CARLSBAD, Calif.--(BUSINESS WIRE)--Oct. 29, 2009 -- Callaway Golf Company (NYSE:ELY) today announced its financial results for the third quarter and first nine months ended September 30, 2009, consistent with the preliminary results released on October 15^th, 2009.

For the third quarter, the Company reported:

• Net sales of $191 million, a decrease of 11% compared to $213 million for the third quarter of 2008. On a currency neutral basis, net sales would have been $194 million, a decrease of 9% compared to the third quarter of 2008.
• Gross profit of $60 million (31% of net sales) compared to gross profit of $80 million (38% of net sales) in the third quarter of 2008.
• Operating expenses of $85 million (45% of net sales) compared to $93 million (43% of net sales) for the same period in 2008.
• A loss of $0.25 per share (on 63.2 million shares outstanding), compared to a loss of $0.12 per share (on 62.5 million shares outstanding) in 2008. The loss per share for the third quarter of 2009 was adversely affected by $0.01 per share associated with the Company’s gross margin initiatives and $0.04 per share dilution related to the Company's preferred stock issuance. The loss per share for the third quarter of 2008 included after-tax charges of $0.04 per share for the gross margin initiatives.

For the first nine months, the Company reported:

• Net sales of $765 million, a decrease of 19% compared to $946 million for the same period last year. On a currency neutral basis, net sales would have been $810 million, a decrease of 14% compared to the first nine months of 2008.
• Gross profit of $286 million (37% of net sales) compared to $427 million (45% of net sales) for 2008.
• Operating expenses of $287 million (38% of net sales) compared to $314 million (33% of net sales) for 2008.
• A loss per share of $0.04 (on 63.1 million shares outstanding) compared to fully diluted earnings per share of $1.08 (on 64.0 million shares outstanding) for 2008. The loss per share for the first nine months of 2009 was adversely affected by $0.04 per share associated with the Company’s gross margin initiatives and $0.05 per share dilution related to the Company's preferred stock issuance. Fully diluted earnings per share for the first nine months of 2008 included after-tax charges of $0.09 per share for the gross margin initiatives.

“While market conditions have been challenging this year, we have managed our business in such a way that we have gained market share in all club categories, managed our expenses responsibly and invested in a few important growth initiatives that should position Callaway Golf to grow when the economy begins to rebound,” commented George Fellows, President and CEO. “We are already seeing some improvement in global economic conditions and a lessening of the negative impact of foreign currency exchange rates. Furthermore, initial feedback on our 2010 new products has been positive, our supply chain continues to improve, and the many actions we’ve taken this year, together with our increased market share base, should position us to generate a meaningful turnaround and return to profitability next year.”

Business Outlook

The Company estimates sales for the year will be down approximately 16% due to the challenging economic and market environment in addition to unfavorable foreign currency exchange rates. Gross margins for the year are now estimated to be approximately 37% compared to the Company’s prior estimate of 38% - 40%, due to higher than expected participation rates on second and third quarter sales promotions. Operating expenses for the year are still anticipated to be approximately $370 - $380 million as compared to $403 million in 2008. This estimate includes increased expenses in 2009 resulting from investments in the Company’s business including the uPro acquisition, costs related to reductions in workforce, and international expansion. The Company estimates a full year loss per share of $0.30 to $0.35 which includes after tax charges of $0.05 per share for gross margin initiatives and approximately $0.09 per share of dilution associated with the Company’s preferred equity.

Conference Call and Webcast

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 call ends, and will remain available through 9:00 p.m. PST on Thursday, November 5, 2009. 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 36067055.

* * * * *

Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to an economic recovery, future growth, improvement in foreign currency exchange rates, acceptance of 2010 products, a turnaround and return to profitability in 2010, and estimated 2009 sales, gross margins, operating expenses, and loss per share, 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 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 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 the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 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.

Currency Neutral Basis: This press release includes information regarding certain aspects of the Company’s financial results for the third quarter and first nine months of 2009 that is presented on a “currency neutral basis.” This information estimates the impact of the effect of foreign currency translation on the Company’s 2009 results as compared to the same period in 2008. This impact is derived by taking the Company’s 2009 local currency results and translating them into U.S. dollars based upon 2008 foreign currency exchange rates for the periods presented and does not include any other effect of changes in foreign currency rates on the Company’s results.

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 include certain financial measures not prepared in accordance with GAAP. The non-GAAP financial measures included in this press release present certain of the Company’s financial results on a “currency neutral basis.” 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 changes in foreign currency exchange rates. The Company has provided reconciling information in the text of 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®, Odyssey®, Top-Flite®, Ben Hogan® and uPro™ 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,
			2009			2008
ASSETS
Current assets:
	Cash and cash equivalents		$	104,677		$	38,337
	Accounts receivable, net			154,998			120,067
	Inventories			198,734			257,191
	Deferred taxes, net			37,376			27,046
	Income taxes receivable			-			15,549
	Other current assets			22,197			31,813
	Total current assets			517,982			490,003
Property, plant and equipment, net				147,660			142,145
Intangible assets, net				174,824			176,689
Other assets				53,563			46,501
	Total assets		$	894,029		$	855,338
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	110,029		$	126,167
	Accrued employee compensation and benefits			21,230			25,630
	Accrued warranty expense			10,037			11,614
	Line of Credit			-			90,000
	Other current liabilities			5,091			-
	Total current liabilities			146,387			253,411
Long-term liabilities				20,603			21,559
Shareholders' equity				727,039			580,368
	Total liabilities and shareholders' equity		$	894,029		$	855,338

 

Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
				Quarter Ended
				September 30,
					2009				2008
Net sales				$	190,864			$	213,451
Cost of sales					131,287				133,320
Gross profit					59,577				80,131
Operating expenses:
	Selling				56,972				65,730
	General and administrative				20,452				20,201
	Research and development				7,727				6,650
		Total operating expenses			85,151				92,581
Income (loss) from operations					(25,574	)			(12,450	)
Other income (expense), net					837				(1,669	)
Income (loss) before income taxes					(24,737	)			(14,119	)
Income tax provision (benefit)					(11,308	)			(6,676	)
Net income (loss)					(13,429	)			(7,443	)
Dividends on convertible preferred stock					2,625				-
Net income (loss) allocable to common shareholders				$	(16,054	)		$	(7,443	)
Earnings (loss) per common share:
	Basic				($0.25	)			($0.12	)
	Diluted				($0.25	)			($0.12	)
Weighted-average common shares outstanding:
	Basic				63,240				62,494
	Diluted				63,240				62,494
				Nine Months Ended
				September 30,
					2009				2008
Net sales				$	764,947			$	945,932
Cost of sales					479,341				519,187
Gross profit					285,606				426,745
Operating expenses:
	Selling				204,016				226,352
	General and administrative				59,797				65,480
	Research and development				23,667				22,112
Total operating expenses					287,480				313,944
Income (loss) from operations					(1,874	)			112,801
Other expense, net					(1,032	)			(3,574	)
Income (loss) before income taxes					(2,906	)			109,227
Income tax provision (benefit)					(3,201	)			39,897
Net income (loss)					295				69,330
Dividends on convertible preferred stock					3,063				-
Net income (loss) allocable to common shareholders				$	(2,768	)		$	69,330
Earnings (loss) per common share:
	Basic				($0.04	)		$	1.10
	Diluted				($0.04	)		$	1.08
Weighted-average common shares outstanding:
	Basic				63,120				63,187
	Diluted				63,120				64,029

 

Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
			Nine Months Ended
			September 30,
				2009				2008
Cash flows from operating activities:
	Net income		$	295			$	69,330
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			30,244				28,747
	Deferred taxes, net			(12,147	)			2,117
	Non-cash share-based compensation			6,653				5,044
	Gain on disposal of long-lived assets			(574	)			(435	)
	Changes in assets and liabilities			32,905				(44,461	)
	Net cash provided by operating activities			57,376				60,342
Cash flows from investing activities:
	Capital expenditures			(29,782	)			(33,506	)
	Other investing activities			103				42
	Net cash used in investing activities			(29,679	)			(33,464	)
Cash flows from financing activities:
	Issuance of preferred stock			140,000				-
	Equity issuance costs			(5,923	)			-
	Issuance of common stock			2,562				4,708
	Dividends paid, net			(8,326	)			(8,951	)
	Acquisition of treasury stock			-				(22,970	)
	Proceeds from (payments on) credit facilities, net			(90,000	)			3,493
	Other financing activities			40				(223	)
	Net cash provided by (used in) financing activities			38,353				(23,943	)
Effect of exchange rate changes on cash and cash equivalents				290				(2,168	)
Net increase in cash and cash equivalents				66,340				767
Cash and cash equivalents at beginning of period				38,337				49,875
Cash and cash equivalents at end of period			$	104,677			$	50,642

 

Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
		Quarter Ended																			Nine Months Ended
		September 30,								Growth/(Decline)											September 30,								Growth/(Decline)
			2009				2008			Dollars				Percent								2009				2008			Dollars				Percent
Net sales:																		Net sales:
	Woods	$	35,746			$	34,499			$	1,247			4	%				Woods		$	191,584			$	237,043			$	(45,459	)		-19	%
	Irons		49,371				63,768				(14,397	)		-23	%				Irons			186,780				260,311				(73,531	)		-28	%
	Putters		17,099				21,305				(4,206	)		-20	%				Putters			71,211				88,793				(17,582	)		-20	%
	Golf balls		40,896				48,413				(7,517	)		-16	%				Golf balls			146,489				181,081				(34,592	)		-19	%
	Accessories and other		47,752				45,466				2,286			5	%				Accessories and other			168,883				178,704				(9,821	)		-5	%
		$	190,864			$	213,451			$	(22,587	)		-11	%						$	764,947			$	945,932			$	(180,985	)		-19	%
Net Sales by Region
		Quarter Ended																			Nine Months Ended
		September 30,								Growth/(Decline)											September 30,								Growth/(Decline)
			2009				2008			Dollars				Percent								2009				2008			Dollars				Percent
Net sales:																		Net sales:
	United States	$	93,867			$	104,595			$	(10,728	)		-10	%				United States		$	398,889			$	465,053			$	(66,164	)		-14	%
	Europe		27,010				33,371				(6,361	)		-19	%				Europe			112,489				171,285				(58,796	)		-34	%
	Japan		29,137				32,825				(3,688	)		-11	%				Japan			113,593				132,723				(19,130	)		-14	%
	Rest of Asia		20,981				18,497				2,484			13	%				Rest of Asia			58,833				67,029				(8,196	)		-12	%
	Other foreign countries		19,869				24,163				(4,294	)		-18	%				Other foreign countries			81,143				109,842				(28,699	)		-26	%
		$	190,864			$	213,451			$	(22,587	)		-11	%						$	764,947			$	945,932			$	(180,985	)		-19	%
Operating Segment Information
		Quarter Ended																			Nine Months Ended
		September 30,								Growth/(Decline)											September 30,								Growth/(Decline)
			2009				2008			Dollars				Percent								2009				2008			Dollars				Percent
Net sales:																		Net sales:
	Golf clubs	$	149,968			$	165,038			$	(15,070	)		-9	%				Golf clubs		$	618,458			$	764,851			$	(146,393	)		-19	%
	Golf balls		40,896				48,413				(7,517	)		-16	%				Golf balls			146,489				181,081				(34,592	)		-19	%
		$	190,864			$	213,451			$	(22,587	)		-11	%						$	764,947			$	945,932			$	(180,985	)		-19	%
Income (loss) before income taxes:																		Income (loss) before income taxes:
	Golf clubs	$	(7,501	)		$	2,825			$	(10,326	)		-366	%				Golf clubs		$	46,149			$	146,192			$	(100,043	)		-68	%
	Golf balls		(4,236	)			(2,654	)			(1,582	)		-60	%				Golf balls			(6,900	)			10,048				(16,948	)		-169	%
	Reconciling items (1)		(13,000	)			(14,290	)			1,290			9	%				Reconciling items (1)			(42,155	)			(47,013	)			4,858			10	%
		$	(24,737	)		$	(14,119	)		$	(10,618	)		-75	%						$	(2,906	)		$	109,227			$	(112,133	)		-103	%
(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 September 30,													Quarter Ended September 30,
		2009													2008
		Pro Forma Callaway Golf				Gross Margin Improvement Initiatives				Total as Reported					Pro Forma Callaway Golf				Gross Margin Improvement Initiatives				Total as Reported
Net sales		$	190,864			$	-			$	190,864				$	213,451			$	-			$	213,451
Gross profit			60,489				(912	)			59,577					83,764				(3,633	)			80,131
% of sales			32	%			n/a				31	%				39	%			n/a				38	%
Operating expenses			85,151				-				85,151					92,607				(26	)			92,581
Income (loss) from operations			(24,662	)			(912	)			(25,574	)				(8,843	)			(3,607	)			(12,450	)
Other income (loss), net			837				-				837					(1,669	)			-				(1,669	)
Income (loss) before income taxes			(23,825	)			(912	)			(24,737	)				(10,512	)			(3,607	)			(14,119	)
Income tax provision (benefit)			(10,956	)			(352	)			(11,308	)				(5,288	)			(1,388	)			(6,676	)
Net income (loss)			(12,869	)			(560	)			(13,429	)				(5,224	)			(2,219	)			(7,443	)
Dividends on convertible preferred stock			2,625				-				2,625					-				-				-
Net income (loss) allocable to common shareholders		$	(15,494	)		$	(560	)		$	(16,054	)			$	(5,224	)		$	(2,219	)		$	(7,443	)
Diluted earnings (loss) per share:		$	(0.24	)		$	(0.01	)		$	(0.25	)			$	(0.08	)		$	(0.04	)		$	(0.12	)
Weighted-average shares outstanding:			63,240				63,240				63,240					62,494				62,494				62,494
		Nine Months Ended September 30,													Nine Months Ended September 30,
		2009													2008
		Pro Forma Callaway Golf				Gross Margin Improvement Initiatives				Total as Reported					Pro Forma Callaway Golf				Gross Margin Improvement Initiatives				Total as Reported
Net sales		$	764,947			$	-			$	764,947				$	945,932			$	-			$	945,932
Gross profit			289,888				(4,282	)			285,606					436,166				(9,421	)			426,745
% of sales			38	%			n/a				37	%				46	%			n/a				45	%
Operating expenses			287,480				-				287,480					313,850				94				313,944
Income (loss) from operations			2,408				(4,282	)			(1,874	)				122,316				(9,515	)			112,801
Other expense, net			(1,032	)			-				(1,032	)				(3,574	)			-				(3,574	)
Income (loss) before income taxes			1,376				(4,282	)			(2,906	)				118,742				(9,515	)			109,227
Income tax provision (benefit)			(1,552	)			(1,649	)			(3,201	)				43,560				(3,663	)			39,897
Net income (loss)			2,928				(2,633	)			295					75,182				(5,852	)			69,330
Dividends on convertible preferred stock			3,063				-				3,063					-				-				-
Net income (loss) allocable to common shareholders		$	(135	)		$	(2,633	)		$	(2,768	)			$	75,182			$	(5,852	)		$	69,330
Diluted earnings (loss) per share:		$	(0.00	)		$	(0.04	)		$	(0.04	)			$	1.17			$	(0.09	)		$	1.08
Weighted-average shares outstanding:			63,120				63,120				63,120					64,029				64,029				64,029

 

Adjusted EBITDA:
		2009 Trailing Twelve Months Adjusted EBITDA																					2008 Trailing Twelve Months Adjusted EBITDA
		Quarter Ended																					Quarter Ended
		December 31,				March 31,				June 30,			September 30,										December 31,				March 31,			June 30,			September 30,
			2008				2009				2009			2009			Total							2007				2008			2008			2008			Total
Net income (loss)		$	(3,154	)		$	6,812			$	6,912		$	(13,429	)		$	(2,859	)				$	(16,157	)		$	39,666		$	37,107		$	(7,443	)		$	53,173
Interest expense (income), net			272				(123	)			551			(46	)			654						(216	)			591			994			497				1,866
Income tax provision (benefit)			(4,766	)			4,248				3,859			(11,308	)			(7,967	)					(12,415	)			25,990			20,583			(6,676	)			27,482
Depreciation and amortization expense			9,216				9,944				10,172			10,128				39,460						7,862				8,794			10,490			9,463				36,609
Change in energy derivative valuation acct.			(19,922	)			-				-			-				(19,922	)					-				-			-			-				-
Adjusted EBITDA		$	(18,354	)		$	20,881			$	21,494		$	(14,655	)		$	9,366					$	(20,926	)		$	75,041		$	69,174		$	(4,159	)		$	119,130

 

 

Source: Callaway Golf Company

Callaway Golf Company
Brad Holiday
Eric Struik
Tim Buckman
(760) 931-1771