Callaway 2015 Annual Report Download - page 26

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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
3 “Financing Arrangements,” in the Notes to Consolidated Financial Statements in this Form 10-K for further discussion of
the terms of the ABL Facility.
In January 2015, the Company entered into a separate asset-based loan and guarantee agreement (the "Japan ABL
Facility") between its subsidiary in Japan and The Bank of Tokyo-Mitsubishi UFG, Ltd and The Development Bank of Japan.
The Company can borrow up to 2 billion Yen (or $16.6 million, using the exchange rate in effect as of December 31, 2015)
under this facility, and the amounts outstanding are secured by certain assets, including eligible inventory. The Japan ABL
Facility is subject to an effective interest rate of 1.48%, and includes certain restrictions including covenants related to certain
pledged assets and financial performance metrics. As of December 31, 2015, the Company was in compliance with these
covenants. The Company had $15.0 million outstanding under this facility at December 31, 2015, and the maximum amount
that could have been outstanding at December 31, 2015 was $16.6 million. In January 2016, the Company renewed the Japan
ABL Facility for an additional two-year term, subject to an effective interest rate equal to TIBOR plus 0.25%. The agreement
expires on January 22, 2018.
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 its credit facilities for needed liquidity. If its credit facilities
are 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