Callaway financial issues??

[ddxu]

Without looking at the margin numbers,etc would you rather buy the callaway hard goods line or the odyssey line? Which one has more momentum / better future aspects. IMO, both lines are past their prime and trying to hold on. I 'assume' their golf ball line has the best margins, so lets leave that one out.

 

[interlooper]

Callaway is in major cash-burn right now. During their last reported 3 months, their income loss was $37 million. They are announcing earnings next Tuesday, so we will know soon just how much worse it has become since their last reporting quarter. To make matters worse, they have access to a $250 million line of credit, but that expires in one year. First, they may not even be able to tap that right now because they may be blowing covenants that restrict the use of the line of credit, plus, it may be difficult, if not practically impossible to refinance that debt should they still be in a cash-burn situation.

I mentioned this a few months ago in the Callaway Outsourcing thread, but I believe they are going to have to sell of some profitable units, or admit that the stand-alone strategy was a failure, and allow another company or hedgie to come in as a white-knight.

It has been a while since this thread has been updated. Since the last post, Callaway has come out with its 4th quarter results and, unfortunately to some, they are still putting from the rough.

To sum it up, they reported a $42 million operating loss last quarter. Part of that loss was due to charges from their acquisition of Top Flight a few years ago. And, as noted above, they are still in major cash-burn mode. It looks like they burned through approximately $23 million in cash last year. That is a significant amount, considering that they only have about $50 million in cash left in their coffers and a credit line that soon expires.

Finally, if you look at the trends in their shares for the last few weeks, it becomes readily apparent that quite a few heavy hitters are shorting their stock. This, in turn, will lead to increased volatility in the price and, ultimately, likely a significant drop in market cap. This would provide significant difficulties in securing distressed financing should they burn through the rest of their cash and their current credit line becomes unavailable.

Of course, it just might also be the perfect discount stock to those able and willing to stomach significant risk.

 

[coolbreeze]

It has been a while since this thread has been updated. Since the last post, Callaway has come out with its 4th quarter results and, unfortunately to some, they are still putting from the rough.

To sum it up, they reported a $42 million operating loss last quarter. Part of that loss was due to charges from their acquisition of Top Flight a few years ago. And, as noted above, they are still in major cash-burn mode. It looks like they burned through approximately $23 million in cash last year. That is a significant amount, considering that they only have about $50 million in cash left in their coffers and a credit line that soon expires.

Finally, if you look at the trends in their shares for the last few weeks, it becomes readily apparent that quite a few heavy hitters are shorting their stock. This, in turn, will lead to increased volatility in the price and, ultimately, likely a significant drop in market cap. This would provide significant difficulties in securing distressed financing should they burn through the rest of their cash and their current credit line becomes unavailable.

Great info again. So do you think there is a possibility that Callaway might have to declare bankrupcy in the next year or two, or perhaps be sold?

 

[CharlieMoy]

Thanks Loop!

 

[interlooper]

Great info again. So do you think there is a possibility that Callaway might have to declare bankrupcy in the next year or two, or perhaps be sold?

Well, I think, first, that they may be seen as a target for acquisition for certain particular funds/companies. They may be seen as fairly attractive because much of their debt is trade debt, rather than bank debt. They also have some cash (despite the cash-burn). Thus, someone could come in and leverage it up pretty nicely if the price was right. The problem, however, is that this is based upon two huge assumptions: 1) the golf market is going to turn significantly and in sufficient time; and 2) the buyer has access to enough cash/credit to make the purchase and enough to survive however long the "downturn" is. Those are pretty steep assumptions in these times.

The BK issue is a little trickier. They have significant cash and could obviously last through 2011 at their current cash-burn rate. And since a significant portion of their debt is trade debt, the trade creditors are sometimes more sympathetic than banks and will often allow for more favorable trade terms. But Callaway is always facing major lawsuits. One bad monetary judgment could wipe out their cash at the snap of a finger.

 

[coolbreeze]

Well, I think, first, that they may be seen as a target for acquisition for certain particular funds/companies. They may be seen as fairly attractive because much of their debt is trade debt, rather than bank debt. They also have some cash (despite the cash-burn). Thus, someone could come in and leverage it up pretty nicely if the price was right. The problem, however, is that this is based upon two huge assumptions: 1) the golf market is going to turn significantly and in sufficient time; and 2) the buyer has access to enough cash/credit to make the purchase and enough to survive however long the "downturn" is. Those are pretty steep assumptions in these times.

The BK issue is a little trickier. They have significant cash and could obviously last through 2011 at their current cash-burn rate. And since a significant portion of their debt is trade debt, the trade creditors are sometimes more sympathetic than banks and will often allow for more favorable trade terms. But Callaway is always facing major lawsuits. One bad monetary judgment could wipe out their cash at the snap of a finger.

Interlooper thanks again for the great info. If I read into what you are saying you don't sound too hopeful about their future. I would like to see them come out of this but with their cash problems and TM and Cleveland taking so much market share right now it doesn't sound too good for them.

 

[interlooper]

Interlooper thanks again for the great info. If I read into what you are saying you don't sound too hopeful about their future. I would like to see them come out of this but with their cash problems and TM and Cleveland taking so much market share right now it doesn't sound too good for them.

Well, I am not hopeful about their "stand-alone" future, something they used to tout (perhaps rightfully so) during the glory days.

 

[coolbreeze]

Well, I am not hopeful about their "stand-alone" future, something they used to tout (perhaps rightfully so) during the glory days.

Ya thats what I was thinking.

 

[imscottr]

Companies come and go, it's just the nature of business. If Callaway continues in this direction, it wouldn't surprise me if a big box store like Golf Galaxy or Dicks, (Which is pretty much the same store.) purchased them and made them their house brand. They've probably got the money and have done it before. IMO, the same would go with TM if they found themselves in the same position. It's no secret that TM leans on Golf Galaxy to sell 51% of their product, so they've already got one foot in the door. Titleist has a good business model in that they spread the wealth. No, one store sells more product than the other. (To my knowledge, anyway.)

 

[coolbreeze]

Companies come and go, it's just the nature of business. If Callaway continues in this direction, it wouldn't surprise me if a big box store like Golf Galaxy or Dicks, (Which is pretty much the same store.) purchased them and made them their house brand. They've probably got the money and have done it before. IMO, the same would go with TM if they found themselves in the same position. It's no secret that TM leans on Golf Galaxy to sell 51% of their product, so they've already got one foot in the door. Titleist has a good business model in that they spread the wealth. No, one store sells more product than the other. (To my knowledge, anyway.)

The're not doing so hot right now either. I wouldn't say it is a business model you would want to copy.

 

[imscottr]

The're not doing so hot right now either. I wouldn't say it is a business model you would want to copy.

Agreed, they are not doing well. But the point I was trying to make was having the majority of your eggs, (51%) in one basket is not good either.

 

[pattyblind9golf]

Well, I think, first, that they may be seen as a target for acquisition for certain particular funds/companies. They may be seen as fairly attractive because much of their debt is trade debt, rather than bank debt. They also have some cash (despite the cash-burn). Thus, someone could come in and leverage it up pretty nicely if the price was right. The problem, however, is that this is based upon two huge assumptions: 1) the golf market is going to turn significantly and in sufficient time; and 2) the buyer has access to enough cash/credit to make the purchase and enough to survive however long the "downturn" is. Those are pretty steep assumptions in these times.

The BK issue is a little trickier. They have significant cash and could obviously last through 2011 at their current cash-burn rate. And since a significant portion of their debt is trade debt, the trade creditors are sometimes more sympathetic than banks and will often allow for more favorable trade terms. But Callaway is always facing major lawsuits. One bad monetary judgment could wipe out their cash at the snap of a finger.

Thanks InterLooper. I love your posts - how insightful and detailed they are. Looking forward to hearing some more. Fascinating stuff.

 

[BigCov]

I did hear a rumble that Nike would look into Callaway. I doubt it, but it would be really interesting.

I hope they don't do that. I am a big Callaway fan and am NOT a fan of Nike's golf products. I would be afraid that Callaway would go the direction Nike is and we would lose their innovation. Not good.

 

[coolbreeze]

Agreed, they are not doing well. But the point I was trying to make was having the majority of your eggs, (51%) in one basket is not good either.

Well I agree with you there.

 

[coolbreeze]

I hope they don't do that. I am a big Callaway fan and am NOT a fan of Nike's golf products. I would be afraid that Callaway would go the direction Nike is and we would lose their innovation. Not good.

I have not been a huge fan of Nike overall but I think they are very innovative, and that would be the least of my concerns if they bought Callaway. I don't think thats going to happen though.