Callaway Golf Reports Second Quarter Sales and Earnings

CARLSBAD, Calif. (PROTEXT) - Callaway Golf Company (NYSE: ELY) today reported net sales of $229.7 million for the second quarter ended June 30, 1999, a decrease of 2 percent compared to net sales of $233.3 million reported in the second quarter of 1998. Net income increased 17 percent to $24.8 million in the second quarter of 1999 from $21.1 million in the comparable quarter of 1998, and diluted earnings per share increased 17 percent to $0.35 in 1999 from $0.30 in the second quarter of 1998. For the six months ended June 30, 1999, net sales increased 1 percent to $415.5 million from $410.2 million for the same period in 1998. Net income increased 16 percent to $37.6 million ($0.53 per diluted share) from $32.3 million ($0.45 per diluted share) for the six months ended June 30, 1999 and 1998, respectively. Net sales of $229.7 million for the second quarter were comprised of: $83.3 million from sales of Great Big Bertha(R) Hawk Eye(R) Titanium Drivers and Fairway Woods, $40.7 million from sales of Big Bertha(R) Steelhead(TM) Stainless Steel Metal Woods, $57.1 million from sales of Big Bertha(R) X-12(R) Irons, $17.1 million from Odyssey(R) and Callaway Golf putter sales, and $6.5 million from other sales. Also included in second quarter results were sales of $25.0 million from Biggest Big Bertha(R) and Great Big Bertha(R) Titanium Drivers and Fairway Woods, Big Bertha(R) War Bird(R) Stainless Steel Metal Woods, and Great Big Bertha(R) Tungsten*Titanium(TM) Irons, most of which were at close-out prices caused by the introduction of the newer Callaway products mentioned above. Net sales of $415.5 million for the six months ended June 30, 1999, were comprised of: $154.5 million from sales of Great Big Bertha(R) Hawk Eye(R) Titanium Drivers and Fairway Woods, $79.5 million from sales of Big Bertha(R) Steelhead(TM) Stainless Steel Metal Woods, $102.6 million from sales of Big Bertha(R) X-12(R) Irons, $28.9 million from Odyssey(R) and Callaway Golf putter sales, and $11.6 million from other sales. First half results also included $38.4 million from sales of Biggest Big Bertha(R) and Great Big Bertha(R) Titanium Metal Woods, Big Bertha(R) War Bird(R) Stainless Steel Metal Woods, and Great Big Bertha(R) Tungsten*Titanium(TM) Irons. Cost of goods sold as a percentage of net sales was 53 percent in the second quarter of 1999, which was the same as the second quarter of 1998. If close-out sales, which have lower margins, are excluded, cost of goods sold as a percentage of net sales would have been 50 percent. The reduction in cost of goods sold for current products was primarily due to improved product mix, reduced customer compensation expense due to the charge incurred in the second quarter of 1998 associated with the price reduction enacted during that quarter, and greater production efficiencies. Selling expenses in the second quarter decreased to $34.9 million from $42.2 million in the same quarter in the prior year. This decrease was primarily related to planned reductions in advertising, pro tour and other promotional expenses in connection with the Company's 1998 restructuring program. General and administrative expenses for the second quarter of 1999 were $22.9 million compared to $23.7 million for the second quarter of 1998. This decrease was primarily related to decreased consulting, legal and other general and administrative expenses, offset by increased employee compensation and costs associated with the ramp -- up of the Company's golf ball operations. During the current quarter, the Company also wrote off approximately $4.0 million of past due trade accounts receivable against the Company's reserve for uncollectible accounts receivable. The Company considers its remaining reserve for uncollectible accounts receivable to be adequate. As of June 30, 1999, gross inventory decreased approximately 37% to $116.5 million. This decrease resulted from the implementation of improved inventory management systems and an effective closeout program of non-current product. Cash flow generated from operations for the six months ended June 30, 1999 totaled $82.6 million. These proceeds, along with the Company's existing cash balances, were primarily used to fund capital expenditures and pay off the Company's short-term lines of credit. Additionally, the Company expects the Callaway Golf Ball Company's $25.6 million equipment note payable to be converted to a lease before the end of 1999. "We are pleased with our second quarter results, which reflect efficiencies in our manufacturing process, reduced operating expenses, and a healthy demand for our products at the retail and the consumer levels," stated Ely Callaway, Founder, Chairman and C.E.O. "We have maintained our strong #1 market share position in woods, irons and putters. This shows the continued power of our brand. Callaway Golf clubs continue to be the leaders in the U.S. and in most of the other markets of the world." "During the last nine months we have been focused on continued operating improvements," added Mr. Callaway. "We have seen some good, solid results from those improvements and we expect more. Our manufacturing department has made encouraging progress in efficiencies, in production process improvements, reduced costs and significantly lowered inventory levels." Mr. Callaway continued, "The second half of 1999 will continue to present challenges for the Company. We will continue to have significant startup costs relating to our new golf ball operations. These charges are in accord with our plan to begin production of balls for inventory in the fourth quarter of this year for a market launch in early 2000. We will also incur costs associated with the transition of our Japanese distribution to our wholly-owned Japanese subsidiary in January 2000. We are enthusiastic about the long-term benefits we expect to gain from these two projects. However, due to the costs of these investments -- as well as normal seasonality, continued softness in many golf club markets around the world and other factors -- we believe our sales and earnings will be negatively affected toward the end of the year." In accordance with the Company's dividend practice for 1999, the dividend for the second quarter will be determined by the Board of Directors at its meeting in August 1999, payable in September. Callaway Golf makes and sells Big Bertha(R) metal woods and irons, including Great Big Bertha(R) Hawk Eye(R) Titanium Metal Woods, Big Bertha(R) Steelhead(TM) Stainless Steel Metal Woods, Big Bertha(R) X-12(R) Irons and Odyssey(R) putters and wedges with Stronomic(R) and Lyconite(TM) inserts. Statements used in this press release that relate to future plans, events, financial results or performance are forward- looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including but not limited to market acceptance of current and future products, seasonality, adverse market and economic conditions, competitive pressures, the "Y2K" or Year 2000 issue, and costs and potential disruption of business as a result of the restructuring of operations and the transition of the Company's Japanese distribution to a wholly-owned subsidiary, as well as other risks and uncertainties detailed from time to time in the Company's periodic reports on Forms 10-K, 10-Q and 8- K 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. 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For more information about Callaway Golf Company, please visit our web sites on the Internet at www.callawaygolf.com and www.odysseygolf.com Callaway Golf Company Consolidated Condensed Statement of Operations (unaudited) (In thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Net sales $229,708 100% $233,251 100% $415,452 100% $410,160 100% Cost of goods sold 121,044 53% 124,461 53% 223,268 54% 217,664 53% Gross profit 108,664 47% 108,790 47% 192,184 46% 192,496 47% Operating expenses: Selling 34,942 15% 42,236 18% 66,242 16% 78,029 19% General and administrative 22,852 10% 23,679 10% 44,455 11% 44,184 11% Research and development 8,279 4% 8,413 4% 16,733 4% 17,078 4% Restructuring 362 487 Income from operations 42,229 18% 34,462 15% 64,267 15% 53,205 13% Other (expense) income, net (1,393) 296 (2,165) (40) Income before income taxes 40,836 18% 34,758 15% 62,102 15% 53,165 13% Provision for income taxes 16,065 13,621 24,509 20,868 Net income $24,771 11% $21,137 9% $37,593 9% $32,297 8% Earnings per common share: Basic $0.35 $0.30 $0.54 $0.47 Diluted $0.35 $0.30 $0.53 $0.45 Common equivalent shares: Basic 70,302 69,350 70,142 69,267 Diluted 71,407 71,591 70,989 71,383 Callaway Golf Company Consolidated Condensed Balance Sheet (In thousands) June 30, December 31, 1999 1998 ASSETS (unaudited) Current assets: Cash and cash equivalents $26,898 $45,618 Accounts receivable, net 125,346 73,466 Inventories, net 84,284 149,192 Deferred taxes 49,322 51,029 Other current assets 6,981 4,301 Total current assets 292,831 323,606 Property, plant and equipment, net 194,335 172,794 Intangible assets, net 123,673 127,779 Other assets 32,479 31,648 $643,318 $655,827 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $37,696 $35,928 Line of credit 70,919 Note payable 25,595 12,971 Accrued employee compensation and benefits 23,072 11,083 Accrued warranty expense 38,029 35,815 Accrued restructuring costs 3,212 7,389 Income taxes payable 10,858 9,903 Total current liabilities 138,462 184,008 Long-term liabilities 19,229 18,723 Shareholders' equity 485,627 453,096 $643,318 $655,827 ots Original Text Service: Callaway Golf Company Internet: http://www.newsaktuell.de Contact: David Rane, Larry Dorman, or Krista Mallory of Callaway Golf Company, 760-931-1771 Company News On-Call: http://www.prnewswire.com/comp/124825.html or fax, 800-758-5804, ext. 124825 Web site: http://www.odysseygolf.com Web site: http://www.callawaygolf.com Subscribers please note that material bearing the slug "PROTEXT" is not part of CTK's news service and is not to be published under the "CTK" slug. 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