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32
Note 3 “Restructuring Initiatives” in the Notes to Consolidated Financial Statements in this Form 10-K for details
regarding this initiative).
(3) Reconciling items represent corporate general and administrative expenses and other income (expense) not included by
management in determining segment profitability. The reconciling items include:
• Pre-tax charges of $3.2 million in connection with the Cost Reduction Initiatives for the year ended December 31,
2013; and
• Net gains of $5.9 million for the year ended December 31, 2013 related to foreign currency hedging contracts offset
by foreign currency transaction losses. Net gains related to foreign currency were nominal for the year ended
December 31, 2014.
Pre-tax income in the Company’s golf clubs operating segment improved to $50.9 million for 2014 from $32.7 million
for 2013. This increase was driven by an increase in net sales as discussed above combined with an increase in gross margin,
offset by an increase in operating expenses. The increase in gross margin was primarily driven by (i) a favorable shift in sales
mix to the higher margin Big Bertha family of drivers and irons in 2014 compared to the X Hot family of drivers and irons
in 2013; (ii) an increase in average selling prices on the X2 Hot family of drivers, fairway woods and irons in 2014 compared
to the X Hot golf club products in 2013; (iii) cost savings from improved manufacturing and distribution efficiencies; and (iv)
charges incurred in 2013 in connection with the Company's Cost Reduction Initiatives. These increases were partially offset
by (i) an increase in club component costs due to more expensive materials and technology incorporated into certain woods
and putter products launched in 2014, and (ii) the net unfavorable impact of changes in foreign currency rates year over year.
The increase in operating expenses during 2014 compared to 2013 was primarily due to an increase in marketing expenses,
as discussed above.
Pre-tax income in the Company’s golf balls operating segment improved to $15.2 million for 2014 from pre-tax loss of
$3.4 million for 2013. This increase was attributable to an increase in gross margin as well as an increase in net sales as
discussed above, combined with a slight decrease in operating expenses. The increase in gross margin was primarily driven
by (i) the launch of the premium Speed Regime golf balls in 2014 with no comparable premium launch in 2013, combined
with an increase in average selling prices on value-priced golf balls; and (ii) cost savings from improved manufacturing and
distribution efficiencies. These increases were partially offset by the net unfavorable impact of changes in foreign currency
rates year over year.
Years Ended December 31, 2013 and 2012
Net sales for the year ended December 31, 2013 increased $8.7 million (1%) to $842.8 million compared to $834.1
million for the year ended December 31, 2012. This increase was primarily due to an increase in sales of woods and irons
resulting from the successful performance of the Company’s X Hot products which were introduced during 2013. This increase
was offset by the sale of the Top-Flite and Ben Hogan brands in 2012 combined with a decline in sales of the Company’s
accessories and other products due to the transition of the Company’s apparel and footwear sales in the United States to a
licensing arrangement during the second half of 2012. Combined, the sale/transition of these businesses negatively affected
sales by approximately $57.2 million in 2013 compared to 2012. Additionally, the Company’s net sales in 2013 were negatively
impacted by $39.8 million resulting from unfavorable fluctuations in foreign currency rates. The Company’s net sales by
operating segment are presented below (dollars in millions):
Years Ended
December 31, Growth/(Decline)
2013(1) 2012(1) Dollars Percent
Net sales:
Golf clubs............................................................................................ $ 711.7 $ 695.5 $ 16.2 2 %
Golf balls............................................................................................. 131.1 138.6 $ (7.5)(5)%
$ 842.8 $ 834.1 $ 8.7 1 %
(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. In each of the years ended
December 31, 2013 and 2012, this resulted in an increase in net sales of $1.0 million in the golf clubs segment and a
corresponding decrease in net sales in the golf balls segment.