Callaway 2009 Annual Report Download - page 51

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Golf Balls Segment
Net sales information for the golf balls segment is summarized as follows (dollars in millions):
Years Ended
December 31, Decline
2009 2008 Dollars Percent
Net sales:
Golf balls ................................................. $180.9 $223.1 $(42.2) (19)%
The $42.2 million (19%) decrease in net sales of golf balls to $180.9 million for the year ended
December 31, 2009, was primarily due to decreases of $32.0 million in Callaway Golf ball sales and $10.0
million in Top-Flite golf balls sales. These decreases were primarily due to decreases in average selling prices
and sales volume for both Callaway Golf and Top-Flite golf balls. The decrease in average selling prices was
negatively affected by a shift in mix as a result of the launch of moderately priced golf balls in 2009 compared to
more premium golf balls in 2008 for both the Callaway Golf and Top-Flite brands, in addition to various sales
promotions during 2009 and price reductions taken on older Tour Series golf balls. The decrease in sales volumes
was affected by fewer golf ball models launched during 2009 compared to 2008 for both the Callaway Golf and
Top-Flite brands.
Segment Profitability
Profitability by operating segment is summarized as follows (dollars in millions):
Years Ended
December 31, Decline
2009 2008 Dollars Percent
Income (loss) before income taxes
Golf clubs ...................................... $38.9 $134.0 $ (95.1) (71)%
Golf balls ....................................... (13.9) 6.9 (20.8) (301)%
Reconciling items(1)(2) ............................. (54.6) (39.6) (15.0) (38)%
$(29.6) $101.3 $(130.9) (129)%
(1) Reconciling items represent the deduction of corporate general and administration expenses and other
income (expenses), which are not utilized by management in determining segment profitability. For further
information on segment reporting see Note 18 to the Consolidated Financial Statements—“Segment
Information” in this Form 10-K.
(2) Reconciling items for 2008 include the reversal of an energy derivative valuation account, which resulted in
a non-cash, non-operational benefit to income of $19.9 million. See Note 10 “Derivatives and Hedging” to
the Consolidated Financial Statements included in this Form 10-K.
Pre-tax income in the Company’s golf clubs operating segment decreased to $38.9 million for the year
ended December 31, 2009, from $134.0 million for the year ended December 31, 2008. This decrease was
primarily attributable to the unfavorable economic conditions which resulted in an overall decline in net sales as
discussed above combined with a decline in gross margin. The decline in gross margin is primarily due to sales
promotions initiated during 2009 and price reductions taken on drivers and irons, as well as the impact of
unfavorable changes in foreign currency rates during 2009 compared to 2008. These decreases in gross margin
were partially offset by cost savings resulting from the Company’s gross margin improvement initiatives,
including cost reductions on club components derived from more cost efficient club designs and sourcing of raw
materials, a favorable shift in golf club production to more cost efficient regions outside the U.S and an increase
in labor efficiencies.
Pre-tax income (loss) in the Company’s golf balls operating segment decreased to a pre-tax loss of $13.9
million for the year ended December 31, 2009, from pre-tax income of $6.9 million for the year ended
December 31, 2008. This decrease was primarily due to the unfavorable economic conditions which resulted in
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