Callaway 1998 Annual Report Download - page 39

CALLAWAY GOLF COMPANY
37
NOTE 15
TRANSACTIONS WITH RELATED PARTIES
During 1998, the Company entered into an agreement
with Callaway Editions, Inc. to form CGMV, a limited
liability company that is owned 80% by the Company
and 20% by Callaway Editions, Inc. (“Callaway
Editions”). Callaway Editions is a publishing and media
company which is owned 9% by Ely Callaway,
Chairman and Chief Executive Officer of the Company,
and 81% by his son, Nicholas Callaway. CGMV was
formed to produce print and other media products that
relate to the game of golf. Pursuant to the agreement,
the Company agreed to loan CGMV up to $20,000,000
for working capital, subject to CGMV’s achievement of
certain milestones to the satisfaction of the Company in
its sole discretion. As of December 31, 1998, the
Company has loaned $2,034,000 to CGMV. Also pur-
suant to the agreement, CGMV is obligated to pay an
annual management fee of $450,000 to Callaway
Editions. In conjunction with the Company’s imple-
mentation of its business plan to reduce costs and exit
certain non-core business activities, the Company is cur-
rently in negotiations to sell or assign its interest in
CGMV to Callaway Editions. Accordingly, the
Company recorded a charge in operations to December
1998 based on the December 31, 1998 book value of
CGMV (Note 11).
In December 1998, the Company purchased the
remaining 20% interest in Callaway Golf Trading
GmbH, the Company’s former German distributor, for
$6,766,000. The purchase price is in the form of a note
payable bearing interest at 7%, due in June 1999 to the
seller, who is an officer of a wholly-owned subsidiary of
Company. The note payable is included in accounts
payable and accrued expenses at December 31, 1998.
NOTE 16
SUBSEQUENT EVENTS
Dividend
On January 27, 1999, the Company declared a quarter-
ly cash dividend of $0.07 per share payable on March 3,
1999, to shareholders of record on February 10, 1999.
Bank line of credit
On February 12, 1999, the Company consummated the
amendment of its line of credit to increase the revolving
credit facility to up to $120,000,000 (the “Amended
Credit Agreement”). The Amended Credit Agreement
has a five-year term and is secured by substantially all of
the assets of the Company, except domestic accounts
receivable. The line of credit requires the Company to
maintain certain minimum financial ratios including a
fixed charge coverage ratio, as well as other restrictive
covenants. Also effective on February 12, 1999, the
Company entered into an $80,000,000 accounts receiv-
able securitization facility (the “Accounts Receivable
Facility”). The Accounts Receivable Facility provides
loan advances through the sale of substantially all of the
Company’s eligible domestic accounts receivable. The
Accounts Receivable Facility includes a corporate guar-
antee by the Company and requires the Company to
meet the same financial covenants set forth in the
Amended Credit Agreement.