Callaway 2003 Annual Report Download - page 19

16 CALLAWAY GOLF COMPANY
bags, combined with an increase in royalty revenue from
licensed merchandise in 2003 as compared to 2002.
Net sales information by region is summarized as follows:
(*) Beginning with the first quarter of 2003, the Company records royalty revenue in net
sales. Previously, royalty revenue was recorded as a component of other income and
prior periods have been reclassified to conform with the current period presentation.
Net sales in the United States increased $9.6 million (2%) to
$449.4 million during 2003 versus 2002. Overall, the
Company’s sales in regions outside of the United States
increased $11.2 million (3%) to $364.6 million during 2003
versus 2002. This increase in international sales is primarily
attributable to a $8.2 million (6%) increase in sales in Europe,
a $0.3 million (1%) increase in sales in the Rest of Asia, which
includes Korea, and a $4.0 million (7%) increase in sales in
other regions outside of the United States. These increases were
partially offset by a $1.3 million (1%) decrease in sales in
Japan. In addition, as compared to 2002, the Company’s 2003
reported net sales in regions outside of the United States were
significantly affected by the translation of foreign currency sales
into U.S. dollars based upon 2003 exchange rates. If 2002
exchange rates were applied to 2003 reported net sales in
regions outside the U.S. and all other factors were held constant,
net sales in such regions would have been $28.4 million less
than reported.
For the year ended December 31, 2003, gross profit decreased
to $368.6 million from $400.2 million in the comparable period
of 2002. Gross profit as a percentage of net sales decreased 5
percentage points to 45% in 2003 as compared to 2002. The
Company’s gross profit percentage in 2003 was unfavorably
impacted by the $24.1 million non-cash charge associated with
the integration of Top-Flite (see above “Top-Flite Acquisition”).
The Company’s gross profit percentage for 2002 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 the
integration charges and the warranty reserve adjustment, gross
profit in 2003 increased 2% to $392.7 million from $383.2 million
in 2002 and gross profit as a percentage of net sales remained
flat at 48% in 2003 as compared to 2002.
For the Years Ended
December 31, Growth/(Decline)
(In millions, except per share data) 2003 2002 Dollars Percent
Reported gross profit $ 368.6 $ 400.2 $(31.6) (8)%
Non-cash integration
charges 24.1 —
Non-cash warranty
reserve adjustment — (17.0)
Pro forma gross profit $ 392.7 $ 383.2 $ 9.5 2%
The Company’s gross profit percentage (excluding the 2003
integration charges and the 2002 warranty accrual reduction)
was positively impacted by a more favorable sales mix in 2003
combined with the additional inventory obsolescence reserves
established in 2002 on ERC II Drivers and Big Bertha C4
Drivers. These favorable impacts were offset by a decline in golf
ball margins and overall lower average selling prices on golf
club and ball products.
Selling expenses increased $7.5 million (4%) in 2003 to
$207.8 million from $200.3 million in 2002, and were 26%
and 25% of net sales, respectively. This increase was primarily
due to the Top-Flite selling expenses incurred in 2003 of
$13.9 million. Excluding these Top-Flite selling expenses,
selling expenses in 2003 decreased $6.4 million as compared
to 2002. This decrease was primarily due to a decrease in
employee costs of $5.7 million, advertising expenses of
$3.4 million, promotional club expenses of $2.2 million,
mailing and freight expenses of $0.9 million and travel and
entertainment expenses of $0.6 million. These decreases were
partially offset by increases in depreciation expense of
$3.4 million, other promotional expenses of $1.5 million and
tour expenses of $1.4 million.
For the Years Ended
December 31, Growth/(Decline)
(In millions) 2003 2002 Dollars Percent
Net Sales:
United States
(*)
$449.4 $ 439.8 $ 9.6 2%
Europe 145.1 136.9 8.2 6%
Japan 101.3 102.6 (1.3) (1)%
Rest of Asia 58.3 58.0 0.3 1%
Other foreign countries 59.9 55.9 4.0 7%
$ 814.0 $ 793.2 $ 20.8 3%