Callaway Golf Company Announces Second Quarter and First Half 2010 Results

CARLSBAD, Calif., July 28 /PRNewswire-FirstCall/ -- Callaway Golf Company (NYSE: ELY) today announced its financial results for the second quarter and first half of the year ended June 30, 2010, which were consistent with the Company's June 14th guidance.  

For the second quarter, the Company reported:

• Net sales of $304 million, an increase of 1% compared to $302 million for the second quarter of 2009.  Changes in foreign currency rates favorably affected net sales by $6 million in the second quarter of 2010 compared to the same period in 2009.  
• Gross profit of $124 million (41% of net sales), compared to gross profit of $110 million (36% of net sales) for the second quarter of 2009.
• Operating expenses for the quarter of $99 million (32% of net sales) compared to $100 million (33% of net sales) for the same period in 2009.  
• Operating profit of $25 million (8% of net sales) compared to $10 million (3% of net sales) for the same period in 2009.
• Earnings per diluted share of $0.14 (on 84.3 million weighted average shares outstanding), compared to $0.10 (on 66.8 million weighted average shares outstanding) in 2009.  Fully diluted earnings per share for the second quarter include after-tax charges for the Company's Global Operations Strategy initiatives of $0.01 per share in 2010 and $0.02 per share in 2009.  

For the first six months, the Company reported:

• Net sales of $606 million, an increase of 6% compared to last year's net sales of $574 million. Changes in foreign currency rates favorably affected net sales by $21 million for the first six months of 2010 compared to the same period in 2009.
• Gross profit of $261 million (43% of net sales) compared to $226 million (39% of net sales) for 2009.
• Operating expenses of $207 million (34% of net sales) compared to $202 million (35% of net sales) for 2009.  
• Operating profit of $53 million (9% of net sales) compared to $24 million (4% of net sales) for 2009.
• Earnings per diluted share of $0.38 (on 84.1 million weighted average shares outstanding) compared to earnings per diluted share of $0.21 (on 65.1 million weighted average shares outstanding) for 2009.  Fully diluted earnings per share for the period include after-tax charges for the Company's Global Operations Strategy initiatives of $0.02 per share in 2010 and $0.03 per share in 2009.  

"Global economic conditions and the golf industry have recovered more slowly than our original expectations coming into 2010," commented George Fellows, President and CEO.   "Consumer spending remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit. These constraints, together with unfavorable weather conditions in many key markets for a significant portion of 2010, have resulted in an overall decline in sales in the golf industry for the year. Despite this industry decline, our first half results have improved over last year, driven in large part by our improved gross margins, more favorable foreign currency rates, and significant growth in our putters and accessories businesses."

"While the golf industry will recover, given recent increased uncertainty regarding retailer and consumer spending in the back half of the year, it does not appear that the industry will fully recover during 2010," continued Mr. Fellows. "We are therefore focused on the controllable portions of our business, including tight management of discretionary spending, investment in emerging markets and other key growth initiatives to drive long-term shareholder value, and improvements in our operations such as the restructuring of our global operations announced yesterday. These actions, together with the strength of our brands, will allow us to maximize results in the current environment and prepare us to take advantage of a better market once global conditions improve."

Restructuring of Global Operations

The Company announced yesterday that it will be restructuring its global operations over the next 18 months as a part of its overall Global Operations Strategy to add speed and flexibility to customer service demands, optimize efficiencies and facilitate long-term gross margin improvements.  This initiative will include the reorganization of the Company's manufacturing and distribution centers located in Carlsbad, California and Toronto, Canada and the creation of third party logistics sites in Dallas, Texas and Toronto, Canada as well as the establishment of a new production facility in Monterrey, Mexico.

Business Outlook

"While we expect that our overall financial results will be better than last year, the unusual uncertainty caused by the current macroeconomic and market conditions make it impossible to forecast retailer and consumer demand for golf products with any reliability," commented Brad Holiday, Chief Financial Officer of the Company.  "We do expect that our full year gross margins will be improved compared to last year and that our full year operating expenses will be approximately flat compared to last year, even after taking into account the restoration of employee compensation and benefits that were temporarily suspended in 2009.  Because of the lack of visibility into sales, however, we are not providing specific financial guidance for the balance of the year."  

The Company previously estimated that charges for 2010 for its overall Global Operations Strategy initiatives would be approximately $.10 per share.  The scope of the initiatives has been expanded and the Company now estimates that charges for such initiatives in 2010 will be approximately $0.16 per share. Given the expanded scope of the initiatives, the Company now estimates that the savings from its overall Global Operations Strategy initiatives will be approximately $45-$55 million from 2010-2013 as compared to its prior estimate of $25-$45 million through 2012.  

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. PDT today to discuss the Company's financial results and the recently announced restructuring of its global operations.  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. PDT on Wednesday, August 4, 2010.  The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-800-642-1687 toll free for calls originating within the United States or 706-645-9291 for International calls.  The replay pass code is 85601986.  

Disclaimer:  Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to a golf industry recovery, the Company's future performance, estimated 2010 gross margins and operating expenses, and the estimated amount and timing of the charges and savings related to the Company's global operations strategy initiatives, 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. Accurately estimating the forward-looking statements is based upon various unknowns, including future changes in foreign currency exchange rates, consumer acceptance and demand for the Company's products, the level of promotional activity in the marketplace, as well as future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions. Actual results may differ materially from those estimated or anticipated as a result of these unknowns or other risks and uncertainties, including continued compliance with the terms of the Company's credit facility; delays, difficulties or increased costs in the supply of components needed to manufacture the Company's products, in manufacturing the Company's products, or in connection with the implementation of the Company's planned global operations strategy initiatives or the implementation of future initiatives; 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 or supply of 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 golf industry and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2009 as well as other risks and uncertainties detailed from time to time in the Company's reports on Forms 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 statement schedules attached to this press release have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").  In addition to these schedules, the Company has also provided certain supplemental financial information concerning its results, which include certain financial measures not prepared in accordance with GAAP.  The non-GAAP financial measures included in the supplemental financial information present certain of the Company's financial results (i) excluding charges for the Company's global operations strategy and (ii) excluding interest, taxes, depreciation and amortization expenses, and changes in the Company's prior derivative valuation account ("Adjusted EBITDA"). 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 for investors as to the underlying performance of the Company's business without regard to these items.  The Company has provided reconciling information within the supplemental financial information attached to this press release.

About Callaway Golf

Through an unwavering commitment to innovation, Callaway Golf Company (NYSE: ELY) 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®, Odyssey®, Top-Flite®, Ben Hogan® and uPro™ brands in more than 110 countries worldwide. For more information please visit www.callawaygolf.com or Shop.CallawayGolf.com

(Logo:  http://photos.prnewswire.com/prnh/20091203/CGLOGO)

(Logo:  http://www.newscom.com/cgi-bin/prnh/20091203/CGLOGO)

SOURCE Callaway Golf Company