Callaway 2001 Annual Report Download - page 57

Callaway Golf Company
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leases as of December 31, 2001 are as follows:
(in thousands)
2002 $ 7,598
2003 2,792
2004 2,039
2005 1,929
2006 1,974
Thereafter 1,922
$ 18,254
Future minimum lease payments have not been reduced by future minimum
sublease rentals of $1,882,000 under an operating lease. At December 31,
2001, the Company is contingently liable for $3,167,000 through February
2003 under an operating lease that was assigned to a third party (Note 12).
Rent expense for the years ended December 31, 2001, 2000, and 1999 was
$3,759,000, $3,197,000 and $2,315,000, respectively. Rent expense for 1999
does not include a credit of $6,076,000 related to the reversal of a restructur-
ing reserve for excess lease costs (Note 12).
Employment Contracts The Company has entered into employment con-
tracts with each of the Company’s officers. These contracts generally provide
for severance benefits, including salary continuation, if the officer is termi-
nated by the Company for convenience or by the officer for substantial cause.
In addition, in order to assure that the officers would continue to provide
independent leadership consistent with the Company’s best interests in the
event of an actual or threatened change in control of the Company, the con-
tracts also generally provide for certain protections in the event of such a
change in control. These protections include the extension of employment
contracts and the payment of certain severance benefits, including salary
continuation, upon the termination of employment following a change in
control. The Company is also generally obligated to reimburse such officers
for the amount of any excise taxes associated with such benefits.
NOTE 12
Restructuring
In 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 main-
taining 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 business to reflect current and expected busi-
ness conditions. These initiatives were completed during 1999, with the excep-
tion of cash outlays related to the assignment of a lease obligation for a facility
in New York City that continued through July 2000. During 1999, the Company
incurred charges of $1,295,000 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 accrual in
1998. The Company also incurred charges of $749,000 during 1999 related to
asset dispositions and other restructuring activities for which reserves were not
established in 1998. Additionally, in 1999, the Company reversed $8,609,000 of
the reserve as actual amounts differed from estimates established in 1998. The
reversal was primarily attributable to the $6,076,000 reversed as a result of the
assignment of a lease obligation at terms significantly more favorable than esti-
mated at the establishment of the reserve combined with the $1,470,000 rever-
sal related to the disposition of two buildings at higher sales prices than esti-
mated. No charges were incurred during 2000 and during the third quarter of
2000, the restructuring reserve balance was fully depleted.
NOTE 13
Acquisitions and Reorganizations
During the first quarter of 2001, the Company acquired distribution rights and
substantially all of the assets from its distributors in Spain and Australia for
$4,400,000 and $1,400,000, respectively. These acquisitions were accounted for
using the purchase method. On December 29, 2000, the Company consolidat-
ed a wholly-owned subsidiary, Callaway Golf Ball Company, with the Company.
During 1999, the Company acquired distribution rights and substantially all of
the assets from its distributor in Ireland for $810,000. Also in 1999, the
Company merged its subsidiary, Callaway Golf Europe, S.A., with another of its
subsidiaries, Callaway Golf Europe, Ltd. and now operates in France through a
satellite office. These acquisitions are not considered significant business com-
binations. Accordingly, pro forma financial information is not presented.
NOTE 14
Segment Information
The Company’s operating segments are organized on the basis of products and
include golf clubs and golf balls. The Golf Clubs segment consists of Callaway
Golf titanium and stainless steel metal woods and irons, Callaway Golf and Odyssey
putters and wedges and related accessories. The Golf Balls segment consists of
golf balls that are designed, manufactured, marketed and distributed by the
Company. There are no significant intersegment transactions. The tables below
contain information utilized by management to evaluate its operating segments.
(in thousands)
2001 2000 1999
Net sales
Golf Clubs $ 761,310 $ 803,663 $ 719,038
Golf Balls 54,853 33,964 —
$ 816,163 $ 837,627 $ 719,038
Income (loss) before tax
Golf Clubs $ 184,770 $ 213,786 $ 175,794
Golf Balls (17,868) (45,918) (36,097)
Reconciling items (1) (68,710) (38,546) (54,200)
$ 98,192 $ 129,322 $ 85,497
Identifiable assets (2)
Golf Clubs $ 343,741 $ 317,036 $ 303,905
Golf Balls 60,166 52,255 42,293
$ 403,907 $ 369,291 $ 346,198
(1) Represents corporate general and administrative expenses and other income (expense)
not utilized by management in determining segment profitability.
(2) Identifiable assets are comprised of net inventory, property, plant and equipment and
intangible assets. Total identifiable assets differ from total assets as a result of unidentified
corporate assets not segregated between the two segments.
The Company markets its products domestically and internationally, with its
principal international markets being Japan and Europe. The tables below
contain information about the geographical areas in which the Company
operates. Revenues are attributed to the location to which the product was
shipped. Long-lived assets are based on location of domicile.