EXHIBIT 99.1
Contact: David Rane
Krista Mallory
(760) 931-1771
CALLAWAY GOLF REPORTS THIRD QUARTER SALES AND EARNINGS
CARLSBAD, Calif./October 21, 1998/Callaway Golf Company (NYSE:ELY) today
reported net sales of $172.9 million for the third quarter ended September 30,
1998, a 32.8% decrease from net sales of $257.4 million reported in the third
quarter of 1997. Net income decreased 84.2% to $5.8 million in the third
quarter of 1998 from $37.0 million in the comparable quarter of 1997, and
diluted earnings per share decreased 84.6% to $0.08 in the third quarter of 1998
from $0.52 in the third quarter of 1997.
For the nine months ended September 30, 1998, net sales decreased 14.2% to
$583.1 million from $679.5 million for the same period in 1997. Net income
decreased 64.8% to $38.1 million ($0.53 per diluted share) from $108.3 million
($1.52 per diluted share) for the nine months ended September 30, 1998 and 1997,
respectively.
Net sales of $172.9 million for the third quarter were comprised of:
revenues of $55.4 million from sales of titanium metal woods; $44.0 million from
sales of stainless steel metal woods; $55.5 million from sales of irons;
$14.4 million from Odyssey Golf, Inc. product sales; and $ 3.6 million from
other sales.
Net sales of $583.1 million for the nine months ended September 30, 1998,
were comprised of: revenues of $215.8 million from sales of titanium metal
woods; $103.9 million from sales of stainless steel metal woods; $197.8
million from sales of irons; $39.5 million from Odyssey Golf, Inc. product
sales; and $26.1 million from other sales.
Included in operating expenses for the three months and the nine months
ended September 30, 1998 were expenses related to golf ball development of $6.1
million and $15.3 million, respectively, and expenses for other non-golf club
related activities of $4.2 million and $8.6 million, respectively. The combined
impact against earnings is the equivalent of $0.09 and $0.21 per share,
respectively, for the three-month and nine-month periods.
Cost of goods sold as a percentage of net sales increased to 52% from 46%
in the third quarter of the previous year. This increase was primarily due to
lower sales revenue associated with a metal wood wholesale price reduction
implemented in May, 1998, increased sales of irons, which carry a lower margin,
and an increase in warranty expense.
Selling expenses in the third quarter increased to $40.3 million from $32.6
million in the comparable prior year's quarter. This increase was attributable
mainly to increased selling expenses associated with Odyssey Golf which the
Company purchased in August 1997, and expenses related to newly acquired foreign
and domestic distribution subsidiaries.
General and administrative expenses for the third quarter of 1998 were
$24.5 million compared to $24.7 million for the third quarter of 1997. These
expenses were affected by a reduction in employee bonus accrual expenses and
lower legal expenses, offset by an increase in Callaway Golf Ball Company
expenses related to non-capitalized construction costs of its new facility and
increased staffing costs, expenses associated with newly acquired foreign and
domestic distribution subsidiaries, and increased software, hardware and
personnel costs related to the Company's new computer system.
"Overall sales continued to be soft in the third quarter even though our
Big Bertha(R) Metal Woods and Irons continued to be the market leaders in units
and in dollars, and even though the recent Big Bertha(R) Steelhead(TM) Metal
Wood launch has been the most successful product launch in our history," said
Ely Callaway, Chairman, President and CEO of Callaway Golf. "Sales of our more
profitable titanium metal woods remain soft domestically and abroad.
Competition has caused us to lose some unit market share domestically, partly
because of lower pricing strategies implemented by certain large competitors.
Revenues continued to fall well below our plan for the year. We do not see any
significant improvement in sales in the next several quarters, and various
factors beyond our control, including changes in international economies,
competition, and possible regulatory action by the United States Golf
Association could result in a further softening of the golf equipment market."
The Board of Directors will be meeting over the next few days to discuss a
broad restructuring plan. At some point during the next two weeks the Company
expects to announce the basics of its plan, and the charges that will be
incurred during the fourth quarter with respect to that plan. Although the Board
has not yet met nor approved a restructuring plan, it is anticipated that the
restructuring charges expected to be incurred will be greater than those
announced in the Company's second quarter earnings release (dated July 22,
1998).
"We believe that we are acting prudently under very difficult market
conditions and that we will maintain the Company's core strengths while
gradually improving profitability," said Mr. Callaway. "We believe we will
complete 1998 having been by far the #1 seller of premium golf clubs throughout
the world. We also think the successful introduction of the Big Bertha(R)
Steelhead(TM) Metal Woods during the past 8 weeks shows that we are capable of
continuing to do what it takes to lead the industry in product innovation and
performance enhancement golf clubs which benefit the average golfer as well as
the professional. While we believe that we can implement a plan during the
fourth quarter that will gradually improve profitability and shareholder value,
we do not intend to do anything that will jeopardize these strengths."
It was also announced that the Board of Directors approved a quarterly
dividend of $.07 per share payable November 24, 1998, to shareholders of record
as of November 4, 1998. Future payments of dividends will be reviewed as part
of the business plan being undertaken.
Callaway Golf makes and sells Big Bertha(R) Metal Woods and Irons,
including Big Bertha(R) War Bird(R) and Steelhead(TM) Stainless Steel Metal
Woods, Great Big Bertha(R) Titanium Metal Woods, Biggest Big Bertha(R) Titanium
Drivers, Great Big Bertha(R) Tungsten.Titanium(TM) Irons and Big Bertha(R)
X-12(TM) Irons. Callaway Golf's wholly-owned subsidiary, Odyssey Golf, Inc.,
makes and sells 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, competitive pressures, and investment risks, costs and
potential disruption of business as a result of the restructuring of operations,
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.
For more information about Callaway Golf Company, please visit our web site on
the Internet at www.callawaygolf.com
Callaway Golf Company
Consolidated Condensed Income Statement (Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September 30, September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Net sales $172,944 100% $257,435 100% $583,104 100% $679,540 100%
Cost of goods sold 89,859 52% 118,666 46% 307,523 53% 319,026 47%
-------- -------- -------- --------
Gross profit 83,085 48% 138,769 54% 275,581 47% 360,514 53%
Operating expenses:
Selling 40,285 23% 32,643 13% 118,314 20% 95,238 14%
General and 24,534 14% 24,716 10% 68,718 12% 57,045 8%
administrative
Research and development 9,132 5% 10,640 4% 26,209 4% 24,682 4%
Litigation settlement 12,000 5% 12,000 2%
-------- -------- --------- --------
Income from operations 9,134 5% 58,770 23% 62,340 11% 171,549 25%
Other income, net 343 1,146 303 3,561
-------- -------- -------- --------
Income before income taxes 9,477 5% 59,916 23% 62,643 11% 175,110 26%
Provision for income taxes 3,641 22,867 24,509 66,773
-------- -------- -------- --------
Net income $ 5,836 3% $ 37,049 14% $ 38,134 7% $108,337 16%
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Earnings per common share:
Basic $0.08 $0.54 $0.55 $1.59
Diluted $0.08 $0.52 $0.53 $1.52
Common equivalent shares:
Basic 69,610 68,704 69,383 68,085
Diluted 71,199 71,648 71,323 71,382
Callaway Golf Company
Consolidated Condensed Balance Sheet
(In thousands)
September 30, December 31,
1998 1997
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 31,012 $ 26,204
Accounts receivable, net 117,861 124,470
Inventories, net 162,271 97,094
Deferred taxes 27,376 23,810
Other current assets 9,663 10,208
-------- --------
Total current assets 348,183 281,786
Property, plant and equipment, net 183,370 142,503
Intangible assets, net 123,762 112,141
Other assets 23,455 25,284
-------- --------
$678,770 $561,714
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 41,191 $ 30,063
Line of credit 50,000
Accrued employee compensation and benefits 12,632 14,262
Accrued warranty expense 34,576 28,059
Income taxes payable 11,581
-------- ---------
Total current liabilities 149,980 72,384
Long-term liabilities 9,784 7,905
Shareholders' equity 519,006 481,425
-------- --------
$678,770 $561,714
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