Callaway 1998 Annual Report Download - page 29

CALLAWAY GOLF COMPANY
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NOTE 4
BANK LINE OF CREDIT AND NOTE PAYABLE
On December 30, 1998, the Company replaced its exist-
ing bank line of credit with a $75,000,000 interim
revolving credit facility. The credit facility is secured by
substantially all of the assets of the Company and bears
interest at the London Interbank Offering Rate
(“LIBOR”) plus a fixed interest margin. Proceeds from
the initial borrowing on the closing date were used to
repay the Company’s existing indebtedness under a
revolving loan agreement dated as of February 4, 1998.
The credit facility will be used to support working capi-
tal and general corporate needs, including the issuance of
letters of credit. As of December 31, 1998, $2,951,000
of the credit facility remained available for borrowings,
including a reduction of $1,130,000 for outstanding let-
ters of credit. The credit facility requires the Company to
maintain certain minimum financial ratios including a
fixed charge coverage ratio, as well as other restrictive
covenants.
On February 12, 1999, the Company consum-
mated the amendment of its credit facility to
increase the facility to up to $120,000,000. Also
effective on February 12, 1999, the Company
entered into an $80,000,000 accounts receivable
securitization (Note 16).
On December 30, 1998, Callaway Golf Ball
Company, a wholly-owned subsidiary of the Company,
entered into a master lease agreement for the acquisition
and lease of approximately $56,000,000 of machinery
and equipment. This lease program is expected to com-
mence during the second quarter of 1999 and includes
an interim finance agreement (the “Finance
Agreement”). The Finance Agreement provides pre-lease
financing advances for the acquisition and installation
costs of the aforementioned machinery and equipment.
The Finance Agreement bears interest at LIBOR plus a
fixed interest margin and is secured by the underlying
machinery and equipment and a corporate guarantee
from the Company. As of December 31, 1998,
$12,971,000 was outstanding under this facility.
NOTE 5
GRANTOR STOCK TRUST
In July 1995, the Company established the Callaway
Golf Company Grantor Stock Trust (the “GST”). In
conjunction with the formation of the GST, the
Company sold 4,000,000 shares of newly issued
Common Stock to the GST at a purchase price of
$60,575,000 ($15.14 per share). In December 1995, the
Company sold an additional 1,300,000 shares of newly
issued Common Stock to the GST at a purchase price of
$26,263,000 ($20.20 per share). The sale of these shares
had no net impact on shareholders’ equity. During the
term of the GST, shares in the GST may be used to fund
the Company’s obligations with respect to one or more
of the Company’s non-qualified or qualified employee
benefit plans.
Shares owned by the GST are accounted for as a
reduction to shareholders’ equity until used in connec-
tion with employee benefits. Each period, the shares
owned by the GST are valued at the closing market
price, with corresponding changes in the GST balance
reflected in capital in excess of par value.