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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 15, 2004
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 (I.R.S. Employer
of Incorporation) File Number) Identification No.)
2180 Rutherford Road
Carlsbad, CA 92008-7328
(Address of Principal Executive Offices)
(760) 931-1771
(Registrant's Telephone Number, Including Area Code)
Item 9. Regulation FD Disclosure.*
On June 15, 2004, Callaway Golf Company issued a press release
captioned "Callaway Golf Lowers Guidance for 2004; Conference Call Scheduled to
Discuss Business Trends." A copy of the press release is attached hereto as
Exhibit 99.1 and incorporated herein by this reference.
* The information furnished under Item 9 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 filing under the Securities Act of 1933, as amended, except
as shall be expressly set forth by specific reference in such filing.
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SIGNATURE
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.
Date: June 15, 2004
CALLAWAY GOLF COMPANY
By: /s/ Bradley J. Holiday
--------------------------------------------
Name: Bradley J. Holiday
Title: Senior Executive Vice President
and Chief Financial Officer
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Exhibit Index
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Exhibit Number Description of Exhibit
- -------------- ----------------------
99.1 Press release dated June 15, 2004, captioned "Callaway
Golf Lowers Guidance for 2004; Conference Call Scheduled
to Discuss Business Trends."
Exhibit 99.1
Callaway Golf Lowers Guidance for 2004;
Conference Call Scheduled to Discuss Business Trends
CARLSBAD, Calif.--(BUSINESS WIRE)--June 15, 2004--Callaway Golf
Company (NYSE:ELY) today announced that it is reducing its revenue and
earnings guidance in light of weakening sales trends. Key factors
causing the lowered expectations include the underperformance at
retail of its titanium driver models, a continuing decline in business
in Japan, and revised expectations for a bigger than expected loss
from its Top-Flite operations. These negatives are not expected to be
offset by better than forecasted results in other parts of the
business.
The Company reported that strong first quarter Callaway Golf wood
sales (up 32% from the previous year) had not been followed by the
expected rate of sell-through at retail by its titanium driver models,
particularly its moderately priced Big Bertha titanium drivers. These
products had constituted a sizable portion of the Company's expected
volume in woods for the year. The Company has observed recently a
slowing of retail sales for these products, resulting in a reduction
in re-orders. As a result, second quarter wholesale sales are lagging
behind expectations, and sales forecasts for the remainder of the year
have been reduced. Moreover, the change in overall product mix and the
need for competitive sales programs to match those being offered by
other manufacturers are expected to cause a significant drop in gross
profits for the business as a whole.
"As we said at the end of the first quarter, and as is the case
every year, a key to our success is the rate of sell-through in the
second quarter and the resulting re-orders," said Ron Drapeau,
Chairman and CEO. "Unfortunately, retail sales of our titanium drivers
in the second quarter of 2004 have been negatively affected by two
factors. First, this segment of the market continues to see retail
pricing weaken as it is plagued by heavily discounted and closeout
competitor products that have not moved through the channels. Recently
introduced competitor product that was selling for about $399 only
months ago is advertised today at $199 or even lower. This price
compression has reduced the amount of titanium driver business being
transacted at retail prices above $300, negatively impacting sales of
our Great Big Bertha II models. It has also placed a lot of closeout
or markdown product, including recently introduced premium brand name
titanium product, into the marketplace at lower price points where it
competes with our Big Bertha drivers. Second, there appears to be a
preference among consumers in this product segment for super-oversized
drivers approaching the USGA head size limit of 460cc's. Our Big
Bertha and Great Big Bertha II drivers have smaller head sizes (360
and 380 cc's, respectively) and are coming under pressure in the
marketplace. At this point, they have not developed the expected
traction in this competitive set. We are concerned about the current
environment and expect a significant shortfall in sales and earnings
as a result."
"To address these issues," Mr. Drapeau continued, "we have already
gone to the market with some reduced pricing and aggressive sales
programs, including programs directed at stimulating sell-through at
retail. We hope to see some benefits from these actions in the third
quarter, but will continue to monitor sell-through and take additional
actions later in the year, if necessary. At the same time, we are
undertaking certain actions in our business that will improve our
product design, development and supply process to make it more
responsive and efficient, and otherwise take significant costs out of
the organization. Some of these actions are expected to result in
charges this year, but those charges will be offset, at least in
significant part, with savings in the last part of this year and for
the full year beginning January 1, 2005."
The Company further announced that its business in Japan had
continued to decline from disappointing first quarter results.
Moreover, the Company reported that its business in all foreign
markets is being adversely impacted both by local economic issues and
currency fluctuations that in turn impact pricing. Currently, sales in
Japan are expected to be as much as 20 to 25% below 2003 levels.
"Japan continues to be a struggle for us," reported Mr. Drapeau. "We
are evaluating product and operational changes, and will advise
shareholders of a timetable for improving this business over the next
several months."
At Top-Flite Golf Company, the new management team which took over
following the acquisition of this business from bankruptcy in
September of 2003 is continuing with its restructuring of the
business. In addition to changes in sales and operations that were
announced previously, management intends to rationalize the current
product line to eliminate products and/or models that do not deliver
appropriate returns. This action will cause a reduction in expected
revenues for the year, resulting in losses for the full year roughly
in line with the losses reported for the partial year (3.5 months) of
operations in 2003. On a broader perspective, cost savings achieved by
moving the bulk of the manufacturing operations for Callaway Golf
branded golf balls to Top-Flite are expected to result in the
elimination of all losses from that business and the generation of an
annual profit from that business for the first time since launch in
2000. This contribution to Callaway Golf's ball business is expected
to be at least $0.26 per fully diluted share, more than offsetting the
losses in the Top-Flite stand-alone business and making the
acquisition as a whole accretive in its first year.
As noted above, integration efforts at Top-Flite are continuing.
The consolidation of operations in Australia is complete, and
consolidation in Canada and Europe is expected to be completed by
year-end. This integration of overseas operations is expected to
generate about $5 million in annual savings beginning in 2005, while
also improving service and support in these regions. Changes
implemented at Top-Flite's headquarters have improved manufacturing
costs and reduced overhead, with expected additional annual savings of
about $4 million beginning in 2005.
"Top-Flite is a strong brand anchored by good, low cost
manufacturing operations," said Mr. Drapeau. "Unfortunately, it has
been operated in recent years to service crushing debt payments rather
than to build a sustainable business model with adequate returns. We
are making the necessary changes to the business and the product line
this year so Top-Flite can again assume its historical role as a
leading golf brand. In the meantime, we are seeing immediate rewards
in our Callaway Golf ball business from the integration of
manufacturing operations."
Balancing the negative news somewhat, the Company expects to
report that sales of its flagship ERC Fusion drivers and fairway woods
will have exceeded expectations in the second quarter and for the
first half of the year, and it expects to maintain its market-leading
position in the U.S. in irons and putters. In addition, the Company
expects to report that its Callaway Golf ball business will again
report a profitable quarter, with sales strongly up year-over-year due
in part to consumer demand for the new HX Tour golf ball. However,
these gains are not expected to offset fully the downsides now
forecasted in the titanium woods business. Cash flow for the year is
expected to remain positive, with net cash from operations of more
than $60 million and a cash position at year-end of more than $55
million, with essentially no debt.
"We remain committed to regaining our leadership position in the
woods market," continued Mr. Drapeau. "While there is no doubt that
this turn of events is a setback in our timetable for achieving this
goal, there is equally no doubt that we intend to focus our resources
and skills on defending our position in the market, protecting our
brands, and fighting for our share of the business. We have a strong
financial foundation that has produced industry-leading profit
margins, and can use that foundation to address these challenges and
move forward in 2005."
BUSINESS OUTLOOK
In light of SEC Regulations, the Company elects to provide certain
forward-looking information in this press release. These statements
are based on current information and expectations, and actual results
may differ materially. The Company undertakes no obligation to update
this information. Earnings estimates are based upon an estimated fully
diluted weighted average shares outstanding of 68.5 million. See
further disclaimer below.
The Company currently expects second quarter net sales to be in a
range between $290 and $295 million, with fully diluted earnings per
share to be in a range between $0.10 and $0.14, including integration
charges of approximately $0.09 per share. This second quarter estimate
includes losses at Top-Flite of about $0.01 per share. Company gross
profits as a percentage of sales, including integration charges, are
expected to be in the 42% range (44% range excluding integration
charges), reflecting the dilutive effect of lower margin Top-Flite
sales and the impact of the new sales programs instituted in the
Callaway Golf business.
The Company no longer expects to reach its earlier annual guidance
estimates of between $1.00 and $1.06 billion in net sales and fully
diluted earnings per share between $0.82 and $0.97, including
integration charges of approximately $0.33 per share. The Company is
therefore revising its annual guidance estimates downward to between
$975 and $990 million in net sales and between $0.15 and $0.25 fully
diluted earnings per share, including estimated integration charges of
approximately $0.25 per share. This annual guidance includes expected
losses at Top-Flite of between $0.10 and $0.14 per share. Company
gross profits including integration charges are expected to be in the
41% range (43% range excluding integration charges), again reflecting
the impact of Top-Flite sales and the new Callaway Golf sales
programs. For additional details concerning the Company's current
forecast for the year, please refer to the attachment "Supplemental
2004 Forecast Information" included at the end of this press release.
"The dynamics of our business have changed very suddenly following
strong first quarter sales, making it very difficult to make
predictions," said Mr. Drapeau. "Whether we hit, exceed or miss these
expectations will depend upon a number of factors, including business
conditions in general, the competitive actions of other manufacturers,
and the success of our programs and efforts. We currently expect to be
able to provide further guidance for the remainder of 2004 at the time
we announce final second quarter results in July."
"We have built into our 2004 forecast a significant level of
expenditures and costs reflecting our intention to compete
aggressively in the back half of the year," Mr. Drapeau continued.
"The game has changed, and we are adapting and will continue to be a
significant force going forward. We have focused on protecting the
market from irrational behavior for the past three years. But we will
no longer sit on the sideline and allow our share to dissipate. By the
time 2005 begins, we will have addressed these pricing and product
issues and will be positioned to move forward toward our goal of
recapturing our historical leadership position in the woods market
segment. In 2005 we will be going after growth in revenue and market
share, with expected margins that are better than those currently
forecasted for 2004, but less than historical levels due to the
dilutive effect of the lower margin Top-Flite business, further growth
in our Callaway Golf ball business, and price compression in the
premium wood business."
The Company will be holding a conference call at 2:30 p.m. PDT
today, which will be hosted by Ron Drapeau, Chairman and CEO, and Brad
Holiday, Senior Executive Vice President and Chief Financial Officer.
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 web
site 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 of the conference call, and available through 5:00 p.m. PDT
on June 22, 2004. The replay may be accessed through the Internet at
www.callawaygolf.com or by telephone by calling (800) 642-1687 for
calls originating within the United States or (706) 645-9291 for
International calls. The replay pass code is 8170618.
Disclaimer: Statements used in this press release that relate to
future plans, events, financial results or performance, including (i)
the information set forth in the supplemental 2004 forecast
information accompanying this press release, (ii) the statements under
the Business Outlook section relating to estimated future sales,
earnings, gross profits, Top-Flite losses and estimated integration
charges and (iii) statements elsewhere in the press release regarding
future product sales, profitability or market share, estimated sales
in specifically identified regions, the projected decline in sales,
gross profits and earnings, the implementation of and benefits/savings
to be derived from the programs and other business initiatives
discussed in this release, the estimated completion dates of or
savings to be derived from the Top-Flite consolidation and
integration, the estimated sales, losses, performance or contribution
of the Top-Flite business or the Callaway Golf ball business
(including the estimated elimination of losses in that business), and
the projected cash flow or cash or debt balances, 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, 2004, 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 information contained in this press release
(including the accompanying supplemental 2004 forecast information)
includes certain financial measures not prepared in accordance with
accounting principles generally accepted in the United States
("GAAP"). The non-GAAP financial measures include estimated results
for the Callaway Golf and Top-Flite businesses, separately and
combined, both excluding integration charges, although such businesses
are not reportable business segments. This non-GAAP financial
information should not be considered a substitute for any measure
derived in accordance with GAAP and may be inconsistent with the
manner in which similar measures are derived or used by other
companies. Management believes that the presentation of such estimated
non-GAAP financial measures, when considered in conjunction with the
most directly comparable estimated GAAP financial measures, provides
insight into the basis for management's estimated GAAP financial
measures. The supplemental information includes a reconciliation of
the non-GAAP financial measures to the most directly comparable
financial measures prepared in accordance with GAAP.
Callaway Golf Company makes and sells Big Bertha(R) Metal Woods
and Irons, including ERC(R) Fusion(R) Drivers and Fairway Woods, Great
Big Bertha(R) II Titanium Drivers and Fairway Woods, Great Big Bertha
II 415 Titanium Drivers, Big Bertha Titanium Drivers and Big Bertha
Stainless Steel Fairway Woods, Hawk Eye(R) VFT(R) Tungsten
Injected(TM) Titanium Irons, Big Bertha Stainless Steel Irons,
Steelhead X-16(R) and Steelhead X-16 Pro Series Stainless Steel Irons,
Game Enjoyment System(TM) (GES(TM)), Callaway Golf Forged+ Wedges and
Callaway Golf Forged Wedges, and Callaway Golf Tour Blue(TM) Putters.
Callaway Golf Company also makes and sells Odyssey(R) Putters,
including White Hot(R), TriHot(R), DFX(R) and Dual Force(R) Putters.
Callaway Golf Company makes and sells the Callaway Golf(R) HX(R) Tour
balls, HX Blue and HX Red balls, Big Bertha(TM) Blue and Big Bertha
Red balls, and the Warbird(TM) balls. Callaway Golf also owns and
operates The Top-Flite Golf Company, a wholly owned subsidiary that
includes the Top-Flite(R), Strata(R) and Ben Hogan(R) brands. For more
information about Callaway Golf Company, please visit our websites at
www.callawaygolf.com, www.topflite.com and www.odysseygolf.com.
Callaway Golf Company
Supplemental 2004 Forecast Information
(in millions, except per share data)
(Unaudited)
Callaway On-Going
Golf Top-Flite Operations Integration Total(a)
------------------------------------------------
Net Sales $772.5 $210.0 $982.5 $0.0 $975-$990
Gross Profit 348.8 71.5 420.3 (15.2) 405.1
% of Sales 45% 34% 43% N/A 41%
Operating Expenses 281.6 85.2 366.8 12.9 379.7
------------------------------------------------
Income From Operations 67.2 (13.7) 53.5 (28.1) 25.4
Other Income
(Expense), Net (2.4) - (2.4) - (2.4)
------------------------------------------------
Income Before Income
Taxes 64.8 (13.7) 51.1 (28.1) 23.0
Net Income $39.4 ($8.3) $31.0 ($17.1) $14.0
================================================
Diluted Earnings Per
Share $0.57 ($0.12) $0.45 ($0.25)$0.15-$0.25
Weighted Avg Shares
Outstanding 68.5 68.5 68.5 68.5 68.5
(a) The Company's estimated results are based upon an estimated
range for each line item shown in this chart. For purposes of
illustration only, however, the Company has provided what is generally
the mid-point of the estimated ranges, except with respect to Total
Net Sales and Total Diluted Earnings Per Share. The Company's actual
results for a line item may differ from the mid-point and still be
within the Company's estimated range.
ESTIMATES ARE BASED UPON CURRENT INFORMATION AND EXPECTATIONS;
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE ESTIMATES AS A
RESULT OF CERTAIN RISKS AND UNCERTAINTIES AS DESCRIBED IN THE
ACCOMPANYING PRESS RELEASE AND DISCLAIMER.
CONTACT: Callaway Golf Company
Ron Drapeau, Brad Holiday, Larry Dorman, 760-931-1771