Callaway 2004 Annual Report Download - page 85

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Note 7. Financing Arrangements
EÅective November 5, 2004, the Company amended and restated its line of credit to provide for a new
Ñve year revolving line of credit from Bank of America, N.A. and certain other lenders (the ""Line of Credit''),
providing for revolving loans of up to $250,000,000 (with the possible expansion of the Line of Credit to
$300,000,000 upon the satisfaction of certain conditions and the agreement of the lenders). Actual borrowing
availability under the Line of Credit is eÅectively limited by the Ñnancial covenants set forth in the agreement
governing the Line of Credit. At December 31, 2004, the maximum amount that could be borrowed under the
Line of Credit was approximately $141,269,000 of which $13,000,000 was outstanding.
Under the Line of Credit, the Company is required to pay certain fees, including an unused commitment
fee of between 17.5 to 35.0 basis points per annum of the unused commitment amount, with the exact amount
determined based upon the Company's consolidated leverage ratio and trailing four quarters EBITDA (each
as deÑned in the agreement governing the Line of Credit). Outstanding borrowings under the Line of Credit
accrue interest, at the Company's election, based upon the Company's consolidated leverage ratio and trailing
four quarters EBITDA, of (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, plus a margin of 00.0 to 75.0 basis points or (ii) the Eurodollar Rate
(as deÑned in the agreement governing the Line of Credit) plus a margin of 75.0 to 200.0 basis points. The
Company has agreed that repayment of amounts under the Line of Credit will be guaranteed by certain of the
Company's domestic subsidiaries and will be secured by substantially all of the assets of the Company and
such guarantor subsidiaries. The collateral (other than 65% of the stock of the Company's foreign
subsidiaries) could be released upon the satisfaction of certain Ñnancial conditions.
The agreement governing the Line of Credit requires the Company to maintain certain Ñnancial
covenants, including a maximum leverage ratio, a minimum asset coverage ratio, a maximum capitalization
ratio, a minimum interest coverage ratio and a minimum consolidated EBITDA. The agreement also includes
certain other restrictions, including restrictions limiting additional indebtedness, dividends, stock repurchases,
transactions with aÇliates, capital expenditures, asset sales, acquisitions, mergers, liens and encumbrances and
other restrictions. The agreement also contains other provisions, including aÇrmative covenants, representa-
tions and warranties and events of default. As of the December 31, 2004, the Company was in compliance
with the covenants and other terms thereof.
The total origination fees incurred in connection with the Line of Credit were $1,263,000 and are being
amortized into interest expense over Ñve years (the term of the Line of Credit agreement). The unamortized
origination fees were $1,221,000 as of December 31, 2004 and have been included in prepaid and other current
assets in the accompanying consolidated balance sheet.
Note 8. Derivatives and Hedging
The Company uses derivative Ñnancial instruments to manage its exposures to foreign exchange rates.
The derivative instruments are accounted for pursuant to SFAS No. 133, ""Accounting for Derivative
Instruments and Hedging Activities,'' as amended by SFAS No. 138, ""Accounting for Certain Derivative
Instruments and Certain Hedging Activities.'' As amended, SFAS No. 133 requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet, measure those instruments at fair value and
recognize changes in the fair value of derivatives in earnings in the period of change unless the derivative
qualiÑes as an eÅective hedge that oÅsets certain exposures.
Foreign Currency Exchange Contracts
The Company enters into foreign exchange contracts to hedge against exposure to changes in foreign
currency exchange rates. Such contracts are designated at inception to the related foreign currency exposures
being hedged, which include anticipated intercompany sales of inventory denominated in foreign currencies,
F-20