Callaway 2013 Annual Report Download - page 85

F-15
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. This
restructuring, which was designed to add speed and flexibility to customer service demands, optimize efficiencies, and
facilitate long-term gross margin improvements, included 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 and only nominal charges were incurred in 2012. The
Company continues to maintain limited manufacturing and distribution facilities in Carlsbad, California and Chicopee,
Massachusetts.
In 2011, the Company recorded pre-tax charges of $24,680,000 in connection with this restructuring. The majority
of these charges were recognized within cost of sales. Costs incurred during 2012 were minimal. See Note 19 for charges
absorbed by the Company’s operating segments. In the aggregate through December 31, 2012, the Company recognized
total charges of $39,419,000 in connection with the GOS Initiatives.
The charges recognized under the GOS Initiatives include 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.
Reorganization and Reinvestment Initiatives
In June 2011, the Company began the implementation of certain restructuring initiatives (the “Reorganization and
Reinvestment Initiatives”) that involved (i) streamlining the Company’s organization to reduce costs, simplifying internal
processes, and increasing 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 resulted in annualized pre-tax savings of approximately $50,000,000 of which
approximately half were reinvested into the Callaway and Odyssey brands and demand creation initiatives.
In connection with these initiatives, during 2012, the Company recognized net pre-tax charges of $1,012,000, of
which $473,000 and $539,000 were recognized in cost of sales and operating expenses, respectively. In 2011, the Company
recognized total pre-tax charges $16,329,000, of which $1,251,000 and $15,078,000 were recognized in cost of sales and
operating expenses, respectively. In the aggregate, through December 31, 2012, the Company incurred total pre-tax
charges of $17,341,000 in connection with these initiatives.