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 $16,329,000 of charges related to these initiatives, of which $1,251,000 and $15,078,000 were recognized in cost of goods sold and operating expenses, respectively. Total charges absorbed by the Company’s golf clubs and golf balls operating segments were $5,642,000 and $1,329,000 respectively. The Company expects future estimated charges of $1,000,000, to be settled in cash, in 2012.

The table below depicts the activity and liability balances recorded as part of the Company’s GOS Initiatives and Reorganization and Reinvestment Initiatives as well as the current estimated future charges relating to these initiatives (in thousands). Amounts payable as of December 31, 2011 and December 31, 2010 were included in accounts payable and accrued expenses, and accrued employee compensation and benefits on the accompanying consolidated balance sheets.


	GOS Initiatives									Reorganization and Reinvestment Initiatives
	Workforce Reductions			Transition Costs			Asset Write-offs			Workforce Reductions			Total
Charges to cost and expense	$	5,177		$	7,861		$	1,778		$	—		$	14,816
Non-cash items		—			—			(1,778	)		—			(1,778	)
Cash payments		(1,909	)		(7,477	)		—			—			(9,386	)

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

Total future estimated charges as of December 31, 2011	$	—		$	—		$	—		$	1,000		$	1,000