Callaway 2004 Annual Report Download - page 30

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result, the Company was required to reduce the carrying value of the acquired long-term assets on a pro rata
basis. The allocation of the aggregate acquisition costs is as follows (in millions):
Assets Acquired:
Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 45.3
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32.8
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.1
Property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 55.8
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 48.0
Liabilities Assumed:
Current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (17.4)
Long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5.1)
Total net assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $160.5
During the fourth quarter of 2003, the Company began consolidating the Callaway Golf and Top-Flite
golf ball and golf club manufacturing and research and development operations. In connection with the
consolidation, the Company incurred charges to pre-tax earnings in the amounts of $28.5 million and
$24.1 million in 2004 and 2003, respectively. During 2004 these charges included severance, the disposition of
certain long-lived assets and other costs associated with the consolidation of certain facilities. The charges
incurred during 2003 related to a decrease in the carrying value of the Company's golf ball assets in connection
with the disposition of certain golf ball manufacturing equipment. On January 20, 2005, the Company
announced that in 2005 it expects to incur additional pre-tax charges of approximately $7.0 to $12.0 million as
it continues to consolidate its Callaway Golf and Top-Flite operations. These additional charges are expected
to include non-cash charges for acceleration of depreciation on certain golf ball manufacturing equipment and
cash charges related to severance and facility consolidations.
The Company's results of operations include The Top-Flite Golf Company's results in the United States
beginning September 15, 2003 and the results of the international operations beginning October 1, 2003.
Results of Operations
Years Ended December 31, 2004 and 2003
Net sales increased 15% to $934.6 million for the year ended December 31, 2004 as compared to
$814.0 million for the year ended December 31, 2003. The overall increase in net sales is primarily due to a
$153.0 million (195%) increase in the sales of golf balls and a $45.5 million (76%) increase in the sales of
accessories and other products as compared to 2003. The increase in golf ball sales resulted from the inclusion
of Top-Flite ball sales for a full year in 2004 compared to Ñfteen weeks in 2003 as well as a $42.1 million
increase in Callaway Golf brand golf ball sales. The increase in accessories and other products sales is
primarily due to the inclusion of Top-Flite accessories and other product sales for a full year in 2004 compared
to Ñfteen weeks in 2003. These increases were partially oÅset by a $42.3 million (30%) decrease in sales of
putters, a $21.6 million (8%) decrease in sales of irons and a $13.9 million (5%) decrease in sales of woods in
2004 as compared to 2003.
The Company's net sales were signiÑcantly aÅected by the $171.3 million increase in sales of Top-Flite
and Ben Hogan branded products due to the inclusion of these sales for a full year in 2004 compared to Ñfteen
weeks in 2003. Excluding sales of Top-Flite and Ben Hogan branded products, sales of Callaway Golf and
Odyssey branded products were $722.8 million in 2004, a $50.8 million (7%) decrease as compared to 2003.
This decrease is primarily due to a decline in sales of products that were in their second and third year of their
product life cycles as well as a decline in average selling prices.
The Company believes that its overall net sales in 2004 were adversely aÅected by continued competitive
pressures (which had a negative impact upon average selling prices), limited market acceptance of certain of
the Company's 2004 products, continued economic uncertainty in many of the Company's key markets, as
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