Callaway Golf Announces Results for Third Quarter and First Nine Months of 2004
CARLSBAD, Calif.--(BUSINESS WIRE)--Oct. 19, 2004--Callaway Golf Company (NYSE:ELY) today announced its financial results for the quarter ended September 30, 2004. The Company reported net sales of $128.5 million, a net loss of $35.9 million, or a net loss of $0.53 per fully diluted share, on 67.8 million shares. Included in both the net loss and fully diluted net loss per share were charges of $4.4 million and $0.07, respectively, associated with the integration of the Top-Flite operations acquired in late 2003. On a pro forma basis, which excludes these charges, the Company reported a net loss of $31.5 million, or a net loss of $0.46 per fully diluted share, compared with "analyst consensus" estimates of a net loss of $0.45 per fully diluted share (which also excluded integration charges). Reported net sales, net income and fully diluted earnings per share for the same quarter in 2003 (which included two weeks of Top-Flite results) were $153.6 million, $2.3 million and $0.03 on 66.8 million shares, respectively.
For the nine months ended September 30, 2004, the Company reported net sales of $790.2 million, net income of $18.4 million, and fully diluted earnings per share of $0.27 on 68.2 million shares. Net income and earnings per share for the nine-month period were reduced by $14.3 million and $0.20, respectively, due to charges associated with the integration of the Top-Flite operations. Excluding these charges, the Company's pro forma net income for the nine-month period was $32.6 million, and pro forma fully diluted earnings per share were $0.47. Reported net sales, net income and fully diluted earnings per share for the same period in 2003 (which included two weeks of Top-Flite results) were $667.4 million, $79.0 million and $1.19 on 66.3 million shares, respectively.
"Our results in the third quarter reflect the challenges we are facing in the current marketplace and the effect of the actions we have taken to address these issues," said William C. Baker, Chairman and CEO. "The price reductions taken on 2004 products together with our decision to delay the timing of the launch of certain new products resulted in improved inventory levels at retail during the quarter, a trend we hope will continue as we prepare for 2005." Mr. Baker concluded by saying, "The management team is committed to the long term success of the company and the brand, and we are working together as a strong and focused team."
For more details, including pro forma reconciliations to assist in year-over-year comparison, please see the attached "Supplemental Financial Information."
In accordance with the Company's usual dividend practice, the next dividend will be determined by the Board of Directors at its upcoming meeting.
BUSINESS OUTLOOK
"As previously announced, the Company has suspended providing short term guidance in light of our current situation in the marketplace, the ongoing CEO transition process, and the Company's focus on strengthening the business in the long term," said Brad Holiday, Senior Executive Vice President and Chief Financial Officer. "Consistent with our business plan, we have announced three new product lines for launch in the fourth quarter of 2004. These products will target categories where retail inventory levels are not an issue and where we believe consumer response will be strong. They include Odyssey(R) White Steel(TM) putters, which use an innovative dual insert technology that suspends a milled stainless steel insert inside a modified White Hot(R) insert; Callaway Golf "Heavenwoods(R)", a new line of hybrid utility golf clubs; and Callaway Golf Big Bertha(R) Fusion(R) Irons, a new line of premium irons with exceptional playing qualities resulting from a unique and proprietary construction."
The Company will be holding a conference call at 2:00 p.m. PDT on October 19, 2004, which will be hosted by William C. Baker, 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 1-800-642-1687 toll free for calls originating within the United States or 706-645-9291 for International calls. The replay pass code is 1386836 and the replay will be available through 9:00 p.m. PDT on October 26, 2004.
Disclaimers
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to the long-term success of the Company and its brands, future inventory levels, and the anticipated consumer response to the Company's new product lines, 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 Golf and Callaway Golf assets, brands and businesses, the maintenance of good vendor relationships, adverse market and economic conditions, market acceptance of current and future products, adverse weather conditions (including the effects of the recent hurricanes in Florida and the east coast) 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 rule changes or other actions taken by the USGA or other golf association that could have an adverse impact upon demand for the Company's products, a decrease in participation levels in golf 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, 2004, 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.
"Analyst Consensus" Estimates: Analyst consensus estimates repeated in this press release are based upon the public reports of Thomson First Call and are provided for informational purposes only. The Company does not support, endorse or otherwise adopt the estimates of analysts, either individually or as a group. The use of an analyst consensus estimate in this release or otherwise does not suggest or imply that the Company believes that such estimate provides a reasonable basis for evaluating, measuring or predicting the Company's performance.
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 the 2004 charges associated with the integration of the Top-Flite Golf business acquired in late 2003. They also report the results of the Callaway Golf and Top-Flite operations each on a stand-alone basis, although such operations are not reportable business segments. 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 useful information to investors by permitting additional relevant period-to-period comparisons of the historical operations of the Callaway Golf business excluding the operations of the recently acquired Top-Flite Golf business, as well as information concerning operations notwithstanding the Top-Flite integration charges. For certain non-GAAP financial measures, the Company has provided Supplemental Financial Information as an attachment to this press release which reconciles those non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP. In other circumstances, the reconciling information is presented in the text of this press release.
Callaway Golf Company makes and sells Big Bertha(R) Woods, Hybrids and Irons, including ERC(R) Fusion(R) Drivers and Fairway Woods, Great Big Bertha(R) II Titanium Drivers and Fairway Woods, Great Big Bertha II 415 Titanium Drivers, Big Bertha Titanium Drivers and Big Bertha Stainless Steel Fairway Woods, Big Bertha Heavenwood(R) Hybrids, Big Bertha Fusion Irons, Hawk Eye(R) VFT(R) Tungsten Injected(TM) Titanium Irons, Big Bertha Stainless Steel Irons, Steelhead(R) X-16(R) and Steelhead X-16 Pro Series Stainless Steel Irons, the Game Enjoyment System(TM) of GES(TM) Golf Clubs, Callaway Golf Forged+ Wedges and Callaway Golf Forged Wedges, and Callaway Golf Tour Blue(TM) Putters. Callaway Golf Company also makes and sells Odyssey(R) Putters, including White Steel(TM), White Hot(R), TriHot(R), DFX(R), Dual Force(R) and 2-Ball Putters. Callaway Golf Company makes and sells the Callaway Golf(R) HX(R) Tour Balls, HX Blue and HX Red Balls, Big Bertha(TM) Blue and Big Bertha Red Balls, and the Warbird(R) Balls. Callaway Golf also owns and operates The Top-Flite Golf Company, a wholly owned subsidiary that includes the Top-Flite(R) and Ben Hogan(R) brands and Bettinardi Putters. The Trade In! Trade Up!(TM) program is owned and operated by Callaway Golf Company. For more information about Callaway Golf Company, please visit our websites at www.callawaygolf.com, www.topflite.com, www.odysseygolf.com and www.tradeintradeup.com.
Callaway Golf Company
Consolidated Condensed Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
September 30,
---------------------
2004 2003
--------- ---------
Net sales $128,457 100% $153,634 100%
Cost of goods sold 102,386 80% 83,414 54%
--------- ---------
Gross profit 26,071 20% 70,220 46%
Operating expenses:
Selling 58,300 45% 47,462 31%
General and administrative 23,219 18% 14,684 10%
Research and development 7,855 6% 7,734 5%
--------- ---------
Total operating expenses 89,374 70% 69,880 45%
Income (loss) from operations (63,303) -49% 340 0%
Other income, net 1,091 1,056
--------- ---------
Income (loss) before income taxes (62,212) -48% 1,396 1%
Income tax benefit (26,317) (938)
--------- ---------
Net income (loss) $(35,895) -28% $2,334 2%
========= =========
Earnings (loss) per common share:
Basic ($0.53) $0.04
Diluted ($0.53) $0.03
Weighted-average shares outstanding:
Basic 67,847 66,261
Diluted 67,847 66,808
Nine Months Ended
September 30,
-----------------------
2004 2003
--------- ---------
Net sales $790,151 100% $667,430 100%
Cost of goods sold 470,053 59% 332,878 50%
--------- ---------
Gross profit 320,098 41% 334,552 50%
Operating expenses:
Selling 203,991 26% 149,527 22%
General and administrative 67,914 9% 43,154 6%
Research and development 23,523 3% 20,648 3%
--------- ---------
Total operating expenses 295,428 37% 213,329 32%
Income from operations 24,670 3% 121,223 18%
Other income (expense), net (230) 1,345
--------- ---------
Income before income taxes 24,440 3% 122,568 18%
Income tax provision 6,075 43,613
--------- ---------
Net income $18,365 2% $78,955 12%
========= =========
Earnings per common share:
Basic $0.27 $1.20
Diluted $0.27 $1.19
Weighted-average shares outstanding:
Basic 67,641 65,936
Diluted 68,235 66,295
Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
September December
30, 31,
2004 2003
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $67,518 $47,340
Accounts receivable, net 114,857 100,664
Inventories, net 161,462 185,389
Deferred taxes 38,643 36,707
Income tax receivable 26,982 -
Other current assets 13,855 13,362
--------- ---------
Total current assets 423,317 383,462
Property, plant and equipment, net 139,707 164,763
Intangible assets, net 177,104 169,851
Deferred taxes - 12,289
Other assets 15,193 18,201
--------- ---------
$755,321 $748,566
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $75,528 $79,787
Accrued employee compensation and benefits 25,990 25,544
Accrued warranty expense 12,577 12,627
Income taxes payable - 11,962
Other current liabilities 53 240
--------- ---------
Total current liabilities 114,148 130,160
Long-term liabilities 29,558 29,023
Shareholders' equity 611,615 589,383
--------- ---------
$755,321 $748,566
========= =========
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------
2004 2003
--------- ---------
Cash flows from operating activities:
Net income $18,365 $78,955
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 38,342 30,447
Loss on disposal of assets 4,270 1,580
Tax benefit for exercise of stock options 1,882 (1,623)
Net non-cash foreign currency hedging losses
(gains) 1,723 2,628
Other 12,355 535
Changes in assets and liabilities, net of
effects of acquisition (30,805) 27,581
--------- ---------
Net cash provided by operating activities 46,132 140,103
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (9,204) (165,147)
Captial expenditures (16,065) (4,826)
Other 415 138
--------- ---------
Net cash used in investing activities (24,854) (169,835)
--------- ---------
Cash flows from financing activities:
Issuance of Common Stock 18,649 12,875
Acquisition of Treasury Stock (6,298) (3,220)
Dividends paid, net (14,232) (13,863)
Other - (2,590)
--------- ---------
Net cash used in financing activities (1,881) (6,798)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents 781 913
Net increase (decrease) in cash and cash
equivalents 20,178 (35,617)
Cash and cash equivalents at beginning of period 47,340 108,452
--------- ---------
Cash and cash equivalents at end of period $67,518 $72,835
========= =========
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
--------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
Woods $14,329 $43,996 $(29,667) -67%
Irons 36,298 56,136 (19,838) -35%
Putters 15,588 26,983 (11,395) -42%
Golf balls 41,128 14,121 27,007 191%
Accessories and other 21,114 12,398 8,716 70%
--------- --------- ---------
$128,457 $153,634 $(25,177) -16%
========= ========= =========
Net Sales by Product Category
-------------------------------------
Nine Months Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
Woods $213,563 $213,898 $(335) 0%
Irons 219,792 242,729 (22,937) -9%
Putters 81,731 118,074 (36,343) -31%
Golf balls 187,755 43,395 144,360 333%
Accessories and other 87,310 49,334 37,976 77%
--------- --------- ---------
$790,151 $667,430 $122,721 18%
========= ========= =========
Net Sales by Region
--------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
United States $71,421 $77,691 $(6,270) -8%
Europe 21,867 29,800 (7,933) -27%
Japan 10,065 23,031 (12,966) -56%
Rest of Asia 9,924 15,317 (5,393) -35%
Other foreign countries 15,180 7,795 7,385 95%
--------- --------- ---------
$128,457 $153,634 $(25,177) -16%
========= ========= =========
Net Sales by Region
-------------------------------------
Nine Months Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
United States $460,381 $370,194 $90,187 24%
Europe 146,922 123,881 23,041 19%
Japan 58,399 77,568 (19,169) -25%
Rest of Asia 43,045 48,878 (5,833) -12%
Other foreign countries 81,404 46,909 34,495 74%
--------- --------- ---------
$790,151 $667,430 $122,721 18%
========= ========= =========
Operating Segment Information
---------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales:
Golf clubs $87,329 $139,513 $602,396 $624,034
Golf balls 41,128 14,121 187,755 43,396
--------- --------- --------- ---------
$128,457 $153,634 $790,151 $667,430
========= ========= ========= =========
Income (loss) before income
taxes:
Golf clubs $(39,631) $17,436 $84,926 $170,192
Golf balls (4,894) (6,982) (2,317) (17,081)
Reconciling items (1) (17,687) (9,058) (58,169) (30,543)
--------- --------- --------- ---------
$(62,212) $1,396 $24,440 $122,568
========= ========= ========= =========
(1) 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 September 30,
--------------------------------------------------
2004 2003(a)
---------------------------------------- ---------
Callaway Top-Flite Integration
Golf Golf Charges Total Total
--------- --------- -------------------- ---------
Net sales $89,788 $38,669 $- $128,457 $153,634
Gross profit 22,107 8,784 (4,820) 26,071 70,220
% of sales 25% 23% n/a 20% 46%
Operating expenses 68,925 17,801 2,648 89,374 69,880
--------- --------- ---------- --------- ---------
Income (loss) from
operations (46,818) (9,017) (7,468) (63,303) 340
Other income
(expense), net 1,319 (228) - 1,091 1,056
--------- --------- ---------- --------- ---------
Income (loss)
before income
taxes (45,499) (9,245) (7,468) (62,212) 1,396
Income tax benefit (19,650) (3,569) (3,098) (26,317) (938)
--------- --------- ---------- --------- ---------
Net income (loss) $(25,849) $(5,676) $(4,370) $(35,895) $2,334
========= ========= ========== ========= =========
Diluted earnings
(loss) per share $(0.38) $(0.08) $(0.07) $(0.53) $0.03
Weighted-average shares
outstanding 67,847 67,847 67,847 67,847 66,808
Nine Months Ended September 30,
--------------------------------------------------
2004 2003(a)
---------------------------------------- ---------
Callaway Top-Flite Integration
Golf Golf Charges Total Total
--------- --------- -------------------- ---------
Net sales $614,557 $175,594 $- $790,151 $667,430
Gross profit 278,490 55,766 (14,158) 320,098 334,552
% of sales 45% 32% n/a 41% 50%
Operating expenses 221,886 64,436 9,106 295,428 213,329
--------- --------- ---------- --------- ---------
Income (loss) from
operations 56,604 (8,670) (23,264) 24,670 121,223
Other income
(expense), net (415) 185 - (230) 1,345
--------- --------- ---------- --------- ---------
Income (loss)
before income
taxes 56,189 (8,485) (23,264) 24,440 122,568
Income tax
provision 18,362 (3,284) (9,003) 6,075 43,613
--------- --------- ---------- --------- ---------
Net income (loss) $37,827 $(5,201) $(14,261) $18,365 $78,955
========= ========= ========== ========= =========
Diluted earnings
(loss) per share $0.55 $(0.08) $(0.20) $0.27 $1.19
Weighted-average shares
outstanding 68,235 68,235 68,235 68,235 66,295
(a) During the latter part of 2003, Callaway Golf Company completed
the acquisition of substantially all of the golf-related assets
of The Top-Flite Golf Company. The results reported for the
periods ended September 30, 2003 are primarily representative of
the Callaway Golf and Odyssey brand operations, but also include
15 days of Top-Flite Golf operating results in the United States.
CONTACT:
Callaway Golf Company
Brad Holiday or Larry Dorman, 760-931-1771
SOURCE: Callaway Golf Company