Callaway 2004 Annual Report Download - page 32

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The $45.4 million (76%) increase in net sales of accessories and other products is primarily attributable
to sales of Top-Flite and Ben Hogan bags, gloves and other accessories, sales of pre-owned products through
the FrogTrader business acquired in May of 2004, combined with an increase in sales of Callaway Golf shoes,
travel bags and other accessories.
Net sales information by region is summarized as follows:
Year Ended
December 31, Growth/(Decline)
2004 2003 Dollars Percent
(In millions)
Net Sales:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $546.2 $449.4 $ 96.8 22 %
Europe ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 169.5 145.1 24.4 17 %
Japan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 70.5 101.3 (30.8) (30)%
Rest of Asia ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 51.7 58.3 (6.6) (11)%
Other foreign countries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 96.7 59.9 36.8 61 %
$934.6 $814.0 $120.6 15 %
Net sales in the United States increased $96.8 million (22%) to $546.2 million during 2004 versus 2003.
Overall, the Company's sales in regions outside of the United States increased $23.8 million (7%) to
$388.4 million during 2004 versus 2003. This increase in international sales is primarily attributable to a
$24.4 million (17%) increase in sales in Europe and a $36.8 million (61%) increase in sales in other foreign
countries. The increase in the United States, Europe and other foreign countries, was primarily attributable to
the inclusion of Top-Flite for a full twelve months in 2004 versus Ñfteen weeks in 2003. These increases were
partially oÅset by a $30.8 million (30%) decrease in sales in Japan and a $6.6 million (11%) decrease in sales
in other areas of Asia.
For the year ended December 31, 2004, gross proÑt decreased $9.8 million (3%) to $358.8 million from
$368.6 million in the comparable period of 2003. Gross proÑt as a percentage of net sales decreased
7 percentage points to 38% in 2004 as compared to 45% in 2003. The Company's gross proÑt in 2004 and 2003
was unfavorably impacted by $15.7 million and $24.1 million, respectively, as a result of charges associated
with the integration of the Top-Flite operations. The Company's overall gross proÑt was also negatively
impacted by lower average selling prices of golf club and ball products, resulting from increased competitive
pressure in the marketplace during 2004, as well as lower Top-Flite margins.
Selling expenses increased $55.3 million (27%) in 2004 to $263.1 million from $207.8 million in 2003,
and were 28% and 26% of net sales, respectively. This increase was primarily due to the $44.2 million increase
in Top-Flite selling expenses resulting from the inclusion of a full year of Top-Flite selling expenses in 2004 as
compared to Ñfteen weeks in 2003. The increase was also due to a $17.2 million increase in tour and
promotional expenses incurred primarily during the Ñrst half of the year, as a result of the Company's strategy
to increase its presence on golf's major professional tours. Additionally, the Company incurred $4.4 million of
selling integration costs in connection with the integration of the Top-Flite operations with the Callaway Golf
operations. These increases were partially oÅset by decreases in other selling and tour expense of $7.3 million
and other promotional golf club expense of $3.2 million.
General and administrative expenses increased $24.5 million (37%) in 2004 to $89.9 million from
$65.4 million in 2003, and were 10% and 8% of net sales, respectively. This increase was primarily due to the
$12.9 million increase in Top-Flite general and administrative expenses resulting from the inclusion of a full
year of Top-Flite expenses in 2004 as compared to Ñfteen weeks of Top-Flite expenses in 2003, as well as
$7.6 million of general and administrative expenses incurred in connection with the integration of the Top-
Flite operations with the Callaway Golf operations. This increase was also due to an increase in legal fees of
$5.4 million primarily related to the Dunlop/MaxÖi litigation and a $2.0 million increase resulting from the
inclusion of seven months of FrogTrader general and administrative expenses during the year ended
December 31, 2004.
23