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 quarterended June 30, 1999, a decrease of 2 percent compared to netsales of $233.3 million reported in the second quarter of 1998.Net income increased 17 percent to $24.8 million in the secondquarter of 1999 from $21.1 million in the comparable quarter of1998, 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 1percent to $415.5 million from $410.2 million for the same periodin 1998. Net income increased 16 percent to $37.6 million ($0.53per 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 werecomprised of: $83.3 million from sales of Great Big Bertha(R)Hawk Eye(R) Titanium Drivers and Fairway Woods, $40.7 millionfrom sales of Big Bertha(R) Steelhead(TM) Stainless Steel MetalWoods, $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 quarterresults were sales of $25.0 million from Biggest Big Bertha(R)and Great Big Bertha(R) Titanium Drivers and Fairway Woods, BigBertha(R) War Bird(R) Stainless Steel Metal Woods, and Great BigBertha(R) Tungsten*Titanium(TM) Irons, most of which were atclose-out prices caused by the introduction of the newer Callawayproducts 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 BigBertha(R) Hawk Eye(R) Titanium Drivers and Fairway Woods, $79.5million from sales of Big Bertha(R) Steelhead(TM) Stainless SteelMetal Woods, $102.6 million from sales of Big Bertha(R) X-12(R)Irons, $28.9 million from Odyssey(R) and Callaway Golf puttersales, and $11.6 million from other sales. First half resultsalso included $38.4 million from sales of Biggest Big Bertha(R)and Great Big Bertha(R) Titanium Metal Woods, Big Bertha(R) WarBird(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 percentin the second quarter of 1999, which was the same as the secondquarter of 1998. If close-out sales, which have lower margins,are excluded, cost of goods sold as a percentage of net saleswould have been 50 percent. The reduction in cost of goods soldfor current products was primarily due to improved product mix,reduced customer compensation expense due to the charge incurredin the second quarter of 1998 associated with the price reductionenacted during that quarter, and greater production efficiencies. Selling expenses in the second quarter decreased to $34.9million from $42.2 million in the same quarter in the prior year.This decrease was primarily related to planned reductions inadvertising, pro tour and other promotional expenses inconnection with the Company's 1998 restructuring program. General and administrative expenses for the second quarter of1999 were $22.9 million compared to $23.7 million for the secondquarter of 1998. This decrease was primarily related to decreasedconsulting, legal and other general and administrative expenses,offset by increased employee compensation and costs associatedwith the ramp -- up of the Company's golf ball operations. During the current quarter, the Company also wrote offapproximately $4.0 million of past due trade accounts receivableagainst the Company's reserve for uncollectible accountsreceivable. The Company considers its remaining reserve foruncollectible accounts receivable to be adequate. As of June 30, 1999, gross inventory decreased approximately37% to $116.5 million. This decrease resulted from theimplementation of improved inventory management systems and aneffective closeout program of non-current product. Cash flow generated from operations for the six months endedJune 30, 1999 totaled $82.6 million. These proceeds, along withthe Company's existing cash balances, were primarily used to fundcapital expenditures and pay off the Company's short-term linesof credit. Additionally, the Company expects the Callaway GolfBall Company's $25.6 million equipment note payable to beconverted to a lease before the end of 1999. "We are pleased with our second quarter results, which reflectefficiencies in our manufacturing process, reduced operatingexpenses, and a healthy demand for our products at the retail andthe consumer levels," stated Ely Callaway, Founder, Chairman andC.E.O. "We have maintained our strong #1 market share position inwoods, irons and putters. This shows the continued power of ourbrand. 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 continuedoperating improvements," added Mr. Callaway. "We have seen somegood, solid results from those improvements and we expect more.Our manufacturing department has made encouraging progress inefficiencies, in production process improvements, reduced costsand significantly lowered inventory levels." Mr. Callaway continued, "The second half of 1999 will continueto present challenges for the Company. We will continue to havesignificant startup costs relating to our new golf balloperations. These charges are in accord with our plan to beginproduction of balls for inventory in the fourth quarter of thisyear for a market launch in early 2000. We will also incur costsassociated with the transition of our Japanese distribution toour wholly-owned Japanese subsidiary in January 2000. We areenthusiastic about the long-term benefits we expect to gain fromthese two projects. However, due to the costs of theseinvestments -- as well as normal seasonality, continuedsoftness in many golf club markets around the world and otherfactors -- we believe our sales and earnings will be negativelyaffected 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 theBoard of Directors at its meeting in August 1999, payable inSeptember. Callaway Golf makes and sells Big Bertha(R) metal woods andirons, including Great Big Bertha(R) Hawk Eye(R) Titanium MetalWoods, Big Bertha(R) Steelhead(TM) Stainless Steel Metal Woods,Big Bertha(R) X-12(R) Irons and Odyssey(R) putters and wedgeswith Stronomic(R) and Lyconite(TM) inserts. Statements used in this press release that relate to futureplans, events, financial results or performance are forward-looking statements as defined under the Private SecuritiesLitigation Reform Act of 1995. Actual results may differmaterially from those anticipated as a result of certain risksand uncertainties, including but not limited to market acceptanceof current and future products, seasonality, adverse market andeconomic conditions, competitive pressures, the "Y2K" or Year2000 issue, and costs and potential disruption of business as aresult of the restructuring of operations and the transition ofthe Company's Japanese distribution to a wholly-owned subsidiary,as well as other risks and uncertainties detailed from time totime in the Company's periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission. Readers arecautioned not to place undue reliance on these forward-lookingstatements which speak only as of the date hereof. The Companyundertakes no obligation to republish revised forward-lookingstatements to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events. If you would like to receive Callaway Golf's press releasesvia e-mail in the future, please send your request to:newslist@callawaygolf.com. For more information about Callaway Golf Company, please visitour web sites on the Internet at www.callawaygolf.com andwww.odysseygolf.com

Callaway Golf Company

Consolidated Condensed Statement of Operations(unaudited)

(In thousands, except per share data)

Three Months Ended

Six MonthsEnded

June 30,

June 30,

1999

1998

19991998 Net sales

$229,708 100% $233,251 100% $415,452 100% $410,160100% Cost of goods sold

121,044 53% 124,461 53% 223,268 54% 217,66453% Gross profit

108,664 47% 108,790 47% 192,184 46% 192,49647% Operating expenses: Selling

34,942 15% 42,236 18% 66,242 16% 78,02919% General and

administrative

22,852 10% 23,679 10% 44,455 11% 44,18411% Research and

development

8,279

4%

8,413 4% 16,733 4% 17,0784% Restructuring

362

487 Income from operations 42,229 18% 34,462 15% 64,267 15% 53,20513% Other (expense) income, net

(1,393)

296

(2,165)(40) Income before income taxes 40,836 18% 34,758 15% 62,102 15% 53,16513% Provision for income taxes

16,065

13,621

24,50920,868 Net income

$24,771 11% $21,137 9% $37,593 9% $32,2978% 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

70,14269,267

Diluted

71,407

71,591

70,98971,383

Callaway Golf Company

Consolidated Condensed Balance Sheet

(In thousands)

June 30,

December31,

19991998 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 $655,827ots Original Text Service: Callaway Golf Company Internet:http://www.newsaktuell.de Contact: David Rane, Larry Dorman, orKrista Mallory of Callaway Golf Company, 760-931-1771 CompanyNews On-Call: http://www.prnewswire.com/comp/124825.html or fax,800-758-5804, ext. 124825 Web site: http://www.odysseygolf.comWeb site: http://www.callawaygolf.com

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