Callaway Golf Company Announces Second Quarter and First Half 2010 Results
CARLSBAD, Calif., July 28, 2010 /PRNewswire via COMTEX/ -- Callaway Golf Company (NYSE: ELY) today announced its financial results for the second quarter and first half of the year ended June 30, 2010, which were consistent with the Company's June 14th guidance.
For the second quarter, the Company reported:
- Net sales of $304 million, an increase of 1% compared to $302 million for the second quarter of 2009. Changes in foreign currency rates favorably affected net sales by $6 million in the second quarter of 2010 compared to the same period in 2009.
- Gross profit of $124 million (41% of net sales), compared to gross profit of $110 million (36% of net sales) for the second quarter of 2009.
- Operating expenses for the quarter of $99 million (32% of net sales) compared to $100 million (33% of net sales) for the same period in 2009.
- Operating profit of $25 million (8% of net sales) compared to $10 million (3% of net sales) for the same period in 2009.
- Earnings per diluted share of $0.14 (on 84.3 million weighted average shares outstanding), compared to $0.10 (on 66.8 million weighted average shares outstanding) in 2009. Fully diluted earnings per share for the second quarter include after-tax charges for the Company's Global Operations Strategy initiatives of $0.01 per share in 2010 and $0.02 per share in 2009.
For the first six months, the Company reported:
- Net sales of $606 million, an increase of 6% compared to last year's net sales of $574 million. Changes in foreign currency rates favorably affected net sales by $21 million for the first six months of 2010 compared to the same period in 2009.
- Gross profit of $261 million (43% of net sales) compared to $226 million (39% of net sales) for 2009.
- Operating expenses of $207 million (34% of net sales) compared to $202 million (35% of net sales) for 2009.
- Operating profit of $53 million (9% of net sales) compared to $24 million (4% of net sales) for 2009.
- Earnings per diluted share of $0.38 (on 84.1 million weighted average shares outstanding) compared to earnings per diluted share of $0.21 (on 65.1 million weighted average shares outstanding) for 2009. Fully diluted earnings per share for the period include after-tax charges for the Company's Global Operations Strategy initiatives of $0.02 per share in 2010 and $0.03 per share in 2009.
"Global economic conditions and the golf industry have recovered more slowly than our original expectations coming into 2010," commented George Fellows, President and CEO. "Consumer spending remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit. These constraints, together with unfavorable weather conditions in many key markets for a significant portion of 2010, have resulted in an overall decline in sales in the golf industry for the year. Despite this industry decline, our first half results have improved over last year, driven in large part by our improved gross margins, more favorable foreign currency rates, and significant growth in our putters and accessories businesses."
"While the golf industry will recover, given recent increased uncertainty regarding retailer and consumer spending in the back half of the year, it does not appear that the industry will fully recover during 2010," continued Mr. Fellows. "We are therefore focused on the controllable portions of our business, including tight management of discretionary spending, investment in emerging markets and other key growth initiatives to drive long-term shareholder value, and improvements in our operations such as the restructuring of our global operations announced yesterday. These actions, together with the strength of our brands, will allow us to maximize results in the current environment and prepare us to take advantage of a better market once global conditions improve."
Restructuring of Global Operations
The Company announced yesterday that it will be restructuring its global operations over the next 18 months as a part of its overall Global Operations Strategy to add speed and flexibility to customer service demands, optimize efficiencies and facilitate long-term gross margin improvements. This initiative will include the reorganization of the Company's manufacturing and distribution centers located in Carlsbad, California and Toronto, Canada and the creation of third party logistics sites in Dallas, Texas and Toronto, Canada as well as the establishment of a new production facility in Monterrey, Mexico.
Business Outlook
"While we expect that our overall financial results will be better than last year, the unusual uncertainty caused by the current macroeconomic and market conditions make it impossible to forecast retailer and consumer demand for golf products with any reliability," commented Brad Holiday, Chief Financial Officer of the Company. "We do expect that our full year gross margins will be improved compared to last year and that our full year operating expenses will be approximately flat compared to last year, even after taking into account the restoration of employee compensation and benefits that were temporarily suspended in 2009. Because of the lack of visibility into sales, however, we are not providing specific financial guidance for the balance of the year."
The Company previously estimated that charges for 2010 for its overall Global Operations Strategy initiatives would be approximately $.10 per share. The scope of the initiatives has been expanded and the Company now estimates that charges for such initiatives in 2010 will be approximately $0.16 per share. Given the expanded scope of the initiatives, the Company now estimates that the savings from its overall Global Operations Strategy initiatives will be approximately $45-$55 million from 2010-2013 as compared to its prior estimate of $25-$45 million through 2012.
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 and the recently announced restructuring of its global operations. 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 Wednesday, August 4, 2010. 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 85601986.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to a golf industry recovery, the Company's future performance, estimated 2010 gross margins and operating expenses, and the estimated amount and timing of the charges and savings related to the Company's global operations strategy initiatives, 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 forward-looking statements is based upon various unknowns, including future changes in foreign currency exchange rates, 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. 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 global operations strategy 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 golf industry and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 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.
Regulation G: The financial statement schedules attached to this press release have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In addition to these schedules, the Company has also provided certain supplemental financial information concerning its results, which include certain financial measures not prepared in accordance with GAAP. The non-GAAP financial measures included in the supplemental financial information present certain of the Company's financial results (i) excluding charges for the Company's global operations strategy and (ii) excluding interest, taxes, depreciation and amortization expenses, and changes in the Company's prior derivative valuation account ("Adjusted EBITDA"). 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 these items. The Company has provided reconciling information within the supplemental financial information attached to 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(R), Odyssey(R), Top-Flite(R), Ben Hogan(R) and uPro(TM) brands in more than 110 countries worldwide. For more information please visit www.callawaygolf.com or Shop.CallawayGolf.com
Contacts: Brad Holiday
Eric Struik
Tim Buckman
(760) 931-1771
Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
June 30, December 31,
2010 2009
---- ----
ASSETS
Current assets:
Cash and cash equivalents $53,594 $78,314
Accounts receivable, net 254,549 139,776
Inventories 214,490 219,178
Deferred taxes, net 21,251 21,276
Income taxes receivable 584 19,730
Other current assets 35,246 34,713
------ ------
Total current assets 579,714 512,987
Property, plant and equipment, net 132,700 143,436
Intangible assets, net 170,455 174,017
Other assets 46,167 45,490
------ ------
Total assets $929,036 $875,930
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $134,558 $118,294
Accrued employee compensation and benefits 22,574 22,219
Accrued warranty expense 9,390 9,449
Income tax liability 14,730 1,492
------ -----
Total current liabilities 181,252 151,454
Long-term liabilities 13,011 14,594
Shareholders' equity 734,773 709,882
------- -------
Total liabilities and shareholders' equity $929,036 $875,930
======== ========
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
June 30,
--------
2010 2009
---- ----
Net sales $303,609 $302,219
Cost of sales 179,983 192,371
------- -------
Gross profit 123,626 109,848
Operating expenses:
Selling 70,730 72,394
General and administrative 19,147 19,358
Research and development 8,648 7,837
----- -----
Total operating expenses 98,525 99,589
Income from operations 25,101 10,259
Other (expense) income, net (4,704) 512
------ ---
Other income before income taxes 20,397 10,771
Income tax provision 8,932 3,859
----- -----
Net income 11,465 6,912
Dividends on convertible preferred
stock 2,625 438
----- ---
Net income allocable to common
shareholders $8,840 $6,474
====== ======
Earnings per common share:
Basic $0.14 $0.10
Diluted $0.14 $0.10
Weighted-average common shares
outstanding:
Basic 63,844 63,121
Diluted 84,259 66,807
Six Months Ended
June 30,
--------
2010 2009
---- ----
Net sales $606,484 $574,083
Cost of sales 345,563 348,054
------- -------
Gross profit 260,921 226,029
Operating expenses:
Selling 145,358 147,044
General and administrative 44,123 39,345
Research and development 17,966 15,940
------ ------
Total operating expenses 207,447 202,329
Income from operations 53,474 23,700
Other expense, net (3,133) (1,869)
------ ------
Income before income taxes 50,341 21,831
Income tax provision 18,573 8,107
------ -----
Net income 31,768 13,724
Dividends on convertible preferred
stock 5,250 438
----- ---
Net income allocable to common
shareholders $26,518 $13,286
======= =======
Earnings per common share:
Basic $0.42 $0.21
Diluted $0.38 $0.21
Weighted-average common shares
outstanding:
Basic 63,749 63,060
Diluted 84,093 65,105
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
--------
2010 2009
---- ----
Cash flows from operating activities:
Net income $31,768 $13,724
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 19,555 20,116
Deferred taxes, net (1,914) (5,509)
Non-cash share-based compensation 5,002 3,684
Gain (loss) on disposal of long-lived assets 73 (375)
Changes in assets and liabilities (64,216) (40,708)
------- -------
Net cash used in operating activities (9,732) (9,068)
------ ------
Cash flows from investing activities:
Capital expenditures (7,549) (19,448)
Other investing activities (1,870) (31)
------ ---
Net cash used in investing activities (9,419) (19,479)
------ -------
Cash flows from financing activities:
Issuance of common stock 1,683 1,498
Issuance of preferred stock - 140,000
Equity issuance cost (60) (5,871)
Dividends paid, net (6,530) (4,430)
Payments on credit facilities, net - (90,000)
Other financing activities (249) 54
---- ---
Net cash (used in) provided by financing
activities (5,156) 41,251
------ ------
Effect of exchange rate changes on cash and
cash equivalents (413) (570)
---- ----
Net (decrease) increase in cash and cash
equivalents (24,720) 12,134
Cash and cash equivalents at beginning of
period 78,314 38,337
------ ------
Cash and cash equivalents at end of period $53,594 $50,471
======= =======
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
-----------
Net Sales by Product Category
-----------------------------
Quarter Ended
June 30, Growth/(Decline)
-------- ----------------
2010 2009 Dollars Percent
---- ---- ------- -------
Net sales:
Woods $63,263 $75,956 $(12,693) -17%
Irons 71,489 72,222 (733) -1%
Putters 33,520 26,421 7,099 27%
Golf balls 58,003 58,245 (242) 0%
Accessories and
other 77,334 69,375 7,959 11%
$303,609 $302,219 $1,390 0%
======== ======== ======
Net Sales by Product Category
-----------------------------
Six Months Ended
June 30, Growth/(Decline)
-------- ----------------
2010 2009 Dollars Percent
---- ---- ------- -------
Net sales:
Woods $157,752 $155,838 $1,914 1%
Irons 128,924 137,409 (8,485) -6%
Putters 71,667 54,112 17,555 32%
Golf balls 109,138 105,593 3,545 3%
Accessories and
other 139,003 121,131 17,872 15%
$606,484 $574,083 $32,401 6%
======== ======== =======
Net Sales by Region
-------------------
Quarter Ended
June 30, Growth/(Decline)
-------- ----------------
2010 2009 Dollars Percent
---- ---- ------- -------
Net sales:
United States $162,363 $163,739 $(1,376) -1%
Europe 41,475 42,477 (1,002) -2%
Japan 30,179 37,061 (6,882) -19%
Rest of Asia 24,726 21,300 3,426 16%
Other foreign
countries 44,866 37,642 7,224 19%
------ ------ -----
$303,609 $302,219 $1,390 0%
======== ======== ======
Net Sales by Region
-------------------
Six Months Ended
June 30, Growth/(Decline)
-------- ----------------
2010 2009 Dollars Percent
---- ---- ------- -------
Net sales:
United States $313,419 $305,020 $8,399 3%
Europe 83,734 85,480 (1,746) -2%
Japan 83,562 84,456 (894) -1%
Rest of Asia 49,315 37,852 11,463 30%
Other foreign
countries 76,454 61,275 15,179 25%
------ ------ ------
$606,484 $574,083 $32,401 6%
======== ======== =======
Operating Segment Information
-----------------------------
Quarter Ended
June 30, Growth/(Decline)
-------- ----------------
2010 2009 Dollars Percent
---- ---- ------- -------
Net sales:
Golf clubs $245,606 $243,974 $1,632 1%
Golf balls 58,003 58,245 (242) 0%
----
$303,609 $302,219 $1,390 0%
======== ======== ======
Income (loss) before
income taxes:
Golf clubs $30,838 $25,367 $5,471 22%
------- -------
Golf balls 5,751 (965) 6,716 NM
----- ----
Reconciling items
(1) (16,192) (13,631) (2,561) -19%
------- ------- ------
$20,397 $10,771 $9,626 89%
======= ======= ======
Operating Segment Information
-----------------------------
Six Months Ended
June 30, Growth/(Decline)
-------- ----------------
2010 2008 Dollars Percent
---- ---- ------- -------
Net sales:
Golf clubs $497,346 $468,490 $28,856 6%
Golf balls 109,138 105,593 3,545 3%
-----
$606,484 $574,083 $32,401 6%
======== ======== =======
Income (loss) before
income taxes:
Golf clubs $74,453 $53,648 $20,805 39%
Golf balls 7,646 (2,663) 10,309 NM
Reconciling items
(1) (31,758) (29,154) (2,604) -9%
$50,341 $21,831 $28,510 131%
======= ======= =======
(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,
----------------------
2010
----
Global
Pro Forma Operations
Callaway Strategy Total as
Golf Initiatives Reported
---------- ----------- ---------
Net sales $303,609 $- $303,609
Gross profit 124,823 (1,197) 123,626
% of sales 41% n/a 41%
Operating expenses 98,417 108 98,525
------ --- ------
Income (loss) from operations 26,406 (1,305) 25,101
Other income (loss), net (4,704) - (4,704)
------ --- ------
Income (loss) before income taxes 21,702 (1,305) 20,397
Income tax provision (benefit) 9,428 (496) 8,932
----- ---- -----
Net income (loss) 12,274 (809) 11,465
Dividends on convertible preferred
stock 2,625 - 2,625
----- --- -----
Net income (loss) allocable to
common shareholders $9,649 $(809) $8,840
====== ===== ======
Diluted earnings (loss) per share: $0.15 $(0.01) $0.14
Weighted-average shares
outstanding: 84,259 84,259 84,259
Quarter Ended June 30,
----------------------
2009
----
Global
Pro Forma Operations
Callaway Strategy Total as
Golf Initiatives Reported
---------- ----------- ---------
Net sales $302,219 $- $302,219
Gross profit 111,662 (1,814) 109,848
% of sales 37% n/a 36%
Operating expenses 99,589 - 99,589
------ --- ------
Income (loss) from operations 12,073 (1,814) 10,259
Other income (loss), net 512 - 512
--- --- ---
Income (loss) before income taxes 12,585 (1,814) 10,771
Income tax provision (benefit) 4,557 (698) 3,859
----- ---- -----
Net income (loss) 8,028 (1,116) 6,912
Dividends on convertible preferred
stock 438 - 438
--- --- ---
Net income (loss) allocable to
common shareholders $7,590 $(1,116) $6,474
====== ======= ======
Diluted earnings (loss) per share: $0.12 $(0.02) $0.10
Weighted-average shares
outstanding: 66,807 66,807 66,807
Six Months Ended June 30,
-------------------------
2010
----
Global
Pro Forma Operations
Callaway Strategy Total as
Golf Initiatives Reported
---------- ----------- ---------
Net sales $606,484 $- $606,484
Gross profit 263,118 (2,197) 260,921
% of sales 43% n/a 43%
Operating expenses 207,286 161 207,447
------- --- -------
Income (loss)
from operations 55,832 (2,358) 53,474
Other expense, net (3,133) - (3,133)
------ --- ------
Income (expense)
before income
taxes 52,699 (2,358) 50,341
Income tax
provision
(benefit) 19,493 (920) 18,573
------ ---- ------
Net income (loss) 33,206 (1,438) 31,768
Dividends due to
preferred
shareholders 5,250 - 5,250
----- --- -----
Net income (loss)
available to
common
shareholders $27,956 $(1,438) $26,518
======= ======= =======
Diluted earnings
(loss) per share: $0.40 $(0.02) $0.38
Weighted-average
shares
outstanding: 84,093 84,093 84,093
Six Months Ended June 30,
-------------------------
2009
----
Global
Pro Forma Operations
Callaway Strategy Total as
Golf Initiatives Reported
---------- ----------- ---------
Net sales $574,083 $- $574,083
Gross profit 229,399 (3,370) 226,029
% of sales 40% n/a 39%
Operating expenses 202,329 - 202,329
------- --- -------
Income (loss) from
operations 27,070 (3,370) 23,700
Other expense, net (1,869) - (1,869)
------ --- ------
Income (expense) before
income taxes 25,201 (3,370) 21,831
Income tax provision
(benefit) 9,404 (1,297) 8,107
----- ------ -----
Net income (loss) 15,797 (2,073) 13,724
Dividends due to
preferred shareholders 438 - 438
--- --- ---
Net income (loss)
available to common
shareholders $15,359 $(2,073) $13,286
======= ======= =======
Diluted earnings (loss)
per share: $0.24 $(0.03) $0.21
Weighted-average shares
outstanding: 65,105 65,105 65,105
2010 Trailing Twelve Months Adjusted EBITDA
-------------------------------------------
Adjusted
EBITDA: Quarter Ended
-------------
September December March June
30, 31, 31, 30,
2009 2009 2010 2010 Total
---- ---- ---- ---- -----
Net income
(loss) $(13,429) $(15,555) $20,303 $11,465 $2,784
-------- -------- ------- -------
Interest
expense
(income), net (46) (435) (118) (242) (841)
--- ---- ---- ----
Income tax
provision
(benefit) (11,308) (11,142) 9,641 8,932 (3,877)
------- ------- ----- -----
Depreciation
and
amortization
expense 10,128 10,504 9,949 9,606 40,187
------ ------ ----- -----
Change in
energy
derivative
valuation
acct. - - - - -
Adjusted
EBITDA $(14,655) $(16,628) $39,775 $29,761 $38,253
======== ======== ======= ======= =======
2009 Trailing Twelve Months Adjusted EBITDA
-------------------------------------------
Adjusted
EBITDA: Quarter Ended
-------------
September December March June
30, 31, 31, 30,
2008 2008 2009 2009 Total
---- ---- ---- ---- -----
Net
income
(loss) $(7,443) $(3,154) $6,812 $6,912 $3,127
------- ------- ------ ------
Interest
expense
(income),
net 497 272 (123) 551 1,197
--- --- ---- ---
Income
tax
provision
(benefit) (6,676) (4,766) 4,248 3,859 (3,335)
------ ------ ----- -----
Depreciation
and
amortization
expense 9,463 9,216 9,944 10,172 38,795
----- ----- ----- ------
Change
in
energy
derivative
valuation
acct. - (19,922) - - (19,922)
---
Adjusted
EBITDA $(4,159) $(18,354) $20,881 $21,494 $19,862
======= ======== ======= ======= =======
SOURCE Callaway Golf Company