ELY Callaway Golf Co

CARLSBAD, Calif., Jan. 29, 2014 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) today announced its fourth quarter and year-to-date 2013 financial results, clearly demonstrating that its turnaround is well underway. Led by a more than $55 million (28%) increase in driver and fairway woods sales, the Company's full year results include sales growth as well as significant improvements in gross margins and operating expenses. As a result, the Company's operating income/loss improved by $105 million to a loss of $11 million compared to a loss of $116 million in 2012, and on a non-GAAP basis was profitable for the first time in several years.  Given this significantly improved financial performance, along with the initial trade reception to the Company's 2014 product line, the Company's annual guidance announced today predicts a return to profitability in 2014 on a GAAP basis.

The Company achieved these financial results despite a late start to the golf season in the Americas and Europe due to weather, adverse changes in foreign currency rates, and a significantly reduced base business resulting from the 2012 sale of the Top-Flite and Ben Hogan Brands and the transition to a licensing arrangement for apparel and footwear in North America.  As compared to 2012, the sale of these brands and licensing arrangements negatively impacted 2013 sales by approximately $57 million for the full year (approximately $4 million for the fourth quarter).  In addition, as compared to 2012, changes in foreign currency rates negatively affected 2013 net sales by approximately $40 million for the full year (approximately $8 million for the fourth quarter). Unfortunately, these factors mask the strength of the Company's improved performance of its current business.  For example, compared to 2012, on a constant currency basis, the Company's current business, which excludes the sold or licensed brands and businesses, actually achieved 14% sales growth for the full year of 2013 (17% sales growth for the fourth quarter of 2013). Overall, these results reflect not only the continued success of the Company's turnaround plan but also the increased hard goods market share and brand momentum the Company experienced in 2013.  

GAAP RESULTS 

For the fourth quarter of 2013, the Company reported the following GAAP results:

For the full year of 2013, the Company reported the following GAAP results:

NON-GAAP FINANCIAL RESULTS

In addition to the Company's results prepared in accordance with GAAP, the Company has also provided additional information concerning its results on a non-GAAP basis. The non-GAAP results exclude charges related to the Company's previously announced cost-reduction initiatives and the gain on the sale of the Top-Flite and Ben Hogan brands. The non-GAAP results are also based upon an assumed tax rate of 38.5%. The manner in which the non-GAAP information is derived is discussed in more detail toward the end of this release and the Company has provided in the tables to this release a reconciliation of this non-GAAP information to the most directly comparable GAAP information.

For the fourth quarter of 2013, the Company reported the following non-GAAP results:

For the full year of 2013, the Company reported the following non-GAAP results:

"We are pleased with our financial results during the first full year of our new operating model," commented Chip Brewer, President and Chief Executive Officer. "Despite challenging market conditions throughout much of the year, we were able to grow sales of our current business, on a constant currency basis, by 14%.  This sales growth, together with the benefits resulting from the many actions we have taken this year to improve our operations, have a resulted in a $74 million improvement in non-GAAP operating income and even more on a GAAP basis. In fact, this year we achieved positive operating income on a non-GAAP basis for the first time since 2008, which is an important milestone in our turnaround and clear evidence we are on the right track."

"We have made great progress to date in our turnaround," continued Mr. Brewer. "In addition to refocusing our business on golf equipment and more performance-oriented products, leveraging our strengths in research and development, and changing our approach to sales and marketing, we have also retired all of our preferred stock, increased our presence on tour, and completed the transition of our golf ball and golf club manufacturing platforms. The progress we made continued through the fourth quarter with improvements in sales, gross margins, and operating expenses. We believe that this continued progress and the initial positive trade reception to our 2014 product line position us for a good start to the new golf season and a return to creating shareholder value in 2014."

Business Outlook

Although the Company in recent years has provided guidance on a pro forma basis, for 2014 the Company has provided guidance on a GAAP basis as it has completed its previously announced cost reduction initiatives and it does not currently foresee any significant one-time charges in 2014.  The Company's GAAP financial guidance is based upon a forecasted income tax provision, taking into account the Company's deferred tax valuation allowance, and is not based upon an assumed tax rate as was the case with prior non-GAAP estimates.  

The Company provided the following 2014 full year estimated financial guidance on a GAAP basis as follows:

• Based upon foreign currency rates at the beginning of the year, net sales for the full year 2014 are currently estimated to range from $880 to $900 million, compared to $843 million in 2013. Any changes during the year to the foreign currency rates would affect net sales and the Company's estimates.
• Gross margins are estimated to improve to approximately 41.7%, compared to 37.3% in 2013. These improvements are 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 anticipated improved pricing and mix of full price product sales.
• Operating 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 inflationary pressures.
• Pre-tax income is estimated to range from $15.0 to $19.0 million, with a corresponding tax provision of approximately $6.5 million. On a comparable GAAP basis, pre-tax income in 2013 was a loss of $13.3 million with a corresponding tax provision of $5.6 million.
• Fully 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 GAAP loss per share of $0.31 on a base of 72.8 million shares.

Conference Call and Webcast        

The Company will be holding a conference call at 2:00 p.m. PST today to discuss the Company's financial results, business and outlook.  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. PST on Wednesday, February 5, 2014.  The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 1-855-859-2056 toll free for calls originating within the United States or 404-537-3406 for International calls.  The replay pass code is 35580882. 

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 (i) the gain recognized in connection with the sale of the Top-Flite and Ben Hogan brands, (ii) charges related to the Company's cost-reduction initiatives, or (iii) sales related to the Top-Flite and Ben Hogan brands or the products that were transitioned in 2012 to a third party model, including North American apparel and footwear. 

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

Assumed Tax Rate. As a result of the Company's previously reported deferred tax valuation allowance that was first established in 2011, the Company's GAAP tax rate is not directly correlated to the Company's pre-tax results. For comparative purposes, the Company has provided certain of the Company's income/loss and earnings/loss per share information and Adjusted EBITDA information based upon an assumed tax rate of 38.5%. The difference between the Company's actual tax rate and this assumed tax rate for historical periods is reflected on the attached schedules under "Non-Cash Tax Adjustment."

The non-GAAP information presented 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 this press release and 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 sales, sales growth, gross margins, operating expenses, pre-tax income, and earnings per share, 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; 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; 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, the golf industry, and the Company's business, see the Company's Annual Report on Form 10-K for the year ended December 31, 2012 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.

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