Amid bad financial news for Callaway on Wednesday, CEO George Fellows resigned and was replaced on an interim basis by Anthony S. Thornley, who has been on Callaway's board since 2004.
The company announced a second quarter loss of $55 million and said it would "reduce headcount at all levels of the organization." The complete press release is below:
CARLSBAD, Calif., June 29, 2011
Callaway Golf Company (NYSE: ELY) today announced the appointment of Anthony S. "Tony" Thornley as Interim President and Chief Executive Officer, filling a vacancy created by George Fellows, who resigned for personal reasons. The Company also announced preliminary results for the second quarter of 2011, as well as organizational changes that are expected to improve operational effectiveness and reduce costs.
Mr. Thornley, 65, who joined the Board of Callaway Golf in 2004, served from 2002 to 2005 as President and Chief Operating Officer of Qualcomm Inc., the global leader in wireless technology. He served as Qualcomm's Chief Financial Officer from 1994 to 2002. Until his appointment today, he served as chair of the Audit Committee of the Board of Directors of Callaway Golf and was the designated "financial expert."
Mr. Fellows, 68, served as President and CEO since August 2005 and led initiatives that included the Company's international expansion, product cost reduction and efforts to return golf to the Olympics. Mr. Fellows led the Company to record sales and earnings prior to the economic downturn.
"Tony Thornley has a deep knowledge of Callaway's business and the steps we must take to improve results going forward. He brings decades of experience, including the financial and managerial skills and discipline to execute on our immediate priorities and to lead a transition to new leadership as the company charts a path for the future," said Ron Beard, Chairman of the Board. "As an avid golfer with a low single-digit handicap, he also brings passion for what we do. We appreciate George Fellows' efforts, accomplishments and wish him the best in the future. We look forward to continuing to work closely with our customers and partners as we take our next steps."
"It's been my privilege to serve Callaway these past 6 years and I'm proud of much of what we've done," said Mr. Fellows. "However the personal demands of cross country commuting and other demands on my personal life and family have led me to conclude now is the right time for me to make this change." Preliminary Results for Second Quarter 2011 Callaway Golf announced that, for the second quarter of 2011, it expects revenues to be approximately $270 million.
The Company expects a net loss of approximately $55 million for the second quarter, including $48 million of noncash charges. These noncash charges include a valuation allowance of approximately $46 million related to the Company's U.S. deferred tax assets. The Company's U.S. business, which has been adversely affected by the recent economic downturn and continued investment in the final phase of the Company's global operations strategy, has not yet returned to profitability. As a result, U.S. accounting rules require that the Company establish the valuation allowance. The Company expects to be able to reverse the allowance in future periods as the Company's U.S. business returns to profitability. The net loss for the quarter also includes charges of approximately $8 million related to the organizational changes and approximately $4 million related to the Company's global operations strategy. Organizational Changes As part of its reorganization, the Company expects to reduce headcount at all levels of the organization. The Company said it expects its organizational changes and reevaluation of business processes and priorities to deliver annualized pre-tax savings of approximately $50 million, a portion of which will benefit 2011. Pre-tax charges associated with these actions, including severance expenses, are currently estimated to be approximately $20 million for 2011, including the $8 million recognized in the second quarter.
"While it is clear that it was the global economic recession that derailed our record sales and earnings pace, it is also clear that our business is not keeping pace with the industry recovery," said Mr. Thornley. "It is therefore necessary for the company to take immediate and aggressive actions to reduce costs in order to return the Company to profitability as quickly as possible. We will also focus our efforts on strengthening our Brands by reinvesting a portion of the cost savings in key marketing initiatives. While we have the best performing products in the industry, that message has sometimes been overshadowed by the sheer volume of competitive marketing. In addition, the actions we are announcing today will also result in a leaner organization that is better able to respond to changing market conditions. We will provide more details about the reorganization during our earnings call in late July." Conference Call and Webcast The Company will be holding a conference call to introduce Mr. Thornley at 6:00 a.m. PDT on Thursday, June 30. The call will be broadcast live over the Internet and can be accessed at www.callawaygolf.com. To listen to the call, please go to the website at least 15 minutes before the call to register and for instructions on how to access the broadcast.
A replay of the conference call will be available approximately three hours after the call ends, and will remain available through 9:00 p.m. PDT on Thursday, July 14, 2011. The replay may be accessed through the Internet at www.callawaygolf.com or by telephone by calling (800) 642-1687 or (706) 645-9291 (for international). The replay pass code is 80473414. Date Set for Release of Second Quarter Financial Results The Company plans to announce financial results for the second quarter on July 26, 2011 and will hold a conference call on that day to update investors on the company's operations and expectations for the remainder of the year.