Callaway 2012 Annual Report Download - page 61

(2) During the normal course of its business, the Company enters into agreements to purchase goods and
services, including purchase commitments for production materials, endorsement agreements with
professional golfers and other endorsers, employment and consulting agreements, and intellectual property
licensing agreements pursuant to which the Company is required to pay royalty fees. It is not possible to
determine the amounts the Company will ultimately be required to pay under these agreements as they are
subject to many variables including performance-based bonuses, reductions in payment obligations if
designated minimum performance criteria are not achieved, and severance arrangements. The amounts listed
approximate minimum purchase obligations, base compensation, and guaranteed minimum royalty
payments the Company is obligated to pay under these agreements. The actual amounts paid under some of
these agreements may be higher or lower than the amounts included. In the aggregate, the actual amount
paid under these obligations is likely to be higher than the amounts listed as a result of the variable nature of
these obligations. In addition, the Company also enters into unconditional purchase obligations with various
vendors and suppliers of goods and services in the normal course of operations through purchase orders or
other documentation or that are undocumented except for an invoice. Such unconditional purchase
obligations are generally outstanding for periods less than a year and are settled by cash payments upon
delivery of goods and services and are not reflected in this line item.
(3) The Company leases certain warehouse, distribution and office facilities, vehicles and office equipment
under operating leases. The amounts presented in this line item represent commitments for minimum lease
payments under non-cancelable operating leases.
(4) Amount represents total uncertain income tax positions. For further discussion see Note 12 “Income Taxes”
to the Consolidated Financial Statements 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 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. 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, 2012 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 13 “Commitments and Contingencies” to the Notes to Consolidated Financial Statements
in this Form 10-K.
Liquidity
The Company’s principal sources of liquidity consist of its existing cash balances, funds expected to be
generated from operations and the ABL Facility. Over the past four years, the Company has experienced revenue
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