Callaway Golf Company reported net sales for the full year 2003 of $814 million compared with $793 million for the prior year. Net income for the full year was $46 million versus $69 million for the prior year. Fully diluted earnings per share for the period were $0.68 compared with $1.03 for the prior year. Currency fluctuations had a favorable impact on 2003 net sales of $28 million.
Net sales for the fourth quarter ended December 31, 2003 were $147 million versus $123 million in the comparable period during the prior year. Net loss for the quarter was $33 million versus $6 million for the prior period. Loss per share was $0.50 compared with $0.08 for the comparable period in the prior year. Currency fluctuations had a favorable impact on net sales of $6 million.
The company's consolidated net income and earnings per share for 2003 were significantly affected by pre-tax charges of $24 million (primarily non-cash) associated with the integration of the Top-Flite Golf business; without those charges, reported net income and fully diluted earnings per share for 2003 would have been $62 million and $0.93, respectively, for the full year, and losses of $17 million and $0.26 per share, respectively, for the fourth quarter.
ELY's consolidated net income and earnings per share for 2002 were positively affected by a pre-tax adjustment of $17 million to decrease the Company's warranty reserve. Excluding the effects of the $24 million Top-Flite integration charges from 2003 results and the $17 million warranty reversal from 2002 results, net income for 2003 would have been $62 million versus $59 million in 2002 (an increase of 5%), and fully diluted earnings per share would have been $0.93 in 2003 compared to $0.87 in 2002 (an increase of 7%).
Callaway Golf operations on a stand-alone basis (i.e. excluding Top-Flite) had pro forma net sales for 2003 of $774 million, a 2% decrease versus $793 million in 2002. Excluding Top-Flite results and the $24 million integration charges from 2003 and the $17 million warranty reversal from 2002, pro forma net income for the Callaway Golf operations was $71 million compared to $59 million, (an increase of 20%), and pro forma fully diluted earnings per share were $1.06 versus $0.87 in 2002, (an increase of 22%).
“We finished the year slightly stronger than we had predicted in December, with an increase in sales momentum,” said Ron Drapeau, Chairman and CEO. “Significantly, our core Callaway Golf business beat
the targets we set at the beginning of the year for both net income
and earnings despite a tough competitive environment. We generated
$119 million in cash flow from operations during the year, which along
with our cash reserves provided enough cash to fund our operations and
the acquisition of the Top-Flite assets without taking on any debt. We
are very pleased with these accomplishments.”
Sales by Product
Fourth Quarter Full Year
-- 2003 -- 2003
----------------------------
$'s in millions Net % Net %
Sales Change Sales Change
vs. vs.
2002 2002
----------------------------
Woods $38.5 -26% $252.4 -19%
Irons 37.8 23% 271.7 12%
Putters 24.7 15% 142.8 28%
Golf balls 35.0 316% 78.4 19%
Accessories, other 10.6 2% 68.7 10%
------- -------
Total $146.6 19% $814.0 3%
======= =======
Consolidated gross profit for the year was $369 million (45% of
net sales) compared with $400 million (50% of net sales) for the prior
year. Excluding Top-Flite results and the $24 million integration
charges in 2003 and the $17 million warranty reserve reversal in 2002,
Callaway Golf pro forma gross profit was $383 million (49% of net
sales) in 2003 versus $383 million (48% of net sales) in 2002.
Consolidated operating expenses were $303 million (37% of net
sales) versus $289 million (36% of net sales) in 2002. Excluding the
incremental Top-Flite expenses of $23 million from 2003, pro forma
operating expenses declined 3% to $280 million versus prior year.
The tax provision as a percentage of pre-tax income for the year
was 32.9% compared to 37.8% for the prior year. This decrease is
primarily the result of the recognition of atypical tax benefits in
the current year income tax provision related to the statutory U.S.
export sales incentive.
Commenting on the results, Brad Holiday, Senior Executive Vice
President and Chief Financial Officer stated, “We predicted at the
beginning of 2003 that our operating results for 2003 would benefit
from the cost reduction strategies put in place in 2002. The results
show that we were correct. Our ability to generate cash, strong
earnings, and take advantage of strategic opportunities has been
enhanced by the implementation of these strategies in our operations
and the attitude of our employees.”
In the fourth quarter of 2003 the Company settled the remaining
open issues under its contract to purchase certain Top-Flite assets
from the bankruptcy estate. With these matters completed, it has now
been determined that the Company paid $154.1 million in cash to
acquire assets and liabilities valued as follows:
($'s in millions)
Accounts receivable $ 44.0
Inventory 32.8
Other current assets 1.1
Plant, property & equipment 56.7
Intangible assets 48.5
----
Total assets $183.1
Current liabilities 18.0
Long term liabilities 4.8
----
Net assets acquired $160.3
======
During the fourth quarter, the Company repurchased an additional
96,000 shares of its common stock at an average price of $15.98 per
share. For the year, the Company invested approximately $5 million to
repurchase a total of 372,000 shares at an average cost of $12.77 per
share.
In accordance with the Company's dividend practice, the next
dividend will be determined by the Board of Directors at its February
2004 meeting.
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. See further disclaimer below.
“We are encouraged by our new products and a recovering economy,”
continued Mr. Drapeau, “and reiterate our mid-December guidance. This
guidance includes net sales for 2004 of approximately $1.03 billion,
an increase of 27% over 2003, with fully diluted earnings per share
between $0.82 and $0.97, including the balance of the transition
charges associated with the integration of the Top-Flite operations
(about $35 million pre-tax, or $0.33 in earnings per share).”
Supplemental Financial Information
Fourth Quarter Full Year
----------------------------
$'s in millions, except per share data 2003 2002 2003 2002
----------------------------
Reported net sales $146.6 $122.8 $814.0 $793.2
Top-Flite net sales (35.1) -- (40.5) --
----------------------------
Callaway Golf net sales $111.5 $122.8 $773.5 $793.2
============================
Reported net income (loss) $(33.4) $(5.6) $45.5 $69.4
Top-Flite integration charges ($24 million
pre-tax) 16.2 -- 16.2 --
Warranty reserve reversal ($17 million
pre-tax) -- -- -- (10.5)
----------------------------
Pro forma net income $(17.2) $(5.6) $61.7 $58.9
----------------------------
Top-Flite net loss 8.1 -- 8.8 --
----------------------------
Pro forma Callaway Golf net income
(loss) $(9.1) $(5.6) $70.5 $58.9
============================
Reported diluted earnings per share $(0.50)$(0.08) $0.68 $1.03
Top-Flite integration charges ($24 million
pre-tax) 0.24 -- 0.25 --
Warranty reserve reversal ($17 million
pre-tax) -- -- -- (0.16)
----------------------------
Pro forma earnings per share (0.26) (0.08) 0.93 0.87
----------------------------
Top-Flite net loss 0.12 -- 0.13 --
----------------------------
Pro forma Callaway Golf earnings (loss)
per share $(0.14)$(0.08) $1.06 $0.87
============================
Callaway Golf Company
Consolidated Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended Year Ended
December 31, December 31,
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $146,602 100%$122,781 100%$814,032 100%$793,219 100%
Cost of goods sold 112,538 77% 69,056 56% 445,417 55% 393,068 50%
--------- --------- --------- ---------
Gross profit 34,064 23% 53,725 44% 368,615 45% 400,151 50%
Operating
expenses:
Selling 58,256 40% 40,370 33% 207,783 26% 200,329 25%
General and
administrative 22,294 15% 15,706 13% 65,448 8% 56,580 7%
Research and
development 8,881 6% 7,653 6% 29,529 4% 32,182 4%
--------- --------- --------- ---------
Total operating
expenses 89,431 61% 63,729 52% 302,760 37% 289,091 36%
Income (loss) from
operations (55,367)-38% (10,004) -8% 65,855 8% 111,060 14%
Other income, net 684 588 2,028 611
--------- --------- --------- ---------
Income (loss)
before income
taxes (54,683)-37% (9,416) -8% 67,883 8% 111,671 14%
Income tax
provision
(benefit) (21,252) (3,839) 22,360 42,225
--------- --------- --------- ---------
Net income (loss) $(33,431)-23% $(5,577) -5% $45,523 6% $69,446 9%
