Callaway 2009 Annual Report Download - page 61

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 16 “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 (including noncompliance with the financial covenants under
its Line of Credit), general economic trends, foreign currency exchange rates, 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 ASC Topic 325, “Investments—Other” and reflected the
investment balance in other long-term assets in the consolidated balance sheet as of December 31, 2009 and 2008
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 has an agreement with another shareholder of GEI pursuant to
which such shareholder would reimburse the Company in certain circumstances for up to $2.5 million for
amounts the Company is required to pay under the letter of credit. In The Company extended the letter of credit
agreement through April 30, 2010.
In addition, at December 31, 2009, the Company had total outstanding commitments on non-cancelable
operating leases of approximately $21.6 million related to certain warehouse, distribution and office facilities,
vehicles as well as office equipment. Lease terms range from 1 to 8 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 banks,
including the banks that are parties to the Company’s Line of Credit (see Note 9 “Financing Arrangements” to
the Notes of the Consolidated Financial Statements). 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 Line of Credit.
Foreign Currency Fluctuations
In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in
foreign currency exchange rates relating to transactions of its international subsidiaries, including certain balance
sheet exposures (payables and receivables denominated in foreign currencies) (see Note 10 “Derivatives and
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