Callaway 2007 Annual Report Download - page 58

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Interest Rate Fluctuations
The Company is exposed to interest rate risk from its Line of Credit (see Note 7 to the Company’s Consolidated
Condensed Financial Statements). Outstanding borrowings accrue interest at the Company’s election, based upon the
Company’s consolidated leverage ratio and trailing four quarters’ EBITDA, of (i) the higher of (a) the Federal Funds
Rate plus 50.0 basis points or (b) Bank of America’s prime rate, or (ii) the Eurodollar Rate (as defined in the
agreement governing the Line of Credit) plus a margin of 50.0 to 125.0 basis points.
As part of the Company’s risk management procedures, a sensitivity analysis was performed to determine the
impact of unfavorable changes in interest rates on the Company’s cash flows. The sensitivity analysis quantified that
the estimated potential cash flows impact would be approximately $0.5 million in additional interest expense if
interest rates were to increase by 10% over a twelve month period.
Item 8. Financial Statements and Supplementary Data
The Company’s consolidated financial statements as of December 31, 2007 and 2006 and for each of the three
years in the period ended December 31, 2007, together with the reports of our independent registered public
accounting firm, are included in this Annual Report on Form 10-K on pages F-1 through F-36.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. The Company carried out an evaluation, under the supervision and with
the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief
Financial Officer, of the effectiveness, as of December 31, 2007, of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were effective as of December 31, 2007.
Management’s Report on Internal Control over Financial Reporting. The Company’s management is
responsible for establishing and maintaining effective internal control over financial reporting (as defined in
Rule 13a-15(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its report
entitled Internal Control—Integrated Framework. Based on that assessment, management believes that, as of
December 31, 2007, the Company’s internal control over financial reporting was effective based on the COSO
criteria.
Changes in Internal Control over Financial Reporting. During the year ended December 31, 2007, there were
no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control
over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which is
included herein.
Item 9B. Other Information
None.
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