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.
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