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Press release from PR Newswire

Callaway Golf Company Announces Second Quarter and First Half 2012 Results; Provides Additional Full Year Guidance

Thursday, July 26, 2012

Callaway Golf Company Announces Second Quarter and First Half 2012 Results; Provides Additional Full Year Guidance16:10 EDT Thursday, July 26, 2012- 2012 second quarter and first half increases in sales and earnings consistent with preliminary estimates announced earlier this month - On target with $52 million in annualized cost reductions announced earlier this month - Callaway estimates full year revenues of $835 - $865 million; reiterates estimated full year pro forma loss per share of $0.55 - $0.75.CARLSBAD, Calif., July 26, 2012 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) today announced its second quarter and first half 2012 financial results. The announced results were consistent with the preliminary estimates provided earlier this month and reflect the previously estimated increases in sales and earnings for the second quarter and first half of 2012 compared with the same periods in 2011.  The Company also announced that its cost-reduction initiatives are proceeding well and on pace to deliver the $52 million in targeted gross annualized savings, with an estimated $16 million and $36 million being realized in 2012 and 2013, respectively.  GAAP RESULTS.  For the second quarter of 2012, the Company reported the following results: Dollars in millions except per share amounts2012% of Sales2011% of SalesImprovement / (Decline)Net Sales$281-$274-$7Gross Profit$11139%$10337%$8Operating Expenses$10136%$11341%$12Operating Income/(Loss)$103%($10)(4%)$20Earnings/(Loss) per share$0.00-($0.96)-$0.96For the first half of 2012, the Company reported the following results:Dollars in millions except per share amounts2012% of Sales2011% of SalesImprovement / (Decline)Net Sales$566-$559-$7Gross Profit$23542%$22640%$9Operating Expenses$19835%$21438%$16Operating Income$377%$132%$24Earnings/(Loss) per share$0.41-($0.80)-$1.21NON-GAAP PRO FORMA FINANCIAL RESULTS.In addition to the Company's results prepared in accordance with GAAP, the Company has also provided additional information concerning its results on a non-GAAP pro forma basis. The manner in which the 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 second quarter of 2012, the Company reported the following pro forma results:Dollars in millions except per share amounts2012% of Sales2011% of SalesImprovement / (Decline)Net Sales$281-$274-$7Gross Profit$11240%$10940%$3Operating Expenses$9735%$10237%$5Operating Income$145%$62%$8Earnings/(Loss) per share$0.05-($0.01)-$0.06For the first half of 2012, the Company reported the following pro forma results:Dollars in millions except per share amounts2012% of Sales2011% of SalesImprovement / (Decline)Net Sales$566-$559-$7Gross Profit$23642%$23843%($2)Operating Expenses$20135%$20937%$8Operating Income$356%$305%$5Earnings per share$0.25-$0.15-$0.10"We are pleased that sales and earnings increased during the first half of 2012 compared to the same period in 2011," commented Chip Brewer, President and Chief Executive Officer. "The pace of improvement, however, is slower than anticipated and our market shares have not met our expectations, resulting in higher than expected retail inventory levels at this time of year. As a result, we have lowered our sales expectations for the second half of the year to allow us to work through any excess inventory at retail and prepare our business for improved results in 2013." "The recently announced cost-reduction initiatives are proceeding on pace with our plan," continued Mr. Brewer. "Having been through this before, I am convinced we are taking the correct actions to assure that this turnaround will be successful. Given the dynamics of the golf business, with products being introduced annually, it takes time for the turnaround to take effect.  Many of the changes we are making at this time to reduce costs, streamline our business, and change our products and the culture at the Company to be more consumer oriented, will have a greater impact on our financial results in 2013 and 2014 than the current year.  I do firmly believe that the changes we are making will be the keystone to a successful recovery and I look forward to reporting to you on our progress."  Business OutlookThe Company provided additional financial guidance, estimating that full year 2012 net sales will range from $835 to $865 million compared to $887 million in 2011.  The Company's estimated decline in net sales includes the impact of actions taken by the Company during the first half of the year to streamline its business, including the sale of the Top-Flite and Ben Hogan brands and the transition of its footwear and apparel businesses to a licensing model. The Company also reiterated its earnings guidance, estimating that full year pro-forma loss per share will range from $0.55 to $0.75, compared to a pro forma loss per share of $0.63 in 2011.  These pro forma estimates exclude from 2012 benefits and charges associated with the sale of the Top Flite/Ben Hogan brands, non-cash tax adjustments, and the cost-reduction initiatives and exclude from 2011 charges relating to a non-cash impairment of assets, non-cash tax adjustments, global operations strategy, restructuring, and the gain on the sale of buildings in 2011.Conference Call and WebcastThe Company will be holding a conference call at 2:00 p.m. PDT today to discuss the Company's financial results, business and the recently announced cost-reduction initiatives.  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, August 2, 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 12218357.  Non-GAAP Pro Forma Information:  The GAAP results contained in 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 pro forma 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 impairment 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, (vi) the gain recognized in connection with the sale of the Top-Flite and Ben Hogan brands, and (vii) the cost-reduction initiatives announced today. In addition, the Company also provided additional non?GAAP information about its results, excluding interest, taxes, depreciation and amortization expenses as well as impairment charges ("Adjusted EBITDA"). For comparative purposes, the Company applied an annualized statutory tax rate of 38.5% to derive the non-GAAP earnings/loss per share and Adjusted EBITDA.  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 and in forecasting the Company's business going forward.  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 in the 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 the estimated sales and loss per share for 2012, the estimated savings or charges (or timing thereof) related to the cost-reduction initiatives, future retail inventory levels, improved results in 2013 or beyond, and the Company's recovery/turnaround, 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 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, as well as future changes in foreign currency exchange rates. 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 GolfThrough 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 CompanyConsolidated Condensed Balance Sheets(In thousands)(Unaudited)June 30,December 31,20122011ASSETSCurrent assets:Cash and cash equivalents$   27,986$         43,023Accounts receivable, net254,903115,673Inventories215,794233,070Deferred taxes, net3,9554,029Income taxes receivable1,7533,654Other current assets18,66319,880    Total current assets523,054419,329Property, plant and equipment, net114,323117,147Intangible assets, net129,126151,138Other assets38,62239,498    Total assets$ 805,125$       727,112LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable and accrued expenses$ 113,762$       129,193Accrued employee compensation and benefits23,52223,785Accrued warranty expense7,8638,140Income tax liabilities5,2376,666Credit facility70,150-    Total current liabilities220,534167,784Long-term liabilities43,54746,514Shareholders' equity541,044512,814    Total liabilities and shareholders' equity$ 805,125$       727,112 Callaway Golf CompanyStatements of Operations(In thousands, except per share data)(Unaudited)Quarter EndedJune 30,20122011Net sales$ 281,123$ 273,814Cost of sales170,470171,152Gross profit110,653102,662Operating expenses:Selling 75,71174,196General and administrative 18,44630,124Research and development 6,9308,498Total operating expenses101,087112,818Income (loss) from operations9,566(10,156)Other expense, net(4,571)(3,427)Income (loss) before income taxes 4,995(13,583)Income tax provision 2,19645,483Net income (loss)2,799(59,066)Dividends on convertible preferred stock2,6252,625Net income (loss) allocable to common shareholders$        174$ (61,691)Earnings (loss) per common share:Basic$0.00($0.96)Diluted$0.00($0.96)Weighted-average common shares outstanding:Basic65,06064,425Diluted65,11264,425Year EndedJune 30,20122011Net sales$ 566,221$ 559,413Cost of sales331,197333,070Gross profit235,024226,343Operating expenses:Selling152,549149,415General and administrative30,68046,411Research and development14,40317,695Total operating expenses197,632213,521Income from operations37,39212,822Other expense, net(887)(4,807)Income before income taxes 36,5058,015Income tax provision1,90454,263Net income (loss)34,601(46,248)Dividends on convertible preferred stock5,2505,250Net income (loss) allocable to common shareholders$   29,351$     (51,498)Earnings (loss) per common share:Basic$0.45$(0.80)Diluted$0.41$(0.80)Weighted-average common shares outstanding:Basic65,02164,365Diluted84,95064,365 Callaway Golf CompanyConsolidated Condensed Statements of Cash Flows(In thousands)(Unaudited)Six Months EndedJune 30,20122011Cash flows from operating activities:Net income (loss)$  34,601$ (46,248)Adjustments to reconcile net income (loss) to net cash used in operating activities:Depreciation and amortization18,23419,191Impairment charge-5,413Deferred taxes, net(1,746)51,397Non-cash share-based compensation1,8967,581Gain and deferred gain amortization on disposal of long-lived assets(975)(6,752)Gain on sale of intangible assets(6,602)-Changes in assets and liabilities(136,688)(56,015)Net cash used in operating activities(91,280)(25,433)Cash flows from investing activities:Capital expenditures(14,115)(14,089)Proceeds from sale of property, plant and equipment7018,172Net proceeds from sale of intangible assets26,861-Net cash provided by investing activities12,8164,083Cash flows from financing activities:Issuance of common stock-1,160Dividends paid, net(6,554)(6,542)Proceeds from credit facilities, net70,15037,142Other financing activities69129Net cash provided by financing activities63,66531,889Effect of exchange rate changes on cash and cash equivalents(238)950Net (decrease) increase in cash and cash equivalents(15,037)11,489Cash and cash equivalents at beginning of period43,02355,043Cash and cash equivalents at end of period$  27,986$  66,532 Callaway Golf CompanyConsolidated Net Sales and Operating Segment Information(In thousands)(Unaudited)Net Sales by Product CategoryNet Sales by Product CategoryQuarter EndedSix Months EndedJune 30, Growth/(Decline)June 30, Growth/(Decline)20122011DollarsPercent20122011DollarsPercentNet sales:Woods$   58,549$   65,254$ (6,705)-10%$ 149,278$ 146,281$   2,9972%Irons 57,82561,142(3,317)-5%116,141131,133(14,992)-11%Putters38,87323,81015,06363%62,96552,64110,32420%Golf balls49,83854,733(4,895)-9%92,38499,346(6,962)-7%Accessories and other (1)76,03868,8757,16310%145,453130,01215,44112%$ 281,123$ 273,814$   7,3093%$ 566,221$ 559,413$   6,8081%Net Sales by RegionNet Sales by RegionQuarter EndedSix Months EndedJune 30, Growth/(Decline)June 30, Growth/(Decline)20122011DollarsPercent20122011DollarsPercentNet sales:United States$ 142,343$ 138,545$   3,7983%$ 292,042$ 283,876$   8,1663%Europe43,44342,9235201%86,14289,078(2,936)-3%Japan36,97828,7418,23729%79,23366,31812,91519%Rest of Asia26,61327,583(970)-4%44,60951,089(6,480)-13%Other foreign countries31,74636,022(4,276)-12%64,19569,052(4,857)-7%$ 281,123$ 273,814$   7,3093%$ 566,221$ 559,413$   6,8081%Operating Segment InformationOperating Segment InformationQuarter EndedSix Months EndedJune 30,  Growth/(Decline)June 30,  Growth/(Decline)20122011(2)DollarsPercent20122011(2)DollarsPercentNet sales:Golf clubs$ 231,285$ 219,081$ 12,2046%$ 473,837$ 460,067$ 13,7703%Golf balls49,83854,733(4,895)-9%92,38499,346(6,962)-7%$ 281,123$ 273,814$   7,3093%$ 566,221$ 559,413$   6,8081%Income (loss) before income taxes:Golf clubs $   17,953$   12,308$   5,64546%$   50,595$   41,613$   8,98222%Golf balls 4,1621,0853,077284%5,7393,3852,35470%Reconciling items (3)(17,120)(26,976)9,85637%(19,829)(36,983)17,15446%$     4,995$ (13,583)$ 18,578137%$   36,505$     8,015$ 28,490355%(1) Accessories & other include Packaged Sets as well as CGI Sales.(2)Certain prior period amounts have been reclassified between product categories to conform with the current period presentation.(3)Represents corporate general and administrative expenses and other income (expense) not utilized by management in determining segment profitability.Callaway Golf CompanySupplemental Financial Information(In thousands, except per share data)(Unaudited)Quarter Ended June 30,Quarter Ended June 30,20122011Pro Forma Callaway Golf (1)Non-Cash Tax Adjustment(2)Cost Reduction Initiatives(1) (3)Gain on Sale of Top-Flite & Ben Hogan(1)Total as ReportedPro Forma Callaway Golf (1)Global Operations Strategy (1)Non-Cash Impairment Charge (1) Non-Cash Tax Adjustment(2)Restructuring(1)Total as ReportedNet sales$    281,123$          -$         -$         -$281,123$ 273,814$          -$           -$           -$              -$273,814Gross profit111,590-(937)-110,653108,509(5,847)---102,662% of sales40% n/a  n/a  n/a 39%40% n/a  n/a  n/a  n/a 37%Operating expenses97,367-3,70614101,087102,277(34)5,413-5,162112,818Income (expense) from operations14,223-(4,643)(14)9,5666,232(5,813)(5,413)-(5,162)(10,156)Other expense, net(4,571)---(4,571)(3,427)----(3,427)Income (loss) before income taxes9,652-(4,643)(14)4,9952,805(5,813)(5,413)-(5,162)(13,583)Income tax provision (benefit)3,717272(1,788)(5)2,196751(2,374)(2,084)51,177(1,987)45,483Net income (loss)5,935(272)(2,855)(9)2,7992,054(3,439)(3,329)(51,177)(3,175)(59,066)Dividends on convertible preferred stock2,625---2,6252,625----2,625Net income (loss) allocable to common shareholders$       3,310$     (272)$ (2,855)$      (9)$       174$      (571)$  (3,439)$  (3,329)$ (51,177)$    (3,175)$(61,691)Diluted earnings (loss) per share:$         0.05$    (0.01)$   (0.04)$  (0.00)$      0.00$     (0.01)$    (0.05)$    (0.05)$     (0.80)$      (0.05)$    (0.96)Weighted-average shares outstanding:                           65,11265,11265,11265,11265,11264,42564,42564,42564,42564,42564,425Six Months Ended June 30,Six Months Ended June 30,20122011Pro Forma Callaway Golf (1) Non-Cash Tax Adjustment (2)Cost Reduction Initiatives(1) (3)Gain on Sale of Top-Flite & Ben Hogan(1)Total as ReportedPro Forma Callaway Golf (1) Global Operations Strategy(1)Non-Cash Impairment Charge (1)Non-Cash Tax Adjustment (2)Restructuring (1)Gain on Sale of Buildings(1)Total as ReportedNet sales$    566,221$          -$          -$        -$566,221$ 559,413$          -$           -$           -$             -$          -$559,413Gross profit235,985-(961)-235,024238,492(12,149)----226,343% of sales42% n/a  n/a  n/a 42%43% n/a  n/a  n/a  n/a  n/a 40%Operating expenses200,524-3,710(6,602)197,632208,9231935,413-5,162(6,170)213,521Income (expense) from operations35,461-(4,671)6,60237,39229,569(12,342)(5,413)-(5,162)6,17012,822Other expense, net(887)---(887)(4,807)-----(4,807)Income (loss) before income taxes34,574-(4,671)6,60236,50524,762(12,342)(5,413)-(5,162)6,1708,015Income tax provision (benefit)13,311(12,151)(1,798)2,5421,9049,662(4,752)(2,084)51,177(1,987)2,24754,263Net income (loss)21,26312,151(2,873)4,06034,60115,100(7,590)(3,329)(51,177)(3,175)3,923(46,248)Dividends on convertible preferred stock5,250---5,2505,250-----5,250Net income (loss) allocable to common shareholders$      16,013$ 12,151$ (2,873)$ 4,060$  29,351$     9,850$           (7,590)$   (3,329)$ (51,177)$     (3,175)$  3,923$(51,498)Diluted earnings (loss) per share:$          0.25$     0.14$   (0.03)$   0.05$      0.41$       0.15$             (0.12)$    (0.05)$     (0.79)$      (0.05)$    0.06$    (0.80)Weighted-average shares outstanding:                           84,95084,95084,95084,95084,95064,36564,36564,36564,36564,36564,36564,365(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 valuation allowance established against the Company's U.S. deferred tax assets and impact of applying statutory tax rate of 38.5% to pro forma results.(3)Includes costs associated with workforce reductions and transition costs associated with licensing the Company's North American apparel business and footwear business.2012 Trailing Twelve Month Adjusted EBITDA2011 Trailing Twelve Month Adjusted EBITDAAdjusted EBITDA:Quarter EndedQuarter EndedSeptember 30,December 31,March 31,June 30,September 30,December 31, March 31,June 30,2011201120122012Total2010201020112011TotalNet income (loss)$    (62,587)$(62,985)$  31,802$    2,799$(90,971)$   (18,317)$  (32,255)$  12,818$  (59,066)$   (96,820)Interest expense (income), net3993248178842,424(1,234)(444)142207(1,329)Income tax provision (benefit)14,85412,442(292)2,19629,200(22,100)(13,231)8,78045,48318,932Depreciation and amortization expense9,24710,1988,7459,48937,67910,68710,7079,8809,31140,585Impairment charge-1,120--1,120-7,547-5,41312,960Adjusted EBITDA$    (38,087)$(38,901)$  41,072$   15,368$(20,548)$   (30,964)$  (27,676)$  31,620$    1,348$   (25,672)SOURCE Callaway Golf