Callaway 2014 Annual Report Download - page 49

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33
For further discussion of each operating segment’s results, see “Golf Clubs Segment” and “Golf Balls Segment” results
below.
Net sales information by region is summarized as follows (dollars in millions):
Years Ended
December 31, Growth/(Decline)
2013 2012 Dollars Percent
Net sales:
United States ....................................................................................... $ 401.5 $ 392.1 $ 9.4 2 %
Europe ................................................................................................. 121.5 120.2 1.3 1 %
Japan.................................................................................................... 161.6 157.3 4.3 3 %
Rest of Asia......................................................................................... 84.1 75.0 9.1 12 %
Other foreign countries ....................................................................... 74.1 89.5 (15.4) (17)%
$ 842.8 $ 834.1 $ 8.7 1 %
Net sales in the United States increased $9.4 million (2%) to $401.5 million during 2013 compared to $392.1 million
in 2012. This increase was primarily due to the successful performance of the X Hot products launched in 2013, partially
offset by significant decline in sales due to the sale of the Top-Flite and Ben Hogan brands in 2012 combined with a decline
in sales of the Company’s accessories and other products due to the transition of the Company’s apparel and footwear sales
in the United States to a licensing arrangement during the second half of 2012. The Company’s sales in regions outside of the
United States decreased slightly to $441.3 million in 2013 compared to $442.0 million in 2012. The Company’s reported net
sales in regions outside the United States in 2013 were unfavorably affected by the translation of foreign currency sales into
U.S. dollars based upon 2012 exchange rates. If 2012 exchange rates were applied to 2013 reported sales in regions outside
the United States and all other factors were held constant, net sales in such regions would have been $39.8 million higher than
reported during the year ended December 31, 2013.
Gross profit increased $66.6 million to $314.8 million in 2013 from $248.2 million in 2012. Gross profit as a percent
of net sales increased to 37.3% in 2013 compared to 29.8% in 2012. This increase in gross margin was primarily due to (i) a
favorable shift in sales mix from sales of lower margin golf accessories to increased sales of higher margin golf club products
in 2013 compared to 2012; (ii) a decline in charges associated with the Company's Cost Reduction Initiatives; and (iii) improved
manufacturing efficiencies resulting from the Cost Reduction Initiatives. These increases were partially offset by the
unfavorable impact of changes in foreign currency rates and an increase in club component costs.
Selling expenses decreased by $41.6 million to $226.5 million (26.9% of net sales) for the year ended December 31,
2013 compared to $268.1 million (32.1% of net sales) in the comparable period of 2012. This decrease was primarily due to
the Cost Reduction Initiatives, which resulted in a $21.7 million decline in employee costs, travel and entertainment costs,
consulting costs and expenses in connection with the Company's transition of its apparel and footwear businesses in the United
States to a licensing arrangement, in addition to a decrease of $14.4 million in marketing expenses.
General and administrative expenses increased by $1.3 million to $68.1 million (8.1% of net sales) for the year ended
December 31, 2013 compared to $66.8 million (8.0% of net sales) in the comparable period of 2012. This increase was
primarily due to the recognition of a $6.6 million net gain in connection with the sale of the Company’s Top-Flite and Ben
Hogan brands during the first half of 2012, in addition to a $4.3 million increase in bad debt expense in 2013. These increases
were partially offset by the Cost Reduction Initiatives, which resulted in a $5.4 million decline in employee costs, travel and
entertainment and expenses in connection with the Company's wind-down of its GPS device business, in addition to a decrease
of $4.2 million in professional fees and depreciation and amortization expense.
Research and development expenses increased by $1.4 million to $30.9 million (3.7% of net sales) for the year ended
December 31, 2013 compared to $29.5 million (3.5% of net sales) in the comparable period of 2012, primarily due to an
increase in employee costs as a result of accrued employee incentive compensation in 2013.
Interest expense increased by $3.6 million to $9.1 million for the year ended December 31, 2013 compared to $5.5
million in the comparable period of 2012. This increase was primarily due to the recognition of a full year of interest and debt
discount amortization expense in 2013 in connection with the convertible notes issued in August 2012.