Callaway 2004 Annual Report Download - page 52

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losses will diÅer from those estimated because of changes or diÅerences in market rates and interrelationships,
hedging instruments and hedge percentages, timing and other factors.
The estimated maximum one-day loss from the Company's foreign-currency derivative Ñnancial
instruments, calculated using the sensitivity analysis model described above, is $5.9 million at December 31,
2004. The portion of the estimated loss associated with the foreign exchange contracts that oÅset the
remeasurement gain and loss of the related foreign currency denominated assets and liabilities is $5.9 million
at December 31, 2004 and would impact earnings. The Company believes that such a hypothetical loss from
its derivatives would be oÅset by increases in the value of the underlying transactions being hedged.
Interest Rate Fluctuations
Additionally, the Company is exposed to interest rate risk from its Line of Credit (see Note 7 to the
Company's Consolidated Financial Statements). Outstanding borrowings accrue interest at the Company's
election, based upon the Company's consolidated leverage ratio and trailing four quarters EBITDA, of (i) the
higher of (a) the Federal Funds Rate plus 50.0 basis points or (b) Bank of America's prime rate, and in either
case plus a margin of 00.0 to 75.0 basis points or (ii) the Eurodollar Rate (as deÑned in the agreement
governing the Line of Credit) plus a margin of 75.0 to 200.0 basis.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated Ñnancial statements as of December 31, 2004 and 2003 and for each of the
three years in the period ended December 31, 2004, together with the reports of our independent registered
public accounting Ñrm, are included in this Annual Report on Form 10-K on pages F-1 through F-39.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the participation of the Company's management,
including the Company's Chief Executive OÇcer and Chief Financial OÇcer, of the eÅectiveness of the
design and operation of the Company's disclosure controls and procedures (as deÑned in Rule 13a-15(e) of
the Exchange Act). Based upon that evaluation, the Chief Executive OÇcer and Chief Financial OÇcer
concluded that the Company's disclosure controls and procedures are eÅective in timely alerting them to
material information required to be included in the Company's periodic Ñlings with the Securities and
Exchange Commission.
Management's Report on Internal Control Over Financial Reporting. Management of the Company is
responsible for establishing and maintaining eÅective internal control over Ñnancial reporting (as deÑned in
Rule 13a-15(f) of the Exchange Act). Management assessed the eÅectiveness of the Company's internal
control over Ñnancial reporting as of December 31, 2004. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (""COSO'') in
its report entitled Internal Control Ì Integrated Framework. Based on the assessment, management
believes that, as of December 31, 2004, the Company's internal control over Ñnancial reporting is eÅective
based on those criteria. During the fourth quarter of 2004, there were no changes in the Company's internal
control over Ñnancial reporting that have materially aÅected, or are reasonably likely to materially aÅect, the
Company's internal control over Ñnancial reporting.
Because of the inherent limitations of internal control over Ñnancial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not
be prevented or detected on a timely basis. Also, projections of any evaluation of the eÅectiveness of the
internal control over Ñnancial reporting to future periods are subject to the risk that the controls may become
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