<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
______________________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________________
Commission file number 333-14569
EVENFLO & SPALDING HOLDINGS CORPORATION
________________________________________________________________________________
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-2439656
________________________________________________________________________________
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
601 South Harbour Island Boulevard, Suite 200, Tampa, Florida 33602-3141
________________________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (813) 204-5200
___________________________
_______________________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check X whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
_____ _____
The number of shares outstanding of the registrant's Common stock, par value
$.01 per share, at January 30, 1998, was 96,931,741 shares.
1
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EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS (LOSS)
AND COMPREHENSIVE EARNINGS (LOSS)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
NET SALES $ 157,049 125,194
Cost of sales 113,276 87,173
--------- -------
GROSS PROFIT 43,773 38,021
Selling, general and administrative expenses 54,847 50,298
Royalty income, net (4,022) (2,877)
Restructuring costs 409 661
--------- -------
INCOME (LOSS) FROM OPERATIONS (7,461) (10,061)
Interest expense, net 18,244 16,625
Currency loss (gain), net 941 (30)
--------- -------
EARNINGS (LOSS) BEFORE INCOME TAXES (26,646) (26,656)
Income taxes (benefit) (9,102) (13,328)
---------- -------
NET EARNINGS (LOSS) (17,544) (13,328)
Other comprehensive earnings (loss) - currency translation
adjustments net of tax benefit of $153 and $102 (40) 318
--------- -------
COMPREHENSIVE EARNINGS (LOSS) $ (17,584) (13,010)
========= =======
</TABLE>
See Unaudited Notes to Condensed Consolidated Financial Statements
2
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EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, September 30,
ASSETS 1997 1997
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,734 5,168
Receivables, less allowance of $3,966 and $3,941 188,535 243,571
Inventories 208,656 157,512
Deferred income taxes 13,330 13,860
Other 10,767 8,955
----------- ---------
TOTAL CURRENT ASSETS 425,022 429,066
Property, plant and equipment, net 111,240 110,195
Intangible assets, net 164,984 154,123
Deferred income taxes on acquired non-U.S. trademark 44,539 45,518
Deferred financing costs 28,435 29,594
Other 3,481 3,349
----------- ---------
TOTAL ASSETS $ 777,701 771,845
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
- -------------------------------------------------
CURRENT LIABILITIES
Non-U.S. bank loans $ 16,160 17,674
Current maturities of long-term debt 17,500 17,500
Accounts payable 178,837 183,657
Accrued expenses 65,574 79,348
Income taxes 649 811
----------- ---------
TOTAL CURRENT LIABILITIES 278,720 298,990
Long-term debt 653,125 609,900
Deferred income taxes (111) 10,614
Pension 12,288 12,327
Post-retirement benefits 8,910 8,910
Other 1,698 1,735
----------- ---------
TOTAL LIABILITIES 954,630 942,476
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common stock, $.01 par value, 150,000,000 shares authorized
and 96,911,741 and 94,655,078 shares outstanding 969 947
Paid-in capital 443,043 431,780
Retained earnings (deficit) (616,611) (599,067)
Accumulated other comprehensive earnings (loss) - currency
translation adjustments (4,330) (4,291)
----------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (176,929) (170,631)
----------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) $ 777,701 771,845
============ =========
</TABLE>
See Unaudited Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------------
INCREASE (DECREASE) IN CASH 1997 1996
- --------------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (17,544) (13,328)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depreciation 5,207 4,649
Intangibles amortization 1,353 1,142
Deferred income taxes (9,216) (4,836)
Deferred financing cost amortization 1,159 1,160
Other (39) 2
--------- -------
Subtotal (19,080) (11,211)
Receivables 55,036 24,058
Inventories (47,761) (34,628)
Current liabilities, excluding bank loans (19,856) (17,539)
Other (1,629) (1,787)
--------- -------
NET CASH USED BY OPERATING ACTIVITIES (33,290) (41,107)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (6,475) (5,051)
Payment to purchase net assets of Hogan (1,641) 0
--------- -------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (8,116) (5,051)
--------- -------
NET CASH USED BEFORE FINANCING ACTIVITIES (41,406) (46,158)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayment) under revolving credit loan 40,200 (22,000)
Net borrowings (repayment) of other indebtedness (1,514) 1,223
Proceeds from issuance of common stock 1,311 0
Repurchase of common stock (25) 0
--------- -------
NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES 39,972 (20,777)
--------- -------
CASH - net change (1,434) (66,935)
beginning of period 5,168 75,298
--------- -------
end of period $ 3,734 8,363
========= =======
SUPPLEMENTAL CASH FLOW DATA
Interest paid $ 22,815 7,016
Income taxes paid 568 351
Non-cash portion of acquisition of Hogan net assets for
common stock and a 10 1/2% note 13,025 0
</TABLE>
See Unaudited Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
EVENFLO & SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet of Evenflo & Spalding
Holdings Corporation and subsidiaries (the "Company") as of December 31, 1997,
and the related condensed statements of consolidated earnings (loss) and
comprehensive earnings (loss) and of cash flows for the three month periods
ended December 31, 1997 and 1996 are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such condensed
consolidated financial statements have been included. Such adjustments
consisted only of normal recurring items. Interim results may not be indicative
of results for a full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-Q of the Securities and Exchange Commission and do not
contain certain information included in the Company's annual consolidated
financial statements and notes. The condensed consolidated balance sheet as of
September 30, 1997, was derived from the Company's audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and accompanying notes included in
its Annual Report on Form 10-K for the year ended September 30, 1997 (file no.
333-14569).
INVENTORIES
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ -------------
<S> <C> <C>
Finished goods $ 139,547 99,733
Work in process 39,852 28,031
Raw materials 29,257 29,748
--------- --------
Total inventories $ 208,656 157,512
========= ========
</TABLE>
ACQUISITIONS
On April 21, 1997, the Company acquired the net assets of Gerry Baby Products
Company ("Gerry") for a purchase price of $68,652. Gerry has manufacturing
operations in Colorado and in Wisconsin and maintains its administrative
operations in Colorado. Gerry manufactures and/or markets specialty juvenile
products including baby bath, health and safety items, monitors and other baby
care products and accessories, as well as juvenile car seats, strollers, high
chairs, cribs, dressers and changing tables, gates, and soft and frame carriers
marketed under the Gerry(R) and Snugli(R) brand names. The Gerry acquisition
was accounted for using the purchase method; accordingly, the operating results
of Gerry have been included in the condensed statement of consolidated earnings
(loss) from the date of acquisition. If the acquisition had taken place at
October 1, 1996, rather than in April 1997, Gerry's unaudited results of
operations would have
5
<PAGE> 6
increased pro forma consolidated net sales and net loss by $23,383 and $742 for
the quarter ended December 31, 1996.
On November 26, 1997, the Company acquired certain assets of the Ben Hogan Co.
("Hogan") for a purchase price of $14,666, consisting of $10,000 in Company
common stock (2 million shares), $3,025 in a 10 1/2% note due November 25,
2000, and $1,641 in cash. Hogan manufactures and/or markets golf clubs, golf
balls, and golf accessories. The Hogan acquisition was accounted for using the
purchase method; accordingly, the operating results of Hogan have been included
in the condensed statement of consolidated earnings (loss) from the date of
acquisition. Consolidated pro forma net sales and net loss would not have been
materially different from the Company's reported amounts for 1996.
CONTINGENCIES
The Company is both a plaintiff and defendant in numerous lawsuits incidental
to its current and former operations, some alleging substantial claims. In
addition, the Company's operations are subject to federal, state, and local
environmental laws and regulations. The Company has entered into settlement
agreements with the U.S. Environmental Protection Agency and other parties on
several sites, and is still negotiating on other sites. The settlement amounts
and estimated liabilities are not significant.
Management is of the opinion that, after taking into account the merits of
defenses, insurance coverage and established reserves, the ultimate resolution
of these matters will not have a material adverse effect in relation to the
Company's condensed consolidated financial statements.
6
<PAGE> 7
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Evenflo & Spalding Holdings Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Evenflo & Spalding Holdings Corporation and subsidiaries (the "Company") as of
December 31, 1997, and the related condensed statements of consolidated
earnings (loss) and comprehensive earnings (loss) and of cash flows for the
three months ended December 31, 1997 and 1996. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company at September 30, 1997,
and the related statements of consolidated earnings (loss) and comprehensive
earnings (loss), consolidated cash flows and consolidated shareholders' equity
(deficiency) for the year then ended (not presented herein); and in our report
dated November 7, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of September 30, 1997,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Tampa, Florida
January 30, 1998
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are
forward-looking statements that necessarily are based on certain assumptions
and are subject to certain risks and uncertainties. These forward-looking
statements are based on management's expectations as of the date hereof, and
the Company does not undertake any responsibility to update any of these
statements in the future. Actual future performance and results could differ
from that contained in or suggested by these forward-looking statements as a
result of the factors set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in the December 31,
1997, Form 10-Q and related filings with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Quarter Ended December 31, 1997 ("1998 first
quarter") as compared to the Quarter Ended
December 31, 1996 ("1997 first quarter")
NET SALES are gross sales net of returns, allowances, trade discounts, freight
on goods sold and royalties paid on third-party trademarks used on the
Company's products. The Company's net sales increased 25.4% to $157.0 million
for the 1998 first quarter compared to $125.2 million for the same period in
the prior year. Spalding net sales increased 15.6% to $87.4 million for the
1998 first quarter compared to $75.6 million for the 1997 first quarter. Net
sales of Spalding's golf balls, clubs, and bags for the 1998 first quarter were
up $20.2 million or 80.0% over the 1997 first quarter. Spalding experienced
higher net sales of Top-Flite(R) golf balls, as well as Top-Flite(R) and
Spalding(R) golf clubs. Net sales of other sporting goods declined $1.6 million
or 11.3%, primarily due to lower sales of inflated balls outside the core
basketball line. Etonic net sales declined $4.9 million or 31.7% from the
comparable prior period due to competitive pricing in athletic shoes and
traditional spiked golf shoes, partially offset by higher net sales of The
Difference(R) spikeless golf shoes. International net sales at Spalding
declined $1.9 million or 9.0% in the 1998 first quarter compared to the 1997
first quarter. The decrease resulted primarily from lower net sales in Japan,
Southeast Asia, Australia, and Mexico, partially offset by net sales increases
in Europe and Canada. Weaker currencies compared to the U.S. dollar negatively
impacted Spalding's international 1998 first quarter net sales by approximately
$1.7 million compared to the 1997 first quarter.
Net sales at Evenflo for the 1998 first quarter increased 40.4% to $69.7
million from $49.6 million for the 1997 first quarter. Evenflo's net sales
increase is primarily attributable to the inclusion of Gerry net sales in the
1998 first quarter as a result of the April 1997 acquisition of Gerry. Without
Gerry, Evenflo's net sales were essentially flat, with higher net sales of car
seats and feeding products offset by lower net sales of play yards.
International net sales at Evenflo
8
<PAGE> 9
increased $0.1 million in the 1998 first quarter compared to the 1997 first
quarter principally due to higher net sales in Canada and Mexico. Weaker
currencies compared to the U.S. dollar negatively impacted Evenflo's
international 1998 first quarter net sales by approximately $0.5 million
compared to the 1997 first quarter.
GROSS PROFIT is net sales less cost of sales which includes the costs necessary
to make the Company's products, including the costs of raw materials,
production, warehousing, and procurement. For the 1998 first quarter, Company
gross profit increased $5.8 million to $43.8 million from $38.0 million for the
same period in the prior year. Gross profit as a percentage of net sales
decreased to 27.9% for the 1998 first quarter from 30.4% for the comparable
prior year quarter. Spalding's 1.5% gross margin increase from sales of higher
margin golf products was more than offset by a decrease in gross margin at
Evenflo, principally from sales of lower margin Gerry products, returns and
lower absorption of manufacturing costs from reduced manufacturing volumes.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") expenses include the costs
necessary to sell the Company's products and the general and administrative
costs of managing the business, including salaries and related benefits,
commissions, advertising and promotion expenses, bad debts, travel,
amortization of intangible assets, insurance and product liability costs,
consumer corrective action campaign costs, and professional fees. SG&A expenses
were $54.8 million, or 9.0% higher than SG&A expenses of $50.3 million in the
comparable quarter last year. Spalding's SG&A expenses increased $1.2 million
in the 1998 first quarter primarily from higher selling, advertising,
promotion, and endorsement costs, partially offset by $0.9 million in costs
related to the acquisition of Etonic Canadian distribution rights in the prior
period that did not recur in the 1998 first quarter. Evenflo had $3.1 million
higher SG&A expenses in the 1998 first quarter principally due to the addition
of Gerry, partially offset by lower product liability expenses compared to the
1997 first quarter. The corporate office had $0.2 million higher SG&A expenses
in the 1998 first quarter.
ROYALTY INCOME increased to $4.0 million in the 1998 first quarter from $2.9
million in the 1997 first quarter, an increase of $1.1 million or 39.8%. The
increase is principally due to royalty income settlements on Evenflo play yards
and Gerry strollers.
RESTRUCTURING COSTS were $0.4 million in the 1998 first quarter consisting of
(i) $0.3 million of Spalding international restructuring costs and (ii) $0.1
million of Gerry restructuring costs. The 1997 first quarter had $0.7 million
of Spalding international restructuring costs. In fiscal 1997, the Company
implemented plans to restructure Spalding international operations and to
integrate Gerry into its Evenflo operations. The Company estimates fiscal 1998
total unusual expenses of approximately $1.8 million to complete the Gerry
integration. Based on changes in certain international markets, the Company is
evaluating additional restructuring actions beyond those previously announced in
fiscal 1997.
INTEREST EXPENSE increased to $18.2 million in the 1998 first quarter from
$16.6 million in the 1997 first quarter, an increase of $1.6 million or 9.7%.
This increase is due to higher average borrowings under the Company's $250
million Revolving Credit Facility, which combined with $400 million of term
loans makes up the Company's $650 million Credit Facility (the "Credit
9
<PAGE> 10
Facility"). The Company also has outstanding $200 million 10 3/8% Series B
Senior Subordinated Notes ("Notes") due 2006. The Company's average balance
under the Notes, Credit Facility and certain non-U.S. borrowing arrangements
for the 1998 first quarter was $688 million compared to $617 million under the
Company's borrowing arrangements then in effect during the 1997 first quarter.
CURRENCY LOSS of $0.9 million was $1.0 million higher in the 1998 first quarter
than in the 1997 first quarter. See "-Liquidity and Capital Resources."
INCOME TAXES were a tax benefit of $9.1 million for the 1998 first quarter,
which represents an effective tax rate of 34% in relation to a loss before
income taxes of $26.6 million. The effective tax rate varied from a U.S.
federal statutory rate of 35% due to actual non-U.S. withholding taxes paid
that reduce the benefit realized on the loss. The effective tax rate for the
comparable quarter in the prior year of 50% varied from the statutory rate due
to projected benefits anticipated from utilization of non-U.S. net operating
losses. The 1997 first quarter effective tax rate was subsequently adjusted in
the 1997 third and fourth quarters due to higher than expected losses by
non-U.S. subsidiaries for which no tax benefit was recognized.
NET LOSS was $17.5 million for the 1998 first quarter compared to $13.3 million
for the 1997 first quarter. The $4.2 million decrease in earnings was a result
of a $2.6 million increase in earnings from operations offset by $1.6 million
higher interest expense, $1.0 million higher currency loss and a $4.2 million
lower income tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are from cash flows generated from
operations and from borrowings under the Credit Facility and certain non-U.S.
facilities. The Company believes its business is somewhat seasonal. For fiscal
1997, quarterly net sales as a percentage of total sales were approximately
15%, 25%, 30%, and 30%, respectively, and quarterly income (loss) from
operations as a percentage of total income (loss) from operations was
approximately (13)%, 29%, 40%, and 44%, respectively. Many sporting goods
marketed by Spalding, especially golf products, experience higher levels of
sales in the spring and summer months. The Company's need for cash historically
has been greater in its first and second quarters when cash generated from
operating activities coupled with drawdowns from credit facilities have been
invested in receivables and inventories.
For the 1998 first quarter, the Company used $41.4 million in cash before
financing activities to fund $33.3 million in operating activities, and invest
$6.5 million in capital expenditures and $1.6 million in the acquisition of
Hogan. Cash usage in the 1998 first quarter were funded from (i) $1.4 million
in excess cash and cash equivalents at September 30, 1997, (ii) $38.7 million
in net borrowings from the Company's Revolving Credit Facility and credit
facilities available to certain of the Company's non-U.S. operations, and (iii)
$1.3 million in proceeds from the issuance of common stock (net of repurchases)
to certain key employees of the Company under the 1996 Stock Purchase and
Option Plan for Key Employees of Evenflo & Spalding Holdings Corporation and
Subsidiaries.
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<PAGE> 11
Net cash flow used by operating activities for the 1998 first quarter was $33.3
million compared to $41.1 million for the 1997 first quarter. The $7.8 million
lower use of cash for operating activities when compared to the 1997 first
quarter was due to a $15.7 million decrease in the use of cash for working
capital (principally receivables and payables) offset by $4.2 million higher net
loss and $3.7 million in deferred taxes and other non-cash expenses.
Capital expenditures were $6.5 million for the 1998 first quarter compared to
$5.1 million in the 1997 first quarter. Spalding capital expenditures were
$1.9 million higher in the 1998 first quarter, the majority of which was 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 completion of the multiphase project could require an
additional $12.5 million to be invested in the remainder of fiscal 1998.
Capital expenditures at Evenflo were $0.4 million lower than the comparable
1997 first quarter. Evenflo is in the process of expanding its warehousing and
shipping facilities in Piqua, Ohio and Canton, Georgia in order to improve
efficiency and accommodate the consolidation of Gerry's Colorado operations.
Management estimates the completion of the expansion and facilities upgrade
could require an additional $4.5 million to be invested in the remainder of
fiscal 1998. As a result of these and other capital programs, management
expects capital expenditure levels in the 1998 fiscal year to be similar to
those in the 1997 fiscal year.
On November 26, 1997, the Company acquired certain assets of the Ben Hogan Co.
for a purchase price of $14.7 million. The purchased net assets consisted of
the following (dollars in millions):
<TABLE>
<S> <C>
Inventories $ 3.4
Equipment 0.2
Intangible assets 12.2
-------
Total 15.8
Accrued expenses (1.1)
-------
Net assets purchased $ 14.7
=======
</TABLE>
The primary sources of cash flows from financing activities are from borrowings
under the $250 million Revolving Credit Facility and under credit facilities
available to certain of the Company's non-U.S. facilities. At December 31,
1997, the Company had an available borrowing capacity of approximately $51.5
million (reduced to reflect $130.9 million of outstanding letters of credit and
bankers' acceptances) under the Revolving Credit Facility.
EBITDA (earnings before interest, taxes, depreciation and amortization) is
included as a basis upon which the Company assesses its financial performance,
and certain covenants in the Company's borrowing arrangements are tied to
similar measures. The following sets forth certain information regarding the
Company's EBITDA and other net cash flow items for the 1998 first quarter
(dollars in thousands):
11
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<TABLE>
<CAPTION>
Three Months Ended December 31, 1997
-------------------------------------------------------
Historical Cash Flow
Other items net cash provided by (used in)
affecting --------------------------------------
Historical historical Operating Investing Financing
EBITDA EBITDA activities activities activities
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Spalding $ (1,383) 349 (1,958) (3,888) 5,259
Evenflo 1,649 409 (6,770) (4,228) 10,869
Corporate (2,108) 18 (24,562) - 23,844
-------- ----- ------- ------ ------
Consolidated $ (1,842) 776 (33,290) (8,116) 39,972
======== ===== ======= ====== ======
</TABLE>
Spalding. Spalding's 1998 first quarter historical EBITDA included $0.3
million of unusual costs to restructure its international operations. See
"-Restructuring Costs."
Evenflo. Evenflo's 1998 first quarter historical EBITDA was adversely affected
by $0.4 million of unusual costs consisting of (i) $0.1 million to relocate the
Gerry Colorado administrative and manufacturing operations to Evenflo's Ohio
and Georgia locations, (ii) $0.1 million attributable to the manufacturing and
warehouse reconfiguration at Piqua, Ohio, and (iii) $0.2 million in Year 2000
conversion costs. The Company estimates fiscal 1998 total unusual expenses to
complete its Gerry integration will approximate $1.8 million.
<TABLE>
<CAPTION>
Three Months Ended December 31, 1996
-------------------------------------------------------
Historical Cash Flow
Other items net cash provided by (used in)
affecting --------------------------------------
Historical historical Operating Investing Financing
EBITDA EBITDA activities activities activities
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Spalding $ (4,605) 1,594 (15,267) (453) 1,499
Evenflo 2,218 622 (8,021) (4,598) 9,748
Corporate (1,853) - (17,819) - (32,024)
-------- ------- ------- ------ -------
Consolidated $ (4,240) 2,216 (41,107) (5,051) (20,777)
======== ====== ======= ====== =======
</TABLE>
Spalding. Spalding's 1997 first quarter historical EBITDA included $1.6 million
of unusual costs consisting of (i) $0.7 million to restructure its
international operations and (ii) $0.9 million to purchase its Etonic Canadian
distribution rights.
Evenflo. Evenflo's 1997 first quarter historical EBITDA was adversely affected
by $0.6 million of unusual costs consisting of (i) $0.4 million attributable to
the Piqua, Ohio manufacturing and warehouse reconfiguration, (ii) $0.4 million
to consolidate certain of its operations that were previously managed
separately; partially offset on a pro forma basis by $0.2 million in negative
EBITDA from Gerry's operations had they been included in the 1997 first
quarter.
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<PAGE> 13
The Company does not believe that its historic net losses in the 1998 first
quarter and the 1997 fiscal year are indicative of a current or a future
inability to service its debt. The Company expects cash flows from operations
to improve in future periods through the implementation of its business
strategies, although there can be no assurance as to the success of such
strategies.
CURRENCY HEDGING. In fiscal 1997, approximately 19% of the total Company net
sales were generated in non-U.S. currencies. Fluctuations in the value of
these currencies relative to the U.S. dollar could have a material effect on
the Company's results of operations. The Company, in its discretion, uses
forward exchange contracts to hedge up to six month transaction exposures from
U.S. dollar purchases made by its non-U.S. operations.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Part I, Item 3 "Legal Proceedings" of Registrant's Annual
Report on Form 10-K for the year ended September 30, 1997, filed December 19,
1997. Since December 19, 1997, the Company has not been named as a defendant in
any action which, to the best of the Company's knowledge, could have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Evenflo & Spalding Holdings Corporation
(Registrant)
Date: February 5, 1998 By: /s/ W. Michael Kipphut
--------------------------------
W. Michael Kipphut
Vice President and Treasurer
(a Principal Financial Officer and
authorized signatory)
15
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
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