Callaway 2004 Annual Report Download - page 40

purchase orders or other documentation or that are undocumented except for an invoice. Such uncondi-
tional purchase obligations are generally outstanding for periods less than a year and are settled by cash
payments upon delivery of goods and services and are not reÖected in this line item.
(4) The Company has an unfunded, non-qualiÑed deferred compensation plan. The plan allows oÇcers,
certain other employees and directors of the Company to defer all or part of their compensation, to be paid
to the participants or their designated beneÑciaries upon retirement, death or separation from the
Company. To support the deferred compensation plan, the Company has elected to purchase Company-
owned life insurance. The cash surrender value of the Company-owned insurance related to deferred
compensation is included in other assets and was $9.8 million at December 31, 2004. The liability for the
deferred compensation is included in long-term liabilities and was $8.7 million at December 31, 2004.
(5) During the third quarter of 2001, the Company entered into a derivative commodity instrument to manage
electricity costs in the volatile California energy market. The contract was originally eÅective through May
2006. During the fourth quarter of 2001, the Company notiÑed the energy supplier that, among other
things, the energy supplier was in default of the energy supply contract and that based upon such default,
and for other reasons, the Company was terminating the energy supply contract. The Company continues
to reÖect the $19.9 million derivative valuation account on its balance sheet, subject to periodic review, in
accordance with SFAS No. 140, ""Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.'' The $19.9 million represents unrealized losses resulting from changes in
the estimated fair value of the contract and does not represent contractual cash obligations. The Company
believes the energy supply contract has been terminated and, therefore, the Company does not have any
further cash obligations under the contract. Accordingly, the energy derivative valuation account is not
included in the table. There can be no assurance, however, that a party will not assert a future claim
against the Company or that a bankruptcy court or arbitrator will not ultimately nullify the Company's
termination of the contract. No provision has been made for contingencies or obligations, if any, under the
contract beyond November 2001. See below Note 13 ""Commitments and Contingencies Ì Supply of
Electricity and Energy Contracts.''
During its normal course of business, the Company has made certain indemnities, commitments and
guarantees under which it may be required to make payments in relation to certain transactions. These include
(i) intellectual property indemnities to the Company's customers and licensees in connection with the use,
sale and/or license of Company products or trademarks, (ii) indemnities to various lessors in connection with
facility leases for certain claims arising from such facilities or leases, (iii) indemnities to vendors and service
providers pertaining to claims based on the negligence or willful misconduct of the Company and
(iv) indemnities involving the accuracy of representations and warranties in certain contracts. In addition, the
Company has made contractual commitments to each of its oÇcers and certain other employees providing for
severance payments upon the termination of employment. The Company also has consulting agreements that
provide for payment of nominal fees upon the issuance of patents and/or the commercialization of research
results. The Company has also issued a guarantee in the form of a standby letter of credit as security for
contingent liabilities under certain workers' compensation insurance policies. The duration of these indemni-
ties, commitments and guarantees varies, and in certain cases, may be indeÑnite. The majority of these
indemnities, commitments and guarantees do not provide for any limitation on the maximum amount of future
payments the Company could be obligated to make. Historically, costs incurred to settle claims related to
indemnities have not been material to the Company's Ñnancial position, results of operations or cash Öows. In
addition, the Company believes the likelihood is remote that material payments will be required under the
commitments and guarantees described above. The fair value of indemnities, commitments and guarantees
that the Company issued during the Ñscal year ended December 31, 2004 was not material to the Company's
Ñnancial position, results of operations or cash Öows.
In addition to the contractual obligations listed above, the Company's liquidity could also be adversely
aÅected by an unfavorable outcome with respect to claims and litigation that the Company is subject to from
time to time. See Note 13 to the Company's Consolidated Financial Statements.
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