Callaway CEO Resigns; Company Announces Layoffs Amidst Weak Q2 Forecast

George Fellows, who resigned for personal reasons, was replaced by Anthony Tony Thornley, who will serve as interim president and CEO. 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. Fellows led the company to record sales and earnings prior to the economic downturn.

Thornley, 65, who joined the Callaway board of directors in 2004, served from 2002 to 2005 as president and chief operating officer of Qualcomm Inc., and has served as chair of the audit committee of Callaway board and was the boards designated financial expert.

Management noted that the company has not yet started a search for a new permanent CEO, but the board will take whatever time is necessary to make a hiring decision.

In a conference call with analysts following the announcement, Thornley said the company would be making organizational changes in the near future.

The bottom line is that our results are not satisfactory and the board believes that now is the time to make changes in the business, said Thornley. The first step is we are making changes to our organization. Thornely added that those changes would include layoffs at all levels of the organization. Thornley estimated that the headcount reduction, along with other initiatives, would 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. Callaway has reported losses during the past two years and has lagged behind competitors regarding its recovery from the recession while losing market share to rivals such as TaylorMade recently.

During the conference call, Callaway also issued preliminary Q2 results. The company expects revenues of approximately $270 million for the second quarter with a net loss of approximately $55 million, including $48 million of non-cash charges. Those non-cash charges include a valuation allowance of approximately $46 million related to the company’s U.S. deferred tax assets.