Callaway 2010 Annual Report Download - page 61

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 the goods or services provided to the Company or 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 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, the Company could be required to pay an additional purchase price of up to $10.0
million 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 7 “Business Acquisitions” to the Consolidated Financial Statements). 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 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, 2010 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 17 “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
At December 31, 2010, the Company had total outstanding commitments on non-cancelable operating leases
of approximately $39.6 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 February 2018, with
options to renew at varying terms.
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