Callaway 2005 Annual Report Download - page 52

(1) The Company leases certain warehouse, distribution and office facilities, vehicles and office equipment
under operating leases. The amounts presented in this line item represent commitments for minimum lease
payments under noncancelable operating leases and include operating leases assumed as part of the
Top-Flite Acquisition.
(2) The Company acquired certain capital lease obligations as a result of the Top-Flite Acquisition primarily
related to computer and telecommunications systems. The amounts presented in this line item represent
commitments for minimum lease payments under noncancelable capital leases.
(3) 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
professional 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. The amounts listed
approximate minimum purchase obligations, base compensation, and guaranteed minimum royalty
payments the Company is obligated to pay under these agreements. The actual amounts paid under some of
these agreements may be higher or lower than the amounts included. In the aggregate, the actual amount
paid under these obligations is likely to be higher than the amounts listed as a result of the variable nature of
these obligations. 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
other documentation or that are undocumented except for an invoice. Such unconditional 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 reflected in this line item.
(4) The Company has an unfunded, nonqualified deferred compensation plan. The plan allows officers, 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 beneficiaries 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 $9.9 million at December 31, 2005. The liability for the deferred
compensation is included in long-term liabilities and was $8.3 million at December 31, 2005.
(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 effective through May
2006. During the fourth quarter of 2001, the Company notified 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 reflect
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—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
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