Golf News (posted 11th November 1998)

Callaway cuts 700 more jobs

Carlsbad, California.- Callaway Golf, the world's largest golf equipment manufacturer, said today it will lay off 700 people and discontinue some of its side ventures to save $40 million annually.

The announcement was the latest sign the golf industry is struggling through a dismal sales year.

Last month, Ely Callaway, the 79-year-old founding chairman, resumed the role of top executive after the company fired its highest-paid employee to cut costs and redirect the company. In July, 300 temporary jobs were cut.

"The sale of golf clubs is slow in three major markets: U.S., Japan and Southeast Asia,'' Callaway said. "Because of financial chaos in the Asian markets, people are not buying as many golf clubs. In the U.S., there are a lot of good golf clubs and our competitors are pricing lower and closing out more than we are. That puts pressure on us.''

The company slightly dropped it wholesale prices in May, and Callaway said once was enough. "We will retain our prices and standards,'' he said.

He added that the jobs cuts did not indicate a declining interest in golf. "We think interest will continue to grow and these depressed conditions are temporary,'' he said. "But after studying the company over the last six weeks, we decided to focus only on golf clubs and golf balls rather than other areas.''

Some 5,000 retailers in the United States carry Callaway products. One of its best known lines is the Big Bertha series of titanium metal woods, drivers and irons.

The full-time employees cut were notified today. They represent about 24 percent of Callaway's workforce; the number of employees will drop to 2,200 by January.

Employees will receive eight weeks of severance pay, medical insurance for their families through April and career counseling through Jan. 1, Callaway said.

In July, when the company saw its first down quarter since it was founded in 1982, Callaway hinted to financial analysts that reorganization was possible. He also said he thought the market would remain flat through 1999.

The company's board of directors asked Callaway to return as president and chief executive officer, a position he left in 1996, to see the company through the next two years. Donald H. Dye, who spent 24 years at Callaway, was fired from the top position but remains as a consultant.

Bud Leedom, who publishes a monthly newsletter for golf investors, said the Callaway announcement wasn't unexpected, but the admission that domestic competition drove the decision was.

"I think the drop in the domestic market is more severe than most people expected,'' Leedom said. "Ely saying that he doesn't see an upturn for several quarters is very telling.''

He said price competition and a saturated market also are affecting sales.

"There is no blockbuster product coming out to take companies and consumers to the next level,'' he said. "How do you upgrade when there is no replacement cycle and you already own the most expensive Callaway club?''

Costs associated with the restructuring will lower fourth-quarter earnings by $70 million to $85 million before income tax benefits, causing it to post a loss for the full year, Callaway said.

The company expects to lose 25 cents to 40 cents a diluted share for fiscal 1998. Last year, Callaway earned $133 million, or $1.85 a diluted share, on revenue of $843 million.

In morning trading, shares of Callaway were down 2 percent, or 25 cents, to $10.62-1/2 on the New York Stock Exchange.

Other changes include consolidating Callaway's wholly-owned subsidiary, Odyssey Golf, Inc., with its operations while keeping the Odyssey brand name on putters; discontinuing ventures such as interactive golf sites, golf book publishing and high-tech driving ranges in Florida, California and Nevada.

The company will focus on its core businesses of premium golf clubs and golf balls. A new line of golf balls, under development for the past two years, is expected to hit the market by late 1999 or early 2000.

"By dropping these other activities and streamlining our core business, we are hopefully re-creating our business so that we can move it forward and generate earnings,'' Callaway said.

Carlsbad, about 35 miles north of San Diego, is also home base for Cobra and Taylor Made, two of Callaway's chief competitors.