Callaway 2011 Annual Report Download - page 59

Download and view the complete annual report

Please find page 59 of the 2011 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 118

  • 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

As of December 31, 2011, a significant portion of the Company’s total cash and short-term investments is
held outside of the U.S. Outside of settling intercompany balances during the normal course of operations, the
Company may repatriate funds from its foreign subsidiaries. The Company has not, nor does it anticipate the
need 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 indefinitely reinvested and, accordingly, no
U.S. income taxes have been provided thereon. If in the future the Company decides to repatriate such foreign
earnings, it would need to accrue and pay incremental U.S. federal and state income tax, reduced by the current
amount of available U.S. federal and state net operating loss and tax credit carryforwards.
Capital Resources
The Company does not currently have any material commitments for capital expenditures. The Company
expects to have capital expenditures of approximately $25.0 million to $30.0 million for the year ending
December 31, 2012.
Off-Balance Sheet Arrangements
At December 31, 2011, the Company had total outstanding commitments on non-cancelable operating leases
of approximately $33.1 million related to certain warehouse, distribution and office facilities, vehicles as well as
office equipment. Lease terms range from 1 to 7 years expiring at various dates through February 2018, with
options to renew at varying terms.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company uses derivative financial instruments for hedging purposes to limit 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 10 “Financing Arrangements” to 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 11 “Derivatives and
Hedging” to 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 hedge 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 the contracts used to hedge them in
order to reduce volatility of earnings. The extent to which the Company’s hedging activities mitigate the effects
45