Callaway Golf Company Announces 2008 Third Quarter and Nine Month Results
Earnings per Share Rise 5% for the First 9 Months vs. 2007
CARLSBAD, Calif.--(BUSINESS WIRE)--Oct. 30, 2008--Callaway Golf Company (NYSE:ELY) today announced its financial results for the third quarter and first nine months ended September 30.
"Despite the unprecedented global economic conditions and a strong 2007, we have delivered earnings growth of 5% through the first nine months of 2008," commented George Fellows, President and CEO. "This growth is due in part to our expanding accessories business and increased sales of golf balls, as well as by sales in Japan, which increased 37% for the first nine months of 2008 compared to 2007. In addition, three years ago we started several initiatives focused on improving the fundamentals of our Company, and those initiatives are paying off. Our balance sheet is strong with no long-term debt and a positive net cash balance, which is an enviable position in today's market. Working capital and operating expenses have been and will continue to be tightly managed going forward. Our gross margin improvement initiatives continue to deliver to our expectations of $50 to $60 million in savings over the past two years and are mitigating the negative shift in product mix we are seeing due to the current economic conditions."
Highlights for the first nine months include:
- Net sales of $946 million, essentially flat versus 2007's record sales of $950 million.
- Fully diluted earnings per share of $1.08 (on 64.0 million shares outstanding), an increase of 5% compared to $1.03 (on 68.4 million shares outstanding) in 2007. Fully diluted earnings per share for the first nine months include after-tax charges for gross margin improvement initiatives of $0.09 per share in 2008 and $0.07 per share in 2007. Excluding the impact of the gross margin improvement charges, pro forma earnings per share were $1.17 in 2008, an increase of 6% compared to $1.10 in 2007.
- Gross profit was $426.7 million for 2008 (or 45% of net sales) compared to $429.9 million (or 45% of net sales) in 2007. Excluding the impact of the gross margin improvement charges, pro forma gross profit percentages for both 2008 and 2007 would have been 46%.
- Operating expenses for 2008 were $313.9 million (or 33% of net sales) compared to $311.0 million (or 33% of net sales in 2007) which included a $3.8 million gain on the sale of a building.
- Year-to-date, the Company repurchased 1.7 million shares of stock for $23 million at an average price of $13.55 per share.
- Net sales of $213.5 million compared to last year's record of $235.5 million.
- Loss per share of ($0.12) (on 62.5 million shares outstanding), as compared to diluted earnings per share of $0.02 (on 67.6 million shares outstanding) in 2007. Third quarter results include after-tax charges for gross margin improvement initiatives of $0.04 per share in both 2008 and 2007. Excluding the impact of the gross margin improvement charges, pro forma loss per share was ($0.08) in 2008 as compared to pro forma diluted earnings per share of $0.06 in 2007.
- Gross profit for 2008 was $80.1 million (or 38% of net sales) compared to $94.0 million (or 40% of net sales) for 2007. Excluding the impact of the gross margin improvement charges, pro forma gross profit percentages for 2008 would have been 39% compared to 42% in 2007.
- Operating expenses for 2008 were $92.6 million (or 43% of net sales), compared to $93.1 million (or 40% of net sales) for 2007 which included a $3.8 million gain associated with the sale of a building.
- The Company repurchased 219,000 shares of stock for $3 million during the quarter at an average price of $13.21 per share.
Business Outlook
"Looking forward, the initial feedback on our new 2009 products has been very positive," continued Mr. Fellows, "and we feel the whole product line is stronger than our record 2007 line. We feel that this product line-up, along with strategic and operational progress to date, positions Callaway Golf for solid growth when the global economy begins to recover. In the meantime, we will continue to manage our business in a conservative and prudent manner, protect our balance sheet and allocate capital to those initiatives that will drive longer term growth."
The Company reaffirmed its recent guidance that for the full year 2008 the Company estimates that net sales will be in the range of $1.125 to $1.145 billion and pro forma fully diluted earnings will exceed 2007 and will be in the range of $0.92 to $1.02 per share (or 3% to 15% growth versus 2007). Pro forma earnings exclude after-tax charges related to the gross margin improvement initiatives in the amount of approximately $0.11 per share.
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 three hours after the call ends, and will remain available through 9:00 p.m. PST on Thursday, November 6, 2008. The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 800-475-6701 toll free for calls originating within the United States or 320-365-3844 for International calls. The replay pass code is 966796.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to future growth, estimated sales and earnings for 2008, the strength of the 2009 product line-up, and estimated charges for and savings from the gross margin initiatives, as well as statements regarding future working capital and operating expenses, 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 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 Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2007, 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.
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 charges associated with the Company's gross margin 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 and in the accompanying schedules.
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(R), Odyssey(R), Top-Flite(R), and Ben Hogan(R) 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)
September 30, December 31,
2008 2007
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 50,642 $ 49,875
Accounts receivable, net 152,654 112,064
Inventories 220,306 253,001
Deferred taxes 39,544 42,219
Income taxes receivable - 9,232
Other current assets 27,184 30,190
------------- ------------
Total current assets 490,330 496,581
Property, plant and equipment, net 135,434 128,036
Intangible assets, net 169,489 173,045
Deferred taxes 28,724 18,885
Other assets 43,435 40,416
------------- ------------
$867,412 $856,963
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $115,909 $130,410
Accrued employee compensation and
benefits 31,437 44,245
Accrued warranty expense 11,785 12,386
Credit facilities 40,000 36,507
Income taxes payable 4,317 -
------------- ------------
Total current liabilities 203,448 223,548
Long-term liabilities 65,217 63,207
Minority interest 2,378 1,978
Shareholders' equity 596,369 568,230
------------- ------------
$867,412 $856,963
============= ============
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
September 30,
-----------------------
2008 2007
--------- ---------
Net sales $213,451 100% $235,549 100%
Cost of sales 133,320 62% 141,543 60%
--------- ---------
Gross profit 80,131 38% 94,006 40%
Operating expenses:
Selling 65,730 31% 65,808 28%
General and administrative 20,201 9% 19,394 8%
Research and development 6,650 3% 7,928 3%
--------- ---------
Total operating expenses 92,581 43% 93,130 40%
Income (loss) from operations (12,450) -6% 876 0%
Other income (expense), net (1,669) 1,223
--------- ---------
Income (loss) before income taxes (14,119) -7% 2,099 1%
Income tax provision (benefit) (6,676) 830
--------- ---------
Net income (loss) $ (7,443) -3% $ 1,269 1%
========= =========
Earnings (loss) per common share:
Basic ($0.12) $ 0.02
Diluted ($0.12) $ 0.02
Weighted-average shares outstanding:
Basic 62,494 66,516
Diluted 62,494 67,639
Nine Months Ended
September 30,
-----------------------
2008 2007
--------- ---------
Net sales $945,932 100% $950,173 100%
Cost of sales 519,187 55% 520,321 55%
--------- ---------
Gross profit 426,745 45% 429,852 45%
Operating expenses:
Selling 226,352 24% 222,009 23%
General and administrative 65,480 7% 65,139 7%
Research and development 22,112 2% 23,851 3%
--------- ---------
Total operating expenses 313,944 33% 310,999 33%
Income from operations 112,801 12% 118,853 13%
Other expense, net (3,574) (2,006)
--------- ---------
Income before income taxes 109,227 12% 116,847 12%
Income tax provision 39,897 46,103
--------- ---------
Net income $ 69,330 7% $ 70,744 7%
========= =========
Earnings per common share:
Basic $ 1.10 $ 1.05
Diluted $ 1.08 $ 1.03
Weighted-average shares outstanding:
Basic 63,187 67,250
Diluted 64,029 68,407
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------
2008 2007
--------- ----------
Cash flows from operating activities:
Net income $ 69,330 $ 70,744
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,747 27,464
Non-cash compensation 5,044 8,207
Deferred taxes 2,117 1,444
Gain on disposal of assets (435) (3,425)
Changes in assets and liabilities (44,461) 41,408
--------- ----------
Net cash provided by operating activities 60,342 145,842
--------- ----------
Cash flows from investing activities:
Capital expenditures (33,506) (24,130)
Proceeds from sale of capital assets 42 5,491
Investment in golf related ventures - (1,310)
--------- ----------
Net cash used in investing activities (33,464) (19,949)
--------- ----------
Cash flows from financing activities:
Issuance of Common Stock 4,708 47,672
Dividends paid, net (8,951) (14,241)
Acquisition of Treasury Stock (22,970) (101,387)
Net proceeds from (payments on) line of credit 3,493 (79,068)
Other financing activities (223) 4,415
--------- ----------
Net cash used in financing activities (23,943) (142,609)
--------- ----------
Effect of exchange rate changes on cash and cash
equivalents (2,168) 1,994
--------- ----------
Net increase (decrease) in cash and cash
equivalents 767 (14,722)
Cash and cash equivalents at beginning of period 49,875 46,362
--------- ----------
Cash and cash equivalents at end of period $ 50,642 $ 31,640
========= ==========
Supplemental disclosures:
Cash paid for income taxes $ 26,624 $ 27,670
Cash paid for interest and fees $ 3,616 $ 5,250
Dividends payable $ 4,422 $ -
Payable for the acquisition of treasury stock $ - $ 2,327
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
-------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------ -----------------
2008 2007(1) Dollars Percent
-------- --------- --------- -------
Net sales:
Woods $ 34,499 $ 57,328 $(22,829) -40%
Irons 63,768 66,647 (2,879) -4%
Putters 21,305 21,783 (478) -2%
Golf balls 48,413 49,377 (964) -2%
Accessories and other 45,466 40,414 5,052 13%
-------- --------- ---------
$213,451 $235,549 $(22,098) -9%
======== ========= =========
Nine Months Ended
September 30, Growth/(Decline)
------------------ -----------------
2008 2007(1) Dollars Percent
-------- --------- --------- -------
Net sales:
Woods $237,043 $273,589 $(36,546) -13%
Irons 260,311 263,783 (3,472) -1%
Putters 88,793 88,526 267 0%
Golf balls 181,081 175,340 5,741 3%
Accessories and other 178,704 148,935 29,769 20%
-------- --------- ---------
$945,932 $950,173 $ (4,241) 0%
======== ========= =========
(1) Prior periods have been restated to reflect the current period presentation.
Net Sales by Region
------------------------------------------
Quarter Ended
September 30, Growth/(Decline)
----------------- -----------------
2008 2007 Dollars Percent
-------- -------- --------- -------
Net sales:
United States $104,595 $124,321 $(19,726) -16%
Europe 33,371 40,983 (7,612) -19%
Japan 32,825 25,154 7,671 30%
Rest of Asia 18,497 20,540 (2,043) -10%
Other foreign countries 24,163 24,551 (388) -2%
-------- -------- ---------
$213,451 $235,549 $(22,098) -9%
======== ======== =========
Nine Months Ended
September 30, Growth/(Decline)
----------------- -----------------
2008 2007 Dollars Percent
-------- -------- --------- -------
Net sales:
United States $465,053 $512,516 $(47,463) -9%
Europe 171,285 167,290 3,995 2%
Japan 132,723 96,941 35,782 37%
Rest of Asia 67,029 69,006 (1,977) -3%
Other foreign countries 109,842 104,420 5,422 5%
-------- -------- ---------
$945,932 $950,173 $ (4,241) 0%
======== ======== =========
Operating Segment Information
------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2008 2007(1) Dollars Percent
--------- --------- --------- -------
Net sales:
Golf clubs $165,038 $186,172 $(21,134) -11%
Golf balls 48,413 49,377 (964) -2%
--------- --------- ---------
$213,451 $235,549 $(22,098) -9%
========= ========= =========
Income (loss) before provision
for income taxes:
Golf clubs $ 2,825 $ 16,750 $(13,925) -83%
Golf balls (2,654) (2,818) 164 6%
Reconciling items (2) (14,290) (11,833) (2,457) -21%
--------- --------- ---------
$(14,119) $ 2,099 $(16,218) -773%
========= ========= =========
Nine Months Ended
September 30, Growth/(Decline)
------------------- ----------------
2008 2007(1) Dollars Percent
--------- --------- -------- -------
Net sales:
Golf clubs $764,851 $774,833 $(9,982) -1%
Golf balls 181,081 175,340 5,741 3%
--------- --------- --------
$945,932 $950,173 $(4,241) 0%
========= ========= ========
Income (loss) before provision
for income taxes:
Golf clubs $146,192 $155,795 $(9,603) -6%
Golf balls 10,048 8,661 1,387 16%
Reconciling items (2) (47,013) (47,609) 596 1%
--------- --------- --------
$109,227 $116,847 $(7,620) -7%
========= ========= ========
(1)Prior periods have been restated to reflect the current period presentation.
(2) 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,
--------------------------------
2008
--------------------------------
Pro Forma Gross Margin
Callaway Improvement Total as
Golf Initiatives Reported
--------- ------------ ---------
Net sales $213,451 $ - $213,451
Gross profit 83,764 (3,633) 80,131
% of sales 39% n/a 38%
Operating expenses 92,607 (26) 92,581
--------- ------------ ---------
Income (loss) from operations (8,843) (3,607) (12,450)
Other income (expense), net (1,669) - (1,669)
--------- ------------ ---------
Income (loss) before income taxes (10,512) (3,607) (14,119)
Income tax provision (benefit) (5,288) (1,388) (6,676)
--------- ------------ ---------
Net income (loss) $ (5,224) $(2,219) $ (7,443)
========= ============ =========
Diluted earnings (loss) per share: $ (0.08) $ (0.04) $ (0.12)
Weighted-average shares outstanding: 62,494 62,494 62,494
Quarter Ended September 30,
--------------------------------
2007
--------------------------------
Pro Forma Gross Margin
Callaway Improvement Total as
Golf Initiatives Reported
--------- ------------ ---------
Net sales $235,549 $ - $235,549
Gross profit 98,125 (4,119) 94,006
% of sales 42% n/a 40%
Operating expenses 93,130 - 93,130
--------- ------------ ---------
Income (loss) from operations 4,995 (4,119) 876
Other income (expense), net 1,223 - 1,223
--------- ------------ ---------
Income (loss) before income taxes 6,218 (4,119) 2,099
Income tax provision (benefit) 2,429 (1,599) 830
--------- ------------ ---------
Net income (loss) $ 3,789 $(2,520) $ 1,269
========= ============ =========
Diluted earnings (loss) per share: $ 0.06 $ (0.04) $ 0.02
Weighted-average shares outstanding: 67,639 67,639 67,639
Nine Months Ended September 30,
--------------------------------
2008
--------------------------------
Pro Forma Gross Margin
Callaway Improvement Total as
Golf Initiatives Reported
--------- ------------ ---------
Net sales $945,932 $ - $945,932
Gross profit 436,166 (9,421) 426,745
% of sales 46% n/a 45%
Operating expenses 313,850 94 313,944
--------- ------------ ---------
Income (loss) from operations 122,316 (9,515) 112,801
Other expense, net (3,574) - (3,574)
--------- ------------ ---------
Income (loss) before income taxes 118,742 (9,515) 109,227
Income tax provision (benefit) 43,560 (3,663) 39,897
--------- ------------ ---------
Net income (loss) $ 75,182 $(5,852) $ 69,330
========= ============ =========
Diluted earnings (loss) per share: $ 1.17 $ (0.09) $ 1.08
Weighted-average shares
outstanding: 64,029 64,029 64,029
Nine Months Ended September 30,
---------------------------------
2007
---------------------------------
Pro Forma Gross Margin
Callaway Improvement Total as
Golf Initiatives Reported
---------- ------------ ---------
Net sales $950,173 $ - $950,173
Gross profit 437,327 (7,475) 429,852
% of sales 46% n/a 45%
Operating expenses 310,999 - 310,999
---------- ------------ ---------
Income (loss) from operations 126,328 (7,475) 118,853
Other expense, net (2,006) - (2,006)
---------- ------------ ---------
Income (loss) before income taxes 124,322 (7,475) 116,847
Income tax provision (benefit) 49,015 (2,912) 46,103
---------- ------------ ---------
Net income (loss) $ 75,307 $(4,563) $ 70,744
========== ============ =========
Diluted earnings (loss) per share: $ 1.10 $ (0.07) $ 1.03
Weighted-average shares outstanding: 68,407 68,407 68,407
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA):
2008 Trailing Twelve Months EBITDA
--------------------------------------------
Quarter Ended
-----------------------------------
December March June September
31, 31, 30, 30,
2007 2008 2008 2008 Total
--------- ------- ------- --------- --------
Net income (loss) $(16,157) $39,666 $37,107 $(7,443) $ 53,173
Interest expense
(income), net (216) 591 994 497 1,866
Income tax provision
(benefit) (12,415) 25,990 20,583 (6,676) 27,482
Depreciation and
amortization expense 7,862 8,794 10,490 9,463 36,609
--------- ------- ------- --------- --------
EBITDA $(20,926) $75,041 $69,174 $(4,159) $119,130
========= ======= ======= ========= ========
2007 Trailing Twelve Months EBITDA
--------------------------------------------
Quarter Ended
-----------------------------------
December March June September
31, 31, 30, 30,
2006 2007 2007 2007 Total
--------- ------- ------- --------- --------
Net income (loss) $(10,194) $32,836 $36,639 $ 1,269 $ 60,550
Interest expense
(income), net 905 1,677 1,672 29 4,283
Income tax provision
(benefit) (10,948) 21,682 23,591 830 35,155
Depreciation and
amortization expense 8,313 9,009 8,591 9,864 35,777
--------- ------- ------- --------- --------
EBITDA $(11,924) $65,204 $70,493 $11,992 $135,765
========= ======= ======= ========= ========
CONTACT:
Callaway Golf Company
Brad Holiday
Eric Struik
Michele Szynal
(760) 931-1771
SOURCE: Callaway Golf Company