Callaway 1999 Annual Report Download - page 22

20 CALLAWAY GOLF COMPANY
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
current operating plan, analysis of its consolidated financial
position and projected future results of operations, it will be
able to maintain its current level of its consolidated operations
including purchase commitments and planned capital expen-
ditures for the foreseeable future, through operating cash
flows and its credit facilities. There can be no assurance, how-
ever, that future industry specific or other developments, or
general economic trends, will not adversely affect the
Company’s operations or its ability to meet its future cash
requirements.
RESTRUCTURING
During the fourth quarter of 1998, the Company recorded a
restructuring charge of $54.2million 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 opera-
tions of the Company while maintaining the distinct and separate
Odyssey®brand; the discontinuation, transfer or suspension of
certain initiatives not directly associated with the Company’s
core business, such as the Company’s involvement with interac-
tive 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 expected business conditions.
These initiatives were completed during 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) pri-
marily related to: 1) the elimination of job responsibilities, result-
ing 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 Callaway Golf
Media Ventures (See Note 14 to the Consolidated Financial
Statements), a loss on the sale of the business of All-American
(See Note 14 to the Consolidated Financial Statements), as well
as excess lease costs; and 3) consolidation of the Company’s
continuing 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.
Details of the one-time charge are as follows:
(in thousands) Reserve Reserve
Cash/ One-Time Balance Balance
Non-Cash Charge Activity at 12/31/98 Activity(1) at 12/31/99
Elimination of Job Responsibilities $11,664 $8,473 $3,191 $3,191
Severance packages Cash 11,603 8,412 3,191 3,191
Other Non-cash 61 61
Exiting Certain Non-Core Business Activities $28,788 $12,015 $16,773 $15,394 $1,379
Loss on disposition of subsidiaries Non-cash 13,072 10,341 2,731 2,731
Excess lease costs Cash 12,660 146 12,514 11,135(2)1,379
Contract cancellation fees Cash 2,700 1,504 1,196 1,196
Other Cash 356 24 332 332
Consolidation of Operations $13,783 $2,846 $10,937 $10,937
Loss on impairment/disposition of assets Non-cash 12,364 2,730 9,634 9,634(3)
Excess lease costs Cash 806 4 802 802(4)
Other Cash 613 112 501 501
(1) Includes reversal of reserve totaling $8.6million, as actual amounts differed from estimates. Significant reversals are noted below in (2) through (4).
(2) Includes reversal of $6.1million of reserve due to the assignment of lease obligation at terms significantly more favorable than estimated at the
establishment of the reserve.
(3) Includes reversal of $1.5million of reserve related to disposition of two buildings at higher sales prices than estimated.
(4) Includes reversal of $491,000 of reserve due to the sublease of a facility at terms more favorable than estimated at the establishment of the reserve.
During 1999, the Company incurred charges of $1.3million on the disposition of building improvements eliminated during the
consolidation of manufacturing operations, as well as other charges of $671,000. These charges did not meet the criteria for accru-
al in 1998. Additionally, the Company incurred charges of $749,000 related to asset dispositions and other restructuring activities
for which reserves were not established in 1998. Future cash outlays are anticipated to be completed by July 2000.