Callaway Golf Company
NYSE : ELY

Callaway Golf Company

October 26, 2005 16:10 ET

Callaway Golf Announces Results for Third Quarter and First Nine Months of 2005

CARLSBAD, Calif.--(CCNMatthews - Oct 26, 2005) -

Callaway Golf Company (NYSE:ELY) today announced its financial results for the quarter and nine months ended September 30, 2005, reporting significant improvements in both sales and earnings. Some of the details for the quarter include:

-- Net sales of $220.6 million, as compared to $128.5 million in the third quarter of 2004.

-- Net loss per share of $0.07 on 68.8 million shares, as compared to a net loss of $0.53 per share on 67.8 million shares in the third quarter of 2004.

-- The net loss per share for the third quarter of 2005 includes after-tax charges of $0.08 per share associated with the integration of the Top-Flite operations acquired in late 2003 and the recently announced restructuring initiatives. The net loss per share for the third quarter of 2004 includes after-tax charges of $0.07 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 the third quarter of 2005 would have been $0.01, as compared to a pro forma net loss per share of $0.46 per share in the third quarter of 2004.

Details for the first nine months of 2005 include:

-- Net sales of $843.6 million, as compared to $790.2 million in the first nine months of 2004.

-- Fully diluted earnings per share of $0.46 on 69.0 million shares, as compared to fully diluted earnings per share of $0.27 on 68.2 million shares for the first nine months of 2004.

-- Fully diluted earnings per share for the first nine months of 2005 includes after-tax charges of $0.14 per share associated with the integration of the Top-Flite operations and the recently announced restructuring initiatives. Fully diluted earnings per share for the first nine months of 2004 includes after-tax charges of $0.20 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 the first nine months of 2005 would have been $0.60, as compared to pro forma fully diluted earnings per share of $0.47 for the first nine months of 2004.

The year-to-date gains in earnings were tempered by increases in selling costs that were partially offset by savings in other operating areas. These increased selling costs reflect increased advertising and promotional expense and increased tour expense. The planned increase in selling expense for 2005 was intended to reinvigorate the Company's business following disappointing results in 2004, and the Company believes its investment in these activities has contributed to the increase in sales in 2005.

"We are pleased with our third quarter top line results, but know we can do better in profitability," commented George Fellows, President and CEO. "As announced on September 29th, we have taken actions to lower costs while improving our internal processes. These actions are expected to generate savings in 2006 of between $50 and $60 million across the board. While a portion of these savings will be reinvested in growth initiatives, a majority will positively impact profitability. Our next step is to re-examine gross margins in an effort to further reduce costs while maintaining our high quality standards. We believe these actions along with improved and focused marketing will allow us to maximize shareholder value."

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. PDT 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, November 2, 2005. 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 800497.

Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to future shareholder value and statements relating to the restructuring initiatives, and the estimated savings, reinvestment and improved profitability related to such initiatives, 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 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 June 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 Company 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)

September 30, December 31,
2005 2004
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents $54,596 $31,657
Accounts receivable, net 141,522 105,153
Inventories, net 211,163 181,230
Deferred taxes 36,249 32,959
Income taxes receivable - 28,697
Other current assets 16,142 14,036
------------- -------------
Total current assets 459,672 393,732

Property, plant and equipment, net 130,525 135,865
Intangible assets, net 176,146 179,636
Deferred taxes 6,690 9,837
Other assets 16,247 16,667
------------- -------------
$789,280 $735,737
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $94,452 $75,501
Accrued employee compensation and
benefits 26,044 20,215
Accrued warranty expense 13,773 12,043
Line of credit - 13,000
Income taxes payable 9,836 -
Other current liabilities 11 39
------------- -------------
Total current liabilities 144,116 120,798

Long-term liabilities 28,085 28,622

Shareholders' equity 617,079 586,317
------------- -------------
$789,280 $735,737
============= =============


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

Quarter Ended
September 30,
------------------------
2005 2004
--------- ---------

Net sales $220,611 100% $128,457 100%
Cost of sales 133,713 61% 102,386 80%
--------- ---------
Gross profit 86,898 39% 26,071 20%
Operating expenses:
Selling expenses 69,744 32% 58,300 45%
General and administrative expenses 19,531 9% 23,219 18%
Research and development expenses 7,116 3% 7,855 6%
--------- ---------
Total operating expenses 96,391 44% 89,374 70%
Loss from operations (9,493) -4% (63,303) -49%
Other income, net 735 1,091
--------- ---------
Loss before income taxes (8,758) -4% (62,212) -48%
Income tax benefit (3,954) (26,317)
--------- ---------
Net loss $(4,804) -2% $(35,895) -28%
========= =========

Earnings (loss) per common share:
Basic ($0.07) ($0.53)
Diluted ($0.07) ($0.53)
Weighted-average shares outstanding:
Basic 68,849 67,847
Diluted 68,849 67,847


Nine Months Ended
September 30,
------------------------
2005 2004
--------- ---------

Net sales $843,600 100% $790,151 100%
Cost of goods sold 477,363 57% 470,053 59%
--------- ---------
Gross profit 366,237 43% 320,098 41%
Operating expenses:
Selling 236,129 28% 203,991 26%
General and administrative 59,855 7% 67,914 9%
Research and development 20,439 2% 23,523 3%
--------- ---------
Total operating expenses 316,423 38% 295,428 37%
Income from operations 49,814 6% 24,670 3%
Other expense, net (2,252) (230)
--------- ---------
Income before income taxes 47,562 6% 24,440 3%
Provision for income taxes 15,614 6,075
--------- ---------
Net income $31,948 4% $18,365 2%
========= =========

Earnings per common share:
Basic $0.47 $0.27
Diluted $0.46 $0.27
Weighted-average shares outstanding:
Basic 68,436 67,641
Diluted 69,028 68,235


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

Nine Months Ended
September 30,
------------------
2005 2004
--------- --------
Cash flows from operating activities:
Net income $31,948 $18,365
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 30,942 39,027
Non-cash compensation 5,733 101
Loss on disposal of long-lived assets 1,109 4,270
Tax benefit from exercise of stock options 951 1,882
Net non-cash foreign currency hedging losses - 1,723
Deferred taxes (2,110) 12,254
Changes in assets and liabilities, net (9,648) (31,490)
--------- --------
Net cash provided by operating activities 58,925 46,132
--------- --------

Cash flows from investing activities:
Capital expenditures (25,721) (16,065)
Proceeds from sale of capital assets 71 415
Business acquisitions, net of cash acquired - (9,204)
--------- --------
Net cash used in investing activities (25,650) (24,854)
--------- --------

Cash flows from financing activities:
Net payments on line of credit (13,000) -
Issuance of Common Stock 13,589 18,649
Dividends paid, net (9,706) (14,232)
Acquisition of Treasury Stock (39) (6,298)
Payments on financing arrangements (39) -
--------- --------
Net cash used in financing activities (9,195) (1,881)
--------- --------

Effect of exchange rate changes on cash and cash
equivalents (1,141) 781
--------- --------

Net increase in cash and cash equivalents 22,939 20,178
Cash and cash equivalents at beginning of period 31,657 47,340
--------- --------
Cash and cash equivalents at end of period $54,596 $67,518
========= ========


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

Net Sales by Product Category
-------------------------------------------------------------
Quarter Ended Growth/ Nine Months Ended Growth/
September 30, (Decline) September 30, (Decline)
----------------------------- -------------------------------
2005 2004 $ % 2005 2004 $ %
----------------------------- -------------------------------
Net
sales:
Woods $62,881 $14,329 $48,552 339% $197,928 $213,563 $(15,635) -7%
Irons 60,258 36,298 23,960 66% 279,892 219,792 60,100 27%
Putters 22,374 15,588 6,786 44% 88,198 81,731 6,467 8%
Golf
balls 50,384 41,128 9,256 23% 180,176 187,755 (7,579) -4%
Accessories
and
other 24,714 21,114 3,600 17% 97,406 87,310 10,096 12%
----------------------------- -------------------------------
$220,611 $128,457 $92,154 72% $843,600 $790,151 $53,449 7%
============================ ===============================


Net Sales by Region
-------------------------------------------------------------
Quarter Ended Growth/ Nine Months Ended Growth/
September 30, (Decline) September 30, (Decline)
----------------------------- -------------------------------
2005 2004 $ % 2005 2004 $ %
----------------------------- -------------------------------
Net sales:
United
States $119,051 $71,421 $47,630 67% $485,605 $460,381 $25,224 5%
Europe 36,428 21,867 14,561 67% 144,159 146,922 (2,763) -2%
Japan 25,729 10,065 15,664 156% 80,856 58,399 22,457 38%
Rest of
Asia 18,874 9,924 8,950 90% 52,603 43,045 9,558 22%
Other
foreign
countries 20,529 15,180 5,349 35% 80,377 81,404 (1,027) -1%
----------------------------- -------------------------------
$220,611 $128,457 $92,154 72% $843,600 $790,151 $53,449 7%
============================ ===============================


Operating Segment Information
-------------------------------------------------------------
Quarter Ended Growth/ Nine Months Ended Growth/
September 30, (Decline) September 30, (Decline)
----------------------------- -------------------------------
2005 2004 $ % 2005 2004 $ %
----------------------------- -------------------------------
Net sales:
Golf
clubs $170,227 $87,329 $82,898 95% $663,424 $602,396 $61,028 10%
Golf
balls 50,384 41,128 9,256 23% 180,176 187,755 (7,579) -4%
----------------------------- -------------------------------
$220,611 $128,457 $92,154 72% $843,600 $790,151 $53,449 7%
============================ ===============================
Income before
provision for
income taxes(1):
Golf
clubs $8,685 $(50,118)$58,803 117% $82,429 $59,582 $22,847 38%
Golf
balls (7,700) (5,173) (2,527)-49% 43 (3,064) 3,107 101%
Reconciling
items(2) (9,743) (6,921) (2,822)-41% (34,910) (32,078) (2,832) -9%
----------------------------- -------------------------------
$(8,758)$(62,212)$53,454 86% $47,562 $24,440 $23,122 95%
============================ ===============================

(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
Quarter Ended September 30, September 30,
-------------------------------- --------------------------
2005 2004
-------------------------------- --------------------------
In- Re- Total In- Total
Pro Forma tegra- struc- as Pro Forma tegra- as
Callaway tion turing Re- Callaway tion Re-
Golf Charges Charges ported Golf Charges ported
-------------------------------- --------------------------
Net sales $220,611 $- $- $220,611 $128,457 $- $128,457
Gross
profit 90,283 (1,248) (2,137) 86,898 30,891 (4,820) 26,071
% of sales 41% n/a n/a 39% 24% n/a 20%
Operating
expenses 91,299 985 4,107 96,391 86,726 2,648 89,374
-------------------------------- ------------------------
Income (loss)
from
operations (1,016) (2,233) (6,244) (9,493) (55,835) (7,468) (63,303)
Other income
(expense),
net 735 - - 735 1,091 - 1,091
-------------------------------- ------------------------
Income (loss)
before
income taxes (281) (2,233) (6,244) (8,758) (54,744) (7,468) (62,212)
Provision
(benefit)
for income
taxes (733) (848) (2,373) (3,954) (23,219) (3,098) (26,317)
-------------------------------- ------------------------
Net income
(loss) $452 $(1,385)$(3,871)$(4,804)$(31,525)$(4,370)$(35,895)
=========================================================

Diluted
earnings
(loss) per
share: $0.01 $(0.02) $(0.06) $(0.07) $(0.46) $(0.06) $(0.53)
Weighted-
average
shares
outstanding: 68,849 68,849 68,849 68,849 67,847 67,847 67,847


Nine Months Ended September 30, Nine Months Ended
September 30,
-------------------------------- --------------------------
2005 2004
-------------------------------- --------------------------
In- Re- Total In- Total
Pro Forma tegra- struc- as Pro Forma tegra- as
Callaway tion turing Re- Callaway tion Re-
Golf Charges Charges ported Golf Charges ported
-------------------------------- --------------------------
Net sales $843,600 $- $- $843,600 $790,151 $- $790,151
Gross
profit 373,999 (5,625) (2,137) 366,237 334,256 (14,158) 320,098
% of sales 44% n/a n/a 43% 42% n/a 41%
Operating
expenses 308,621 3,695 4,107 316,423 286,322 9,106 295,428
-------------------------------- ------------------------
Income (loss)
from
operations 65,378 (9,320) (6,244) 49,814 47,934 (23,264) 24,670
Other income
(expense),
net (2,252) - - (2,252) (230) - (230)
-------------------------------- ------------------------
Income (loss)
before
income taxes 63,126 (9,320) (6,244) 47,562 47,704 (23,264) 24,440
Provision
(beneift)
for income
taxes 21,528 (3,541) (2,373) 15,614 15,078 (9,003) 6,075
-------------------------------- ------------------------
Net income
(loss) $41,598 $(5,779)$(3,871) $31,948 $32,626 $(14,261)$18,365
=========================================================

Diluted
earnings
(loss) per
share: $0.60 $(0.08) $(0.06) $0.46 $0.48 $(0.21) $0.27
Weighted-
average
shares
outstanding: 69,028 69,028 69,028 69,028 68,235 68,235 68,235



Contact Information

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