Callaway Golf Announces Results for Third Quarter 2006
CARLSBAD, Calif.--(BUSINESS WIRE)--Nov. 1, 2006--Callaway Golf Company (NYSE:ELY) today announced its financial results for the third quarter ended September 30, 2006, in line with earlier estimates. Highlights for the third quarter include:
- Net sales of $193.8 million, as compared to $220.6 million for the same period in 2005. As mentioned in the October 16th pre-release, this decline in sales is primarily due to the planned timing of new product introductions which adversely affected the quarter by approximately $30 million as compared to the third quarter of 2005.
- Loss per share of $0.18 on 67.0 million shares, as compared to a loss of $0.07 on 68.8 million shares in 2005.
- The loss per share includes $0.03 of after-tax charges for employee equity-based compensation associated with FAS 123R, $0.01 for the integration of Top-Flite, and $0.01 for restructuring charges. The third quarter of 2005 includes after-tax charges of $0.02 for the integration of Top-Flite and $0.06 for restructuring charges. Excluding these charges, the Company's pro forma loss per share for the third quarter of 2006 would have been $0.13, as compared to pro forma earnings per share of $0.01 for the third quarter of 2005.
- Gross profit for the third quarter of 2006 was $67.7 million (or 35% of net sales) compared to $86.9 million (or 39% of net sales) for the third quarter of 2005. The decline in gross profit is primarily the result of a lower mix of higher margin woods and irons products due to the timing of new product introductions, as well as lower Top-Flite ball margins due to price reductions related to the initiatives to clear older Top-Flite golf ball inventory in preparation for the re-launch of that brand in 2007. Additional details can be found in the Company's October 16, 2006 earnings pre-release.
- Operating Expenses for the third quarter of 2006 were $84.6 million, a decrease of $11.8 million compared to $96.4 million in 2005. The decrease is primarily due to the restructuring initiatives announced in September 2005.
- Net sales of $838.0 million, as compared to $843.6 million for the same period in 2005.
- Fully diluted earnings per share of $0.49 on 68.8 million shares, as compared to fully diluted earnings per share of $0.46 on 69.0 million shares in 2005.
- Fully diluted earnings per share includes after-tax charges of $0.07 for employee equity-based compensation associated with FAS 123R, $0.04 for the integration of Top-Flite, and $0.01 for restructuring. The third quarter of 2005 includes after-tax charges of $0.08 for integration of Top-Flite, $0.06 for restructuring, and $0.01 for employee equity-based compensation. Excluding these charges, the Company's pro forma fully diluted earnings per share for both 2006 and 2005 would have been $0.61.
- Gross profit for 2006 was $339.3 million (or 40% of net sales) compared to $366.2 million (or 43% of net sales) for 2005. The decline in gross profit is primarily the result of a lower mix of higher margin irons due to the timing of new product introductions, as well as lower Top-Flite ball margins due to the initiatives to clear older Top-Flite golf ball inventory.
- Operating Expenses for 2006 were $281.1 million, a decrease of $35.3 million compared to $316.4 million in 2005. A majority of the decrease is due to the restructuring initiatives announced in September 2005. Total savings since September 2005 have totaled approximately $44 million, net of reinvestment, compared to original estimates of $25 to $30 million.
"We continue to make progress on many fronts this year, despite the disappointing performance in our Top-Flite brand," commented George Fellows, President and CEO. "Sales of our core brands of Callaway and Odyssey have grown significantly this year and we have materially reduced our operating expenses as a result of last September's cost cutting initiatives. More importantly, these factors should combine to increase our full year pro forma earnings per share by more than 20% in 2006. In addition, we have strengthened the management team, made several internal process improvements, and today on our earnings call, will share a series of initiatives focused on improving gross margins by an estimated $50 to $60 million over the next two years. Ultimately, these actions along with future initiatives should continue the progress we've made-to-date towards our three year plan and position Callaway to create additional value for shareholders."
The estimated increase in 2006 pro forma earnings excludes non-cash charges related to employee equity-based compensation, charges related to the Top-Flite integration and 2005 restructuring initiatives, as well as charges incurred related to the implementation of the gross margin initiatives. For more detailed financial information concerning current financial results, including additional pro forma information and pro forma reconciliations, see attached schedules and "Supplemental Financial Information."
The Company will be holding a conference call at 2:00 p.m. PST 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 three hours after the call ends, and will remain available through 9:00 p.m. PST on Wednesday, November 8, 2006. 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 846344.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to estimated earnings growth for 2006, the amount or timing of the anticipated improvement in gross margins, implementation of future initiatives, achievement of three-year plan, and creation of future shareholder value, 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. Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including but not limited to, delays, difficulties or increased costs associated with the implementation of the Company's planned gross margin initiatives, the re-launch of the Top-Flite brand or the implementation of future initiatives; market acceptance of current and future products; adverse market and economic conditions; 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 for 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 Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 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 preliminary results, which includes certain financial measures not prepared in accordance with GAAP. The non-GAAP financial measures included in this press release exclude charges associated with employee equity based compensation and charges related to the integration of the Callaway Golf Company and Top-Flite Golf Company operations as well as the September 2005 restructuring initiatives. 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.
Through an unwavering commitment to innovation, Callaway Golf 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(R), Top-Flite(R), Odyssey(R) and Ben Hogan(R) brands. For more information visit www.callawaygolf.com.
Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
September 30, December 31,
2006 2005
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $52,501 $49,481
Accounts receivable, net 138,372 98,082
Inventories, net 241,683 241,577
Income taxes receivable - 2,026
Other current assets 54,589 47,424
------------- ------------
Total current assets 487,145 438,590
Property, plant and equipment, net 134,040 127,739
Intangible assets, net 175,269 175,191
Deferred taxes 3,766 6,516
Other assets 15,288 16,462
------------- ------------
$815,508 $764,498
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $102,279 $102,134
Accrued employee compensation and benefits 20,480 24,783
Accrued warranty expense 14,157 13,267
Bank line of credit 60,000 -
Income taxes payable 4,850 -
Capital leases, current portion - 21
------------- ------------
Total current liabilities 201,766 140,205
Long-term liabilities 27,023 28,245
Shareholders' equity 586,719 596,048
------------- ------------
$815,508 $764,498
============= ============
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
September 30,
------------------------
2006 2005
--------- ---------
Net sales $193,763 100% $220,611 100%
Cost of sales 126,058 65% 133,713 61%
--------- ---------
Gross profit 67,705 35% 86,898 39%
Operating expenses:
Selling expense 56,949 29% 69,744 32%
General and administrative expense 20,901 11% 19,531 9%
Research and development expense 6,788 4% 7,116 3%
--------- ---------
Total operating expenses 84,638 44% 96,391 44%
--------- ---------
Loss from operations (16,933) -9% (9,493) -4%
Other income (expense), net (1,058) 735
--------- ---------
Income (loss) before income taxes (17,991) -9% (8,758) -4%
Income tax provision (benefit) (6,075) (3,954)
--------- ---------
Net income (loss) $(11,916) -6% $(4,804) -2%
========= =========
Earnings (loss) per common share:
Basic ($0.18) ($0.07)
Diluted ($0.18) ($0.07)
Weighted-average shares outstanding:
Basic 67,000 68,849
Diluted 67,000 68,849
Nine Months Ended
September 30,
------------------------
2006 2005
--------- ---------
Net sales $838,023 100% $843,600 100%
Cost of goods sold 498,720 60% 477,363 57%
--------- ---------
Gross profit 339,303 40% 366,237 43%
Operating expenses:
Selling expense 202,122 24% 236,129 28%
General and administrative expense 59,226 7% 59,855 7%
Research and development expense 19,786 2% 20,439 2%
--------- ---------
Total operating expenses 281,134 34% 316,423 38%
--------- ---------
Income from operations 58,169 7% 49,814 6%
Other expense, net (2,029) (2,252)
--------- ---------
Income before income taxes 56,140 7% 47,562 6%
Provision for income taxes 22,656 15,614
--------- ---------
Net income $33,484 4% $31,948 4%
========= =========
Earnings per common share:
Basic $0.49 $0.47
Diluted $0.49 $0.46
Weighted-average shares outstanding:
Basic 67,980 68,436
Diluted 68,777 69,028
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------
2006 2005
-------- --------
Cash flows from operating activities:
Net income $33,484 $31,948
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,961 30,942
Non-cash compensation 9,611 5,733
Loss on disposal of assets 1,047 1,109
Deferred taxes (3,240) (2,110)
Changes in assets and liabilities, net of effects
of acquisitions (35,969) (10,473)
-------- --------
Net cash provided by operating activities 28,894 57,149
-------- --------
Cash flows from investing activities:
Capital expenditures and other (28,551) (24,896)
Business acquisition, net of cash acquired (5,911) -
Proceeds from sale of capital assets 468 71
-------- --------
Net cash used in investing activities (33,994) (24,825)
-------- --------
Cash flows from financing activities:
Issuance of Common Stock 9,053 13,589
Dividends paid, net (9,695) (9,706)
Acquisition of Treasury Stock (52,872) (39)
Tax benefit from exercise of stock options 472 951
Proceeds from (payments on) Line of Credit, net 60,000 (13,000)
Payments on financing arrangements (16) (39)
-------- --------
Net cash provided by (used in) financing activities 6,942 (8,244)
-------- --------
Effect of exchange rate changes on cash and cash
equivalents 1,178 (1,141)
-------- --------
Net increase in cash and cash equivalents 3,020 22,939
Cash and cash equivalents at beginning of period 49,481 31,657
-------- --------
Cash and cash equivalents at end of period $52,501 $54,596
======== ========
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
-------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2006 2005 Dollars Percent
--------- --------- --------- -------
Net sales:
Woods $43,718 $62,881 $(19,163) -30%
Irons 53,911 60,258 (6,347) -11%
Putters 22,954 22,374 580 3%
Golf balls 42,700 50,384 (7,684) -15%
Accessories and other 30,480 24,714 5,766 23%
--------- --------- ---------
$193,763 $220,611 $(26,848) -12%
========= ========= =========
Nine Months Ended
September 30, Growth/(Decline)
------------------- ----------------
2006 2005 Dollars Percent
--------- --------- -------- -------
Net sales:
Woods $227,157 $197,928 $29,229 15%
Irons 249,681 279,892 (30,211) -11%
Putters 85,145 88,198 (3,053) -3%
Golf balls 167,533 180,176 (12,643) -7%
Accessories and other 108,507 97,406 11,101 11%
--------- --------- --------
$838,023 $843,600 $(5,577) -1%
========= ========= ========
Net Sales by Region
-------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2006 2005 Dollars Percent
--------- --------- --------- -------
Net sales:
United States $103,196 $119,051 $(15,855) -13%
Europe 29,201 36,428 (7,227) -20%
Japan 23,236 25,729 (2,493) -10%
Rest of Asia 18,279 18,874 (595) -3%
Other foreign countries 19,851 20,529 (678) -3%
--------- --------- ---------
$193,763 $220,611 $(26,848) -12%
========= ========= =========
Nine Months Ended
September 30, Growth/(Decline)
------------------- -----------------
2006 2005 Dollars Percent
--------- --------- --------- -------
Net sales:
United States $470,828 $485,605 $(14,777) -3%
Europe 133,622 144,159 (10,537) -7%
Japan 83,392 80,856 2,536 3%
Rest of Asia 60,828 52,603 8,225 16%
Other foreign countries 89,353 80,377 8,976 11%
--------- --------- ---------
$838,023 $843,600 $(5,577) -1%
========= ========= =========
Operating Segment Information
-------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2006 2005 Dollars Percent
--------- --------- --------- -------
Net sales:
Golf clubs $151,063 $170,227 $(19,164) -11%
Golf balls 42,700 50,384 (7,684) -15%
--------- --------- ---------
$193,763 $220,611 $(26,848) -12%
========= ========= =========
Income before provision for
income taxes:
Golf clubs $6,570 $8,685 $(2,115) -24%
Golf balls (8,717) (7,700) (1,017) -13%
Reconciling items (15,844) (9,743) (6,101) -63%
--------- --------- ---------
$(17,991) $(8,758) $(9,233) -105%
========= ========= =========
Nine Months Ended
September 30, Growth/(Decline)
--------------------- ----------------
2006 2005 Dollars Percent
---------- --------- -------- -------
Net sales:
Golf clubs $670,490 $663,424 $7,066 1%
Golf balls 167,533 180,176 (12,643) -7%
---------- --------- --------
$838,023 $843,600 $(5,577) -1%
========== ========= ========
Income before provision for
income taxes:
Golf clubs $101,931 $82,429 $19,502 24%
Golf balls (1,781) 43 (1,824) -4242%
Reconciling items (44,010) (34,910) (9,100) -26%
---------- --------- --------
$56,140 $47,562 $8,578 18%
========== ========= ========
Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)
Quarter Ended September 30,
-----------------------------------
2006
-----------------------------------
Pro Forma Integration Restructuring
Callaway Charges Charges
Golf
-----------------------------------
Net sales $193,763 $- $-
Gross profit 69,064 (1,195) (46)
% of sales 36% n/a n/a
Operating expenses 81,294 79 995
--------- ----------- -------------
Income (loss) from operations (12,230) (1,274) (1,041)
Other expense, net (1,058) - -
--------- ----------- -------------
Income (loss) before income taxes (13,288) (1,274) (1,041)
Provision (benefit) for income
taxes (4,487) (430) (351)
--------- ----------- -------------
Net income (loss) $(8,801) $(844) $(690)
========= =========== =============
Diluted earnings (loss) per share: $(0.13) $(0.01) $(0.01)
Weighted-average shares
outstanding: 67,000 67,000 67,000
Employee Total as
Stock Reported
Compensation
------------------------
Net sales $- $193,763
Gross profit (118) 67,705
% of sales n/a 35%
Operating expenses 2,270 84,638
------------- ---------
Income (loss) from operations (2,388) (16,933)
Other expense, net - (1,058)
------------- ---------
Income (loss) before income taxes (2,388) (17,991)
Provision (benefit) for income taxes (807) (6,075)
------------- ---------
Net income (loss) $(1,581) $(11,916)
============= =========
Diluted earnings (loss) per share: $(0.03) $(0.18)
Weighted-average shares outstanding: 67,000 67,000
Quarter Ended September 30,
-----------------------------------
2005
-----------------------------------
Pro Forma Integration Restructuring
Callaway Charges Charges
Golf
-----------------------------------
Net sales $220,611 $- $-
Gross profit 90,283 (1,248) (2,137)
% of sales 41% n/a n/a
Operating expenses 91,130 985 4,107
--------- ----------- -------------
Income (loss) from operations (847) (2,233) (6,244)
Other expense, net 735 - -
--------- ----------- -------------
Income (loss) before income taxes (112) (2,233) (6,244)
Provision (benefit) for income
taxes (668) (848) (2,373)
--------- ----------- -------------
Net income (loss) $556 $(1,385) $(3,871)
========= =========== =============
Diluted earnings (loss) per share: $0.01 $(0.02) $(0.06)
Weighted-average shares
outstanding: 68,849 68,849 68,849
Employee Total as
Stock Reported
Compensation
------------------------
Net sales $- $220,611
Gross profit - 86,898
% of sales n/a 39%
Operating expenses 169 96,391
------------- ---------
Income (loss) from operations (169) (9,493)
Other expense, net - 735
------------- ---------
Income (loss) before income taxes (169) (8,758)
Provision (benefit) for income taxes (65) (3,954)
------------- ---------
Net income (loss) $(104) $(4,804)
============= =========
Diluted earnings (loss) per share: $- $(0.07)
Weighted-average shares outstanding: 68,849 68,849
Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)
Nine Months Ended September 30,
-----------------------------------
2006
-----------------------------------
Pro Forma Integration Restructuring
Callaway Charges Charges
Golf
-----------------------------------
Net sales $838,023 $- $-
Gross profit 343,205 (3,366) (156)
% of sales 41% n/a n/a
Operating expenses 272,077 672 1,445
--------- ----------- -------------
Income (loss) from operations 71,128 (4,038) (1,601)
Other expense, net (2,029) - -
--------- ----------- -------------
Income (loss) before income taxes 69,099 (4,038) (1,601)
Provision for income taxes 27,141 (1,491) (560)
--------- ----------- -------------
Net income (loss) $41,958 $(2,547) $(1,041)
========= =========== =============
Diluted earnings (loss) per share: $0.61 $(0.04) $(0.01)
Weighted-average shares
outstanding: 68,777 68,777 68,777
Employee Total as
Stock Reported
Compensation
------------------------
Net sales $- $838,023
Gross profit (380) 339,303
% of sales n/a 40%
Operating expenses 6,940 281,134
------------- ---------
Income (loss) from operations (7,320) 58,169
Other expense, net - (2,029)
------------- ---------
Income (loss) before income taxes (7,320) 56,140
Provision for income taxes (2,434) 22,656
------------- ---------
Net income (loss) $(4,886) $33,484
============= =========
Diluted earnings (loss) per share: $(0.07) $0.49
Weighted-average shares outstanding: 68,777 68,777
Nine Months Ended September 30,
-----------------------------------
2005
-----------------------------------
Pro Forma Integration Restructuring
Callaway Charges Charges
Golf
-----------------------------------
Net sales $843,600 $- $-
Gross profit 373,999 (5,625) (2,137)
% of sales 44% n/a n/a
Operating expenses 308,238 3,695 4,107
--------- ----------- -------------
Income (loss) from operations 65,761 (9,320) (6,244)
Other expense, net (2,252) - -
--------- ----------- -------------
Income (loss) before income taxes 63,509 (9,320) (6,244)
Provision for income taxes 21,674 (3,541) (2,373)
--------- ----------- -------------
Net income (loss) $41,835 $(5,779) $(3,871)
========= =========== =============
Diluted earnings (loss) per share: $0.61 $(0.08) $(0.06)
Weighted-average shares
outstanding: 69,028 69,028 69,028
Employee Total as
Stock Reported
Compensation
------------------------
Net sales $- $843,600
Gross profit - 366,237
% of sales n/a 43%
Operating expenses 383 316,423
------------- ---------
Income (loss) from operations (383) 49,814
Other expense, net - (2,252)
------------- ---------
Income (loss) before income taxes (383) 47,562
Provision for income taxes (146) 15,614
------------- ---------
Net income (loss) $(237) $31,948
============= =========
Diluted earnings (loss) per share: $(0.01) $0.46
Weighted-average shares outstanding: 69,028 69,028
CONTACT: Callaway Golf Company
Brad Holiday/Patrick Burke, 760-931-1771
SOURCE: Callaway Golf Company