Callaway 2014 Annual Report Download - page 53

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The Company’s inventory balance also fluctuates throughout the year as a result of the general seasonality of the
Company’s business. Generally, the Company’s buildup of inventory levels begins during the fourth quarter and continues
heavily into the first quarter as well as into the beginning of the second quarter in order to meet demand during the height of
the golf season. Inventory levels start to decline toward the end of the second quarter and are at their lowest during the third
quarter. Inventory levels are also impacted by the timing of new product launches. The Company’s inventories decreased
$56.3 million to $207.2 million as of December 31, 2014 compared to $263.5 million as of December 31, 2013. This decrease
was primarily due to a change in product launch timing year over year, combined with the Company's close-out of its older
Razr and Legacy golf products, as well as certain older golf ball products. Inventories as a percentage of the trailing 12 months
net sales decreased to 23.4% as of December 31, 2014 compared to 31.3% as of December 31, 2013.
Liquidity and Capital Resources
The information set forth in Note 4 “Financing Arrangements,” in the Notes to Consolidated Financial Statements in
this Form 10-K, is incorporated herein by this reference.
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. The Company experienced negative cash flows from operations in 2012 and 2013. During
the second half of 2012, the Company implemented significant changes to its business, including among other things, steps
designed to increase product sales as well as initiatives designed to reduce the Company’s manufacturing costs and operating
expenses (see Note 3 "Restructuring Initiatives" in the Notes to Consolidated Financial Statements in this Form 10-K for
further discussion of the Company's Cost Reduction Initiatives). As a result of these initiatives, in 2014, the Company realized
an increase in net sales and gross margin, and improved its cash flows from operations. Based upon the Company’s current
cash balances, its estimates of funds expected to be generated from operations in 2015, and current and projected availability
under the ABL Facility, the Company believes that it will be able to finance current and planned operating requirements,
capital expenditures, contractual obligations and commercial commitments for at least the next 12 months.
The Company’s ability to generate sufficient positive cash flows from operations is subject to many risks and
uncertainties, including future economic trends and conditions, the success of the Company’s multi-year turnaround, demand
for the Company’s products, foreign currency exchange rates, and other risks and uncertainties applicable to the Company
and its business (see “Risk Factors” contained in Part I, Item 1A). While management believes the Company's recovery is on
track, no assurance can be given that the Company will be able to generate sufficient operating cash flows in the future or
maintain or grow its existing cash balances. If the Company is unable to generate sufficient cash flows to fund its business
due to a further decline in sales or otherwise and is unable to reduce its manufacturing costs and operating expenses to offset
such decline, the Company will need to increase its reliance on the ABL Facility for needed liquidity. If the ABL Facility is
not then available or sufficient and the Company could not secure alternative financing arrangements, the Company’s future
operations would be materially adversely affected.
As of December 31, 2014, approximately 95% of the Company’s total cash is held in regions outside of the United
States. If the Company were to repatriate such cash, outside of settling intercompany balances during the normal course of
operations, it would need to accrue and pay incremental U.S. federal and state income taxes, reduced by the current amount
of available U.S. federal and state net operating loss and tax credit carryforwards. The Company has not, nor does it intend
to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including
liquidity needs associated with its domestic debt service requirements. As such, the Company considers the undistributed
earnings of its foreign subsidiaries to be permanently reinvested and, accordingly, no U.S. income taxes have been provided
thereon.
Share Repurchases
In August 2014, the Company's Board of Directors authorized a $50.0 million share repurchase program under which
the Company is authorized to repurchase shares of its common stock in the open market or in private transactions, subject to
the Company’s assessment of market conditions and buying opportunities. The repurchases will be made consistent with the
terms of the Company's credit facility which defines the amount of stock that can be repurchased. The repurchase program
will remain in effect until completed or until terminated by the Board of Directors.