Callaway 2011 Annual Report Download - page 50

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(1) Certain prior period amounts have been reclassified to conform to the current year presentation.
(2) In 2011, the Company incurred total pre-tax charges of $24.7 million in connection with the Global
Operations Strategy initiatives that were announced in 2010. Of these total charges, $15.6 million and
$5.0 million were absorbed by the Company’s golf clubs and golf balls operating segments, respectively,
and $4.1 million were recognized in corporate general and administrative expenses. In 2010, the Company
incurred total pre-tax charges of $14.8 million in connection with these initiatives, of which $12.1 million
and $0.8 million were absorbed by the Company’s golf clubs and golf balls operating segments,
respectively, and $1.9 million were recognized in corporate general and administrative expenses. See Note 3
“Restructuring Initiatives” in the Notes to Consolidated Financial Statements included in this Form 10-K).
(3) In 2011, the Company recognized pre-tax charges of $16.3 million in connection with the Reorganization
and Reinvestment Initiatives, of which $5.6 million and $1.3 million were absorbed by the Company’s golf
clubs and golf balls operating segments, and $9.4 million were recognized in corporate general and
administrative expenses. See Note 3 “Restructuring Initiatives” in the Notes to Consolidated Financial
Statements included in this Form 10-K). In 2010, the Company incurred pre-tax charges of $4.0 million
related to the workforce reductions announced in the fourth quarter in 2010, of which $1.3 million and $0.2
million were absorbed by the Company’s golf clubs and golf balls operating segments, respectively, and
$2.5 million were recognized in corporate general and administrative expenses.
(4) Reconciling items represent the deduction of corporate general and administration expenses and other
income (expenses), which are not utilized by management in determining segment profitability. In addition
to the amounts identified in notes 2 and 3 above, for 2011 and 2010, these reconciling items also include the
following: (i) pre-tax impairment charges of $6.5 million and $7.5 million, respectively, primarily related to
certain trademarks and trade names (see Note 9 “Goodwill and Intangible Assets” to the Notes to
Consolidated Financial Statements in this Form 10-K), (ii) net losses of $8.2 million and $11.7 million,
respectively, related to net realized and unrealized foreign currency hedging losses, offset by net foreign
currency transaction gains included in other income (expense), and (iii) a pre-tax gain of $6.2 million
recognized in 2011 in connection with the sale of certain buildings (see Note 7 “Sale of Buildings” to the
Notes to Consolidated Financial Statements in this Form 10-K). For further information on segment
reporting see Note 19 “Segment Information” to the Notes to Consolidated Financial Statements in this
Form 10-K.
Pre-tax income in the Company’s golf clubs operating segment decreased to a pre-tax loss of $3.9 million
for 2011 from pre-tax income of $39.2 million for 2010. This decrease was primarily attributable to the decrease
in net sales as discussed above combined with a decrease in gross margin. The decrease in gross margin was
primarily driven by incremental charges of $3.5 million in 2011 related to the final phase of the Company’s GOS
Initiatives. Gross margin was also negatively impacted by (i) a decrease in production volumes which resulted in
an unfavorable absorption of fixed costs, and (ii) the decline in sales in Japan which generally have the highest
gross margins of the Company’s sales. These decreases were partially offset by (i) cost savings resulting from the
Company’s GOS Initiatives including cost reductions on golf club components costs as a result of improved
product designs and sourcing of lower cost raw materials as well as reductions on club conversion costs
generated from labor savings on clubs produced in the Company’s new manufacturing facility in Monterrey,
Mexico, (ii) a decrease in close-out activity, and (iii) favorable changes in foreign currency rates in 2011. In
addition, in 2011, the golf clubs operating segment absorbed $5.6 million in charges related to the Company’s
Reorganization and Reinvestment Initiatives, most of which was recognized in operating expenses.
Pre-tax income in the Company’s golf balls operating segment decreased to a pre-tax loss of $12.7 million
for 2011 from pre-tax income of $2.6 million for 2010. This decrease was primarily attributable to the decrease
in net sales as discussed above combined with a decrease in gross margin. The decrease in gross margin was
primarily driven by incremental charges of $4.2 million in 2011 related to the final phase of the Company’s GOS
Initiatives. Gross margin was also negatively impacted by a decrease in production volumes which resulted in
unfavorable absorption of fixed costs as well as an increase in raw material costs used in the production and
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