Callaway 2008 Annual Report Download - page 56

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Golf Balls Segment
Net sales information for the golf balls segment is summarized as follows (dollars in millions):
Years Ended
December 31, Growth (Decline)
2007 2006 Dollars Percent
Net sales:
Golf balls .................................................. $213.1 $214.8 $(1.7) (1)%
The $1.7 million (1%) decrease in net sales of golf balls to $213.1 million for the year ended December 31,
2007, is primarily due to a decrease in unit volume of Top-Flite golf balls, partially offset by an increase in unit
volume of Callaway Golf balls. The decrease in unit volume for Top-Flite golf balls is primarily due to a planned
30% reduction in product SKUs combined with a decline in sales of the Company’s older Top-Flite brand golf
ball products that were in the second and third years of their product lifecycles, partially offset by net sales of the
D2 golf ball introduced in the current year. The increase in unit volume for the Callaway Golf balls was
attributable to favorable consumer acceptance of the Company’s current year product introductions, including the
new 2007 HX Hot, Big Bertha and Warbird golf ball product lines.
Segment Profitability
Profitability by operating segment is summarized as follows (dollars in millions):
Years Ended
December 31, Growth (Decline)
2007 2006 Dollars Percent
Income (loss) before provision for income taxes(1)
Golf clubs ............................................... $151.8 $101.8 $50.0 49%
Golf balls ................................................ 0.9 (6.4) 7.3 114%
$152.7(1) $ 95.4(1) $57.3 60%
(1) Amounts shown are before the deduction of corporate general and administration expenses and other
income (expenses) of $64.4 million and $60.4 million for the years ended December 31, 2007 and 2006,
respectively, which are not utilized by management in determining segment profitability. For further
information on segment reporting see Note 17 to the Consolidated Financial Statements—“Segment
Information” in this Form 10-K.
Pre-tax income (loss) in the Company’s golf clubs and golf balls operating segments improved to $151.8
million and $0.9 million, respectively, for the year ended December 31, 2007, compared to income of $101.8
million and a loss of $6.4 million, respectively, for the same period in 2006. The increase in the golf clubs
operating segment pre-tax income is primarily attributable to improved net sales as well as improved gross
margins resulting from a more favorable club product mix due to the current year launch of higher margin driver
and irons products. The increase in the golf balls operating segment pre-tax income was primarily due to
improved net sales as well as improved gross margins resulting from a shift in product mix toward increased
sales of more premium Callaway branded golf balls and the introduction of a higher-priced Top-Flite branded
golf ball combined with a decline in sales of lower margin range balls during the year ended December 31, 2007.
Additionally, during 2006, the Company recorded a $3.3 million charge due to a work-in-progress inventory
write-down as a result of an annual physical inventory count. Furthermore, both golf clubs and golf balls
operating segment margins were favorably impacted by cost reductions resulting from improved manufacturing
efficiencies, declines in freight costs and the successful implementation of the Company’s Gross Margin
Improvement Initiatives during 2007.
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