Callaway 2009 Annual Report Download - page 96

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Note 9. Financing Arrangements
The Company’s primary credit facility is a $250,000,000 Line of Credit with a syndicate of eight banks
under the terms of the Company’s November 5, 2004 Amended and Restated Credit Agreement (as subsequently
amended, the “Line of Credit”). The Line of Credit is not scheduled to expire until February 15, 2012.
The lenders in the syndicate are Bank of America, N.A., Union Bank of California, N.A., Barclays Bank,
PLC, JPMorgan Chase Bank, N.A., US Bank, N.A., Comerica West Incorporation, Fifth Third Bank, and
Citibank, N.A. To date, all of the banks in the syndicate have continued to meet their commitments under the
Line of Credit despite the recent turmoil in the financial markets. If any of the banks in the syndicate were unable
to perform on their commitments to fund the Line of Credit, the Company’s liquidity would be impaired, unless
the Company were able to find a replacement source of funding under the Line of Credit or from other sources.
The Line of Credit provides for revolving loans of up to $250,000,000, although actual borrowing
availability can be effectively limited by the financial covenants contained therein. The financial covenants are
tested as of the end of a fiscal quarter (i.e. on March 31, June 30, September 30, and December 31, each year). So
long as the Company is in compliance with the financial covenants on each of those four days, the Company has
access to the full $250,000,000 (subject to compliance with the other terms of the Line of Credit).
The financial covenants include a consolidated leverage ratio covenant and an interest coverage ratio
covenant, both of which 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”). The consolidated leverage ratio provides that
as of the end of the quarter the Company’s Consolidated Funded Indebtedness (as defined in the Line of Credit)
may not exceed 2.75 times the Company’s adjusted EBITDA for the previous four quarters then ended. The
interest coverage ratio covenant provides that the Company’s adjusted EBITDA for the previous four quarters
then ended must be at least 3.50 times the Company’s Consolidated Interest Charges (as defined in the Line of
Credit) for such period. Many factors, including unfavorable economic conditions and unfavorable foreign
currency exchange rates, can have a significant adverse effect upon the Company’s adjusted EBITDA and
therefore compliance with these financial covenants. If the Company were not in compliance with the financial
covenants under the Line of Credit, it would not be able to borrow funds under the Line of Credit and its liquidity
would be significantly affected.
Based on the Company’s consolidated leverage ratio covenant and adjusted EBITDA for the four quarters
ended December 31, 2009, the maximum amount of Consolidated Funded Indebtedness, including borrowings
under the Line of Credit, that could have been outstanding on December 31, 2009, was approximately
$57,000,000. As of December 31, 2009, the Company had no outstanding borrowings under the Line of Credit
and had $78,314,000 of cash and cash equivalents. As of December 31, 2009, the Company remained in
compliance with the consolidated leverage ratio as well as with the interest coverage ratio covenants.
In addition to these financial covenants, the Line of Credit includes certain other restrictions, including
restrictions limiting dividends, stock repurchases, capital expenditures and asset sales. As of December 31, 2009,
the Company was in compliance with these restrictions and the other terms of the Line of Credit.
Under the Line of Credit, the Company is required to pay certain fees, including an unused commitment fee
of between 10.0 to 25.0 basis points per annum of the unused commitment amount, with the exact amount
determined based upon the Company’s consolidated leverage ratio. Outstanding borrowings under the Line of
Credit accrue interest, at the Company’s election, based upon the Company’s consolidated leverage ratio, at
(i) the higher of (a) the Federal Funds Rate plus 50.0 basis points or (b) Bank of America’s prime rate, or (ii) the
Eurodollar Rate (as defined in the agreement governing the Line of Credit) plus a margin of 50.0 to 125.0 basis
points.
F-20