Callaway 2009 Annual Report Download - page 24

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The Company’s obligations and certain financial covenants contained under the existing Line of Credit
expose it to risks that could adversely affect its business, operating results and financial condition.
The Company’s primary credit facility is comprised of a $250,000,000 Line of Credit with a syndicate of
eight banks under the terms of the November 5, 2004, Amended and Restated Credit Agreement. The Line of
Credit is scheduled to expire on February 15, 2012 and provides for revolving loans of up to $250,000,000,
although actual borrowing availability can be effectively limited by the financial covenants contained therein,
including a maximum consolidated leverage ratio and a minimum interest coverage ratio. Both the maximum
consolidated leverage ratio and minimum interest coverage ratio are based in part upon the Company’s trailing
four quarters’ earnings before interest, income taxes, depreciation and amortization, as well as other non-cash
expense and income items as defined in the agreement governing the Line of Credit (“adjusted EBITDA”).
If the Company experiences a decline in revenues or adjusted EBITDA, the Company may have difficulty
paying interest and principal amounts due on our Line of Credit or other indebtedness and meeting certain of the
financial covenants contained in the Line of Credit. If the Company is unable to make required payments under
the Line of Credit, or if the Company fails to comply with the various covenants and other requirements of the
Line of Credit or other indebtedness, the Company would be in default thereunder, which would permit the
holders of the indebtedness to accelerate the maturity thereof and increase the interest rate thereon. Any default
under the Line of Credit 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.
A reduction in the number of rounds of golf played or in the number of golf participants could adversely affect
the Company’s sales.
The Company generates substantially all of its revenues from the sale of golf-related products, including
golf clubs, golf balls and golf accessories. The demand for golf-related products in general and golf balls in
particular, is directly related to the number of golf participants and the number of rounds of golf being played by
these participants. If golf participation or the number of rounds of golf played decreases, sales of the Company’s
products may be adversely affected. In the future, the overall dollar volume of the market for golf-related
products may not grow or may decline.
In addition, the demand for golf products is also directly related to the popularity of magazines, cable
channels and other media dedicated to golf, television coverage of golf tournaments and attendance at golf
events. The Company depends on the exposure of its products through advertising and the media or at golf
tournaments and events. Any significant reduction in television coverage of, or attendance at, golf tournaments
and events or any significant reduction in the popularity of golf magazines or golf channels, could reduce the
visibility of the Company’s brand and could adversely affect the Company’s sales.
The Company may have limited opportunities for future growth in sales of golf clubs and golf balls.
In order for the Company to significantly grow its sales of golf clubs or golf balls, the Company must either
increase its share of the market for golf clubs or balls, or the market for golf clubs or balls must grow. The
Company already has a significant share of worldwide sales of golf clubs and golf balls. Therefore, opportunities
for additional market share may be limited. The Company also believes that overall dollar volume of the
worldwide market for golf equipment sales has not experienced substantial growth in the past several years. In
the future, the overall dollar volume of worldwide sales of golf clubs or golf balls may not grow or may decline.
If the Company inaccurately forecasts demand for its products, it may manufacture either insufficient or
excess quantities, which, in either case, could adversely affect its financial performance.
The Company plans its manufacturing capacity based upon the forecasted demand for its products. The
nature of the Company’s business makes it difficult to quickly adjust its manufacturing capacity if actual demand
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