View:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
July 26, 2006
Date of Report (Date of earliest event reported)
CALLAWAY GOLF COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-10962 95-3797580
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2180 RUTHERFORD ROAD, CARLSBAD, CALIFORNIA 92008-7328
(Address of principal executive offices) (Zip Code)
(760) 931-1771
Registrant's telephone number, including area code
NOT APPLICABLE
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.*
On July 26, 2006, Callaway Golf Company issued a press release captioned
"Callaway Golf Announces Results For Second Quarter 2006." A copy of the press
release is attached hereto as Exhibit 99.1 and incorporated herein by this
reference.
Item 9.01 Financial Statements and Exhibits.*
(c) Exhibits.
---------
The following exhibit is being furnished herewith:
Exhibit 99.1 Press Release, dated July 26, 2006, captioned
"Callaway Golf Announces Results For Second
Quarter 2006."
* The information furnished under Item 2.02 and Item 9.01 of this Current Report
on Form 8-K, including Exhibit 99.1, shall not be deemed to be "filed" for the
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any registration statement or other filing under
the Securities Act of 1933, as amended, except as shall be expressly set forth
by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CALLAWAY GOLF COMPANY
Date: July 26, 2006 By: /s/ Bradley J. Holiday
----------------------------------
Name: Bradley J. Holiday
Title: Senior Executive Vice President
and Chief Financial Officer
Exhibit Index
-------------
Exhibit Number Description
- -------------- -----------
99.1 Press release, dated July 26, 2006, captioned "Callaway Golf
Announces Results For Second Quarter."
Exhibit 99.1
Callaway Golf Announces Results for Second Quarter 2006
CARLSBAD, Calif.--(BUSINESS WIRE)--July 26, 2006--Callaway Golf
Company (NYSE:ELY) today announced its financial results for the
second quarter ended June 30, 2006. Highlights for the quarter
include:
-- Net sales of $341.8 million, an increase of 6% as compared to
$323.1 million for the same period in 2005.
-- Fully diluted earnings per share of $0.33 on 68.6 million
shares, an increase of 22%, as compared to $0.27 on 68.7
million shares in 2005.
-- Fully diluted earnings per share include $0.03 of after-tax
charges for employee equity-based compensation associated with
FAS 123R as well as charges of $0.01 for the integration of
Top-Flite operations and $0.01 for the cost-reduction
initiatives announced in September 2005. The second quarter of
2005 included after-tax charges of $0.03 for the integration
of Top-Flite operations. Excluding these charges, the
Company's pro forma fully diluted earnings per share for the
second quarter of 2006 would have increased 27% to $0.38, as
compared to pro forma fully diluted earnings per share of
$0.30 for the second quarter of 2005.
-- Gross profit for the second quarter of 2006 was $140.1 million
(or 41% of net sales), a decrease of $6.6 million from $146.7
million (or 45% of net sales) for the second quarter of 2005.
Gross margins in the second quarter of 2006 were negatively
affected by approximately $3.3 million (or one percentage
point) due to a golf ball work-in-process inventory
adjustment.
-- Operating expenses for the second quarter of 2006 were $101.3
million, a decrease of $17.7 million compared to $119.0
million in 2005. A majority of the decrease is due to the
cost-reduction initiatives announced in September 2005. This
decrease also includes a $7.0 million reduction in accrued
employee incentive compensation compared to last year.
Highlights for the first six months include:
-- Net sales of $644.3 million, an increase of 3.3% as compared
to $623.0 million for the same period in 2005.
-- Fully diluted earnings per share of $0.65 on 69.4 million
shares, an increase of 20%, as compared to $0.54 on 68.6
million shares in 2005.
-- Fully diluted earnings per share include $0.05 of after-tax
charges for employee equity-based compensation associated with
FAS 123R as well as $0.02 for the integration of Top-Flite
operations and $0.01 associated with the cost-reduction
initiatives. The first half of 2005 included after-tax charges
of $0.06 for the integration of Top-Flite operations.
Excluding these charges, the Company's pro forma fully diluted
earnings per share for the first half of 2006 would have
increased 22% to $0.73, as compared to pro forma fully diluted
earnings per share of $0.60 for the first half of 2005.
-- Gross profit for the first half of 2006 was $271.6 million (or
42% of net sales), a decrease of $7.7 million from $279.3
million (or 45% of net sales) for the first half of 2005.
-- Operating expenses for the first half of 2006 were $196.5
million, a decrease of $23.5 million compared to $220.0
million in 2005. A majority of this decrease reflects the
cost-reduction initiatives announced in September 2005. This
decrease also includes a $4.5 million reduction in accrued
employee incentive compensation.
"Shortly after joining the Company we announced in September 2005
the implementation of several business improvement and cost-reduction
initiatives to improve the manner in which we bring products to market
as well as reduce our overall operating expenses," commented George
Fellows, President and CEO of Callaway Golf Company. "Our second
quarter results reflect the success of these initiatives. Sales of our
Callaway and Odyssey brands continue to gain momentum in both revenue
and market share which indicates that our product line for 2006 is
being well received by both our customers and consumers in a very
competitive marketplace," continued Mr. Fellows. "In addition, we are
also delivering the anticipated savings in operating expenses from our
cost-reduction initiatives and expect that a majority of those savings
will positively impact earnings with the balance being reinvested in
demand creation initiatives, consistent with our commitment.
Performance in these two areas is critical to achieving our three year
targets."
"We also previously announced we would focus on reversing the
decline in gross margins that we had been experiencing over the last
several years," continued Mr. Fellows. "Our second quarter gross
margin results did not meet our expectations due to some unanticipated
execution issues and cost increases. Initiatives are in process to
begin improving gross margins, but they will not impact results until
late 2006 and into next year." Mr. Fellows added, "In addition to the
gross margin initiatives, we are also focused on restoring the
Top-Flite brand business. We believe that this brand can succeed in
the market place and are implementing several initiatives designed to
stabilize this important brand. I can assure you that these and other
such initiatives are a top priority and I hope to share more details
by the end of the year."
"In summary," continued Mr. Fellows, "we are comfortable with our
three year corporate targets. I am pleased with our progress to date,
with sales and earnings up for the first half, but recognize there is
more to do. Our core brands are performing well and we are
aggressively focused on improving our overall profitability."
For more details, including pro forma reconciliations to assist in
year-over-year comparison, please see the attached "Supplemental
Financial Information."
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 its
conclusion, and will remain available through 9:00 p.m. PDT on
Wednesday, August 2, 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 837120.
Disclaimer: Statements used in this press release that relate to
future plans, events, financial results, performance or prospects,
including statements relating to momentum in revenue or market share,
future gross margin improvement, restoration of the Top-Flite brand,
future operating expense savings and reinvestment, and achievement of
three year targets 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, market
acceptance of current and future products; adverse market and economic
conditions; adverse weather conditions and seasonality; delays,
difficulties or increased costs in manufacturing the Company's
products; a decrease in supply or increased costs of the materials
needed to manufacture the Company's products; an increase in
competitive pricing pressures; 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, the integration of the
Company's Top-Flite operations and charges related to the Company's
business improvement and cost-reduction initiatives announced in
September 2005. 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 attachment to this 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)
June 30, December 31,
2006 2005
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $48,113 $49,481
Accounts receivable, net 257,782 98,082
Inventories, net 232,236 241,577
Income taxes receivable - 2,026
Other current assets 50,108 47,424
--------- ---------
Total current assets 588,239 438,590
Property, plant and equipment, net 136,024 127,739
Intangible assets, net 176,098 175,191
Deferred taxes 4,657 6,516
Other assets 15,072 16,462
--------- ---------
$920,090 $764,498
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $128,930 $102,134
Accrued employee compensation and benefits 20,176 24,783
Accrued warranty expense 15,469 13,267
Bank line of credit 110,300 -
Income taxes payable 10,590 -
Capital leases, current portion - 21
--------- ---------
Total current liablilities 285,465 140,205
Long-term liabilities 26,946 28,245
Shareholders' equity 607,679 596,048
--------- ---------
$920,090 $764,498
========= =========
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
June 30,
-----------------------
2006 2005
--------- ---------
Net sales $341,815 100% $323,132 100%
Cost of sales 201,729 59% 176,399 55%
--------- ---------
Gross profit 140,086 41% 146,733 45%
Operating expenses:
Selling expense 77,045 23% 90,640 28%
General and administrative expense 18,101 5% 21,239 7%
Research and development expense 6,194 2% 7,083 2%
--------- ---------
Total operating expenses 101,340 30% 118,962 37%
--------- ---------
Income from operations 38,746 11% 27,771 9%
Other expense, net (1,273) (1,806)
--------- ---------
Income before income taxes 37,473 11% 25,965 8%
Income tax provision 14,934 7,573
--------- ---------
Net Income $22,539 7% $18,392 6%
========= =========
Earnings per common share:
Basic $0.33 $0.27
Diluted $0.33 $0.27
Weighted-average shares outstanding:
Basic 67,799 68,270
Diluted 68,577 68,660
Six Months Ended
June 30,
------------------------
2006 2005
--------- ---------
Net sales $644,260 100% $622,989 100%
Cost of goods sold 372,662 58% 343,650 55%
--------- ---------
Gross profit 271,598 42% 279,339 45%
Operating expenses:
Selling expense 145,173 23% 166,385 27%
General and administrative expense 38,325 6% 40,324 6%
Research and development expense 12,998 2% 13,323 2%
--------- ---------
Total operating expenses 196,496 30% 220,032 35%
--------- ---------
Income from operations 75,102 12% 59,307 10%
Other expense, net (971) (2,987)
--------- ---------
Income before income taxes 74,131 12% 56,320 9%
Provision for income taxes 28,731 19,568
--------- ---------
Net income $45,400 7% $36,752 6%
========= =========
Earnings per common share:
Basic $0.66 $0.54
Diluted $0.65 $0.54
Weighted-average shares outstanding:
Basic 68,479 68,226
Diluted 69,356 68,643
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
------------------
2006 2005
--------- --------
Cash flows from operating activities:
Net income $45,400 $36,752
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 15,225 22,659
Non-cash compensation 6,331 3,957
Loss on disposal of assets 324 856
Deferred taxes 1,165 (1,184)
Changes in assets and liabilities, net of
effects of acquisitions (114,383) (67,378)
--------- --------
Net cash used in operating activities (45,938) (4,338)
--------- --------
Cash flows from investing activities:
Capital expenditures (20,463) (19,046)
Business acquisition, net of cash acquired (5,911) -
Proceeds from sale of capital assets 120 20
--------- --------
Net cash used in investing activities (26,254) (19,026)
--------- --------
Cash flows from financing activities:
Issuance of Common Stock 6,519 3,560
Dividends paid, net (4,901) (4,853)
Acquisition of Treasury Stock (42,894) (39)
Tax benefit from exercise of stock options 481 269
Proceeds from Line of Credit, net 110,300 37,000
Payments on financing arrangements (20) (22)
--------- --------
Net cash provided by financing activities 69,485 35,915
--------- --------
Effect of exchange rate changes on cash
and cash equivalents 1,339 (1,552)
--------- --------
Net increase (decrease) in cash and cash
equivalents (1,368) 10,999
Cash and cash equivalents at beginning of period 49,481 31,657
--------- --------
Cash and cash equivalents at end of period $48,113 $42,656
========= ========
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
-------------------------------------------
Quarter Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
Woods $86,319 $69,583 $16,736 24%
Irons 106,800 111,686 (4,886) -4%
Putters 37,313 33,976 3,337 10%
Golf balls 69,103 70,759 (1,656) -2%
Accessories and other 42,280 37,128 5,152 14%
--------- --------- ---------------
$341,815 $323,132 $18,683 6%
========= ========= ===============
Six Months Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
Woods $183,439 $135,047 $48,392 36%
Irons 195,770 219,634 (23,864) -11%
Putters 62,191 65,824 (3,633) -6%
Golf balls 124,833 129,792 (4,959) -4%
Accessories and other 78,027 72,692 5,335 7%
--------- --------- ---------------
$644,260 $622,989 $21,271 3%
========= ========= ===============
Net Sales by Region
-------------------------------------------
Quarter Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
United States $186,349 $181,453 $4,896 3%
Europe 54,336 56,568 (2,232) -4%
Japan 34,042 30,274 3,768 12%
Rest of Asia 25,561 19,064 6,497 34%
Other foreign countries 41,527 35,773 5,754 16%
--------- --------- ---------------
$341,815 $323,132 $18,683 6%
========= ========= ===============
Six Months Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
United States $367,632 $366,554 $1,078 0%
Europe 104,421 107,731 (3,310) -3%
Japan 60,156 55,127 5,029 9%
Rest of Asia 42,549 33,729 8,820 26%
Other foreign countries 69,502 59,848 9,654 16%
--------- --------- ---------------
$644,260 $622,989 $21,271 3%
========= ========= ===============
Operating Segment Information
--------------------------------------------
Quarter Ended
June 30, Growth/(Decline)
------------------- ------------------------
2006 2005 Dollars Percent
--------- --------- -------- -------
Net sales:
Golf clubs $272,712 $252,373 $20,339 8%
Golf balls 69,103 70,759 (1,656) -2%
--------- --------- ------------
$341,815 $323,132 $18,683 6%
========= ========= ============
Income before provision
for income taxes:
Golf clubs $50,327 $33,365 $16,962 51%
Golf balls 545 6,018 (5,473) -91%
Reconciling items (13,399) (13,418) 19 0%
--------- --------- ------------
$37,473 $25,965 $11,508 44%
========= ========= ============
Six Months Ended
June 30, Growth/(Decline)
--------------------- ----------------------
2006 2005 Dollars Percent
--------- --------- -------- ----------
Net sales:
Golf clubs $519,427 $493,197 $26,230 5%
Golf balls 124,833 129,792 (4,959) -4%
--------- --------- ------------
$644,260 $622,989 $21,271 3%
========= ========= ============
Income before provision
for income taxes:
Golf clubs $95,395 $73,744 $21,651 29%
Golf balls 6,902 7,744 (842) -11%
Reconciling
items (28,166) (25,168) (2,998) -12%
--------- --------- ------------
$74,131 $56,320 $17,811 32%
========= ========= ============
Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)
Quarter Ended June 30,
--------------------------------------------------------
2006
--------------------------------------------------------
Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
---------- --------- ------------- ------------- ---------
Net sales $341,815 $- $- $- $341,815
Gross
profit 141,859 (1,516) (96) (161) 140,086
% of sales 42% n/a n/a n/a 41%
Operating
expenses 98,095 218 474 2,553 101,340
--------- -------- ------- -------- ---------
Income (loss)
from
operations 43,764 (1,734) (570) (2,714) 38,746
Other
expense,
net (1,273) - - - (1,273)
--------- -------- ------- -------- ---------
Income before
income
taxes 42,491 (1,734) (570) (2,714) 37,473
Provision
for income
taxes 16,635 (662) (213) (826) 14,934
--------- -------- ------- -------- ---------
Net income
(loss) $25,856 $(1,072) $(357) $(1,888) $22,539
========= ======== ======= ======== =========
Diluted earnings
(loss) per
share: $0.38 $(0.01) $(0.01) $(0.03) $0.33
Weighted-average
shares
outstanding: 68,577 68,577 68,577 68,577 68,577
Quarter Ended June 30,
--------------------------------------------------------
2005
--------------------------------------------------------
Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
---------- ---------- ------------- ------------- ---------
Net sales $323,132 $- $- $- $323,132
Gross
profit 148,027 (1,294) - - 146,733
% of sales 46% n/a n/a n/a 45%
Operating
expenses 116,880 1,966 - 116 118,962
--------- -------- ------- -------- ---------
Income (loss)
from
operations 31,147 (3,260) - (116) 27,771
Other expense,
net (1,806) - - - (1,806)
--------- -------- ------- -------- ---------
Income before
income
taxes 29,341 (3,260) - (116) 25,965
Provision
for income
taxes 8,856 (1,239) - (44) 7,573
--------- -------- ------- -------- ---------
Net income
(loss) $20,485 $(2,021) $- $(72) $18,392
========= ======== ======= ======== =========
Diluted earnings
(loss) per
share: $0.30 $(0.03) $- $(0.00) $0.27
Weighted-average
shares
outstanding: 68,660 68,660 68,660 68,660 68,660
Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)
Six Months Ended June 30,
--------------------------------------------------------
2006
--------------------------------------------------------
Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
---------- ---------- ------------- ------------- ---------
Net sales $644,260 $- $- $- $644,260
Gross
profit 274,141 (2,171) (110) (262) 271,598
% of sales 43% n/a n/a n/a 42%
Operating
expenses 190,783 593 450 4,670 196,496
--------- -------- ------- -------- ---------
Income (loss)
from
operations 83,358 (2,764) (560) (4,932) 75,102
Other expense,
net (971) - - - (971)
--------- -------- ------- -------- ---------
Income (loss)
before
income
taxes 82,387 (2,764) (560) (4,932) 74,131
Provision
for income
taxes 31,628 (1,061) (209) (1,627) 28,731
--------- -------- ------- -------- --------
Net income
(loss) $50,759 $(1,703) $(351) $(3,305) $45,400
========= ======== ======= ======== ========
Diluted earnings
(loss) per
share: $0.73 $(0.02) $(0.01) $(0.05) $0.65
Weighted-average
shares
outstanding: 69,356 69,356 69,356 69,356 69,356
Six Months Ended June 30,
--------------------------------------------------------
2005
-------------------------------------------------------
Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
----------- --------- ------------- ------------- ---------
Net sales $622,989 $- $- $- $622,989
Gross
profit 283,716 (4,377) - - 279,339
% of sales 46% n/a n/a n/a 45%
Operating
expenses 217,108 2,710 - 214 220,032
--------- -------- ------- -------- ---------
Income (loss)
from
operations 66,608 (7,087) - (214) 59,307
Other expense,
net (2,987) - - - (2,987)
--------- -------- ------- -------- ---------
Income (loss)
before
income
taxes 63,621 (7,087) - (214) 56,320
Provision for
income
taxes 22,342 (2,693) - (81) 19,568
--------- -------- ------- -------- ---------
Net income
(loss) $41,279 $(4,394) $- $(133) $36,752
========= ======== ======= ======== =========
Diluted earnings
(loss) per
share: $0.60 $(0.06) $- $(0.00) $0.54
Weighted-average
shares
outstanding: 68,643 68,643 68,643 68,643 68,643
CONTACT: Callaway Golf Company
Brad Holiday, Patrick Burke or Larry Dorman, 760-931-1771