Callaway Golf Reports Third Quarter Sales and Earnings

Callaway Golf Company today reported net sales of $183.3 million for the third quarter ended September 30, 1999, a 6% increase from net sales of $172.9 million reported in the third quarter of 1998. Net income increased 201% to $17.6 million in the third quarter of 1999 from $5.8 million in the comparable quarter of 1998, and diluted earnings per share increased 213% to $0.25 in the third quarter of 1999 from $0.08 in the third quarter of 1998.

For the nine months ended September 30, 1999, net sales increased 3% to $598.8 million from $583.1 million for the same period in 1998. Net income increased 45% to $55.2 million ($0.78 per diluted share) from $38.1 million ($0.53 per diluted share) for the nine months ended September 30, 1999 and 1998, respectively.

"We are pleased with our third quarter earnings, which reflect both the strong profitability of our current product lines and the successful closeout sale of our non-current products," said Ely Callaway, Founder, Chairman and C.E.O. "At the beginning of 1999 I said, 'We are implementing strategies this year that are aimed more at improving profitability than at increasing sales volume per se.' The results of this third quarter -- and of the previous two quarters -- indicate that those strategies are having a positive impact."

Net sales of $183.3 million for the third quarter were comprised of: revenues of $72.2 million from sales of Great Big Bertha(R) Hawk Eye(R) Titanium Drivers and Fairway Woods; $31.9 million from sales of Big Bertha(R) Steelhead(TM) Metal Woods; $45.4 million from sales of Big Bertha(R) X-12(R) Irons; $7.1 million from sales of Great Big Bertha(R) Hawk Eye(R) Tungsten Injected(TM) Titanium Irons; $11.3 million from Odyssey(R) and Callaway Golf putter sales, and $15.4 million from other sales. Included in third quarter results were non-current product sales of $16.0 million -- mainly from sales of Great Big Bertha(R) Titanium Drivers and Fairway Woods, Great Big Bertha(R) Tungsten*Titanium(TM) Irons, Big Bertha(R) War Bird(R) Drivers and Fairway Woods, and Biggest Big Bertha(R) Drivers, which were sold in the final phase of the close-out program initiated in 1999's second quarter. The Company's U.S. sales decreased 7% to $103.6 million and international sales increased 30% to $79.7 million for the third quarter of 1999 vs. the third quarter of 1998.

Net sales of $598.8 million for the nine months ended September 30, 1999, were comprised of: revenues of $226.7 million from sales of Great Big Bertha(R) Hawk Eye(R) Titanium Drivers and Fairway Woods; $111.4 million from sales of Big Bertha(R) Steelhead(TM) Metal Woods; $148.1 million from sales of Big Bertha(R) X-12(R) Irons; $7.1 million from sales of Great Big Bertha(R) Hawk Eye(R) Tungsten Injected(TM) Titanium Irons; $40.3 million from Odyssey(R) and Callaway Golf putter sales, and $65.2 million from other sales. The nine month results include non-current product sales of $55.3 million -- mainly from sales of Great Big Bertha(R) Titanium Drivers and Fairway Woods, Great Big Bertha(R) Tungsten*Titanium(TM) Irons, Big Bertha(R) War Bird(R) Drivers and Fairway Woods, and Biggest Big Bertha(R) Titanium Drivers. The Company's U.S. sales decreased 8% to $339.8 million and international sales increased 21% to $259.0 million for the nine months ended September 30, 1999 vs. September 30, 1998.

Cost of goods sold as a percentage of net sales was 51% in the third quarter of 1999, versus 52% during the comparable period in 1998. This decrease primarily resulted from a higher level of metal wood sales in the current quarter, as compared to 1998, which carry a higher margin, and continued reduction in manufacturing labor and overhead costs along with reductions in certain component costs. Cost of goods sold as a percentage of net sales would have improved to 48%, but for close-out sales of Great Big Bertha(R) Tungsten*Titanium(TM) Irons, Great Big Bertha(R) and Biggest Big Bertha(R) Titanium Metal Woods, and Big Bertha(R) War Bird(R) Metal Woods, which have lower margins.

Selling expenses in the third quarter decreased to $32.7 million from $40.3 million in the same quarter of the prior year. This decrease was primarily related to planned reductions in advertising, pro tour and other promotional expenses.

General and administrative expenses for the third quarter of 1999 were $22.9 million compared to $24.5 million for the third quarter of 1998. The decrease was primarily attributable to decreases in consulting, bad debt expense, and other general and administrative expenses. These decreases were partially offset by increased costs associated with the ramp-up of the Company's golf ball operations.

Mr. Callaway continued, "The third quarter was an encouraging one for the Company for a number of reasons, including the following:

-- "Our current product lines in woods, irons and putters all continued to be the number one selling brands in golf worldwide;
-- "The Company continued to show improvement in its cost structure, including its cost of manufacturing golf clubs;
-- "The Company also continued to strengthen its retail distribution network worldwide by being more selective of the retailers chosen as business partners; -- "We remain on track for our golf ball introduction into the market in the first quarter of 2000;
-- "Great Big Bertha(R) Hawk Eye(R) Tungsten Injected(TM) Titanium Irons were introduced in September and have received very strong initial acceptance in the marketplace;
-- "Sales in Japan exceeded our expectations; and
-- "The Board of Directors selected Chuck Yash as President of Callaway Golf Company and designated Mr. Yash to succeed me as C.E.O., likely effective as of the end of December 2000.

"Moreover, subsequent to September 30, we successfully completed negotiations with our Japanese distributor, Sumitomo Rubber Industries, Ltd., for the smooth transition of our Japanese business to our wholly-owned subsidiary. We anticipate that the fourth quarter charges resulting from the transition agreement will be no more than $8 million. This is less than we had previously expected.

"All of the above gives us a good, solid basis for encouragement and for confidence about next year and beyond," Mr. Callaway concluded.

In accordance with the Company's dividend practice for 1999, the dividend for the third quarter will be determined by the Board of Directors at its meeting in November 1999, payable in December. Callaway Golf makes and sells Big Bertha(R) metal woods and irons, including Great Big Bertha(R) Hawk Eye(R) Titanium Metal Woods, Big Bertha(R) Steelhead(TM) Stainless Steel Metal Woods, Great Big Bertha(R) Hawk Eye(R) Tungsten Injected(TM) Titanium Irons, Big Bertha(R) X-12(R) Irons and Odyssey(R) putters and wedges with Stronomic(R) and Lyconite(R) inserts.

Statements used in this press release that relate to future plans, events, financial results or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those anticipated as a result of certain risks and uncertainties, including but not limited to market acceptance of current and future products, including the golf ball to be introduced in early 2000, seasonality, adverse market and economic conditions, competitive pressures, the "Y2K" or Year 2000 issue, and costs and potential disruption of business as a result of the restructuring of operations and the transition of the Company's Japanese distribution to a wholly-owned subsidiary, as well as other risks and uncertainties detailed from time to time in the Company's periodic reports on Forms 10-K, 10-Q and 8-K 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.