Callaway 1999 Annual Report Download - page 44

42 CALLAWAY GOLF COMPANY
a material adverse effect upon the Company’s annual consoli-
dated financial position, results of operations or cash flows.
The Company leases certain warehouse, distribution and
office facilities, as well as office and manufacturing equipment
under operating leases. Lease terms range from one to 10
years with options to renew at varying terms. Callaway Golf
Ball Company has guaranteed the residual value of equipment
leased pursuant to an operating lease which is subject to
renewal. The residual value guarantee, which approximates
estimated fair market value of the equipment at each option
period, is reduced over time. Commitments for minimum lease
payments under non-cancelable operating leases having ini-
tial or remaining non-cancelable terms in excess of one year as
of December 31, 1999 are as follows:
(in thousands)
2000 $11,128
2001 9,755
2002 6,612
2003 1,972
2004 1,904
Thereafter 7,926
$39,297
Future minimum lease payments have not been reduced
by future minimum sublease rentals of $2,207,000 under an
operating lease. At December 31, 1999, the Company is con-
tingently liable for $6,563,000 through February 2003 under
an operating lease that was assigned to a third party (Note
12). Rent expense for the years ended December 31, 1999,
1998 and 1997 was $2,315,000, $17,654,000 and $1,760,000,
respectively. Rent expense for 1999 does not include a credit
of $6,076,000 related to the reversal of a restructuring reserve
for excess lease costs (Note 12). Rent expense for 1998
includes $13,466,000 in excess lease costs related to the
Company’s restructuring activities (Note 12). The Company
had no capital leases at December 31, 1999.
NOTE 12
RESTRUCTURING
During the fourth quarter of 1998, the Company recorded a
restructuring charge of $54,235,000 resulting from a number
of cost reduction actions and operational improvements.
These actions included: the consolidation of the operations of
the Company’s wholly-owned subsidiary, Odyssey, into the
operations of the Company while maintaining the distinct and
separate Odyssey®brand; the discontinuation, transfer or sus-
pension of certain initiatives not directly associated with the
Company’s core business, such as the Company’s involvement
with interactive golf sites, golf book publishing, new player
development and a golf venue in Las Vegas; and the re-sizing
of the Company’s core business to reflect current and expect-
ed business conditions. These initiatives were completed dur-
ing 1999, with the exception of cash outlays related to the
assignment of a lease obligation for a facility in New York City
that will continue through July 2000. The restructuring charges
(shown below in tabular format) primarily related to: 1) the
elimination of job responsibilities, resulting in costs incurred
for employee severance; 2) the decision to exit certain non-
core business activities, resulting in losses on disposition of
the Company’s 80% interest in CGMV (Note 14), a loss on the
sale of the business of All-American (Note 14), as well as
excess lease costs; and 3) consolidation of the Company’s con-
tinuing operations resulting in impairment of assets, losses on
disposition of assets and excess lease costs.
Employee reductions occurred in almost all areas of the
Company, including manufacturing, marketing, sales, and
administrative areas. At December 31, 1998, the Company had
reduced its non-temporary work force by approximately 750
positions. Although substantially all reductions occurred prior
to December 31, 1998, a small number of reductions occurred
in the first quarter of 1999.
During the restructuring, the Company consolidated its
operations and sold certain of its buildings, which housed a
portion of its manufacturing and research and development
activities. Other write-downs were recorded during 1998 for
idle assets, assets whose manner of use had changed signifi-
cantly and equipment replaced as a result of capital improve-
ments. The impaired assets included buildings, building
improvements, and machinery and equipment used in certain
of the Company’s manufacturing and research and develop-
ment activities.
The projected future cash flows from these assets were
less than the carrying values of the assets. The carrying values
of the assets held for sale and the assets to be held and used
were reduced to their estimated fair values based on indepen-
dent appraisals of selling values and values of similar assets
sold, less costs to sell. In 1998, the Company recorded losses
from impairment of assets of $12,634,000, which were record-
ed as restructuring costs. The Company completed the dispo-
sitions in 1999. At December 31, 1998, subsequent to the
write-down for impairments, the carrying amount of the assets
held for disposal and assets to be held and used was
$13,678,000 and $4,582,000, respectively. The Company con-
tinued to depreciate the assets that were held and used but
did not further depreciate the assets held for disposition. The
effect on depreciation for the year ended December 31, 1999
did not materially impact the Company’s results of operations
and management does not expect this effect to materially
impact future results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS