Callaway Golf Company reported net sales for the full year 2002 were $792.1 million, versus $816.2 million for the prior year (a decrease of 3%), and earnings per diluted share of $1.03, versus $0.82 (an increase of 26%). Net income for the full year was $69.4 million, versus $58.4 million last year (an increase of 19%). Currency fluctuations had no significant impact on year over year comparisons.
Net sales for the quarter ended December 31, 2002 were $122.5 million, versus $105.3 million the prior year (an increase of 16%), and loss per share was $0.08, versus $0.14 (an improvement of 43%). Net loss for the quarter was $5.6 million, versus $9.2 million for the prior period (an improvement of 39%). Net sales for the quarter were positively affected by currency fluctuations (see table below) and the introduction of the Company’s new Great Big Bertha II Titanium Driver, with net income negatively impacted by increased spending on professional tours and severance costs. In addition, fourth quarter net income was favorably impacted by several charges that normally would have been taken in the fourth quarter, but were reflected in the Company’s third quarter results as filed with the SEC on January 16, 2003. This shifting of charges negatively affected reported net income for the third quarter ended September 30, 2002 and positively affected reported net income for the fourth quarter, and was caused by the timing of the Company’s third quarter 10-Q filing.
As previously discussed, the Company’s full year results in 2002 and in 2001 were each affected by non-cash adjustments. In 2001, the Company recorded a $14.2 million after-tax charge associated with its long-term energy supply agreement. In 2002, the Company recorded an after-tax gain of $10.5 million associated with an adjustment to its warranty reserves. Excluding the effects of these adjustments, net income would have been $58.9 million for 2002 compared to $72.6 million for 2001, a decrease of 19%. Fully diluted earnings per share adjusted for the same periods would have been $0.87 and $1.02, respectively, a decline of 15%.
“We delivered better results than expected for the quarter and the year,” said Ron Drapeau, Chairman, President, and CEO. “We have maintained our market share leadership in woods, irons, and putters, and managed our costs effectively, and, with our continued commitment to R&D, developed a strong product line for 2003. It is our intention to continue to provide accurate guidance regarding our business outlook and absent unforeseen disruptions beyond those currently known to us, we think we can do this.”
Sales by Product and Region
---------------------------- -----------------------------
Fourth Quarter - 2002 Year-to-Date - 2002
---------------------------- -----------------------------
% Change vs. 2001 % Change vs. 2001
----------------- -------------------
Net Sales As Constant Net Sales As Constant
($ Reported (a) ($ Reported (a)
Millions) Dollars Millions) Dollars
---------- -------- -------- ---------- -------- ---------
Woods $51.9 57% 54% $310.0 (21%) (21%)
Irons $30.7 (25%) (27%) $243.5 (2%) (2%)
Golf Balls $8.4 (18%) (20%) $66.0 20% 20%
Putters,
Access-
ories,
Other $31.5 51% 48% $172.6 45% 44%
--------- ---------
TOTAL $122.5 16% 14% $792.1 (3%) (3%)
United
States $63.1 17% 17% $438.7 (1%) (1%)
Inter-
national $59.4 16% 11% $353.4 (5%) (5%)
--------- ---------
TOTAL $122.5 16% 14% $792.1 (3%) (3%)
(a) As measured by applying 2001 exchange rates to 2002 Net Sales.
Gross profit for the year, excluding the non-cash adjustment to warranty reserves, was $382.0 million (48% of net sales), versus $404.6 million (50% of net sales) in 2001. The decline in gross margin was primarily the result of higher inventory obsolescence charges, the close out of ERC II drivers at reduced prices, and an across the board price reduction on golf balls that was implemented in August.
Selling and tour expenses for the year were $200.2 million (25% of net sales), a 6% increase compared to $188.3 million (23% of net sales) in 2001. This increase was primarily due to higher pro endorsement expense associated with the Company’s strategic moves to support both its drivers and its golf balls on tour, and depreciation expense.
General and administrative expenses for 2002 were $56.6 million (7% of net sales), a 20% decline compared to $71.1 million (9% of net sales) in 2001. This decrease was the result of lower employee expense and a reduction in amortization expense associated with the adoption of SFAS No. 142.
Research and development expenses for the year were $32.2 million (4% of net sales), a 2% reduction when compared to $32.7 million (4% of net sales) in 2001.
Commenting on the results, Brad Holiday, Executive Vice President and Chief Financial Officer stated, “Managing costs has been a critical part of running the business in these challenging times, and we are pleased that we have held costs as a percentage of net sales at or below prior year levels in all areas except tour, where we made the strategic decision to invest to drive sales growth in the driver and ball categories. Moreover, the reductions in headcount and the inventory adjustments, while negatively affecting full year 2002 results, will benefit operating results going forward.”
During the fourth quarter, the Company repurchased 0.2 million of its shares at an average cost of $12.38 per share under the $50 million repurchase authorization approved by the Board in May 2002. For the entire year, the Company repurchased 2.8 million shares at an average cost of $16.40 per share.
In accordance with the Company’s dividend practice, the next dividend will be determined by the Board of Directors at its February 27, 2003 meeting.
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. See further disclaimer below.
“At this time,” commented Drapeau, “we reiterate our mid-December guidance of net sales for the first quarter of approximately $270 million, a 5% increase compared to 2002, with annual net sales for 2003 estimated to be essentially flat year over year. Fully diluted earnings per share are estimated to be $0.54 for the quarter, and $0.88 for the full year.
“Based on the Company’s long-term strategic plan, and assuming some improvement in the global economies, we are targeting to achieve net sales growth, on average, in the low single digits overall and earnings per share in the low double digits. We expect 2003 to be a year of funding investments aimed at achieving this longer range growth expectation.”
Callaway Golf Company
Consolidated Condensed Statement of Operations
(In thousands, except per share data)
(unaudited)
Quarter Ended Year Ended
December 31, December 31,
----------------------- -----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $122,521 100% $105,295 100% $792,064 100% $816,163 100%
Cost of goods
sold 69,056 56% 64,584 61% 393,068 50% 411,585 50%
--------- --------- --------- ---------
Gross profit 53,465 44% 40,711 39% 398,996 50% 404,578 50%
Operating
expenses:
Selling 40,328 33% 35,648 34% 200,153 25% 188,306 23%
General and
administra-
tive 15,705 13% 13,149 12% 56,580 7% 71,058 9%
Research and
development 7,653 6% 7,296 7% 32,182 4% 32,697 4%
--------- --------- --------- ---------
Total operating
expenses 63,686 52% 56,093 53% 288,915 36% 292,061 36%
Income (loss)
from
operations (10,221) -8% (15,382)-15% 110,081 14% 112,517 14%
Other income
(expense), net 805 1,012 1,590 (14,325)
--------- --------- --------- ---------
Income (loss)
before income
taxes (9,416) -8% (14,370)-14% 111,671 14% 98,192 12%
Income tax
provision
(benefit) (3,839) (5,176) 42,225 39,817
--------- --------- --------- ---------
Net income
(loss) $(5,577) -5% $(9,194) -9% $69,446 9% $58,375 7%
