Callaway 2003 Annual Report Download - page 25

22 CALLAWAY GOLF COMPANY
Liquidity
Sources of Liquidity
The Company’s principal sources of liquidity, both on a short-
term and long-term basis, for the periods presented generally
have been cash flows provided by operations. The Company
currently expects this to continue over the long-term. In the
short term, however, given the significant amount of cash
used in the Top-Flite acquisition, the Company intends to
supplement its cash provided by operations with its credit
facilities. At December 31, 2003, the Company had a revolving
line of credit with Bank of America and certain other lenders
to borrow up to $100.0 million (the “Credit Facility”). At
December 31, 2003, there were no borrowings outstanding
under the Credit Facility and the Company was in compliance
with the covenants prescribed by that facility. As expected,
during the first quarter of 2004 the Company began using its
line of credit. Also during the first quarter of 2004, as a result
of the recent Top-Flite Acquisition and normal seasonality of
the Company’s business, the Company obtained a commitment
(subject to customary loan documentation and closing
conditions) for an additional $25.0 million unsecured line of
credit with Bank of America. The purpose of this commitment
is to ensure an additional source of liquidity during the first
part of the new golf season during which the Company
typically uses more cash than it generates. During the second
quarter, the Company typically begins generating cash in
excess of its cash needs. The Company expects that all amounts
borrowed under its credit facilities will be paid off by the end of
the second quarter and that the Company will thereafter
continue to generate cash for the balance of the year.
The Credit Facility is scheduled to be available until
November 2004, subject to earlier termination in accordance
with its terms and subject to extension upon agreement of all
parties. Upon the expiration of the Credit Facility, provided
the Company is not in default of the terms of the Credit
Facility and subject to certain conditions, the Company has
the option to convert the amounts outstanding under the
Credit Facility into a one-year term loan.
Subject to the terms of the Credit Facility, the Company can
borrow up to a maximum of $100.0 million. The Company is
required to pay certain fees, including an unused commitment
fee equal to 12.5 to 20.0 basis points per annum of the
unused commitment amount, with the exact amount
determined based upon the Company’s Consolidated
Leverage Ratio. For purposes of the Credit Facility,
“Consolidated Leverage Ratio” means, as of any date of
determination, the ratio of “Consolidated Funded
Indebtedness” as of such date to “Consolidated EBITDA” for
the four most recent fiscal quarters (as such terms are defined
in the Credit Facility agreement). Outstanding borrowings
under the Credit Facility accrue interest at the Company’s
election at (i) the higher of (a) the Federal Funds Rate plus
50.0 basis points or (b) Bank of America’s prime rate, and in
either case less a margin of 50.0 to 100.0 basis points depend-
ing upon the Company’s Consolidated Leverage Ratio or (ii)
the Eurodollar Rate (as such term is defined in the Credit
Facility agreement), plus a margin of 75.0 to 125.0 basis
points depending upon the Company’s Consolidated
Leverage Ratio. The Company has agreed that repayment of
amounts under the Credit Facility will be guaranteed by certain
of the Company’s domestic subsidiaries and will be secured
by the Company’s pledge of 65% of the stock it holds in certain
of its foreign subsidiaries and by certain intercompany debt
securities and proceeds thereof.
The Credit Facility agreement requires the Company to
maintain certain minimum financial covenants.
Specifically, (i) the Company’s Consolidated Leverage Ratio
may not exceed 1.25 to 1.00 and (ii) Consolidated EBITDA
(which would exclude certain non-cash charges related to
the restructuring of the Company’s golf ball operations) for
any four consecutive quarters may not be less than $50.0
million. The Credit Facility agreement also includes certain
other restrictions, including restrictions limiting additional
indebtedness, dividends, stock repurchases, transactions
with affiliates, capital expenditures, asset sales, acquisitions,
mergers, liens and encumbrances and other matters
cus
tomarily restricted in loan documents. The Credit
Facility also contains other customary provisions, including
affirmative covenants, representations and warranties and
events of default.