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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ending September 30, 1997
Commission File No. 0-921
THE ARNOLD PALMER GOLF COMPANY
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(Exact name of registrant as specified in its charter)
Tennessee 062-0331019
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
6201 Mountain View Road, Ooltewah, TN 37363
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Registrant's telephone number, (including area code) (423) 238-5890
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock - par value National Association of Securities Dealers, Inc.
$.50 per share Automated Quotation System - Small Cap Market
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(Title of Class) (Name of Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark 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.
X Yes No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
---
As of December 22, 1997, the aggregate market value of the voting stock
held by non-affiliates was approximately $5,121,000 (based on the closing price
on that date of $2.3125 per share).
As of December 22, 1997, 833,333 shares of Series NB Preferred Stock
and 3,004,367 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held February 20, 1998, are incorporated by
reference into Part III of this Form 10-K. Other documents incorporated by
reference in this report are listed in the Exhibit Index.
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PART I
Item 1. Business
General
The Arnold Palmer Golf Company ("APGC" or the "Company") was incorporated in
Tennessee in 1932 and began operations as the Professional Golf Co., Inc. In
1966 it merged with First Flight Co. and in 1975 changed its name to ProGroup,
Inc. In July 1996, the Company changed its name to The Arnold Palmer Golf
Company. APGC manufactures, markets and distributes a full line of golf
products, including Arnold Palmer and First Flight golf equipment, and Hot-Z
golf bags and luggage. APGC owns, subject to certain exceptions, the exclusive
worldwide right to the Arnold Palmer trade name in connection with the Company's
manufacture, sale and distribution of golf products. For purposes of this
report, "fiscal 1997, 1996, and 1995" refer to the fiscal years ended September
30, 1997, March 2, 1996 and February 25, 1995, respectively. The "1996
transition period" refers to the seven-month period ended September 30, 1996.
Principal Products
The Company manufactures and markets golf clubs, golf bags, golf accessories and
luggage.
Markets
The principal market for the products sold by the Company is the United States.
Foreign sales were negligible during fiscal 1997. Certain golf equipment is
manufactured and distributed on a contract basis to other wholesalers. Branded
golf products are sold to pro shops and retailers.
Methods of Distribution
The principal method of distribution of the Company's products is through
employee-sales representatives and independent sales representatives. The
Company's products are sold through separate and distinct trade channels: golf
courses and resorts; golf shops not affiliated with golf courses; and major
retailers.
Sources of Supplies or Raw Materials
The Company's major sources of supplies or raw materials are as follows:
<TABLE>
<CAPTION>
Source Raw Material
------ ------------
<S> <C>
Mortex International Ltd. Bag material/hardware
Summitt/Intro-Union Trading Limited Iron heads, Metal wood heads
Exel Shafts
</TABLE>
While the Company has not experienced significant delays in receiving supplies
or raw materials, it does recognize the fact that, in some cases, only a limited
number of suppliers are available.
Licenses, Patents, Etc.
As of March 1, 1992, the Company entered into an agreement (the "License
Agreement") with Arnold Palmer Enterprises, Inc. ("Enterprises"), pursuant to
which the Company obtained a license to use the name, likeness and endorsement
of Arnold Palmer ("Palmer"), a director of the Company, in connection with the
advertisement, promotion and sale of golf clubs, bags, balls, gloves and other
products.
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The License Agreement grants to the Company an exclusive worldwide right,
subject to certain exceptions, to use words or symbols, photographic
representations, images, likenesses or endorsements of Palmer in connection with
the Company's manufacture, sale and distribution of golf products. The Company
also has the right under the License Agreement to sublicense to third parties
the right to use the licensed trademarks. The License Agreement also gives the
Company the right to acquire the use of the Palmer identification in connection
with the manufacture, sale and distribution of certain other products upon the
termination of certain licensing arrangements with third party licensees. In
exchange for the grant of such license, the Company pays Enterprises as a
royalty a specified percentage of net sales of each different product category.
The Company also pays a minimum annual royalty regardless of the royalty amount
determined as a percentage of product sales. The License Agreement also sets
forth the manner in which the Company and Enterprises divide sublicensing
royalties. In addition to the foregoing, the License Agreement contains
provisions relative to the appearances of Palmer to promote the licensed
products and product usage by Palmer.
The term of the License Agreement extends through March 1, 2007.
Seasonal Business
Golf equipment manufactured and marketed by the Company is largely for warm
weather recreation. The spring quarter of the Company's fiscal year is the start
of the golf season and typically the Company's sales are at their highest level
of the year. Sales for the summer quarter consist largely of reorders, to fill
in customer service levels. The fall and winter quarters generate a lower level
of sales.
Working Capital Practices
It is necessary for the Company and the industry to carry significant amounts of
finished goods inventory during the winter months to meet customer demands in
the spring and summer months.
The Company and the industry provide extended payment terms to customers due to
the seasonal nature of the business in an effort to generate higher sales. Also,
the Company and the industry provide rights to return merchandise in certain
circumstances.
Customers
The Company's three largest customers, Sears, Roebuck and Company, KMart
Corporation, and Wal-Mart Stores Inc., accounted for 6.3%, 6.0% and 4.8%,
respectively, of the Company's total sales during fiscal 1997.
Backlogs
With regard to continuing operations, the Company's backlog of unshipped orders
was approximately $2,391,000 on September 30, 1997, and approximately $2,115,000
on September 30, 1996.
Government Contracts
No material portion of the Company's business is subject to renegotiation of
profits on termination of contracts or subcontracts at the election of the
Government.
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Competitive Conditions
The principal methods of competition of the Company are through customer
service, pricing and the quality of the products sold. One negative factor
pertaining to the competitive position of the Company is that the number of
suppliers for raw materials such as shafts and club heads for making golf clubs
is limited. Another negative factor is the proliferation of competitive products
available resulting in keen price competition in the golf industry. Among the
Company's competitors are numerous companies that have substantially greater
financial resources, manufacturing capabilities, and larger design, sales and
marketing staffs than the Company.
Research
No material amount was spent by the Company during fiscal 1997, 1996, 1995 or
the 1996 transition period on Company-sponsored research and development
activities. No material amount was spent in such years on customer-sponsored
research activities relating to the development of new products, services or
techniques or the improvement of existing products, services or techniques.
Environmental Matters
Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had, and is not expected
to have any material adverse effect upon the capital expenditures, earnings or
competitive position of the Company.
Employees
The Company employed 229 people as of September 30, 1997.
Operations and Sales to Foreign Countries
The Company markets its products on a limited basis in foreign countries. The
revenue derived from such foreign sales was less than 2% of net sales for fiscal
1997, 1996, 1995 and the 1996 transition period. Foreign sales are not expected
to be material during the fiscal year ending September 30, 1998.
Item 2. Properties
The Company owns or leases materially important properties as follows:
(a) 6201 Mountain View Road, Ooltewah, Tennessee, is a leased
building of cinder block and wood construction containing
approximately 95,000 square feet. The property is used for
manufacturing golf clubs and warehousing finished goods and
raw materials. A portion of the property also houses the
Company's corporate offices.
(b) Hotze Road, Pocahontas, Arkansas, is an owned facility
consisting of a building of metal structure containing 72,000
square feet. This facility is used for manufacturing golf bags
and warehousing raw materials.
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(c) 2100 West Fifth Street, Lumberton, North Carolina, is an owned
facility consisting of a building of brick and frame structure
containing 66,000 square feet. This facility is idle and
currently for sale.
(d) 1512 Sholar Avenue, Chattanooga, Tennessee, is a leased
building of cinder block and concrete construction containing
47,400 square feet. This building was used for manufacturing
golf clubs, warehousing and shipping until September 1997, at
which time club operations were consolidated into the facility
at 6201 Mountain View Road. The Company's lease obligation on
this facility continues through December 1998, and the
Company is seeking to sublease the building for the remainder
of the lease term.
(e) 300 Tanger Boulevard, Suite 405, Branson, Missouri, is a
leased unit in a building of cinder block and concrete
construction, said unit containing 2,900 square feet. This
facility is used for retail sales.
(f) 3300 Ruckriegel Parkway, Louisville, Kentucky, is a leased
building of cinder block and concrete construction containing
approximately 4,600 square feet. This building is used to
house the administrative offices of the Company's National
Golf Suppliers division.
Item 3. Legal Proceedings
Except as set forth below, the Company is not a party to any material pending
legal proceedings, other than ordinary routine litigation incidental to the
business, nor is any of its property the subject of any such proceedings.
On March 25, 1996, Richard E. Wenz, the former CEO of the Company, filed a
lawsuit against Arthur P. Becker, formerly Chairman of the Board and formerly a
Board member of the Company, in the United States District Court for the
Southern District of New York. The lawsuit arose out of the publication in the
June 12, 1995 edition of Fortune magazine of certain statements relating to Mr.
Wenz's relationship with the Company which were attributed to Mr. Becker.
The complaint alleged a cause of action against Mr. Becker for defamation per se
and sought compensatory damages of at least $10 million, plus punitive damages
in an unspecified amount. Pursuant to the provisions of the Amended and Restated
By-Laws of the Company and the applicable provisions of the Tennessee Business
Corporation Act, the Company agreed to indemnify Mr. Becker from liability which
he might have incurred as a result of the lawsuit. The Company also agreed to
advance certain costs of defense of the lawsuit to Mr. Becker.
On May 21, 1996, Mr. Wenz amended his complaint by adding Time Inc., the
publisher of Fortune magazine, as an additional defendant in the lawsuit. The
cause of action alleged against Time Inc. was also for defamation per se, which
arose out of the same June 12, 1995 article, and also sought compensatory
damages of at least $10 million.
On April 15, 1996, Mr. Becker filed his answer to the original complaint. The
answer denied all allegations of wrongdoing and set forth 15 affirmative
defenses. On June 11, 1996, Mr. Becker filed his answer to the amended
complaint, repeating his denials of all wrongdoing and repeating the
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15 affirmative defenses. On or about June 12, 1996, Time Inc. filed its answer,
also denying all wrongdoing, and setting forth nine affirmative defenses.
The lawsuit filed by Mr. Wenz has been settled in exchange for a payment by the
Company to Mr. Wenz of $75,000.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of fiscal 1997 to a vote of
security holders, through the solicitation of proxies or otherwise.
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PART II
Item 5. Market for the Company's Common Stock and Related Security Holder
Matters.
MARKET PRICES
The Company's common shares trade on The Nasdaq Stock Market under the symbol
"APGC." Based upon transfer agent records, the Company's common shares were held
by approximately 1,600 shareholders as of December 22, 1997. The Nasdaq Stock
Market has notified the Company that under its revised continued listing
requirements, the Company will no longer qualify for continued listing on the
Nasdaq Stock Market as of February 23, 1998. The Company's Series NB Preferred
Stock is currently held by an affiliate of the Company's Chairman and Chief
Executive Officer and is not publicly traded.
A quarterly summary of the high and low market prices per common share for
fiscal 1997, 1996 and the 1996 transition period as reported by Nasdaq is shown
below:
<TABLE>
<CAPTION>
1996
Fiscal 1997 Transition Period Fiscal 1996
------------------- ---------------------- ---------------
Quarter: High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First $4.250 $3.875 $6.125 $4.250 $8.500 $5.000
Second 4.500 4.250 7.500 4.625 5.750 3.750
Third 3.750 3.375 6.625 5.500 6.000 3.500
Fourth 3.250 2.9375 -- -- 6.500 3.750
</TABLE>
During fiscal 1997, the Company's first, second, third and fourth quarters ended
in December, March, June and September respectively. In fiscal 1996, the
Company's first, second, third and fourth quarters ended in May, August,
November and February respectively. During the 1996 transition period, the
Company's first and second quarter ended in May and August. Due to the change in
year end to September 30, 1996, the third quarter for the 1996 transition period
includes only the month of September.
DIVIDENDS
Payment of dividends is at the discretion of the Company's Board of Directors
and depends, among other factors, on earnings, capital requirements for planned
growth and the operating and fiscal condition of the Company. No dividends were
paid during fiscal 1997, 1996 and the 1996 transition period.
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
FOR FISCAL 1997, 1996, 1995, 1994, AND 1993, AND THE 1996 TRANSITION PERIOD
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 1996
-------------------------------------------------------- Transition
1997 1996 1995 1994 1993 Period
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Net sales $ 28,454 $21,185 $24,621 $24,726 $18,697 $18,456
Net loss from continuing operations $(11,228) $(5,625) $(9,460) $(1,054) $(1,016) $(2,294)
BALANCE SHEET INFORMATION:
Total assets $ 22,753 $18,560 $31,271 $40,258 $36,435 $24,934
Long-term obligations and redeemable
preferred stock $ 31,264 $ 4,671 $ 7,473 $ 3,621 $ 572 $20,996
PER COMMON SHARE DATA:
Net loss per share from continuing
operations $ (3.77) $ (2.15) $(3.73) $ (.42) $ (.42) $ (.80)
Common shares outstanding at end of period 3,004 2,635 2,539 2,537 2,517 2,927
</TABLE>
The Company changed its fiscal year end from one ending on the Saturday closest
to the end of February to one ending September 30, effective September 30, 1996.
Therefore, the 1996 transition period relates to the seven-month period ended
September 30, 1996. Selected financial data for fiscal 1997, 1996, 1995, 1994,
and 1993 relates to the years ended September 30, 1997, March 2, 1996, February
25, 1995, February 26, 1994, and February 27, 1993.
In May 1995, the Company sold its Duckster apparel line of business. The results
of discontinued operations have been reported separately from the results of
continuing operations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Comparison of the Twelve Months Ended September 30, 1997 and September 30, 1996
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Net sales for fiscal year 1997 increased $3.6 million to $28.5 million, compared
to sales of $24.9 million for the twelve months period ending September 30,
1996. The tables below compares the Company's net sales by product line and
market segment for year ending September 30, 1997 to the comparable prior year
period ending September 30, 1996.
Sales By Product Line
($'s in millions)
<TABLE>
<CAPTION>
1997 1996 % Change
----- ----- --------
<S> <C> <C> <C>
Clubs $14.1 $13.5 4.8%
Bags 11.0 10.6 3.4%
Apparel 0.2 0.0 *
Outlet 0.6 0.5 26.5%
Components 2.5 0.3 *
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Total $28.5 $24.9 14.4%
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</TABLE>
Sales By Market Segment
($'s in millions)
<TABLE>
<CAPTION>
1997 1996 % Change
---- ----- --------
<S> <C> <C> <C>
Pro $14.0 $12.3 13.4%
Retail 10.1 11.7 -13.7%
Outlet 0.6 0.5 26.5%
Contract 0.8 0.0 *
Components 2.5 0.3 *
Export 0.4 0.1 *
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Total $28.5 $24.9 14.4%
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</TABLE>
* Due to insignificance of 1996 sales, percent change is not meaningful.
Although combined sales for clubs and bags increased 4.2% to $24.1 million, the
most significant increase in sales was in the Company's component division. The
Company acquired its component division, National Golf Suppliers, in June 1996,
therefore prior year component sales are fourth quarter sales only. Pro sales
(primarily to off-course golf equipment stores), increased $1.7 million in
fiscal 1997 to $14.0 million. Pro club sales were adversely affected by returns
of approximately $370,000 in fiscal 1997 resulting from a license claim by COBRA
Golf in which the Company voluntarily pulled its Standard Plus II product from
customers and ceased selling the product. Retail sales decreased 13.7% in fiscal
1997 to $10.1 million. The decrease was primarily attributable to overstocked
inventories in the retail market as merchants entered their Fall 1996 and Spring
1997 buying season.
Gross profit for fiscal 1997 was 7.1% compared to 19.4% for the twelve months
ending September 30, 1996. Inventory write-downs to lower of cost or market of
$2.4 million ($1.4 million in clubs and club raw material and $1.0 million in
bags and bag raw materials) accounted for 8.3% of the decrease in gross profit
contribution. The write-downs were taken partially due to an approximate 50%
reduction in club and bag stock keeping units, in order to better manage
inventory levels and to improve manufacturing and customer service operations.
The remainder of the write-downs were taken for club raw materials and finished
goods which will require significant price reductions to generate demand for the
products in the market place. The Company believes the write downs are necessary
as it will market the discontinued products in alternate trade channels to
protect its current product line. In addition to the above, write downs on the
Company's Standard Plus II product were
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$618,000 for fiscal 1997 and accounted for 2.2% of the gross profit decrease.
Write downs on plant assets and other costs associated with plant restructuring
totaled $471,000, or 1.7% of net sales. Fiscal 1997 gross profits were also
lower due to closeout pricing on approximately $4.2 million of discontinued
merchandise.
Selling and marketing expenses increased $1.2 million in fiscal 1997. The
increase was primarily due to costs associated with replacing the Company's
sales force previously consisting of non-employee sales agents, with
employee-sales representatives and regional sales management personnel. Fiscal
1997 selling expense also includes a $335,000 write off of point-of-purchase
display units not currently being used. General and administrative expenses
increased $1.1 million in fiscal 1997, of which approximately $0.5 million were
in increased legal fees. The increase in legal expenses related primarily to
litigation between the Company and its former CEO, and the dispute between the
Company and COBRA Golf, regarding the Standard Plus II product. Other increases
in general and administrative expenses reflect a full year of expenses from the
Company's component division (National Golf Suppliers) and additional senior
management personnel.
Other income increased $0.2 million in fiscal 1997, due to increased royalty
payments from the Company's sub-licensees. Interest expense decreased 8.3% from
$2.4 million to $2.2 million for fiscal 1997. Cash interest expense increased
$0.6 million due to interest expense on higher average revolving credit facility
balances during fiscal 1997 and interest on the Company's $12 million long term
note. The increase in cash interest expense was offset by a $0.8 million
decrease in non-cash interest expense relating to amortization of the Company's
subordinated debt discount and subordinated notes in 1996, which was not as
significant in 1997.
Due to operating losses for fiscal 1997, no tax provision was necessary.
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Comparison of the Seven-Month Periods Ended September 30, 1996 and September
30, 1995
Net sales from continuing operations for the seven month transition period
ending September 30, 1996, increased $3.7 million or 25.0% compared to the same
period in 1995. As shown in the table below, the Company's significant growth
was in golf club sales, which increased 63.9% to $10.0 million, and accounted
for 54.0% of the Company's total net sales for the 1996 transition period.
Sales By Product Line
($'s in millions)
<TABLE>
<CAPTION>
1996 1995 % Change
----- ----- --------
<S> <C> <C> <C>
Clubs $10.0 $ 6.1 63.9%
Bags 7.3 8.1 -9.9%
Outlet 0.6 0.4 50.0%
Other 0.6 0.2 200.0%
- --------------------------------------------------------------------------------------
Total $18.5 $14.8 25.0%
- --------------------------------------------------------------------------------------
</TABLE>
Sales By Market Segment
($'s in millions)
<TABLE>
<CAPTION>
1996 1995 % Change
----- ----- --------
<S> <C> <C> <C>
Pro $ 9.6 $ 6.8 41.2%
Retail 7.7 7.4 4.1%
Outlet 0.6 0.4 50.0%
Other 0.6 0.2 200.0%
- --------------------------------------------------------------------------------------
Total $18.5 $14.8 25.0%
- --------------------------------------------------------------------------------------
</TABLE>
The decrease in bag sales of $.8 million was attributable to a decline in retail
bag sales, which declined 26.5% from 1995 sales of $3.4 million. Pro bag sales
were $4.8 million compared to $4.7 million in 1995.
The most favorable sales increase for the Company was a 41.2% increase in its
pro business segment, which increased to $9.6 million in 1996 from $6.8 million
in 1995. Essentially all the increase in the pro business was in golf club
sales. The increase in club sales was primarily in the off-course golf equipment
stores. Pro sales accounted for 51.9% of the Company's total sales in the 1996
transition period compared to 45.9% in the comparable 1995 period. Net margins
on total sales increased to 27.9% compared to 25.5% in 1995, and was
attributable to the more favorable product mix and higher margins in pro clubs.
While total bag net margins remained constant with prior year at 28.8%, total
club margins increased to 32.3% compared to 29.7% in 1995. A decrease in retail
club margins to 28.1% in 1996 from 32.2% in 1995, was offset by a significant
increase in pro club margins of 40.0% in 1996, compared to 29.4% in 1995.
Selling and marketing expenses increased $1.7 million for the seven months
ending September 30, 1996. A substantial portion of the increase was in
advertising and promotion as the Company was not investing significant resources
in this area in the prior year. Additionally, commission and royalty expenses
were greater than prior year due to sales growth. General and administrative
expenses increased $1.2 million over 1995 primarily resulting from expenditures
relative to the
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Company's ongoing training and implementation of its new fully integrated
management information systems.
Interest expense decreased 38.8% to $1.1 million for the seven months ending
September 30, 1996. This was due to a decrease in non-cash interest expense
relating to amortization of the Company's subordinated debt discounts and
subordinated notes. Interest expense was also reduced due to the sale of certain
properties and the retirement of related debt.
Other income for the 1996 transition period increased approximately $.8 million
over the same prior year period, most of which was royalty income from the
Company's licensing agreement for its patented hosel design (PHD) technology. In
the 1996 transition period, the Company also recognized $0.2 million in other
income related to the increase in the net pension asset recognized on the
balance sheet. None was recognized in the seven months ending September 30,
1995.
The Company recorded a $.9 million charge against other income for the period
ending September 30, 1996. The Company was due to receive $1.2 million on
October 10, 1996, as final payment for the sale of its Duckster apparel division
to DeLong Sportswear. In September 1996, the Company became aware that DeLong
Sportswear would default on the final payment, and in lieu of payment accepted
manufacturing equipment and certain apparel items with a fair market value of
approximately $.3 million in addition to other considerations beneficial for the
Company. The charge against other income reflects the writedown of the note plus
accrued interest, to $.3 million.
Comparison of Years Ended March 2, 1996, and February 25, 1995
Net sales from continuing operations for fiscal year 1996 decreased by $3.4
million, to $21.2 million, compared with fiscal year 1995. Club sales decreased
$2.4 million or 19.6% for fiscal year 1996 compared to fiscal year 1995. The
decrease in club sales was attributable primarily to the retail line of golf
equipment, due to a decrease in demand for these products from mass
merchandisers during fiscal 1996. Pro club sales were relatively unchanged from
fiscal 1995. Sales of golf bags decreased approximately $1.0 million in fiscal
1996 compared to fiscal 1995. The decrease in bag sales was primarily in our pro
line, which is sold to on-course golf shops and off-course golf equipment
stores. In early fiscal 1996, the decision was made by former management to
import a greater portion of our pro bag line. The features and quality of the
imported bags were not consistent with the bags historically manufactured by the
Company. As a result, the bags were not well received in the market place, thus
the decline in the pro segment of our bag line. During the latter part of fiscal
1996, the Company returned to domestic production of its high end pro bags.
Gross profit as a percent of net sales increased to 15.1% from 13.1% in fiscal
1995. The increase resulted primarily from reductions in manufacturing
variances. Losses from continuing operations were $5.6 million on net sales of
$21.2 million in fiscal 1996, compared to losses from continuing operations of
$9.5 million on net sales of $24.6 million in fiscal 1995.
Selling expenses decreased by $1.8 million or 28.4% for fiscal year 1996
compared to the previous year. When the Company sold its Duckster apparel
division in May 1995, the sales force became employees of Duckster. However,
through a sales representative agreement between Duckster and the Company, they
continued to sell the Company's pro line of golf clubs and bags with
compensation being on a commission basis. The result for the Company was
substantially reduced expenses for salaries and fringe benefits. Other selling
expenses such as royalties, were less due to
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reduced sales volume in fiscal 1996. Additionally, lower expenditures for
advertising and promotions were factors in the decrease in selling expenses.
General and administrative expenses decreased $1.9 million or 43.1% in fiscal
1996. Most of the decrease was related to lower salaries and fringe benefits due
to the disposal of Duckster, which necessitated a reduction in general and
administrative overhead. Other components of the decrease were reduced legal
fees and other professional services.
Interest expense increased 119%, or $1.6 million, in fiscal 1996 compared to
fiscal 1995. Substantially all the increase was non-cash interest related to
amortization of subordinated debt discounts, subordinated notes and accrued
interest thereon.
Other income increased $1.1 million in fiscal year 1996 compared to fiscal year
1995. Royalty income increased by $.4 million, gain on asset dispositions
increased $.4 million, and the Company reported $.1 million of rental income
during fiscal 1996.
Due to operating losses for fiscal 1996, no tax provision was necessary.
Liquidity and Capital Resources
Subsequent to September 30, 1997, the Company entered a new financing
arrangement which converted $10.0 million of the Company's borrowings under its
$12.0 million line of credit to a two year term loan. As a result, as of
September 30, 1997 the Company had working capital of $10.5 million and a
current ratio of 3.8 to one. This compares to working capital of $10.7 million
and a current ratio of three to one as of September 30, 1996.
Total borrowings from the Company's bank were $22.2 million as of September 30,
1997 compared to $12.8 million at September 30, 1996. The increase in borrowings
was used to fund operating losses of $11.2 million and $1.0 million for capital
expenditures. The Company generally relies upon internally generated cash and
short-term borrowings to satisfy working capital and capital expenditure
requirements. Generally, borrowings under the line increase from December to
April, because the Company builds inventory through the winter to support its
spring shipping season.
The new $10.0 million term loan matures on December 31, 1999, and will bear
interest at the fixed rate of LIBOR plus 2.0% at December 31, 1997 (7.85% at
December 22, 1997), with interest payable monthly in arrears. In addition to
converting $10.0 million of existing indebtedness from the line of credit to a
two year term loan, the bank will extend the maturity date on the $12.0 million
revolving credit facility to December 31, 1998. At the option of the borrower,
this revolving credit facility will bear interest at prime minus 0.50% or one,
two or three month LIBOR plus 2.0% (8.0% at September 30, 1997). The Company has
an existing term loan with the bank of $12.0 million which matures on December
31, 1999 and bears interest at the fixed rate of 8.25% with interest payable
monthly in arrears.
Both term loans and the revolving credit facility require no financial
covenants, and are unconditionally guaranteed by the Company's Chairman and
Chief Executive Officer (the "Guarantor"). The Company anticipates that this new
financing arrangement totaling $34.0 million will satisfy working capital and
capital expenditure requirements through 1998. The Company's Board of Directors
is considering appropriate compensation to be paid to the Guarantor in
consideration of his guarantee of the new credit facility.
12
<PAGE> 13
Subsequent to September 30, 1997, certain executives left the Company under
severance agreements. Additionally, the Company anticipates further work force
reductions will occur in fiscal 1998. The Company expects to record a charge of
$625,000 in the first quarter of fiscal 1998 related to these items.
Impact of Inflation and Changing Prices
Management believes that the impact of inflation and other changes in prices
during fiscal 1997, 1996 and 1995 and the 1996 transition period, had no
material effect on the Company's financial condition or operating results.
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 changes
the criteria for reporting earnings per share ("EPS") by replacing primary EPS
with basic EPS and fully diluted EPS with diluted EPS. The Company is required
to adopt SFAS 128 for periods ending after December 15, 1997, and all prior
periods EPS data must be restated. The impact of adopting SFAS 128 will not have
a material impact on EPS for any period presented.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements and Schedules
Report of Independent Public Accountants
Balance Sheets as of September 30, 1997 and September 30, 1996
Statements of Operations for the Years Ended September 30, 1997, March
2, 1996, February 25, 1995 and the Seven-Month Period Ended September
30, 1996
Statements of Stockholders' Equity (Deficit) for the Years Ended
September 30, 1997, March 2, 1996, February 25, 1995 and the
Seven-Month Period Ended September 30, 1996.
Statements of Cash Flows for the Years Ended September 30, 1997, March
2, 1996, February 25, 1995 and the Seven-Month Period Ended September
30, 1996.
Notes to Financial Statements
Financial Statement Schedules
See Part IV, Item 14(a)2
13
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of The Arnold Palmer Golf Company:
We have audited the accompanying balance sheets of THE ARNOLD PALMER GOLF
COMPANY (a Tennessee corporation) as of September 30, 1997 and 1996 and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the year ended September 30, 1997, the seven-month period ended September
30, 1996, and the years ended March 2, 1996 and February 25, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Arnold Palmer Golf Company
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for the year ended September 30, 1997, the seven-month period ended
September 30, 1996, and the years ended March 2, 1996 and February 25, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
December 23, 1997
14
<PAGE> 15
THE ARNOLD PALMER GOLF COMPANY
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 703 $ 47
Accounts receivable, less allowance for doubtful accounts of $843 and
$720 at September 30, 1997 and 1996 5,311 5,630
Inventories 7,375 9,491
Prepaid expenses and other 847 913
------- -------
Total current assets 14,236 16,081
------- -------
PROPERTY, PLANT, AND EQUIPMENT, NET 1,493 1,445
------- -------
OTHER ASSETS:
Investment in Nevada Bob's Holdings, Inc. 5,000 5,000
Property held for sale 170 271
Goodwill, net 502 532
Other 1,352 1,605
------- -------
Total other assets 7,024 7,408
------- -------
$22,753 $24,934
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1997 1996
---------------------------------------------- ------- -------
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 102 $ 112
Short-term borrowings from bank 150 796
Accounts payable 2,121 2,139
Accrued liabilities 1,370 2,288
-------- -------
Total current liabilities 3,743 5,335
-------- -------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 26,162 15,884
-------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
REDEEMABLE PREFERRED STOCK, $.50 par value, 833,333 shares authorized,
issued, and outstanding (liquidation preference of $5,000 plus
accumulated dividends) 5,000 5,000
-------- -------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.50 par value, 10,000,000 shares authorized; 3,004,367 and
2,926,805 shares issued and outstanding at September 30, 1997 and 1996 1,502 1,463
Additional paid-in capital 6,313 5,991
Accumulated deficit (19,967) (8,739)
-------- -------
Total stockholders' equity (deficit) (12,152) (1,285)
-------- -------
$ 22,753 $24,934
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
THE ARNOLD PALMER GOLF COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
SEPTEMBER 30, 1997, MARCH 2, 1996, FEBRUARY 25, 1995, AND
THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Years 1996
-------------------------------- Transition
1997 1996 1995 Period
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 28,454 $21,185 $24,621 $18,456
COST OF SALES 26,447 17,983 21,280 13,301
-------- ------- ------- -------
Gross profit 2,007 3,202 3,341 5,155
SELLING EXPENSES 7,479 4,559 6,368 4,466
GENERAL AND ADMINISTRATIVE EXPENSES 4,955 2,573 4,520 2,405
-------- ------- ------- -------
(10,427) (3,930) (7,547) (1,716)
-------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense, net (2,212) (2,965) (1,354) (1,129)
Royalty and sub-license income, net 1,402 974 569 937
Other, net 9 296 (393) 508
Writedown of note receivable 0 0 0 (894)
-------- ------- ------- -------
(801) (1,695) (1,178) (578)
-------- ------- ------- -------
Loss from continuing operations before
income taxes (11,228) (5,625) (8,725) (2,294)
PROVISION FOR INCOME TAXES 0 0 (735) 0
-------- ------- ------- -------
LOSS FROM CONTINUING OPERATIONS (11,228) (5,625) (9,460) (2,294)
-------- ------- ------- -------
DISCONTINUED OPERATIONS (NOTE 13):
Income (loss) from discontinued operations 0 348 (6,082) 0
Loss on disposal of discontinued operations 0 0 (1,244) 0
-------- ------- ------- -------
0 348 (7,326) 0
-------- ------- ------- -------
NET LOSS $(11,228) $(5,277) $(16,786) $(2,294)
======== ======= ======== =======
NET INCOME (LOSS) PER SHARE FROM:
Continuing operations $ (3.77) $ (2.15) $ (3.73) $ (.80)
Discontinued operations .00 .13 (2.88) .00
-------- ------- -------- -------
$ (3.77) $ (2.02) $ (6.61) $ (.80)
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
THE ARNOLD PALMER GOLF COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED
SEPTEMBER 30, 1997, MARCH 2, 1996, FEBRUARY 25, 1995,
AND THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
--------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 26, 1994 2,537 $1,268 $2,295 $ 15,618 $ 19,181
Net loss 0 0 0 (16,786) (16,786)
Exercise of stock options 2 2 17 0 19
Issuance of warrants for 1,158 shares of
common stock 0 0 1,806 0 1,806
----- ------ ------ -------- --------
BALANCE AT FEBRUARY 25, 1995 2,539 1,270 4,118 (1,168) 4,220
Net loss 0 0 0 (5,277) (5,277)
Issuance of warrants for 232 shares of
common stock 0 0 139 0 139
Issuance of common stock 96 47 537 0 584
----- ------ ------ -------- --------
BALANCE AT MARCH 2, 1996 2,635 1,317 4,794 (6,445) (334)
Net loss 0 0 0 (2,294) (2,294)
Conversion of subordinated convertible
note into 192 shares of common stock 192 96 863 0 959
Issuance of common stock 100 50 334 0 384
----- ------ ------ -------- --------
BALANCE AT SEPTEMBER 30, 1996 2,927 1,463 5,991 (8,739) (1,285)
Net loss 0 0 0 (11,228) (11,228)
Issuance of common stock 77 39 322 0 361
----- ------ ------ -------- --------
BALANCE AT SEPTEMBER 30, 1997 3,004 $1,502 $6,313 $(19,967) $(12,152)
===== ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
THE ARNOLD PALMER GOLF COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, MARCH 2, 1996, FEBRUARY 25, 1995,
AND THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Years 1996
------------------------------- Transition
1997 1996 1995 Period
-------- ------- -------- -------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(11,228) $(5,277) $(16,786) $(2,294)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 407 400 761 140
Amortization 364 1,674 71 433
Deferred income tax provision 0 0 476 0
(Gain) loss on disposal of property, plant, and equipment (11) (100) 114 (98)
Loss on disposal of discontinued operations 0 0 1,244 0
Writedown of note receivable 0 0 0 894
Writedown of property, plant and equipment 727 0 0 0
Other 0 0 348 0
Changes in operating assets and liabilities, net of effects from
purchase of National Golf Suppliers:
Accounts receivable 319 3,409 4,909 (1,778)
Income taxes receivable 0 0 259 0
Inventories 2,116 2,479 605 489
Prepaid expenses and other 254 452 1,117 (481)
Accounts payable (18) (2,400) (40) 251
Accrued liabilities (557) (1,577) 1,420 (12)
-------- ------- -------- -------
Net cash used in operating activities (7,627) (940) (5,502) (2,456)
-------- ------- -------- -------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (1,041) (150) (400) (291)
Proceeds from sale of property, plant, and equipment 23 3,855 117 125
Investment in Nevada Bob's Holdings, Inc. 0 0 0 (5,000)
Payments received on note receivable 0 1,600 0 0
-------- ------- -------- -------
Net cash provided by (used in) investing activities (1,018) 5,305 (283) (5,166)
-------- ------- -------- -------
FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings from bank 9,354 (1,733) 1,168 2,700
Proceeds from debt issuance and related warrants 0 0 5,000 0
Proceeds from debt obligations 1,109 0 0 0
Principal payments on debt obligations (1,162) (2,656) (418) (41)
Issuance of common stock 0 0 19 0
Issuance of redeemable preferred stock 0 0 0 5,000
-------- ------- -------- -------
Net cash provided by (used in) financing activities 9,301 (4,389) 5,769 7,659
-------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH 656 (24) (16) 37
CASH, BEGINNING OF PERIOD 47 34 50 10
-------- ------- -------- -------
CASH, END OF PERIOD $ 703 $ 10 $ 34 $ 47
======== ======= ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments (refunds) during the period for:
Interest $ 1,810 $ 1,085 $ 1,088 $ 613
======== ======= ======== =======
Income taxes, net $ 0 $ (5) $ (534) $ 0
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
THE ARNOLD PALMER GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
(For purposes of these financial statements and notes to these financial
statements, "fiscal 1997" relates to the year ended September 30, 1997, while
"fiscal 1996 and 1995" pertains to the years ended March 2, 1996 and February
25, 1995, respectively. The "1996 transition period" relates to the seven-month
period ended September 30, 1996. All monetary amounts are expressed in thousands
of dollars unless contrarily evident.)
1. NATURE OF OPERATIONS
The Arnold Palmer Golf Company (the "Company") manufactures, markets and
distributes golf products, including Arnold Palmer and First Flight golf
equipment and Hot-Z golf bags and luggage. The Company's principal market
is the United States. The Company owns, subject to certain exceptions, the
exclusive worldwide right to the Arnold Palmer trade name in connection
with the Company's manufacture, sale and distribution of golf products.
The Company sells primarily to retailers and golf specialty stores and
grants credit to customers based on defined payment terms. The Company
performs ongoing credit evaluations and generally does not require
collateral. Three large retail customers accounted for 17%, 25%, 32%, and
36% of net sales from continuing operations for fiscal 1997, the 1996
transition period, and fiscal 1996 and 1995, respectively.
In July 1996, the Company changed its name to The Arnold Palmer Golf
Company from ProGroup, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DISCONTINUED OPERATIONS
As discussed in Note 13, on May 5, 1995, the Company sold its Duckster
line of headwear, outerwear, and shirts. Consistent with the provisions of
Accounting Principles Board Opinion No. 30, the results of discontinued
operations have been reported separately from the results of continuing
operations, and a provision was made in fiscal 1995 for the loss on the
disposal of the Duckster line of business.
REVENUE RECOGNITION
Revenue is recognized when the Company's products are shipped to its
customers.
19
<PAGE> 20
INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. Cost includes material, labor and factory
overhead. Market is net realizable value for finished goods. For raw
materials and work-in-process, market is replacement cost.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost, less accumulated
depreciation and amortization. Expenditures for maintenance and repairs
are charged to expense as incurred. The property, plant, and equipment
balances consisted of the following at September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land $ 70 $ 70
Buildings and improvements 595 661
Machinery and equipment 2,936 2,764
Furniture and fixtures 630 425
Construction in progress 234 275
------- -------
4,465 4,195
Less accumulated depreciation and amortization (2,972) (2,750)
------- -------
$ 1,493 $ 1,445
======= =======
</TABLE>
Included in property held for sale at September 30, 1997 and 1996 is the
Company's idle Lumberton, North Carolina plant, which is for sale and
stated at its estimated net realizable value.
Depreciable assets are depreciated principally using the straight-line
method for financial reporting purposes and accelerated methods for income
tax purposes over the estimated useful lives of the related assets. The
estimated useful lives used in computing annual depreciation provisions
are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements 5 to 31
Machinery and equipment 3 to 10
Furniture and fixtures 3 to 10
</TABLE>
During fiscal 1997, the Company recorded impairment losses of
approximately $727. The write-down related primarily to certain
construction in progress and tooling costs, which the Company believes it
will not be able to utilize in the future, as well as a $101 write-down of
its idle Lumberton, North Carolina facility.
GOODWILL
Goodwill of $85 relates to a business acquired before November 1, 1970,
and is not required to be amortized. The remaining goodwill is being
amortized on a straight-line
20
<PAGE> 21
basis over 15 years. The Company continually evaluates whether subsequent
events and circumstances have occurred that indicate that the remaining
estimated useful life of goodwill may warrant revision or that the
remaining balance may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company uses an
estimate of the future undiscounted net cash flows of the related
businesses over the remaining life of the goodwill in measuring whether
goodwill is recoverable. The Company recognized $30 of goodwill
amortization expense in fiscal 1997 and accumulated amortization at
September 30, 1997 is $30.
ADVERTISING EXPENSES
The Company expenses production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefit.
At September 30, 1997 and 1996, the Company reported $86 and $61,
respectively, of prepaid advertising in the accompanying balance sheets.
Advertising expense for fiscal 1997, the 1996 transition period, and
fiscal 1996 and 1995 was $1,133, $883, $547, and $1,988, respectively.
FISCAL YEAR
During the 1996 transition period, the Company's Board of Directors
elected to change the Company's year end to September 30, effective
September 30, 1996. Fiscal 1996 and 1995 are based on a 52-53-week period
ending on the Saturday closest to the end of February.
NET LOSS PER SHARE
The computation of net loss per share is based on the weighted average
number of common shares outstanding during the period after adding common
stock equivalents having a dilutive effect. The weighted average number of
shares and equivalents outstanding for fiscal 1997, the 1996 transition
period, and for fiscal 1996 and 1995 are 2,978,099, 2,852,213, 2,615,619,
and 2,537,876, respectively.
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 date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB No. 25"). Effective in the 1996 transition period, the
Company adopted the disclosure option of Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123").
21
<PAGE> 22
RECENT ACCOUNTING PRONOUNCEMENT
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 changes the criteria for reporting earnings per share
("EPS") by replacing primary EPS with basic EPS and fully diluted EPS with
diluted EPS. The Company is required to adopt SFAS No. 128 for periods
ending after December 15, 1997, and all prior periods EPS data must be
restated. The impact of adopting SFAS No. 128 will not have a material
impact on EPS for any period presented.
3. ACQUISITION OF NATIONAL GOLF SUPPLIERS, INC.
In June 1996, the Company issued 100,000 shares of its common stock in
exchange for certain assets and liabilities of National Golf Suppliers,
Inc. ("NGS"), a wholesaler of golf club component parts located in
Louisville, KY, at a purchase price of $384.
The acquisition of NGS has been accounted for under the purchase method of
accounting. Accordingly, the operating results of NGS have been included
in the Company's results of operations from the date of acquisition. The
excess of the aggregate purchase price over the fair value of net assets
acquired has been recorded as goodwill and is being amortized on a
straight-line basis over a 15 year period. The impact of the acquisition
on pro forma net loss and loss per share, as if the acquisition had taken
place at the beginning of fiscal 1996, was not significant for the 1996
transition period and fiscal 1996.
4. INVENTORIES
Inventories as of September 30, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Raw materials $3,602 $4,344
Work-in-process 14 221
Finished goods 3,759 4,926
------ ------
$7,375 $9,491
====== ======
</TABLE>
5. INVESTMENT IN NEVADA BOB'S HOLDINGS, INC.
In August 1996, the Company purchased 625,000 mandatorily redeemable,
convertible shares of Series D Preferred Stock ("Series D Shares") of
Nevada Bob's Holdings, Inc. ("NBHI") for $5,000. The shares are
convertible to common shares of NBHI at any time at the currently
effective conversion rate, as defined, and will automatically convert to
common shares if NBHI successfully completes an initial public offering of
at least $20,000. If the Series D Shares are not converted to common
shares of NBHI by August 21, 2000, NBHI shall redeem 33 1/3% of the shares
annually over a three year period at 150% of the original cost per share
plus any declared but unpaid dividends. This investment is classified as
held-to-maturity and is accounted for using the cost method of accounting.
22
<PAGE> 23
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of advances under a $12,000 line of credit
agreement with a bank. The line of credit and long-term obligations
are collateralized by accounts receivable, inventory and other business
assets and are guaranteed by the Company's Chairman and Chief Executive
Officer (the "Guarantor").
There are no financial covenants under the line of credit. Advances under
the line of credit bear interest at the bank's prime rate less .5% (8% at
September 30, 1997). Interest is payable monthly. At September 30, 1997,
advances outstanding under the line of credit were $10,150, letters of
credit outstanding were $450, and $1,400 was unused.
The line of credit was scheduled to mature in December 1997. Subsequent to
September 30, 1997, the maturity date of the line of credit was extended
to December 31, 1998 and $10,000 of the line of credit was converted to
term debt due December 31, 1999. As a result of this, $10,000 of the
borrowings under the line of credit at September 30, 1997 has been
classified in long-term obligations in the accompanying balance sheet. In
fiscal 1997, the Company borrowed and repaid $1,100 from the Guarantor.
7. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following at September 30, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Term loan with bank, interest payable monthly at 8.25%, due
December 31, 1999 $12,000 $12,000
Term loan with bank, interest payable monthly at the fixed rate of
LIBOR plus 2% at December 31, 1997 (7.85% at December 22, 1997),
due December 31, 1999, (refinanced from line of credit to term
subsequent to September 30, 1997--Note 6) 10,000 0
Subordinated notes ($5,000 face amount) to related parties, net of
discount of $853 and $1,175 at September 30, 1997 and 1996, interest
payable monthly at 6.0% (effective interest rate of 15.9%), due
November 2, 1999 4,147 3,825
Other obligations 117 171
------- -------
26,264 15,996
Less: current maturities (102) (112)
------- -------
$26,162 $15,884
======= =======
</TABLE>
In November 1994, the Company completed a private placement of $5,000 in
subordinated notes. The holders of the $5,000 subordinated notes (which
include the Guarantor and another director of the Company) also received
warrants to purchase up to 1,000,000 shares of common stock of the Company
at $5.50 per share. The estimated fair value of the warrants
23
<PAGE> 24
was recorded as additional paid-in capital.
Future scheduled maturities of long-term obligations as of September 30,
1997, were as follows:
<TABLE>
<S> <C>
1998 $ 102
1999 12
2000 26,150
</TABLE>
8. INCOME TAXES
There was no current income tax provision or benefit recorded during
fiscal 1997, the 1996 transition period, and fiscal 1996 and 1995 due to
the losses sustained by the Company. The $735 provision for income taxes
from continuing operations in fiscal 1995 resulted principally from
recording a valuation allowance against previously recognized deferred tax
assets due to the uncertainty of the realization of the related benefits.
Deferred income tax assets and liabilities reflect the impact of temporary
differences between the amounts of assets and liabilities for financial
reporting and income tax reporting purposes. Temporary differences and
carryforwards which give rise to deferred tax assets and liabilities at
September 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards $ 12,086 $ 9,148
Inventory and receivables reserves 1,221 288
Other accruals and reserves 550 772
-------- --------
13,857 10,208
-------- --------
Deferred tax assets valuation allowance (13,114) (9,296)
-------- --------
Deferred tax liabilities:
Pension asset 417 398
LIFO to FIFO change 222 379
Prepaid expenses 32 63
Excess tax depreciation 72 72
-------- --------
743 912
-------- --------
Net deferred tax asset $ 0 $ 0
======== ========
</TABLE>
At September 30, 1997, the Company had federal tax loss carryforwards of
approximately $32,300 which expire in years 2009 through 2012 if not
utilized earlier.
24
<PAGE> 25
The difference between the provision for income taxes and the amount
computed by multiplying the loss from continuing operations before income
taxes by the statutory rate is summarized as follows:
<TABLE>
<CAPTION>
Fiscal Years 1996
----------------------------------- Transition
1997 1996 1995 Period
------- ------- ------- ------
<S> <C> <C> <C> <C>
Expected tax benefit $ 3,818 $ 1,913 $ 2,966 $ 780
Change in valuation allowance (3,818) (1,913) (3,791) (780)
State income taxes, net of federal income
tax benefit 0 0 349 0
Other, net 0 0 (259) 0
------- ------- ------- -----
Provision for income taxes from
continuing operations
$ 0 $ 0 $ (735) $ 0
======= ======= ======= =====
</TABLE>
A valuation allowance was recorded related to the entire amount of losses
from discontinued operations in fiscal 1995; accordingly, no income tax
provision or benefit was recognized for discontinued operations in 1995.
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all salaried and hourly employees. The plan provides
benefits based on years of service and compensation levels. In the opinion
of management, the Company's funding policy is consistent with the
requirements of the Employee Retirement Income Security Act of 1974. Plan
assets are invested primarily in common stocks and corporate debt
securities.
25
<PAGE> 26
Pension income for fiscal 1997, the 1996 transition period, and fiscal
1996 and 1995 included the following components:
<TABLE>
<CAPTION>
Fiscal Years 1996
------------------------------- Transition
1997 1996 1995 Period
----- ------- ----- -------
<S> <C> <C> <C> <C>
Service cost $ 56 $ 86 $ 97 $ 36
Interest cost on projected
benefit obligation 346 365 376 199
Actual (return) loss on plan
assets (864) (1,047) 177 (342)
Net amortization and deferral 161 430 (932) (35)
Net loss due to special early
retirement benefits 251 0 0 0
----- ------- ----- -----
Net pension income $ (50) $ (166) $(282) $(142)
===== ======= ===== =====
</TABLE>
The following table sets forth the funded status of the plan as of
September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $4,223 $4,347
Nonvested benefit obligation 110 0
------ ------
Accumulated benefit obligation $4,333 $4,347
====== ======
Projected benefit obligation $4,433 $4,429
Plan assets at fair value 6,103 5,972
------ ------
Plan assets in excess of projected benefit
obligation 1,670 1,543
Unrecognized net gain (451) (229)
Unrecognized prior service cost 156 171
Unrecognized initial net asset (277) (378)
Additional liability 0 (59)
------ ------
Net pension asset recognized on the balance sheet $1,098 $1,048
====== ======
</TABLE>
26
<PAGE> 27
The following assumptions were used to measure the net periodic pension
income and the projected benefit obligation:
<TABLE>
<CAPTION>
Fiscal Years 1996
-------------------------- Transition
1997 1996 1995 Period
----- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate used to determine the projected
benefit obligation 7.5% 7.25% 8.0% 7.5%
Rate of increase in future compensation levels
used to determine the projected benefit
obligation 5.0% 5.0% 5.0% 5.0%
Expected long-term rate of return on plan
assets used to determine net periodic
pension income 9.0% 9.0% 9.5% 9.0%
</TABLE>
The Company curtailed the benefits under its defined benefit plan in 1994.
Under this curtailment, nonunion employees that were not at least age 50
with at least five years of service accrue no further benefits under the
plan.
401(k) PROFIT-SHARING PLAN
The Company has a 401(k) profit-sharing plan covering substantially all
employees at least 21 years of age with six months of service. The plan
allows for employees to contribute a portion of their compensation,
subject to certain limitations. The Company may make discretionary
contributions to the plan. Total discretionary contributions during fiscal
1997, the 1996 transition period, and fiscal 1996 and 1995 were $38, $20,
$39, and $91, respectively.
10. CAPITAL STOCK
STOCK ISSUANCES
In fiscal 1997, the Company issued 77,562 common shares to certain
playing pros as compensation under endorsement agreements.
As consideration to the Guarantor for his guarantee of the line of credit
in January 1995, the Company issued an $850 subordinated convertible note
and a warrant to purchase up to 390,000 common shares of the Company. The
cost of the guarantee was set up as a deferred asset and amortized to
interest expense over the life of the note. Additionally, the Guarantor
was given preemptive rights through January 27, 2000 with respect to
future issuances by the Company sufficient to enable the Guarantor to
maintain his fully diluted common stock ownership percentage. In March
1996, the $850 subordinated note plus accrued interest was converted to
191,814 shares of common stock under the terms of the note.
In March 1995, the Company entered into a revolving credit facility with
the Guarantor (this line was subsequently replaced by the line of credit
discussed in Note 6). For each $100 drawn under this facility, the
Guarantor was issued 3,750 shares of the Company's common stock. Under
this facility, the Guarantor was issued 80,625 shares in fiscal 1996.
27
<PAGE> 28
STOCK OPTION PLANS
The Company has incentive stock option plans which were adopted under a
1981 plan and a 1992 plan for its officers and key employees which provide
for issuance of options to purchase up to 950,000 and 324,032 common
shares, respectively. The plans are administered by the Executive
Committee of the Board of Directors.
At September 30, 1997, the total number of shares available for options
was as follows:
<TABLE>
<S> <C>
Reserved for:
Outstanding stock options 629,395
Stock options authorized but not granted 484,537
---------
1,113,932
=========
</TABLE>
Stock options are exercisable at the market price on the date of grant and
expire on various dates through 2007. Stock options generally vest ratably
over a 3 year period from the date of grant or date of hire.
Stock option activity for fiscal 1997, the 1996 transition period, and
fiscal 1996 and 1995, was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
-------- --------
<S> <C> <C>
Outstanding at February 26, 1994 533,232 $ 8.90
Granted at market price 40,000 10.19
Exercised (2,500) 7.12
Canceled or expired (145,000) 9.92
--------
Outstanding at February 25, 1995 425,732 8.68
Granted at market price 241,000 4.09
Canceled or expired (70,200) 11.23
--------
Outstanding at March 2, 1996 596,532 6.53
Granted at market price 80,000 5.38
Canceled or expired (20,000) 7.63
--------
Outstanding at September 30, 1996 656,532 6.36
Granted at market price 152,000 3.89
Canceled or expired (179,137) 7.14
--------
Outstanding at September 30, 1997 629,395 5.54
========
</TABLE>
Of the options outstanding at September 30, 1997, 352,000 have exercise
prices between $2.94 and $4.50, with a weighted average exercise price of
$3.81 and a weighted average remaining contractual life of 8.8 years. Of
these options, 66,667 are exercisable at a weighted average exercise price
of $3.75. Options to exercise an additional 263,395 shares have exercise
prices between $5.38 and $8.10, with a weighted average exercise price of
28
<PAGE> 29
$7.55 and a weighted average remaining contractual life of 2.1 years. Of
these options, 235,062 are exercisable at a weighted average exercise
price of $7.82. The remaining 14,000 options have an exercise price of
$10.93, and a weighted average remaining contractual life of 2.2 years.
All of these options are exercisable.
Of the options outstanding at September 30, 1997 and 1996, and March 2,
1996, and February 25, 1995, total shares exercisable were 315,729,
362,199, 348,865, and 385,732, respectively, with weighted average prices
of $7.10, $8.11, $8.19, and $8.41, respectively.
The Company accounts for the plans under APB No. 25, under which no
compensation cost has been recognized for stock options granted with
exercise prices equal to the fair value of the Company's common shares on
the date of grant. The Company adopted SFAS No. 123 for disclosure
purposes only in the 1996 transition period. Had compensation cost for
these plans been determined consistent with SFAS No. 123, the Company's
net loss and loss per share would have been increased to the following pro
forma amounts:
<TABLE>
<CAPTION>
FISCAL 1996
------------------------ TRANSITION
1997 1996 PERIOD
---------- ---------- ---------
<S> <S> <C> <C> <C>
Net loss: As reported $(11,228) $(5,277) $(2,294)
Pro Forma (11,335) (5,364) (2,490)
Loss per share: As reported $ (3.77) $ (2.02) $ (0.80)
Pro Forma (3.81) (2.05) (0.87)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to February 26, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
The fair value of option grants is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 1997, the 1996 transition period,
and fiscal 1996, respectively: risk-free interest rates of 6.05, 6.30, and
5.40 percent; expected dividend yields of 0 percent; expected lives of one
year after vesting; expected volatility of 60%, 73%, and 73%. Using these
assumptions, the fair value of the stock options granted in fiscal 1997,
the 1996 transition period and fiscal 1996 is $264,000, $165,000, and
$503,000, respectively, which would be amortized as compensation over the
vesting period of the options. The weighted average fair value of options
granted during fiscal 1997, the 1996 transition period, and fiscal 1996 is
$1.74, $2.13, and $2.09, respectively.
STOCK PURCHASE WARRANTS
The Company, in conjunction with the November 1994 issuance of the $5,000
subordinated notes, issued warrants to purchase 1,000,000 shares of common
stock at an exercise price of $5.50. Each warrant may be exercised with
$5.50 in cash or principal value of the notes at any time during the life
of the warrants, which expire on November 3, 1999.
29
<PAGE> 30
In connection with the January 1995 guarantee of the Company's line of
credit, the Guarantor was issued a warrant to purchase up to 390,000
common shares at $6.25 per share. These warrants expire January 27, 2000.
In March 1995, all 390,000 warrants were immediately vested and subject to
a reset price of $5.00 per share.
PREFERRED STOCK
The Company's shareholders have authorized the issuance of up to 1 million
shares of preferred stock, having a par value of $.50 per share. The
designation, powers, preferences, and rights of the shares shall be
determined by the Company's Board of Directors prior to issuance. As
discussed in Note 11, 833,333 shares of preferred stock have been issued.
11. REDEEMABLE PREFERRED STOCK
In August 1996, the Company issued 833,333 shares of Series NB Preferred
Stock ("NB Shares") for $5,000 to the Guarantor to fund the Company's
investment in NBHI. The NB Shares have a stated value of $6 per share and
are convertible at any time to common stock on a one to one ratio. The
NB Shares are entitled to cumulative dividends equal to 30% of the
earnings realized by the Company from its investment in NBHI's Series D
Shares. The NB Shares shall have a preference in liquidation of $5,000
plus accumulated dividends and are required to be redeemed upon sale or
redemption of the Series D Shares of NBHI.
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into various operating leases for buildings and
office equipment. Rent expense was approximately $768, $405, $433, and
$355 for fiscal 1997, the 1996 transition period, and fiscal 1996 and
1995, respectively. Approximate future minimum rental commitments for the
next five years for noncancelable operating leases as of September 30,
1997, were as follows:
1998 $785
1999 739
2000 603
2001 179
2002 22
Included in fiscal 1997 rent expense is $82 of lease payments to an entity
controlled by the Guarantor, the owner of the Company's Ooltewah,
Tennessee headquarters since April 1997.
LITIGATION
The Company is party to certain legal proceedings incidental to its
business. In the opinion of management, based in part on the advice of
legal counsel, the ultimate
30
<PAGE> 31
disposition of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
ROYALTY COMMITMENTS
The Company pays royalties under a license agreement with Arnold Palmer
Enterprises, Inc., a company controlled by a shareholder and a member of
the Company's Board of Directors. The Company has the right to sub-license
its rights under this agreement. The agreement expires March 1, 2007, but
may be extended for successive five-year periods. Under the terms of the
agreement, the Company will pay royalties of 1% to 5% of net sales of
specified products and a portion of sub-licensing royalties. The Company
has committed to pay minimum royalties ranging from $700 in 1998 to $750
in 2007. During fiscal 1997, the 1996 transition period, and fiscal 1996
and 1995, the Company incurred royalty expense under this agreement of
approximately $700, $442, $500, and $524, respectively.
13. DISCONTINUED OPERATIONS - SALE OF DUCKSTER
On May 5, 1995, the Company sold its Duckster line of headwear, outerwear,
and shirts for approximately $3,000 in cash and a $2,726 installment
promissory note. The Company also retained approximately $4,200 in
existing accounts receivable. The sale resulted in an estimated loss on
disposal of $1,244, which has been included as a component of discontinued
operations in 1995. Duckster revenues for fiscal 1996 and 1995 were $4,649
and $15,485, respectively.
Approximately $1,126 of the promissory note receivable was not repaid by
the buyer. In lieu of payment, the buyer turned over certain manufacturing
equipment and other consideration to the Company. As a result, in the 1996
transition period the Company wrote the note receivable and related
accrued interest receivable down $894 to $300, the estimated fair value of
the consideration received.
14. CHANGE IN FISCAL YEAR
During the 1996 transition period, the Company changed its fiscal year end
to September 30 from the Saturday closest to the end of February.
Accordingly, the September 30, 1996 results of operations are for a
seven-month period.
31
<PAGE> 32
Following are selected financial data for the seven-month periods ended
September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Net sales $ 18,456 $ 14,777
Gross profit 5,155 3,765
Loss from continuing operations (2,294) (1,446)
Income from discontinued operations 0 348
Net loss (2,294) (1,098)
Loss per share from continuing
operations (0.80) (0.55)
Loss per share (0.80) (0.42)
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash, accounts receivable, accounts payable and accrued
liabilities are reasonable estimates of their fair values because of the
short maturity of these financial instruments. Due to the fact that no
liquid market exists for: a) the Company's investment in the NBHI Series D
Shares, b) the subordinated notes payable, and c) the Company's Series NB
Preferred Stock, it is not practicable to estimate the fair value of these
financial instruments. Due to the guarantee of the line of credit and term
loan by the Guarantor, it is not practicable to estimate the fair value of
these financial instruments.
16. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company currently outsources a significant portion of its bag
manufacturing from one supplier in the Far East. Transactions with this
entity are subject to government regulations. Although there are a limited
number of manufacturers of golf bags, management believes that other
suppliers could provide a similar product on reasonably comparable terms.
Also, the Company could manufacture bags at its Pocahontas, Arkansas
plant. A change in suppliers, however, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating
results adversely.
17. SUBSEQUENT EVENT
Subsequent to September 30, 1997, certain executives left the Company
under severance agreements. Additionally, the Company anticipates further
work force reductions will occur in fiscal 1998. The Company expects to
record a charge of $625,000 in the first quarter of fiscal 1998 related to
these items.
32
<PAGE> 33
Item 9. Disagreements on Accounting and Financial Disclosure. No event
described in Item 304 of Regulation S-K has occurred.
PART III
Item 10. Directors and Executive Officers of the Company.
(a) Directors
The information found in the section titled Election of Directors in
the Company's 1998 Proxy Statement is incorporated herein by reference.
(b) Executive Officers
The following lists the names of all executive officers of the Company,
their ages, their positions with the Company and the year in which they
were first elected to these positions:
John T. Lupton. Age 71. Mr. Lupton was initially named Chairman of the
Board of Directors and Chief Executive Officer of the Company in March,
1995 and continued as Chairman and Chief Executive Officer through
February 20, 1997. Mr. Lupton was re-appointed as Chairman and Chief
Executive Officer on November 21, 1997. Mr. Lupton is the former
Chairman of JTL Corp., a bottler of Coca-Cola and related products, and
a private investor.
Claire V. Bradford. Age 43. Ms. Bradford has been Vice President -
Sales and Staff Services since December, 1995. She joined the Company
as Director of Human Resources in December 1992. Prior to joining the
Company, Ms. Bradford was a consultant in human resources management
for Suter & Associates, a private consulting firm, and Director of
Human Resources for MEDCORP, a private medical management company from
1991 to 1992.
Dexter Scudder Graybeal. Age 57. Mr. Graybeal has been Vice President
- Special Markets since April, 1994. He has been employed by the
Company since March of 1972 in various capacities including Regional
and National Sales Manager, Director of Sales, Vice President - Sales
and Vice President/General Manager - Arnold Palmer Golf Co.
David J. Kirby. Age 48. Mr. Kirby has been Vice President - Finance
since February, 1996. He joined the Company as Cost Accountant in
January, 1993, and was named Controller in November 1994. Prior to
1993, Mr. Kirby served as Financial Analyst and Controller at Balsam
Corporation.
Item 11. Executive Compensation.
The information found in the section titled Executive Compensation and Other
Information in the Company's 1998 Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information found in the section titled Voting Securities and Principal
Holders Thereof in the Company's 1998 Proxy Statement is incorporated herein by
reference.
33
<PAGE> 34
Item 13. Certain Relationships and Related Transactions.
The information found in the sections titled Certain Transactions and Agreements
with Certain Executive Officers in the Company's 1998 Proxy Statement is
incorporated herein by reference.
PART IV
Item 14. Exhibits. Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements are incorporated by
reference under Part II, Item 8 and are set forth in
the Index to Financial Statements and Schedules found
in Part II, Item 8.
2. Financial Statement Schedules:
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits:
See the Exhibit Index on page 39 of this Form 10-K.
(b) The Registrant did not file any reports on Form 8-K during the
last quarter of fiscal 1997.
34
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of The Arnold Palmer Golf Company:
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Part II, Item 8 of this Form 10-K and have
issued our report thereon dated December 23, 1997. Our audits were made for
the purpose of forming an opinion on these statements taken as a whole. Schedule
II is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
December 23, 1997
35
<PAGE> 36
SCHEDULE II
THE ARNOLD PALMER GOLF COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, MARCH 2, 1996, FEBRUARY 25,
1995, AND THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
Description OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
----------- --------- -------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C>
For the year ended September 30, 1997:
Allowance for doubtful accounts $ 720 $ 533 $ 62 $(472) $ 843
====== ====== ==== ===== ======
For the seven-month period ended September 30, 1996:
Allowance for doubtful accounts $ 758 $ 373 $ 35 $(446) $ 720
====== ====== ==== ===== ======
For the year ended March 2, 1996:
Allowance for doubtful accounts $1,049 $ 0 $ 20 $(311) $ 758
====== ====== ==== ===== ======
For the year ended February 25, 1995:
Allowance for doubtful accounts $ 478 $1,226 $112 $(767) $1,049
====== ====== ==== ===== ======
</TABLE>
(l) Recoveries on accounts written off.
(2) Accounts written off.
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned who are duly authorized to do so.
THE ARNOLD PALMER GOLF COMPANY
Date: December 23, 1997 By /s/ John T. Lupton
---------------------------------------------
(John T. Lupton)
Chief Executive Officer
Date: December 23, 1997 By /s/ David J. Kirby
---------------------------------------------
(David J. Kirby)
Vice President Finance (Chief Financial
Officer)
37
<PAGE> 38
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: December 23, 1997 /s/ John T. Lupton
-------------------------------------------
(John T. Lupton) Chairman of the Board
Date: December 23, 1997 /s/ David S. Gonzenbach
-------------------------------------------
(David S. Gonzenbach) Director
Date: December 23, 1997 /s/ James L.E. Hill
-------------------------------------------
(James L.E. Hill) Director
Date: December 23, 1997 /s/ Richard J. Horton
-------------------------------------------
(Richard J. Horton) Director
Date: December 23, 1997 /s/ Charles S. Mechem, Jr.
-------------------------------------------
(Charles S. Mechem, Jr.) Director
Date: December 23, 1997 /s/ Arnold D. Palmer
-------------------------------------------
(Arnold D. Palmer) Director
Date: December 23, 1997 /s/ Joel W. Richardson, Jr.
------------------------------------------
(Joel W. Richardson, Jr.) Director
38
<PAGE> 39
THE ARNOLD PALMER GOLF COMPANY
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1* Amended and Restated Charter of The Arnold Palmer Golf Company
3.2** Amended and Restated Bylaws of ProGroup, Inc.
22*** Subsidiaries of the Company
23 Consent of Arthur Andersen LLP, independent accountants
27 Financial Data Schedule
* Incorporated by reference herein from the Company's Form 10-Q for the quarter ended
August 31, 1996.
** Incorporated by reference herein from the Company's Form 10-K for the year ended
February 25, 1995.
*** Incorporated by reference herein from the Company's Form 10-K for the transition period
ended February 22, 1992.
</TABLE>
39
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed S-8
Registration Statements (File No. 333-19329, File No. 33-72152, and File No.
33-72154).
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
December 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 703
<SECURITIES> 0
<RECEIVABLES> 6,154
<ALLOWANCES> 843
<INVENTORY> 7,375
<CURRENT-ASSETS> 14,236
<PP&E> 4,465
<DEPRECIATION> 2,972
<TOTAL-ASSETS> 22,753
<CURRENT-LIABILITIES> 3,743
<BONDS> 0
5,000
0
<COMMON> 1,502
<OTHER-SE> (13,654)
<TOTAL-LIABILITY-AND-EQUITY> 22,753
<SALES> 28,454
<TOTAL-REVENUES> 28,454
<CGS> 26,447
<TOTAL-COSTS> 26,447
<OTHER-EXPENSES> 12,434
<LOSS-PROVISION> 533
<INTEREST-EXPENSE> 2,212
<INCOME-PRETAX> (11,228)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,228)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,228)
<EPS-PRIMARY> (3.77)
<EPS-DILUTED> (3.77)
</TABLE>
