Callaway 2012 Annual Report Download - page 58

was primarily attributable to a decrease in net sales during 2012 compared to the prior year, partially offset by an
improvement in past due receivables.
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 net inventory decreased $21.4 million to $211.7 million as of December 31,
2012 compared to $233.1 million as of December 31, 2011. This decrease was primarily due to a decline in
apparel and footwear inventory levels resulting from the Company’s transition in 2012 to a third-party based
model in U.S. and Canada for the rights to develop, manufacture and distribute the Company’s apparel and
footwear product lines. In addition, the decrease in inventory was due to lower inventory levels as a result of
fewer irons models offered in 2013 compared to 2012 as well as a decrease in golf ball inventory due to the sale
of the Top-Flite brand in 2012. Net inventories as a percentage of the trailing twelve months net sales decreased
to 25.4% as of December 31, 2012 compared to 26.3% as of December 31, 2011.
Liquidity and Capital Resources
Asset-Based Revolving Credit Facility
The Company has an ABL Facility with Bank of America N.A. which provides a senior secured asset-based
revolving credit facility of up to $230.0 million, comprised of a $158.3 million U.S. facility (of which $20.0
million is available for letters of credit), a $31.7 million Canadian facility (of which $5.0 million is available for
letters of credit) and a $40.0 million United Kingdom facility (of which $2.0 million is available for letters of
credit), in each case subject to borrowing base availability under the applicable facility. The aggregate amount
outstanding under the Company’s letters of credit was $3.3 million at December 31, 2012. The amounts
outstanding under the ABL Facility are secured by certain assets, including inventory and accounts receivable, of
the Company’s U.S., Canadian and U.K. legal entities.
As of December 31, 2012, the Company had no borrowings outstanding under the ABL Facility and had
$52.0 million of cash and cash equivalents. The maximum amount of Indebtedness (as defined by the ABL
Facility) that could have been outstanding on December 31, 2012, after outstanding borrowings, letters of credit
and certain reserves and the $25.0 million fixed charge coverage ratio covenant (defined below) was
approximately $40.5 million resulting in total available liquidity of $92.5 million. The maximum availability
under the ABL Facility fluctuates with the general seasonality of the business and increases and decreases with
changes in the Company’s inventory and accounts receivable balances. The maximum availability is at its highest
during the first half of the year when the Company’s inventory and accounts receivable balances are high and
then decreases during the second half of the year when the Company’s accounts receivable balance is lower due
to an increase in cash collections. The average outstanding borrowings during 2012 were $50.3 million and
average liquidity, defined as cash on hand combined with amounts available under the ABL Facility after
outstanding borrowings, was $105.9 million. Amounts borrowed under the ABL Facility may be repaid and
borrowed as needed. The entire outstanding principal amount (if any) is due and payable at maturity on June 30,
2016.
The ABL Facility includes certain restrictions including, among other things, restrictions on incurrence of
additional debt, liens, dividends and other restricted payments, asset sales, investments, mergers, acquisitions and
affiliate transactions. As of December 31, 2012 the Company was in compliance with all covenants of the ABL
Facility. Additionally, the Company will be subject to compliance with a fixed charge coverage ratio covenant
during, and continuing 30 days after, any period in which the Company’s borrowing base availability falls below
$25.0 million. The Company would not have met the fixed charge coverage ratio as of December 31, 2012,
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