Callaway 2007 Annual Report Download - page 56

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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” to the
Consolidated Financial Statements), the fair value of indemnities, commitments and guarantees that the
Company issued during the fiscal year ended December 31, 2007 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 14 to the Company’s Consolidated Financial Statements.
Sufficiency of Liquidity
Based upon its current operating plan, analysis of its consolidated financial position and projected future
results of operations, the Company believes that its operating cash flows, together with its Line of Credit, will be
sufficient to finance current operating requirements, planned capital expenditures, contractual obligations and
commercial commitments, for at least the next 12 months. There can be no assurance, however, that future
industry-specific or other developments, general economic trends or other matters will not adversely affect the
Company’s operations or its ability to meet its future cash requirements (see above, “Certain Factors Affecting
Callaway Golf Company” contained in Item 1A).
Capital Resources
The Company does not currently have any material commitments for capital expenditures. The Company
expects to have capital expenditures of approximately $50 to $55 million during the subsequent 12 months ended
December 31, 2008. Of this amount, approximately $15 million will be used in support of the Company’s
building improvement and consolidation projects. The remaining amount will be used for capital expenditures in
support of the Company’s ongoing operating requirements.
Off-Balance Sheet Arrangements
During the fourth quarter of 2006, the Company made an investment in Golf Entertainment International
Limited (“GEI”), the owner and operator of TopGolf entertainment centers. In connection with this investment,
the Company acquired Preferred Shares of GEI for approximately $10.0 million. The Company accounts for this
investment under the cost method in accordance with the provisions of APB Opinion No. 18, “The Equity
Method of Accounting for Investments in Common Stock” and reflected the investment balance in other long-
term assets in the consolidated condensed balance sheet as of December 31, 2007 and 2006 included in this Form
10-K. In February 2008, the Company and another GEI shareholder entered into an arrangement to provide
collateral in the form of a letter of credit in the amount of $8.0 million for a loan that was issued to a subsidiary
of GEI. The Company is currently responsible for $5.5 million of the total guaranteed amount. This letter of
credit will expire one year from the date of issuance.
In addition, at December 31, 2007, the Company had total outstanding commitments on non-cancelable
operating leases of approximately $27.3 million related to certain warehouse, distribution and office facilities,
vehicles as well as office equipment. Lease terms range from 1 to 10 years expiring at various dates through
November 2017, with options to renew at varying terms.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company uses derivative financial instruments for hedging purposes to limit its exposure to changes in
foreign currency exchange rates. Transactions involving these financial instruments are with creditworthy firms.
The use of these instruments exposes the Company to market and credit risk which may at times be concentrated
with certain counterparties, although counterparty nonperformance is not anticipated. The Company is also
exposed to interest rate risk from its credit facility.
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