Shares of Callaway Golf Co. fell nearly 10% in very heavy trading Thursday after the world’s largest golf club maker said it had lowered its previously reported third-quarter results and, because of a financial technicality, failed to meet certain terms under a $120-million credit-line agreement.
In a quarterly filing Thursday with the Securities and Exchange Commission, Carlsbad, Calif.-based Callaway reported that its third-quarter net income was $7.19 million, down from $12.4 million that the company previously stated but had not filed formally with the SEC.
Callaway said net income was 11 cents a share for the quarter instead of the 19 cents a share it reported in October.
Callaway said the revision was made after taking into account additional reserves for obsolete inventory and a customs assessment in South Korea, an important market for the firm.
The maker of the Big Bertha clubs reaffirmed that sales and earnings for 2002 still would be at the high end of, if not slightly above, the range the company projected Dec. 16.
Nonetheless, investors reacted negatively to Callaway’s financial revision and statements about the credit line.
Callaway’s stock fell $1.31 a share, or 9.6%, to $12.31 on the New York Stock Exchange.
“Wall Street wasn’t expecting this,” said Bud Leedom, an analyst with Wells Fargo Securities in San Diego.
He and some other analysts, however, said they were not concerned about its effect on the company.
“It’s not really a negative,” said Alexander Paris, an analyst with Chicago brokerage Barrington Research Associates, who has an “underperform” rating on the stock.
Callaway said it failed to meet a “fixed-charge coverage ratio” under a credit line because it purchased golf-ball manufacturing equipment during the quarter that it previously had leased.
The firm said it had not used the credit line for three years and has no balance outstanding.
Callaway blamed the stock drop Thursday on a Bloomberg News report that the firm had failed to meet terms of the credit line because it had repurchased defective and damaged golf ball equipment from its customers. Bloomberg News issued a correction before market close.
But the company said the damage already had been done.
“As a result of that error, our stock tanked,” Callaway spokesman Larry Dorman said.