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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 21, 1998
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EVENFLO & SPALDING HOLDINGS CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 333-14569 59-2439656
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(State or Other Jurisdiction of Commission (I.R.S. Employer
Incorporation or Organization) File Number Identification No.)
601 South Harbour Island Boulevard, Suite 200, Tampa, Florida 33602-3141
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (813) 204-5200
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ITEM 5. OTHER EVENTS.
Evenflo & Spalding Holdings Corporation (E&S) announced on August 21, 1998,
that it has completed the restructuring of the Company which resulted in the
separation of Spalding and Evenflo into two stand-alone companies, the infusion
of $100 million of equity into E&S, and the reduction of approximately $278.8
million of debt under E&S's senior credit facilities.
On August 24, 1998, E&S released a letter to bondholders, which discussed
recent financial results of Spalding Sports Worldwide.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following is filed as an Exhibit to this Report.
Exhibit No. Description of Exhibit
99.3 Press Release dated August 21, 1998
99.4 Press Release dated August 24, 1998
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Evenflo & Spalding Holdings Corporation
(Registrant)
Date: August 24, 1998 By: /s/ W. Michael Kipphut
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W. Michael Kipphut
Vice President and Treasurer
(a Principal Financial Officer
and authorized signatory)
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Exhibit 99.3
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NEWS RELEASE
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601 S. Harbour Island Boulevard W. Michael Kipphut
P.O. Box 30101 Vice President
Tampa, FL 33630-3101
(813) 204-5200
EVENFLO & SPALDING HOLDINGS CORPORATION
[LOGO] COMPLETES RESTRUCTURING
CHICOPEE, MA, VANDALIA, OH AND NEW YORK, NY, August 21, 1998 -- Evenflo &
Spalding Holdings Corporation (E&S), the parent company of Spalding Sports
Worldwide (Spalding) and Evenflo Company, Inc. (Evenflo), today announced that
it had completed the previously announced restructuring of the Company which
resulted in the separation of Spalding and Evenflo into two stand-alone
companies, the infusion of $100 million of equity into E&S and the reduction of
approximately $278.8 million of debt under E&S's senior credit facilities. The
corporate entity now known as Evenflo & Spalding Holdings Corporation will be
renamed Spalding Holdings Corporation, which now includes Spalding's operations
in addition to an equity interest of approximately 42% in Evenflo.
The separation was accomplished through the sale by a Spalding subsidiary of
51% of the outstanding common stock of Evenflo to an affiliate of Kohlberg
Kravis Roberts & Co. (KKR) for $25.5 million, and of approximately 7% of
Evenflo's outstanding common stock to Great Star Corporation, an affiliate of
Abarco N.V. (Abarco), for $3.3 million. Both KKR and Abarco are current
shareholders of E&S. KKR also acquired shares of noncash pay preferred stock of
Evenflo for $40 million in cash. Evenflo received $120 million of proceeds from
certain other debt financings to repay indebtedness owed to E&S and to pay
certain fees and expenses. The proceeds of these transactions were used to
repay E&S debt under its senior credit facilities. After giving effect to the
recapitalization, Evenflo has approximately $48 million of availability for
general corporate purposes (after giving effect to $42 million of outstanding
letters of credit and bankers' acceptances) under a new $100 million revolving
credit facility, $10 million of which was drawn at closing.
As part of the restructuring, E&S has reached agreement with its bank syndicate
to amend its senior credit facilities by removing certain financial ratio
requirements until December 31, 1999, and to amend certain other covenants. In
addition, KKR invested $100 million in exchange for noncash pay preferred stock
of E&S. Proceeds of that investment, together with the proceeds received from
the Evenflo sale and debt financings, were used to repay approximately $278.8
million of debt under E&S's senior credit facilities. After this repayment of
debt, E&S's next scheduled principal payment under the amended senior credit
facilities will be in the year 2002.
Evenflo is one of the most recognizable producers of infant and juvenile
products under the Evenflo, Gerry and Snugli brand names. Headquartered in
Vandalia, Ohio, Evenflo's product line includes car seats, strollers,
stationary activity centers, gates, high chairs, play yards, cribs, child
carriers, nursers and a wide variety of infant accessories.
Founded in 1876, Spalding is a leading manufacturer of products serving
sporting goods markets under the Spalding, Top-Flite, Ben Hogan, Etonic and
Dudley brand names. Headquartered in Chicopee, Massachusetts, Spalding markets
a broad range of recreational and athletic goods, including products used in
golf, basketball, softball, baseball, volleyball, soccer, tennis, racquetball
and football.
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Exhibit 99.4
Contact: Wade Lewis
Chief Financial Officer
(413) 493-6205
FOR IMMEDIATE RELEASE
SPALDING DISCUSSES RECENT RESULTS
CHICOPEE, MA, August 24, 1998 - Evenflo & Spalding Holdings Corporation (E&S),
which last week sold a majority interest in Evenflo Company, Inc. (Evenflo) in
order to focus on Spalding Sports Worldwide (Spalding), today sent the
following letter to its bondholders:
Dear Bondholder:
As you are aware, Evenflo & Spalding Holdings Corporation will be renamed
Spalding Holdings Corporation to reflect the fact that we are now a highly
focused golf and sporting goods company. We now consist solely of Spalding's
operations in addition to an equity interest of approximately 42% in Evenflo,
which has become a separate entity. As a result of the separation and the
related restructuring, we received an infusion of $100 million of equity and
reduced approximately $278.8 million of debt under our senior credit
facilities.
While I am eager to look forward as a newly capitalized company, I think it is
important at this time of transition to provide you with further insight into
Spalding's operations during the three and nine month periods ended June 30,
1998.
First, you should know that the 1998 third quarter continued to be a difficult
operating period for Spalding. Compared to the prior year quarter, sales
declined marginally. Operating profits were impacted significantly by both
gross margin contraction and increased selling, general and administrative
expenses compared to the prior year period. While Spalding is taking actions to
focus on its core product categories and improve its operational efficiency,
the market for certain products and in certain accounts continues to experience
slow sell-through and high inventory levels.
Our continued disappointing financial results have prompted us to undertake an
initiative to reexamine our core product lines and improve our operational
efficiencies. We have strong products, as demonstrated by the Strata Tour golf
ball's wins on the professional golf tours, the Etonic Difference's leading
market share position in the golf shoe market and the exclusive use of our
basketballs by the NBA and WNBA. However, we need to focus our resources on
supporting these core products and improve our profitability.
THIRD QUARTER RESULTS
NET SALES
Net sales decreased to $155.0 million in the third quarter ended June 30, 1998,
down 1.4% from $157.2 million for the comparable 1997 third quarter.
Golf
Domestic golf equipment net sales increased $3.7 million or 4.2% over the prior
year period. The increase was driven by growth in sales of golf clubs, bags and
gloves, offset by a decline in golf ball sales.
o In the golf ball segment the Company experienced strong sales increases
in the premium category, driven by the introduction of several new balls,
as well as the continued success of the Strata. The Company continues to
expand its product line of premium golf balls and gain greater
distribution in
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the on-course channel, a key market for premium golf ball products. The
value category experienced a decrease in sales due primarily to (i) a
management decision to de-emphasize certain low-end product lines and (ii)
inventory adjustments at certain mass merchants.
o Golf club net sales increased 14.4% over the prior year period. This
increase was driven by an increase in Spalding brand club sales, primarily
package sets sold to mass merchants, and the inclusion of sales of Hogan
clubs. Ben Hogan Co. was acquired on November 26, 1997 and therefore did
not contribute to sales in the prior year quarter. The Company has
experienced flat sales in Top-Flite brand clubs due to the decline in
retail sell-through and high inventory levels of premium woods and irons
in the retail channel.
o Golf shoe net sales remained flat from the prior year quarter. Spalding
has experienced strong net sales increases in the Difference softspike
golf shoe, which has recently become a leading golf shoe model in the
off-course market, offset by lower sales and competitive pricing in
certain spiked shoe product lines which are being discontinued. The golf
shoe market continued to be impacted by the shift from spiked to spikeless
shoes which has caused a number of closeout sales and depressed pricing
across the market.
o Golf bags and gloves both experienced significant increases in sales over
the prior year quarter due to new product introductions and increased
distribution.
Sporting Goods
Domestic sporting goods net sales decreased $3.5 million or 12.8% over the
prior year quarter with lower sales across the majority of the product
categories. The declines were primarily due to (i) a management decision to
eliminate several low-end product programs and (ii) slow sell-through in the
sporting goods channel.
International
International net sales declined $2.3 million or 5.3% over the prior year
quarter. Spalding experienced lower sales in the Asia/Pacific region, Europe,
Australia and Mexico, partially offset by increased sales in Canada and Sweden.
The declines were due in part to international restructuring activities in
which the Company is closing five owned foreign operations and shifting sales
to independent distributors. Weaker currencies compared to the U.S. dollar
negatively impacted international sales in the third quarter by approximately
$2.0 million versus the prior year quarter.
GROSS PROFIT
Gross profit for the 1998 third quarter decreased $8.5 million and as a
percentage of net sales decreased to 34.7% from 39.7% in the prior year
quarter. The gross margin decrease was primarily due to (i) lower golf ball
manufacturing volumes which caused fixed costs to be spread over fewer units;
(ii) a less favorable sales mix within the golf segment, caused by the strong
net sales growth in golf clubs, bags and gloves versus higher margin golf
balls; (iii) lower Etonic margins due to competitive pricing in both the
athletic and golf shoe markets; and (iv) lower international gross margins
caused by a less favorable international sales mix and the shift to
distributors from owned foreign operations, combined with the strength of the
U.S. dollar versus international currencies.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES
SG&A expenses increased $13.2 million in the 1998 third quarter over the prior
year quarter due to (i) higher advertising and promotion expenses associated
with the premium golf club and golf ball product lines; (ii) higher legal costs
associated with several legal issues; (iii) higher sales force expenses due to
the expansion of the golf sales force to better serve key distribution
channels; and (iv) $5.7 million of costs due to the misapplication of funds by
Spalding's freight audit and payment provider who failed to pay freight
carriers funds advanced by Spalding. These increases were partially offset by
the cost savings benefits of the international restructuring program which
downsized operations in Japan, consolidated operations in Europe and closed
operations in Mexico.
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ADJUSTED EBITDA
As a result of the net sales decrease combined with lower gross margins and
higher SG&A expenses, Spalding's adjusted EBITDA (excluding corporate,
restructuring and unusual costs) declined to $6.4 million in the 1998 third
quarter from $21.6 million in the prior year quarter.
NINE MONTH RESULTS
The Company experienced operational and financial trends in the 1998 nine-month
period similar to those experienced in the 1998 third quarter. A slight
increase in net sales was more than offset by a significant decline in gross
margin percentage and increased SG&A expenses.
NET SALES
Net sales increased to $386.0 million in the first nine months of the 1998
fiscal year, up 2.4% from $376.8 million for the comparable 1997 nine-month
period.
o Domestic golf equipment net sales increased $31.5 million or 16.1% over
the prior year period. The increase was driven by significant increases in
sales of golf clubs, bags and gloves, while golf ball sales increased at a
slower pace and golf shoe sales remained flat. Similar trends in both new
golf product introductions and wider distribution were prevalent in the
nine-month period as in the third quarter.
o Domestic sporting goods net sales decreased $8.4 million or 11.5% over
the prior year period due to declines across the majority of the product
categories. The declines were primarily due to (i) a management decision
to eliminate several low-end product programs and (ii) slow sell-through
in the sporting goods channel.
o International net sales declined $13.9 million or 13.0% over the prior
year period. The Company experienced lower net sales in the Asia/Pacific
region, Europe, Australia and Mexico, partially offset by increased sales
in Canada and Sweden. Weaker currencies compared to the U.S. dollar
negatively impacted international sales in the nine-month period by
approximately $5.5 million versus the prior year period.
GROSS PROFIT
Gross profit for the 1998 nine months decreased $6.0 million and as a
percentage of net sales decreased to 35.9% from 38.4% in the prior year period.
The gross margin decline was primarily due to (i) lower international gross
margins; (ii) lower Etonic margins in both the athletic and golf shoe markets;
and (iii) a less favorable sales mix within both the golf and sporting goods
segments.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES
SG&A expenses increased $21.0 million in the 1998 nine months over the prior
year period due to (i) higher advertising and promotion expenses; (ii) higher
legal costs; (iii) higher sales force expenses; and (iv) $5.7 million of costs
due to the misapplication of funds by Spalding's freight audit and payment
provider who failed to pay freight carriers funds advanced by Spalding. These
increases were partially offset by the cost savings benefits of the
international restructuring program.
ADJUSTED EBITDA
As a result of the lower gross margins and higher SG&A expenses, Spalding's
adjusted EBITDA (excluding corporate, restructuring and unusual costs) declined
to $15.1 million in the 1998 nine months from $35.1 million in the prior year
period.
RESTRUCTURING AND UNUSUAL COSTS
In fiscal 1997, the Company began to restructure Spalding's international
operations by streamlining operations in Japan and certain European countries.
In the 1998 second quarter, Spalding implemented an expanded international
restructuring program that will reduce the Company's international
infrastructure
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to a size sufficient to support a strategic focus on core golf and sporting
goods products in selected countries. Operations will be significantly
downsized in Japan and closed in Germany, France, Italy, Spain and Mexico. As a
result, future sales activities in Germany, France, Italy, Spain and Mexico
will be channeled through distributors.
In the nine months ended June 30, 1998, Spalding's restructuring charges were
$7.7 million and consisted of (i) $4.3 million principally related to the
international restructuring; (ii) $2.4 million in management severance costs;
and (iii) $1.0 million in Etonic severance and other costs. In addition to the
restructuring costs, Spalding incurred $10.4 million of other unusual expenses
in the 1998 nine months associated with (i) the closure and downsizing of
certain international operations under the international restructuring program;
(ii) integration of the Etonic operations into the Spalding headquarters in
Chicopee, Massachusetts; and (iii) misapplication of funds by Spalding's
freight audit and payment provider who failed to pay freight carriers funds
advanced by Spalding.
Spalding anticipates it will incur further restructuring and unusual costs in
the 1998 fourth quarter including approximately $4.5 million of restructuring
costs related to the closure of its corporate headquarters in Tampa, Florida.
The corporate functions will be consolidated into the Spalding headquarters in
Chicopee, Massachusetts.
LIQUIDITY AND CAPITAL RESOURCES
On August 20, 1998 Spalding sold a 51% interest in a Company subsidiary,
Evenflo Company, Inc., to an affiliate of Kohlberg Kravis Roberts & Co. L.P.
("KKR") and an approximate 7% interest to Great Star Corporation, an affiliate
of Abarco N.V. The sale of these interests, along with the repayment of
indebtedness owed to Spalding by Evenflo, resulted in $178.8 million in cash
proceeds to Spalding. In addition, Spalding received $100 million in exchange
for cumulative preferred stock issued to an affiliate of KKR. The proceeds of
these transactions were used to repay approximately $278.8 million in Company
debt under its senior credit facilities. On a pro forma basis as of June 30,
1998, after giving effect to the debt reductions discussed above, the Company
will have $522.4 million in debt outstanding. This amount includes $131.5
million on the $250.0 million revolving credit facility, $171.2 million in
senior term loans, $200.0 million in 10.375% senior subordinated notes due 2006
and $19.7 million in other debt. Following the closing of the transactions on
August 20, 1998, the Company had approximately $60 million of availability
under its revolving credit facility after giving effect to outstanding bankers'
acceptances and letters of credit.
Spalding's capital expenditures in the 1998 nine months were $9.6 million, $3.5
million higher than the prior year period. The majority of the funds were used
to improve production equipment and continue a multiphase expansion of its
warehouse and golf ball facilities at its Chicopee, Massachusetts operations.
Management estimates the multiphase project will be completed in the remainder
of fiscal 1998 and could utilize an additional $4.0 million in capital
expenditures.
In conclusion, we believe we are well positioned financially and have the right
strategy in place to capitalize on our strengths. While we continue to face a
challenging market, we are confident of our ability to meet our goals and
create meaningful and sustained value for bondholders, customers and employees.
Sincerely,
Kevin T. Martin
President
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Founded in 1876, Spalding Sports Worldwide is a leading manufacturer of products
serving sporting goods markets under the Spalding, Top-Flite, Ben Hogan, Etonic,
and Dudley brand names. Headquartered in Chicopee, Massachusetts, Spalding
markets a broad range of recreational and athletic goods, including products
used in golf, basketball, softball, baseball, volleyball, soccer, tennis and
football.
Certain matters discussed in this news release are forward-looking statements
that are necessarily dependent upon assumptions, estimates and data that may be
incorrect or imprecise and include known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievement of the Company's results to differ materially from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. All
forward-looking statements are expressly qualified by such cautionary
statements, and the Company expressly disclaims any duty to update such
forward-looking statements.
(Comparative Results Follow)
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EVENFLO & SPALDING HOLDINGS CORPORATION
PRO FORMA INCOME STATEMENT
(dollars in thousands)
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PRO FORMA PRO FORMA
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
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1998 1997 1998 1997
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Net Sales $ 155,049 $ 157,198 $ 385,951 $ 376,826
Cost of Sales 101,176 94,863 247,240 232,154
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Gross Profit 53,873 62,335 138,711 144,672
Selling, General & Administrative Expenses 60,766 48,098 152,605 132,101
Royalty Income, net (2,836) (3,529) (8,270) (9,095)
Restructuring Costs 2,665 558 7,693 1,619
Allocated Spalding Expenses -- -- -- --
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Income (loss) from operations $ (6,722) $ 17,208 $ (13,317) $ 20,047
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EBITDA (1) $ (4,935) $ 19,874 $ (6,383) $ 29,222
Restructuring and Unusual Costs (1) 10,263 1,286 18,211 3,180
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Adjusted EBITDA (1) $ 5,328 $ 21,160 $ 11,828 $ 32,402
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(1) Includes historical corporate expenses allocated to Spalding.
