Callaway 2011 Annual Report Download - page 88

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From time to time, the Company enters into foreign currency forward contracts and put or call options for
the purpose of hedging foreign exchange rate exposures on existing or anticipated transactions. In the event of a
failure to honor one of these contracts by one of the banks with which the Company has contracted, management
believes any loss would be limited to the exchange rate differential from the time the contract was made until the
time it was settled.
Note 3. Restructuring Initiatives
Global Operations Strategy
In 2010, the Company began the implementation of its Global Operations Strategy Initiatives (“GOS
Initiatives”), which targeted the restructuring and relocation of the Company’s manufacturing and distribution
operations.
During the third quarter of 2010, as part of the Company’s GOS Initiatives, the Company announced the
restructuring of its golf club and golf ball manufacturing and distribution operations. This restructuring, which is
designed to add speed and flexibility to customer service demands, optimize efficiencies, and facilitate long-term
gross margin improvements, includes the reorganization of the Company’s manufacturing and distribution
centers located in Carlsbad, California, Toronto, Canada, and Chicopee, Massachusetts, the creation of third-
party logistics sites in Dallas, Texas and Toronto, Canada, as well as the establishment of a new production
facility in Monterrey, Mexico. This restructuring was completed in 2011. The Company intends to maintain
limited manufacturing and distribution facilities in Carlsbad, California and Chicopee, Massachusetts.
As a result of this restructuring, the Company has recognized non-cash charges for the acceleration of
depreciation on certain golf club and golf ball manufacturing equipment and cash charges related to severance
benefits and transition costs, which consist primarily of consulting expenses, costs associated with redundancies
during the start-up and training phase of the new production facility in Monterrey, Mexico, start-up costs
associated with the establishment of third-party logistics sites, travel expenses, and costs associated with the
transfer of inventory and equipment.
For the years ended December 31, 2011 and 2010, the Company recorded pre-tax charges of $24,680,000
and $14,816,000, respectively, in connection with this restructuring. Of these amounts, $20,590,000 and
$12,827,000 were recognized within cost of goods sold in 2011 and 2010, respectively, and $4,090,000 and
$1,989,000 were recognized within general and administrative expenses in 2011 and 2010, respectively. Of these
total charges, $15,552,000 and $12,065,000 were absorbed by the Company’s golf clubs segment in 2011 and
2010, respectively, and $5,038,000 and $762,000 were absorbed by the Company’s golf balls segment in 2011
and 2010, respectively. Charges of $4,090,000 and $1,989,000 related to corporate general and administrative
expenses were excluded from the Company’s operating segments in 2011 and 2010, respectively.
In the aggregate through December 31, 2011, the Company recognized total charges of $39,496,000 in
connection with the GOS Initiatives, which are in-line with management’s estimates. As of December 31, 2011,
the Company does not foresee additional future charges related to these initiatives.
Reorganization and Reinvestment Initiatives
In June 2011, the Company announced that it was implementing certain restructuring initiatives (the
“Reorganization and Reinvestment Initiatives”) that involve (i) streamlining the Company’s organization to
reduce costs, simplify internal processes, and increase focus on the Company’s consumers and retail partners,
(ii) reorganizing the Company’s organizational structure to place greater emphasis on global brand management
and improve the effectiveness of the Company’s key initiatives, and (iii) reinvesting in brand and demand
creation initiatives to drive sales growth. The Company’s restructuring plan is expected to result in annualized
pre-tax savings of approximately $50,000,000 with up to half of this savings to be reinvested into the Callaway
brand and more effective demand creation initiatives. The majority of these savings and reinvestments are
expected to be realized in 2012. During the year ended December 31, 2011, the Company recognized
F-14