Callaway 2008 Annual Report Download - page 108

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along with Enron Corporation and numerous other related entities, filed for bankruptcy. Since November 30,
2001, the parties have not been operating under the Enron Contract and Pilot Power has been providing energy to
the Company from alternate suppliers.
As a result of the Company’s notice of termination to EESI, and certain other automatic termination
provisions under the Enron Contract, the Company believes that the Enron Contract has been terminated. As a
result, the Company adjusted the estimated value of the Enron Contract through the date of termination, at which
time the terminated Enron Contract ceased to represent a derivative instrument in accordance with SFAS
No. 133. Because the Enron Contract was terminated and neither party to the contract was performing pursuant to
the terms of the contract, no valuation adjustments for changes in electricity rates were recorded subsequent to
November 29, 2001.
The Company continued to reflect on its balance sheet the derivative valuation account of $19,922,000,
subject to quarterly review in accordance with applicable law and accounting regulations, including SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a
replacement of FASB Statement No. 125.” During the fourth quarter of 2008, the Company, in consultation with
its outside advisors, determined that the Company had met the criteria under SFAS No. 140 and therefore
reversed the energy derivative valuation account. As a result, the Company recorded in income in the fourth
quarter of 2008 a $19,922,000 non-cash, non-operational benefit. No provision has been made for any
contingencies or obligations under the Enron Contract.
Lease Commitments
The Company leases certain warehouse, distribution and office facilities, vehicles as well as office
equipment under operating leases and certain computer and telecommunication equipment under capital leases.
Lease terms range from 1 to 9 years expiring at various dates through November 2017, with options to renew at
varying terms. Commitments for minimum lease payments under non-cancelable operating leases as of
December 31, 2008 are as follows (in thousands):
2009 .............................................................................. $10,679
2010 .............................................................................. 6,668
2011 .............................................................................. 4,422
2012 .............................................................................. 3,049
2013 .............................................................................. 1,512
Thereafter .......................................................................... 5,411
$31,741
Rent expense for the years ended December 31, 2008, 2007 and 2006 was $12,985,000, $9,818,000 and
$7,807,000, respectively.
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, 2008, the Company has
entered into many of these contractual agreements with terms ranging from one to five years. The minimum
obligation that the Company is required to pay under these agreements is $92,114,000 over the next five years. In
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