Callaway 2006 Annual Report Download - page 53

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.
(3) 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 $8.6 million at December 31, 2006. The liability for the deferred
compensation is included in long-term liabilities and was $7.2 million at December 31, 2006.
(4) The amount is in connection with the Company’s investment in Qingdao Suntech Sporting Goods Company
Limited. See Note 3 “Investments” to the Consolidated Financial Statements.
(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 15 “Commitments and Contingencies—Supply of Electricity and Energy Contracts”
to the Consolidated Financial Statements.
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 officers 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 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 value
of indemnities, commitments and guarantees that the Company issued during the fiscal year ended December 31,
2006 was not material to the Company’s financial position, results of operations or cash flows.
In addition to the contractual obligations listed above, the Company’s liquidity could also be adversely
affected by an unfavorable outcome with respect to claims and litigation that the Company is subject to from
time to time. See Note 15 to the Company’s Consolidated Financial Statements.
37