According to the Company’s FORM 10-K for the fiscal year ended October 31, 2004, on November 8, 2004, the U.S. District Court entered a Final Approval of Settlement. Under the settlement, all claims will be dismissed and the litigation will be concluded in exchange for a payment of $15.25 million, approximately 82% of which will be paid by Ashworth’s insurance carriers. As part of the settlement, Ashworth also agreed to adopt modifications to certain corporate governance policies. Ashworth recorded a pre-tax charge of $3 million in the third quarter of fiscal year 2004 related to settlement of this suit.
As reported by the same SEC filing, in January 22, 1999, Milberg Weiss Bershad Hynes & Lerach LLP filed a class action in the United States District Court for the Southern District of California (“U.S. District Court”) on behalf of purchasers of the Company’s common stock during the period between September 4, 1997 and July 15, 1998. The action was subsequently consolidated with two similar suits and plaintiffs filed their Amended and Consolidated Complaint on December 17, 1999. Upon the Company’s motion, the U.S. District Court dismissed the Complaint with leave to amend on July 18, 2000. On September 18, 2000, plaintiffs served their Second Consolidated Amended Complaint (“Second Amended Complaint”). On November 6, 2000, the Company filed its motion to dismiss the Second Amended Complaint, which the U.S. District Court granted, in part, and denied, in part. The remaining portions of the Second Amended Complaint alleged that, among other things, during the class period and in violation of the Securities Exchange Act of 1934, the Company’s financial statements, as reported, did not conform to generally accepted accounting principles with respect to revenues
The original complaint alleges that during the class period, defendants knowingly or recklessly failed to disclose the following facts about Ashworth: a) Ashworth's new, redeveloped infrastructure, including its increasing use of offshore factories, was extremely troubled with inadequate quality-control testing and insufficient supervision, which, while generating short-term cost savings, would require dramatically higher costs in future periods to successfully manufacture, supervise and monitor manufacturing in these locations; b) due to problems in matching production with demnad, Ashworth had acucmulated large amounts of excessive inventories of its Basics product line. c) Ashworth's attempts to accelerate the relocation of larger amounts of its manufacturing operations offshore were resulting in significant operational inefficiencies and greatly increased expense and others allegations.