Callaway Golf Company (NYSE:ELY) has released its consolidated financial results for the fourth quarter and full year ended 31st December 2003, announcing net sales for the full year of $814 million compared with $793 million for the prior year. Net income for the full year was $46 million versus $69 million for the prior year. Fully diluted earnings per share for the period were $0.68 compared with $1.03 for the prior year. Currency fluctuations had a favourable impact on 2003 net sales of $28 million.
Net sales for the fourth quarter ended December 2003 were $147 million versus $123 million in the comparable period during the prior year. Net loss for the quarter was $33 million versus $6 million for the prior period. Loss per share was $0.50 compared with $0.08 for the comparable period in the prior year. Currency fluctuations had a favourable impact on net sales of $6 million.
The Company believes it is helpful for interested parties to consider the following in evaluating the Company’s results:
The Company’s consolidated net income and earnings per share for 2003 were significantly affected by pre-tax charges of $24 million (primarily non-cash) associated with the integration of the Top-Flite Golf business; without those charges, reported net income and fully diluted earnings per share for 2003 would have been $62 million and $0.93, respectively, for the full year, and losses of $17 million and $0.26 per share, respectively, for the fourth quarter.
The Company’s consolidated net income and earnings per share for 2002 were positively affected by a pre-tax adjustment of $17 million to decrease the Company’s warranty reserve.
Excluding the effects of the $24 million Top-Flite integration charges from 2003 results and the $17 million warranty reversal from 2002 results, net income for 2003 would have been $62 million versus $59 million in 2002 (an increase of 5%), and fully diluted earnings per share would have been $0.93 in 2003 compared to $0.87 in 2002 (an increase of 7%).
Callaway Golf operations on a stand-alone basis (i.e. excluding Top-Flite) had pro forma net sales for 2003 of $774 million, a 2% decrease versus $793 million in 2002. Excluding Top-Flite results and the $24 million integration charges from 2003 and the $17 million warranty reversal from 2002, pro forma net income for the Callaway Golf operations was $71 million compared to $59 million, (an increase of 20%), and pro forma fully diluted earnings per share were $1.06 versus $0.87 in 2002, (an increase of 22%).
“We finished the year slightly stronger than we had predicted in December, with an increase in sales momentum,” said Ron Drapeau, chairman and CEO. “Significantly, our core Callaway Golf business beat the targets we set at the beginning of the year for both net income and earnings despite a tough competitive environment. We generated $119 million in cash flow from operations during the year, which along with our cash reserves provided enough cash to fund our operations and the acquisition of the Top-Flite assets without taking on any debt. We are very pleased with these accomplishments.”
Consolidated gross profit for the year was $369 million (45% of net sales) compared with $400 million (50% of net sales) for the prior year. Excluding Top-Flite results and the $24 million integration charges in 2003 and the $17 million warranty reserve reversal in 2002,
Callaway Golf pro forma gross profit was $383 million (49% of net sales) in 2003 versus $383 million (48% of net sales) in 2002.
Consolidated operating expenses were $303 million (37% of net sales) versus $289 million (36% of net sales) in 2002. Excluding the incremental Top-Flite expenses of $23 million from 2003, pro forma operating expenses declined 3% to $280 million versus prior year.
The tax provision as a percentage of pre-tax income for the year was 32.9% compared to 37.8% for the prior year. This decrease is primarily the result of the recognition of atypical tax benefits in the current year income tax provision related to the statutory US export sales incentive.
Commenting on the results, Brad Holiday, senior executive vice president and chief financial officer stated, “We predicted at the beginning of 2003 that our operating results for 2003 would benefit from the cost reduction strategies put in place in 2002. The results show that we were correct. Our ability to generate cash, strong earnings, and take advantage of strategic opportunities has been enhanced by the implementation of these strategies in our operations and the attitude of our employees.”
In the fourth quarter of 2003 the Company settled the remaining open issues under its contract to purchase certain Top-Flite assets from the bankruptcy estate. With these matters completed, it has now been determined that the Company paid $154.1 million in cash to acquire assets and liabilities.
During the fourth quarter, the Company repurchased an additional 96,000 shares of its common stock at an average price of $15.98 per share. For the year, the Company invested approximately $5 million to repurchase a total of 372,000 shares at an average cost of $12.77 per share.
In accordance with the Company’s dividend practice, the Board of Directors at its February 2004 meeting will determine the next dividend.
“We are encouraged by our new products and a recovering economy,” continued Mr. Drapeau, “and reiterate our mid-December guidance. This guidance includes net sales for 2004 of approximately $1.03 billion, an increase of 27% over 2003, with fully diluted earnings per share between $0.82 and $0.97, including the balance of the transition charges associated with the integration of the Top-Flite operations (about $35 million pre-tax, or $0.33 in earnings per share).”
Callaway Golf Company www.callawaygolf.com,