Callaway 2010 Annual Report Download - page 63

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the related foreign currency denominated assets and liabilities is $33.6 million at December 31, 2010 and would
impact earnings. The Company believes that such a hypothetical loss from its foreign currency exchange
contracts would be partially offset by increases in the value of the underlying transactions being hedged.
The sensitivity analysis model is a risk analysis tool and does not purport to represent actual losses in
earnings that will be incurred by the Company, nor does it consider the potential effect of favorable changes in
market rates. It also does not represent the maximum possible loss that may occur. Actual future gains and losses
will differ from those estimated because of changes or differences in market rates and interrelationships, hedging
instruments and hedge percentages, timing and other factors.
Interest Rate Fluctuations
The Company is exposed to interest rate risk from its Line of Credit (see Note 10 “Financing Arrangements”
to the Consolidated Financial Statements). Outstanding borrowings under the Line of Credit accrue interest at the
Company’s election, based upon the Company’s consolidated leverage ratio and trailing four quarters’ EBITDA,
of (i) the higher of (a) the Federal Funds Rate plus 50.0 basis points or (b) Bank of America’s prime rate, or
(ii) the Eurodollar Rate (as defined in the agreement governing the Line of Credit) plus a margin of 50.0 to 125.0
basis points.
As part of the Company’s risk management procedures, a sensitivity analysis was performed to determine
the impact of unfavorable changes in interest rates on the Company’s cash flows. The sensitivity analysis
quantified that the incremental expense incurred by an increase of 10% in interest rates would be nominal over a
twelve month period.
Item 8. Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements as of December 31, 2010 and 2009 and for each of the
three years in the period ended December 31, 2010, together with the report of our independent registered public
accounting firm, are included in this Annual Report on Form 10-K on pages F-1 through F-44.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. The Company carried out an evaluation, under the supervision and
with the participation of the Company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer, of the effectiveness, as of December 31, 2010, of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective as of December 31, 2010.
Management’s Report on Internal Control over Financial Reporting. The Company’s management is
responsible for establishing and maintaining effective internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Management assessed the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2010. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
its report entitled Internal Control—Integrated Framework. Based on that assessment, management concluded
that as of December 31, 2010, the Company’s internal control over financial reporting was effective based on the
COSO criteria.
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