Callaway 2015 Annual Report Download - page 48

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32
Golf Balls Segment
Net sales information for the golf balls segment is summarized as follows (dollars in millions):
Years Ended
December 31, Growth
Constant Currency
Growth vs. 2014
2015 2014 Dollars Percent Percent
Net sales:
Golf balls ............................................................................ $ 143.1 $ 137.0 $ 6.1 4% 10%
Net sales of golf balls increased $6.1 million (4%) to $143.1 million for the year ended December 31, 2015 compared
to the prior year. On a constant currency basis, net sales of golf balls would have increased by 10% compared to the net sales
reported in 2014. This increase was driven by increases in sales volume and average selling prices resulting from a favorable
shift in product mix due to the success of the Chrome Soft golf ball in the current year.
Segment Profitability
Profitability by operating segment is summarized as follows (dollars in millions):
Years Ended
December 31, Growth/(Decline)
2015 2014 Dollars Percent
Income before income taxes:
Golf clubs.......................................................................................................... $ 53.0 $ 50.9 $ 2.1 4 %
Golf balls .......................................................................................................... 17.7 15.2 2.5 16 %
Reconciling items(1) .......................................................................................... (50.6)(44.5)(6.1)14%
$ 20.1 $ 21.6 $ (1.5)(7)%
(1) Reconciling items represent corporate general and administrative expenses and other income (expense) not included by
management in determining segment profitability. The $6.1 million increase in reconciling items in 2015 compared to
2014 includes increases in stock compensation expense and professional fees, partially offset by a decrease in legal
expenses combined with an increase in net foreign currency gains.
Pre-tax income in the Company’s golf clubs operating segment improved to $53.0 million for 2015 from $50.9 million
for 2014. This increase was driven by an increase in gross margin combined with a decrease in operating expenses, offset by
a decrease in net sales as discussed above. The increase in gross margin was primarily due to (i) a favorable shift in product
mix within the irons category due to sales of higher margin XR and Big Bertha irons and Mac Daddy 3 wedges in 2015; (ii)
a favorable shift in product mix within the putters category due to the success of the current year launch of the Odyssey Works
putter line; (iii) an increase in average selling prices within the woods category primarily due to the XR line of hybrids, which
were launched at a higher average selling price compared to the X2 Hot line of hybrids launched in 2014; (iv) a decrease in
closeouts and promotional activity primarily within the woods, irons and putters categories; and (v) improved operational
efficiencies. These increases were partially offset by decreased sales (due to unfavorable changes in foreign currency exchange
rates period over period), and an increase in club component costs due to higher cost materials and technology incorporated
into certain hybrid and putter product models. The decrease in operating expenses was primarily due to a decrease in depreciation
expense and marketing expenses combined with the favorable impact of changes in foreign currency exchange rates on
expenses.
Pre-tax income in the Company’s golf balls operating segment improved to $17.7 million for 2015 from $15.2 million
for 2014. This increase was attributable to an increase in gross margin as well as an increase in net sales as discussed above,
offset by an increase in operating expenses. The increase in gross margin was primarily due to a favorable shift in product
mix due to sales of the higher margin Chrome Soft golf balls in 2015, compared to higher sales of lower margin mid- and
value-priced golf balls in 2014, partially offset by unfavorable changes in foreign currency exchange rates period over period.
The increase in operating expenses was due to an increase in marketing spending on golf balls period over period, partially
offset by favorable changes in foreign currency exchange rates on expenses.