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.

The table below depicts the activity and liability balances recorded as part of the GOS Initiatives and the Reorganization and Reinvestment Initiatives (in thousands). Amounts payable as of December 31, 2012 were included in accrued employee compensation and benefits, and amounts payable as of December 31, 2011 were included in accrued employee compensation and benefits and accounts payable and accrued expenses in the accompanying consolidated balance sheets. There were no amounts payable as of December 31, 2013.



	GOS Initiatives									Reorganization and Reinvestment Initiatives
	Workforce Reductions			Transition Costs			Asset Write-offs			Workforce Reductions				Total
Restructuring payable balance, December 31, 2010	$	3,268		$	384		$	—			$	—		$	3,652
Charges to cost and expense	4,702			17,527			2,451				16,329			41,009
Non-cash items	—			—			(2,451		)		(2,126		)	(4,577		)
Cash payments	(6,751		)	(17,856		)	—				(8,846		)	(33,453		)
Restructuring payable balance, December 31, 2011	$	1,219		$	55		$	—			$	5,357		$	6,631
Charges to cost and expense	(98		)	21			—				1,012			935
Cash payments	(985		)	(76		)	—				(6,316		)	(7,377		)
Restructuring payable balance, December 31, 2012	$	136		$	—		$	—			$	53		$	189
Cash Payments	$	(136	)	$	—		$	—			$	(53	)	$	(189	)
Restructuring payable balance, December 31, 2013	$	—		$	—		$	—			$	—		$	—

Cost Reduction Initiatives

In July 2012, the Company announced it was undertaking additional cost-reduction initiatives (the “Cost Reduction Initiatives”). These initiatives were designed to streamline and further simplify the Company’s organizational structure and change the manner in which the Company approaches and operates its business. The actions taken in 2012 included (i) a reduction in workforce that impacted all regions and levels of the organization in addition to other transition costs; (ii) greater focus on the Company’s core product lines including licensing to third parties the rights to develop, manufacture and distribute certain non-core product lines in the U.S. (e.g. apparel and footwear); (iii) transitioning the Company’s integrated device business to a third-party based model; and (iv) the reorganization of the Company’s golf ball manufacturing supply chain, including the sale and lease-back of the Company’s ball manufacturing facility in Chicopee, Massachusetts (Note 7), and the write-off of certain patents related to the Top-Flite brand (Note 8).

These initiatives are estimated to yield approximately $60,000,000 in annualized savings. In connection with these initiatives, the Company incurred total pre-tax charges of approximately $70,600,000, of which approximately two-thirds resulted in non-cash charges. As of December 31, 2013, the Company has completed the Cost Reduction Initiatives and will not incur future charges associated with these initiatives.

During the year ended December 31, 2013, the Company recognized charges of $16,556,000 in connection with the Cost Reduction Initiatives. Amounts recognized in cost of sales, operating expenses and other income (expense) totaled $11,149,000, $4,719,000 and $688,000, respectively, during the year ended December 31, 2013. See Note 19 for charges absorbed by the Company’s operating segments.

The table below depicts the total charges recognized in 2013 and 2012 and the liability balances relating to the Cost Reduction Initiatives (in thousands). Amounts payable as of December 31, 2013 and 2012 are included in accrued employee compensation and benefits and accounts payable and accrued expenses in the accompanying consolidated balance sheets.



	Cost Reduction Initiatives
	Workforce Reductions			Transition Costs			Asset Write-offs			Total
Charges to cost and expense ⁽¹⁾	$	14,506		$	6,719		$	32,836		$	54,061
Non-cash items	(448		)	(4,311		)	(32,836		)	(37,595		)
Cash payments	(9,527		)	(1,817		)	—			(11,344		)
Restructuring payable balance, December 31, 2012	$	4,531		$	591		$	—		$	5,122
Charges to cost and expense⁽²⁾	2,977			8,777			4,802			16,556
Non-cash items	—			(5,130		)	(4,802		)	(9,932		)
Cash payments	(6,702		)	(1,737		)	—			(8,439		)
Restructuring payable balance, December 31, 2013	$	806		$	2,501		$	—		$	3,307

(1) The pre-tax charges for the year ended December 31, 2012 included the following:


•	$14,506,000 in workforce reductions, in addition to $2,965,000 in other transition costs;


•	$5,810,000 primarily related to the write-off of inventory and long-lived assets in connection with the Company's decision to transition its golf apparel and golf footwear businesses in the U.S. to a third-party licensing arrangement;


•	$6,976,000 to write-off inventory related to the Company's decision to transition its integrated device business to a third-party based model, $4,345,000 to write-off property, plant and equipment related to uPro devices, and an impairment charge of $5,156,000 related to intangible assets and goodwill related to the uPlay, LLC acquisition (see Note 8); and


•	$14,303,000 related to the reorganization of the Company’s golf ball manufacturing supply chain.

(2) The pre-tax charges for the year ended December 31, 2013 included the following:


•	$2,977,000 in continued costs associated with workforce reductions, in addition to $4,459,000 in other transition costs;


•	$5,579,000 for the write down of assets and exit costs associated with the reorganization of golf ball manufacturing (see Note 10); and


•	$3,541,000 associated with the transition of the Company's golf apparel, golf footwear and integrated device businesses in the U.S. and Europe to a third-party licensing arrangement.