Callaway 2013 Annual Report Download - page 48

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34
of net savings realized from the Cost Reduction Initiatives. The increase in gross margin was primarily driven by (i) a
favorable shift in sales mix from sales of lower margin golf accessories to increased sales of higher margin golf club
products primarily related to the current year success of the X Hot family of clubs; (ii) a decline in charges associated
with the Company's Cost Reduction Initiatives; and (iii) improved manufacturing efficiencies and lower costs resulting
from the Company's Cost Reduction Initiatives. These increases were partially offset by an increase in club component
costs due to more expensive materials and technology incorporated into the X Hot family of woods and White Hot Pro
putters, in addition to an unfavorable impact of foreign currency exchange rates.
Pre-tax income in the Company’s golf balls operating segment improved to $1.6 million for 2013 from pre-tax loss
of $15.0 million for 2012. This increase was primarily attributable to a decrease in operating expenses as a result of net
savings realized from the Cost Reduction Initiatives combined with a $6.6 million increase in gross margin, offset by a
decrease in net sales primarily due to the sale of the Top-Flite and Ben Hogan Brands, as discussed above. The increase
in gross margin was primarily driven by a decline in charges associated with the Company's Cost Reduction Initiatives
combined with less promotional activity in 2013 compared to the same period in the prior year. In 2012, the Company
had more closeout activity in connection with the sale of the Top-Flite brand. These increases were partially offset by an
unfavorable shift in sales mix in 2013 to higher sales of range and value priced golf balls from sales of premium golf
balls in 2012.
Years Ended December 31, 2012 and 2011
Net sales for the year ended December 31, 2012 decreased $52.4 million (6%) to $834.1 million compared to $886.5
million for the year ended December 31, 2011. This decrease was due to a decline in sales in both the golf clubs and golf
balls segments. The decline in sales in the golf clubs operating segment was primarily due to a decline in sales of irons
and woods. The decline in sales in the golf balls operating segment was primarily due to the Company’s sale of its Top-
Flite brand during 2012. These decreases were partially offset by an increase in putter sales due to the launch in 2012 of
the Company’s new Metal X putter platform as well as an increase in sales of the Company’s accessories and other
products due to increased sales of packaged sets, apparel and GPS devices. The Company’s net sales by operating segment
are presented below (dollars in millions):
Years Ended
December 31, Decline
2012 2011 Dollars Percent
Net sales:
Golf clubs............................................................................................. $ 694.5 $ 726.1 $ (31.6)(4)%
Golf balls.............................................................................................. 139.6 160.4 (20.8) (13)%
$ 834.1 $ 886.5 $ (52.4)(6)%
For further discussion of each operating segment’s results, see “Golf Clubs Segment” and “Golf Balls Segment”
results below.
Net sales information by region is summarized as follows (dollars in millions):
Years Ended
December 31, Growth/(Decline)
2012 2011 Dollars Percent
Net sales:
United States ........................................................................................ $ 392.1 $ 419.4 $ (27.3)(7)%
Europe.................................................................................................. 120.2 133.6 (13.4) (10)%
Japan .................................................................................................... 157.3 149.8 7.5 5 %
Rest of Asia.......................................................................................... 75.0 82.7 (7.7)(9)%
Other foreign countries ........................................................................ 89.5 101.0 (11.5) (11)%
$ 834.1 $ 886.5 $ (52.4)(6)%
Net sales in the United States decreased $27.3 million (7%) to $392.1 million during 2012 compared to $419.4
million in 2011. The Company’s sales in regions outside of the United States decreased $25.1 million to $442.0 million