Callaway 2004 Annual Report Download - page 98

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
As a result of the Company's notice of termination to EESI, and certain other automatic termination
provisions under the Enron Contract, the Company believes that the Enron Contract has been terminated. As
a result, the Company adjusted the estimated value of the Enron Contract through the date of termination, at
which time the terminated Enron Contract ceased to represent a derivative instrument in accordance with
SFAS No. 133. Because the Enron Contract is terminated and neither party to the contract is performing
pursuant to the terms of the contract, the Company no longer records future valuation adjustments for changes
in electricity rates. The Company continues to reÖect on its balance sheet the derivative valuation account of
$19,922,000, subject to periodic review, in accordance with SFAS No. 140, ""Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.''
The Company believes the Enron Contract has been terminated, and as of March 1, 2005, EESI has not
asserted any claim against the Company. There can be no assurance, however, that EESI or another 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 Enron Contract. No provision has been made for contingencies or
obligations, if any, under the Enron Contract beyond November 30, 2001.
Lease Commitments
The Company leases certain warehouse, distribution and oÇce facilities, vehicles as well as oÇce
equipment under operating leases and certain computer and telecommunication equipment under capital
leases. Lease terms range from one to ten years expiring at various dates through July 2014, with options to
renew at varying terms. Commitments for minimum lease payments under non-cancelable operating leases as
of December 31, 2004 are as follows:
(In thousands)
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 6,209
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,464
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,945
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,397
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 671
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 938
$17,624
Future minimum lease payments have not been reduced by future minimum sublease rentals of $765,000
under an operating lease. Rent expense for the years ended December 31, 2004, 2003 and 2002 was $6,391,000
$4,388,000 and $3,780,000, respectively.
Unconditional Purchase Obligations
During the normal course of its business, the Company enters into agreements to purchase goods and
services, including purchase commitments for production materials, endorsement agreements with profes-
sional golfers and other endorsers, employment and consulting agreements, and intellectual property licensing
agreements pursuant to which the Company is required to pay royalty fees. It is not possible to determine the
amounts the Company will ultimately be required to pay under these agreements as they are subject to many
variables including performance-based bonuses, reductions in payment obligations if designated minimum
performance criteria are not achieved, and severance arrangements. As of December 31, 2004, the Company
has entered into many of these contractual agreements with terms ranging from one to seven years. The
minimum obligation that the Company is required to pay under these agreements is $121,524,000 over the
next seven years. In addition, the Company also enters into unconditional purchase obligations with various
vendors and suppliers of goods and services in the normal course of operations through purchase orders or
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