Callaway 2010 Annual Report Download - page 59

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then ended must be at least 3.5 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 adversely affected.
Based on the Company’s consolidated leverage ratio covenant and adjusted EBITDA for the four quarters
ended December 31, 2010, the maximum amount of Consolidated Funded Indebtedness, including borrowings
under the Line of Credit, that could have been outstanding on December 31, 2010, was $63.8 million. As of
December 31, 2010, the Company had no outstanding borrowings under the Line of Credit and had $55.0 million
of cash and cash equivalents. In accordance with the Company’s business seasonality, average outstanding
borrowings will typically be higher during the first half of the year during the height of the golf season, and
lower during the second half of the year. Average outstanding borrowings during the first half of 2010 were
$31.2 million and peaked at $69.0 million. Average outstanding borrowings during the second half of 2010 were
$2.7 million and peaked at $17.0 million. As of December 31, 2010, the Company remained in compliance with
the consolidated leverage ratio as well as with the interest coverage ratio covenants. Because the Company
remained in compliance with these financial covenants, as of January 1, 2011, the Company had access to the full
$250.0 million under the Line of Credit (subject to compliance with other terms of the Line of Credit).
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, 2010,
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.
The total origination fees incurred in connection with the Line of Credit, including fees incurred in
connection with the amendments to the Line of Credit, were $2.2 million and are being amortized into interest
expense over the remaining term of the Line of Credit agreement. Unamortized origination fees were $0.3
million as of December 31, 2010, which was included in other current assets in the accompanying consolidated
balance sheet.
Share Repurchases
In November 2007, the Company announced that its Board of Directors authorized it to repurchase shares of
its common stock in the open market or in private transactions, subject to the Company’s assessment of market
conditions and buying opportunities, up to a maximum cost to the Company of $100.0 million, which would
remain in effect until completed or otherwise terminated by the Board of Directors (the “November 2007
repurchase program”). The November 2007 repurchase program supersedes all prior stock repurchase
authorizations.
During 2010, the Company repurchased approximately 88,000 shares of its common stock under the
November 2007 repurchase program at an average cost per share of $8.32 for a total cost of $0.7 million. The
Company acquired these shares to satisfy the Company’s tax withholding obligations in connection with the vesting
and settlement of employee restricted stock unit awards. The Company’s repurchases of shares of common stock
are recorded at cost and result in a reduction of shareholders’ equity. As of December 31, 2010, the Company
remained authorized to repurchase up to an additional $75.2 million of its common stock under this program.
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