Callaway Golf Announces Nine Months' Results and Upgrades Full Year Earnings Estimates for Its Core Business
Nine-Month Net Income and Earnings Per Share Are the Highest Since 1997
CARLSBAD, Calif.--(BUSINESS WIRE)--Oct. 23, 2003-- Callaway Golf Company (NYSE: ELY) today released its consolidated financial results for the nine months ended September 30, 2003, announcing net income of $79 million and diluted earnings per share of $1.19, increases of 5% and 7%, respectively, over the same period in the prior year. The reported net income and earnings per share are the highest achieved by the Company in the first nine months of a fiscal year since 1997.
For the nine months ended September 30, 2003, the Company reported net sales of $667 million, compared to $670 million during the same period in 2002. Foreign currency exchange rates positively impacted net sales for the current period by approximately $22 million. Net income for the period was $79 million, compared to $75 million for the same period last year. Diluted earnings per share were $1.19, compared to $1.11 for the same period last year.
For the quarter ended September 30, 2003, the Company reported net sales of $154 million, compared to $161 million during the same quarter in 2002. Foreign currency exchange rates positively impacted net sales for the third quarter of 2003 by approximately $3 million. Net income during the third quarter was $2 million, versus $7 million for the same quarter last year. Diluted earnings per share were $0.03, compared to $0.11 for the same quarter last year.
Year-over-year comparisons are affected by two key factors. First, the Company's results for 2003 reflect the acquisition of certain assets of The Top-Flite Golf Company in the United States as of September 15, 2003 (see Company press release of September 15, 2003). Second, the Company's results for 2002 reflected a number of adjustments, including a non-cash, pre-tax reversal of $17 million of the Company's warranty reserve in the third quarter and the inclusion of certain subsequent adjustments that otherwise would have been included in fourth quarter results but for the Company's delayed filing of its third quarter Form 10-Q (see Company press release of January 16, 2003). To assist investors in making comparisons, the Company provides the following supplemental information (1):
-- For the nine months ended September 30, 2003, net sales
excluding Top-Flite were $662 million, compared to $670
million during the same period in 2002. Top-Flite's operating
results after the acquisition were essentially break-even.
Therefore, net income and diluted earnings per share were not
affected by Top-Flite's results. This sales information is
summarized as follows:
-------------------------
$'s - millions Nine Months
-------------------------
2003 2002 % Change
------- ------- ---------
Reported Net Sales $667.4 $670.4 0%
Top-Flite Net Sales -U.S. (5.4) -
-------
Pro Forma Net Sales $662.0 $670.4 (1%)
======= =======
-- Excluding Top-Flite from 2003 results and excluding the
effects of the warranty reversal and the subsequent events
reported in the Form 10-Q (Part II, Item 5) for the comparable
period in 2002, net income for the nine months ended September
30, 2003 would have been $79 million and diluted earnings per
share would have been $1.19, increases of 13% and 16%,
respectively, compared with $70 million and $1.03 for the
comparable period in 2002. This earnings information is
summarized as follows:
-----------------------
$'s - millions, except per share data Nine Months
-----------------------
2003 2002 % Change
------ ------ -------
Reported Net Income $79.0 $75.0 5%
Top-Flite Net Income - U.S. - -
Warranty Reversal - (10.4)
Subsequent Events - 5.2
------ ------
Pro Forma Net Income $79.0 $69.8 13%
====== ======
Reported Diluted Earnings per Share $1.19 $1.11 7%
Top-Flite Net Income - -
Warranty Reversal - (0.16)
Subsequent Events - 0.08
------ ------
Pro Forma Diluted
Earnings per Share $1.19 $1.03 16%
====== ======
(1) Supplemental information supplied in this press release is not
presented in accordance with generally accepted accounting principles
(GAAP) and should not be considered as a substitute for any measure
derived in accordance with GAAP. This information may also be
inconsistent with similar information supplied by other companies.
"We expect to slightly exceed our previous earnings estimates for the year for our core Callaway Golf business, even though we are seeing sales decline, as expected, in the back half of the year following a record first six months," said Ron Drapeau, Chairman and CEO. "We experienced some softness in the third quarter compared to last year, but managed our business carefully in delivering $0.03 in earnings per share. Despite the deviation for the quarter, our nine-month results remain very good in terms of net income and earnings per share, achieving the highest levels since 1997."
SALES BY PRODUCT AND REGION
-------------------- -------------------
Third Quarter - 2003 Nine Months - 2003
-------------------- -------------------
$'s - millions % Change % Change
Net Sales vs. 2002 Net Sales vs. 2002
--------- --------- --------- --------
Woods $44.0 (22%) $213.9 (17%)
Irons 54.7 7% 233.9 10%
Putters 27.0 (4%) 118.1 31%
Golf Balls 14.1 25% 43.3 (25%)
Accessories, Other 13.8 (6%) 58.2 12%
------- -------
TOTAL $153.6 (5%) $667.4 0%
======= =======
United States $77.7 (4%) $370.2 (2%)
International 75.9 (5%) 297.2 1%
------- -------
TOTAL $153.6 (5%) $667.4 0%
======= =======
Brad Holiday, Senior Executive Vice President and Chief Financial Officer, stated, "Our gross margins remained strong in the first nine months at 50% compared with 52% for last year. We continue to manage our costs carefully and in line with our net sales, with operating expenses reduced to 32% of net sales in 2003, versus 34% for the same period last year. Our balance sheet remains strong, with virtually no debt and improved inventory levels."
In accordance with the Company's dividend practice, the Board of Directors will determine the next dividend in November.
BUSINESS OUTLOOK
In light of SEC Regulations, the Company elects to provide certain forward-looking information in this press release. These statements are based on current information and expectations, and actual results may differ materially. The Company undertakes no obligation to update this information. The Company's earnings estimates exclude any special charges or gains. See further disclaimer below.
"With the performance achieved in the first nine months of the year combined with modest incremental contributions from Top-Flite and some limited product launches planned for the last part of 2003, we expect that annual net sales will be about $810 million, which includes approximately $40 million from Top-Flite," reported Mr. Drapeau. "We have initiated steps to integrate the Callaway Golf and Top-Flite operations, which include the consolidation of our golf ball and golf club manufacturing and R&D operations. We expect to incur charges to earnings of approximately $60 million, mostly non-cash, in connection with this process, with the charges to be taken as incurred over the next twelve months. Excluding these charges, earnings per share for the year, including Top-Flite, are estimated to be approximately $0.87 to $0.92. For our core Callaway Golf business, we estimate annual net sales of approximately $770 million, a slight decline from what we estimated last quarter, and diluted earnings per share of approximately $0.97, a slight increase from our previous estimate."
"We are very excited about our product plans for 2004. Taking advantage of the opportunities afforded to us as a result of our Top-Flite acquisition, including both cost savings and new technology, we are planning to re-launch the Callaway Golf golf ball product line in 2004 in combination with the consumer introduction of our HX Tour ball, while building and expanding the Top-Flite business. On the club side of the business, the recently announced ERC Fusion Driver will be the flagship of a Callaway Golf wood business that features a refreshed Great Big Bertha II driver and fairway line and a new line of Big Bertha titanium drivers and stainless steel fairway woods. We are carefully reviewing our market opportunities for 2004 in light of these and other strong Callaway Golf, Top-Flite, Odyssey and Hogan products and intend to provide that guidance in late December."
The Company will be holding a conference call at 2:00 p.m. PDT today, which will be hosted by Ronald A. Drapeau, Chairman and CEO, and Bradley J. Holiday, Senior Executive Vice President and Chief Financial Officer. 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 of the conference call. The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling (800) 642-1687 toll free for calls originating within the United States or (706) 645-9291 for International calls. The replay pass code is 3222820 and the replay will be available through 5:00 p.m. PST, on Thursday, October 30, 2003.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results or performance, including statements relating to estimated earnings, sales and charges to earnings, 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 or unanticipated costs in integrating the Top-Flite and Callaway Golf assets, brands and business, the maintenance of good vendor relationships, adverse market and economic conditions, market acceptance of current and future products, adverse weather conditions and seasonality, competitive pressures, fluctuations in foreign currency exchange rates, delays, difficulties or increased costs in the manufacturing of the Company's golf club or ball products, or in the procurement of materials or resources needed to manufacture the Company's golf club or ball products, any actions taken by the USGA or other golf association that could have an adverse impact upon demand for the Company's products, and the effect of terrorist activity or armed conflict on the economy generally, on the level of demand for the Company's products or on the Company's ability to manage its supply and delivery logistics in such an environment. 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, 2003, 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.
Callaway Golf Company makes and sells Big Bertha(R) Metal Woods and Irons, including ERC(R) Fusion(R) Drivers, Great Big Bertha(R) II Titanium Drivers and Fairway Woods, Big Bertha Steelhead(R) III Stainless Steel Drivers and Fairway Woods, Hawk Eye(R) VFT(R) Tungsten Injected(TM) Titanium Irons, Big Bertha Stainless Steel Irons, Steelhead X-16(R) and Steelhead X-16 Pro Series Stainless Steel Irons, and Callaway Golf Forged Wedges. Callaway Golf Company also makes and sells Odyssey(R) Putters, including White Hot(R), TriHot(R), DFX(TM) and Dual Force(R) Putters. Callaway Golf Company makes and sells the Callaway Golf(R) HX(R) Tour balls, HX Blue and HX Red balls, the CTU 30(R) Blue and CTU 30 Red balls, the HX 2-Piece Blue and HX 2-Piece Red balls, the CB1(R) Blue and CB1 Red balls, and the Warbird(TM) golf balls. Callaway Golf also owns and operates The Top-Flite Golf Company, a wholly owned subsidiary that includes the Top-Flite(R), Strata(R) and Ben Hogan(R) brands. For more information about Callaway Golf Company, please visit our websites at www.callawaygolf.com, www.topflite.com and www.odysseygolf.com.
Callaway Golf Company
Consolidated Condensed Statement of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $153,634 100% $161,257 100% $667,430 100% $670,439 100%
Cost of goods
sold 83,414 54% 81,371 50% 332,878 50% 324,012 48%
--------- --------- --------- ---------
Gross profit 70,220 46% 79,886 50% 334,552 50% 346,427 52%
Operating
expenses:
Selling 47,462 31% 47,681 30% 149,527 22% 159,958 24%
General and
administrative 14,684 10% 12,467 8% 43,154 6% 40,875 6%
Research and
development 7,734 5% 8,202 5% 20,648 3% 24,529 4%
--------- --------- --------- ---------
Total
operating
expenses 69,880 45% 68,350 42% 213,329 32% 225,362 34%
Income from
operations 340 0% 11,536 7% 121,223 18% 121,065 18%
Other income
(expense), net 1,056 (1,002) 1,345 20
--------- --------- --------- ---------
Income before
income taxes 1,396 1% 10,534 7% 122,568 18% 121,085 18%
Income tax
provision
(benefit) (938) 3,347 43,613 46,062
--------- --------- --------- ---------
Net income $2,334 2% $7,187 4% $78,955 12% $75,023 11%
========= ========= ========= =========
Earnings per common share:
Basic $0.04 $0.11 $1.20 $1.12
Diluted $0.03 $0.11 $1.19 $1.11
Weighted-average shares outstanding:
Basic 66,261 65,822 65,936 66,691
Diluted 66,808 66,356 66,295 67,623
Callaway Golf Company
Consolidated Condensed Balance Sheet
(in Thousands)
(Unaudited)
September 30, December 31,
2003(a) 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $72,835 $108,452
Accounts receivable, net 136,329 63,867
Inventories, net 141,174 151,760
Deferred taxes 34,531 34,519
Prepaid investment in
Top-Flite International 29,954 -
Other current assets 11,002 10,429
--------- ---------
Total current assets 425,825 369,027
Property, plant
and equipment, net 194,044 167,340
Intangible assets, net 169,819 121,317
Other assets 21,484 22,161
--------- ---------
$811,172 $679,845
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
and accrued expenses $79,168 $61,720
Accrued employee
compensation and benefits 28,425 23,168
Accrued warranty expense 13,615 13,464
Income taxes payable 34,452 7,649
Other current liabilities 1,407 3,160
--------- ---------
Total current liabilities 157,067 109,161
Long-term liabilities 32,954 27,297
Shareholders' equity 621,151 543,387
--------- ---------
$811,172 $679,845
========= =========
(a) Includes preliminary balances related to the acquisition of
certain assets and assumption of certain liabilities of The Top-Flite
Golf Company in the United States as of September 15, 2003. The
Top-Flite Golf Company is in the process of finalizing its opening
balance sheet and third-party valuations of certain assets are being
completed; accordingly, the estimated carrying values of the acquired
assets and assumed liabilities are preliminary and subject to
refinement.
CONTACT:
Callaway Golf Company, Carlsbad
Ron Drapeau or Brad Holiday or Larry Dorman, 760-931-1771
SOURCE: Callaway Golf Company