These excerpts taken from the GOLF 10-K filed Mar 3, 2009.
Fiscal 2007 compared to Fiscal 2006
Net Revenues. Net revenues increased 8.5% to $388.2 million from $357.9 million in fiscal year 2007 compared to fiscal 2006. The increase was due to a $35.7 million increase in our store revenues partially offset by a decrease of $5.3 million in our direct-to-consumer channel. The increase in our store revenues was due to an increase in non-comparable store net revenues resulting from the opening of 23 new stores in fiscal years 2006 and 2007. Non-comparable store net revenues primarily consist of net revenues from 13 new stores that were opened in fiscal 2007 and revenue from 10 new stores that were opened prior to 2007 but became comparable stores for a portion of fiscal 2007. Eight stores entered our comparable store base during fiscal 2007. Our comparable store revenues declined by 3.7% in fiscal 2007 in comparison with fiscal 2006. Comparable store revenues were negatively impacted by increased competition in select geographic markets as well as declines in our retail club component business. In addition to these competitive and product mix factors, golf rounds played in the United States, a leading indicator of golf participation tracked by the NGF, decreased 0.5% in fiscal 2007 compared to fiscal 2006.
Gross Profit. Consolidated gross profit, as a percentage of net revenues, decreased to 35.0% for fiscal 2007 compared to 35.2% for fiscal 2006. Increased net revenues led to higher gross profits for fiscal 2007 compared to fiscal 2006. However, gross profit decreased slightly primarily due to the continued decline of our higher margin clubmaking business, particularly due to a decrease in club head sales. In addition, increased freight costs, net of earned discounts, and increased inventory reserves contributed to a decrease in gross profit of $1.4 million. The decrease in gross profit was partially offset by an increase in co-operative vendor program income of $1.7 million.
Selling, General and Administrative. Selling, general and administrative expenses increased by 13.3% to $127.4 million from $112.5 million in fiscal 2007 compared to fiscal 2006. As a percentage of net revenues, selling, general and administrative expenses increased to 32.8% in fiscal 2007 from 31.4% in fiscal 2006. The increase in selling, general and administrative expense was primarily due to an increase of $16.3 million related to non-comparable stores and an increase of $0.8 million related to our corporate administration. These increases were partially offset by a decrease of $1.2 million related to our direct-to-consumer channel and a decrease of $1.0 million related to our comparable stores.
The increase in non-comparable store expenses was principally due to an increase in occupancy and personnel costs of $12.2 million due to the opening of 13 new stores in fiscal 2007. The increase in corporate administration expenses was primarily due to an increase in payroll costs and professional services fees. We experienced an increase in the level of professional services obtained during fiscal 2007 as compared to fiscal 2006 due to the build out of our infrastructure needed to support our 13 new store openings, as well as additional costs incurred as a result of becoming a public company in June 2006. Furthermore, we incurred consulting fees for assistance in developing a three-year strategic initiative plan and our new larger concept store format. These increases in corporate administration were partially offset by a reduction in non-recurring management fees paid to First Atlantic Capital, which were zero in fiscal 2007 and $3.3 million in fiscal 2006 as previously discussed. The decrease of $2.2 million related to our direct-to-consumer channel and our comparable stores was primarily due to a reduction in advertising expenses across both channels and a reduction of payroll expenses in our comparable stores.
Store Pre-Opening/ Closing Expenses. Store pre-opening / closing expenses increased 31.2% to $2.4 million in fiscal 2007 from $1.8 million in fiscal 2006 due to the opening of 13 new stores in fiscal 2007 as compared to ten new stores in fiscal 2006.
Impairment of goodwill and long-lived assets. In the fourth quarter of fiscal 2007, upon completion of our annual test for impairment related to intangible assets in accordance with SFAS 142, we determined that our goodwill was impaired and, accordingly, we
recorded a goodwill impairment charge of approximately $41.6 million. Also, in the fourth quarter of fiscal 2007, in connection with our review of long-lived assets for impairment pursuant to SFAS 144, we recorded a charge of $1.4 million related to the impairment of fixed assets at certain stores (see Note 1 to our audited consolidated financial statements).
Interest expense. Interest expense decreased 50.7% to $3.8 million in fiscal 2007 from $7.7 million in fiscal 2006. The decrease in interest expense was due to the retirement of the Senior Secured Notes in June 2006 (see Note 5 to our audited consolidated financial statements). In connection with the retirement of the Senior Secured Notes, we wrote-off $4.2 million of unamortized debt issue costs.
Interest income. Interest income decreased to $0.1 million in fiscal 2007 from $0.4 million in fiscal 2006. The decrease in interest income is due to the escrow utilized for the retirement of the Senior Secured Notes in fiscal 2006.
Other income (expense), net. Other income (expense), net decreased to $0.4 million in fiscal 2007 from $0.5 million in fiscal 2006. Included in other income (expense), net for fiscal 2007 is a gain of $0.5 million related to the sale of our Lynx® trademark rights in Southeast Asia and Korea. In fiscal 2006, other income (expense), net included a gain of $0.3 million related to declared settlement income resulting from the Visa Check / MasterMoney Antitrust Litigation class action lawsuit, in which we were a claimant, related to the overcharging of credit card processing fees by Visa and MasterCard during the period from October 25, 1992 to June 21, 2003.
Loss on extinguishment of debt. Upon the closing of the initial public offering on June 20, 2006, we remitted payment of $94.4 million to the trustee to retire the Senior Secured Notes and recorded a loss of $12.8 million on the extinguishment of this debt. This loss was the result of the contractually obligated amounts to retire the debt being larger than the accreted value of the Senior Secured Notes on our balance sheet at the time of settlement of $86.2 million, including accrued interest.
Income tax expense. Income taxes increased $0.5 million to $0.7 million in fiscal 2007 as compared to $0.2 million in fiscal 2006. As in fiscal 2006, income tax expense primarily consisted of income taxes incurred by our foreign subsidiaries and state income taxes incurred in the United States. Furthermore, during 2007, we used a significant portion of our net operating loss carry-forward deductions, thereby reducing our United States federal income tax significantly. This amount was largely offset by the relief of a small portion of the valuation allowance against the deferred tax assets in the United States. The deferred tax assets grew significantly in 2007 due to the impairment of assets. The valuation allowance increased proportionately to the increase in the deferred tax assets.
Fiscal 2007 compared to Fiscal 2006
Net Revenues. Net revenues increased 8.5% to $388.2 million from
Selling, General and Administrative.
The increase in
Store Pre-Opening/ Closing Expenses. Store
recorded a goodwill