Callaway 2011 Annual Report Download - page 47

Download and view the complete annual report

Please find page 47 of the 2011 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 118

  • 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

If 2010 rates were applied to 2011 reported sales in regions outside the U.S. and all other factors were held
constant, net sales in such regions would have been $29.0 million less than the net sales reported for 2011.
Gross profit decreased $54.2 million to $311.3 million in 2011 from $365.5 million in 2010. Gross profit as
a percentage of net sales (“gross margin”) decreased to 35% in 2011 compared to 38% in 2010. The decrease in
gross margin was primarily attributable to (i) a decrease in production volumes which resulted in unfavorable
absorption of fixed costs, (ii) the recognition of certain costs in connection with the final phase of the Company’s
GOS Initiatives, and (iii) a decline in sales in Japan which generally have the highest gross margins of the
Company’s sales. These decreases were partially offset by (i) cost reductions on golf club components costs as
well as reductions on club conversion costs primarily related to the Company’s GOS Initiatives, (ii) a reduction
of closeout activity across most product categories, and (iii) favorable changes in foreign currency in 2011. See
“Segment Profitability” below for further discussion of gross margins.
Selling expenses increased by $8.0 million to $265.3 million (30% of net sales) for the year ended
December 31, 2011 compared to $257.3 million (27% of net sales) in the comparable period of 2010. The dollar
increase was primarily due to increases of $5.8 million in advertising and promotional activities and $5.1 million
in charges related to the Company’s Reorganization and Reinvestment Initiatives, partially offset by a decrease
of $4.8 million in employee costs.
General and administrative expenses decreased by $5.7 million to $92.8 million (10% of net sales) for the
year ended December 31, 2011 compared to $98.4 million (10% of net sales) in the comparable period of 2010.
This decrease was primarily due to a reduction of $8.8 million in employee related expenses and a $6.2 million
net gain recognized in connection with the sale of three of the Company’s buildings in March 2011. These
decreases were partially offset by charges of $9.4 million related to the Company’s Reorganization and
Reinvestment Initiatives.
Research and development expenses decreased by $2.1 million to $34.3 million (4% of net sales) for the
year ended December 31, 2011 compared to $36.4 million (4% of net sales) in the comparable period of 2010
primarily due to a reduction of $1.4 million in employee related charges.
Other expense decreased by $2.9 million to $8.1 million for the year ended December 31, 2011 compared to
$11.0 million in the comparable period of 2010. This decrease was primarily attributable to a decrease in net
foreign currency hedging losses.
The Company’s provision for income taxes totaled $81.6 million for the year ended December 31, 2011,
compared to an income tax benefit of $16.8 million in the comparable period of 2010. In 2011, the Company
recorded tax expense of $52.5 million in order to establish a valuation allowance against its U.S. deferred tax
assets, which also resulted in the recognition of certain prepaid tax expenses of $21.6 million related to
intercompany profits. The Company recognized income tax expense despite pre-tax losses in 2011 due to the
impacts of (i) the establishment of a valuation allowance against net U.S. deferred tax assets, (ii) the recognition
of prepaid tax expenses, and (iii) the recognition of tax expense calculated on foreign pre-tax income. Due to the
effects of its deferred tax asset valuation allowance, the Company’s effective tax rate for the year ended
December 31, 2011 is not comparable to the effective tax rate for the year ended December 31, 2010 as the
Company’s income tax amount is not directly correlated to the amount of its pre-tax income.
33