Callaway 2014 Annual Report Download - page 25

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significant or prolonged decline in general economic conditions or uncertainties regarding future economic prospects that
adversely affect consumer discretionary spending, whether in the United States or in the Company’s international markets,
could result in reduced sales of the Company’s products, which could have a negative impact on the Company’s results of
operations, financial condition and cash flows.
A severe or prolonged economic downturn could adversely affect the Company's customers’ financial condition, their levels
of business activity and their ability to pay trade obligations.
The Company primarily sells its products to golf equipment retailers directly and through wholly-owned domestic and
foreign subsidiaries, and to foreign distributors. The Company performs ongoing credit evaluations of its customers’ financial
condition and generally requires no collateral from these customers. However, a severe or prolonged downturn in the general
economy could adversely affect the retail golf equipment market which in turn, would negatively impact the liquidity and
cash flows of the Company's customers, including the ability of such customers to obtain credit to finance purchases of the
Company's products and to pay their trade obligations. This could result in increased delinquent or uncollectible accounts for
some of the Company’s significant customers. A failure by the Company’s customers to pay on a timely basis a significant
portion of outstanding account receivable balances would adversely impact the Company’s results of operations, financial
condition and cash flows.
The Company has significant international sales and purchases, and unfavorable changes in foreign currency exchange
rates could significantly affect the Company’s results of operations.
A significant portion of the Company’s purchases and sales is international, and the Company conducts transactions in
various currencies worldwide. Conducting business in such currencies exposes the Company to fluctuations in foreign currency
exchange rates relative to the U.S. dollar.
In addition, the Company’s financial results are reported in U.S. dollars. As a result, transactions conducted in foreign
currencies must be translated into U.S. dollars for reporting purposes based upon the applicable foreign currency exchange
rates. Fluctuations in these foreign currency exchange rates therefore may positively or negatively affect the Company’s
reported financial results and can significantly affect period-over-period comparisons.
The effect of the translation of foreign currencies on the Company’s financial results can be significant. The Company
therefore engages in certain hedging activities to mitigate over time the impact of the translation of foreign currencies on the
Company’s financial results. The Company’s hedging activities can reduce, but will not eliminate, the effects of foreign
currency fluctuations. The extent to which the Company’s hedging activities mitigate the effects of foreign currency translation
varies based upon many factors, including the amount of transactions being hedged. Other factors that could affect the
effectiveness of the Company’s hedging activities include accuracy of sales forecasts, volatility of currency markets and the
availability of hedging instruments. Since the hedging activities are designed to reduce volatility, they not only reduce the
negative impact of a stronger U.S. dollar but also reduce the positive impact of a weaker U.S. dollar. The Company’s future
financial results could be significantly affected by the value of the U.S. dollar in relation to the foreign currencies in which
the Company conducts business.
Foreign currency fluctuations can also affect the prices at which products are sold in the Company’s international markets.
The Company therefore adjusts its pricing based in part upon fluctuations in foreign currency exchange rates. Significant
unanticipated changes in foreign currency exchange rates make it more difficult for the Company to manage pricing in its
international markets. If the Company is unable to adjust its pricing in a timely manner to counteract the effects of foreign
currency fluctuations, the Company’s pricing may not be competitive in the marketplace and the Company’s financial results
in its international markets could be adversely affected.
The Company’s obligations and certain financial covenants contained under its existing credit facility expose it to risks
that could materially and adversely affect its liquidity, business, operating results, financial condition and ability to make
any dividend or other payments on its capital stock.
The Company’s primary credit facility is a senior secured asset-based revolving credit facility (as amended, the “ABL
Facility”), comprised of a U.S. facility, a Canadian facility and a United Kingdom facility, in each case subject to borrowing
base availability under the applicable facility. The amounts outstanding under the ABL Facility are secured by certain assets,
including cash (to the extent pledged by the Company), inventory and accounts receivable, of the Company’s subsidiaries in
the United States, Canada and the United Kingdom. The maximum availability under the ABL Facility fluctuates with the