Callaway 2000 Annual Report Download - page 44

injunctive relief. On September 12, 2000, Callaway Golf answered
the complaint and asserted affirmative counterclaims against
Bridgestone seeking a judicial declaration that Callaway Golf does
not infringe the Bridgestone patents, that the patents are invalid,
and that Bridgestone engaged in inequitable conduct in the
United States Patent and Trademark Office. On October 13, 2000,
Bridgestone and the retailer defendant entered into a consent
judgment discontinuing the U.S. Action against the retailer. The
parties are engaged in discovery. No trial date has been set by the
District Court.
On December 14, 2000, Bridgestone filed an action in the
Tokyo, Japan, District Court asserting patent infringement against
Callaway Golf’s wholly-owned subsidiary, Callaway Golf K.K., based
on its sale of Rule 35® golf balls in Japan (the “Japan Action”).
Only one of the Bridgestone golf ball patents at issue in the U.S.
Action has issued in Japan. Callaway Golf K.K. has denied the
claims asserted in the Japan Action.
The Company and its subsidiaries, incident to their business
activities, are parties to a number of legal proceedings, lawsuits
and other potential claims. Such matters are subject to many
uncertainties and outcomes are not predictable with assurance.
Consequently, management is unable to ascertain the ultimate
aggregate amount of monetary liability, amounts which may be
covered by insurance, or the financial impact with respect to these
matters as of December 31, 2000. However, management believes
that the final resolution of these matters, individually and in the
aggregate, will not have a material adverse effect upon the
Company’s annual consolidated financial position, results of oper-
ations 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. The 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 min-
imum lease payments under non-cancelable operating leases hav-
ing initial or remaining non-cancelable terms in excess of one year
as of December 31, 2000 are as follows:
(in thousands)
2001 $12,264
2002 7,114
2003 2,041
2004 1,889
2005 1,744
Thereafter 4,113
$29,165
Future minimum lease payments have not been reduced by
future minimum sublease rentals of $1,928,000 under an operat-
ing lease. At December 31, 2000, the Company is contingently
liable for $5,625,000 through February 2003 under an operating
lease that was assigned to a third party (Note 14). Rent expense
for the years ended December 31, 2000, 1999 and 1998 was
$3,197,000, $2,315,000 and $17,654,000, 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 14). Rent expense for 1998 includes $13,466,000 in excess
lease costs related to the Company’s restructuring activities (Note
14). The Company had no capital leases at December 31, 2000.
Note 14
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 suspension 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 busi-
ness 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 continued 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 cer-
tain non-core business activities, resulting in losses on disposition
of the Company’s 80% interest in CGMV (Note 15), a loss on the
sale of the business of All-American (Note 15), 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 admin-
istrative 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 quar-
ter of 1999.
Callaway Golf Company | 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS