Callaway 2014 Annual Report Download - page 55

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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 in the amount of $1.1 million 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, 2014
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 & Contingencies” in the Notes to Consolidated Financial Statements in this Form 10-K.
Capital Resources
The Company does not currently have any material commitments for capital expenditures.
Off-Balance Sheet Arrangements
The Company has no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company uses derivative financial instruments to mitigate its exposure to changes in foreign currency exchange
rates. Transactions involving these financial instruments are with creditworthy banks, including the bank that is party to the
Company’s ABL Facility (see Note 4 “Financing Arrangements” in the Notes to the Consolidated Financial Statements in this
Form 10-K). The use of these instruments exposes the Company to market and credit risk which may at times be concentrated
with certain counterparties, although counterparty nonperformance is not anticipated. The Company is also exposed to interest
rate risk from its ABL Facility.
Foreign Currency Fluctuations
In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign
currency exchange rates relating to transactions of its international subsidiaries, including certain balance sheet exposures
(payables and receivables denominated in foreign currencies) (see Note 18 “Derivatives and Hedging” in the Notes to
Consolidated Financial Statements in this Form 10-K). In addition, the Company is exposed to gains and losses resulting from
the translation of the operating results of the Company’s international subsidiaries into U.S. dollars for financial reporting
purposes. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates,
the Company uses derivative financial instruments in the form of foreign currency forward contracts and put and call option
contracts (“foreign currency exchange contracts”) to mitigate the impact of foreign currency translation on transactions that
are denominated primarily in British Pounds, Euros, Japanese Yen, Canadian Dollars, Australian Dollars and Korean Won.
For most currencies, the Company is a net receiver of foreign currencies and, therefore, benefits from a weaker U.S. dollar
and is adversely affected by a stronger U.S. dollar relative to those foreign currencies in which the Company transacts significant
amounts of business.
Foreign currency exchange contracts are used only to meet the Company’s objectives of offsetting gains and losses from
foreign currency exchange exposures with gains and losses from foreign currency contracts in order to reduce foreign currency
volatility in earnings. The extent to which the Company’s activities to mitigate the effects of changes in foreign currency
exchange rates varies is based upon many factors, including the amount of transactions being hedged. The Company generally