Callaway 2003 Annual Report Download - page 21

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18 CALLAWAY GOLF COMPANY
Years Ended December 31, 2002, and 2001
Net sales decreased 3% to $793.2 million for the year ended
December 31, 2002, as compared to $818.1 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, an $11.1 million (20%) increase in sales of
golf balls, and an $8.3 million (15%) 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 intro-
duction. The Company’s net sales in regions outside of the
United States were not significantly affected by fluctuations
in foreign currency exchange rates.
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 lost a substantial amount of wealth in the stock
market, including some who lost all or substantially all of
their retirement savings in connection with companies that
failed. There also have been announcements by companies of
significant reductions in workforce and more are possible.
This economic uncertainty resulted in a substantial decline in
consumer confidence. These adverse economic conditions
and decline in consumer confidence resulted in a significant
reduction in consumer spending on discretionary goods,
including the Company’s products. The Company also
believes that the USGA’s reversal of its position regarding the
allowance of high COR drivers resulted in confusion among
consumers in the United States, causing them to postpone or
even forgo the purchase of new equipment. The Company’s
net sales, primarily in the first half of 2002, were also
adversely affected by competitive pressures in many of the
Company’s principal markets and particularly in the United
States and Japan. These competitive pressures included the
substantial discounting of competitors’ products and
close-outs of products that were previously commercially
successful, as well as significant retailer support programs. In
addition, the Company believes that its net sales for 2002
were negatively affected by a decrease in rounds played. Golf
Datatech reported that rounds played in the United States
declined 2.9% in 2002, as compared to 2001. Finally, the
Company’s premium new wood product for 2002, the Big
Bertha C4 Driver, was not well accepted by golfers, resulting
in sales that were insufficient to compensate for sales
declines in older products.
Net sales information by product category 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.
The $82.9 million (21%) decrease in net sales of woods to
$310.0 million represents a decrease in both unit and dollar
sales. This decrease was primarily attributable to a decline in
sales of Big Bertha Hawk Eye VFT Titanium Drivers and
Fairway Woods and ERC II Forged Titanium Drivers. A
decline was expected as the Company’s products generally sell
better in their first year after introduction and 2002 was the
second year in the life cycle for these products. This decrease
was also attributable to a decline in sales of Big Bertha
Steelhead Plus Drivers and Fairway Woods which were
introduced in December 1999. These declines were partially
offset by the sales generated from the January 2002 intro-
duction of
Big Bertha Steelhead III Woods, the February 2002
introduction
of Big Bertha C4 Drivers, and the September
2002 introduction of the Great Big Bertha II Titanium Drivers
and Fairway Woods.
For the Years Ended
December 31, Growth/(Decline)
(In millions) 2002 2001 Dollars Percent
Net Sales:
Drivers and fairway woods
$310.0 $ 392.9 $ (82.9) (21)%
Irons 243.5 248.9 (5.4) (2)%
Putters 111.5 67.5 44.0 65%
Golf balls 66.0 54.9 11.1 20%
Accessories and other
(*)
62.2 53.9 8.3 15%
$ 793.2 $ 818.1 $ (24.9) (3)%