Callaway 2002 Annual Report Download - page 18

Net sales information by region is summarized as follows:
Net sales in the United States decreased $5.4 million (1%) to
$438.7 million during 2002 versus 2001. Overall, the Company’s
sales in regions outside of the United States decreased $18.7
million (5%) to $353.4 million during 2002 versus 2001. This
decrease in international sales is primarily attributable to a
$28.1 million (21%) decrease in sales in Japan, a $5.9 million
(9%) decrease in sales in the Rest of Asia, which includes
Korea, and a $3.2 million (5%) decrease in sales in other regions
outside of the United States. These decreases were partially
offset by an $18.5 million (16%) increase in sales in Europe. The
Company’s net sales in regions outside of the United States
were not significantly affected by fluctuations in foreign
currency exchange rates. Had exchange rates for 2002 been
the same as the 2001 exchange rates, overall sales in regions
outside of the United States would have been less than 1%
lower than reported results.
For the year ended December 31, 2002, gross profit decreased to
$399.0 million from $404.6 million in the comparable period of
2001. Gross profit as a percentage of net sales remained
constant at 50% in 2002 as compared to 2001. The Company’s
gross profit percentage was favorably impacted by the $17.0
million reduction in the Company’s warranty accrual during the
third quarter of 2002 (see above “Change in Accounting
Estimate”). Excluding the effects of such reduction, gross profit
as a percentage of net sales decreased 2 percentage points to
48% in 2002 as compared to 2001. The gross profit percentage
was also favorably impacted by a reduction in the Company’s
manufacturing labor and overhead expenses as a percent of net
sales and a favorable shift in product mix. These increases were
For the Ye ars En ded
De ce mber 31, Grow th/ (Declin e)
(In millions) 2002 2001 Dollars Percent
Net Sales:
United States $ 438.7 $ 444.1 $ (5.4) (1%)
Europe 136.9 118.4 18.5 16%
Japan 102.6 130.7 (28.1) (21%)
Rest of Asia 58.0 63.9 (5.9) (9%)
Other foreign
countries 55.9 59.1 (3.2) (5%)
$ 792.1 $ 816.2 $ (24.1) (3%)
CALLAWAY GOLF COMPANY 15
partially offset by a lower average selling price for golf club
products combined with close-out pricing for discontinued Rule
35 golf ball products and a price reduction on all golf ball
products implemented in August 2002, additional inventory
reserves established on ERC II Drivers and Big Bertha C4
Drivers, a customs and duty assessment in Korea, and the $2.3
million charge related to the purchase of the Company’s golf ball
manufacturing equipment (see below “Financial Condition”).
Selling expenses increased $11.8 million (6%) in 2002 to $200.2
million from $188.3 million in 2001, and were 25% and 23% of
net sales, respectively. This increase was primarily due to
increases in professional golf tour expenses of $6.4 million,
depreciation expense of $3.9 million, commission expenses of
$2.0 million and other promotional expenses of $1.9 million.
These increases were partially offset by decreases in travel
costs of $1.4 million.
General and administrative expenses decreased $14.5 million
(20%) in 2002 to $56.6 million from $71.1 million in 2001, and
were 7% and 9% of net sales, respectively. This decrease is
mainly attributable to a decrease of $8.7 million in employee
costs, a $6.0 million decrease in depreciation and amortization
expenses (primarily due to the implementation of SFAS No. 142
— see Note 5 to the Consolidated Financial Statements) and
reduced facility costs of $2.6 million. The decrease in employee
costs is due to a reduction in personnel combined with higher
severance expense of $2.9 million recorded in 2001.
Research and development expenses decreased $0.5 million
(2%) in 2002 to $32.2 million from $32.7 million in 2001. As a
percentage of net sales, the expenses remained constant at 4%.
The decrease is primarily due to a decrease in depreciation
expense of $0.6 million.
Interest and other income, net decreased $3.9 million (55%) in
2002 to $3.3 million from $7.1 million in 2001. The decrease is
primarily attributable to a $2.2 million decrease in royalty
income, a $1.5 million decrease in gains on sales of securities, a
$0.8 million decline in interest income, a $0.5 million decline in
gains on investments to fund the deferred compensation plan,
and a $0.5 million decline in foreign currency transaction gains.
These decreases were partially offset by $2.1 million of losses
recorded in 2001 generated from the sale of the Company’s