Callaway Golf has appointed one of its board members as its interim president and chief executive after the sudden departure of George Fellows earlier this week. The switch comes as Callaway is preparing heavy restructuring measures to return to profits, entailing job losses at all levels of the business.
At the helm of Callaway since 2005, the 68-year-old Fellows achieved record sales and profits for the company before the economic downturn. He led several large-scale strategic moves, such as the company's international expansion and efforts to return golf to the Olympics.
Callaway said in a conference call that Fellows was leaving for personal reasons, as the constant commuting between the company's head office in California and his home in New York put pressure on his personal and family life. Then again, the company's board chairman, Ron Beard, said in almost the same breath that Callaway's performance was not at all where it ought to be. Questions asked in the conference call, for example about a potential sale of the company, highlighted the unhappiness of shareholders as well.
Anthony Thornley, who joined Callaway's board in 2004, will temporarily take over the job formerly held by Fellows. An avid golfer with a single-digit handicap, he previously spent many years at Qualcomm, a leading company in wireless technology, as its chief financial officer and then president and chief operating officer. On Callaway's board he served as chair of the Audit Committee and was the designated “financial expert”.
Thornley's arrival will be paired with painful organizational changes. Wide-ranging job cuts should contribute to annualized pre-tax savings of about $50 million, part of which will occur in 2011. Pre-tax charges relating to these measures, including severance expenses, are currently estimated to be about $20 million for 2011, including $8 million in the second quarter.
Thornley said that Callaway had to take aggressive action to reduce costs because its business was not recovering as it should. He added that the company would reinvest part of the cost savings in marketing, to strengthen the group's brands. The restructuring measures are also expected to result in a leaner organization, which will enable Callaway to respond more rapidly to market changes. Further details are to be unveiled at Callaway's conference call for its second-quarter results at the end of July.
For the time being, Callaway reported that it expected to reach sales of about $270 million for the second quarter, down from $304 million for the same period last year. Furthermore, Callaway stands to suffer a net loss of about $55 million for the quarter, including non-cash charges of $48 million. These include a valuation allowance of about $46 million related to the company's U.S. deferred tax assets – which Callaway has to establish under U.S. accounting rules and due to the fact that its U.S. business has not yet returned to profits. It expects to be able to reverse the allowance, once its U.S. business becomes profitable again. The net loss for the quarter also includes the charges of $8 million related to restructuring measures, and about $4 million for its global operations strategy.
