Callaway 2014 Annual Report Download - page 52

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• $0.8 million and $0.2 million, respectively, for the year ended December 31, 2012 in connection with the Company’s
reorganization and reinvestment initiatives that were announced in June 2011.
• See Note 3 “Restructuring Initiatives” in the Notes to Consolidated Financial Statements in this Form 10-K for
details regarding the initiatives referenced herein.
(3) Reconciling items represent corporate general and administrative expenses and other income (expense) not included by
management in determining segment profitability. For the year ended December 31, 2013, the reconciling items include:
• Pre-tax charges of $3.2 million in connection with the Cost Reduction Initiatives; and
• Net gains of $5.9 million related to foreign currency hedging contracts offset by foreign currency transaction losses.
For the year ended December 31, 2012, the reconciling items include:
• Pre-tax charges of $7.1 million in connection with the Cost Reduction Initiatives;
• A pre-tax gain of $6.6 million in connection with the sale of the Top-Flite and Ben Hogan brands (see Note 8
“Goodwill and Intangible Assets” in the Notes to Consolidated Financial Statements in this Form 10-K); and
• Net gains of $3.2 million related to foreign currency hedging contracts offset by foreign currency transaction losses.
Pre-tax income in the Company’s golf clubs operating segment improved to pre-tax income of $32.7 million for 2013
from a pre-tax loss of $60.3 million for 2012. This increase was primarily attributable to a $65.5 million increase in gross
margin combined with an increase in net sales as discussed above and a decrease in operating expenses as a result 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 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 loss in the Company’s golf balls operating segment improved to $3.4 million for 2013 from $14.5 million for
2012. This improvement was primarily attributable to a decrease in operating expenses as a result of net savings realized from
the Cost Reduction Initiatives combined with a $1.0 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.
Financial Condition
The Company’s cash and cash equivalents increased $0.8 million to $37.6 million at December 31, 2014, from $36.8
million at December 31, 2013. Cash generated from operating activities increased by $45.8 million to $36.9 million during
2014 compared to cash used of $8.9 million during 2013. In 2014, the Company used its cash and cash equivalents as well
as cash generated from operations to pay down outstanding borrowings on the ABL Facility, as well as to fund $10.8 million
in capital expenditures and $14.8 million in investments in golf-related ventures. The increase in cash provided by operating
activities was primarily due to an increase in net income combined with a decline in inventory purchases primarily due to
timing. Management expects to fund the Company’s future operations from current cash balances and cash provided by its
operating activities combined with borrowings under the ABL Facility, as deemed necessary (see Note 4 "Financing
Arrangements" in the Notes to Consolidated Financial Statements in this Form 10-K for further information on the ABL
Facility).
The Company’s accounts receivable balance fluctuates throughout the year as a result of the general seasonality of the
Company’s business. The Company’s accounts receivable balance will generally be at its highest during the first and second
quarters and decline significantly during the third and fourth quarters as a result of an increase in cash collections and lower
sales. As of December 31, 2014, the Company’s net accounts receivable increased $17.6 million to $109.8 million from $92.2
million as of December 31, 2013. This increase was primarily attributable to an increase in net sales in the fourth quarter of
2014 compared to the fourth quarter of 2013, combined with a decrease in past due receivables.