Callaway 2012 Annual Report Download - page 53

gross margin, offset by a decrease in operating expenses. The decrease in gross margin was primarily driven by
$16.6 million of charges incurred in connection with the Company’s Cost Reduction Initiatives announced in
July 2012, compared to $6.3 million of charges incurred in 2011 related to the Company’s Reorganization and
Reinvestment and GOS Initiatives. This decrease was partially offset by an increase in average selling prices due
to the current year launch of the premium Hex Black Tour golf ball, with no comparable launch in the prior year.
Years Ended December 31, 2011 and 2010
Net sales for the year ended December 31, 2011 decreased $81.2 million (8%) to $886.5 million compared
to $967.7 million for the year ended December 31, 2010. This decrease was due to a decline in sales in the golf
clubs and golf balls segments, as noted below (dollars in millions):
Years Ended
December 31, Decline
2011 2010 Dollars Percent
Net sales:
Golf clubs ................................................. $726.1 $791.1 $(65.0) (8)%
Golf balls ................................................. 160.4 176.6 (16.2) (9)%
$886.5 $967.7 $(81.2) (8)%
For further discussion of each operating segment’s results, see “Golf Club and Golf Ball Segments Results”
below.
Net sales information by region is summarized as follows (dollars in millions):
Years Ended
December 31, Growth (Decline)
2011 2010 Dollars Percent
Net sales:
United States ............................................... $419.4 $468.2 $(48.8) (10)%
Europe .................................................... 133.6 130.1 3.5 3%
Japan ..................................................... 149.8 164.8 (15.0) (9)%
Rest of Asia ............................................... 82.7 89.5 (6.8) (8)%
Other foreign countries ....................................... 101.0 115.1 (14.1) (12)%
$886.5 $967.7 $(81.2) (8)%
Net sales in the United States decreased $48.8 million (10%) to $419.4 million during 2011 compared to
2010. This decrease was primarily due to the timing of planned product launches as well as an unfavorable shift
in the competitive landscape driven by the success of certain competitor products launched in 2011. The
Company’s sales in regions outside of the United States decreased $32.4 million (6%) to $467.1 million during
2011 compared to the prior year. This decrease was largely caused by an unfavorable shift in the competitive
landscape combined with the natural disasters in Japan, Australia and in South East Asia in 2011. These
decreases were partially offset by increases in sales in Europe and in some of the Company’s emerging markets
(China and India). The Company’s reported net sales in regions outside the United States during 2011 were
favorably affected by the translation of foreign currency sales into U.S. dollars based upon 2011 exchange rates.
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 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
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