Callaway 2010 Annual Report Download - page 118

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addition, the Company 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
a standby letter of credit as security for contingent liabilities under certain workers’ compensation insurance
policies. In addition, in connection with the uPlay asset acquisition (see Note 7), the Company could be required
to pay an additional purchase price, not to exceed $10,000,000, based on a percentage of earnings generated from
the sale of uPlay products over a period of three years ending on December 31, 2011. As of December 31, 2010,
based on the Company’s preliminary assessment of certain performance indicators in connection with the sale of
uPlay products, the probability of the Company fulfilling this additional purchase price obligation at the end of
the three year period ending December 31, 2011, is remote.
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 material payments will
be required under the indemnities, commitments and guarantees described above. The fair value of indemnities,
commitments and guarantees that the Company issued during the twelve months ended December 31, 2010 was
not material to the Company’s financial position, results of operations or cash flows.
Employment Contracts
The Company has entered into employment contracts with each of the Company’s officers. These contracts
generally provide for severance benefits, including salary continuation, if employment is terminated by the
Company for convenience or by the officer for substantial cause. In addition, in order to assure that the officers
would continue to provide independent leadership consistent with the Company’s best interests in the event of an
actual or threatened change in control of the Company, the contracts also generally provide for certain
protections in the event of such a change in control. These protections include the payment of certain severance
benefits, including salary continuation, upon the termination of employment following a change in control.
Note 18. Fair Value of Financial Instruments
The Company’s foreign currency exchange contracts are measured and reported on a fair value basis in
accordance with ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines
fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosure about fair value measurements. ASC 820 enables the reader of the financial
statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the
quality and reliability of the information used to determine fair values. ASC 820 requires that assets and
liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market based inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The following table summarizes the valuation of the Company’s foreign currency exchange contracts by the
above pricing levels as of the valuation dates listed (in thousands):
December 31, 2010 December 31, 2009
Carrying
Value
Observable
market based
inputs
(Level 2)
Carrying
Value
Observable
market based
inputs
(Level 2)
Foreign currency derivative instruments—asset position ...... $ 1,786 $ 1,786 $2,705 $2,705
Foreign currency derivative instruments—liability position . . . 11,775 11,775 47 47
F-40