Callaway Golf Company reported net sales for the quarter ended September 30, 2003 dipped 4.3% to $154 million, compared to $161 million during the same quarter in 2002. Foreign currency exchange rates positively impacted net sales for the third quarter of 2003 by approximately $3 million, resiulting in a constant currency sales decline of 6.2%. Net income during the third quarter was $2 million, versus $7 million for the same quarter last year. Diluted earnings per share were $0.03, compared to $0.11 for the same quarter last year.
Year-over-year comparisons are affected by two key factors. First, the Company's results for 2003 reflect the acquisition of certain assets of The Top-Flite Golf Company in the United States as of September 15, 2003. Second, the Company's results for 2002 reflected a number of adjustments, including a non-cash, pre-tax reversal of $17 million of the Company's warranty reserve in the third quarter and the inclusion of certain subsequent adjustments that otherwise would have been included in fourth quarter results but for the Company's delayed filing of its third quarter Form 10-Q
Net income for the first nine months of the year were $79 million and diluted earnings per share was $1.19, increases of 5% and 7%, respectively, over the same period in the prior year. The reported net income and earnings per share are the highest achieved by the Company in the first nine months of a fiscal year since 1997.
For the nine months ended September 30, 2003, the Company reported net sales of $667 million, compared to $670 million during the same period in 2002. Foreign currency exchange rates positively impacted net sales for the current period by approximately $22 million. Net income for the period was $79 million, compared to $75 million for the same period last year. Diluted earnings per share were $1.19, compared to $1.11 for the same period last year.
For the nine months ended September 30, 2003, net sales
excluding Top-Flite were $662 million, compared to $670
million during the same period in 2002. Top-Flite's operating results after the acquisition were essentially break-even. Therefore, net income and diluted earnings per share were not affected by Top-Flite's results. This sales information is summarized as follows:
-------------------------
$'s - millions Nine Months
-------------------------
2003 2002 % Change
------- ------- ---------
Reported Net Sales $667.4 $670.4 0%
Top-Flite Net Sales -U.S. (5.4) -
-------
Pro Forma Net Sales $662.0 $670.4 (1%)
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Excluding Top-Flite from 2003 results and excluding the effects of the warranty reversal and the subsequent events
reported in the Form 10-Q (Part II, Item 5) for the comparable period in 2002, net income for the nine months ended September 30, 2003 would have been $79 million and diluted earnings per share would have been $1.19, increases of 13% and 16%, respectively, compared with $70 million and $1.03 for the comparable period in 2002. This earnings information is summarized as follows:
-----------------------
$'s - millions, except per share data Nine Months
-----------------------
2003 2002 % Change
------ ------ -------
Reported Net Income $79.0 $75.0 5%
Top-Flite Net Income - U.S. - -
Warranty Reversal - (10.4)
Subsequent Events - 5.2
------ ------
Pro Forma Net Income $79.0 $69.8 13%
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Reported Diluted Earnings per Share $1.19 $1.11 7%
Top-Flite Net Income - -
Warranty Reversal - (0.16)
Subsequent Events - 0.08
------ ------
Pro Forma Diluted
Earnings per Share $1.19 $1.03 16%
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(1) Supplemental information supplied in this press release is not
presented in accordance with generally accepted accounting principles
(GAAP) and should not be considered as a substitute for any measure
derived in accordance with GAAP. This information may also be
inconsistent with similar information supplied by other companies.
“We expect to slightly exceed our previous earnings estimates for the year for our core Callaway Golf business, even though we are seeing sales decline, as expected, in the back half of the year following a record first six months,” said Ron Drapeau, Chairman and CEO. “We experienced some softness in the third quarter compared to last year, but managed our business carefully in delivering $0.03 in earnings per share. Despite the deviation for the quarter, our nine-month results remain very good in terms of net income and earnings per share, achieving the highest levels since 1997.”
SALES BY PRODUCT AND REGION
-------------------- -------------------
Third Quarter - 2003 Nine Months - 2003
-------------------- -------------------
$'s - millions % Change % Change
Net Sales vs. 2002 Net Sales vs. 2002
--------- --------- --------- --------
Woods $44.0 (22%) $213.9 (17%)
Irons 54.7 7% 233.9 10%
Putters 27.0 (4%) 118.1 31%
Golf Balls 14.1 25% 43.3 (25%)
Accessories, Other 13.8 (6%) 58.2 12%
------- -------
TOTAL $153.6 (5%) $667.4 0%
======= =======
United States $77.7 (4%) $370.2 (2%)
International 75.9 (5%) 297.2 1%
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TOTAL $153.6 (5%) $667.4 0%
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Brad Holiday, Senior Executive Vice President and Chief Financial Officer, stated, “Our gross margins remained strong in the first nine months at 50% compared with 52% for last year. We continue to manage our costs carefully and in line with our net sales, with operating expenses reduced to 32% of net sales in 2003, versus 34% for the same period last year. Our balance sheet remains strong, with virtually no debt and improved inventory levels.”
In accordance with the Company's dividend practice, the Board of Directors will determine the next dividend in November.
“With the performance achieved in the first nine months of the year combined with modest incremental contributions from Top-Flite and some limited product launches planned for the last part of 2003, we expect that annual net sales will be about $810 million, which includes approximately $40 million from Top-Flite,” reported Mr. Drapeau. “We have initiated steps to integrate the Callaway Golf and Top-Flite operations, which include the consolidation of our golf ball and golf club manufacturing and R&D operations. We expect to incur charges to earnings of approximately $60 million, mostly non-cash, in connection with this process, with the charges to be taken as incurred over the next twelve months. Excluding these charges, earnings per share for the year, including Top-Flite, are estimated to be approximately $0.87 to $0.92. For our core Callaway Golf business, we estimate annual net sales of approximately $770 million, a slight decline from what we estimated last quarter, and diluted earnings per share of approximately $0.97, a slight increase from our previous estimate.”
“We are very excited about our product plans for 2004. Taking advantage of the opportunities afforded to us as a result of our Top-Flite acquisition, including both cost savings and new technology, we are planning to re-launch the Callaway Golf golf ball product line in 2004 in combination with the consumer introduction of our HX Tour ball, while building and expanding the Top-Flite business. On the club side of the business, the recently announced ERC Fusion Driver will be the flagship of a Callaway Golf wood business that features a refreshed Great Big Bertha II driver and fairway line and a new line of Big Bertha titanium drivers and stainless steel fairway woods. We are carefully reviewing our market opportunities for 2004 in light of these and other strong Callaway Golf, Top-Flite, Odyssey and Hogan products and intend to provide that guidance in late December.”
Callaway Golf Company
Consolidated Condensed Statement of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $153,634 100% $161,257 100% $667,430 100% $670,439 100%
Cost of goods
sold 83,414 54% 81,371 50% 332,878 50% 324,012 48%
--------- --------- --------- ---------
Gross profit 70,220 46% 79,886 50% 334,552 50% 346,427 52%
Operating
expenses:
Selling 47,462 31% 47,681 30% 149,527 22% 159,958 24%
General and
administrative 14,684 10% 12,467 8% 43,154 6% 40,875 6%
Research and
development 7,734 5% 8,202 5% 20,648 3% 24,529 4%
--------- --------- --------- ---------
Total
operating
expenses 69,880 45% 68,350 42% 213,329 32% 225,362 34%
Income from
operations 340 0% 11,536 7% 121,223 18% 121,065 18%
Other income
(expense), net 1,056 (1,002) 1,345 20
--------- --------- --------- ---------
Income before
income taxes 1,396 1% 10,534 7% 122,568 18% 121,085 18%
Income tax
provision
(benefit) (938) 3,347 43,613 46,062
--------- --------- --------- ---------
Net income $2,334 2% $7,187 4% $78,955 12% $75,023 11%
========= ========= ========= =========
Earnings per common share:
Basic $0.04 $0.11 $1.20 $1.12
Diluted $0.03 $0.11 $1.19 $1.11
