Callaway 2003 Annual Report Download - page 6

Other than this strategic move, how did we fare in 2003? We
had a lot of other successes in 2003, but before I talk more about
the good news, I want to be sure that I also address the bad. Not
everything went as well as the Top-Flite transaction.
Callaway Golf sales, excluding $40 million in Top-Flite sales,
declined for the third straight year, to $774 million. While some of
this decline was due to external market forces, including weak
economic conditions in key countries as I predicted in last year’s
letter, most was the result of the loss of market share in the metal
woods category. While we maintained our #1 metal woods
position in the U.S., the gap between the #2 company and us got
smaller than it has been in years. This is simply not acceptable.
When I talk about 2004 later in this letter, I will share with you my
plans for growing net sales and strengthening our hold on the #1
position in the U.S. in woods.
Despite these setbacks in sales and woods market share, and
while negotiating and concluding the Top-Flite transaction, we
delivered these positive results for you in 2003:
•Reflecting the strength of our Callaway Golf business, we achieved
net income of $46 million even after absorbing $25 million in
operating and integration losses associated with Top-Flite.
• On a similar basis, earnings per diluted share in 2003 were $0.68,
which included losses of $0.38 associated with the above items
for the Top-Flite acquisition.
• We generated $119 million in cash flow from operations
and finished the year once again with no debt.
• We maintained our #1 U.S. market share positions for irons and
putters at record levels.
•In our pursuit of technological excellence, Callaway Golf
obtained 102 patents from the U.S. Patent and Trademark Office
in 2003 (146 if the newly issued patents acquired through the
Top-Flite transaction are included), making our Company the
first and only golf company to receive over 100 U.S. golf equip-
ment patents in a single year.
Of course, the core of our business is our golf clubs and golf balls.
And we had a number of successes in our core products in 2003.
For example:
• The new Great Big Bertha II Driver and Fairway Woods
recovered the ground we had lost at this premium price point due
to the shortcomings of the C4 Driver in 2002. We achieved strong
sales of this outstanding product without engaging in discounting
or “close-out” tactics employed by some of our competitors.
•The new Steelhead X-16 Irons helped us hold our #1 position in
irons at 2.5 times the share of the next nearest competitor.
•Odyssey putter introductions, including some new “2-Ball”
models and the DFX line, sustained our #1 position in putters,
including a remarkable market share of nearly 50% in the
United States.
• Golf balls made by Callaway Golf remained #2 in usage on the
PGA Tour and the 6 major world tours combined with penetration
increasing in the back half of the year due to the enthusiastic
acceptance of prototypes of our new HX Tour golf ball.
• Top-Flite introduced three new golf ball models, including the
Strata Tour Ace model that won the U.S. Open, and the mod-
erately priced Infinity line that has sold very well since its
introduction in the second half of 2003.
• The Ben Hogan product line saw the addition of new wedges and
golf balls, and the launch of the Ben Hogan Bettinardi putter line
(a “Baby Ben” prototype putter won twice and had five “top ten”
finishes on the PGA Tour in 2003, including the U.S. Open victory).
...driven to be a world-class organization
CALLAWAY GOLF COMPANY 3