Callaway 2009 Annual Report Download - page 57

Download and view the complete annual report

Please find page 57 of the 2009 Callaway annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

Financial Condition
The Company’s cash and cash equivalents increased $40.0 million (104%) to $78.3 million at December 31,
2009, from $38.3 million at December 31, 2008. This increase was primarily due to net proceeds of
$134.0 million received from the Company’s preferred stock offering completed in June 2009 (see Note 3 to the
Consolidated Financial Statements—“Preferred Stock Offering” in this Form 10-K). This increase was partially
offset by an $81.4 million decrease in net income to a net loss of $15.3 million for the twelve months ended
December 31, 2009. The Company used the cash generated from operating activities as well as proceeds from the
preferred stock offering to pay the total amount outstanding under its line of credit, fund $38.8 million in capital
expenditures during 2009, and pay dividends of $11.6 million during 2009. The Company concluded 2009 with
no amounts outstanding under its primary credit facility compared to $90.0 outstanding as of December 31, 2008.
Management expects to fund the Company’s future operations from cash provided by its operating activities
combined with borrowings from its credit facilities, as deemed necessary (see further information on the
Company’s primary credit facility in Sources of Liquidity below).
The Company’s accounts receivable balance fluctuates throughout the year as a result of the general
seasonality of the Company’s business. The Company’s accounts receivable balance will generally be at its
highest during the first and second quarters and decline significantly during the third and fourth quarters as a
result of an increase in cash collections and lower sales. As of December 31, 2009, the Company’s net accounts
receivable increased $19.7 million to $139.8 million from $120.1 million as of December 31, 2008. This increase
was primarily due to an increase in net sales during the fourth quarter of 2009 compared to the same period in
2008 combined with the timing of these sales, in addition to a shift in sales to customers with longer payments
terms during the fourth quarter of 2009.
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. The Company’s net inventory decreased $38.0 million to
$219.2 million as of December 31, 2009 compared to $257.2 million as of December 31, 2008. Improvements in
the Company’s supply chain have helped mitigate the impact of the decline in sales in the current year, with only
a slight increase in net inventories as a percentage of trailing twelve months net sales to 23.1% as of
December 31, 2009 from 23.0% as of December 31, 2008. The inventory balance as of December 31, 2009
includes the incremental impact of golf apparel inventory associated with the Company’s relationship with Perry
Ellis, which was formed during 2009, as well as inventory related to the uPro GPS on-course range finders.
Liquidity and Capital Resources
Sources of Liquidity
The Company’s primary credit facility is a $250.0 million Line of Credit with a syndicate of eight banks
under the terms of the Company’s November 5, 2004 Amended and Restated Credit Agreement (as subsequently
amended, the “Line of Credit”). The Line of Credit is not scheduled to expire until February 15, 2012.
The lenders in the syndicate are Bank of America, N.A., Union Bank of California, N.A., Barclays Bank,
PLC, JPMorgan Chase Bank, N.A., US Bank, N.A., Comerica West Incorporation, Fifth Third Bank, and
Citibank, N.A. To date, all of the banks in the syndicate have continued to meet their commitments under the
Line of Credit despite the recent turmoil in the financial markets. If any of the banks in the syndicate were unable
to perform on their commitments to fund the Line of Credit, the Company’s liquidity would be impaired, unless
the Company were able to find a replacement source of funding under the Line of Credit or from other sources.
The Line of Credit provides for revolving loans of up to $250.0 million, although actual borrowing
availability can be effectively limited by the financial covenants contained therein. The financial covenants are
tested as of the end of a fiscal quarter (i.e. on March 31, June 30, September 30, and December 31, each year). So
44