Callaway 2002 Annual Report Download - page 21

18 CALLAWAY GOLF COMPANY
Net sales for 2000 included sales generated from the Rule 35 golf
ball. The CTU 30 golf ball contributed modestly to 2001 net sales
due to its introduction in the latter part of 2001 and is the suc-
cessor ball to the Rule 35 golf ball.
The $6.5 million (14%) increase in sales of accessories and other
products is primarily attributable to increased sales of the
Company’s golf bags in 2001.
Net sales information by region is summarized as follows:
Net sales in the United States decreased $7.1 million (2%) to
$444.1 million during 2001 versus 2000. Overall, the Company’s
sales in regions outside of the United States decreased $14.3
million (4%) to $372.1 million during 2001 versus 2000. This
decrease is primarily attributable to a $18.5 million (22%)
decrease in sales in the Rest of Asia, which includes Korea, and
a $7.1 million (6%) decrease in sales in Europe. These decreases
were partially offset by a $8.7 million (7%) increase in Japan and
a $2.6 million (5%) increase in other regions outside of the
United States. The Company’s net sales in regions outside of
the United States were negatively affected by fluctuations in
foreign currency exchange rates. Had exchange rates during
2001 been the same as exchange rates during 2000, overall net
sales in regions outside of the United States would have been
approximately 9% higher than reported in 2001.
For the year ended December 31, 2001, gross profits increased
to $404.6 million from $397.5 million in 2000 and as a percentage
of net sales increased to 50% in 2001 from 47% in 2000. This
improvement in gross profit is a result of a shift in club product
mix away from lower yielding iron products to higher yielding
wood products. Golf ball product profit margins improved during
2001 as compared to 2000, as a result of increased sales volume,
plant utilization and production yields. The profit margin was
also favorably affected by an $8.1 million reduction in the
Company’s warranty expense during 2001 as compared to 2000.
The Company has observed a downward trend in actual costs
over the past two years associated with warranty claims due to
improved product engineering and manufacturing processes
combined with a reduction of costs associated with resolving
claims. Accordingly, the Company reduced its warranty accrual
rate during 2001. For additional information concerning the
Company’s warranty accrual, see above “Change in
Accounting Estimate.”
Selling expenses increased $17.8 million (10%) in 2001 to
$188.3 million from $170.5 million in 2000, and were 23% and
20% of net sales, respectively. This increase was primarily due
to increases in advertising costs and promotional expenses of
$9.6 million and $5.8 million, respectively, associated with the
Company’s new product launches, the rollout of new fitting
cart systems and store-in-store project, and other demand cre-
ation initiatives.
General and administrative expenses increased $0.8 million
(1%) in 2001 to $71.1 million from $70.3 million in 2000, and
were 9% and 8% of net sales, respectively. This increase was
primarily attributed to $4.0 million of higher employee compen-
sation costs including severance charges, $3.7 million of
increased costs due primarily to the consolidation of facilities
and $2.9 million of increased legal expenses, partially offset by
decreases in depreciation and bad debt expenses of $3.5 million
and $5.1 million, respectively.
Research and development expenses decreased $1.9 million
(5%) in 2001 to $32.7 million from $34.6 million in 2000. As a
percentage of net sales, the expenses remained constant at 4%.
The dollar decrease is due to a decrease in depreciation
expense and employee costs.
Interest and other income, net decreased $1.7 million (19%) in
2001 to $7.1 million from $8.8 million in 2000. This decrease is
primarily attributable to a decrease in interest income of $2.4
million associated with lower average cash balances, and lower
(1) The Company acquired certain of its distribution rights in the Europe and Australia
regions in the first quarter of 2001 and therefore began selling directly to retailers rather
than to a third party distributor.
For the Ye ars En ded
De ce mber 31, Grow th/ (Declin e)
(In millions) 2001 2000 Dollars Percent
Net Sales:
United States $ 444.1 $ 451.2 $ (7.1) (2%)
Europe(1) 118.4 125.5 (7.1) (6%)
Japan 130.7 122.0 8.7 7%
Rest of Asia 63.9 82.4 (18.5) (22%)
Other foreign
countries(1) 59.1 56.5 2.6 5%
$ 816.2 $ 837.6 $ (21.4) (3%)