Callaway 1997 Annual Report Download - page 7

8
R ESULTSOF O PERATIONS
Years Ended December 31, 1997 and 1996
For the year ended December 31, 1997, net sales increased
24% to $842.9 million compared to $678.5 million for
the prior year.The growth in sales included increases in the
sales of metal woods, irons, and putters. Metal wood sales
increased $65.1 million primarily due to sales of Biggest
Big Be rt h a
T M
Titanium Dr i vers. Iron sales increased
$65.4 million primarily due to sales of Great Big Bertha
®
Tungsten•Titanium
TM
Irons, which generated revenues of
$59.3 million for the year ended December 31, 1997. Also
contributing to the increase in net sales was the acquisition of
certain assets and liabilities of Odyssey Sports, Inc. by the
Company’s wholly-owned subsidiary, Odyssey Golf, Inc.
(“Odyssey”), which contributed $20.5 million in net sales.
For the year ended December 31, 1997, gross profit
increased to $442.8 million from $361.2 million in 1996
and cost of goods sold was re l a t i vely unchanged as a perc e n t-
age of sales from the prior year.
The Company accrues a provision for warranty expense
at the time of sale of its products. Based on the Company’s
warranty policies and historical rates of product returns, the
Company believes its accrual for warranty expense to be
adequate.
Selling expenses increased to $120.6 million in 1997
f rom $80.7 million in 1996. As a percentage of net sales, s e l l-
ing expenses increased to 14% from 12%. The $39.9 million
i n c rease was primarily due to increased promotional and tour
expenses, higher costs related to the Company’s performance
centers and additional selling expenses associated with the
addition of Odyssey.
General and administrative expenses decreased to
$70.7 million in 1997 from $74.5 million in 1996. The
$3.8 million decrease was primarily due to reduced employe e
bonus and profit sharing expenses, partially offset by incre a s e d
start-up costs associated with the Company’s golf ball opera-
tions and the addition of Odyssey.
Re s e a rch and development expenses increased to
$30.3 million in 1997 as compared to $16.2 million in 19 9 6 .
This $14.1 million increase resulted from increased expendi-
tures related to casting technologies, golf ball development
and product engineering efforts.
Litigation settlement expense of $12.0 million re p re s e n t s
the Company’s third quarter settlement of certain
litigation brought against it and certain officers of the
Company by a former officer of the Company.
M A N AG E M E N T ’ S D I S C U S S I O NA N D A N A L Y S I SO F
F I N A N C I A L C O N D I T I O NA N D R E S U LTSO F O PE R AT I O N S
During the fourth quarter of 19 97, the Company
re ve rsed an accrual for bonus compensation of approx i m a t e l y
$8.0 million due to the fact that certain operating targets
were not met.
Years Ended December 31, 1996 and 1995
For the year ended December 31, 1996, net sales increased
23% to $678.5 million compared to $553.3 million for
the prior year.This increase was attributable primarily to
increased sales of Great Big Bertha
®
Titanium Drivers, and
Great Big Bertha
®
Fairway Woods which were introduced in
January1996, combined with increased sales of Big Bertha
®
Irons. These sales increases were offset by a decrease in net
sales of Big Bertha
®
War Bird
®
Metal Woods.
For the year ended December 31, 1996, gross profit
i n c reased to $361.2 million from $283.2 million for the prior
year and gross margin increased to 53% from 51%. The
increase in gross margin was primarily the result of decreases
in component costs and manufacturing labor and overhead
costs associated with increased production volume and
improved labor efficiencies.
The Company accrues a provision for warranty expense
at the time of sale of its products. Based on the Company’s
warranty policies and historical rates of product returns,
the Company believes its accrual for warranty expense to be
adequate.
Selling expenses increased to $80.7 million in 1996 fro m
$64.3 million in 1995. The $16.4 million increase was pri-
marily due to increased tour endorsement, TV adve rtising and
e m p l oyee compensation expenses. As a percentage of net sales,
selling expenses remained constant at 12%.
General and administrative expenses increased to
$74.5 million in 1996 from $55.9 million in 1995. The
$18.6 million increase was related primarily to incre a s e d
e m p l oyee compensation and benefits, consulting costs associ-
ated with the Company’s business development initiatives and
i n c reases in computer support, legal and other general and
a d m i n i s t r a t i ve expenses. As a percentage of net sales, general and
a d m i n i s t r a t i ve expenses increased to 11% from 10 % .
Re s e a rch and development expenses increased to
$16.2 million in 1996 as compared to $8.6 million in 1995.
This increase resulted from increased staffing and operat i o n a l
expenses consistent with the Company’s efforts to pursue
potential new business opportunities and the continued focus
on existing core products.
Net interest income increased to $5.0 million in 1996
compared to $3.5 million in 1995. The increase in interest
income was due to the investment of higher average cash
balances.