Callaway 2014 Annual Report Download - page 46

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30
expensive materials and technology incorporated into certain putters and woods products launched in 2014, and (ii) the net
unfavorable impact of changes in foreign currency rates.
Selling expenses increased by $7.7 million to $234.2 million (26.4% of net sales) for the year ended December 31, 2014
compared to $226.5 million (26.9% of net sales) in the comparable period of 2013, primarily due to a $6.2 million increase
in marketing and tour expenses.
General and administrative expenses decreased by $6.4 million to $61.7 million (7.0% of net sales) for the year ended
December 31, 2014 compared to $68.1 million (8.1% of net sales) in the comparable period of 2013. This decrease was
primarily due to a $5.4 million decrease in bad debt expense as a result of additional reserves taken in 2013 related to specific
accounts, in addition to a $2.2 million decrease in stock compensation expense as a result of a 9% decrease in the Company's
stock price in 2014. These decreases were partially offset by a $2.0 million increase in accrued employee bonus and
compensation.
Research and development expenses increased by $0.4 million to $31.3 million (3.5% of net sales) for the year ended
December 31, 2014 compared to $30.9 million (3.7% of net sales) in the comparable period of 2013, primarily due to an
increase in employee costs as a result of accrued employee incentive compensation in 2014.
Interest expense increased by $0.4 million to $9.5 million for the year ended December 31, 2014 compared to $9.1
million in the comparable period of 2013. This increase was primarily due to higher average outstanding borrowings in 2014.
Other income (expense) decreased by $6.1 million to expense of $0.1 million for the year ended December 31, 2014
compared to income of $6.0 million in the comparable period of 2013. This decrease was primarily due to a net decrease in
foreign currency contract gains in 2014.
The Company’s provision for income taxes was flat at $5.6 million for the year ended December 31, 2014, compared
to the comparable period of 2013. Due to the effects of the Company’s valuation allowance against its U.S. deferred tax assets,
the Company’s effective tax rate for 2014 is not comparable to its effective tax rate for 2013 as the Company’s provision for
income taxes is not directly correlated to its pretax income for 2014 and pretax loss for 2013.
Net income for the year ended December 31, 2014 increased to $16.0 million compared to a net loss of $18.9 million
in the comparable period of 2013. Diluted earnings per share improved to $0.20 in 2014 compared to a diluted loss per share
of $0.31 in 2013. The Company’s net loss for the year ended December 31, 2013 includes $16.6 million related to the Cost
Reduction Initiatives. There were no charges related to these initiatives recognized in 2014.
Golf Clubs Segment
Net sales information for the golf clubs segment by product category is summarized as follows (dollars in millions):
Years Ended
December 31, Growth/(Decline)
2014 2013(1) Dollars Percent
Net sales:
Woods.................................................................................................. $ 269.5 $ 249.8 $ 19.7 8 %
Irons .................................................................................................... 200.2 178.8 21.4 12 %
Putters.................................................................................................. 81.1 87.8 (6.7)(8)%
Accessories and other.......................................................................... 199.1 195.3 3.8 2 %
$ 749.9 $ 711.7 $ 38.2 5 %
(1) The prior year amounts have been reclassified to reflect the Company's current year allocation methodology related to
freight revenue and costs, certain discounts and other reserves not specific to a product type. This resulted in an increase
of net sales of $1.0 million in the golf clubs segment and a corresponding decrease in net sales in the golf balls segment.
The $19.7 million (8%) increase in net sales of woods to $269.5 million for the year ended December 31, 2014 resulted
from an increase in average selling prices combined with a slight increase in sales volume. The increase in average selling
prices was primarily due to the strong performance of the 2014 product line, including the more premium Big Bertha family
of woods compared to the same period in the prior year.