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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
October 19, 2004
Date of Report (Date of earliest event reported)
CALLAWAY GOLF COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-10962 95-3797580
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2180 Rutherford Road, Carlsbad, CA 92008-7328
(Address of principal executive offices) (Zip Code)
(760) 931-1771
Registrant's telephone number, including area code
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.*
On October 19, 2004, Callaway Golf Company issued a press release captioned
"Callaway Golf Announces Results for Third Quarter and First Nine Months of
2004." A copy of the press release is attached hereto as Exhibit 99.1 and
incorporated herein by this reference.
Item 9.01 Financial Statements and Exhibits.*
(c) Exhibits.
The following exhibit is being furnished herewith:
Exhibit 99.1 Press Release, dated October 19, 2004, captioned
"Callaway Golf Announces Results for Third Quarter and
First Nine Months of 2004."
* The information furnished under Item 2.02 and Item 9.01 of this Current Report
on Form 8-K, including Exhibit 99.1, shall not be deemed to be "filed" for the
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any registration statement or other filing under
the Securities Act of 1933, as amended, except as shall be expressly set forth
by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CALLAWAY GOLF COMPANY
Date: October 19, 2004 By: /s/ Bradley J. Holiday
-------------------------------
Name: Bradley J. Holiday
Title: Senior Executive Vice President
and Chief Financial Officer
Exhibit Index
-------------
Exhibit Number Description
- -------------- -----------
99.1 Press release, dated October 19, 2004, captioned, "Callaway
Golf Announces Results for Third Quarter and First Nine
Months of 2004."
Exhibit 99.1
Callaway Golf Announces Results for Third Quarter and
First Nine Months of 2004
CARLSBAD, Calif.--(BUSINESS WIRE)--Oct. 19, 2004--Callaway Golf
Company (NYSE:ELY) today announced its financial results for the
quarter ended September 30, 2004. The Company reported net sales of
$128.5 million, a net loss of $35.9 million, or a net loss of $0.53
per fully diluted share, on 67.8 million shares. Included in both the
net loss and fully diluted net loss per share were charges of $4.4
million and $0.07, respectively, associated with the integration of
the Top-Flite operations acquired in late 2003. On a pro forma basis,
which excludes these charges, the Company reported a net loss of $31.5
million, or a net loss of $0.46 per fully diluted share, compared with
"analyst consensus" estimates of a net loss of $0.45 per fully diluted
share (which also excluded integration charges). Reported net sales,
net income and fully diluted earnings per share for the same quarter
in 2003 (which included two weeks of Top-Flite results) were $153.6
million, $2.3 million and $0.03 on 66.8 million shares, respectively.
For the nine months ended September 30, 2004, the Company reported
net sales of $790.2 million, net income of $18.4 million, and fully
diluted earnings per share of $0.27 on 68.2 million shares. Net income
and earnings per share for the nine-month period were reduced by $14.3
million and $0.20, respectively, due to charges associated with the
integration of the Top-Flite operations. Excluding these charges, the
Company's pro forma net income for the nine-month period was $32.6
million, and pro forma fully diluted earnings per share were $0.47.
Reported net sales, net income and fully diluted earnings per share
for the same period in 2003 (which included two weeks of Top-Flite
results) were $667.4 million, $79.0 million and $1.19 on 66.3 million
shares, respectively.
"Our results in the third quarter reflect the challenges we are
facing in the current marketplace and the effect of the actions we
have taken to address these issues," said William C. Baker, Chairman
and CEO. "The price reductions taken on 2004 products together with
our decision to delay the timing of the launch of certain new products
resulted in improved inventory levels at retail during the quarter, a
trend we hope will continue as we prepare for 2005." Mr. Baker
concluded by saying, "The management team is committed to the long
term success of the company and the brand, and we are working together
as a strong and focused team."
For more details, including pro forma reconciliations to assist in
year-over-year comparison, please see the attached "Supplemental
Financial Information."
In accordance with the Company's usual dividend practice, the next
dividend will be determined by the Board of Directors at its upcoming
meeting.
BUSINESS OUTLOOK
"As previously announced, the Company has suspended providing
short term guidance in light of our current situation in the
marketplace, the ongoing CEO transition process, and the Company's
focus on strengthening the business in the long term," said Brad
Holiday, Senior Executive Vice President and Chief Financial Officer.
"Consistent with our business plan, we have announced three new
product lines for launch in the fourth quarter of 2004. These products
will target categories where retail inventory levels are not an issue
and where we believe consumer response will be strong. They include
Odyssey(R) White Steel(TM) putters, which use an innovative dual
insert technology that suspends a milled stainless steel insert inside
a modified White Hot(R) insert; Callaway Golf "Heavenwoods(R)", a new
line of hybrid utility golf clubs; and Callaway Golf Big Bertha(R)
Fusion(R) Irons, a new line of premium irons with exceptional playing
qualities resulting from a unique and proprietary construction."
The Company will be holding a conference call at 2:00 p.m. PDT on
October 19, 2004, which will be hosted by William C. Baker, Chairman
and CEO, and Bradley J. Holiday, Senior Executive Vice President and
Chief Financial Officer. 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 two hours after
the conclusion of the conference call. The replay may be accessed
through the Internet at www.callawaygolf.com or by telephone by
calling 1-800-642-1687 toll free for calls originating within the
United States or 706-645-9291 for International calls. The replay pass
code is 1386836 and the replay will be available through 9:00 p.m. PDT
on October 26, 2004.
Disclaimers
Disclaimer: Statements used in this press release that relate to
future plans, events, financial results, performance or prospects,
including statements relating to the long-term success of the Company
and its brands, future inventory levels, and the anticipated consumer
response to the Company's new product lines, are forward-looking
statements as defined under the Private Securities Litigation Reform
Act of 1995. These statements are based upon current information and
expectations. Actual results may differ materially from those
anticipated as a result of certain risks and uncertainties, including
but not limited to delays, difficulties or unanticipated costs in
integrating the Top-Flite Golf and Callaway Golf assets, brands and
businesses, the maintenance of good vendor relationships, adverse
market and economic conditions, market acceptance of current and
future products, adverse weather conditions (including the effects of
the recent hurricanes in Florida and the east coast) and seasonality,
competitive pressures, fluctuations in foreign currency exchange
rates, delays, difficulties or increased costs in the manufacturing of
the Company's golf club or ball products, or in the procurement of
materials or resources needed to manufacture the Company's golf club
or ball products, any rule changes or other actions taken by the USGA
or other golf association that could have an adverse impact upon
demand for the Company's products, a decrease in participation levels
in golf and the effect of terrorist activity or armed conflict 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, see Part I, Item 2
of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004, as well as other risks and uncertainties detailed from
time to time in the Company's reports on Forms 10-K, 10-Q and 8-K
subsequently filed from time to time 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.
"Analyst Consensus" Estimates: Analyst consensus estimates
repeated in this press release are based upon the public reports of
Thomson First Call and are provided for informational purposes only.
The Company does not support, endorse or otherwise adopt the estimates
of analysts, either individually or as a group. The use of an analyst
consensus estimate in this release or otherwise does not suggest or
imply that the Company believes that such estimate provides a
reasonable basis for evaluating, measuring or predicting the Company's
performance.
Regulation G: The financial results reported in this press release
have been prepared in accordance with accounting principles generally
accepted in the United States ("GAAP"). In addition to the GAAP
results, the Company has also provided additional information
concerning its results, which includes certain financial measures not
prepared in accordance with GAAP. The non-GAAP financial measures
included in this press release exclude the 2004 charges associated
with the integration of the Top-Flite Golf business acquired in late
2003. They also report the results of the Callaway Golf and Top-Flite
operations each on a stand-alone basis, although such operations are
not reportable business segments. These non-GAAP financial measures
should not be considered a substitute for any measure derived in
accordance with GAAP. These non-GAAP financial measures may also be
inconsistent with the manner in which similar measures are derived or
used by other companies. Management believes that the presentation of
such non-GAAP financial measures, when considered in conjunction with
the most directly comparable GAAP financial measures, provides useful
information to investors by permitting additional relevant
period-to-period comparisons of the historical operations of the
Callaway Golf business excluding the operations of the recently
acquired Top-Flite Golf business, as well as information concerning
operations notwithstanding the Top-Flite integration charges. For
certain non-GAAP financial measures, the Company has provided
Supplemental Financial Information as an attachment to this press
release which reconciles those non-GAAP financial measures to the most
directly comparable financial measures prepared in accordance with
GAAP. In other circumstances, the reconciling information is presented
in the text of this press release.
Callaway Golf Company makes and sells Big Bertha(R) Woods, Hybrids
and Irons, including ERC(R) Fusion(R) Drivers and Fairway Woods, Great
Big Bertha(R) II Titanium Drivers and Fairway Woods, Great Big Bertha
II 415 Titanium Drivers, Big Bertha Titanium Drivers and Big Bertha
Stainless Steel Fairway Woods, Big Bertha Heavenwood(R) Hybrids, Big
Bertha Fusion Irons, Hawk Eye(R) VFT(R) Tungsten Injected(TM) Titanium
Irons, Big Bertha Stainless Steel Irons, Steelhead(R) X-16(R) and
Steelhead X-16 Pro Series Stainless Steel Irons, the Game Enjoyment
System(TM) of GES(TM) Golf Clubs, Callaway Golf Forged+ Wedges and
Callaway Golf Forged Wedges, and Callaway Golf Tour Blue(TM) Putters.
Callaway Golf Company also makes and sells Odyssey(R) Putters,
including White Steel(TM), White Hot(R), TriHot(R), DFX(R), Dual
Force(R) and 2-Ball Putters. Callaway Golf Company makes and sells the
Callaway Golf(R) HX(R) Tour Balls, HX Blue and HX Red Balls, Big
Bertha(TM) Blue and Big Bertha Red Balls, and the Warbird(R) Balls.
Callaway Golf also owns and operates The Top-Flite Golf Company, a
wholly owned subsidiary that includes the Top-Flite(R) and Ben
Hogan(R) brands and Bettinardi Putters. The Trade In! Trade Up!(TM)
program is owned and operated by Callaway Golf Company. For more
information about Callaway Golf Company, please visit our websites at
www.callawaygolf.com, www.topflite.com, www.odysseygolf.com and
www.tradeintradeup.com.
Callaway Golf Company
Consolidated Condensed Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
September 30,
---------------------
2004 2003
--------- ---------
Net sales $128,457 100% $153,634 100%
Cost of goods sold 102,386 80% 83,414 54%
--------- ---------
Gross profit 26,071 20% 70,220 46%
Operating expenses:
Selling 58,300 45% 47,462 31%
General and administrative 23,219 18% 14,684 10%
Research and development 7,855 6% 7,734 5%
--------- ---------
Total operating expenses 89,374 70% 69,880 45%
Income (loss) from operations (63,303) -49% 340 0%
Other income, net 1,091 1,056
--------- ---------
Income (loss) before income taxes (62,212) -48% 1,396 1%
Income tax benefit (26,317) (938)
--------- ---------
Net income (loss) $(35,895) -28% $2,334 2%
========= =========
Earnings (loss) per common share:
Basic ($0.53) $0.04
Diluted ($0.53) $0.03
Weighted-average shares outstanding:
Basic 67,847 66,261
Diluted 67,847 66,808
Nine Months Ended
September 30,
-----------------------
2004 2003
--------- ---------
Net sales $790,151 100% $667,430 100%
Cost of goods sold 470,053 59% 332,878 50%
--------- ---------
Gross profit 320,098 41% 334,552 50%
Operating expenses:
Selling 203,991 26% 149,527 22%
General and administrative 67,914 9% 43,154 6%
Research and development 23,523 3% 20,648 3%
--------- ---------
Total operating expenses 295,428 37% 213,329 32%
Income from operations 24,670 3% 121,223 18%
Other income (expense), net (230) 1,345
--------- ---------
Income before income taxes 24,440 3% 122,568 18%
Income tax provision 6,075 43,613
--------- ---------
Net income $18,365 2% $78,955 12%
========= =========
Earnings per common share:
Basic $0.27 $1.20
Diluted $0.27 $1.19
Weighted-average shares outstanding:
Basic 67,641 65,936
Diluted 68,235 66,295
Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
September December
30, 31,
2004 2003
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $67,518 $47,340
Accounts receivable, net 114,857 100,664
Inventories, net 161,462 185,389
Deferred taxes 38,643 36,707
Income tax receivable 26,982 -
Other current assets 13,855 13,362
--------- ---------
Total current assets 423,317 383,462
Property, plant and equipment, net 139,707 164,763
Intangible assets, net 177,104 169,851
Deferred taxes - 12,289
Other assets 15,193 18,201
--------- ---------
$755,321 $748,566
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $75,528 $79,787
Accrued employee compensation and benefits 25,990 25,544
Accrued warranty expense 12,577 12,627
Income taxes payable - 11,962
Other current liabilities 53 240
--------- ---------
Total current liabilities 114,148 130,160
Long-term liabilities 29,558 29,023
Shareholders' equity 611,615 589,383
--------- ---------
$755,321 $748,566
========= =========
Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------
2004 2003
--------- ---------
Cash flows from operating activities:
Net income $18,365 $78,955
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 38,342 30,447
Loss on disposal of assets 4,270 1,580
Tax benefit for exercise of stock options 1,882 (1,623)
Net non-cash foreign currency hedging losses
(gains) 1,723 2,628
Other 12,355 535
Changes in assets and liabilities, net of
effects of acquisition (30,805) 27,581
--------- ---------
Net cash provided by operating activities 46,132 140,103
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (9,204) (165,147)
Captial expenditures (16,065) (4,826)
Other 415 138
--------- ---------
Net cash used in investing activities (24,854) (169,835)
--------- ---------
Cash flows from financing activities:
Issuance of Common Stock 18,649 12,875
Acquisition of Treasury Stock (6,298) (3,220)
Dividends paid, net (14,232) (13,863)
Other - (2,590)
--------- ---------
Net cash used in financing activities (1,881) (6,798)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents 781 913
Net increase (decrease) in cash and cash
equivalents 20,178 (35,617)
Cash and cash equivalents at beginning of period 47,340 108,452
--------- ---------
Cash and cash equivalents at end of period $67,518 $72,835
========= =========
Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)
Net Sales by Product Category
--------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
Woods $14,329 $43,996 $(29,667) -67%
Irons 36,298 56,136 (19,838) -35%
Putters 15,588 26,983 (11,395) -42%
Golf balls 41,128 14,121 27,007 191%
Accessories and other 21,114 12,398 8,716 70%
--------- --------- ---------
$128,457 $153,634 $(25,177) -16%
========= ========= =========
Net Sales by Product Category
-------------------------------------
Nine Months Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
Woods $213,563 $213,898 $(335) 0%
Irons 219,792 242,729 (22,937) -9%
Putters 81,731 118,074 (36,343) -31%
Golf balls 187,755 43,395 144,360 333%
Accessories and other 87,310 49,334 37,976 77%
--------- --------- ---------
$790,151 $667,430 $122,721 18%
========= ========= =========
Net Sales by Region
--------------------------------------
Quarter Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
United States $71,421 $77,691 $(6,270) -8%
Europe 21,867 29,800 (7,933) -27%
Japan 10,065 23,031 (12,966) -56%
Rest of Asia 9,924 15,317 (5,393) -35%
Other foreign countries 15,180 7,795 7,385 95%
--------- --------- ---------
$128,457 $153,634 $(25,177) -16%
========= ========= =========
Net Sales by Region
-------------------------------------
Nine Months Ended
September 30, Growth/(Decline)
------------------- -----------------
2004 2003 Dollars Percent
--------- --------- --------- -------
Net sales:
United States $460,381 $370,194 $90,187 24%
Europe 146,922 123,881 23,041 19%
Japan 58,399 77,568 (19,169) -25%
Rest of Asia 43,045 48,878 (5,833) -12%
Other foreign countries 81,404 46,909 34,495 74%
--------- --------- ---------
$790,151 $667,430 $122,721 18%
========= ========= =========
Operating Segment Information
---------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales:
Golf clubs $87,329 $139,513 $602,396 $624,034
Golf balls 41,128 14,121 187,755 43,396
--------- --------- --------- ---------
$128,457 $153,634 $790,151 $667,430
========= ========= ========= =========
Income (loss) before income
taxes:
Golf clubs $(39,631) $17,436 $84,926 $170,192
Golf balls (4,894) (6,982) (2,317) (17,081)
Reconciling items (1) (17,687) (9,058) (58,169) (30,543)
--------- --------- --------- ---------
$(62,212) $1,396 $24,440 $122,568
========= ========= ========= =========
(1) Represents corporate general and administrative expenses and
other income (expense) not utilized by management in determining
segment profitability.
Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)
Quarter Ended September 30,
--------------------------------------------------
2004 2003(a)
---------------------------------------- ---------
Callaway Top-Flite Integration
Golf Golf Charges Total Total
--------- --------- -------------------- ---------
Net sales $89,788 $38,669 $- $128,457 $153,634
Gross profit 22,107 8,784 (4,820) 26,071 70,220
% of sales 25% 23% n/a 20% 46%
Operating expenses 68,925 17,801 2,648 89,374 69,880
--------- --------- ---------- --------- ---------
Income (loss) from
operations (46,818) (9,017) (7,468) (63,303) 340
Other income
(expense), net 1,319 (228) - 1,091 1,056
--------- --------- ---------- --------- ---------
Income (loss)
before income
taxes (45,499) (9,245) (7,468) (62,212) 1,396
Income tax benefit (19,650) (3,569) (3,098) (26,317) (938)
--------- --------- ---------- --------- ---------
Net income (loss) $(25,849) $(5,676) $(4,370) $(35,895) $2,334
========= ========= ========== ========= =========
Diluted earnings
(loss) per share $(0.38) $(0.08) $(0.07) $(0.53) $0.03
Weighted-average shares
outstanding 67,847 67,847 67,847 67,847 66,808
Nine Months Ended September 30,
--------------------------------------------------
2004 2003(a)
---------------------------------------- ---------
Callaway Top-Flite Integration
Golf Golf Charges Total Total
--------- --------- -------------------- ---------
Net sales $614,557 $175,594 $- $790,151 $667,430
Gross profit 278,490 55,766 (14,158) 320,098 334,552
% of sales 45% 32% n/a 41% 50%
Operating expenses 221,886 64,436 9,106 295,428 213,329
--------- --------- ---------- --------- ---------
Income (loss) from
operations 56,604 (8,670) (23,264) 24,670 121,223
Other income
(expense), net (415) 185 - (230) 1,345
--------- --------- ---------- --------- ---------
Income (loss)
before income
taxes 56,189 (8,485) (23,264) 24,440 122,568
Income tax
provision 18,362 (3,284) (9,003) 6,075 43,613
--------- --------- ---------- --------- ---------
Net income (loss) $37,827 $(5,201) $(14,261) $18,365 $78,955
========= ========= ========== ========= =========
Diluted earnings
(loss) per share $0.55 $(0.08) $(0.20) $0.27 $1.19
Weighted-average shares
outstanding 68,235 68,235 68,235 68,235 66,295
(a) During the latter part of 2003, Callaway Golf Company completed
the acquisition of substantially all of the golf-related assets
of The Top-Flite Golf Company. The results reported for the
periods ended September 30, 2003 are primarily representative of
the Callaway Golf and Odyssey brand operations, but also include
15 days of Top-Flite Golf operating results in the United States.
CONTACT: Callaway Golf Company
Brad Holiday or Larry Dorman, 760-931-1771