Callaway Golf Company Announces Second Quarter and First Half 2009 Results

July 29, 2009 at 4:16 PM EDT
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CARLSBAD, Calif.--(BUSINESS WIRE)--Jul. 29, 2009 -- Callaway Golf Company (NYSE:ELY) today announced its financial results for the second quarter and first half of the year ended June 30, 2009. For the second quarter, the Company reported net sales of $302 million, a decrease of 17% compared to $366 million for the second quarter of 2008. On a currency neutral basis, net sales would have been $321 million, a decrease of 12% compared to the second quarter of 2008. The Company also reported gross profit for the second quarter of 2009 of $110 million (36% of net sales), compared to gross profit of $171 million (47% of net sales) in the second quarter of 2008, and reported operating expenses of $100 million (33% of net sales) compared to $111 million (30% of net sales) for the same period in 2008. Fully diluted earnings per share were $0.10 (on 66.8 million shares outstanding), compared to $0.58 (on 63.9 million shares outstanding) in 2008. Fully diluted earnings per share for the second quarter include after-tax charges for gross margin improvement initiatives of $0.02 per share in 2009 and $0.05 per share in 2008.

For the first six months, the Company reported net sales of $574 million, a decrease of 22% compared to last year’s record six month sales of $732 million. On a currency neutral basis, net sales would have been $616 million, a decrease of 16% compared to $732 million in the first half of 2008. Also for the first six months, gross profit was $226 million (39% of net sales) compared to $347 million (47% of net sales) for 2008 and operating expenses were $202 million (35% of net sales) compared to $221 million (30% of net sales) for 2008. Fully diluted earnings per share for 2009 were $0.21 (on 65.1 million shares outstanding) compared to record first half diluted earnings per share of $1.19 (on 64.4 million shares outstanding) for 2008. Fully diluted earnings per share for the period include after-tax charges for gross margin improvement initiatives of $0.03 per share in 2009 and $0.06 per share in 2008.

“Although market conditions remained challenging during the first half of the year, we are pleased we were able to increase our market share, manage our inventories, and reduce our operating costs, while at the same time continuing to invest in our business,” commented George Fellows, President and CEO. “As we have said before, the economy and golf industry will recover and there have been some positive signs of late. We therefore are taking a balanced approach between managing our expenses and liquidity for the current environment and taking action and making investments that are in the best long-term interests of our shareholders. We are the leader in the golf industry and we intend to remain so in the current environment and when the global economy fully recovers. It would be short-sighted to over emphasize the short-term to the detriment of our long-term growth and shareholder value.”

Conference Call and Webcast

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 call ends, and will remain available through 9:00 p.m. PDT on Wednesday, August 5, 2009. 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 18992228.

Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to liquidity, economic recovery, and leadership position, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These estimates and statements are based upon current information and expectations. Accurately estimating the Company’s reported future financial performance is based upon various unknowns, including future changes in foreign currency rates and consumer acceptance and demand for the Company’s products, as well as future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions. Actual results may differ materially from those estimated or anticipated as a result of these unknowns or other risks and uncertainties, including continued compliance with the terms of the Company’s credit facility; delays, difficulties or increased costs in the supply of components needed to manufacture the Company’s products, in manufacturing the Company’s products, or in connection with the implementation of the Company’s planned gross margin initiatives or the implementation of future initiatives; adverse weather conditions and seasonality; any rule changes or other actions taken by the USGA or other golf association that could have an adverse impact upon demand or supply of the Company’s products; a decrease in participation levels in golf; and the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases 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 that could affect these statements and the Company’s business, see the Company’s Current Report on Form 8-K filed on June 8, 2009 as well as other risks and uncertainties detailed from time to time in the Company’s reports on Forms 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.

Currency Neutral Basis: This press release includes information regarding certain aspects of the Company’s financial results for the second quarter of 2009 that is presented on a “currency neutral basis.” This information estimates the impact of the effect of foreign currency translation on the Company’s 2009 results as compared to the same period in 2008. This impact is derived by taking the Company’s second quarter 2009 local currency results and translating them into U.S. dollars based upon second quarter 2008 foreign currency exchange rates and does not include any other effect of changes in foreign currency rates on the Company’s results.

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 include certain financial measures not prepared in accordance with GAAP. The non-GAAP financial measures included in this press release present certain of the Company’s financial results on a “currency neutral basis.” 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 for investors as to the underlying performance of the Company’s business without regard to changes in foreign currency exchange rates. The Company has provided reconciling information in the text of this press release.

About Callaway Golf

Through an unwavering commitment to innovation, Callaway Golf Company (NYSE: ELY) 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®, Odyssey®, Top-Flite®, Ben Hogan® and uPro™ brands in more than 110 countries worldwide. For more information please visit www.callawaygolf.com or Shop.CallawayGolf.com

         
Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
           
           
      June 30,   December 31,
        2009     2008
           
ASSETS        
Current assets:        
  Cash and cash equivalents   $ 50,471   $ 38,337
  Accounts receivable, net     263,239     120,067
  Inventories     227,878     257,191
  Deferred taxes, net     31,792     27,046
  Income taxes receivable     -     15,549
  Other current assets     25,581     31,813
  Total current assets     598,961     490,003
           
Property, plant and equipment, net     144,541     142,145
Intangible assets, net     175,485     176,689
Deferred taxes, net     8,441     6,299
Other assets     40,928     40,202
  Total assets   $ 968,356   $ 855,338
           
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
  Accounts payable and accrued expenses   $ 170,036   $ 126,167
  Accrued employee compensation and benefits     22,080     25,630
  Accrued warranty expense     12,422     11,614
  Income taxes payable     6,773     -
  Credit facilities     -     90,000
  Total current liabilities     211,311     253,411
           
Long-term liabilities     22,186     21,559
Preferred stock - at redemption value     34,674    
Shareholders' equity     700,185     580,368
  Total liabilities and shareholders' equity   $ 968,356   $ 855,338
           

 

 
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
             
             
        Quarter Ended
        June 30,
          2009       2008  
             
Net sales   $ 302,219     $ 366,029  
Cost of sales     192,371       194,949  
Gross profit     109,848       171,080  
Operating expenses:        
  Selling     72,394       80,461  
  General and administrative     19,358       22,791  
  Research and development     7,837       7,538  
    Total operating expenses     99,589       110,790  
Income from operations     10,259       60,290  
Other income (expense), net     512       (2,600 )
Income before income taxes     10,771       57,690  
Income tax provision     3,859       20,583  
Net income     6,912       37,107  
Dividends accrued on convertible Preferred Stock     438       -  
Net income available to common shareholders   $ 6,474     $ 37,107  
             
Earnings per common share:        
  Basic   $ 0.10     $ 0.59  
  Diluted   $ 0.10     $ 0.58  
Weighted-average common shares outstanding:        
  Basic     63,121       63,180  
  Diluted     66,807       63,941  
             
             
             
Preferred stock - at redemption value   Six Months Ended
        June 30,
          2009       2008  
             
Net sales   $ 574,083     $ 732,481  
Cost of sales     348,054       385,867  
Gross profit     226,029       346,614  
Operating expenses:        
  Selling     147,044       160,622  
  General and administrative     39,345       45,279  
  Research and development     15,940       15,462  
Total operating expenses     202,329       221,363  
Income from operations     23,700       125,251  
Other expense, net     (1,869 )     (1,905 )
Income before income taxes     21,831       123,346  
Income tax provision     8,107       46,573  
Net income     13,724       76,773  
Dividends accrued on convertible Preferred Stock     438       -  
Net income available to common shareholders   $ 13,286     $ 76,773  
             
Earnings per common share:        
  Basic   $ 0.21     $ 1.21  
  Diluted   $ 0.21     $ 1.19  
Weighted-average common shares outstanding:        
  Basic     63,060       63,538  
  Diluted     65,105       64,392  
                   

 

 
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
             
             
        Six Months Ended
        June 30,
          2009       2008  
Cash flows from operating activities:        
  Net income   $ 13,724     $ 76,773  
  Adjustments to reconcile net income to net cash used in operating activities:      
    Depreciation and amortization     20,116       19,284  
    Deferred taxes, net     (5,509 )     4,130  
    Non-cash share-based compensation     3,684       2,960  
    Gain on disposal of long-lived assets     (375 )     (438 )
    Changes in assets and liabilities     (40,708 )     (150,755 )
  Net cash used in operating activities     (9,068 )     (48,046 )
             
Cash flows from investing activities:        
  Capital expenditures     (19,448 )     (24,213 )
  Other investing activities     (31 )     15  
  Net cash used in investing activities     (19,479 )     (24,198 )
             
Cash flows from financing activities:        
  Issuance of Preferred Stock     140,000       -  
  Equity issuance costs     (5,871 )     -  
  Issuance of Common Stock     1,498       2,767  
  Dividends paid, net     (4,430 )     (4,526 )
  Acquisition of treasury stock     -       (20,076 )
  Proceeds from (payments on) credit facilities, net     (90,000 )     98,441  
  Other financing activities     54       (34 )
  Net cash provided by financing activities     41,251       76,572  
             
Effect of exchange rate changes on cash and cash equivalents     (570 )     771  
Net increase in cash and cash equivalents     12,134       5,099  
Cash and cash equivalents at beginning of period     38,337       49,875  
Cash and cash equivalents at end of period   $ 50,471     $ 54,974  
                 

 

 
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
                                         
                                         
Net Sales by Product Category
      Quarter Ended                 Six Months Ended        
      June 30,   Growth/(Decline)         June 30,   Growth/(Decline)
        2009       2008     Dollars   Percent           2009       2008     Dollars   Percent
Net sales:                   Net sales:                
  Woods   $ 75,956     $ 85,992     $ (10,036 )   -12 %     Woods   $ 155,838     $ 202,544     $ (46,706 )   -23 %
  Irons     72,222       100,047       (27,825 )   -28 %     Irons     137,409       196,543       (59,134 )   -30 %
  Putters     26,421       32,934       (6,513 )   -20 %     Putters     54,112       67,488       (13,376 )   -20 %
  Golf balls     58,245       74,235       (15,990 )   -22 %     Golf balls     105,593       132,668       (27,075 )   -20 %
  Accessories and other     69,375       72,821       (3,446 )   -5 %     Accessories and other     121,131       133,238       (12,107 )   -9 %
      $ 302,219     $ 366,029     $ (63,810 )   -17 %         $ 574,083     $ 732,481     $ (158,398 )   -22 %
                                         
                                         
                                         
                                         
Net Sales by Region
      Quarter Ended                 Six Months Ended        
      June 30,   Growth/(Decline)         June 30,   Growth/(Decline)
        2009       2008     Dollars   Percent           2009       2008     Dollars   Percent
Net sales:                   Net sales:                
  United States   $ 163,739     $ 176,077     $ (12,338 )   -7 %     United States   $ 305,020     $ 360,456     $ (55,436 )   -15 %
  Europe     42,477       71,824       (29,347 )   -41 %     Europe     85,480       137,914       (52,434 )   -38 %
  Japan     37,061       46,559       (9,498 )   -20 %     Japan     84,456       99,899       (15,443 )   -15 %
  Rest of Asia     21,300       22,072       (772 )   -3 %     Rest of Asia     37,852       48,533       (10,681 )   -22 %
  Other foreign countries     37,642       49,497       (11,855 )   -24 %     Other foreign countries     61,275       85,679       (24,404 )   -28 %
      $ 302,219     $ 366,029     $ (63,810 )   -17 %         $ 574,083     $ 732,481     $ (158,398 )   -22 %
                                         
                                         
                                         
                                         
Operating Segment Information
      Quarter Ended                 Six Months Ended        
      June 30,   Growth/(Decline)       June 30,   Growth/(Decline)
        2009       2008     Dollars   Percent           2009       2008     Dollars   Percent
Net sales:                   Net sales:                
  Golf clubs   $ 243,974     $ 291,794     $ (47,820 )   -16 %     Golf clubs   $ 468,490     $ 599,813     $ (131,323 )   -22 %
  Golf balls     58,245       74,235       (15,990 )   -22 %     Golf balls     105,593       132,668       (27,075 )   -20 %
      $ 302,219     $ 366,029     $ (63,810 )   -17 %         $ 574,083     $ 732,481     $ (158,398 )   -22 %
                                         
Income (loss) before provision for income taxes:                      
  Golf clubs   $ 25,367     $ 67,167     $ (41,800 )   -62 %     Golf clubs   $ 53,648     $ 143,366     $ (89,718 )   -63 %
  Golf balls     (965 )     8,257       (9,222 )   -112 %     Golf balls     (2,663 )     12,702       (15,365 )   -121 %
  Reconciling items (1)     (13,631 )     (17,734 )     4,103     23 %     Reconciling items (1)     (29,154 )     (32,722 )     3,568     11 %
      $ 10,771     $ 57,690     $ (46,919 )   -81 %         $ 21,831     $ 123,346     $ (101,515 )   -82 %
                                         
(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 June 30,   Quarter Ended June 30,
    2009     2008  
                         
    Pro Forma Callaway Golf   Gross Margin Improvement Initiatives   Total as Reported   Pro Forma Callaway Golf   Gross Margin Improvement Initiatives   Total as Reported
Net sales   $ 302,219     $ -     $ 302,219     $ 366,029     $ -     $ 366,029  
Gross profit     111,662       (1,814 )     109,848       175,773       (4,693 )     171,080  
% of sales     37 %     n/a       36 %     48 %     n/a       47 %
Operating expenses     99,589       -       99,589       110,670       120       110,790  
Income (loss) from operations     12,073       (1,814 )     10,259       65,103       (4,813 )     60,290  
Other income (loss), net     512       -       512       (2,600 )     -       (2,600 )
Income (loss) before income taxes     12,585       (1,814 )     10,771       62,503       (4,813 )     57,690  
Income tax provision (benefit)     4,557       (698 )     3,859       22,436       (1,853 )     20,583  
Net income (loss)     8,028       (1,116 )     6,912       40,067       (2,960 )     37,107  
Dividends accrued on convertible preferred stock     438       -       438       -       -       -  
Net income available to common shareholders   $ 7,590     $ (1,116 )   $ 6,474     $ 40,067     $ (2,960 )   $ 37,107  
                         
Diluted earnings (loss) per share:   $ 0.12     $ (0.02 )   $ 0.10     $ 0.63     $ (0.05 )   $ 0.58  
Weighted-average shares                
outstanding:     66,807       66,807       66,807       63,941       63,941       63,941  
                         
                         
                         
                         
    Six Months Ended June 30,   Six Months Ended June 30,
    2009     2008  
                         
    Pro Forma Callaway Golf   Gross Margin Improvement Initiatives   Total as Reported   Pro Forma Callaway Golf   Gross Margin Improvement Initiatives   Total as Reported
Net sales   $ 574,083     $ -     $ 574,083     $ 732,481     $ -     $ 732,481  
Gross profit     229,399       (3,370 )     226,029       352,402       (5,788 )     346,614  
% of sales     40 %     n/a       39 %     48 %     n/a       47 %
Operating expenses     202,329       -       202,329       221,243       120       221,363  
Income (loss) from operations     27,070       (3,370 )     23,700       131,159       (5,908 )     125,251  
Other expense, net     (1,869 )     -       (1,869 )     (1,905 )     -       (1,905 )
Income (expense) before income taxes     25,201       (3,370 )     21,831       129,254       (5,908 )     123,346  
Income tax provision (benefit)     9,404       (1,297 )     8,107       48,848       (2,275 )     46,573  
Net income (loss)     15,797       (2,073 )     13,724       80,406       (3,633 )     76,773  
Dividends accrued on convertible preferred stock     438       -       438       -       -       -  
Net income available to common shareholders   $ 15,359     $ (2,073 )   $ 13,286     $ 80,406     $ (3,633 )   $ 76,773  
                         
Diluted earnings (loss) per share:   $ 0.24     $ (0.03 )   $ 0.21     $ 1.25     $ (0.06 )   $ 1.19  
Weighted-average shares                
outstanding:     65,105       65,105       65,105       64,392       64,392       64,392  
                                                 
                                             
Adjusted EBITDA:                                            
    2009 Trailing Twelve Months Adjusted EBITDA       2008 Trailing Twelve Months Adjusted EBITDA
    Quarter Ended       Quarter Ended
    September 30,   December 31,   March 31,   June 30,           September 30,   December 31,   March 31,   June 30,    
      2008       2008       2009       2009   Total         2007     2007       2008     2008   Total
Net income (loss)   $ (7,443 )   $ (3,154 )   $ 6,812     $ 6,912   $ 3,127         $ 1,269   $ (16,157 )   $ 39,666   $ 37,107   $ 61,885
Interest expense (income), net     497       272       (123 )     551     1,197           29     (216 )     591     994     1,398
Income tax provision (benefit)     (6,676 )     (4,766 )     4,248       3,859     (3,335 )         830     (12,415 )     25,990     20,583     34,988
Depreciation and amortization expense     9,463       9,216       9,944       10,172     38,795           9,864     7,862       8,794     10,490     37,010
Change in energy derivative valuation acct.     -       (19,922 )     -       -     (19,922 )         -     -       -     -     -
Adjusted EBITDA   $ (4,159 )   $ (18,354 )   $ 20,881     $ 21,494   $ 19,862         $ 11,992   $ (20,926 )   $ 75,041   $ 69,174   $ 135,281
                                             

 

 

Source: Callaway Golf Company

Callaway Golf Company
Brad Holiday
Eric Struik
Michele Szynal
760-931-1771