Callaway 2012 Annual Report Download - page 54

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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.
Net loss for the year ended December 31, 2011 increased to $171.8 million compared to $18.8 million in the
comparable period of 2010. Diluted loss per share increased to $2.82 in 2011 compared to $0.46 in 2010. The
Company’s net loss for the years ended December 31, 2011 and 2010 include the following charges (in millions):
2011 2010
Pre-tax Global Operation Strategy charges ......................................... $ (24.7) $(14.8)
Pre-tax impairment charges ..................................................... (6.5) (7.5)
Pre-tax charges related to the Reorganization and Reinvestment Initiatives ................ (16.3) —
Pre-tax gain on sale of buildings ................................................. 6.2 —
Income tax (provision) benefit(1) ................................................. (81.6) 16.8
Total charges ................................................................. $(122.9) $ (5.5)
(1) The Company’s income tax provision for 2011 includes charges of $52.5 million related to the
establishment of a valuation allowance against its U.S deferred tax assets, and $21.6 million related to the
recognition of certain prepaid tax expenses on intercompany profits. See Note 12 “Income Taxes” to the
Notes to Consolidated Financial Statements included in this Form 10-K.
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