Callaway 2010 Annual Report Download - page 54

Download and view the complete annual report

Please find page 54 of the 2010 Callaway annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 126

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126

For the year ended December 31, 2009, gross profit decreased $143.0 million to $343.8 million from $486.8
million for the year ended December 31, 2008. Gross profit as a percentage of net sales (“gross margin”)
decreased to 36% for the twelve months ended December 31, 2009 compared to 44% for the comparable period
in 2008. The decrease in gross margin was primarily attributable to the unfavorable economic conditions and the
resulting reduction in sales volume during 2009, as well as the impact of sales promotions, price reductions, and
unfavorable changes in foreign currency rates. These declines were partially offset by cost reductions on golf
club component costs as well as an overall improvement in manufacturing efficiencies for both golf clubs and
golf balls as a result of the Company’s gross margin improvement initiatives. See “Segment Profitability” below
for further discussion of gross margins. Gross profit for 2009 was negatively affected by charges of $6.2 million
related to the Company’s gross margin improvement initiatives compared to $12.5 million in 2008.
Selling expenses decreased $27.2 million (9%) to $260.6 million for the year ended December 31, 2009,
compared to $287.8 million for the year ended December 31, 2008. As a percentage of sales, selling expenses
increased to 27% for the twelve months ended December 31, 2009 compared to 26% for the comparable period
of 2008. The dollar decrease in selling expenses was primarily due to cost reductions taken by the Company
during 2009, which included decreases of $15.5 million in advertising and promotional activities, $5.1 million in
employee costs and commissions and $4.6 million in travel and entertainment.
General and administrative expenses decreased $4.0 million (5%) to $81.5 million for the year ended
December 31, 2009, compared to $85.5 million for the year ended December 31, 2008. As a percentage of sales,
general and administrative expenses increased to 9% during the twelve months ended December 31, 2009
compared to 8% for the comparable period in 2008. The dollar decrease was primarily due to cost reductions
taken by the Company during in 2009, including $4.6 million in employee costs.
Research and development expenses increased $2.8 million (10%) to $32.2 million for the year ended
December 31, 2009 compared to $29.4 million for the year ended December 31, 2008. As a percentage of sales,
research and development expenses remained consistent at 3% during the twelve months ended December 31,
2009 and 2008. The increase was primarily due to an increase in employee costs as a result of the Company’s
entrance into the golf electronics market through the acquisition of uPlay, LLC, which was completed in
December 2008.
Other income decreased by $16.2 million for the year ended December 31, 2009, to $0.9 million compared
to $17.1 million for the year ended December 31, 2008. This decrease was attributable to the reversal in 2008 of
an energy derivative valuation account, which resulted in a non-cash, non-operational benefit of $19.9 million in
other income. For additional information regarding this valuation account, see Note 11 “Derivatives and
Hedging” to the Consolidated Financial Statements in this Form 10-K. This decrease in other income was
partially offset by a favorable decline of $2.9 million in interest expense due to a decrease in average borrowings
outstanding under the Company’s line of credit.
The effective tax rate for the year ended December 31, 2009, was 48.5% compared to 34.7% for the year
ended December 31, 2008. The tax rate in 2009 benefited from net favorable adjustments to previously estimated
tax liabilities from the release of tax contingencies related to the settlement of various issues under tax
examination and the expiration of the statute of limitations in significant states. The relative impact of these
discrete events when compared to the pre-tax loss for 2009 was greater than the relative impact of similar
discrete events when compared to pre-tax income for the prior year.
Net income (loss) for the year ended December 31, 2009, declined by $81.5 million to a net loss of
$15.3 million from net income of $66.2 million for the year ended December 31, 2008. Diluted earnings (loss)
per common share decreased to a loss of $0.33 per share (based on 63.2 million weighted average shares
outstanding) in the twelve months ended December 31, 2009 compared to diluted earnings of $1.04 per share
(based on 63.8 million weighted average shares outstanding) in the comparable period of 2008. In 2009, net loss
and loss per share were negatively affected by after-tax charges of $3.7 million ($0.06 per share) as a result of
40