Callaway 2005 Annual Report Download - page 50

integration of the Callaway Golf and Top-Flite operations in the amounts of $17.5 million and $16.1 million in
2004 and 2003, respectively. Earnings per share was negatively impacted by after-tax charges related to the
integration of the Callaway Golf and Top-Flite operations in the amounts of $0.26 and $0.24 per share in 2004
and 2003, respectively.
Financial Condition
Cash and cash equivalents increased $17.8 million (56%) to $49.5 million at December 31, 2005 from $31.7
million at December 31, 2004. This increase in cash primarily resulted from cash provided by operating activities
of $70.3 million offset by cash used in investing activities of $32.9 million and cash used in financing activities
of $17.8 million. Cash flows provided by operating activities for 2005 reflected net income of $13.3 million,
adjusted for depreciation and amortization of $38.3 million, a $32.7 million increase in accounts payable and
accrued expenses, a $26.7 million decrease in income taxes receivable and a $7.6 million increase in accrued
employee compensation benefits. These cash inflows were partially offset by a $65.6 million increase in cash
paid for net inventories. Cash flows used in investing activities reflects capital expenditures of $34.3 million
during 2005. Cash flows used in financing activities are primarily attributable to $19.6 million of dividends paid
during 2005 as well as an increase in net payments on the Company’s line of credit in the amount of
$13.0 million. These increases were partially offset by the issuance of $14.8 million of Common Stock under
employee benefit plans during the year.
The Company’s net accounts receivable decreased $7.1 million to $98.1 million at December 31, 2005 from
$105.2 million at December 31, 2004. The Company’s consolidated days sales outstanding (“DSO”) decreased to
59 days as of December 2005 as compared to 67 days as of December 2004. The decrease in DSO and accounts
receivable balance is primarily attributable to more favorable collection terms in 2005 compared to the prior
year.
The Company’s net inventory increased $60.3 million to $241.6 million at December 31, 2005 from
$181.2 million at December 31, 2004. This increase in inventory was anticipated and is consistent with the
Company’s plans to have more inventory on hand as it enters the 2006 golf season to avoid the product supply
issues it experienced in 2005. This increase also reflects lower inventory levels in 2004 due to product
compensation programs implemented in 2004 to stimulate retail sales.
As of December 31, 2005, the Company’s net property, plant and equipment decreased $8.1 million to
$127.7 million from $135.8 million at December 31, 2004. This decrease is primarily due to depreciation of
$35.2 million as well as the disposal of $4.0 million of net assets during 2005. These decreases were partially
offset by additions of $34.3 million during the year.
Liquidity and Capital Resources
Sources of Liquidity
The Company’s principal sources of liquidity are cash flows provided by operations and the Company’s
credit facilities in effect from time to time. The Company currently expects this to continue. Effective
January 23, 2006, the Company, Bank of America, N.A. and certain other lenders entered into an agreement (the
“Second Amendment”) to amend the Company’s November 5, 2004 Amended and Restated Credit Agreement
(as amended, the “Line of Credit”) to provide for modification of the financial covenants, pricing and certain
other terms. The amendment also extends the term of the Line of Credit to expire on February 5, 2011.
The Line of Credit provides for revolving loans of up to $250.0 million, although actual borrowing
availability is effectively limited by the financial covenants contained therein. As of December 31, 2005, the
maximum amount that could be borrowed under the Line of Credit was approximately $180.0 million, none of
which was outstanding.
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