EXHIBIT 99
Contact: Krista Mallory
(760) 931-1771
CALLAWAY GOLF REPORTS SECOND QUARTER SALES AND EARNINGS
CARLSBAD, Calif./ July 22, 1998/ Callaway Golf Company (NYSE:ELY) today reported
net sales of $233.3 million for the second quarter ended June 30, 1998, a
decrease of 8% compared to net sales of $253.0 million reported in the second
quarter of 1997. Net income decreased 55% to $21.1 million in the second
quarter of 1998 from $46.8 million in the comparable quarter of 1997, and
diluted earnings per share decreased 55% to $0.30 in 1998 from $0.66 in the
second quarter of 1997.
For the six months ended June 30, 1998, net sales decreased 3% to $410.2
million from $422.1 million for the same period in 1997. Net income decreased
55% to $32.3 million ($0.45 per diluted share) from $71.3 million ($1.00 per
diluted share) for the six months ended June 30, 1998 and 1997, respectively.
Net sales of $233.3 million for the second quarter were comprised of:
$87.6 million from sales of Biggest Big Bertha(TM) and Great Big Bertha(R)
Titanium Drivers and Fairway Woods, $33.0 million from sales of Big Bertha(R)
War Bird(R) Stainless Steel Metal Woods, $74.5 million from sales of Big
Bertha(R) X-12(TM) Irons, $10.7 million from sales of Great Big Bertha(R)
Tungsten.Titanium(TM) Irons, $14.7 million from Odyssey Golf product sales, and
$12.8 million from other sales.
Net sales of $410.2 million for the six months ended June 30, 1998, were
comprised of: $160.4 million from sales of Biggest Big Bertha(TM) and Great Big
Bertha(R) Titanium Drivers and Fairway Woods, $59.9 million from sales of Big
Bertha(R) War Bird(R) Stainless Steel Metal Woods, $119.4 million from sales of
Big Bertha(R) X-12(TM) Irons, $22.6 million from sales of Great Big Bertha(R)
Tungsten.Titanium(TM) Irons, $25.1 million from Odyssey Golf product sales,
and $22.8 million from other sales.
Cost of goods sold as a percentage of net sales increased to 53% from 47%
in the second quarter of the previous year. This increase was primarily due to
increased sales of irons, which carry a lower margin, a metal woods price
reduction and accompanying customer compensation implemented during the quarter,
and an increase in warranty expense.
Selling expenses in the second quarter increased to $42.2 million from
$36.0 million in the same quarter in the prior year. This increase was
attributable primarily to expenses associated with Odyssey Golf, which the
Company did not own in the second quarter of 1997.
General and administrative expenses for the second quarter of 1998 were
$23.7 million compared to $16.1 million for the second quarter of 1997. This
increase was primarily due to (1) an increase in Callaway Golf Ball Company
expense associated with non-capitalized construction costs of its new facility,
as well as an increase in staffing for operations; (2) expenses associated with
Odyssey Golf and foreign subsidiaries, which the Company did not own in the
corresponding quarter of 1997; and (3) expenses related to the implementation
of the Company's new computer software system.
"The second quarter of 1998 was a very tough quarter for Callaway Golf
Company," said Donald H. Dye, President and Chief Executive Officer of Callaway
Golf. "While our sales continued to be the best in the industry, as the largest
player we felt the greatest negative impact from the worsening Asian economic
problems and what appears to be a general softening of demand in the United
States. Not only are our direct sales to Asia down over 25% from last year, but
our sales to U.S. customers who rely on Asian trade are also down significantly.
Moreover, although our iron sales are up due to the success of the new Big
Bertha(R) X-12(TM) Irons, our much more profitable metal wood sales are down
across the board, and we have lost some metal wood market share to competitors.
Some of this drop in wood sales was due, we believe, to the USGA's announcement
that it might prohibit the use of current metal woods -- a situation that was
not clarified until June when the USGA announced that products currently on the
market would not be challenged. As a result of these factors, revenues have
fallen well below our plan for the year."
Dye added, "While we hoped that a metal woods wholesale price reduction
announced in May would stimulate sales at both the wholesale and retail levels -
- - and we believe that it had some positive effect on our business -- it is clear
that this action will not overcome the negative factors affecting the market."
"We see no significant improvement in sales in the near term," continued
Mr. Dye. "Accordingly, we are initiating a thorough review of all business
elements in order to reduce costs to reflect the current state of our business.
While we believe that our core golf club business remains strong, and our
planned entry into the golf ball business remains viable, all initiatives will
be reviewed and those that are not essential to our core will be either delayed
or eliminated. Moreover, our core businesses will be reviewed with the
expectation that we can reduce operating expenses to better reflect the reduced
size of our current operations. We expect this downturn in business and our
cost reduction initiatives will negatively impact earnings for the remainder of
1998. We further expect that, based on a preliminary assessment, the Company
may have a net loss of up to $0.20 per share for the second half of 1998
resulting in aggregate net earnings per share for 1998 of as low as $0.25. It
is too early to predict results for 1999, but we do not expect at this time to
see a significant improvement in revenues from golf club sales during that
period. However, we expect that our cost reduction initiatives will result in
improved margins in 1999."
"During the remainder of the year, and throughout our review of costs, we
will preserve our strengths in our core business," stated Mr. Dye. "We expect
that our sales in 1998 will be substantially greater than any competitor has
ever achieved."
"Golf ball development continues to be on track for a ball introduction in
late 1999. Construction of our new ball plant is well under way. In addition,
we will continue to develop and introduce what we consider to be demonstrably
superior golf clubs at a pace consistent with past practices --including a new
metal wood to be introduced next month. We also expect that we will continue
with our ongoing efforts to consolidate our international distribution in Europe
and Asia. We believe, based upon our experience and our view of the market,
that direct control of our distribution in Europe, which we hope to achieve by
early 1999, and our distribution in Japan and elsewhere in Asia, which we hope
to achieve by 2000, will give us the opportunity to increase sales and capture
greater profit margins in these countries."
Ely Callaway, Founder and Chairman, stated, "Even though the first half of
1998 has been a constant challenge and the rest of the year does not look any
easier, our customers, investors, employees and friends should remember that we
are the largest U.S. golf club manufacturer -- by far -- with sales that are the
envy of all of our competition. We have and will continue to have, what we
believe to be the best golf clubs available, and we have the strength to meet
the current and near term challenges without jeapordizing our fundamental core
business."
It was also announced that the Board of Directors has approved a quarterly
dividend of $.07 per share payable August 25, 1998, to shareholders of record as
of August 5, 1998.
Callaway Golf makes and sells Big Bertha(R) metal woods and irons,
including Big Bertha(R) War Bird(R) Stainless Steel Metal Woods, Great Big
Bertha(R) Titanium Metal Woods, Biggest Big Bertha(TM) 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 costs and potential disruption of
business as a result of the reorganization of international 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 Six Months Ended
---------------------------- -----------------------------
June 30, June 30,
1998 1997 1998 1997
--------- --------- ---------- ---------
Net sales $233,251 100% $253,032 100% $410,160 100% $422,105 100%
Cost of goods sold 124,461 53% 118,290 47% 217,664 53% 200,360 47%
-------- -------- -------- --------
Gross profit 108,790 47% 134,742 53% 192,496 47% 221,745 53%
Operating expenses:
Selling 42,236 18% 36,016 14% 78,029 19% 62,595 15%
General and administrative 23,679 10% 16,074 6% 44,184 11% 32,328 8%
Research and development 8,413 4% 8,089 3% 17,078 4% 14,042 3%
-------- -------- -------- --------
Income from operations 34,462 15% 74,563 29% 53,205 13% 112,780 27%
Other income (expense), net 296 1,031 (40) 2,414
-------- -------- -------- --------
Income before income taxes 34,758 15% 75,594 30% 53,165 13% 115,194 27%
Provision for income taxes 13,621 28,773 20,868 43,906
-------- -------- -------- --------
Net income $ 21,137 9% $ 46,821 19% $ 32,297 8% $ 71,288 17%
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Earnings per common share:
Basic $0.30 $0.69 $0.47 $1.05
Diluted $0.30 $0.66 $0.45 $1.00
Common equivalent shares:
Basic 69,350 67,528 69,267 67,771
Diluted 71,591 70,728 71,383 71,244
Callaway Golf Company
Consolidated Condensed Balance Sheet
(In thousands)
June 30, December 31,
1998 1997
---------- -----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 35,110 $ 26,204
Accounts receivable, net 138,991 124,470
Inventories, net 150,801 97,094
Deferred taxes 27,002 23,810
Other current assets 11,880 10,208
-------- --------
Total current assets 363,784 281,786
Property, plant and equipment, net 166,653 142,503
Intangible assets, net 123,859 112,141
Other assets 23,531 25,284
-------- --------
$677,827 $561,714
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 52,021 $ 30,063
Line of credit 55,000
Accrued employee compensation and benefits 13,856 14,262
Accrued warranty expense 32,162 28,059
Income taxes payable 329
-------- --------
Total current liabilities 153,368 72,384
Long-term liabilities 9,517 7,905
Shareholders' equity 514,942 481,425
-------- --------
$677,827 $561,714
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