Callaway 2011 Annual Report Download - page 56

product launches. The Company’s net inventory decreased $35.5 million to $233.1 million as of December 31,
2011 compared to $268.6 million as of December 31, 2010. This decrease was driven primarily by the later
timing of new product launches planned for 2012 as well as a reduction in out of catalog products resulting from
improved product life-cycle management processes. Net inventories as a percentage of the trailing twelve months
net sales decreased to 26.3% as of December 31, 2011 compared to 27.8% as of December 31, 2010.
Liquidity and Capital Resources
Sources of Liquidity
The Company’s has a Loan and Security Agreement with Bank of America N.A. (as amended, the “ABL
Facility”) which provides a senior secured asset-based revolving credit facility of up to $230.0 million,
comprised of a $158.3 million U.S. facility (of which $20.0 million is available for letters of credit), a $31.7
million Canadian facility (of which $5.0 million is available for letters of credit) and a $40.0 million United
Kingdom facility (of which $2.0 million is available for letters of credit), in each case subject to borrowing base
availability under the applicable facility. Borrowing under the U.K. facility will be permitted upon satisfaction of
customary conditions relating to delivery of U.K. collateral security documents. The aggregate amount
outstanding under the Company’s letters of credit was $0.5 million at December 31, 2011. The amounts
outstanding under the ABL Facility are secured by certain assets, including inventory and accounts receivable, of
the Company’s U.S., Canadian and U.K. legal entities.
As of December 31, 2011, the Company had no borrowings outstanding under the ABL Facility and had $43.0
million of cash and cash equivalents. Generally, during the first quarter, the Company will rely more heavily on its
credit facilities to fund operations as cash inflows from operations begin to increase during the second and third
quarters as a result of cash collections from customers. The maximum amount of Consolidated Funded
Indebtedness, including borrowings under the ABL Facility, that could have been outstanding on December 31,
2011, was approximately $87.7 million. Average outstanding borrowings during the twelve months ended
December 31, 2011 were $25.1 million. Amounts borrowed under the ABL Facility may be repaid and borrowed as
needed. The entire outstanding principal amount (if any) is due and payable at maturity on June 30, 2016.
The interest rate applicable to outstanding loans under the ABL Facility fluctuates depending on the
Company’s trailing-twelve month EBITDA (as defined by the ABL Facility) combined with the Company’s
“availability ratio” (as defined below). At December 31, 2011, the Company’s interest rate applicable to its
outstanding loans under the ABL Facility was 4.75%.
The Company’s “availability ratio” is the ratio, expressed as a percentage, of (a) the average daily
availability under the ABL Facility to (b) the sum of the Canadian, the U.K. and the U.S. borrowing bases, as
adjusted. All applicable margins will be permanently reduced by 0.25% if EBITDA, as defined in the ABL
Facility, meets or exceeds $25.0 million over any trailing twelve-month period, and will be permanently reduced
by an additional 0.25% if EBITDA meets or exceeds $50.0 million over any trailing twelve-month period.
In addition, the ABL Facility provides for monthly fees ranging from 0.375% to 0.5% of the unused portion
of the ABL Facility, depending on the prior month’s average daily balance of revolver loans and stated amount of
letters of credit relative to lenders’ commitments.
The ABL Facility includes certain restrictions including, among other things, restrictions on incurrence of
additional debt, liens, dividends and other restricted payments, asset sales, investments, mergers, acquisitions and
affiliate transactions. Additionally, the Company will be subject to compliance with a fixed charge coverage ratio
covenant during, and continuing 30 days after, any period in which the Company’s borrowing base availability
falls below $25.0 million. As of December 31, 2011, the Company was in compliance with all covenants of the
ABL Facility.
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