CARLSBAD, Calif.--(BUSINESS WIRE)--October 30, 2008--Callaway Golf Company (NYSE:ELY) today announced its financial results for the third quarter and first nine months ended September 30.

“Despite the unprecedented global economic conditions and a strong 2007, we have delivered earnings growth of 5% through the first nine months of 2008,” commented George Fellows, President and CEO. “This growth is due in part to our expanding accessories business and increased sales of golf balls, as well as by sales in Japan, which increased 37% for the first nine months of 2008 compared to 2007. In addition, three years ago we started several initiatives focused on improving the fundamentals of our Company, and those initiatives are paying off. Our balance sheet is strong with no long-term debt and a positive net cash balance, which is an enviable position in today’s market. Working capital and operating expenses have been and will continue to be tightly managed going forward. Our gross margin improvement initiatives continue to deliver to our expectations of $50 to $60 million in savings over the past two years and are mitigating the negative shift in product mix we are seeing due to the current economic conditions.”

“Looking forward, the initial feedback on our new 2009 products has been very positive,” continued Mr. Fellows, “and we feel the whole product line is stronger than our record 2007 line. We feel that this product line-up, along with strategic and operational progress to date, positions Callaway Golf for solid growth when the global economy begins to recover. In the meantime, we will continue to manage our business in a conservative and prudent manner, protect our balance sheet and allocate capital to those initiatives that will drive longer term growth.”

The Company reaffirmed its recent guidance that for the full year 2008 the Company estimates that net sales will be in the range of $1.125 to $1.145 billion and pro forma fully diluted earnings will exceed 2007 and will be in the range of $0.92 to $1.02 per share (or 3% to 15% growth versus 2007). Pro forma earnings exclude after-tax charges related to the gross margin improvement initiatives in the amount of approximately $0.11 per share.

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 three hours after the call ends, and will remain available through 9:00 p.m. PST on Thursday, November 6, 2008. The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling 800-475-6701 toll free for calls originating within the United States or 320-365-3844 for International calls. The replay pass code is 966796.

Disclaimer: Statements used in this press release that relate to future plans, events, financial results, performance or prospects, including statements relating to future growth, estimated sales and earnings for 2008, the strength of the 2009 product line-up, and estimated charges for and savings from the gross margin initiatives, as well as statements regarding future working capital and operating expenses, 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 reported future financial performance is based upon various unknowns including, future changes in foreign currency rates and 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.

Regulation G: The financial results reported in this press release have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In addition to the GAAP results, the Company has also provided additional information concerning its results, which includes certain financial measures not prepared in accordance with GAAP. The non-GAAP financial measures included in this press release exclude charges associated with the Company’s gross margin initiatives. These non-GAAP financial measures should not be considered a substitute for any measure derived in accordance with GAAP. These non-GAAP financial measures may also be inconsistent with the manner in which similar measures are derived or used by other companies. Management believes that the presentation of such non-GAAP financial measures, when considered in conjunction with the most directly comparable GAAP financial measures, provides additional useful information concerning the Company’s operations without these charges. The Company has provided reconciling information in the text of this press release and in the accompanying schedules.

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)

	September 30,		December 31,
	2008		2007

ASSETS
Current assets:
Cash and cash equivalents	$	50,642	$	49,875
Accounts receivable, net		152,654		112,064
Inventories		220,306		253,001
Deferred taxes		39,544		42,219
Income taxes receivable		-		9,232
Other current assets		27,184		30,190
Total current assets		490,330		496,581

Property, plant and equipment, net		135,434		128,036
Intangible assets, net		169,489		173,045
Deferred taxes		28,724		18,885
Other assets		43,435		40,416
	$	867,412	$	856,963

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	115,909	$	130,410
Accrued employee compensation and benefits		31,437		44,245
Accrued warranty expense		11,785		12,386
Credit facilities		40,000		36,507
Income taxes payable		4,317		-
Total current liabilities		203,448		223,548

Long-term liabilities		65,217		63,207

Minority interest		2,378		1,978

Shareholders’ equity		596,369		568,230
	$	867,412	$	856,963


Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)

	Quarter Ended
	September 30,
	2008					2007

Net sales	$	213,451		100	%	$	235,549		100	%
Cost of sales		133,320		62	%		141,543		60	%
Gross profit		80,131		38	%		94,006		40	%
Operating expenses:
Selling		65,730		31	%		65,808		28	%
General and administrative		20,201		9	%		19,394		8	%
Research and development		6,650		3	%		7,928		3	%
Total operating expenses		92,581		43	%		93,130		40	%
Income (loss) from operations		(12,450	)	-6	%		876		0	%
Other income (expense), net		(1,669	)				1,223
Income (loss) before income taxes		(14,119	)	-7	%		2,099		1	%
Income tax provision (benefit)		(6,676	)				830
Net income (loss)	$	(7,443	)	-3	%	$	1,269		1	%

Earnings (loss) per common share:
Basic		($0.12	)			$	0.02
Diluted		($0.12	)			$	0.02
Weighted-average shares outstanding:
Basic		62,494					66,516
Diluted		62,494					67,639


	Nine Months Ended
	September 30,
	2008					2007

Net sales	$	945,932		100	%	$	950,173		100	%
Cost of sales		519,187		55	%		520,321		55	%
Gross profit		426,745		45	%		429,852		45	%
Operating expenses:
Selling		226,352		24	%		222,009		23	%
General and administrative		65,480		7	%		65,139		7	%
Research and development		22,112		2	%		23,851		3	%
Total operating expenses		313,944		33	%		310,999		33	%
Income from operations		112,801		12	%		118,853		13	%
Other expense, net		(3,574	)				(2,006	)
Income before income taxes		109,227		12	%		116,847		12	%
Income tax provision		39,897					46,103
Net income	$	69,330		7	%	$	70,744		7	%

Earnings per common share:
Basic	$	1.10				$	1.05
Diluted	$	1.08				$	1.03
Weighted-average shares outstanding:
Basic		63,187					67,250
Diluted		64,029					68,407


Callaway Golf Company
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)

	Nine Months Ended
	September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	69,330		$	70,744
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,747			27,464
Non-cash compensation		5,044			8,207
Deferred taxes		2,117			1,444
Gain on disposal of assets		(435	)		(3,425	)
Changes in assets and liabilities		(44,461	)		41,408
Net cash provided by operating activities		60,342			145,842

Cash flows from investing activities:
Capital expenditures		(33,506	)		(24,130	)
Proceeds from sale of capital assets		42			5,491
Investment in golf related ventures		-			(1,310	)
Net cash used in investing activities		(33,464	)		(19,949	)

Cash flows from financing activities:
Issuance of Common Stock		4,708			47,672
Dividends paid, net		(8,951	)		(14,241	)
Acquisition of Treasury Stock		(22,970	)		(101,387	)
Net proceeds from (payments on) line of credit		3,493			(79,068	)
Other financing activities		(223	)		4,415
Net cash used in financing activities		(23,943	)		(142,609	)

Effect of exchange rate changes on cash and cash equivalents		(2,168	)		1,994
Net increase (decrease) in cash and cash equivalents		767			(14,722	)
Cash and cash equivalents at beginning of period		49,875			46,362
Cash and cash equivalents at end of period	$	50,642		$	31,640


Supplemental disclosures:
Cash paid for income taxes	$	26,624		$	27,670
Cash paid for interest and fees	$	3,616		$	5,250
Dividends payable	$	4,422		$	-
Payable for the acquisition of treasury stock	$	-		$	2,327


Callaway Golf Company
Consolidated Net Sales and Operating Segment Information
(In thousands)
(Unaudited)

		Net Sales by Product Category
		Quarter Ended									Nine Months Ended
		September 30,				Growth/(Decline)					September 30,				Growth/(Decline)
		2008		2007⁽¹⁾		Dollars			Percent		2008		2007⁽¹⁾			Dollars			Percent
Net sales:
	Woods	$	34,499	$	57,328	$	(22,829	)	-40	%	$	237,043	$	273,589		$	(36,546	)		-13	%
	Irons		63,768		66,647		(2,879	)	-4	%		260,311		263,783			(3,472	)		-1	%
	Putters		21,305		21,783		(478	)	-2	%		88,793		88,526			267			0	%
	Golf balls		48,413		49,377		(964	)	-2	%		181,081		175,340			5,741			3	%
	Accessories and other		45,466		40,414		5,052		13	%		178,704		148,935			29,769			20	%
		$	213,451	$	235,549	$	(22,098	)	-9	%	$	945,932	$	950,173		$	(4,241	)		0	%

⁽¹⁾ Prior periods have been restated to reflect the current period presentation.


		Net Sales by Region
		Quarter Ended									Nine Months Ended
		September 30,				Growth/(Decline)					September 30,				Growth/(Decline)
		2008		2007		Dollars			Percent		2008		2007		Dollars			Percent
Net sales:
	United States	$	104,595	$	124,321	$	(19,726	)	-16	%	$	465,053	$	512,516	$	(47,463	)	-9	%
	Europe		33,371		40,983		(7,612	)	-19	%		171,285		167,290		3,995		2	%
	Japan		32,825		25,154		7,671		30	%		132,723		96,941		35,782		37	%
	Rest of Asia		18,497		20,540		(2,043	)	-10	%		67,029		69,006		(1,977	)	-3	%
	Other foreign countries		24,163		24,551		(388	)	-2	%		109,842		104,420		5,422		5	%
		$	213,451	$	235,549	$	(22,098	)	-9	%	$	945,932	$	950,173	$	(4,241	)	0	%


		Operating Segment Information
		Quarter Ended											Nine Months Ended
		September 30,						Growth/(Decline)					September 30,						Growth/(Decline)
		2008			2007⁽¹⁾			Dollars			Percent		2008			2007⁽¹⁾			Dollars			Percent
Net sales:
	Golf clubs	$	165,038		$	186,172		$	(21,134	)	-11	%	$	764,851		$	774,833		$	(9,982	)	-1	%
	Golf balls		48,413			49,377			(964	)	-2	%		181,081			175,340			5,741		3	%
		$	213,451		$	235,549		$	(22,098	)	-9	%	$	945,932		$	950,173		$	(4,241	)	0	%

Income (loss) before provision for income taxes:
	Golf clubs	$	2,825		$	16,750		$	(13,925	)	-83	%	$	146,192		$	155,795		$	(9,603	)	-6	%
	Golf balls		(2,654	)		(2,818	)		164		6	%		10,048			8,661			1,387		16	%
	Reconciling items ⁽²⁾		(14,290	)		(11,833	)		(2,457	)	-21	%		(47,013	)		(47,609	)		596		1	%
		$	(14,119	)	$	2,099		$	(16,218	)	-773	%	$	109,227		$	116,847		$	(7,620	)	-7	%

⁽¹⁾Prior periods have been restated to reflect the current period presentation.

⁽²⁾ 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 September 30,									Quarter Ended September 30,
	2008									2007

	Pro Forma Callaway Golf			Gross Margin Improvement Initiatives			Total as Reported			Pro Forma Callaway Golf			Gross Margin Improvement Initiatives			Total as Reported
Net sales	$	213,451		$	-		$	213,451		$	235,549		$	-		$	235,549
Gross profit		83,764			(3,633	)		80,131			98,125			(4,119	)		94,006
% of sales		39	%		n/a			38	%		42	%		n/a			40	%
Operating expenses		92,607			(26	)		92,581			93,130			-			93,130
Income (loss) from operations		(8,843	)		(3,607	)		(12,450	)		4,995			(4,119	)		876
Other income (expense), net		(1,669	)		-			(1,669	)		1,223			-			1,223
Income (loss) before income taxes		(10,512	)		(3,607	)		(14,119	)		6,218			(4,119	)		2,099
Income tax provision (benefit)		(5,288	)		(1,388	)		(6,676	)		2,429			(1,599	)		830
Net income (loss)	$	(5,224	)	$	(2,219	)	$	(7,443	)	$	3,789		$	(2,520	)	$	1,269

Diluted earnings (loss) per share:	$	(0.08	)	$	(0.04	)	$	(0.12	)	$	0.06		$	(0.04	)	$	0.02
Weighted-average shares outstanding:		62,494			62,494			62,494			67,639			67,639			67,639


	Nine Months Ended September 30,									Nine Months Ended September 30,
	2008									2007

	Pro Forma Callaway Golf			Gross Margin Improvement Initiatives			Total as Reported			Pro Forma Callaway Golf			Gross Margin Improvement Initiatives			Total as Reported
Net sales	$	945,932		$	-		$	945,932		$	950,173		$	-		$	950,173
Gross profit		436,166			(9,421	)		426,745			437,327			(7,475	)		429,852
% of sales		46	%		n/a			45	%		46	%		n/a			45	%
Operating expenses		313,850			94			313,944			310,999			-			310,999
Income (loss) from operations		122,316			(9,515	)		112,801			126,328			(7,475	)		118,853
Other expense, net		(3,574	)		-			(3,574	)		(2,006	)		-			(2,006	)
Income (loss) before income taxes		118,742			(9,515	)		109,227			124,322			(7,475	)		116,847
Income tax provision (benefit)		43,560			(3,663	)		39,897			49,015			(2,912	)		46,103
Net income (loss)	$	75,182		$	(5,852	)	$	69,330		$	75,307		$	(4,563	)	$	70,744

Diluted earnings (loss) per share:	$	1.17		$	(0.09	)	$	1.08		$	1.10		$	(0.07	)	$	1.03
Weighted-average shares outstanding:		64,029			64,029			64,029			68,407			68,407			68,407


Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA):

	2008 Trailing Twelve Months EBITDA												2007 Trailing Twelve Months EBITDA
	Quarter Ended												Quarter Ended
	December 31,			March 31,		June 30,		September 30,					December 31,			March 31,		June 30,		September 30,
	2007			2008		2008		2008			Total		2006			2007		2007		2007		Total
Net income (loss)	$	(16,157	)	$	39,666	$	37,107	$	(7,443	)	$	53,173	$	(10,194	)	$	32,836	$	36,639	$	1,269	$	60,550
Interest expense (income), net		(216	)		591		994		497			1,866		905			1,677		1,672		29		4,283
Income tax provision (benefit)		(12,415	)		25,990		20,583		(6,676	)		27,482		(10,948	)		21,682		23,591		830		35,155
Depreciation and amortization expense		7,862			8,794		10,490		9,463			36,609		8,313			9,009		8,591		9,864		35,777
EBITDA	$	(20,926	)	$	75,041	$	69,174	$	(4,159	)	$	119,130	$	(11,924	)	$	65,204	$	70,493	$	11,992	$	135,765

CONTACT:
Callaway Golf Company
Brad Holiday
Eric Struik
Michele Szynal
(760) 931-1771