Callaway Golf Announces First Quarter 2008 Results

05/05/2008 - 11:00

Callaway Golf Company (NYSE:ELY) today announced its financial results

for the first quarter ended March 31, 2008, reporting significant

improvements in sales and earnings over the same period a year ago.

Highlights for the quarter include:

Record net sales of $366.5 million, a 10% increase as compared to

$334.6 million for the same period in 2007.

Fully diluted earnings per share of $0.61 on 64.8 million shares as

compared to $0.48 on 68.3 million shares in 2007. This represents a

27% increase in diluted earnings per share.

Fully diluted earnings per share for the first quarter of 2008 and

2007 include $0.01 of after-tax charges for gross margin improvement

initiatives announced in November, 2006.

"We are pleased with our results for the first

quarter," commented George Fellows, President

and CEO. "The improvements made in our product

development process and supply chain have positively contributed to our

ability to achieve record first quarter sales."
"While cautiously optimistic given our first

quarter results," continued Mr. Fellows, "it

is important to remember that the second quarter is generally when the

consumer purchase cycle begins and it is a critical quarter for us in

achieving our targets. We remain optimistic that we can achieve our full

year guidance range, although given current macroeconomic and market

conditions, we believe our results will most likely be at the lower end

of our original range."
Details of First Quarter Results
Sales
The increase in sales for the first quarter is primarily attributable to:

increased fairway wood sales associated with our FT and FT-i product

launches

increased sales of Odyssey putters driven by our Black Series, Divine

Line, and sell-in of our new products

increased sales of golf balls driven by HX Hot Bite and HX Tour ix

products

increased accessories sales associated with packaged club sets and

headwear

foreign currency exchange rates

Gross Margins
Gross margins as a percentage of net sales were 48% for the first

quarter, the same as for the first quarter of 2007. Charges related to

the Company´s gross margin improvement

initiatives did not have a significant effect on gross margins in either

period.
The Company continues to benefit from the gross margin initiatives

implemented in 2007 which had a positive impact of 130 basis points

during the quarter. This benefit was primarily offset by i) an

unfavorable shift in product mix due to expected lower second year sales

of premium drivers and X-series irons which generally have higher

margins than the 2008 new products and ii) higher fixed cost absorption

charges related to lower golf ball production volumes during the fourth

quarter of 2007. The lower production volumes were consistent with the

Company´s inventory reduction initiatives and

the recent improvements in inventory management and planning, which

enables the Company to operate its golf ball business with less

inventory on hand. The effect of the fourth quarter production volumes

on first quarter results was consistent with the Company´s

expectations and should not affect the balance of the year. The Company

estimates full year gross margins to improve at least 200 basis points

compared to 2007.
Operating Expenses
Operating expenses for the quarter were $111 million, an increase of $6

million when compared to 2007. The increase is primarily due to higher

advertising and promotion expense to support the new products launched

during the quarter, an increase in costs due to the effect of foreign

exchange rates on non-U.S. expense, and general inflation. As a

percentage of sales, operating expenses declined to 30% compared to 31%

in 2007.
Business Outlook
The Company originally estimated in January that its full year 2008 net

sales would be in the range of $1.145 to $1.165 billion and that its

full year pro forma fully diluted earnings per share would be in the

range of $1.08 to $1.18 on an estimated 67 million shares. Pro forma

earnings exclude charges related to the Company´s

gross margin improvement initiatives, currently estimated at $0.08 per

share for 2008. While the Company still estimates its financial results

will fall within this range, given uncertainties surrounding the

economy, second quarter sell-through, and competitive actions, these

results are projected at this time to be at the lower end of this range

on a base of 66 million shares.
For more details, including pro forma reconciliations to assist in

year-over-year comparison, please see the attached "Supplemental

Financial Information."
The Company will be holding a conference call at 2:00 p.m. PDT today.

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 call ends, and will remain available

through 9:00 p.m. PDT on Thursday, May 8, 2008. The replay may be

accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-800-475-6701 toll free for calls

originating within the United States or 320-365-3844 for International

calls. The replay pass code is 920536.
Disclaimer: Statements used in

this press release that relate to future plans, events, financial

results, performance or prospects, including statements relating to

estimated sales, gross margins, and earnings for 2008, and the estimated

charges for the Company´s gross margin

initiatives, are forward-looking statements as defined under the Private

Securities Litigation Reform Act of 1995. These estimates and statements

are based upon current information and expectations. Accurately

estimating the Company´s future financial

performance is based upon various unknowns including consumer acceptance

and demand for the Company´s products as well

as future consumer discretionary purchasing activity, which can be

significantly adversely affected by unfavorable economic or market

conditions. Actual results may differ materially from those estimated or

anticipated as a result of these unknowns or other risks and

uncertainties, including delays, difficulties or increased costs in the

supply of components needed to manufacture the Company´s

products, in manufacturing the Company´s

products, or in connection with the implementation of the Company´s

planned gross margin initiatives or the implementation of future

initiatives; adverse weather conditions and seasonality; any rule

changes or other actions taken by the USGA or other golf association

that could have an adverse impact upon demand or supply of the Company´s

products; a decrease in participation levels in golf; and the effect of

terrorist activity, armed conflict, natural disasters or pandemic

diseases 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 that could affect

these statements and the Company´s business

see Part I, Item 1A of the Company´s Annual

Report on Form 10-K for the year ended December 31, 2007, as well as

other risks and uncertainties detailed from time to time in the Company´s

reports on Forms 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.
About Callaway Golf
Through an unwavering commitment to innovation, Callaway Golf Company

(NYSE:ELY) creates products and services designed to make every golfer a

better golfer. Callaway Golf Company manufactures and sells golf clubs

and golf balls, and sells golf accessories, under the Callaway Golf®

Odyssey®, Top-Flite®

and Ben Hogan® brands in more than 110

countries worldwide. For more information please visit www.callawaygolf.com or Shop.CallawayGolf.com.

= = = = = = = = = = =

Callaway Golf Company
- - - - - -

Consolidated Condensed Balance Sheets
- - - - - -

(In thousands)
- - - - - -

(Unaudited)
- - - - - -

- - - - - -

March 31

December 31

- - - - - -

2008

2007(1)

- - - - - -

ASSETS

- - - - - -

Current assets:

- - - - - -

Cash and cash equivalents

$
39,385

$
49,875
- - - - - -

Accounts receivable, net

300,495

112,064
- - - - - -

Inventories, net

264,319

253,001
- - - - - -

Deferred taxes

42,512

42,219
- - - - - -

Income taxes receivable

9,232
- - - - - -

Other current assets

33,377

30,190
- - - - - -

Total current assets

680,088

496,581
- - - - - -

- - - - - -

Property, plant and equipment, net

131,584

128,036
- - - - - -

Intangible assets, net

172,735

173,045
- - - - - -

Deferred taxes

19,094

18,885
- - - - - -

Other assets

39,799

40,416
- - - - - -

$
1,043,300

$
856,963
- - - - - -

- - - - - -

LIABILITIES AND SHAREHOLDERS´ EQUITY

- - - - - -

Current liabilities:

- - - - - -

Accounts payable and accrued expenses

$
159,124

$
130,410
- - - - - -

Accrued employee compensation and benefits

30,204

44,245
- - - - - -

Accrued warranty expense

12,990

12,386
- - - - - -

Credit facilities

155,570

36,507
- - - - - -

Income taxes payable

10,549

-
- - - - - -

Total current liabilities

368,437

223,548
- - - - - -

- - - - - -

Long-term liabilities

63,512

63,207
- - - - - -

- - - - - -

Minority interest

1,526

1,978
- - - - - -

- - - - - -

Shareholders´ equity

609,825

568,230
- - - - - -

$
1,043,300

$
856,963
- - - - - -

- - - - - -

(1)Prior period amounts have been

reclassified to conform with the current period classification.

- - - - - -

= = = = = = = = = = =

Callaway Golf Company
- - - - - -

Statements of Operations
- - - - - -

(In thousands, except per share data)
- - - - - -

(Unaudited)
- - - - - -

- - - - - -

Quarter Ended

- - - - - -

March 31

- - - - - -

2008

2007

- - - - - -

Net sales

$
366,452

100
%

$
334,607

100
%
- - - - - -

Cost of sales

190,918

52
%

173,886

52
%
- - - - - -

Gross profit

175,534

48
%

160,721

48
%
- - - - - -

Operating expenses:

- - - - - -

Selling expenses

80,161

22
%

75,291

23
%
- - - - - -

General and administrative expenses

22,488

6
%

21,558

6
%
- - - - - -

Research and development expenses

7,924

2
%

8,016

2
%
- - - - - -

Total operating expenses

110,573

30
%

104,865

31
%
- - - - - -

Income from operations

64,961

18
%

55,856

17
%
- - - - - -

Other income (expense), net

695

(1,338
)

- - - - - -

Income before income taxes

65,656

18
%

54,518

16
%
- - - - - -

Income tax provision

25,990

21,682

- - - - - -

Net income

$
39,666

11
%

$
32,836

10
%
- - - - - -

- - - - - -

Earnings per common share:

- - - - - -

Basic

$
0.62

$
0.49

- - - - - -

Diluted

$
0.61

$
0.48

- - - - - -

Weighted-average shares outstanding:

- - - - - -

Basic

63,895

67,272

- - - - - -

Diluted

64,843

68,318

- - - - - -

= = = = = = = = = = =

Callaway Golf Company
- - - - - -

Consolidated Condensed Statements of Cash Flows
- - - - - -

(In thousands)
- - - - - -

(Unaudited)
- - - - - -

- - - - - -

Quarter Ended
- - - - - -

March 31

- - - - - -

2008

2007(1)

- - - - - -

Cash flows from operating activities:

- - - - - -

Net income
$
39,666

$
32,836

- - - - - -

Adjustments to reconcile net income to net cash used in operating

activities:

- - - - - -

Depreciation and amortization

8,794

9,009

- - - - - -

Deferred taxes

8,521

(538
)
- - - - - -

Non-cash compensation

1,468

3,127

- - - - - -

(Gain)/loss on disposal of assets

(230
)

- - - - - -

Changes in assets and liabilities

(179,600
)

(122,057
)
- - - - - -

Net cash used in operating activities

(121,381
)

(77,620
)
- - - - - -

- - - - - -

Cash flows from investing activities:

- - - - - -

Capital expenditures

(11,732
)

(7,987
)
- - - - - -

Net cash used in investing activities

(11,732
)

(7,987
)
- - - - - -

- - - - - -

Cash flows from financing activities:

- - - - - -

Issuance of Common Stock

2,767

12,833

- - - - - -

Acquisition of Treasury Stock

(72
)

(15,155
)
- - - - - -

Net proceeds from line of credit

119,063

75,000

- - - - - -

Other financing activities

(254
)

951

- - - - - -

Net cash provided by financing activities

121,504

73,629

- - - - - -

Effect of exchange rate changes on cash and cash equivalents

1,119

210

- - - - - -

Net decrease in cash and cash equivalents

(10,490
)

(11,768
)
- - - - - -

Cash and cash equivalents at beginning of period

49,875

46,362

- - - - - -

Cash and cash equivalents at end of period
$
39,385

$
34,594

- - - - - -

(1)Prior period amounts have been

reclassified to conform with the current period classification.
- - - - - -

= = = = = = = = = = =

Callaway Golf Company
- - - - - -

Consolidated Net Sales and Operating Segment Information
- - - - - -

(In thousands)
- - - - - -

(Unaudited)
- - - - - -

- - - - - -

Net Sales by Product Category
- - - - - -

Quarter Ended

- - - - - -

March 31

Growth/(Decline)
- - - - - -

2008

2007(1)

Dollars

Percent
- - - - - -

Net sales:

- - - - - -

Woods

$
116,552

$
103,065

$
13,487

13
%
- - - - - -

Irons

96,496

100,100

(3,604
)

-4
%
- - - - - -

Putters

34,554

29,083

5,471

19
%
- - - - - -

Golf balls

58,433

53,548

4,885

9
%
- - - - - -

Accessories and other

60,417

48,811

11,606

24
%
- - - - - -

$
366,452

$
334,607

$
31,845

10
%
- - - - - -

- - - - - -

(1)Prior period amounts have been

reclassified to conform with the current period classification.

- - - - - -

Net Sales by Region
- - - - - -

Quarter Ended

- - - - - -

March 31

Growth/(Decline)
- - - - - -

2008

2007(1)

Dollars

Percent
- - - - - -

Net sales:

- - - - - -

United States

$
184,380

$
183,804

$
576

0
%
- - - - - -

Europe

66,090

56,023

10,067

18
%
- - - - - -

Japan

53,339

37,940

15,399

41
%
- - - - - -

Rest of Asia

26,461

22,821

3,640

16
%
- - - - - -

Other foreign countries

36,182

34,019

2,163

6
%
- - - - - -

$
366,452

$
334,607

$
31,845

10
%
- - - - - -

- - - - - -

Operating Segment Information
- - - - - -

Quarter Ended

- - - - - -

March 31

Growth/(Decline)
- - - - - -

2008

2007(1)

Dollars

Percent
- - - - - -

Net sales:

- - - - - -

Golf clubs

$
308,019

$
281,059

$
26,960

10
%
- - - - - -

Golf balls

58,433

53,548

4,885

9
%
- - - - - -

$
366,452

$
334,607

$
31,845

10
%
- - - - - -

Income before provision for income taxes:

- - - - - -

Golf clubs

$
76,199

$
65,343

$
10,856

17
%
- - - - - -

Golf balls

4,445

5,728

(1,283
)

-22
%
- - - - - -

Reconciling items (1)

(14,988
)

(16,553
)

1,565

9
%
- - - - - -

$
65,656

$
54,518

$
11,138

20
%
- - - - - -

- - - - - -

(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 March 31

- - - - - -

2008

2007
- - - - - -

- - - - - -

Pro FormaCallaway Golf

Gross Margin Improvement Initiatives

Total as Reported

Pro FormaCallaway Golf

Gross Margin Improvement Initiatives

Total as Reported
- - - - - -

Net sales

$
366,452

$
-

$
366,452

$
334,607

$
-

$
334,607

- - - - - -

Gross profit

176,629

(1,095
)

175,534

162,126

(1,405
)

160,721

- - - - - -

% of sales

48
%

n/a

48
%

n/a

48
%
- - - - - -

Operating expenses

110,573

104,865

- - - - - -

Income from operations

66,056

(1,095
)

64,961

57,261

(1,405
)

55,856

- - - - - -

Other income (expense), net

695

(1,338
)

(1,338
)
- - - - - -

Income (loss) before income taxes

66,751

(1,095
)

65,656

55,923

(1,405
)

54,518

- - - - - -

Income tax provision

26,412

(422
)

25,990

22,236

(554
)

21,682

- - - - - -

Net income

$
40,339

$
(673
)

$
39,666

$
33,687

$
(851
)

$
32,836

- - - - - -

Diluted earnings (loss) per share:

$
0.62

$
(0.01
)

$
0.61

$
0.49

$
(0.01
)

$
0.48

- - - - - -

Weighted-average shares outstanding:

- - - - - -

64,843

68,318

- - - - - -

= = = = = = = = = = =

Earnings Before Interest, Taxes, Depreciation and Amortization

(EBITDA):
- - - - - -

- - - - - -

2008 Trailing Twelve Months EBITDA

2007 Trailing Twelve Months EBITDA
- - - - - -

Quarter Ended

Quarter Ended
- - - - - -

June 30

September 30

December 31

March 31

June 30

September 30

December 31

March 31

- - - - - -

2007

2008

Total

2006

2007

Total
- - - - - -

Net income (loss)
$
36,639

$
1,269

$
(16,157
)

$
39,666

$
61,417

$
22,539

$
(11,916
)

$
(10,194
)

$
32,836

$
33,265
- - - - - -

Interest expense (income), net

1,672

(216
)

591

2,076

1,522

1,132

905

1,677

5,236
- - - - - -

Income tax provision (benefit)

23,591

830

(12,415
)

25,990

37,996

14,934

(6,075
)

(10,948
)

21,682

19,593
- - - - - -

Depreciation and amortization expense

8,591

9,864

7,862

8,794

35,111

7,935

8,736

8,313

9,009

33,993
- - - - - -

EBITDA
$
70,493

$
11,992

$
(20,926
)

$
75,041

$
136,600

$
46,930

$
(8,123
)

$
(11,924
)

$
65,204

$
92,087
- - - - - -