Callaway 2003 Annual Report Download - page 72

CALLAWAY GOLF COMPANY 69
adverse impact upon the Company’s golf ball business. If the
Company did experience any such delays or interruptions,
there is no assurance that the Company would be able to find
adequate alternative suppliers at a reasonable cost or without
significant disruption to its business.
Lease Commitments
The Company leases certain warehouse, distribution and
office facilities, vehicles as well as office equipment under
operating
leases and certain computer and telecommunication
equipment under capital leases. Lease terms range from one to
10 years expiring at various dates through December 2008,
with options to renew at varying terms. Commitments for
minimum lease payments under non-cancelable operating
leases as of December 31, 2003 are as follows:
particular tournament while playing the Company’s golf
clubs or golf balls. It is not possible to predict with any
certainty the amount of such performance awards the
Company will be required to pay in any given year. Such
expenses, however, are an ordinary part of the Company’s
business and the Company does not believe that the
payment of these performance awards will have a material
adverse effect upon the Company.
Other Contingent Contractual Obligations
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, (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 several employees
providing for severance payments upon the occurrence of
certain prescribed events. The Company also has several
consulting agreements that provide for payment of nominal
fees upon the issuance of patents and/or the commercial-
ization 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 indemnities,
commitments and guarantees varies, and in certain cases,
may be indefinite. 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 financial position, results of operations or
cash flows. In addition, the Company believes the likelihood is
remote that material payments will be required under the
commitments and guarantees described above. The fair
(In thousands)
2004 $ 4,820
2005 3,551
2006 2,854
2007 2,060
2008 828
Thereafter 1,648
$ 15,761
Future minimum lease payments have not been reduced by
future minimum sublease rentals of $1,144,000 under an oper-
ating lease. Rent expense for the years ended December 31,
2003, 2002 and 2001 was $4,388,000, $3,780,000 and
$3,759,000, respectively.
Golf Professional Endorsement Contracts
The Company establishes relationships with professional
golfers in order to evaluate and promote Callaway Golf,
Odyssey, Top-Flite, Ben Hogan and Strata 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
Nationwide Tour. Many of these contracts provide incentives
for successful performances using the Company’s products.
For example, under these contracts, the Company could be
obligated to pay a cash bonus to a professional who wins a