Callaway Golf Announces Results for Second Quarter 2006

-- Net sales of $341.8 million, an increase of 6% as compared to $323.1 million for the same period in 2005.

-- Fully diluted earnings per share of $0.33 on 68.6 million shares, an increase of 22%, as compared to $0.27 on 68.7 million shares in 2005.

-- Fully diluted earnings per share include $0.03 of after-tax charges for employee equity-based compensation associated with FAS 123R as well as charges of $0.01 for the integration of Top-Flite operations and $0.01 for the cost-reduction initiatives announced in September 2005. The second quarter of 2005 included after-tax charges of $0.03 for the integration of Top-Flite operations. Excluding these charges, the Company's pro forma fully diluted earnings per share for the second quarter of 2006 would have increased 27% to $0.38, as compared to pro forma fully diluted earnings per share of $0.30 for the second quarter of 2005.

-- Gross profit for the second quarter of 2006 was $140.1 million (or 41% of net sales), a decrease of $6.6 million from $146.7 million (or 45% of net sales) for the second quarter of 2005. Gross margins in the second quarter of 2006 were negatively affected by approximately $3.3 million (or one percentage point) due to a golf ball work-in-process inventory adjustment.

-- Operating expenses for the second quarter of 2006 were $101.3 million, a decrease of $17.7 million compared to $119.0 million in 2005. A majority of the decrease is due to the cost-reduction initiatives announced in September 2005. This decrease also includes a $7.0 million reduction in accrued employee incentive compensation compared to last year.

Highlights for the first six months include:

-- Net sales of $644.3 million, an increase of 3.3% as compared to $623.0 million for the same period in 2005.

-- Fully diluted earnings per share of $0.65 on 69.4 million shares, an increase of 20%, as compared to $0.54 on 68.6 million shares in 2005.

-- Fully diluted earnings per share include $0.05 of after-tax charges for employee equity-based compensation associated with FAS 123R as well as $0.02 for the integration of Top-Flite operations and $0.01 associated with the cost-reduction initiatives. The first half of 2005 included after-tax charges of $0.06 for the integration of Top-Flite operations. Excluding these charges, the Company's pro forma fully diluted earnings per share for the first half of 2006 would have increased 22% to $0.73, as compared to pro forma fully diluted earnings per share of $0.60 for the first half of 2005.

-- Gross profit for the first half of 2006 was $271.6 million (or 42% of net sales), a decrease of $7.7 million from $279.3 million (or 45% of net sales) for the first half of 2005.

-- Operating expenses for the first half of 2006 were $196.5 million, a decrease of $23.5 million compared to $220.0 million in 2005. A majority of this decrease reflects the cost-reduction initiatives announced in September 2005. This decrease also includes a $4.5 million reduction in accrued employee incentive compensation.

"Shortly after joining the Company we announced in September 2005the implementation of several business improvement and cost-reductioninitiatives to improve the manner in which we bring products to marketas well as reduce our overall operating expenses," commented GeorgeFellows, President and CEO of Callaway Golf Company. "Our secondquarter results reflect the success of these initiatives. Sales of ourCallaway and Odyssey brands continue to gain momentum in both revenueand market share which indicates that our product line for 2006 isbeing well received by both our customers and consumers in a verycompetitive marketplace," continued Mr. Fellows. "In addition, we arealso delivering the anticipated savings in operating expenses from ourcost-reduction initiatives and expect that a majority of those savingswill positively impact earnings with the balance being reinvested indemand creation initiatives, consistent with our commitment.Performance in these two areas is critical to achieving our three yeartargets."

"We also previously announced we would focus on reversing thedecline in gross margins that we had been experiencing over the lastseveral years," continued Mr. Fellows. "Our second quarter grossmargin results did not meet our expectations due to some unanticipatedexecution issues and cost increases. Initiatives are in process tobegin improving gross margins, but they will not impact results untillate 2006 and into next year." Mr. Fellows added, "In addition to thegross margin initiatives, we are also focused on restoring theTop-Flite brand business. We believe that this brand can succeed inthe market place and are implementing several initiatives designed tostabilize this important brand. I can assure you that these and othersuch initiatives are a top priority and I hope to share more detailsby the end of the year."

"In summary," continued Mr. Fellows, "we are comfortable with ourthree year corporate targets. I am pleased with our progress to date,with sales and earnings up for the first half, but recognize there ismore to do. Our core brands are performing well and we areaggressively focused on improving our overall profitability."

For more details, including pro forma reconciliations to assist inyear-over-year comparison, please see the attached "SupplementalFinancial Information."

The Company will be holding a conference call at 2:00 p.m. PDTtoday. The call will be broadcast live over the Internet and can beaccessed at www.callawaygolf.com. To listen to the call, please go tothe website at least 15 minutes before the call to register and forinstructions on how to access the broadcast. A replay of theconference call will be available approximately three hours after itsconclusion, and will remain available through 9:00 p.m. PDT onWednesday, August 2, 2006. The replay may be accessed through theInternet at www.callawaygolf.com or by telephone by calling1-800-475-6701 toll free for calls originating within the UnitedStates or 320-365-3844 for International calls. The replay pass codeis 837120.

Disclaimer: Statements used in this press release that relate tofuture plans, events, financial results, performance or prospects,including statements relating to momentum in revenue or market share,future gross margin improvement, restoration of the Top-Flite brand,future operating expense savings and reinvestment, and achievement ofthree year targets are forward-looking statements as defined under thePrivate Securities Litigation Reform Act of 1995. These estimates andstatements are based upon current information and expectations. Actualresults may differ materially from those anticipated as a result ofcertain risks and uncertainties, including but not limited to, marketacceptance of current and future products; adverse market and economicconditions; adverse weather conditions and seasonality; delays,difficulties or increased costs in manufacturing the Company'sproducts; a decrease in supply or increased costs of the materialsneeded to manufacture the Company's products; an increase incompetitive pricing pressures; any rule changes or other actions takenby the USGA or other golf association that could have an adverseimpact upon demand for the Company's products; a decrease inparticipation levels in golf; and the effect of terrorist activity,armed conflict, natural disasters or pandemic diseases on the economygenerally, on the level of demand for the Company's products or on theCompany's ability to manage its supply and delivery logistics in suchan environment. For additional information concerning these and otherrisks and uncertainties that could affect these statements and theCompany's business, see Part I, Item 1A of the Company's Annual Reporton Form 10-K for the year ended December 31, 2005, as well as otherrisks and uncertainties detailed from time to time in the Company'sreports on Forms 10-K, 10-Q and 8-K subsequently filed from time totime with the Securities and Exchange Commission. Readers arecautioned not to place undue reliance on these forward-lookingstatements, which speak only as of the date hereof. The Companyundertakes no obligation to republish revised forward-lookingstatements to reflect events or circumstances after the date hereof orto reflect the occurrence of unanticipated events.

Regulation G: The financial results reported in this press releasehave been prepared in accordance with accounting principles generallyaccepted in the United States ("GAAP"). In addition to the GAAPresults, the Company has also provided additional informationconcerning its preliminary results, which includes certain financialmeasures not prepared in accordance with GAAP. The non-GAAP financialmeasures included in this press release exclude charges associatedwith employee equity based compensation, the integration of theCompany's Top-Flite operations and charges related to the Company'sbusiness improvement and cost-reduction initiatives announced inSeptember 2005. These non-GAAP financial measures should not beconsidered a substitute for any measure derived in accordance withGAAP. These non-GAAP financial measures may also be inconsistent withthe manner in which similar measures are derived or used by othercompanies. Management believes that the presentation of such non-GAAPfinancial measures, when considered in conjunction with the mostdirectly comparable GAAP financial measures, provides additionaluseful information concerning the Company's operations without thesecharges. The Company has provided reconciling information in the textof this press release and in the attachment to this release.

Through an unwavering commitment to innovation, Callaway Golfcreates products and services designed to make every golfer a bettergolfer. Callaway Golf Company manufactures and sells golf clubs andgolf balls, and sells golf accessories, under the Callaway Golf(R),Top-Flite(R), Odyssey(R) and Ben Hogan(R) brands. For more informationvisit www.callawaygolf.com.

Callaway Golf Company
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)

June 30, December 31,
2006 2005
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $48,113 $49,481
Accounts receivable, net 257,782 98,082
Inventories, net 232,236 241,577
Income taxes receivable - 2,026
Other current assets 50,108 47,424
--------- ---------
Total current assets 588,239 438,590

Property, plant and equipment, net 136,024 127,739
Intangible assets, net 176,098 175,191
Deferred taxes 4,657 6,516
Other assets 15,072 16,462
--------- ---------
$920,090 $764,498
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $128,930 $102,134
Accrued employee compensation and benefits 20,176 24,783
Accrued warranty expense 15,469 13,267
Bank line of credit 110,300 -
Income taxes payable 10,590 -
Capital leases, current portion - 21
--------- ---------
Total current liablilities 285,465 140,205

Long-term liabilities 26,946 28,245

Shareholders' equity 607,679 596,048
--------- ---------
$920,090 $764,498
========= =========



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

Quarter Ended
June 30,
-----------------------
2006 2005
--------- ---------

Net sales $341,815 100% $323,132 100%
Cost of sales 201,729 59% 176,399 55%
--------- ---------
Gross profit 140,086 41% 146,733 45%
Operating expenses:
Selling expense 77,045 23% 90,640 28%
General and administrative expense 18,101 5% 21,239 7%
Research and development expense 6,194 2% 7,083 2%
--------- ---------
Total operating expenses 101,340 30% 118,962 37%
--------- ---------
Income from operations 38,746 11% 27,771 9%
Other expense, net (1,273) (1,806)
--------- ---------
Income before income taxes 37,473 11% 25,965 8%
Income tax provision 14,934 7,573
--------- ---------
Net Income $22,539 7% $18,392 6%
========= =========
Earnings per common share:
Basic $0.33 $0.27
Diluted $0.33 $0.27
Weighted-average shares outstanding:
Basic 67,799 68,270
Diluted 68,577 68,660


Six Months Ended
June 30,
------------------------
2006 2005
--------- ---------

Net sales $644,260 100% $622,989 100%
Cost of goods sold 372,662 58% 343,650 55%
--------- ---------
Gross profit 271,598 42% 279,339 45%
Operating expenses:
Selling expense 145,173 23% 166,385 27%
General and administrative expense 38,325 6% 40,324 6%
Research and development expense 12,998 2% 13,323 2%
--------- ---------
Total operating expenses 196,496 30% 220,032 35%
--------- ---------
Income from operations 75,102 12% 59,307 10%
Other expense, net (971) (2,987)
--------- ---------
Income before income taxes 74,131 12% 56,320 9%
Provision for income taxes 28,731 19,568
--------- ---------
Net income $45,400 7% $36,752 6%
========= =========
Earnings per common share:
Basic $0.66 $0.54
Diluted $0.65 $0.54
Weighted-average shares outstanding:
Basic 68,479 68,226
Diluted 69,356 68,643



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

Six Months Ended
June 30,
------------------
2006 2005
--------- --------
Cash flows from operating activities:
Net income $45,400 $36,752
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 15,225 22,659
Non-cash compensation 6,331 3,957
Loss on disposal of assets 324 856
Deferred taxes 1,165 (1,184)
Changes in assets and liabilities, net of
effects of acquisitions (114,383) (67,378)
--------- --------
Net cash used in operating activities (45,938) (4,338)
--------- --------

Cash flows from investing activities:
Capital expenditures (20,463) (19,046)
Business acquisition, net of cash acquired (5,911) -
Proceeds from sale of capital assets 120 20
--------- --------
Net cash used in investing activities (26,254) (19,026)
--------- --------

Cash flows from financing activities:
Issuance of Common Stock 6,519 3,560
Dividends paid, net (4,901) (4,853)
Acquisition of Treasury Stock (42,894) (39)
Tax benefit from exercise of stock options 481 269
Proceeds from Line of Credit, net 110,300 37,000
Payments on financing arrangements (20) (22)
--------- --------
Net cash provided by financing activities 69,485 35,915
--------- --------

Effect of exchange rate changes on cash
and cash equivalents 1,339 (1,552)
--------- --------
Net increase (decrease) in cash and cash
equivalents (1,368) 10,999
Cash and cash equivalents at beginning of period 49,481 31,657
--------- --------
Cash and cash equivalents at end of period $48,113 $42,656
========= ========



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

Net Sales by Product Category
-------------------------------------------
Quarter Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
Woods $86,319 $69,583 $16,736 24%
Irons 106,800 111,686 (4,886) -4%
Putters 37,313 33,976 3,337 10%
Golf balls 69,103 70,759 (1,656) -2%
Accessories and other 42,280 37,128 5,152 14%
--------- --------- ---------------
$341,815 $323,132 $18,683 6%
========= ========= ===============



Six Months Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
Woods $183,439 $135,047 $48,392 36%
Irons 195,770 219,634 (23,864) -11%
Putters 62,191 65,824 (3,633) -6%
Golf balls 124,833 129,792 (4,959) -4%
Accessories and other 78,027 72,692 5,335 7%
--------- --------- ---------------
$644,260 $622,989 $21,271 3%
========= ========= ===============



Net Sales by Region
-------------------------------------------
Quarter Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
United States $186,349 $181,453 $4,896 3%
Europe 54,336 56,568 (2,232) -4%
Japan 34,042 30,274 3,768 12%
Rest of Asia 25,561 19,064 6,497 34%
Other foreign countries 41,527 35,773 5,754 16%
--------- --------- ---------------
$341,815 $323,132 $18,683 6%
========= ========= ===============


Six Months Ended
June 30, Growth/(Decline)
------------------- -----------------------
2006 2005 Dollars Percent
--------- --------- --------------- -------
Net sales:
United States $367,632 $366,554 $1,078 0%
Europe 104,421 107,731 (3,310) -3%
Japan 60,156 55,127 5,029 9%
Rest of Asia 42,549 33,729 8,820 26%
Other foreign countries 69,502 59,848 9,654 16%
--------- --------- ---------------
$644,260 $622,989 $21,271 3%
========= ========= ===============



Operating Segment Information
--------------------------------------------
Quarter Ended
June 30, Growth/(Decline)
------------------- ------------------------
2006 2005 Dollars Percent
--------- --------- -------- -------
Net sales:
Golf clubs $272,712 $252,373 $20,339 8%
Golf balls 69,103 70,759 (1,656) -2%
--------- --------- ------------
$341,815 $323,132 $18,683 6%
========= ========= ============

Income before provision
for income taxes:
Golf clubs $50,327 $33,365 $16,962 51%
Golf balls 545 6,018 (5,473) -91%
Reconciling items (13,399) (13,418) 19 0%
--------- --------- ------------
$37,473 $25,965 $11,508 44%
========= ========= ============



Six Months Ended
June 30, Growth/(Decline)
--------------------- ----------------------
2006 2005 Dollars Percent
--------- --------- -------- ----------
Net sales:
Golf clubs $519,427 $493,197 $26,230 5%
Golf balls 124,833 129,792 (4,959) -4%
--------- --------- ------------
$644,260 $622,989 $21,271 3%
========= ========= ============

Income before provision
for income taxes:
Golf clubs $95,395 $73,744 $21,651 29%
Golf balls 6,902 7,744 (842) -11%
Reconciling
items (28,166) (25,168) (2,998) -12%
--------- --------- ------------
$74,131 $56,320 $17,811 32%
========= ========= ============


Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)

Quarter Ended June 30,
--------------------------------------------------------
2006
--------------------------------------------------------

Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
---------- --------- ------------- ------------- ---------
Net sales $341,815 $- $- $- $341,815
Gross
profit 141,859 (1,516) (96) (161) 140,086
% of sales 42% n/a n/a n/a 41%
Operating
expenses 98,095 218 474 2,553 101,340
--------- -------- ------- -------- ---------
Income (loss)
from
operations 43,764 (1,734) (570) (2,714) 38,746
Other
expense,
net (1,273) - - - (1,273)
--------- -------- ------- -------- ---------
Income before
income
taxes 42,491 (1,734) (570) (2,714) 37,473
Provision
for income
taxes 16,635 (662) (213) (826) 14,934
--------- -------- ------- -------- ---------
Net income
(loss) $25,856 $(1,072) $(357) $(1,888) $22,539
========= ======== ======= ======== =========

Diluted earnings
(loss) per
share: $0.38 $(0.01) $(0.01) $(0.03) $0.33
Weighted-average
shares
outstanding: 68,577 68,577 68,577 68,577 68,577


Quarter Ended June 30,
--------------------------------------------------------
2005
--------------------------------------------------------

Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
---------- ---------- ------------- ------------- ---------
Net sales $323,132 $- $- $- $323,132
Gross
profit 148,027 (1,294) - - 146,733
% of sales 46% n/a n/a n/a 45%
Operating
expenses 116,880 1,966 - 116 118,962
--------- -------- ------- -------- ---------
Income (loss)
from
operations 31,147 (3,260) - (116) 27,771
Other expense,
net (1,806) - - - (1,806)
--------- -------- ------- -------- ---------
Income before
income
taxes 29,341 (3,260) - (116) 25,965
Provision
for income
taxes 8,856 (1,239) - (44) 7,573
--------- -------- ------- -------- ---------
Net income
(loss) $20,485 $(2,021) $- $(72) $18,392
========= ======== ======= ======== =========

Diluted earnings
(loss) per
share: $0.30 $(0.03) $- $(0.00) $0.27
Weighted-average
shares
outstanding: 68,660 68,660 68,660 68,660 68,660



Callaway Golf Company
Supplemental Financial Information
(In thousands, except per share data)
(Unaudited)


Six Months Ended June 30,
--------------------------------------------------------
2006
--------------------------------------------------------

Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
---------- ---------- ------------- ------------- ---------
Net sales $644,260 $- $- $- $644,260
Gross
profit 274,141 (2,171) (110) (262) 271,598
% of sales 43% n/a n/a n/a 42%
Operating
expenses 190,783 593 450 4,670 196,496
--------- -------- ------- -------- ---------
Income (loss)
from
operations 83,358 (2,764) (560) (4,932) 75,102
Other expense,
net (971) - - - (971)
--------- -------- ------- -------- ---------
Income (loss)
before
income
taxes 82,387 (2,764) (560) (4,932) 74,131
Provision
for income
taxes 31,628 (1,061) (209) (1,627) 28,731
--------- -------- ------- -------- --------
Net income
(loss) $50,759 $(1,703) $(351) $(3,305) $45,400
========= ======== ======= ======== ========

Diluted earnings
(loss) per
share: $0.73 $(0.02) $(0.01) $(0.05) $0.65
Weighted-average
shares
outstanding: 69,356 69,356 69,356 69,356 69,356



Six Months Ended June 30,
--------------------------------------------------------
2005
-------------------------------------------------------

Pro Forma Integration Restructuring Employee Total as
Callaway Charges Charges Stock Reported
Golf Compensation
----------- --------- ------------- ------------- ---------
Net sales $622,989 $- $- $- $622,989
Gross
profit 283,716 (4,377) - - 279,339
% of sales 46% n/a n/a n/a 45%
Operating
expenses 217,108 2,710 - 214 220,032
--------- -------- ------- -------- ---------
Income (loss)
from
operations 66,608 (7,087) - (214) 59,307
Other expense,
net (2,987) - - - (2,987)
--------- -------- ------- -------- ---------
Income (loss)
before
income
taxes 63,621 (7,087) - (214) 56,320
Provision for
income
taxes 22,342 (2,693) - (81) 19,568
--------- -------- ------- -------- ---------
Net income
(loss) $41,279 $(4,394) $- $(133) $36,752
========= ======== ======= ======== =========

Diluted earnings
(loss) per
share: $0.60 $(0.06) $- $(0.00) $0.54
Weighted-average
shares
outstanding: 68,643 68,643 68,643 68,643 68,643