as a result of any claims of infringement. However, in the future, intellectual property claims could