SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 13, 1998
TEARDROP GOLF COMPANY
(Exact name of Registrant as specified in its Charter)
Delaware 0-29014 52-105660
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification
Number)
1080 Lousons Road, Union, New Jersey 07083
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (908) 688-4445
Not Applicable
(Former name and former address, as changed since last report)
<PAGE>
Item 7. Financial Statements, Pro forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS
Page
----
Report of independent accountants 1
Combined statements of operations for the fiscal
years ended September 30, 1997, 1996 and 1995 2
Combined balance sheets at September 30, 1997 and 1996 3
Combined statements of changes in invested capital of Parent for
the years ended September 30, 1997, 1996 and 1995 4
Combined statements of cash flows for the fiscal years ended
September 30, 1997, 1996 and 1995 5
Notes to combined financial statements 6-14
<PAGE>
[Letterhead of Price Waterhouse LLP]
Report of Independent Accountants
To the Boards of Directors and Shareholders of
Tommy Armour Golf Company and Affiliates
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in invested capital of Parent and
of cash flows present fairly, in all material respects, the financial position
of Tommy Armour Golf Company and its affiliates at September 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
January 8, 1998
1
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
For the fiscal years ended
September 30,
----------------------------------
1997 1996 1995
---- ---- ----
Net sales (Note 9) $ 31,992 $ 56,244 $ 43,411
Cost of products sold (Note 9) 26,647 28,996 21,361
-------- -------- --------
Gross profit 5,345 27,248 22,050
Selling, general and administrative
expenses (Note 9) 34,488 24,772 20,977
Research and development expenses 878 380 282
Management fees to affiliate -- -- 614
Amortization of goodwill -- -- 312
Goodwill impairment -- -- 12,939
-------- -------- --------
Operating income (loss) (30,021) 2,906 (13,074)
Interest expense to affiliate (2,234) (2,606) (1,222)
Other income (expense), net 840 (2) (17)
-------- -------- --------
Loss before income taxes (31,415) (512) (14,313)
Income tax benefit (12,326) (113) (294)
-------- -------- --------
Net loss $(19,089) $ (399) $(14,019)
======== ======== ========
See notes to financial statements.
2
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED BALANCE SHEETS
(in thousands)
At September 30,
----------------------
1997 1996
---- ----
ASSETS
Current assets:
Cash $ 483 $ --
Trade receivables, net 4,842 16,292
Inventories, net 19,355 5,361
Other current assets 392 363
-------- --------
Total current assets 25,072 22,016
-------- --------
Property, plant and equipment, net 3,998 3,422
-------- --------
$ 29,070 $ 25,438
======== ========
LIABILITIES AND INVESTED CAPITAL OF PARENT
Current liabilities:
Trade accounts payable $ 1,913 $ 5,065
Accrued expenses and other liabilities 4,855 4,086
-------- --------
Total current liabilities 6,768 9,151
-------- --------
Long-term debt due to Parent 33,096 33,096
Other liabilities 766 612
-------- --------
40,630 42,859
-------- --------
Commitments and contingencies -- --
Invested capital of Parent (11,826) (17,524)
Translation adjustment 266 103
-------- --------
(11,560) (17,421)
-------- --------
$ 29,070 $ 25,438
======== ========
See notes to financial statements.
3
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN INVESTED CAPITAL OF PARENT
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(in thousands)
Invested Capital
of Parent
---------
Balance, September 30, 1994 $ 28,825
Net loss (14,019)
Net transfers to Parent (921)
Dividend (29,428)
--------
Balance September 30, 1995 (15,543)
Net loss (399)
Net transfers to Parent (1,582)
--------
Balance, September 30, 1996 (17,524)
Net loss (19,089)
Net transfers from Parent 24,787
--------
Balance, September 30, 1997 $(11,826)
========
See notes to financial statements.
4
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For the fiscal years ended
September 30,
---------------------------
1997 1996 1995
--- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,089) $ (399) $(14,019)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating activities
Depreciation and amortization 458 398 733
Pension expense 152 221 306
Goodwill impairment -- -- 12,939
Changes in operating assets and
liabilities:
Trade receivables, net 11,450 (7,631) 2,711
Inventories (13,994) 5,124 (67)
Other current assets (29) (128) (154)
Trade accounts payable (3,152) 3,578 (822)
Accrued expenses and other
liabilities 771 1,277 (368)
-------- ------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (23,433) 2,440 1,259
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (1,226) (1,010) (424)
Disposals of property, plant
and equipment 192 19 --
-------- ------- --------
NET CASH USED IN INVESTING
ACTIVITIES (1,034) (991) (424)
CASH FLOWS FROM FINANCING ACTIVITIES -
Net cash transfers from (to) Parent 24,787 (1,582) (921)
-------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 24,787 (1,582) (921)
Effect of exchange rate changes
on cash 163 20 120
-------- ------- --------
INCREASE (DECREASE) IN CASH 483 (113) 34
Cash at beginning of year -- 113 79
-------- ------- --------
Cash at end of year $ 483 $ -- $ 113
======== ======= ========
Payments for interest and income taxes are reflected as a component of net cash
transfers from (to) Parent. Due to the Company's cash management arrangement
with its Parent, such payments cannot be specifically identified.
During the fiscal year ended September 30, 1993 the Company declared a dividend
payable to USI of $29,428, which resulted in the execution of a promissory note
as opposed to a cash payment. See Note 8.
See notes to financial statements.
5
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying combined financial statements of Tommy Armour Golf Company and
Affiliates (the "Company") include the accounts of Tommy Armour Golf Company,
Tommy Armour Golf Scotland, Ltd. and Tommy Armour Golf Canada, which are
indirect wholly-owned subsidiaries of U.S. Industries, Inc. ("USI"). The Company
was affected by a series of transactions executed May 31, 1995 and June 5, 1995
through which all of the interest in the Company was transferred from Hanson
PLC, a U.K. registered company ("Hanson") or its subsidiaries to U.S.
Industries, Inc., a wholly-owned subsidiary of Hanson (the "Demerger").
For the period prior to the Demerger, the financial statements include
management fees and related party charges that were paid by the Company to a
Hanson affiliate. For the period subsequent to the Demerger, related party
charges were paid by the Company to a USI affiliate. See Note 3 for a further
description of the related services provided to the Company.
The Company was acquired in prior years under transactions accounted for as
purchases. The allocation of acquisition costs has been pushed down in the
accompanying combined financial statements to reflect the assets and liabilities
of the companies at fair value at the dates of acquisition. All significant
intercompany transactions and balances (within the Company) have been eliminated
in combination.
The Company manufactures and distributes Tommy Armour brand golf woods, irons
and putters. The Company also distributes golf gloves and golf bags. Golf
specialty stores and golf course pro shops are the principal markets.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, net of allowances for obsolescence, are valued at the lower of
cost, as determined under the first-in, first-out (FIFO) method, or market
value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less allowance for
depreciation. Depreciation is computed on a straight line basis at rates based
on estimated useful lives which range from 3 to 40 years.
6
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Goodwill
Goodwill represents the excess of the Company's allocated acquisition cost over
the fair value of the net assets acquired and is being amortized using the
straight-line method over forty years. Goodwill is assessed for recoverability
based on the fair value methodology. As discussed in Note 9, the fiscal year
ended September 30, 1995 included in a charge of $12,939 to reflect permanent
goodwill impairment.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the applicable
local currency. Assets and liabilities of foreign subsidiaries are translated at
the exchange rates in effect at the balance sheet dates, while revenue, expenses
and cash flows are translated at average exchange rates for the period.
Income Taxes
For federal and state income tax purposes, taxable income of the Company was
included in the consolidated income tax returns of Hanson prior to the Demerger
and USI subsequent to the Demerger. Income tax expense has been provided herein
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as if the Company had filed separate federal and
state income tax returns. The assets and liabilities for current and deferred
income taxes have been recognized as a component of Invested Capital of Parent
in the accompanying financial statements.
Revenue Recognition
Revenue is recognized upon shipment of product to the customer. The Company
warrants certain products against defects and has policies permitting the return
of products under certain circumstances. Provisions are made for these costs at
the time of sale.
Advertising Costs
Advertising costs are expensed as incurred. Such costs amounted to $10,934,
$7,442, and $5,494 for the years ended September 30, 1997, 1996 and 1995,
respectively.
7
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Fair Value of Financial Instruments
The carrying value of short-term financial instruments is a reasonable estimate
of their fair value due to their imminent maturity. The fair values of long-term
notes payable are based on terms that continue to be available to the Company
from USI at the date of the financial statements. Accordingly, book values
approximate fair values.
Invested Capital of Parent
All intercompany balances with USI and Hanson affiliates, except for long-term
notes payable, are included within the Invested Capital of Parent caption in the
accompanying combined financial statements. Except for certain cash balances
controlled at the Company level, cash accounts have been controlled on a
centralized basis by USI or Hanson affiliates. Accordingly, cash receipts and
disbursements have been received or made through USI or Hanson affiliates,
resulting in net adjustments to the Company's Invested Capital of Parent.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Estimates are used when accounting for the allowance for doubtful accounts,
reserve for returns, inventory obsolescence, long-lived assets, product warranty
expenses, employee benefit plans, income taxes and contingencies. It is
reasonably possible that actual results could differ significantly from those
estimates and significant changes to estimates could occur in the near term.
Earnings Per Share
Since there is no separate capitalization of the Company upon which a per share
calculation can be based, historical per share data has not been presented in
the accompanying financial statements.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to September 30 and
reflects 52-week or 53-week periods. All fiscal years have been designated as
ending on September 30 for convenience of reference.
8
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 3 - TRADE RECEIVABLES, NET
At September 30,
----------------
1997 1996
---- ----
Trade receivables $10,561 $18,545
Reserve for returns and allowances (4,443) (1,129)
Allowance for doubtful accounts (1,276) (1,124)
------- -------
$ 4,842 $16,292
======= =======
NOTE 4 - INVENTORIES, NET
At September 30,
----------------
1997 1996
---- ----
Finished products $11,248 $1,452
In-process products 5,441 1,560
Raw materials 5,859 2,652
Obsolescence reserve (3,193) (303)
------- ------
$19,355 $5,361
======= ======
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
At September 30,
----------------
1997 1996
---- ----
Land and buildings $4,104 $3,752
Machinery and equipment 2,862 2,302
Furniture and fixtures 1,259 1,137
------ ------
8,225 7,191
Less: allowance for depreciation (4,227) (3,769)
------ ------
$3,998 $3,422
====== ======
Depreciation expense for the years ended September 30, 1997, 1996 and 1995 was
$458, $398 and $421, respectively.
9
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 6 - ACCRUED EXPENSES AND OTHER LIABILITIES
At September 30,
----------------
1997 1996
---- ----
Payroll and related benefits $3,365 $2,054
Sales promotion 265 625
Warranty 388 388
Real estate taxes 150 162
Advertising 202 447
Legal and professional 292 313
Other 193 97
------ ------
$4,855 $4,086
====== ======
NOTE 7 - PENSION PLANS
Domestic Benefit Plans
The Company has a defined benefit pension plan covering substantially all its
U.S. employees. Pension benefits under the plan are based primarily on years of
credited service and compensation as defined under the respective plan
provisions. The Company's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amounts as the
Company may determine to be appropriate from time to time.The Company also
sponsors a defined contribution plan. Contributions relating to the defined
contribution plan are made based upon the plan's provisions.
Net period pension cost for U.S. pension plans included the following
components:
For the fiscal years ended September 30,
----------------------------------------
1997 1996 1995
---- ---- ----
Defined benefit plan:
Service cost $ 586 $ 546 $ 573
Interest cost 199 149 127
Actual return on plan assets (589) (235) (177)
Net amortization and deferral 314 99 65
----- ----- -----
Net period pension cost
for defined benefit plans 510 559 588
Defined contribution plans 106 120 93
----- ----- -----
Total pension expense $ 616 $ 679 $ 681
===== ===== =====
10
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Assumptions used in the accounting for the defined benefit plans were as
follows:
For the fiscal years ended September 30,
----------------------------------------
1997 1996 1995
---- ---- ----
Weighted average discount rate 7.5% 7.75% 7.75%
Rates of increase in
compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of
return on assets 9.0% 9.0% 9.0%
The funded status and amounts recognized in the combined balance sheets for the
Company's U.S. defined benefit pension plan was as follows:
At September 30,
---------------------
1997 1996
---- ----
Actuarial present value of benefit
obligations
Vested benefit obligation $ 2,257 $ 1,426
Nonvested benefit obligation 178 172
------- -------
Accumulated benefit obligation $ 2,435 $ 1,598
======= =======
Projected benefit obligation $ 3,670 $ 2,596
Plan assets at fair value (2,990) (2,148)
------- -------
Projected benefit obligation in
excess plan assets 680 448
Unrecognized prior service cost (148) (195)
Unrecognized net gain 193 320
------- -------
Accrued pension costs $ 725 $ 573
======= =======
Foreign Benefit Arrangements
Pension and other employee benefits of the Company's foreign subsidiaries are
primarily provided by government sponsored plans and are being accrued currently
over the period of active employment. The costs of such plans are not
significant.
NOTE 8 - RELATED PARTY TRANSACTIONS
USI and Hanson affiliates have provided certain management, legal, employee
benefit and accounting services to the Company. In 1995, Hanson charged the
Company a management fee for services rendered. This charge did not necessarily
approximate costs which might have been incurred if the Company was on a
stand-alone basis. Management fee charges amounted to $614
11
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
for the year ended September 30, 1995. The Company was not charged for these
services in the years ended September 30, 1997 and 1996.
Prior to the Demerger, the Company had executed a promissory note with Hanson in
the amount of $3,439, with interest at the rate of 10 percent per annum. In
connection with the Demerger, Hanson affiliates received payment for their
entire investment in the Company, which included the long-term debt of $3,439
and accrued interest through the Demerger totaling $229. Subsequent to the
Demerger, the Company executed promissory notes with a USI affiliate totaling
$33,096, $29,428 for a dividend declaration to a USI affiliate and $3,668 for
the repayment of the Hanson note and accrued interest. These notes mature on
September 15, 2005, with an interest rate of 9 percent per annum through
December 31, 1995, at which time they were amended to accrue interest at a rate
of 7.5 percent per annum. Interest expense relating to the notes with USI and
Hanson affiliates totaled $2,234, $2,606 and $1,222 for the years ended
September 30, 1997, 1996, and 1995, respectively.
During the years ended September 30, 1997 and 1996, the manufacturing and
certain sales, general, administrative, distribution and research and
engineering expenses of the Company were shared with Odyssey Golf, Inc.
(Odyssey), formerly a wholly-owned subsidiary of the Company which was sold in
August, 1997. Accordingly, certain allocations have been made between the
Company and Odyssey which may not be indicative of actual expenses if they were
stand-alone operations for the periods presented. Such allocations were made on
various bases which, in the opinion of management, are reasonable in the
circumstances.
NOTE 9 - PRODUCT LAUNCH EXPENSES
During fiscal 1997, the Company incurred substantial costs in connection with
the launch of a new line of titanium irons, including increased advertising,
tour, promotional, research and development and engineering costs. In addition,
production substantially exceeded the ultimate demand for the new irons, as the
product launch did not meet management's expectations.
12
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
In connection with the launch of the titanium irons and with the sale of
Odyssey, in the fourth quarter of fiscal 1997, the Company recorded charges
totaling $9,872 including severance, write-downs of tour contracts, inventory
obsolescence, sales markdowns and other charges to reflect the above events.
These charges are included in the following accounts in the Combined Statements
of Operations:
Net sales $4,100
Cost of products sold 2,799
Selling, general and
administrative expenses 2,973
------
$9,872
======
NOTE 10 - GOODWILL IMPAIRMENT
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is amortized using the straight-line method over forty
years. The Company periodically assesses the carrying value of recorded goodwill
to determine if there are indications that its carrying value may be impaired.
The fair value methodology is used by the Company to ascertain the
recoverability of its carrying value, when there are indications of impairment.
In the event that such fair value is below its carrying value, the Company
writes off goodwill to the extent indicated by the analysis.
The fair value methodology is applied to determine the recoverable value of the
Company using ranges of fair value obtained from independent appraisers. In
developing these ranges, the independent appraisers consider (a) publicly
available information, (b) financial projections, (c) the future prospects of
the Company as discussed with senior operating and financial management, (d)
publicly available information regarding comparable publicly traded companies,
(e) market prices, capitalizations and trading multiples of comparable public
companies and (f) other information deemed relevant. In reviewing these
valuations and considering the need to record a charge for impairment of
enterprise value and goodwill to the extent it is part of the enterprise value,
the Company also evaluates solicited and unsolicited bids for the Company.
As a result of the above policy, the Company recorded a pre-tax charge of
$12,939 in the fiscal year ended September 30, 1995 to reflect its assessment of
permanent goodwill impairment.
13
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 11 - INCOME TAXES
The company's effective income tax benefit differs from the statutory federal
income tax benefit as follows:
For the fiscal years ended
September 30,
-------------------------------
1997 1996 1995
---- ---- ----
Income tax at federal
statutory rate $(10,996) $(179) $(5,051)
State income taxes (net of
federal benefit) (1,409) (13) (34)
Goodwill amortization -- -- 183
Goodwill impairment -- -- 4,529
Other 79 79 79
-------- ----- -------
$(12,326) $(113) $ (294)
======== ===== =======
NOTE 12- EXPORT SALES
Export sales for the years ended September 30, 1997, 1996 and 1995 were $6,088,
$4,144 and $4,531, respectively, including $4,035, $2,424 and $2,571,
respectively, to customers in Japan and Korea.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that have arisen in the
normal course of business, including those relating to commercial transactions,
product liability and environmental matters. It is management's opinion, based
on the advice of counsel, that the ultimate resolution of such litigation will
not have a material adverse effect on the Company's financial position or
results of operations.
NOTE 14 - SUBSEQUENT EVENT
Pursuant to an asset purchase agreement dated October 31, 1997, the Company sold
substantially all of its assets and liabilities to TearDrop Golf Company
("TearDrop"). In consideration, TearDrop agreed to issue the Companys'
shareholders one million shares of TearDrop's common stock, and 100,000 shares
of TearDrop's preferred stock with a redemption value of $10,000,000. TearDrop
also paid the Company's shareholders $10,000,000 cash. The cash portion of the
purchase price is subject to adjustment based upon the difference between the
Final Net Worth and the Target Net Worth (both terms as defined in the asset
purchase agreement). The common stock portion of the purchase price is subject
to adjustment based on the price of TearDrop's common stock on the closing date.
14
<PAGE>
(b) Pro Forma Financial Information.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Balance Sheet information has
been prepared based upon the unaudited historical condensed balance sheet of
TearDrop Golf Company ("TDGC") as of September 30, 1997 and the unaudited
historical condensed combined balance sheet of Tommy Armour Golf Company
("TAGC") as of September 30, 1997, and sets forth the pro forma balance sheet
giving effect to the consummation of the acquisition of TAGC and the related
borrowings of $10,000,000 and the issuance of 100,000 shares of Preferred Stock
and 1,000,000 shares of common stock in November 1997 as if such transaction had
occurred on September 30, 1997. The following Unaudited Pro Forma Condensed
Statements of Operations information for the nine months ended September 30,
1997 for TDGC and June 30, 1997 for TAGC and for the years ended December 31,
1996 for TDGC and September 30, 1996 for TAGC have been prepared based upon the
unaudited historical statement of operations for the nine months ended September
30, 1997 and the audited historical statement of operations for the year ended
December 31, 1996 of TDGC and the unaudited historical combined statement of
operations for the nine months ended June 30, 1997 and the audited historical
combined statement of operations for the year ended September 30, 1996 of TAGC
and sets forth the pro forma statements of operations information giving effect
to the acquisition of TAGC and the related borrowings of $10,000,000 and the
issuance of 100,000 shares of Preferred Stock and 1,000,000 shares of Common
Stock as if such transaction had occurred at the beginning of each period.
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
information and Unaudited Pro Forma Condensed Consolidated Statements of
Operations information are not necessarily indicative of the actual financial
position or results of operations that would have been reported if the events
described above had occurred as of September 30, 1997 or at the beginning of
each period, nor do they purport to indicate the results of the Company's future
operations. Furthermore, the pro forma results do not give effect to all cost
savings, or incremental costs that may occur as a result of the integration and
consolidation of the operations of TAGC into the operations of TDGC. In the
opinion of management, all adjustments necessary to present fairly such pro
forma financial information have been made. The allocation of the TAGC purchase
price is preliminary, but is not expected to differ materially from the purchase
price allocation reflected herein.
<PAGE>
TearDrop Golf Company
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1997
($000's)
<TABLE>
<CAPTION>
Tommy
TearDrop Armour Pro Forma
Golf Golf Adjust-
Company Company ments Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 866 $ 483 $ (483) a $ 866
Accounts receivable, net 372 4,842 5,214
Inventories 355 19,355 19,710
Prepaid and other
current assets 458 392 850
------ ------- ------- -------
Total Current Assets 2,051 25,072 (483) 26,640
Property, Plant and Equipment, net 269 3,998 602 b 4,869
Intangible Assets, net 27 1,645 c 1,672
Other Assets 12 1,500 d 1,512
------ ------- ------- -------
TOTAL ASSETS $2,359 $29,070 $ 3,264 $34,693
====== ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of capital
lease obligation $ 20 $ 20
Accounts payable 662 $1,913 2,575
Accrued expenses 4,855 $ 300 c 5,155
------ ------- ------- -------
Total Current Liabilities 682 6,768 7,750
Other Liabilities 33,862 $(33,096)e 766
Loans Payable to Bank 10,000 f 10,000
Note Payable to Stockholder 412 412
Capital Lease Obligation 47 47
Stockholders' Equity
Preferred stock 10,000 g 10,000
Common stock 22 10 h 32
Capital in excess of par value 6,564 4,490 j 11,054
Accumulated deficit (5,368) (5,368)
Net deficiency of company acquired (11,560) 11,560 k 0
------ ------- ------- -------
Total Stockholders' Equity 1,218 (11,560) 26,060 15,718
------ ------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,359 $29,070 $ 3,264 $34,693
====== ======= ======= =======
</TABLE>
<PAGE>
TearDrop Golf Company
Unaudited Pro-Forma Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 1997
($000's omitted)
<TABLE>
<CAPTION>
TearDrop Tommy Armour
Golf Company Golf Company Pro Forma
-------------------------------------------- -----------
Nine Months Nine Months Pro Forma
Ended 9/30/97 Ended 6/30/97 Adjustments
-------------------------------------------- ----------
<S> <C> <C> <C> <C>
SALES $ 2,415 $ 34,717 $ 37,132
COST OF SALES 565 21,383 21,948
-------------------------------------------- ----------
GROSS PROFIT 1,850 13,334 15,184
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,975 31,098 $ 180 m 36,253
-------------------------------------------- ----------
LOSS FROM OPERATIONS (3,125) (17,764) (180) (21,069)
INTEREST INCOME (EXPENSE) 38 (1,696) 1,058 l (600)
INCOME TAX BENEFIT -- 7,589 (7,589) o --
-------------------------------------------- ----------
NET LOSS (3,087) (11,871) (6,711) (21,669)
PREFERRED DIVIDENDS 450 n 450
-------------------------------------------- ----------
INCOME AVAILABLE TO COMMON STOCKHOLDERS $(3,087) $(11,871) $(7,161) $(22,119)
============================================ ==========
NET LOSS PER COMMON SHARE $ (1.42) $ (6.95)
============= ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,181,767 3,181,767
============= ==========
</TABLE>
<PAGE>
TearDrop Golf Company
Unaudited Pro-Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1996
($000's omitted)
<TABLE>
<CAPTION>
TearDrop Tommy Armour
Golf Company Golf Company Pro Forma
----------------------------------------------------------- -------------
Twelve Months Twelve Months Pro Forma
Ended 12/31/96 Ended 9/30/96 Adjustments
----------------------------------------------------------- -------------
<S> <C> <C> <C> <C>
SALES $ 847 $56,244 $57,091
COST OF SALES 407 28,996 29,403
----------------------------------------------------------- -------------
GROSS PROFIT 440 27,248 27,688
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,176 25,154 $ 240 m 26,570
----------------------------------------------------------- -------------
INCOME (LOSS) FROM OPERATIONS (736) 2,094 (240) 1,118
INTEREST EXPENSE (174) (2,606) 1,756 l (1,024)
INCOME TAX BENEFIT -- 113 (113) o --
----------------------------------------------------------- -------------
NET INCOME (LOSS) (910) (399) 1,403 94
PREFERRED DIVIDENDS 600 n 600
----------------------------------------------------------- -------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (910) $ (399) $ 803 $ (506)
=========================================================== =============
NET INCOME (LOSS) PER COMMON SHARE $(1.15) $(0.28)
================= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 791,100 1,791,100 p
================= =============
</TABLE>
<PAGE>
Notes to Condensed Consolidated Pro Forma Balance Sheet
The unaudited pro forma condensed consolidated financial statements give
effect to the acquisition of TAGC as if it had occurred on September 30, 1997
for the purpose of the unaudited pro forma condensed consolidated balance sheet
and at the beginning of each period presented for purposes of the unaudited pro
forma condensed consolidated statements of operations.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the aggregate consideration paid in connection with the proposed
acquisition of TAGC will be allocated to TAGC's assets purchased and liabilities
assumed based on their fair market values, and any excess will be treated as
goodwill.
The purchase price was paid with the issuance of 1,000,000 shares of Common
Stock (valued at $4,500,000), 100,000 shares of Preferred Stock (valued at
$10,000,000) and $10,000,000 in cash.
Balance Sheet
a. Adjustment reflects elimination of cash not acquired.
b. Adjustment reflects the allocation of the purchase price to the fair
value of property, plant and equipment.
c. Goodwill recorded on the acquisition was calculated as follows:
Fair value of net assets acquired $23,155,000
Purchase price 24,500,000
Estimated expenses of acquisition 300,000
-----------
Goodwill $ 1,645,000
d. Adjustment reflects allocation of purchase price to Tommy Armour
Trade name.
e. Adjustment reflects the elimination of advances to TAGC from previous
parent company.
f Adjustment reflects bank line of credit established and related
borrowings to provide cash payment for acquisition.
g. Adjustment reflects the value of Preferred Stock issued (100,000
shares).
h. Adjustment reflects par value of Common Stock issued (1,000,000
shares).
j. Adjustment reflects the value in excess of par value of Common Stock
issued.
k. Elimination of deficit of TAGC at date of acquisition.
<PAGE>
Statement of Operations
l. Adjustment reflects (a) elimination of interest expense on Tommy
Armour Golf Company intercompany loans from parent company offset by
(b) interest on bank borrowings used to finance acquisition at 8.5%.
m. Adjustment reflects amortization of goodwill and trademark over 15
years and depreciation of stepped up fixed assets over 20 years.
n. Adjustment reflects six percent annual dividend on preferred stock
issued in connection with the acquisition.
o. Adjustment reflects elimination of Tommy Armour Golf Company income tax
benefit.
p. Increase in weighted average shares outstanding results from the
issuance of 1,000,000 common shares in connection with the
acquisition.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned hereunto duly authorized.
TEARDROP GOLF COMPANY
Dated: January 12, 1998 By: /s/ Rudy A. Slucker
----------------------------------
Name: Rudy A. Slucker
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.5 Certificate of Designation of Series A Cumulative*
Convertible Preferred Stock*
10.25 Asset Purchase Agreement*
10.26 Registration Agreement*
10.27 Loan and Security Agreement*
- ----------
* Previously filed
