Callaway 2003 Annual Report Download - page 22

CALLAWAY GOLF COMPANY 19
The $5.4 million (2%) decrease in net sales of irons to $243.5
million represents a decrease in dollar sales and a slight
increase in unit sales. The dollar sales decline was due pri-
marily to the decline in sales of Steelhead X-14 Irons, which
were in their third year of sales, and Hawkeye Irons, which
were the predecessors to the Hawk Eye VFT Irons. These
decreases were substantially offset by the sales growth gen-
erated from the January 2002 launch of Big Bertha Irons.
Sales of the Hawk Eye VFT Irons, which were launched in
August 2001, generated modest sales growth in 2002
compared to 2001.
The $44.0 million (65%) increase in sales of putters was
primarily attributable to increased sales of the Company’s
Odyssey putters, resulting from the January 2002 introduction
of the Odyssey White Hot 2-Ball Putter.
The $11.1 million (20%) increase in net sales of golf balls to
$66.0 million represents an increase in both unit and dollar
sales. The golf ball growth was largely attributable to the
expansion of the Company’s golf ball product line offering
to five models from only two during the majority of the
prior year. This expanded product line resulted in a higher
average selling price as compared to 2001, even after taking
into account the August 2002 price reduction. The
Company initially launched the CTU 30 golf ball in
November 2001, the HX golf ball in March 2002, the HX 2-Piece
golf ball in May 2002, and the Warbird golf ball in August
2002. Net sales for 2001 included sales generated primarily
from the CB1 golf ball and 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 successor
ball to the Rule 35 golf ball.
The $8.3 million (15%) increase in sales of accessories and
other products was primarily attributable to increased sales
resulting from the February 2002 launch of Callaway Golf
gloves and the August 2002 launch of the Callaway Golf
Forged Wedges.
Net sales information by region is summarized as follows:
Net sales in the United States decreased $6.2 million (1%) to
$439.8 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.
For the year ended December 31, 2002, gross profit decreased
to $400.2 million from $406.5 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 partially offset by a lower
average selling price for golf club products combined
with
For the Years Ended
December 31, Growth/(Decline)
(In millions) 2002 2001 Dollars Percent
Net Sales:
United States
(*)
$439.8 $ 446.0 $ (6.2) (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)%
$ 793.2 $ 818.1 $ (24.9) (3)%
(*) 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.