Callaway Golf Company Announces 2009 Third Quarter and Nine Month Results
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CARLSBAD, Calif.--(BUSINESS WIRE)-- 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 15th, 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(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
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 290 (2,168 )
equivalents
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 47,752 45,466 2,286 5 % Accessories 168,883 178,704 (9,821 ) -5 %
and other and other
$ 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 $ 93,867 $ 104,595 $ (10,728 ) -10 % United $ 398,889 $ 465,053 $ (66,164 ) -14 %
States States
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 20,981 18,497 2,484 13 % Rest of 58,833 67,029 (8,196 ) -12 %
Asia Asia
Other Other
foreign 19,869 24,163 (4,294 ) -18 % foreign 81,143 109,842 (28,699 ) -26 %
countries countries
$ 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 Income
(loss) (loss)
before before
income income
taxes: 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 (13,000 ) (14,290 ) 1,290 9 % Reconciling (42,155 ) (47,013 ) 4,858 10 %
items (1) items (1)
$ (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 Gross Pro Forma Gross
Callaway Margin Total as Callaway Margin Total as
Golf Improvement Reported Golf Improvement Reported
Initiatives Initiatives
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 85,151 - 85,151 92,607 (26 ) 92,581
expenses
Income (loss) (24,662 ) (912 ) (25,574 ) (8,843 ) (3,607 ) (12,450 )
from operations
Other income 837 - 837 (1,669 ) - (1,669 )
(loss), net
Income (loss)
before income (23,825 ) (912 ) (24,737 ) (10,512 ) (3,607 ) (14,119 )
taxes
Income tax
provision (10,956 ) (352 ) (11,308 ) (5,288 ) (1,388 ) (6,676 )
(benefit)
Net income (12,869 ) (560 ) (13,429 ) (5,224 ) (2,219 ) (7,443 )
(loss)
Dividends on
convertible 2,625 - 2,625 - - -
preferred stock
Net income
(loss) allocable $ (15,494 ) $ (560 ) $ (16,054 ) $ (5,224 ) $ (2,219 ) $ (7,443 )
to common
shareholders
Diluted earnings
(loss) per $ (0.24 ) $ (0.01 ) $ (0.25 ) $ (0.08 ) $ (0.04 ) $ (0.12 )
share:
Weighted-average
shares 63,240 63,240 63,240 62,494 62,494 62,494
outstanding:
Nine Months Ended September 30, Nine Months Ended September 30,
2009 2008
Pro Forma Gross Pro Forma Gross
Callaway Margin Total as Callaway Margin Total as
Golf Improvement Reported Golf Improvement Reported
Initiatives Initiatives
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 287,480 - 287,480 313,850 94 313,944
expenses
Income (loss) 2,408 (4,282 ) (1,874 ) 122,316 (9,515 ) 112,801
from operations
Other expense, (1,032 ) - (1,032 ) (3,574 ) - (3,574 )
net
Income (loss)
before income 1,376 (4,282 ) (2,906 ) 118,742 (9,515 ) 109,227
taxes
Income tax
provision (1,552 ) (1,649 ) (3,201 ) 43,560 (3,663 ) 39,897
(benefit)
Net income 2,928 (2,633 ) 295 75,182 (5,852 ) 69,330
(loss)
Dividends on
convertible 3,063 - 3,063 - - -
preferred stock
Net income
(loss) allocable $ (135 ) $ (2,633 ) $ (2,768 ) $ 75,182 $ (5,852 ) $ 69,330
to common
shareholders
Diluted earnings
(loss) per $ (0.00 ) $ (0.04 ) $ (0.04 ) $ 1.17 $ (0.09 ) $ 1.08
share:
Weighted-average
shares 63,120 63,120 63,120 64,029 64,029 64,029
outstanding:
Adjusted EBITDA:
2009 Trailing Twelve Months Adjusted EBITDA 2008 Trailing Twelve Months Adjusted EBITDA
Quarter Ended Quarter Ended
December March 31, June 30, September December March June 30, September
31, 30, 31, 31, 30,
2008 2009 2009 2009 Total 2007 2008 2008 2008 Total
Net income $ (3,154 ) $ 6,812 $ 6,912 $ (13,429 ) $ (2,859 ) $ (16,157 ) $ 39,666 $ 37,107 $ (7,443 ) $ 53,173
(loss)
Interest
expense 272 (123 ) 551 (46 ) 654 (216 ) 591 994 497 1,866
(income),
net
Income tax
provision (4,766 ) 4,248 3,859 (11,308 ) (7,967 ) (12,415 ) 25,990 20,583 (6,676 ) 27,482
(benefit)
Depreciation
and 9,216 9,944 10,172 10,128 39,460 7,862 8,794 10,490 9,463 36,609
amortization
expense
Change in
energy
derivative (19,922 ) - - - (19,922 ) - - - - -
valuation
acct.
Adjusted $ (18,354 ) $ 20,881 $ 21,494 $ (14,655 ) $ 9,366 $ (20,926 ) $ 75,041 $ 69,174 $ (4,159 ) $ 119,130
EBITDA
Source: Callaway Golf Company
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