CARLSBAD, Calif.–(BUSINESS WIRE)–Nov. 1, 2006–Callaway Golf Company (NYSE:ELY) today announced its financial results for the third quarter ended September 30, 2006, in line with earlier estimates. Highlights for the third quarter include:
— Net sales of $193.8 million, as compared to $220.6 million for the same period in 2005. As mentioned in the October 16th pre-release, this decline in sales is primarily due to the planned timing of new product introductions which adversely affected the quarter by approximately $30 million as compared to the third quarter of 2005.
— Loss per share of $0.18 on 67.0 million shares, as compared to a loss of $0.07 on 68.8 million shares in 2005.
— The loss per share includes $0.03 of after-tax charges for employee equity-based compensation associated with FAS 123R, $0.01 for the integration of Top-Flite, and $0.01 for restructuring charges. The third quarter of 2005 includes after-tax charges of $0.02 for the integration of Top-Flite and $0.06 for restructuring charges. Excluding these charges, the Company’s pro forma loss per share for the third quarter of 2006 would have been $0.13, as compared to pro forma earnings per share of $0.01 for the third quarter of 2005.
— Gross profit for the third quarter of 2006 was $67.7 million (or 35% of net sales) compared to $86.9 million (or 39% of net sales) for the third quarter of 2005. The decline in gross profit is primarily the result of a lower mix of higher margin woods and irons products due to the timing of new product introductions, as well as lower Top-Flite ball margins due to price reductions related to the initiatives to clear older Top-Flite golf ball inventory in preparation for the re-launch of that brand in 2007. Additional details can be found in the Company’s October 16, 2006 earnings pre-release.
— Operating Expenses for the third quarter of 2006 were $84.6 million, a decrease of $11.8 million compared to $96.4 million in 2005. The decrease is primarily due to the restructuring initiatives announced in September 2005.
Highlights for the first nine months include:
— Net sales of $838.0 million, as compared to $843.6 million for the same period in 2005.
— Fully diluted earnings per share of $0.49 on 68.8 million shares, as compared to fully diluted earnings per share of $0.46 on 69.0 million shares in 2005.
— Fully diluted earnings per share includes after-tax charges of $0.07 for employee equity-based compensation associated with FAS 123R, $0.04 for the integration of Top-Flite, and $0.01 for restructuring. The third quarter of 2005 includes after-tax charges of $0.08 for integration of Top-Flite, $0.06 for restructuring, and $0.01 for employee equity-based compensation. Excluding these charges, the Company’s pro forma fully diluted earnings per share for both 2006 and 2005 would have been $0.61.
— Gross profit for 2006 was $339.3 million (or 40% of net sales) compared to $366.2 million (or 43% of net sales) for 2005. The decline in gross profit is primarily the result of a lower mix of higher margin irons due to the timing of new product introductions, as well as lower Top-Flite ball margins due to the initiatives to clear older Top-Flite golf ball inventory.
— Operating Expenses for 2006 were $281.1 million, a decrease of $35.3 million compared to $316.4 million in 2005. A majority of the decrease is due to the restructuring initiatives announced in September 2005. Total savings since September 2005 have totaled approximately $44 million, net of reinvestment, compared to original estimates of $25 to $30 million.
"We continue to make progress on many fronts this year, despite the disappointing performance in our Top-Flite brand," commented George Fellows, President and CEO. "Sales of our core brands of Callaway and Odyssey have grown significantly this year and we have materially reduced our operating expenses as a result of last September’s cost cutting initiatives. More importantly, these factors should combine to increase our full year pro forma earnings per share by more than 20% in 2006. In addition, we have strengthened the management team, made several internal process improvements, and today on our earnings call, will share a series of initiatives focused on improving gross margins by an estimated $50 to $60 million over the next two years. Ultimately, these actions along with future initiatives should continue the progress we’ve made-to-date towards our three year plan and position Callaway to create additional value for shareholders."
The estimated increase in 2006 pro forma earnings excludes non-cash charges related to employee equity-based compensation, charges related to the Top-Flite integration and 2005 restructuring initiatives, as well as charges incurred related to the implementation of the gross margin initiatives. For more detailed financial information concerning current financial results, including additional pro forma information and pro forma reconciliations, see attached schedules and "Supplemental Financial Information."
The Company will be holding a conference call at 2:00 p.m. PST 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 the call ends, and will remain available through 9:00 p.m. PST on Wednesday, November 8, 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 846344.
Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to estimated earnings growth for 2006, the amount or timing of the anticipated improvement in gross margins, implementation of future initiatives, achievement of three-year plan, and creation of future shareholder value, 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, delays, difficulties or increased costs associated with the implementation of the Company’s planned gross margin initiatives, the re-launch of the Top-Flite brand or the implementation of future initiatives; market acceptance of current and future products; adverse market and economic conditions; 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 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 and charges related to the integration of the Callaway Golf Company and Top-Flite Golf Company operations as well as the September 2005 restructuring initiatives. 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.
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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