Callaway 2003 Annual Report Download - page 20

CALLAWAY GOLF COMPANY 17
General and administrative expenses increased $8.8 million
(16%) in 2003 to $65.4 million from $56.6 million in 2002,
and were 8% and 7% of net sales, respectively. This increase
was primarily due to the Top-Flite expenses incurred in
2003 of $7.7 million. Excluding these Top-Flite expenses,
general and administrative expenses in 2003 increased
$1.2
million as compared to 2002. This increase was mainly
attributable to an increase of $1.6 million in deferred
com pensation plan expenses.
Research and development expenses decreased $2.7 million
(8%) in 2003 to $29.5 million from $32.2 million in 2002. As
a percentage of net sales, the expenses remained constant at
4%. Excluding Top-Flite expenses of $1.0 million, research and
development expenses in 2003 decreased $3.7 million as
compared to 2002. The decrease is primarily due to a decrease
in consulting services of $1.3 million, depreciation expense of
$1.2 million, and employee costs of $1.1 million.
Interest and other income increased $1.3 million (56%) in
2003 to $3.6 million from $2.3 million in 2002. The increase
is primarily attributable to a $1.9 million increase in gains on
investments to fund the deferred compensation plan and
$0.6
million generated from litigation settlements. These
increases were partially offset by a $0.5 million decline in
interest income and a $0.5 million decline in foreign currency
transaction gains.
Interest expense decreased in 2003 to $1.5 million compared to
$1.7 million in 2002.
During 2003, the Company recorded a provision for income
taxes of $22.4 million. The provision for income tax as a
percentage of income before taxes was 33% in 2003 as
compared to 38% in 2002. The effective tax rate was lower in
2003 as compared to 2002, primarily as a result of the recognition
of atypical tax benefits in the current year income tax provision
related to the statutory U.S export sales incentive.
Net income for the year ended December 31, 2003, decreased
34% to $45.5 million from $69.4 million in 2002. Earnings per
diluted share decreased 34% to $0.68 in 2003 as compared to
$1.03 in 2002. Net income in 2003 was negatively impacted by
the $24.1 million non-cash integration charges (see above
“Top-Flite Acquisition”). Net income in 2002 was positively
impacted by the $17.0 million reduction in the warranty
reserve (see above “Change in Accounting Estimate”).
Excluding the $24.1 million non-cash integration charges
recorded in 2003 and the $17.0 million non-cash warranty
reserve adjustment recorded in 2002, the Company’s net
income would have increased 5% to $61.7 million in 2003
from $58.9 million in 2002 and diluted earnings per share
would have increased 7% to $0.93 in 2003 from $0.87 in 2002.
The following summarizes what net income and earnings per
share would have been had the integration charges and the
warranty reserve adjustment, adjusted for taxes, been excluded
from reported results:
For the Years Ended
December 31, Growth/(Decline)
(In millions, except per share data) 2003 2002 Dollars Percent
Reported net income $ 45.5 $ 69.4 $(23.9) (34)%
Non-cash integration
charges 16.2 —
Non-cash warranty
reserve adjustment — (10.5)
Pro forma net income $ 61.7 $ 58.9 $ 2.8 5%
Reported basic earnings
per share $ 0.69 $ 1.04 $(0.35) (34)%
Non-cash integration
charges 0.24 —
Non-cash warranty
reserve adjustment — (0.16)
Pro forma basic earnings
per share $ 0.93 $ 0.88 $ 0.05 6%
Reported diluted earnings
per share $ 0.68 $ 1.03 $(0.35) (34)%
Non-cash integration
charges 0.25 —
Non-cash warranty
reserve adjustment — (0.16)
Pro forma diluted earnings
per share $ 0.93 $ 0.87 $ 0.06 7%