Callaway Golf Company Announces First Quarter 2012 Results; Provides Revised Guidance - 2012 first quarter earnings per share of $0.37, compared to $0.15 in 2011

- 2012 first quarter pro forma earnings per share of $0.18, compared to $0.15 in 2011

- 2012 first quarter net sales of $285 million, compared to $286 million in 2011

- Completed several strategic initiatives

- Completed sale of Top-Flite and Ben Hogan brands

- Re-structured North America's apparel license with Perry Ellis Int'l

- Announced settlement of Acushnet litigation

CARLSBAD, Calif., April 26, 2012 /PRNewswire/ -- Callaway Golf Company (NYSE: ELY) today announced its first quarter 2012 financial results.

GAAP RESULTS. 

For the first quarter of 2012, the Company reported the following results:

Dollars in millions except
per share amounts

2012

% of
Sales

2011

% of
Sales

Improvement/
(Decline)

Net Sales

$285

-

$286

-

($1)

Gross Profit

$124

44%

$124

43%

-

Operating Expenses

$97

34%

$101

35%

$4

Operating Income

$28

10%

$23

8%

$5

Income Tax
Provision/(Benefit)

 

($0.3)

 

0%

 

$9

 

3%

 

$9

Net Income

$32

11%

$13

4%

$19

Earnings per share
(Diluted)

$0.37

-

$0.15

-

$0.22

NON-GAAP FINANCIAL RESULTS.

In addition to the Company's results prepared in accordance with GAAP, the Company also provided additional information concerning its results on a non-GAAP basis. The manner in which this non-GAAP information is derived is discussed in more detail toward the end of this release and the Company has provided in the tables to this release a reconciliation of this non-GAAP information to the most directly comparable GAAP information.

For the first quarter of 2012, the Company reported the following non-GAAP results:

 

Dollars in millions except
per share amounts

 

2012

 

% of
Sales

 

2011

 

% of
Sales

 

Improvement/
(Decline)

Net Sales

$285

 

-

 

$286

 

-

 

($1)

Gross Profit

$124

44%

$130

46%

($6)

Operating Expenses

$103

36%

$107

37%

$4

Operating Income

$21

7%

$23

8%

($2)

Income Tax Provision

$10

3%

$9

3%

($1)

Net Income

$15

5%

$13

5%

$2

Earnings per share
(Diluted)

$0.18

-

$0.15

-

$0.03

"I am very pleased to be a part of the Callaway Golf team and am excited about the long-term potential of Callaway," commented Chip Brewer, President and Chief Executive Officer. "There were many initiatives underway when I arrived at Callaway targeted at reducing costs and simplifying the business and thus providing greater focus on the Company's core business. I would like to thank Tony Thornley for his time and efforts in initiating these actions over the past several months. I believe there are tremendous growth opportunities with our core Callaway Golf and Odyssey brands and believe that the Company's renewed focus on these brands, together with the other actions we have taken, will enable us to capture this growth and drive profitability." 

"We are pleased with the progress we have made against these key strategic initiatives and the year over year improvement in the Company's financial performance," continued Mr. Brewer. "Sales of woods, premium golf balls, and accessories are up, total sales in the United States and Japan have increased, and our operating expenses have improved despite planned incremental investment in brand and demand creation initiatives.  We also completed the sale of our Top-Flite and Ben Hogan brands, settled much of our outstanding litigation, and expanded our apparel license agreement in North America, which allows us to increase our focus on the Company's core business. With that said, we are unsatisfied with the pace at which our financial performance and market positions are improving and we will be taking actions to accelerate this pace of recovery." 

"While the actions we have taken recently to reduce costs and provide renewed focus on the Company's core brands were important initiatives, there is more work to be done to maximize the Company's full potential," continued Mr. Brewer. "During my brief time here, we have already made changes aimed at strengthening our business and increasing our long-term competitiveness and we will continue to do so.  With a renewed focus on our core business, strong Callaway Golf and Odyssey brands, industry leading research and development capabilities, and an outstanding group of employees, we believe we have all the components necessary to drive sustainable long term growth and increase shareholder value."

Business Outlook

"Our business is recovering compared to last year, albeit at a slower pace than we estimated in our guidance provided in January," commented Brad Holiday, Chief Financial Officer. "Given the current pace of recovery, the impact of the sale of Top-Flite and Ben Hogan assets, and the expansion of the North America apparel license, we are revising our first half financial guidance.  Additionally, while we expect a significant improvement in our full year financials compared to 2011, both on a GAAP and pro forma basis, we are suspending full year guidance at this time."

The Company provided revised guidance for the first half of 2012 as follows: 

  • Net sales for the first half of 2012 are projected to be $560 - $575 million, compared to $559 million in 2011 and compared to prior guidance of $610 - $630 million
  • Gross margins for the first half of 2012 are projected to be approximately 43%, compared to 43% in 2011 and compared to prior guidance of 44%.*
  • Operating expenses for the first half of 2012 have not changed and are still projected to be $214 million compared to $209 million in 2011.* 
  • Earnings per share is estimated at $0.20 to $0.25 compared to $0.15 in 2011 and assumes shares outstanding at 64.5 million, and includes the after-tax impact of the Company's outstanding preferred equity.*

 

*Note:  These estimates are generally non-GAAP estimates.  The estimates for the first half of 2012 exclude the $6.6 million gain on the sale of the Top-Flite and Ben Hogan brands and for comparative purposes earnings per share for 2012 assumes a tax rate of 38.5%.  GAAP tax rates for 2012 are not directly correlated to the Company's pre-tax results due to the effects of deferred tax asset valuations that will continue to impact the tax rate until the Company returns to sustained profitability as defined by accounting rules. The 2011 results exclude charges associated with the Company's global operations strategy, impairment of assets, non-cash tax adjustment, restructuring, and gain on the sale of a building.  These estimates are based upon estimated foreign currency exchange rates.

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 business.  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 Thursday, May 3, 2012.  The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-855-859-2056 toll free for calls originating within the United States or 404-537-3406 for International calls.  The replay pass code is 69148430

Non-GAAP Information:  This press release and the financial statement schedules attached to this press release have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").  To supplement the GAAP results, the Company has provided certain non-GAAP financial information.  The non-GAAP financial information included in the press release and attached schedules present certain of the Company's financial results excluding charges for (i) the Company's global operations strategy, (ii) non-cash intangible asset charges, (iii) non-cash tax adjustments relating to or as a result of the establishment of a deferred tax valuation allowance, (iv) restructuring charges, (v) the gain on the sale of three buildings, and (vi) the gain recognized in connection with the sale of the Top-Flite and Ben Hogan brands.  The non-GAAP financial information also includes the Company's results excluding interest, taxes, depreciation and amortization expenses, and the non-cash intangible asset charges ("Adjusted EBITDA"). For comparative purposes, the Company applied an annualized statutory tax rate of 38.5% to derive the non-GAAP income tax provision/benefit, net loss, and loss per share.  The non-GAAP information should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP.  The non-GAAP information may also be inconsistent with the manner in which similar measures are derived or used by other companies.  Management uses such non-GAAP information for financial and operational decision-making purposes and as a means to evaluate period over period comparisons.  Management believes that the presentation of such non-GAAP information, when considered in conjunction with the most directly comparable GAAP information, provides additional useful comparative information for investors in their assessment of the underlying performance of the Company's business without regard to these items.  The Company has provided reconciling information within the press release and attached schedules.

Forward-Looking Statements:  Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to estimated sales, gross margins, operating expenses, and earnings in 2012, statements relating to the pace of the Company's recovery and expected improvement in full year financials compared to 2011, and statements relating to future growth, profitability, and increased shareholder value are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.  These 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 or in manufacturing the Company's products; 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, the golf industry, and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2011 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 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.

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 apparel, footwear and accessories, under the Callaway Golf® and Odyssey® brands in more than 110 countries worldwide. For more information please visit www.callawaygolf.com or shop.callawaygolf.com.

Contacts:

Brad Holiday


Patrick Burke


Tim Buckman


(760) 931-1771

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

 

 

Callaway Golf Company

Consolidated Condensed Balance Sheets

(In thousands)

(Unaudited)

























March 31,


December 31,







2012


2011










ASSETS








Current assets:








Cash and cash equivalents



$   51,669


$         43,023


Accounts receivable, net



255,259


115,673


Inventories




236,240


233,070


Deferred taxes, net




3,950


4,029


Income taxes receivable



1,899


3,654


Other current assets




23,373


19,880


    Total current assets




572,390


419,329










Property, plant and equipment, net



117,098


117,147

Intangible assets, net




130,503


151,138

Other assets





39,243


39,498


    Total assets




$ 859,234


$       727,112










LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:








Accounts payable and accrued expenses


$ 150,472


$       129,193


Accrued employee compensation and benefits


23,508


23,785


Accrued warranty expense



8,262


8,140


Income tax liabilities




4,628


6,666


Asset-backed credit facility



85,900


-


    Total current liabilities



272,770


167,784










Long-term liabilities




44,476


46,514

Shareholders' equity




541,988


512,814


    Total liabilities and shareholders' equity


$ 859,234


$       727,112

 

Callaway Golf Company

Statements of Operations

(In thousands, except per share data)

(Unaudited)




Quarter Ended


March 31,


2012


2011





Net sales

$  285,098


$ 285,599

Cost of sales

160,727


161,918

Gross profit

124,371


123,681

Operating expenses:




       Selling 

76,838


75,219

       General and administrative 

12,234


16,287

       Research and development 

7,473


9,197

          Total operating expenses

96,545


100,703

Income from operations

27,826


22,978

Other income (expense), net

3,684


(1,380)

Income before income taxes 

31,510


21,598

Income tax provision (benefit)

(292)


8,780

Net income

31,802


12,818

Dividends on convertible preferred stock

2,625


2,625

Net income allocable to common shareholders

$    29,177


$   10,193





Earnings per common share:




       Basic

$0.45


$0.16

       Diluted

$0.37


$0.15

Weighted-average common shares outstanding:




       Basic

64,983


64,303

       Diluted

84,930


84,719

 

 

Callaway Golf Company

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)



























Quarter Ended








March 31,








2012


2011


Cash flows from operating activities:







Net income




$  31,802


$  12,818



Adjustments to reconcile net income to net cash used in operating activities:







Depreciation and amortization


8,745


9,880




Deferred taxes, net



(2,321)


(125)




Non-cash share-based compensation

788


2,305




Gain on disposal of long-lived assets




(559)


(6,242)




Gain on sale of intangibles




(6,616)


-




Changes in assets and liabilities


(124,245)


(58,010)



Net cash used in operating activities


(92,406)


(39,374)












Cash flows from investing activities:







Capital expenditures



(8,687)


(6,918)



Proceeds from sales of property, plant and equipment

50


18,172



Net proceeds from sale of intangibles


26,861


-



Net cash provided by investing activities

18,224


11,254












Cash flows from financing activities:







Issuance of common stock


1


1,160



Dividends paid, net



(3,279)


(3,270)



Proceeds from credit facilities, net


85,900


3,000



Other financing activities



169


169



Net cash provided by financing activities

82,791


1,059












Effect of exchange rate changes on cash and cash equivalents

37


560


Net increase (decrease) in cash and cash equivalents

8,646


(26,501)


Cash and cash equivalents at beginning of period

43,023


55,043


Cash and cash equivalents at end of period

$  51,669


$  28,542


 

Callaway Golf Company

Consolidated Net Sales and Operating Segment Information

(In thousands)

(Unaudited)




Net Sales by Product Category


Quarter Ended


March 31,


Growth/(Decline)



2012


2011


Dollars


Percent


Net sales:










Woods

$          90,729


$          81,027


$           9,702


12%



Irons 

58,316


69,992


(11,676)


-17%



Putters

24,092


28,831


(4,739)


-16%



Golf balls

42,546


44,613


(2,067)


-5%



Accessories and other

69,415


61,136


8,279


14%


Income before income taxes

$        285,098


$        285,599


$            (501)


0%





Net Sales by Region


Quarter Ended


March 31,


Growth/(Decline)



2012


2011


Dollars


Percent


Net sales:










United States

$        149,699


$        145,373


$           4,326


3%



Europe

42,699


46,155


(3,456)


-7%



Japan

42,254


37,535


4,719


13%



Rest of Asia

17,997


23,506


(5,509)


-23%



Other foreign countries

32,449


33,030


(581)


-2%



$        285,098


$        285,599


$            (501)


0%





Operating Segment Information


Quarter Ended


March 31,


Growth/(Decline)



2012


2011


Dollars


Percent


Net sales:










Golf clubs

$        242,552


$        240,986


$           1,566


1%



Golf balls

42,546


44,613


(2,067)


-5%



$        285,098


$        285,599


$            (501)


0%



Income before income taxes:










Golf clubs(1) (2) 

$          32,640


$          29,305


$           3,335


11%



Golf balls (1) (2)

1,577


2,300


(723)


-31%



Reconciling items (3)



(2,707)


(10,007)


7,300


-73%



$          31,510


$          21,598


$           9,912


46%




(1)Certain prior period amounts have been reclassified between product categories to conform with the current period presentation.


(2)In connection with the GOS Initiatives, the Company's golf club and golf ball operating segments absorbed pre-tax charges of $4.5 million and $1.8 million, respectively, during the quarter ended March 31, 2011.  The Company completed the final phase of its GOS initiatives in December 2011 and, as such, charges incurred in 2012 were nominal. 


(3)Represents corporate general and administrative expenses and other income (expense) not utilized by management in determining segment profitability.

 

Callaway Golf Company

Supplemental Financial Information

(In thousands, except per share data)

(Unaudited)







































Quarter Ended March 31,




Quarter Ended March 31,






2012




2011




























Pro Forma
Callaway Golf (1)


Non-Cash Tax
Adjustment(2)


Gain on Sale of
TF/BH(1)


Total as
Reported




Pro Forma
Callaway Golf


Global
Operations
Strategy


Gain on Sale of
Buildings


Total as
Reported



Net sales



$        285,098


$                    -


$                    -


$        285,098




$        285,599


$                           -


$                  -


$   285,599



Gross profit



124,371


-


-


124,371




129,983


(6,302)


-


123,681



% of sales



44%


 n/a 


 n/a 


44%




46%


 n/a 


 n/a 


43%



Operating expenses



103,161


-


(6,616)


96,545




106,646


227


(6,170)


100,703



Income (expense) from operations



21,210


-


6,616


27,826




23,337


(6,529)


6,170


22,978



Other income , net



3,684


-


-


3,684




(1,380)


-


-


(1,380)



Income before income taxes



24,894


-


6,616


31,510




21,957


(6,529)


6,170


21,598



Income tax provision (benefit)



9,584


(12,423)


2,547


(292)




8,911


(2,378)


2,247


8,780



Net income 



15,310


12,423


4,069


31,802




13,046


(4,151)


3,923


12,818



Dividends on convertible preferred stock



2,625


-


-


2,625




2,625


-


-


2,625



Net income allocable to common shareholders



$          12,685


$           12,423


$             4,069


$          29,177




$          10,421


$                  (4,151)


$           3,923


$     10,193

























Diluted earnings per share:



$              0.18


$               0.14


$               0.05


$              0.37




$              0.15


$                    (0.05)


$             0.05


$         0.15



Weighted-average shares outstanding:                           


84,930


84,930


84,930


84,930




84,719


84,719


84,719


84,719

























(1)  For comparative purposes, the Company applied an annualized statutory tax rate of 38.5% to derive pro forma results.














(2)Current period impact of the valuation allowance established against the Company's U.S. deferred tax assets and the impact of applying a statutory tax rate of 38.5% to pro forma results.




















































2012 Trailing Twelve Months Adjusted EBITDA




2011 Trailing Twelve Months Adjusted EBITDA

Adjusted EBITDA:

Quarter Ended




Quarter Ended


June 30,


September 30,


December 31,


March 31,






June 30,


September 30,


December 31, 


March 31,




2011


2011


2011


2012


Total




2010


2010


2010


2011


Total

Net income (loss)

$             (59,066)


$        (62,587)


$         (62,985)


$           31,802


$      (152,836)




$          11,465


$                (18,317)


$       (32,255)


$     12,818


$   (26,289)

Interest expense (income), net

207


399


324


817


1,747




(242)


(1,234)


(444)


142


(1,778)

Income tax provision (benefit)

45,483


14,854


12,442


(292)


72,487




8,932


(22,100)


(13,231)


8,780


(17,619)

Depreciation and amortization expense

9,311


9,247


10,198


8,745


37,501




9,606


10,687


10,707


9,880


40,880

Impairment charge

5,413


-


1,120


-


6,533




-


-


7,547


-


7,547

Adjusted EBITDA

$                 1,348


$        (38,087)


$         (38,901)


$           41,072


$        (34,568)




$          29,761


$                (30,964)


$       (27,676)


$     31,620


$       2,741

SOURCE Callaway Golf Company



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