Callaway Golf Company
NYSE : ELY

Callaway Golf Company

January 25, 2006 16:05 ET

Callaway Golf Announces Results for Fourth Quarter and Full Year 2005

CARLSBAD, Calif.--(CCNMatthews - Jan 25, 2006) -

Callaway Golf Company (NYSE:ELY) today announced its financial results for the quarter and full year ended December 31, 2005, reporting significant improvements in both sales and earnings over the same periods in the prior year. Some of the details for the twelve months ended December 31, 2005 include:

-- Net sales of $998.1 million, as compared to $934.6 million for the same period in 2004.

-- Fully diluted earnings per share of $0.19 on 69.2 million shares, as compared to a net loss per share of $0.15 on 67.7 million shares in 2004.

-- Fully diluted earnings per share for the full year include after-tax charges of $0.19 per share associated with the integration of the Top-Flite operations and the September restructuring initiatives. The full year loss per share for 2004 includes after-tax charges of $0.26 per share associated with the integration of the Top-Flite operations. Excluding these charges, the Company's pro forma fully diluted earnings per share for 2005 would have been $0.38, as compared to pro forma fully diluted earnings per share of $0.11 for the full year 2004.

Details for the fourth quarter include:

-- Net sales of $154.5 million, as compared to $144.4 million in the fourth quarter of 2004.

-- Net loss per share of $0.27 on 69.3 million shares, as compared to a net loss of $0.42 per share on 68.0 million shares in the fourth quarter of 2004.

-- The net loss per share for the fourth quarter of 2005 includes after-tax charges of $0.05 per share associated with the integration of the Top-Flite operations acquired in late 2003 and the restructuring initiatives announced on September 29th. The net loss per share for the fourth quarter of 2004 includes after-tax charges of $0.05 per share associated with the integration of the Top-Flite operations. Excluding these charges, the Company's pro forma net loss per share for the fourth quarter of 2005 would have been $0.22, as compared to a pro forma net loss per share of $0.37 per share in the fourth quarter of 2004.

"We are pleased with the increase in sales for the year, which reflects the strength of our product line and favorable consumer acceptance of our new products, commented George Fellows, President and CEO. "While earnings also improved significantly, they are still not at desired levels. As we announced at the end of the third quarter, however, we have already implemented several company-wide initiatives designed to reduce expenses and improve profitability. We have already started to see the benefits of such initiatives as operating expenses in the fourth quarter decreased as compared to the fourth quarter of 2004."

Mr. Fellows continued, "We believe we are in a good position entering 2006. We have several new products being introduced, and the initial response from our customers has been very positive. We also expect to continue to realize the benefits of the cost reduction initiatives we implemented in September and we believe we have resolved the supply constraint issues we experienced last year with some products. Our focus in 2006 is to strengthen our marketing programs and enhance customer service, particularly regarding on time delivery of new products in our effort to improve our position in the marketplace and grow profitability."

For more details, including pro forma reconciliations to assist in year-over-year comparison, please see the attached "Supplemental Financial Information."

The Company will be holding a conference call at 2:00 p.m. PST today. The call will be broadcast live over the Internet and can be accessed at www.callawaygolf.com. To listen to the call, please go to the website at least 15 minutes before the call to register and for instructions on how to access the broadcast. A replay of the conference call will be available approximately two hours after the conclusion, and will remain available through 9:00 p.m. PST on Wednesday, February 1, 2006. The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-800-475-6701 toll free for calls originating within the United States or 320-365-3844 for International calls. The replay pass code is 814750.

Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to the introduction of new products, consumer acceptance of products, the realization of benefits from the cost reduction initiatives, the resolution of supply constraint issues, future market share and profitability, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are based upon current information and expectations. Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including but not limited to delays, difficulties, changed strategies, or unanticipated factors affecting implementation of the cost reduction initiatives, as well as the general risks and uncertainties applicable to the Company and its business. For additional information concerning these and other risks and uncertainties, see Part I, Item 2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 10-K, 10-Q and 8-K subsequently filed from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Regulation G: The financial results reported in this press release have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In addition to the GAAP results, the Company has also provided additional information concerning its results, which includes certain financial measures not prepared in accordance with GAAP. The non-GAAP financial measures included in this press release exclude (i) charges associated with the restructuring initiatives discussed in this press release and (ii) charges associated with the integration of the Callaway Golf Company and Top-Flite Golf Company operations. These non-GAAP financial measures should not be considered a substitute for any measure derived in accordance with GAAP. These non-GAAP financial measures may also be inconsistent with the manner in which similar measures are derived or used by other companies. Management believes that the presentation of such non-GAAP financial measures, when considered in conjunction with the most directly comparable GAAP financial measures, provides additional useful information concerning the Company's operations without these charges. The Company has provided reconciling information in the text of this press release as well as in the supplemental financial information attached to this press release.

Through an unwavering commitment to innovation, Callaway Golf creates products and services designed to make every golfer a better golfer. Callaway Golf Company manufactures and sells golf clubs and golf balls, and sells golf accessories, under the Callaway Golf®, Top-Flite®, Odyssey® and Ben Hogan® brands. For more information visit www.callawaygolf.com.



Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)




December 31, December 31,
2005 2004
--------------- --------------


ASSETS
Current assets:
Cash and cash equivalents $49,481 $31,657
Accounts receivable, net 98,082 105,153
Inventories, net 241,577 181,230
Deferred taxes 38,192 32,959
Income taxes receivable 2,026 28,697
Other current assets 9,232 14,036
--------------- --------------
Total current assets 438,590 393,732

Property, plant and equipment, net 127,739 135,865
Intangible assets, net 175,191 179,636
Deferred taxes 6,516 9,837
Other assets 16,462 16,667
--------------- --------------
$764,498 $735,737
=============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $102,134 $75,501
Accrued employee compensation and
benefits 24,783 20,215
Accrued warranty expense 13,267 12,043
Bank line of credit - 13,000
Other current liabilities 21 39
--------------- --------------
Total current liabilities 140,205 120,798

Long-term liabilities 28,245 28,622

Shareholders' equity 596,048 586,317
--------------- --------------
$764,498 $735,737
=============== ==============





Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)


Quarter Ended
December 31,
------------------------
2005 2004
--------- ---------

Net sales $154,493 100% $144,413 100%
Cost of sales 106,316 69% 105,689 73%
--------- ---------
Gross profit 48,177 31% 38,724 27%
Operating expenses:
Selling 53,945 35% 59,098 41%
General and administrative 20,290 13% 21,964 15%
Research and development 6,550 4% 7,034 5%
--------- ---------
Total operating expenses 80,785 52% 88,096 61%
Loss from operations (32,608) -21% (49,372) -34%
Other income (expense), net (417) 1,219
--------- ---------
Loss before income taxes (33,025) -21% (48,153) -33%
Income tax benefit (14,361) (19,685)
--------- ---------
Net loss $(18,664) -12% $(28,468) -20%
========= =========

Loss per common share:
Basic ($0.27) ($0.42)
Diluted ($0.27) ($0.42)
Weighted-average shares outstanding:
Basic 69,268 67,961
Diluted 69,268 67,961


Year Ended
December 31,
------------------------
2005 2004
--------- ---------

Net sales $998,093 100% $934,564 100%
Cost of sales 583,679 58% 575,742 62%
--------- ---------
Gross profit 414,414 42% 358,822 38%
Operating expenses:
Selling 290,074 29% 263,089 28%
General and administrative 80,145 8% 89,878 10%
Research and development 26,989 3% 30,557 3%
--------- ---------
Total operating expenses 397,208 40% 383,524 41%
Income (loss) from operations 17,206 2% (24,702) -3%
Other income (expense), net (2,669) 989
--------- ---------
Income (loss) before income taxes 14,537 1% (23,713) -3%
Income tax provision 1,253 (13,610)
--------- ---------
Net income (loss) $13,284 1% $(10,103) -1%
========= =========

Earnings (loss) per common share:
Basic $0.19 ($0.15)
Diluted $0.19 ($0.15)
Weighted-average shares outstanding:
Basic 68,646 67,721
Diluted 69,239 67,721






Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)




Year Ended
December 31,
------------------
2005 2004
-------- ---------
Cash flows from operating activities:
Net income (loss) $13,284 $(10,103)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 38,260 51,154
Loss on disposal of assets 4,031 7,669
Tax benefit from exercise of stock options 2,408 2,161
Net non-cash foreign currency hedging
losses - 1,811
Other 2,621 9,448
Changes in assets and liabilities, net of
effects of acquisition 9,694 (53,603)
-------- ---------
Net cash provided by operating activities 70,298 8,537
-------- ---------

Cash flows from investing activities:
Capital expenditures (34,259) (25,986)
Proceeds from sale of capital assets 1,363 431
Acquisitions, net of cash acquired - (9,204)
-------- ---------
Net cash used in investing activities (32,896) (34,759)
-------- ---------

Cash flows from financing activities:
Issuance of Common Stock 14,812 20,311
Acquisition of Treasury Stock (39) (6,298)
Dividends paid, net (19,557) (19,069)
Proceeds from (payments on) Line of Credit (13,000) 13,000
Other (44) -
-------- ---------
Net cash provided by (used in) financing
activities (17,828) 7,944
-------- ---------

Effect of exchange rate changes on cash and cash
equivalents (1,750) 2,595
Net increase (decrease) in cash and cash
equivalents 17,824 (15,683)
Cash and cash equivalents at beginning of period 31,657 47,340
-------- ---------
Cash and cash equivalents at end of period $49,481 $31,657
======== =========





Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)

Net Sales by Product Category
-------------------------------------
Quarter Ended
December 31, Growth/(Decline)
------------------- ----------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
Woods $43,401 $24,992 $18,409 74%
Irons 36,608 39,266 (2,658) -7%
Putters 21,111 18,751 2,360 13%
Golf balls 34,519 43,582 (9,063) -21%
Accessories and other 18,854 17,822 1,032 6%
--------- --------- --------
$154,493 $144,413 $10,080 7%
========= ========= ========


------------------------------------
Year Ended
December 31, Growth/(Decline)
------------------- ----------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
Woods $241,329 $238,555 $2,774 1%
Irons 316,501 259,058 57,443 22%
Putters 109,309 100,482 8,827 9%
Golf balls 214,695 231,337 (16,642) -7%
Accessories and other 116,259 105,132 11,127 11%
--------- --------- --------
$998,093 $934,564 $63,529 7%
========= ========= ========



Net Sales by Region
-------------------------------------
Quarter Ended
December 31, Growth/(Decline)
------------------- ----------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
United States $77,435 $85,856 $(8,421) -10%
Europe 22,018 22,580 (562) -2%
Japan 22,533 12,137 10,396 86%
Rest of Asia 14,287 8,616 5,671 66%
Other foreign countries 18,220 15,224 2,996 20%
--------- --------- --------
$154,493 $144,413 $10,080 7%
========= ========= ========


------------------------------------
Year Ended
December 31, Growth/(Decline)
------------------- ----------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
United States $563,040 $546,219 $16,821 3%
Europe 166,177 169,519 (3,342) -2%
Japan 103,389 70,536 32,853 47%
Rest of Asia 66,890 51,662 15,228 29%
Other foreign countries 98,597 96,628 1,969 2%
--------- --------- --------
$998,093 $934,564 $63,529 7%
========= ========= ========


Operating Segment Information
--------------------------------------------
Quarter Ended
December 31, Growth/(Decline)
------------------- ------------------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
Golf clubs $119,974 $100,831 $19,143 19%
Golf balls 34,519 43,582 (9,063) -21%
--------- --------- --------
$154,493 $144,413 $10,080 7%
========= ========= ========
Income before provision for
income taxes: (1)
Golf clubs $(14,045) $(26,067) $12,022 46%
Golf balls (3,713) (10,538) 6,825 65%
Reconciling items (2) (15,267) (11,548) (3,719) -32%
--------- --------- --------
$(33,025) $(48,153) $15,128 31%
========= ========= ========

--------------------------------------------
Year Ended
December 31, Growth/(Decline)
------------------- ------------------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
Golf clubs $783,398 $703,227 $80,171 11%
Golf balls 214,695 231,337 (16,642) -7%
--------- --------- --------
$998,093 $934,564 $63,529 7%
========= ========= ========
Income before provision for
income taxes: (1)
Golf clubs $68,327 $36,806 $31,521 86%
Golf balls (3,612) (16,895) 13,283 79%
Reconciling items (2) (50,178) (43,624) (6,554) -15%
--------- --------- --------
$14,537 $(23,713) $38,250 161%
========= ========= ========


(1) Prior period amounts have been reclassified to conform with
current period presentation.

(2) Represents corporate general and administrative expenses and
other income (expense) not utilized by management in determining
segment profitability.





Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)


Quarter Ended December 31,
-------------------------------------------
2005
-------------------------------------------

Pro Forma Integration Restructuring Total as
Callaway Charges Charges Reported
Golf
--------------------------------------------
Net sales $154,493 $- $- $154,493
Gross profit 48,922 (763) 18 48,177
% of sales 32% n/a n/a 31%
Operating expenses 76,357 2,330 2,098 80,785
--------- ---------- ------------ ---------
Loss from operations (27,435) (3,093) (2,080) (32,608)
Other income (expense),
net (417) - - (417)
--------- ---------- ------------ ---------
Loss before income taxes (27,852) (3,093) (2,080) (33,025)
Income tax benefit (12,395) (1,176) (790) (14,361)
--------- ---------- ------------ ---------
Net loss $(15,457) $(1,917) $(1,290) $(18,664)
========= ========== ============ =========

Diluted earnings (loss)
per share: $(0.22) $(0.03) $(0.02) $(0.27)
Weighted-average shares
outstanding: 69,268 69,268 69,268 69,268


Quarter Ended December 31,
------------------------------
2004
------------------------------

Pro Forma Integration Total as
Callaway Charges Reported
Golf
------------------------------
Net sales $144,413 $- $144,413
Gross profit 40,255 (1,531) 38,724
% of sales 28% n/a 27%
Operating expenses 84,391 3,705 88,096
--------- ---------- ---------
Loss from operations (44,136) (5,236) (49,372)
Other income (expense), net 1,219 - 1,219
--------- ---------- ---------
Loss before income taxes (42,917) (5,236) (48,153)
Income tax benefit (17,658) (2,027) (19,685)
--------- ---------- ---------
Net loss $(25,259) $(3,209) $(28,468)
========= ========== =========

Diluted earnings (loss) per share: $(0.37) $(0.05) $(0.42)
Weighted-average shares
outstanding: 67,961 67,961 67,961



Year Ended December 31,
-------------------------------------------
2005
-------------------------------------------

Pro Forma Integration Restructuring Total as
Callaway Charges Charges Reported
Golf
--------------------------------------------
Net sales $998,093 $- $- $998,093
Gross profit 422,921 (6,388) (2,119) 414,414
% of sales 42% n/a n/a 42%
Operating expenses 384,978 6,025 6,205 397,208
--------- ---------- ------------ ---------
Income (loss) from
operations 37,943 (12,413) (8,324) 17,206
Other income (expense),
net (2,669) - - (2,669)
--------- ---------- ------------ ---------
Income (loss) before
income taxes 35,274 (12,413) (8,324) 14,537
Provision (benefit) for
income taxes 9,133 (4,717) (3,163) 1,253
--------- ---------- ------------ ---------
Net income (loss) $26,141 $(7,696) $(5,161) $13,284
========= ========== ============ =========

Diluted earnings (loss)
per share: $0.38 $(0.11) $(0.08) $0.19
Weighted-average shares
outstanding: 69,239 69,239 69,239 69,239



Year Ended December 31,
------------------------------
2004
------------------------------

Pro Forma Integration Total as
Callaway Charges Reported
Golf
------------------------------
Net sales $934,564 $- $934,564
Gross profit 374,511 (15,689) 358,822
% of sales 40% n/a 38%
Operating expenses 370,713 12,811 383,524
--------- ---------- ---------
Income (loss) from operations 3,798 (28,500) (24,702)
Other income (expense), net 989 - 989
--------- ---------- ---------
Income (loss) before income taxes 4,787 (28,500) (23,713)
Provision (benefit) for income taxes (2,580) (11,030) (13,610)
--------- ---------- ---------
Net income (loss) $7,367 $(17,470) $(10,103)
========= ========== =========

Diluted earnings (loss) per share: $0.11 $(0.26) $(0.15)
Weighted-average shares
outstanding: 67,721 67,721 67,721



Contact Information

  • Callaway Golf Company
    Brad Holiday / Patrick Burke / Larry Dorman, 760-931-1771