Callaway 2000 Annual Report Download - page 22

Callaway Golf Company | 22
its line of credit under the Amended Credit Agreement. At
December 31, 2000, the Company had $117.3 million available,
net of outstanding letters of credit, under the Amended Credit
Agreement, subject to meeting certain availability requirements
under a borrowing base formula and other limitations. In addi-
tion, at December 31, 2000, there were no advances under the
Accounts Receivable Facility, leaving up to $80.0 million available
under this facility.
In May 2000, the Company announced that its Board of
Directors authorized it to repurchase its Common Stock in the
open market or in private transactions, subject to the Company’s
assessment of market conditions and buying opportunities from
time to time, up to a maximum cost to the Company of $100.0
million. The Company began its repurchase program in May 2000
and through December 31, 2000 has spent $80.5 million to repur-
chase 4.8 million shares of its Common Stock at an average cost
of $16.71 per share. Pursuant to the authority granted in May
2000, the Company may purchase up to $19.5 million in addi-
tional shares. If the Company continues to repurchase its Common
Stock under this program and/or under any future programs, the
Company’s liquidity would decrease.
As a result of the implementation of its plan to improve oper-
ating efficiencies (see “Restructuring” below), the Company
incurred charges of $54.2 million in the fourth quarter of 1998. Of
these charges, $25.5 million were estimated to be non-cash. Since
the adoption of this restructuring plan in the fourth quarter of
1998, the Company has made cash outlays for employee termina-
tion costs, contract cancellation fees, excess lease costs and other
expenses totaling $20.2 million, of which $1.4 million occurred in
2000. A portion of certain restructuring reserves totaling $8.6
million was reversed during 1999. At December 31, 2000, the
Company had a contingent liability that expires in February 2003
of $5.6 million relating to a facility in New York City (see Note 13
to the Consolidated Financial Statements).
Although the Company’s golf club operations are mature and
historically have generated cash from operations, the Company’s
golf ball operations completed the first year of operations in 2000
and to date have not generated cash flows sufficient to fund these
operations. The Company does not expect that its golf ball opera-
tions will generate sufficient cash to fund these operations in the
next 12 months. However, based upon its current operating plan,
analysis of its consolidated financial position and projected future
results of operations, the Company believes that its operating
cash flows, together with its credit facilities, will be sufficient to
finance current operating requirements, including planned capital
expenditures and purchase commitments. There can be no assur-
ance, however, that future industry specific or other developments,
general economic trends or other matters, will not adversely affect
the Company’s operations or its ability to meeting its future cash
requirements (see “Certain Factors Affecting Callaway Golf
Company” below).
RESTRUCTURING
During the fourth quarter of 1998, the Company recorded a restruc-
turing charge of $54.2 million 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 Golf, Inc. (“Odyssey”), into the
operations of the Company while maintaining the distinct and sepa-
rate Odyssey® brand image; 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 expected business conditions.
The restructuring charges primarily related to: 1) the elimination of
job responsibilities, resulting in costs incurred for employee sever-
ance; 2) the decision to exit certain non-core business activities,
resulting in losses on disposition of assets, 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. During 1999, the Company completed its
restructuring initiatives. At December 31, 2000, there was no
remaining reserve balance. The decrease in the reserve balance
since December 31, 1999 of $1.4 million represents cash paid for
excess lease costs for a facility in New York City. The Company also
has a contingent liability related to this facility (see Notes 13
and 14 to the Consolidated Financial Statements).
CERTAIN FACTORS AFFECTING CALLAWAY GOLF COMPANY
The financial statements included in this report and related dis-
cussion report and analyze the Company’s financial performance
and condition for the periods indicated. For the most part, this
information is historical. The Company’s prior results, however,
are not necessarily indicative of the Company’s future perfor-
mance or financial condition. The Company therefore has included
the following discussion of certain factors which could affect the
Company’s future performance or financial condition. These fac-
tors could cause the Company’s future performance or financial
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS