Callaway 2014 Annual Report Download - page 26

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general seasonality of the business, and increases and decreases with the changes in the Company's inventory and account
receivable balances.
The ABL Facility includes certain restrictions including, among other things, restrictions on the incurrence of additional
debt, liens, dividends, stock repurchases and other restricted payments, asset sales, investments, mergers, acquisitions and
affiliate transactions. Additionally, the Company is 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 $23.0 million. If the
Company experiences a decline in revenues or adjusted EBITDA, the Company may have difficulty paying interest and
principal amounts due on its ABL Facility or other indebtedness and meeting certain of the financial covenants contained in
the ABL Facility. If the Company is unable to make required payments under the ABL Facility, or if the Company fails to
comply with the various covenants and other requirements of the ABL Facility or other indebtedness, the Company would be
in default thereunder, which would permit the holders of the indebtedness to accelerate the maturity thereof. Any default under
the ABL Facility or other indebtedness could have a significant adverse effect on the Company’s liquidity, business, operating
results and financial condition and ability to make any dividend or other payments on the Company’s capital stock. See Note
4 “Financing Arrangements,” in the Notes to Consolidated Financial Statements in this Form 10-K for further discussion of
the terms of the ABL Facility.
The Company’s ability to generate sufficient positive cash flows from operations is subject to many risks and
uncertainties, including future economic trends and conditions, the success of the Company’s multi-year turnaround, demand
for the Company’s products, foreign currency exchange rates and other risks and uncertainties applicable to the Company and
its business. No assurances can be given that the Company will be able to generate sufficient operating cash flows in the future
or maintain or grow its existing cash balances. If the Company is unable to generate sufficient cash flows to fund its business
due to a further decline in sales or otherwise and is unable to reduce its manufacturing costs and operating expenses to offset
such decline, the Company will need to increase its reliance on the ABL Facility for needed liquidity. If the ABL Facility is
not then available or sufficient and the Company is not able to secure alternative financing arrangements, the Company’s
future operations would be materially, adversely affected.
Unauthorized access to, or accidental disclosure of, consumer personally-identifiable information including credit card
information, that the Company collects through its websites may result in significant expenses and negatively impact the
Company's reputation and business.
There is growing concern over the security of personal information transmitted over the Internet, consumer identity theft
and user privacy. While the Company has implemented security measures, the Company’s computer systems may be susceptible
to electronic or physical computer break-ins, viruses and other disruptions and security breaches. Any perceived or actual
unauthorized or inadvertent disclosure of personally-identifiable information regarding visitors to the Company’s websites
or otherwise, whether through a breach of the Company’s network by an unauthorized party, employee theft, misuse or error
or otherwise, could harm the Company’s reputation, impair the Company’s ability to attract website visitors, or subject the
Company to claims or litigation arising from damages suffered by consumers, and adversely affect the Company’s operations,
financial performance and condition.
If the Company is unable to successfully manage the frequent introduction of new products that satisfy changing consumer
preferences, it could significantly and adversely impact its financial performance and prospects for future growth.
The Company’s main products, like those of its competitors, generally have life cycles of two years or less, with sales
occurring at a much higher rate in the first year than in the second. Factors driving these short product life cycles include the
rapid introduction of competitive products and consumer demands for the latest technology. In this marketplace, a substantial
portion of the Company’s annual revenues is generated each year by products that are in their first year of their product life
cycle.
These marketplace conditions raise a number of issues that the Company must successfully manage. For example, the
Company must properly anticipate consumer preferences and design products that meet those preferences while also complying
with significant restrictions imposed by the Rules of Golf (see further discussion of the Rules of Golf below) or its new
products will not achieve sufficient market success to compensate for the usual decline in sales experienced by products
already in the market. Second, the Company’s research and development and supply chain groups face constant pressures to
design, develop, source and supply new products that perform better than their predecessors—many of which incorporate new
or otherwise untested technology, suppliers or inputs. Third, for new products to generate equivalent or greater revenues than
their predecessors, they must either maintain the same or higher sales levels with the same or higher pricing, or exceed the