Callaway 2015 Annual Report Download - page 31

15
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.
The Company’s ability to utilize all or a portion of its U.S. deferred tax assets may be limited significantly if the Company
experiences an “ownership change.”
The Company has a significant amount of U.S. federal and state deferred tax assets, which include net operating loss
carryforwards, other losses and credit carryforwards. The Company’s ability to utilize the losses and credits to offset future
taxable income may be limited significantly if the Company were to experience an “ownership change” as defined in section
382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change will occur if there is
a cumulative change in ownership of the Company’s stock by “5-percent shareholders” (as defined in the Code) that exceeds
50 percentage points over a rolling three-year period. The determination of whether an ownership change has occurred for
purposes of Section 382 is complex and requires significant judgment. The extent to which the Company’s ability to utilize
the losses and credits is limited as a result of such an ownership change depends on many variables, including the value of
the Company’s stock at the time of the ownership change. The Company continues to monitor changes in ownership. If such
a cumulative increase did occur in any three year period and the Company were limited in the amount of losses and credits it
could use to offset taxable income, the Company’s results of operations and cash flows would be adversely impacted.
Changes in equipment standards under applicable Rules of Golf could adversely affect the Company’s business.
The Company seeks to have its new golf club and golf ball products satisfy the standards published 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.
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.
The success of the Company’s business is dependent upon the management and leadership skills of its senior management