Callaway Golf Company Announces A 22% Increase In Sales And A 30% Increase In Earnings For The First Quarter Of 2014; Reiterates

Callaway Golf Company Announces A 22% Increase In Sales And A 30% Increase In
    Earnings For The First Quarter Of 2014; Reiterates Financial Guidance

- 2014 first quarter sales increased 22% to $352 million, compared to $288
million in 2013.

- 2014 first quarter income from operations increased 54% to $62 million,
compared to $40 million in 2013.

- 2014 first quarter earnings per share increased 30% to $0.61, compared to
$0.47 in 2013.

- Callaway reiterates full year 2014 earnings guidance, estimating sales of
$880 million to $900 million and fully diluted earnings per share of $0.12 to
$0.16.

PR Newswire

CARLSBAD, Calif., April 23, 2014

CARLSBAD, Calif., April 23, 2014 /PRNewswire/ --Callaway Golf Company
(NYSE:ELY) today announced its first quarter 2014 financial results, including
a 22% increase in sales driven by double digit growth in woods (+33%), irons
(+29%), and golf balls (+24%). Additionally, income from operations increased
54% to $62 million and fully diluted earnings per share increased 30% to
$0.61, both driven by the increased sales and improvements in gross margins of
160 basis points, which more than offset an increase of $13 million in
operating expenses and a $9 million decrease in other income. The 2014 results
benefitted from a $4 million decrease in pre-tax charges related to the cost
reduction initiatives that were completed in 2013. The Company was able to
achieve these significantly improved financial results despite adverse changes
in foreign currency rates, which negatively impacted 2014 sales by $6 million,
a $9 million dollar decrease in other income/expense resulting primarily from
adverse changes in foreign currency contract values, and a $4 million increase
in stock compensation expense as a result of increases in the Company's stock
price. 

GAAP RESULTS

For the first quarter of 2014, the Company reported the following results, as
compared to the same period in 2013:

                                      First         First
Dollars in millions except per share          % of          % of  Improvement/
amounts                               Quarter       Quarter
                                              Sales         Sales (Decline)
                                      2014          2013
Net Sales                             $352    -     $288    -     $64
Gross Profit                          $165    47%   $130    45%   $35
Operating Expenses                    $103    29%   $90     31%   ($13)
Operating Income                      $62     18%   $40     14%   $22
Pre-Tax Income                        $57     16%   $44     15%   $13
Income Tax Provision                  $1      -     $2      1%    $1
Net Income                            $55     16%   $42     15%   $13
Earnings per share (Diluted)          $0.61   -     $0.47   -     $0.14

The Company's net sales for the first quarter of 2014 increased to $352
million or up 22%, as compared to $288 million for the same period in 2013.
The strength of the Company's 2014 product line more than offset the negative
impact of foreign currency movements. As compared to 2013, the Company's first
quarter 2014 net sales were negatively impacted by $6 million due to adverse
changes in foreign currency exchange rates.

In addition to the increase in sales, gross margins improved 160 basis points
compared to last year due to improved pricing and sales mix, the completion of
the cost-reduction initiatives in 2013, and productivity improvements
resulting from several initiatives implemented last year, all of which more
than offset the negative impact of foreign currency exchange rates and
increased product costs associated with additional technology in several new
products.

Operating expenses increased $13 million due to increases in marketing support
for new products launched during the quarter, an increase in stock
compensation expense associated with a 54% increase in the stock price
compared to March 31, 2013, and planned incremental tour investment.

Other income/expense decreased by $9 million to other expense of $5 million in
the first quarter of 2014 compared to other income of $4 million in the first
quarter of 2013. This decrease is primarily attributable to changes in
foreign currency contract valuations. These contracts, which are used to hedge
the Company's exposure to changes in foreign currency exchange rates, are
required to be marked to market at the end of each quarter and changes in the
contract values are reported in other income/expense. The Company recorded
contract valuation losses of $3 million in the first quarter of 2014 compared
to $8 million of contract valuation gains in the first quarter of 2013.

As a result of the increase in net sales and improved gross margins, which
more than offset the increase in operating expenses and foreign currency
contract losses, earnings per share for the first quarter of 2014 increased
30% to $0.61 compared to $0.47 in 2013.

"We are pleased with our results for the first quarter," commented Chip
Brewer, President and Chief Executive Officer. "These results reflect our
continued brand momentum and the success of the first stage of our multi-year
turnaround plan. In particular, our renewed focus on more consumer-oriented
products has resulted in double digit sales increases in our woods, irons and
golf ball product categories, resulting in a 22% increase in net sales for the
quarter and market share gains in each of our key markets around the world."

"As evidenced by our recent results, we are now clearly seeing the benefits of
the many changes we have made at the Company as part of our turnaround plan,"
continued Mr. Brewer. "We believe that our turnaround plan is firmly on track
and that we are laying the proper foundation for a sustained recovery over the
long-term. With that said, in the short term, we are anticipating very
challenging market conditions for the second quarter and possibly the balance
of the year. The golf market has been slow to open in many regions where we
conduct business, including our largest region, the United States, which
continues to have unfavorable weather in many parts of the country. In
addition, overall retail inventory levels are high and we anticipate a heavy
promotional environment while the industry works through the excess
inventory. We are maintaining our full year guidance, but if the golf market
does not open shortly or the promotional activity is heavier than we
anticipate, we would expect to be at the low end of our earnings guidance."

Business Outlook for 2014

Second Quarter

The Company has reported that it expects challenging market conditions in the
second quarter because of a late start to the 2014 golf season as well as high
retail inventory levels and anticipated promotional activity. Due to these
conditions, as well as the successful retail sell-in during the first quarter,
the Company estimates for the second quarter of 2014 (compared to the second
quarter of 2013) that its sales will be flat to down 5% percent and that its
earnings per share will be breakeven to slightly profitable.

Full Year

The Company is maintaining its financial guidance for the full year 2014, but
notes that if the golf market does not open shortly or if promotional activity
is heavier than anticipated the Company would expect to be at the low end of
the earnings guidance. The guidance previously provided is as follows:

  oNet sales for the full year 2014 are estimated to range from $880 to $900
    million, compared to $843 million in 2013. The Company believes this
    growth rate will exceed the overall market and be driven by brand momentum
    and market share gains.
  oGross margins are estimated to improve to approximately 41.7%, compared to
    37.3% in 2013. This improvement is expected to result from the positive
    full year impact of the many supply chain initiatives implemented as part
    of the turnaround strategy as well as an estimated improved mix of full
    price product sales. Heavier than anticipated promotional activity in the
    marketplace could cause gross margins to be less than 41.7%.
  oOperating expenses are estimated to be approximately $345 million,
    compared to $326 million in 2013. The increase in operating expenses is
    due to a planned increase in investments in tour and marketing, higher
    variable sales related expenses, and modest cost of living increases.
  oPre-tax income is estimated to range from $15 to $19 million, with a
    corresponding tax provision of approximately $6.5 million. Pre-tax income
    in 2013 was a loss of $13.3 million with a corresponding tax provision of
    $5.6 million.
  oFully diluted earnings per share is estimated to range from $0.12 to $0.16
    per share on a base of 78.0 million shares, compared to a 2013 loss per
    share of $0.31 on 72.8 million shares. If the Company is successful in
    achieving these results, it would be the Company's first net profit since
    2008 and would represent a significant milestone in the Company's
    turnaround story.

Conference Call and Webcast

The Company will be holding a conference call at 2:00 p.m. PDT today to
discuss the Company's financial results, outlook and business. 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 three hours after the call ends, and will remain available
through 9:00 p.m. PDT on Wednesday, April 30, 2014. The replay may be
accessed through the Internet at www.callawaygolf.com.

Non-GAAP Information

The GAAP results contained in this press release and the financial statement
schedules attached to this press release have been prepared in accordance with
accounting principles generally accepted in the United States ("GAAP"). To
supplement the GAAP results, the Company has provided certain non-GAAP
financial information as follows:

Constant Currency Basis. The Company provided certain information regarding
the Company's net sales or projected net sales on a "constant currency
basis." This information estimates the impact of changes in foreign currency
rates on the translation of the Company's current or projected future period
net sales as compared to the applicable comparable prior period. This impact
is derived by taking the current or projected local currency results and
translating them into U.S. Dollars based upon the foreign currency exchange
rates for the applicable comparable prior period. It does not include any
other effect of changes in foreign currency rates on the Company's results or
business.

Excluded Items. The Company presented certain of the Company's financial
results excluding sales related to the Top-Flite and Ben Hogan brands or the
products that were transitioned to a third party model, including apparel and
footwear in certain regions.

Adjusted EBITDA. The Company provided information about its results, excluding
interest, taxes, depreciation and amortization expenses, and impairment
charges ("Adjusted EBITDA").

In addition, because the Company previously reported its 2013 results on a
GAAP and Non-GAAP basis, the Company has included in the schedules to this
release a reconciliation of such information for 2013. The non-GAAP
information presented in this release and related schedules should not be
considered in isolation or as a substitute for any measure derived in
accordance with GAAP. The non-GAAP information may also be inconsistent with
the manner in which similar measures are derived or used by other companies.
Management uses such non-GAAP information for financial and operational
decision-making purposes and as a means to evaluate period over period
comparisons and in forecasting the Company's business going forward.
Management believes that the presentation of such non-GAAP information, when
considered in conjunction with the most directly comparable GAAP information,
provides additional useful comparative information for investors in their
assessment of the underlying performance of the Company's business without
regard to these items. The Company has provided reconciling information in the
attached schedules.

Forward-Looking Statements: Statements used in this press release that relate
to future plans, events, financial results, performance or prospects,
including statements relating to the estimated 2014 second quarter or full
year sales, sales growth, gross margins, operating expenses, pre-tax income,
and earnings per share, as well as the Company's recovery, the creation of
shareholder value, future market share gains, market conditions, improved
financial performance and the level of promotional activity in the
marketplace, are forward-looking statements as defined under the Private
Securities Litigation Reform Act of 1995. These statements are based upon
current information and expectations. Accurately estimating the
forward-looking statements is based upon various risks and unknowns including
delays, difficulties, or increased costs in implementing the Company's
turnaround strategy; consumer acceptance of and demand for the Company's
products; the level of promotional activity in the marketplace; unfavorable
weather conditions, future consumer discretionary purchasing activity, which
can be significantly adversely affected by unfavorable economic or market
conditions; and future changes in foreign currency exchange rates and the
degree of effectiveness of the Company's hedging programs. Actual results may
differ materially from those estimated or anticipated as a result of these
risks and unknowns or other risks and uncertainties, including continued
compliance with the terms of the Company's credit facility; delays,
difficulties or increased costs in the supply of components needed to
manufacture the Company's products or in manufacturing the Company's products;
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, the golf industry, and the
Company's business, see the Company's Annual Report on Form 10-K for the year
ended December 31, 2013 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 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 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® and Odyssey® brands
worldwide. For more information please visit www.callawaygolf.com.

Contacts: Brad Holiday
          Patrick Burke
          (760) 931-1771

Callaway Golf Company Logo.

Logo - http://photos.prnewswire.com/prnh/20091203/CGLOGO



Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
                                                March 31,   December 31,
                                                2014        2013
ASSETS
Current assets:
 Cash and cash equivalents                      $  23,557  $     36,793
 Accounts receivable, net                       289,222     92,203
 Inventories                                    246,197     263,492
 Other current assets                           29,671      29,115
  Total current assets                       588,647     421,603
Property, plant and equipment, net              68,735      71,341
Intangible assets, net                          118,030     118,113
Other assets                                    52,117      52,806
  Total assets                               $ 827,529   $    663,863
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable and accrued expenses          $ 153,600   $    157,120
 Asset-based credit facility                    140,587     25,660
 Accrued employee compensation and benefits     29,633      31,585
 Accrued warranty expense                       7,945       6,406
 Income tax liability                           3,639       5,425
  Total current liabilities                  335,404     226,196
Long-term liabilities                           150,036     153,048
Shareholders' equity                            342,089     284,619
  Total liabilities and shareholders' equity $ 827,529   $    663,863



Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
                                            Quarter Ended
                                            March 31,
                                            2014       2013
Net sales                                   $351,874   $ 287,756
Cost of sales                               186,977    157,320
Gross profit                                164,897    130,436
Operating expenses:
       Selling                             77,311     68,308
       General and administrative          17,996     14,587
       Research and development            7,913      7,413
              Total operating expenses      103,220    90,308
Income from operations                      61,677     40,128
Other (expense) income, net                 (4,891)    4,001
Income before income taxes                 56,786     44,129
Income tax provision                       1,474      2,469
Net income                                 55,312     41,660
Dividends on convertible preferred stock    -          783
Net income allocable to common shareholders $ 55,312  $  40,877
Earnings per common share:
       Basic                                $0.71      $0.58
       Diluted                              $0.61      $0.47
Weighted-average common shares outstanding:
       Basic                                77,370     71,060
       Diluted                              93,172     92,197



Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
                                                         Quarter Ended
                                                         March 31,
                                                         2014       2013
Cash flows from operating activities:
 Net income                                              $ 55,312  $ 41,660
 Adjustments to reconcile net income to net cash used in
 operating activities:
           Depreciation and amortization                 5,697      6,956
           Deferred taxes, net                           14         332
           Non-cash share-based compensation             1,163      757
           Gain on disposal of long-lived assets         (282)      (247)
           Discount amortization on convertible notes    182        169
           Changes in assets and liabilities             (186,884)  (150,187)
 Net cash used in operating activities                   (124,798)  (100,560)
Cash flows from investing activities:
 Capital expenditures                                    (4,048)    (3,145)
 Proceeds from sale of property, plant and equipment     44         3,651
 Net cash (used in) provided by investing activities     (4,004)    506
Cash flows from financing activities:
 Proceeds from credit facilities, net                    114,927    79,489
 Exercise of stock options                               1,591      -
 Equity issuance cost                                    5          -
 Dividends paid, net                                     (774)      (1,495)
 Net cash provided by financing activities               115,749    77,994
Effect of exchange rate changes on cash                 (183)      (1,871)
Net decrease in cash and cash equivalents                (13,236)   (23,931)
Cash and cash equivalents at beginning of period         36,793     52,003
Cash and cash equivalents at end of period               $ 23,557  $ 28,072



Callaway Golf Company
Consolidated Net Sales and Operating Segment Information and Non-GAAP
Reconciliation
(In thousands)
(Unaudited)
             Net Sales by Product Category
             Quarter Ended
             March 31,          Growth/(Decline)
             2014      2013     Dollars   Percent
Net sales:
 Woods       $         $       $ 31,848  33%
             129,714   97,866
 Irons      73,246    56,646   16,600    29%
 Putters     31,835    32,127   (292)     -1%
 Accessories 64,369    58,731   5,638     10%
 and other
 Golf balls  52,710    42,386   10,324    24%
             $         $        $ 64,118  22%
             351,874   287,756
             Net Sales by Region
                                                             Constant
                                                             Currency
                                                   Constant
                                                   Currency  Excluding
             Quarter Ended                                   Businesses
                                Growth             Growth
             March 31,                             vs.       Sold or
                                                   2013^(1)  Transitioned

                                                             Growth vs.
                                                             2013 ^(2)
             2014      2013     Dollars   Percent  Percent   Percent
Net sales:
 United      $         $        $ 24,909  16%      16%       16%
 States      184,691   159,782
 Europe      51,173    38,296   12,877    34%      25%       30%
 Japan       60,001    44,126   15,875    36%      51%       51%
 Rest of     26,997    20,098   6,899     34%      34%       36%
 Asia
 Other
 foreign     29,012    25,454   3,558     14%      26%       26%
 countries
             $         $        $ 64,118  22%      25%       26%
             351,874   287,756
^(1)Calculated by applying 2013 exchange rates to 2014 reported sales in
regions outside the U.S.
^(2)Calculated by applying 2013 exchange rates to 2014 reported sales in
regions outside the U.S. and excludes sales related to businesses sold or
licensed.
             Operating Segment Information
             Quarter Ended      

             March 31,          Growth/(Decline)
             2014      2013     Dollars   Percent
                       ^(1)
Net sales:
 Golf clubs $         $        $ 53,795  22%
             299,164   245,369
 Golf balls 52,710    42,387   10,323    24%
             $         $        $ 64,118  22%
             351,874   287,756
Income
before
income
taxes:
 Golf clubs  $        $       $ 17,980  40%
 ^(2)        62,737    44,757
 Golf balls  11,729    5,417    6,312     117%
 ^(2)
 Reconciling (17,680)  (6,045)  (11,635)  -192%
 items ^(3)
             $        $       $ 12,657  29%
             56,786    44,129

^(1)The prior year amounts have been restated to reflect the company's
current year allocation methodology related to freight revenue and costs,
certain discounts and other reserves not specific to a product type.
^(2)In connection with the 2012 Cost Reduction Initiatives, the Company's
golf club and golf ball operating segments absorbed pre-tax charges of $2.7
million and $0.1 million, respectively, during the quarter ended March 31,
2013. There were no costs associated with the 2012 Cost Reduction
Initiatives recorded in the quarter ended March 31, 2014.
^(3)Represents corporate general and administrative expenses and other income
(expense) not utilized by management in determining segment profitability.



Callaway Golf Company
Supplemental Financial Information - Non-GAAP Information and Reconciliation
(In thousands, except per share data)
(Unaudited)
Non-GAAP Reconciliation to GAAP
Reported Results:
                                         Quarter Ended March 31,
                                         2013
                                         Non-GAAP   Cost Reduction   Non-Cash Tax    Total as
                                         Callaway   Initiatives^(1)  Adjustment^(2)  Reported
                                         Golf ^(1)  (3)
                                         $      $         $         $ 
Net sales                                             -            -       287,756
                                         287,756
Gross profit                             132,718    (2,282)          -               130,436
% of sales                               46%        1%               n/a           45%
Operating expenses                       89,081     1,227            -               90,308
Income (expense) from                    43,637     (3,509)          -               40,128
operations
Other (expense) income,                  4,001      -                -               4,001
net
Income (loss) before                     47,638     (3,509)          -               44,129
income taxes
Income tax provision                     18,341     (1,351)          (14,521)        2,469
(benefit)
Net income (loss)                        29,297     (2,158)          14,521          41,660
Dividends on convertible                 783        -                -               783
preferred stock
Net income (loss) allocable to common    $      $          $          $  
shareholders                                     (2,158)         14,521          40,877
                                         28,514
                                         $      $         $         $   
Diluted loss per share:                        (0.02)           0.16           0.47
                                         0.33
Weighted-average shares                  92,197     92,197           92,197          92,197
outstanding:
^(1)For comparative purposes, the Company applied an annualized statutory tax rate of 38.5% to derive
non-GAAP results.
^(2)Impact of applying statutory tax rate of 38.5% to non-GAAP results.
^(3)Includes costs associated with the reorganization of the Company's golf ball manufacturing supply chain, Canada warehouse/office move,
workforce reductions and costs related to transitioning to a third party model for the European apparel business.
                          2014 Trailing Twelve Month Adjusted EBITDA                             2013 Trailing Twelve Month Adjusted EBITDA
Adjusted EBITDA:          Quarter Ended                                                          Quarter Ended
                          June 30,       September  December 31,     March 31,                   June    September  December   March
                                         30,                                                     30,     30,        31,        31,
                          2013           2013       2013             2014            Total       2012    2012       2012       2013    Total
                                         $      $           $          $         $     $       $      $     $ 
Net income (loss)         $   10,071           (49,499)        55,312          (5,269)          (86,798)                   (113,088)
                                         (21,153)                                                2,799              (70,749)  41,660
Interest expense, net     2,470          1,975      1,963            2,648           9,056       884     1,343      1,919      2,157   6,303
Income tax provision      1,435          1,037      658              1,474           4,604       2,196   750        2,246      2,469   7,661
Depreciation and          6,472          6,265      5,850            5,697           24,284      9,489   8,342      7,835      6,956   32,622
amortization expense
Impairment charges        -              -          -                -               -           -       17,056     4,877      -       21,933
                                         $      $           $          $         $     $       $      $     $  
Adjusted EBITDA           $   20,448           (41,028)        65,131          32,675             (59,307)                   (44,569)
                                         (11,876)                                                15,368             (53,872)  53,242



SOURCE Callaway Golf Company

Website: http://www.callawaygolf.com
 
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