Callaway 2012 Annual Report Download - page 64

Interest Rate Fluctuations
The Company is exposed to interest rate risk from its ABL Facility (see Note 4 “Financing Arrangements”
to the Notes to Consolidated Financial Statements in this Form 10-K). The interest rate applicable to outstanding
loans under the ABL Facility fluctuates depending on the Company’s trailing 12 month EBITDA (as defined by
the ABL Facility) combined with the Company’s “availability ratio” (as defined below). The interest rate
applicable to outstanding loans under the U.S. facility is based on a calculation of either the U.S. Prime Rate or
the British Bankers Association LIBOR Rate as published by Reuters (“LIBOR”) plus an applicable margin of
1.25% to 2.75%. The interest rate applicable to outstanding loans under the Canadian facility is based on a
calculation of either the Base Rate publicly announced by Bank of America Canada or Canada’s Prime Rate plus
a margin of 1.25% to 2.75%. The interest rate applicable to outstanding loans under the U.K. facility is based on
a calculation of the U.S. Prime Rate plus an applicable margin of 2.25% and 2.75%.
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 a 10% increase in interest rates would be nominal over a 12
month period.
Item 8. Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements as of December 31, 2012 and 2011 and for each of the
three years in the period ended December 31, 2012, 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-43.
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, 2012, 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, 2012.
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, 2012. 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, 2012, the Company’s internal control over financial reporting was effective based on the
COSO criteria.
Changes in Internal Control over Financial Reporting. During the fourth quarter ended December 31, 2012,
there were no changes in the Company’s internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
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