Shares at Callaway Golf dipped nearly 8.8% for the week after an erroneous Bloomberg News report put a damper on the companys otherwise positive predictions that its sales and profits for 2002 might be better than forecast.
Callaway filed its third quarter 2002 10-Q with the SEC Thursday, reporting that it expects net sales and earnings for the year ended December 31, 2002 to be at the high end, if not slightly above, the range provided in mid-December. The December 16, 2002 guidance saw net sales of approximately $790 million and earnings per share between $0.96 and $1.00, including $0.16 per share as the result of the one-time reduction in warranty reserve. The results for the third quarter were positively impacted by a reduction in the Company’s warranty reserves taken during the quarter of approximately $17 million (pre-tax).
In October, Callaway said it earned $12.4 million, or 19 cents a share, for the three months ending Sept. 30. In its filing Thursday, the company put earnings at $7.2 million, or 11 cents a share, in the third quarter.
The company said the reduction in earnings was a bookkeeping matter linked to the fact that they filed the third-quarter report late with the SEC. Adjustments were also made to its previously reported earnings for additional inventory obsolescence reserves, a previously announced charge due to a customs and duty assessment in Korea and other items that were determined subsequent to the announcement of its third quarter earnings.
So the earnings that previously were booked in the third quarter now will move to the fourth quarter.
Bloomberg had reported Thursday that ELY had failed to meet certain terms of its $120 million line of credit because it “repurchased defective golf-ball equipment from its customers.” Callaway executives say that the equipment isnt defective and that the company didnt buy it from customers.
The company also pointed out that they havent used the credit line since Q2 1999.
Callaway had been leasing the equipment in its three-year-old golf ball factory in Carlsbad from GE Capital. When a buyout clause in the lease came up, Callaway decided to purchase the machines. The company did say the purchase did put the company out of compliance with terms in a credit line.
“We just bought the equipment off (the) lease,” said Chief Executive Ron Drapeau. “We are in breach of one of the covenants of our loan agreement, but that’s a technicality because we bought the equipment. Were not borrowing the money against the loan agreement. We have $100 million in cash.”
Callaway said it has chosen not to get a waiver for the noncompliance and that it doesnt expect to use any of the credit lines prior to their expiration in February 2004.
