Callaway 2007 Annual Report Download - page 103

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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 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. As of December 31, 2007, 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 $109,445,000 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 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 total. Future purchase commitments as of December 31, 2007 are as follows
(in thousands):
2008 ............................................................................. $ 57,595
2009 ............................................................................. 30,315
2010 ............................................................................. 12,677
2011 ............................................................................. 6,211
2012 ............................................................................. 2,522
Thereafter ......................................................................... 125
$109,445
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 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
guarantees in the form of two standby letters of credit as security for contingent liabilities under certain workers’
compensation insurance policies and as collateral for a loan issued to Golf Entertainment International Limited
(“GEI”). 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. Except for the letter of credit in connection
with the Company’s investment in GEI, (see Note 3 “Investments”), the fair value of indemnities, commitments
and guarantees that the Company issued during 2005 through 2007 was not material to the Company’s financial
position, results of operations or cash flows.
F-33