Callaway 2002 Annual Report Download - page 16

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Ye ar Ended Decem be r 31,
(In millions, except per share amounts) 2002
Reported net income $ 69.4
Non-cash warranty reserve
adjustment, net of tax (10.5)
Adjusted net income $ 58.9
Basic earnings per share:
Reported net income $ 1.04
Non-cash warranty reserve
adjustment, net of tax (0.16)
Adjusted basic earnings per share $ 0.88
Diluted earnings per share:
Reported net income $ 1.03
Non-cash warranty reserve
adjustment, net of tax (0.16)
Adjusted diluted earnings per share $ 0.87
CALLAWAY GOLF COMPANY 13
The following summarizes what net income and earnings per
share would have been had the warranty reserve adjustment,
adjusted for taxes, been excluded from reported results:
The above adjusted net income and earnings per share
information has not been prepared in accordance with
accounting principles generally accepted in the United States.
This information is being provided as additional information for
interested readers and is not intended to be in lieu of the
Company’s reported results which were prepared in accordance
with accounting principles generally accepted in the United
States and which are discussed elsewhere in this report. The
Company’s management believes that this pro forma informa-
tion is useful because it believes the adjusted results more
accurately reflect the performance of the Company’s opera-
tions. The warranty reserve adjustment is a non-cash accounting
adjustment. The magnitude of the adjustment is unusual for
the Company and management does not believe that it is
reasonably likely that a similar adjustment of this magnitude
will be made within at least the next two fiscal years.
See below for a further discussion of the effect on the
Company’s net income of the warranty reserve reduction as well
as the non-cash energy derivative charge recorded in 2001.
Rece n t Ac coun t in g Pro n o unce m e n ts
Information regarding recent accounting pronouncements is
contained in Note 2 to the Consolidated Financial Statements
for the year ended December 31, 2002, which note is incorpo-
rated herein by this reference.
Resu lt s o f Operat io n s
Years Ended December 31, 2002 and 2001
Net sales decreased 3% to $792.1 million for the year ended
December 31, 2002 as compared to $816.2 million for the year
ended December 31, 2001. The overall decrease in net sales is
primarily due to a decrease in sales of woods, which decreased
$82.9 million (21%), combined with a slight decrease in iron
sales, which decreased $5.4 million (2%), in 2002 as compared
to 2001. The decrease in wood and iron sales was partially
offset by a $44.0 million (65%) increase in sales of putters, a
$11.1 million (20%) increase in sales of golf balls, and a $9.1
million (18%) increase in sales of accessories and other products
as compared to 2001. The decrease in net sales of woods was
expected due to the Company’s natural product life cycles with
higher priced titanium metal woods being in their second year
after introduction. The weakening of the U.S. dollar in relation
to other foreign currencies during 2002 had only a nominal
favorable impact on net sales. As compared to 2001, the
strengthening of foreign currency exchange rates favorably
impacted net sales for 2002 by approximately $1.1 million, as
measured by applying 2001 exchange rates to 2002 net sales.
The Company believes that its overall net sales during 2002
were negatively affected by adverse economic conditions and
continued economic uncertainty, particularly in the United
States, Japan and other parts of Asia. Many people in the
United States have lost a substantial amount of wealth in the
stock market, including some who have lost all or substantially
all of their retirement savings in connection with companies
that have recently failed. There also have been announcements
by companies of significant reductions in workforce and more
are possible. This economic uncertainty has resulted in a
substantial decline in consumer confidence. These adverse
economic conditions and decline in consumer confidence
have resulted in a significant reduction in consumer spending
on discretionary goods, including the Company’s products.