Callaway 2008 Annual Report Download - page 60

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(4) Amount represents total uncertain income tax positions related to the adoption FIN 48, which is comprised of
a short-term income tax payable of $0.1 million and a long-term income tax payable of $13.8 million. For
further discussion see Note 14 to the Consolidated Financial Statements—“Income Taxes” in this Form 10-K.
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 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 (see Note 3 “Investments” to the Consolidated Financial Statements). In addition, in
connection with the uPlay acquisition, the Company could be required to pay an additional purchase price based
on a percentage of earnings generated from the sale of uPlay products over a period of three years ending on
December 31, 2011 (see Note 4 “Business Acquisitions” to the Consolidated Financial Statements). 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 payments under the commitments and guarantees
described above will have a material effect on the Company’s financial condition. The fair value of indemnities,
commitments and guarantees that the Company issued during the fiscal year ended December 31, 2008 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 “Commitments and Contingencies” to the Notes to 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 current or future credit
facilities, 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, “Sources of
Liquidity” and “Certain Factors Affecting Callaway Golf Company” contained in Item 1A).
Capital Resources
The Company does not currently have any material commitments for capital expenditures.
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 Accounting Principals Board Opinion
47