Callaway 2005 Annual Report Download - page 44

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The cost of implementing the 2005 Restructuring Initiatives is expected to result in pre-tax charges of
approximately $12.0 million, $8.3 million of which was recorded in 2005 and the balance of which is expected to
be recorded in 2006. The 2005 Restructuring Initiatives are in addition to the previously reported integration
charges associated with the integration of the Callaway Golf and Top-Flite operations (“Top-Flite Integration”).
The Top-Flite Integration is nearing completion and all of the Company’s golf balls are now being manufactured
at the two facilities acquired in the Top-Flite Acquisition. To date, the Company has recorded charges of $65.0
million associated with the Top-Flite Integration and the Company expects to record additional charges of
approximately $3.0 million in 2006 as it completes the restoration of its ball manufacturing plant in Carlsbad,
California.
Management believes the Company is in a good position entering 2006. There are several new products
being introduced and the initial response from retailers has been positive. It is expected that the Company will
continue to realize the benefits of the 2005 Restructuring Initiatives during 2006 and 2007. Furthermore, the
Company has increased the amount of inventory that it has on hand as it enters the 2006 golf season and does not
expect to experience the same supply constraint issues in 2006 that it experienced in 2005. One of the Company’s
primary objectives for 2006 will be to strengthen the Company’s marketing programs and enhance customer
service (particularly regarding on time delivery of new products) in an effort to improve the Company’s position
in the marketplace and grow profitability.
Years Ended December 31, 2005 and 2004
Net sales increased 7% to $998.1 million for the year ended December 31, 2005 as compared to
$934.6 million for the year ended December 31, 2004. The overall increase in net sales is primarily due to a
$57.4 million (22%) increase in sales of irons, combined with an $11.2 million (11%) increase in sales of
accessories and other products, an $8.8 million (9%) increase in sales of putters and a $2.7 million (1%) increase
in sales of drivers and fairway woods during the year ended December 31, 2005 as compared to the year ended
December 31, 2004. These increases were partially offset by a $16.6 million (7%) decrease in sales of golf balls
due to a decline in Top-Flite golf ball sales during the year. The overall increase in net sales during 2005 is
generally attributable to favorable consumer acceptance of the Company’s products launched during 2005.
Net sales information by product category is summarized as follows:
Year Ended
December 31, Growth (Decline)
2005 2004 Dollars Percent
(In millions)
Net Sales:
Driver and fairway woods .................................... $241.3 $238.6 $ 2.7 1%
Irons ..................................................... 316.5 259.1 57.4 22%
Putters .................................................... 109.3 100.5 8.8 9%
Golf balls ................................................. 214.7 231.3 (16.6) (7)%
Accessories and other ........................................ 116.3 105.1 11.2 11%
$998.1 $934.6 $ 63.5 7%
The $2.7 million (1%) increase in net sales of drivers and fairway woods to $241.3 million for the year
ended December 31, 2005 resulted from increased sales volumes almost entirely offset by lower average selling
prices in 2005 compared to the prior year. The majority of this increase related to sales of the Company’s new
2005 products including new Callaway titanium drivers, multi-material driver and fairway woods products and
hybrid woods products as well as an increase in sales of the Company’s new 2005 Ben Hogan drivers and
fairway woods products, which were all introduced during the current year. This increase was partially offset by
a decline in sales of the Company’s older multi-material and titanium driver products, steel fairway woods
products and titanium fairway woods products, which were expected as the Company’s products generally sell
better in their first year after introduction and 2005 is the second year in the life cycles of these products.
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