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Callaway Golf Company Reports Operating Results (10-Q)

April 30, 2010 | About:
10qk

10qk

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Callaway Golf Company (ELY) filed Quarterly Report for the period ended 2010-03-31.

Callaway Golf Company has a market cap of $647.2 million; its shares were traded at around $10.05 with and P/S ratio of 0.7. The dividend yield of Callaway Golf Company stocks is 0.4%.ELY is in the portfolios of Diamond Hill Capital of Diamond Hill Capital Management Inc, Chuck Royce of Royce& Associates, Kenneth Fisher of Fisher Asset Management, LLC, John Buckingham of Al Frank Asset Management, Inc., Paul Tudor Jones of The Tudor Group, Charles Brandes of Brandes Investment.
This is the annual revenues and earnings per share of ELY over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of ELY.


Highlight of Business Operations:

Net sales for the first quarter of 2010 increased by $31.0 million (11%) to $302.9 million compared to $271.9 million in the first quarter of 2009. This increase was primarily due to the successful launch of a strong golf product line in 2010 combined with the effects of an improving economy in certain regions where the Company conducts its business. The increase in net sales were also favorably affected by the Company’s expansion into other international regions as well as the impact of foreign currency exchange rates on net sales as a result of a weaker U.S. dollar in the first quarter of 2010 compared to the same period in 2009. These factors were partially offset by a delay in the opening of the golf season due to poor weather conditions in certain key regions during the first three months of 2010. This increase reflects a $27.2 million increase in net sales of the Company’s golf clubs segment and a $3.8 million increase in net sales of the Company’s golf balls segment as presented below (dollars in millions):

Selling expenses decreased $0.1 million to $74.6 million in the first quarter of 2010 compared to $74.7 million in the comparable period of 2009. As a percentage of net sales, selling expenses improved to 25% in the first quarter of 2010 compared to 27% in the first quarter of 2009. This decrease includes a $2.9 million decrease in advertising and promotional activities, partially offset by a $2.5 million increase in employee costs, primarily due to an increase in employee incentive compensation expense, the restoration of employee benefits in 2010 and sales commissions.

Net income for the first quarter of 2010 increased to $20.3 million from $6.8 million in the comparable period of 2009. Net income allocable to common shareholders for the first quarter of 2010 includes a reduction of $2.6 million for dividends on convertible preferred stock (as defined below). Diluted earnings per share increased to $0.24 per share on 83.9 million weighted average shares outstanding in the first quarter of 2010 compared to $0.11 per share on 63.3 million weighted average shares outstanding in the first quarter of 2009. Diluted earnings per share for the first quarter of both 2010 and 2009 were negatively affected by $0.01 per share related to after-tax costs incurred in connection with the Company’s global operations strategy initiatives.

The Company has continued to actively implement the global operations strategy initiatives. As a result of these initiatives, the Company’s golf clubs and golf balls operating segments absorbed pre-tax charges of $0.8 million and $0.3 million, respectively, during the first quarter of 2010 and $1.2 million and $0.4 million, respectively, during the comparable period in 2009.

The Company’s cash and cash equivalents decreased $36.4 million (47%) to $41.9 million at March 31, 2010, from $78.3 million at December 31, 2009. Most of this decrease was due to the general seasonality of the Company’s business. Generally, during the first quarter, the Company will rely more heavily on its credit facility to fund operations as cash inflows from operations begin to increase during the second quarter as a result of cash collections from customers. During the three months ended March 31, 2010, the Company used its cash and cash equivalents as well as proceeds from its credit facility of $31.0 million to fund cash used in operating activities of $59.1 million as well as $4.1 million in capital expenditures. Management expects to fund the Company’s future operations from cash provided by its operating activities combined with borrowings from its credit facility, as deemed necessary (see further information on the Company’s credit line below).

The Company’s accounts receivable balance fluctuates throughout the year as a result of the general seasonality of the Company’s business. The Company’s accounts receivable balance will generally be at its highest during the first and second quarters and decline significantly during the third and fourth quarters as a result of an increase in cash collections and lower sales. As of March 31, 2010, the Company’s net accounts receivable increased $137.6 million to $277.4 million from $139.8 million as of December 31, 2009. The increase in accounts receivable reflects the general seasonality of the business and was primarily attributable to net sales of $302.9 million during the first quarter of 2010 compared to net sales of $185.9 million during the fourth quarter of 2009. The Company’s net accounts receivable increased by $38.1 million as of March 31, 2010 compared to the Company’s net accounts receivable as of March 31, 2009. This increase was primarily attributable to a $31.0 million increase in net sales in the first quarter of 2010 compared to the first quarter of 2009.

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