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Callaway Golf Company Announces Second Quarter and First Half 2012 Results; Provides Additional Full Year Guidance
- 2012 second quarter and first half increases in sales and earnings consistent with preliminary estimates announced earlier this month
- On target with $52 million in annualized cost reductions announced earlier this month
- Callaway estimates full year revenues of $835 - $865 million; reiterates estimated full year pro forma loss per share of $0.55 - $0.75.

CARLSBAD, Calif., July 26, 2012 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) today announced its second quarter and first half 2012 financial results. The announced results were consistent with the preliminary estimates provided earlier this month and reflect the previously estimated increases in sales and earnings for the second quarter and first half of 2012 compared with the same periods in 2011.  The Company also announced that its cost-reduction initiatives are proceeding well and on pace to deliver the $52 million in targeted gross annualized savings, with an estimated $16 million and $36 million being realized in 2012 and 2013, respectively. 

GAAP RESULTS. 

For the second quarter of 2012, the Company reported the following results:

Dollars in millions except per share amounts

2012

% of Sales

2011

% of Sales

Improvement / (Decline)

Net Sales

$281

-

$274

-

$7

Gross Profit

$111

39%

$103

37%

$8

Operating Expenses

$101

36%

$113

41%

$12

Operating Income/(Loss)

$10

3%

($10)

(4%)

$20

Earnings/(Loss) per share

$0.00

-

($0.96)

-

$0.96

For the first half of 2012, the Company reported the following results:

Dollars in millions except per share amounts

2012

% of Sales

2011

% of Sales

Improvement / (Decline)

Net Sales

$566

-

$559

-

$7

Gross Profit

$235

42%

$226

40%

$9

Operating Expenses

$198

35%

$214

38%

$16

Operating Income

$37

7%

$13

2%

$24

Earnings/(Loss) per share

$0.41

-

($0.80)

-

$1.21

NON-GAAP PRO FORMA FINANCIAL RESULTS.

In addition to the Company's results prepared in accordance with GAAP, the Company has also provided additional information concerning its results on a non-GAAP pro forma basis. The manner in which the non-GAAP information is derived is discussed in more detail toward the end of this release and the Company has provided in the tables to this release a reconciliation of this non-GAAP information to the most directly comparable GAAP information.

For the second quarter of 2012, the Company reported the following pro forma results:

Dollars in millions except per share amounts

2012

% of Sales

2011

% of Sales

Improvement / (Decline)

Net Sales

$281

-

$274

-

$7

Gross Profit

$112

40%

$109

40%

$3

Operating Expenses

$97

35%

$102

37%

$5

Operating Income

$14

5%

$6

2%

$8

Earnings/(Loss) per share

$0.05

-

($0.01)

-

$0.06

For the first half of 2012, the Company reported the following pro forma results:

Dollars in millions except per share amounts

2012

% of Sales

2011

% of Sales

Improvement / (Decline)

Net Sales

$566

-

$559

-

$7

Gross Profit

$236

42%

$238

43%

($2)

Operating Expenses

$201

35%

$209

37%

$8

Operating Income

$35

6%

$30

5%

$5

Earnings per share

$0.25

-

$0.15

-

$0.10

"We are pleased that sales and earnings increased during the first half of 2012 compared to the same period in 2011," commented Chip Brewer, President and Chief Executive Officer. "The pace of improvement, however, is slower than anticipated and our market shares have not met our expectations, resulting in higher than expected retail inventory levels at this time of year. As a result, we have lowered our sales expectations for the second half of the year to allow us to work through any excess inventory at retail and prepare our business for improved results in 2013."

"The recently announced cost-reduction initiatives are proceeding on pace with our plan," continued Mr. Brewer. "Having been through this before, I am convinced we are taking the correct actions to assure that this turnaround will be successful. Given the dynamics of the golf business, with products being introduced annually, it takes time for the turnaround to take effect.  Many of the changes we are making at this time to reduce costs, streamline our business, and change our products and the culture at the Company to be more consumer oriented, will have a greater impact on our financial results in 2013 and 2014 than the current year.  I do firmly believe that the changes we are making will be the keystone to a successful recovery and I look forward to reporting to you on our progress." 

Business Outlook

The Company provided additional financial guidance, estimating that full year 2012 net sales will range from $835 to $865 million compared to $887 million in 2011.  The Company's estimated decline in net sales includes the impact of actions taken by the Company during the first half of the year to streamline its business, including the sale of the Top-Flite and Ben Hogan brands and the transition of its footwear and apparel businesses to a licensing model. The Company also reiterated its earnings guidance, estimating that full year pro-forma loss per share will range from $0.55 to $0.75, compared to a pro forma loss per share of $0.63 in 2011.  These pro forma estimates exclude from 2012 benefits and charges associated with the sale of the Top Flite/Ben Hogan brands, non-cash tax adjustments, and the cost-reduction initiatives and exclude from 2011 charges relating to a non-cash impairment of assets, non-cash tax adjustments, global operations strategy, restructuring, and the gain on the sale of buildings in 2011.

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. PDT today to discuss the Company's financial results, business and the recently announced cost-reduction initiatives.  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 three hours after the call ends, and will remain available through 9:00 p.m. PDT on Thursday, August 2, 2012.  The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-855-859-2056 toll free for calls originating within the United States or 404-537-3406 for International calls.  The replay pass code is 12218357. 

Non-GAAP Pro Forma Information:  The GAAP results contained in this press release and the financial statement schedules attached to this press release have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").  To supplement the GAAP results, the Company has provided certain non-GAAP pro forma financial information.  The non-GAAP financial information included in the press release and attached schedules present certain of the Company's financial results excluding charges for (i) the Company's global operations strategy, (ii) non-cash impairment charges, (iii) non-cash tax adjustments relating to or as a result of the establishment of a deferred tax valuation allowance, (iv) restructuring charges, (v) the gain on the sale of three buildings, (vi) the gain recognized in connection with the sale of the Top-Flite and Ben Hogan brands, and (vii) the cost-reduction initiatives announced today. In addition, the Company also provided additional non–GAAP information about its results, excluding interest, taxes, depreciation and amortization expenses as well as impairment charges ("Adjusted EBITDA"). For comparative purposes, the Company applied an annualized statutory tax rate of 38.5% to derive the non-GAAP earnings/loss per share and Adjusted EBITDA.  The non-GAAP information should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP.  The non-GAAP information may also be inconsistent with the manner in which similar measures are derived or used by other companies.  Management uses such non-GAAP information for financial and operational decision-making purposes and as a means to evaluate period over period comparisons and in forecasting the Company's business going forward.  Management believes that the presentation of such non-GAAP information, when considered in conjunction with the most directly comparable GAAP information, provides additional useful comparative information for investors in their assessment of the underlying performance of the Company's business without regard to these items.  The Company has provided reconciling information in the attached schedules.

Forward-Looking Statements:  Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to the estimated sales and loss per share for 2012, the estimated savings or charges (or timing thereof) related to the cost-reduction initiatives, future retail inventory levels, improved results in 2013 or beyond, and the Company's recovery/turnaround, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.  These statements are based upon current information and expectations.  Accurately estimating the forward-looking statements is based upon various unknowns including consumer acceptance and demand for the Company's products, the level of promotional activity in the marketplace, as well as future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions, as well as future changes in foreign currency exchange rates. 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 or in manufacturing the Company's products; 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, the golf industry, and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2011 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 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.

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 apparel, footwear and accessories, under the Callaway Golf® and Odyssey® brands in more than 110 countries worldwide. For more information please visit www.callawaygolf.com or shop.callawaygolf.com.

Contacts:

Brad Holiday


Patrick Burke


Tim Buckman


(760) 931-1771

(Logo: http://photos.prnewswire.com/prnh/20091203/CGLOGO)

Callaway Golf Company

Consolidated Condensed Balance Sheets

(In thousands)

(Unaudited)















June 30,


December 31,




2012


2011








ASSETS





Current assets:






Cash and cash equivalents

$   27,986


$         43,023



Accounts receivable, net

254,903


115,673



Inventories

215,794


233,070



Deferred taxes, net

3,955


4,029



Income taxes receivable

1,753


3,654



Other current assets

18,663


19,880



    Total current assets

523,054


419,329








Property, plant and equipment, net

114,323


117,147


Intangible assets, net

129,126


151,138


Other assets

38,622


39,498



    Total assets

$ 805,125


$       727,112








LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:






Accounts payable and accrued expenses

$ 113,762


$       129,193



Accrued employee compensation and benefits

23,522


23,785



Accrued warranty expense

7,863


8,140



Income tax liabilities

5,237


6,666



Credit facility

70,150


-



    Total current liabilities

220,534


167,784








Long-term liabilities

43,547


46,514


Shareholders' equity

541,044


512,814



    Total liabilities and shareholders' equity

$ 805,125


$       727,112


 

Callaway Golf Company

Statements of Operations

(In thousands, except per share data)

(Unaudited)






Quarter Ended


June 30,


2012


2011





Net sales

$ 281,123


$ 273,814

Cost of sales

170,470


171,152

Gross profit

110,653


102,662

Operating expenses:





Selling 

75,711


74,196


General and administrative 

18,446


30,124


Research and development 

6,930


8,498



Total operating expenses

101,087


112,818

Income (loss) from operations

9,566


(10,156)

Other expense, net

(4,571)


(3,427)

Income (loss) before income taxes 

4,995


(13,583)

Income tax provision 

2,196


45,483

Net income (loss)

2,799


(59,066)

Dividends on convertible preferred stock

2,625


2,625

Net income (loss) allocable to common shareholders

$        174


$ (61,691)








Earnings (loss) per common share:





Basic

$0.00


($0.96)


Diluted

$0.00


($0.96)

Weighted-average common shares outstanding:





Basic

65,060


64,425


Diluted

65,112


64,425












Year Ended





June 30,





2012


2011








Net sales

$ 566,221


$ 559,413

Cost of sales

331,197


333,070

Gross profit

235,024


226,343

Operating expenses:





Selling

152,549


149,415


General and administrative

30,680


46,411


Research and development

14,403


17,695



Total operating expenses

197,632


213,521

Income from operations

37,392


12,822

Other expense, net

(887)


(4,807)

Income before income taxes 

36,505


8,015

Income tax provision

1,904


54,263

Net income (loss)

34,601


(46,248)

Dividends on convertible preferred stock

5,250


5,250

Net income (loss) allocable to common shareholders

$   29,351


$     (51,498)








Earnings (loss) per common share:





Basic



$0.45


$(0.80)


Diluted



$0.41


$(0.80)

Weighted-average common shares outstanding:





Basic



65,021


64,365


Diluted



84,950


64,365

 

Callaway Golf Company

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)



























Six Months Ended








June 30,








2012


2011


Cash flows from operating activities:







Net income (loss)




$  34,601


$ (46,248)



Adjustments to reconcile net income (loss) to net cash used in operating activities:







Depreciation and amortization


18,234


19,191




Impairment charge



-


5,413




Deferred taxes, net



(1,746)


51,397




Non-cash share-based compensation


1,896


7,581




Gain and deferred gain amortization on disposal of long-lived assets




(975)


(6,752)




Gain on sale of intangible assets




(6,602)


-




Changes in assets and liabilities


(136,688)


(56,015)



Net cash used in operating activities


(91,280)


(25,433)












Cash flows from investing activities:







Capital expenditures




(14,115)


(14,089)



Proceeds from sale of property, plant and equipment

70


18,172



Net proceeds from sale of intangible assets


26,861


-



Net cash provided by investing activities


12,816


4,083












Cash flows from financing activities:







Issuance of common stock



-


1,160



Dividends paid, net




(6,554)


(6,542)



Proceeds from credit facilities, net


70,150


37,142



Other financing activities



69


129



Net cash provided by financing activities


63,665


31,889












Effect of exchange rate changes on cash and cash equivalents

(238)


950


Net (decrease) increase in cash and cash equivalents

(15,037)


11,489


Cash and cash equivalents at beginning of period


43,023


55,043


Cash and cash equivalents at end of period


$  27,986


$  66,532














 

Callaway Golf Company

Consolidated Net Sales and Operating Segment Information

(In thousands)

(Unaudited)



















































Net Sales by Product Category



Net Sales by Product Category






Quarter Ended



Six Months Ended






June 30,


Growth/(Decline)




June 30,


Growth/(Decline)







2012


2011


Dollars


Percent




2012


2011


Dollars


Percent



Net sales:























Woods



$   58,549


$   65,254


$ (6,705)


-10%




$ 149,278


$ 146,281


$   2,997


2%




Irons 



57,825


61,142


(3,317)


-5%




116,141


131,133


(14,992)


-11%




Putters



38,873


23,810


15,063


63%




62,965


52,641


10,324


20%




Golf balls



49,838


54,733


(4,895)


-9%




92,384


99,346


(6,962)


-7%




Accessories and other (1)



76,038


68,875


7,163


10%




145,453


130,012


15,441


12%







$ 281,123


$ 273,814


$   7,309


3%




$ 566,221


$ 559,413


$   6,808


1%





















































Net Sales by Region


Net Sales by Region







Quarter Ended


Six Months Ended






June 30,


Growth/(Decline)




June 30,


Growth/(Decline)







2012


2011


Dollars


Percent




2012


2011


Dollars


Percent



Net sales:























United States



$ 142,343


$ 138,545


$   3,798


3%




$ 292,042


$ 283,876


$   8,166


3%




Europe



43,443


42,923


520


1%




86,142


89,078


(2,936)


-3%




Japan



36,978


28,741


8,237


29%




79,233


66,318


12,915


19%




Rest of Asia



26,613


27,583


(970)


-4%




44,609


51,089


(6,480)


-13%




Other foreign countries



31,746


36,022


(4,276)


-12%




64,195


69,052


(4,857)


-7%







$ 281,123


$ 273,814


$   7,309


3%




$ 566,221


$ 559,413


$   6,808


1%





















































Operating Segment Information


Operating Segment Information







Quarter Ended


Six Months Ended






June 30,


 

Growth/(Decline)




June 30,


 

Growth/(Decline)







2012


2011(2)


Dollars


Percent




2012


2011(2)


Dollars


Percent



Net sales:























Golf clubs



$ 231,285


$ 219,081


$ 12,204


6%




$ 473,837


$ 460,067


$ 13,770


3%




Golf balls



49,838


54,733


(4,895)


-9%




92,384


99,346


(6,962)


-7%







$ 281,123


$ 273,814


$   7,309


3%




$ 566,221


$ 559,413


$   6,808


1%


























Income (loss) before income taxes:























Golf clubs 



$   17,953


$   12,308


$   5,645


46%




$   50,595


$   41,613


$   8,982


22%




Golf balls 



4,162


1,085


3,077


284%




5,739


3,385


2,354


70%




Reconciling items (3)



(17,120)


(26,976)


9,856


37%




(19,829)


(36,983)


17,154


46%







$     4,995


$ (13,583)


$ 18,578


137%




$   36,505


$     8,015


$ 28,490


355%

















































(1) Accessories & other include Packaged Sets as well as CGI Sales.

(2)Certain prior period amounts have been reclassified between product categories to conform with the current period presentation.

(3)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,




2012




2011






























Pro Forma Callaway Golf (1)


Non-Cash Tax Adjustment(2)


Cost Reduction Initiatives(1) (3)


Gain on Sale of Top-Flite & Ben Hogan(1)


Total as Reported




Pro Forma Callaway Golf (1)


Global Operations Strategy (1)


Non-Cash Impairment Charge (1) 


Non-Cash Tax Adjustment(2)


Restructuring(1)


Total as Reported



Net sales

$    281,123


$          -


$         -


$         -


$281,123




$ 273,814


$          -


$           -


$           -


$              -


$273,814



Gross profit

111,590


-


(937)


-


110,653




108,509


(5,847)


-


-


-


102,662



% of sales

40%


 n/a 


 n/a 


 n/a 


39%




40%


 n/a 


 n/a 


 n/a 


 n/a 


37%



Operating expenses

97,367


-


3,706


14


101,087




102,277


(34)


5,413


-


5,162


112,818



Income (expense) from operations

14,223


-


(4,643)


(14)


9,566




6,232


(5,813)


(5,413)


-


(5,162)


(10,156)



Other expense, net

(4,571)


-


-


-


(4,571)




(3,427)


-


-


-


-


(3,427)



Income (loss) before income taxes

9,652


-


(4,643)


(14)


4,995




2,805


(5,813)


(5,413)


-


(5,162)


(13,583)



Income tax provision (benefit)

3,717


272


(1,788)


(5)


2,196




751


(2,374)


(2,084)


51,177


(1,987)


45,483



Net income (loss)

5,935


(272)


(2,855)


(9)


2,799




2,054


(3,439)


(3,329)


(51,177)


(3,175)


(59,066)



Dividends on convertible preferred stock

2,625


-


-


-


2,625




2,625


-


-


-


-


2,625



Net income (loss) allocable to common shareholders

$       3,310


$     (272)


$ (2,855)


$      (9)


$       174




$      (571)


$  (3,439)


$  (3,329)


$ (51,177)


$    (3,175)


$(61,691)





























Diluted earnings (loss) per share:

$         0.05


$    (0.01)


$   (0.04)


$  (0.00)


$      0.00




$     (0.01)


$    (0.05)


$    (0.05)


$     (0.80)


$      (0.05)


$    (0.96)



Weighted-average shares outstanding:                           

65,112


65,112


65,112


65,112


65,112




64,425


64,425


64,425


64,425


64,425


64,425


















































































Six Months Ended June 30,




Six Months Ended June 30,


2012




2011


Pro Forma Callaway Golf (1) 


Non-Cash Tax Adjustment (2)


Cost Reduction Initiatives(1) (3)


Gain on Sale of Top-Flite & Ben Hogan(1)


Total as Reported




Pro Forma Callaway Golf (1) 


Global Operations Strategy(1)


Non-Cash Impairment Charge (1)


Non-Cash Tax Adjustment (2)


Restructuring (1)


Gain on Sale of Buildings(1)


Total as Reported

Net sales

$    566,221


$          -


$          -


$        -


$566,221




$ 559,413


$          -


$           -


$           -


$             -


$          -


$559,413

Gross profit

235,985


-


(961)


-


235,024




238,492


(12,149)


-


-


-


-


226,343

% of sales

42%


 n/a 


 n/a 


 n/a 


42%




43%


 n/a 


 n/a 


 n/a 


 n/a 


 n/a 


40%

Operating expenses

200,524


-


3,710


(6,602)


197,632




208,923


193


5,413


-


5,162


(6,170)


213,521

Income (expense) from operations

35,461


-


(4,671)


6,602


37,392




29,569


(12,342)


(5,413)


-


(5,162)


6,170


12,822

Other expense, net

(887)


-


-


-


(887)




(4,807)


-


-


-


-


-


(4,807)

Income (loss) before income taxes

34,574


-


(4,671)


6,602


36,505




24,762


(12,342)


(5,413)


-


(5,162)


6,170


8,015

Income tax provision (benefit)

13,311


(12,151)


(1,798)


2,542


1,904




9,662


(4,752)


(2,084)


51,177


(1,987)


2,247


54,263

Net income (loss)

21,263


12,151


(2,873)


4,060


34,601




15,100


(7,590)


(3,329)


(51,177)


(3,175)


3,923


(46,248)

Dividends on convertible preferred stock

5,250


-


-


-


5,250




5,250


-


-


-


-


-


5,250

Net income (loss) allocable to common shareholders

$      16,013


$ 12,151


$ (2,873)


$ 4,060


$  29,351




$     9,850


$           (7,590)


$   (3,329)


$ (51,177)


$     (3,175)


$  3,923


$(51,498)



























Diluted earnings (loss) per share:

$          0.25


$     0.14


$   (0.03)


$   0.05


$      0.41




$       0.15


$             (0.12)


$    (0.05)


$     (0.79)


$      (0.05)


$    0.06


$    (0.80)

Weighted-average shares outstanding:                           

84,950


84,950


84,950


84,950


84,950




64,365


64,365


64,365


64,365


64,365


64,365


64,365



























(1)For comparative purposes, the Company applied an annualized statutory tax rate of 38.5% to derive pro forma results.

(2)Current period impact of valuation allowance established against the Company's U.S. deferred tax assets and impact of applying statutory tax rate of 38.5% to pro forma results.

(3)Includes costs associated with workforce reductions and transition costs associated with licensing the Company's North American apparel business and footwear business.
















































































2012 Trailing Twelve Month Adjusted EBITDA




2011 Trailing Twelve Month Adjusted EBITDA





Adjusted EBITDA:

Quarter Ended




Quarter Ended






September 30,


December 31,


March 31,


June 30,






September 30,


December 31, 


March 31,


June 30,








2011


2011


2012


2012


Total




2010


2010


2011


2011


Total





Net income (loss)

$    (62,587)


$(62,985)


$  31,802


$    2,799


$(90,971)




$   (18,317)


$  (32,255)


$  12,818


$  (59,066)


$   (96,820)





Interest expense (income), net

399


324


817


884


2,424




(1,234)


(444)


142


207


(1,329)





Income tax provision (benefit)

14,854


12,442


(292)


2,196


29,200




(22,100)


(13,231)


8,780


45,483


18,932





Depreciation and amortization expense

9,247


10,198


8,745


9,489


37,679




10,687


10,707


9,880


9,311


40,585





Impairment charge

-


1,120


-


-


1,120




-


7,547


-


5,413


12,960





Adjusted EBITDA

$    (38,087)


$(38,901)


$  41,072


$   15,368


$(20,548)




$   (30,964)


$  (27,676)


$  31,620


$    1,348


$   (25,672)





SOURCE Callaway Golf