Callaway Golf Announces Results for Second Quarter and First Six Months of 2005
CARLSBAD, Calif.--(BUSINESS WIRE)--July 21, 2005--Callaway Golf Company (NYSE:ELY) today announced its financial results for the quarter and six months ended June 30, 2005, reporting for the quarter consolidated net sales of $323.1 million, net income of $18.4 million, and fully diluted earnings per share of $0.27 on 68.7 million shares. Reported net income and earnings per share include after-tax charges associated with the integration of the Top-Flite operations acquired in late 2003 of $2.0 million and $0.03, respectively. Excluding these charges, the Company's pro forma net income and fully diluted earnings per share would have been $20.4 million and $0.30, respectively. Reported net sales, net income and fully diluted earnings per share for the same quarter in 2004 (which included after-tax integration charges of $6.7 million or $0.10 per share) were $297.9 million, $13.7 million and $0.20, respectively, on 68.4 million shares.
For the six months ended June 30, 2005, the Company reported consolidated net sales of $623.0 million, net income of $36.8 million, and fully diluted earnings per share of $0.54 on 68.6 million shares. Reported net income and earnings per share for the six-month period were reduced by $4.4 million and $0.06, respectively, due to Top-Flite integration charges. Excluding these charges, the Company's pro forma net income and fully diluted earnings per share for the six-month period were $41.2 million and $0.60, respectively. Reported net sales, net income and fully diluted earnings per share for the same period in 2004 (which included after-tax integration charges of $9.9 million or $0.15 per share) were $661.7 million, $54.3 million and $0.79, respectively, on 68.4 million shares.
Overall, the Company's sales improved during the second quarter of 2005 relative to the same period last year. The Company's products were generally well-received at retail and demand for the Company's products was strong, exceeding the Company's ability to supply some products. The Company's second quarter earnings were tempered by increased operating expenses related to brand investment and the timing of marketing expenses in support of second and third quarter new product launches. The Company does not expect to have product discounting issues in the second half of 2005 similar to those faced in 2004 and as a result anticipates significant year-over-year improvements in third quarter sales and earnings.
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 two hours after the conclusion, and will remain available through 9:00 p.m. PDT on July 28, 2005. 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 789761.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to future discounting and anticipated improvement in sales and earnings, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These 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 unanticipated costs in integrating the Top-Flite Golf and Callaway Golf assets, brands and businesses, the maintenance of good vendor relationships, adverse market and economic conditions, market acceptance of current and future products, adverse weather conditions and seasonality, competitive pressures, fluctuations in foreign currency exchange rates, delays, difficulties or increased costs in the manufacturing of the Company's golf club or ball products, or in the procurement of materials or resources needed to manufacture the Company's golf club or ball products, 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 or armed conflict 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, see Part I, Item 2 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 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 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 integration of the Callaway Golf Company and Top-Flite Golf Company operations. 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 the Top-Flite integration charges. The Company has provided reconciling information in the text of this press release.
Through an unwavering commitment to innovation, Callaway Golf Company 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,
2005 2004
---------- -------------
ASSETS
Current assets:
Cash and cash equivalents $42,656 $31,657
Accounts receivable, net 238,253 105,153
Inventories, net 193,361 181,230
Deferred taxes 36,644 32,959
Income taxes receivable 1,083 28,697
Other current assets 13,555 14,036
---------- -------------
Total current assets 525,552 393,732
Property, plant and equipment, net 132,070 135,865
Intangible assets, net 176,910 179,636
Deferred taxes 6,234 9,837
Other assets 16,447 16,667
---------- -------------
$857,213 $735,737
========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $122,105 $75,501
Accrued employee compensation and benefits 28,706 20,215
Accrued warranty expense 13,232 12,043
Line of credit 50,000 13,000
Other current liabilities 17 39
---------- -------------
Total current liabilities 214,060 120,798
Long-term liabilities 27,700 28,622
Shareholders' equity 615,453 586,317
---------- -------------
$857,213 $735,737
========== =============
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
June 30,
--------------------------
2005 2004
--------- ----------
Net sales $323,132 100% $297,908 100%
Cost of sales 176,399 55% 170,072 57%
--------- ----------
Gross profit 146,733 45% 127,836 43%
Operating expenses:
Selling expenses 90,640 28% 74,496 25%
General and administrative expenses 21,239 7% 21,834 7%
Research and development expenses 7,083 2% 7,559 3%
--------- ----------
Total operating expenses 118,962 37% 103,889 35%
Income from operations 27,771 9% 23,947 8%
Other expense, net (1,806) (1,592)
--------- ----------
Income before income taxes 25,965 8% 22,355 8%
Provision for income taxes 7,573 8,640
--------- ----------
Net income $18,392 6% $13,715 5%
========= ==========
Earnings per common share:
Basic $0.27 $0.20
Diluted $0.27 $0.20
Weighted-average shares outstanding:
Basic 68,270 67,788
Diluted 68,660 68,368
Six Months Ended
June 30,
--------------------------
2005 2004
--------- ----------
Net sales $622,989 100% $661,694 100%
Cost of goods sold 343,650 55% 367,667 56%
--------- ----------
Gross profit 279,339 45% 294,027 44%
Operating expenses:
Selling 166,385 27% 145,691 22%
General and administrative 40,324 6% 44,695 7%
Research and development 13,323 2% 15,668 2%
--------- ----------
Total operating expenses 220,032 35% 206,054 31%
Income from operations 59,307 10% 87,973 13%
Other expense, net (2,987) (1,321)
--------- ----------
Income before income taxes 56,320 9% 86,652 13%
Provision for income taxes 19,568 32,392
--------- ----------
Net income $36,752 6% $54,260 8%
========= ==========
Earnings per common share:
Basic $0.54 $0.80
Diluted $0.54 $0.79
Weighted-average shares outstanding:
Basic 68,226 67,536
Diluted 68,643 68,367
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
------------------
2005 2004
-------- ---------
Cash flows from operating activities:
Net income $36,752 $54,260
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 22,659 26,320
Non-cash compensation 3,957 2
Loss on disposal of long-lived assets 856 1,619
Tax benefit from exercise of stock options 269 1,832
Net non-cash foreign currency hedging losses -- 1,552
Deferred taxes (1,184) 5,972
Changes in assets and liabilities, net (67,368) (111,002)
-------- ---------
Net cash used in operating activities (4,059) (19,445)
-------- ---------
Cash flows from investing activities:
Capital expenditures (19,056) (7,739)
Proceeds from sale of capital assets 20 366
Business acquisitions, net of cash acquired -- (9,215)
-------- ---------
Net cash used in investing activities (19,036) (16,588)
-------- ---------
Cash flows from financing activities:
Net proceeds from line of credit 37,000 20,000
Issuance of Common Stock 3,560 16,691
Dividends paid, net (4,853) (4,728)
Acquisition of Treasury Stock (39) (6,298)
Payments on financing arrangements (22) (301)
-------- ---------
Net cash provided by financing activities 35,646 25,364
-------- ---------
Effect of exchange rate changes on cash and cash
equivalents (1,552) (926)
-------- ---------
Net increase (decrease) in cash and cash
equivalents 10,999 (11,595)
Cash and cash equivalents at beginning of period 31,657 47,340
-------- ---------
Cash and cash equivalents at end of period $42,656 $35,745
======== =========
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
Quarter Ended
June 30, Growth/(Decline)
------------------- ----------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
Woods $69,583 $75,436 $(5,853) -8%
Irons 111,686 87,047 24,639 28%
Putters 33,976 29,193 4,783 16%
Golf balls 70,759 74,531 (3,772) -5%
Accessories and other 37,128 31,701 5,427 17%
--------- --------- --------
$323,132 $297,908 $25,224 8%
========= ========= ========
Six Months Ended
June 30, Growth/(Decline)
------------------- -----------------
2005 2004 Dollars Percent
--------- --------- --------- -------
Net sales:
Woods $135,047 $199,234 $(64,187) -32%
Irons 219,634 183,493 36,141 20%
Putters 65,824 66,143 (319) 0%
Golf balls 129,792 146,627 (16,835) -11%
Accessories and other 72,692 66,197 6,495 10%
--------- --------- ---------
$622,989 $661,694 $(38,705) -6%
========= ========= =========
Net Sales by Region
Quarter Ended
June 30, Growth/(Decline)
------------------- ----------------
2005 2004 Dollars Percent
--------- --------- -------- -------
Net sales:
United States $181,453 $171,316 $10,137 6%
Europe 56,568 57,843 (1,275) -2%
Japan 30,274 16,630 13,644 82%
Rest of Asia 19,064 17,140 1,924 11%
Other foreign countries 35,773 34,979 794 2%
--------- --------- --------
$323,132 $297,908 $25,224 8%
========= ========= ========
Six Months Ended
June 30, Growth/(Decline)
------------------- -----------------
2005 2004 Dollars Percent
--------- --------- --------- -------
Net sales:
United States $366,554 $388,958 $(22,404) -6%
Europe 107,731 125,056 (17,325) -14%
Japan 55,127 48,335 6,792 14%
Rest of Asia 33,729 33,122 607 2%
Other foreign countries 59,848 66,223 (6,375) -10%
--------- --------- ---------
$622,989 $661,694 $(38,705) -6%
========= ========= =========
Operating Segment Information
Quarter Ended
June 30, Growth/(Decline)
------------------- -----------------
2005 2004 Dollars Percent
--------- --------- -------- --------
Net sales:
Golf clubs $252,373 $223,377 $28,996 13%
Golf balls 70,759 74,531 (3,772) -5%
--------- --------- --------
$323,132 $297,908 $25,224 8%
========= ========= ========
Income before provision for
income taxes: (1)
Golf clubs (2) $33,365 $32,659 $706 2%
Golf balls (2) 6,018 3,756 2,262 60%
Reconciling items (3) (13,418) (14,060) 642 5%
--------- --------- --------
$25,965 $22,355 $3,610 16%
========= ========= ========
Six Months Ended
June 30, Growth/(Decline)
------------------- ------------------
2005 2004 Dollars Percent
--------- --------- --------- --------
Net sales:
Golf clubs $493,197 $515,067 $(21,870) -4%
Golf balls 129,792 146,627 (16,835) -11%
--------- --------- ---------
$622,989 $661,694 $(38,705) -6%
========= ========= =========
Income before provision for
income taxes: (1)
Golf clubs $73,744 $111,502 $(37,758) -34%
Golf balls 7,744 2,109 5,635 267%
Reconciling items (2) (25,168) (26,959) 1,791 7%
--------- --------- ---------
$56,320 $86,652 $(30,332) -35%
========= ========= =========
(1) Prior period amounts have been reclassified to conform with
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 June 30,
-----------------------------------
2005
-----------------------------------
Pro Forma Integration Total as
Callaway Charges Reported
Golf
---------- ----------- ----------
Net sales $323,132 $- $323,132
Gross profit 148,027 (1,294) 146,733
% of sales 46% n/a 45%
Operating expenses 116,996 1,966 118,962
--------- ---------- ---------
Income (loss) from operations 31,031 (3,260) 27,771
Other income (expense), net (1,806) - (1,806)
--------- ---------- ---------
Income (loss) before income taxes 29,225 (3,260) 25,965
Provision for income taxes 8,812 (1,239) 7,573
--------- ---------- ---------
Net income (loss) $20,413 $(2,021) $18,392
========= ========== =========
Diluted earnings (loss) per share: $0.30 $(0.03) $0.27
Weighted-average shares
outstanding: 68,660 68,660 68,660
Quarter Ended June 30,
----------------------------------
2004
----------------------------------
Pro Forma Integration Total as
Callaway Charges Reported
Golf
---------- ----------- ---------
Net sales $297,908 $- $297,908
Gross profit 133,704 (5,868) 127,836
% of sales 45% n/a 43%
Operating expenses 99,069 4,820 103,889
--------- ---------- ---------
Income (loss) from operations 34,635 (10,688) 23,947
Other income (expense), net (1,592) - (1,592)
--------- ---------- ---------
Income (loss) before income taxes 33,043 (10,688) 22,355
Provision for income taxes 12,658 (4,018) 8,640
--------- ---------- ---------
Net income (loss) $20,385 $(6,670) $13,715
========= ========== =========
Diluted earnings (loss) per share: $0.30 $(0.10) $0.20
Weighted-average shares
outstanding: 68,368 68,368 68,368
Six Months Ended June 30,
----------------------------------
2005
----------------------------------
Pro Forma Integration Total as
Callaway Charges Reported
Golf
---------- ----------- ---------
Net sales $622,989 $- $622,989
Gross profit 283,716 (4,377) 279,339
% of sales 46% n/a 45%
Operating expenses 217,322 2,710 220,032
--------- ---------- ---------
Income (loss) from operations 66,394 (7,087) 59,307
Other income (expense), net (2,987) - (2,987)
--------- ---------- ---------
Income (loss) before income taxes 63,407 (7,087) 56,320
Provision for income taxes 22,261 (2,693) 19,568
--------- ---------- ---------
Net income (loss) $41,146 $(4,394) $36,752
========= ========== =========
Diluted earnings (loss) per share: $0.60 $(0.06) $0.54
Weighted-average shares
outstanding: 68,643 68,643 68,643
Six Months Ended June 30,
----------------------------------
2004
----------------------------------
Pro Forma Integration Total as
Callaway Charges Reported
Golf
---------- ----------- ---------
Net sales $661,694 $- $661,694
Gross profit 303,365 (9,338) 294,027
% of sales 46% n/a 44%
Operating expenses 199,596 6,458 206,054
--------- ---------- ---------
Income (loss) from operations 103,769 (15,796) 87,973
Other income (expense), net (1,321) - (1,321)
--------- ---------- ---------
Income (loss) before income taxes 102,448 (15,796) 86,652
Provision for income taxes 38,297 (5,905) 32,392
--------- ---------- ---------
Net income (loss) $64,151 $(9,891) $54,260
========= ========== =========
Diluted earnings (loss) per share: $0.94 $(0.15) $0.79
Weighted-average shares
outstanding: 68,367 68,367 68,367
CONTACT: Callaway Golf CompanyBrad Holiday, Patrick Burke, Larry Dorman, 760-931-1771
SOURCE: Callaway Golf Company
