<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 2, 1999 Commission File Number 0-921
----------------- ----------
THE ARNOLD PALMER GOLF COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0331019
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(State of Incorporation) (I.R.S. Employer Identification No.)
6201 Mountain View Road, Ooltewah, Tennessee 37363
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number 423-238-5890
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 twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
As of August 10, 1999, 3,927,700 shares of Common Stock were outstanding.
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
Pages
-----
<S> <C>
Part I. Financial Information
Balance Sheets - July 2, 1999 and
September 30, 1998 1
Statements of Operations - Three and Nine Months
Ended July 2, 1999 and June 26, 1998 2
Statements of Cash Flows - Nine Months Ended
July 2, 1999 and June 26, 1998 3
Notes to Financial Statements 4 - 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 12
Part II. Other Information 13
Signature Page 14
</TABLE>
<PAGE> 3
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BALANCE SHEETS
JULY 2, 1999 AND SEPTEMBER 30, 1998
($ in thousands except per share amounts)
<TABLE>
<CAPTION>
ASSETS
July 2, 1999 Sept 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,032 $ 371
Trade receivables 4,677 4,491
less: allowance for doubtful accounts (705) (977)
------------- -------------
Net receivables 3,972 3,514
Inventories, net 4,529 7,004
Prepaid expenses and other 138 1,162
------------- -------------
Total current assets 9,671 12,051
Property, plant and equipment 4,281 4,286
less: accumulated depreciation (2,875) (2,617)
------------- -------------
Net property, plant and equipment 1,406 1,669
Other assets:
Investment in NBHI -- 5,000
Property held for sale -- 94
Goodwill 85 85
Other 2,014 1,579
------------- -------------
2,099 6,758
------------- -------------
TOTAL ASSETS $ 13,176 $ 20,478
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 34,098 $ 3
Short-term borrowings 1,800 12,250
Accounts payable 623 1,573
Accrued liabilities 2,092 2,389
------------- -------------
Total current liabilities 38,613 16,215
Long-term obligations, net of
current maturities -- 26,525
Redeemable preferred stock -- 5,000
Stockholders' equity (deficit):
Common stock, $.50 par value,
10,000,000 shares authorized,
3,927,700 and 3,054,367 shares
issued and outstanding at July 2, 1999
and September 30, 1998, respectively 1,964 1,527
Additional paid-in capital 12,029 6,401
Accumulated deficit (39,430) (35,190)
------------- -------------
Total stockholders' equity (deficit) (25,437) (27,262)
------------- -------------
TOTAL LIABILITIES & STOCK-
HOLDERS' EQUITY $ 13,176 $ 20,478
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
Page 2 Form 10-Q
STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JULY 2, 1999 AND JUNE 26, 1998
(Unaudited)
($ in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
July 2, 1999 June 26, 1998 July 2, 1999 June 26, 1998
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,978 $ 8,306 $ 13,126 $ 17,881
Cost of sales 3,805 8,075 10,167 16,039
------------ ------------ ------------ ------------
Gross profit 1,173 231 2,959 1,842
Selling and marketing expenses 1,159 2,188 3,392 5,922
General and administrative expenses 734 1,138 1,934 3,600
Severance and restructuring expenses -- -- -- 797
------------ ------------ ------------ ------------
Loss from operations (720) (3,095) (2,367) (8,477)
Other income (expense):
Royalty and sub-license income, net 239 423 593 1,127
Other, net (5) 37 13 124
------------ ------------ ------------ ------------
234 460 606 1,251
Loss before interest and income taxes (486) (2,635) (1,761) (7,226)
Interest expense 808 798 2,479 2,134
------------ ------------ ------------ ------------
Loss before income taxes (1,294) (3,433) (4,240) (9,360)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (1,294) $ (3,433) $ (4,240) $ (9,360)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.33) $ (1.12) $ (1.08) $ (3.01)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
Page 3 Form 10-Q
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 2, 1999 AND JUNE 26, 1998
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
July 2, 1999 June 26, 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (4,240) $ (9,360)
Adjustments to reconcile net income to net cash
used for operating activities -
Depreciation 309 460
Amortization 329 309
Changes in operating assets and liabilities -
Receivables (458) (2,607)
Inventories 2,475 (2,288)
Prepaid expenses and other 634 623
Accounts payable (950) 2,342
Accrued liabilities 768 586
------------- -------------
Net cash used for operating activities (1,133) (9,935)
------------- -------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property, plant and equipment (46) (1,053)
Proceeds from sale of property, plant & equipment -- --
Proceeds from sale of investments 5,000 --
Other 40 --
------------- -------------
Net cash provided by (used for)
investing activities 4,994 (1,053)
------------- -------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings (10,450) $ 11,300
Issuance of common stock -- 113
Proceeds from debt obligations -- --
Principle payments on debt obligations 7,250 (90)
------------- -------------
Net cash provided by (used for)
financing activities (3,200) 11,323
------------- -------------
NET CHANGE IN CASH 661 335
CASH, beginning of period 371 703
------------- -------------
CASH, end of period $ 1,032 $ 1,038
============= =============
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ 407 $ 1,715
============= =============
Income taxes $ -- $ --
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
Page 4 Form 10-Q
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The quarterly financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission for interim financial information. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with the Company's latest annual report on Form 10-K. In the opinion of
management of the Company, all adjustments necessary, consisting only of normal
recurring adjustments, to present fairly (1) the financial position of The
Arnold Palmer Golf Company as of July 2, 1999; (2) the results of its operations
and its cash flows for the nine months ended July 2, 1999 and June 26, 1998; and
(3) the results of its operations for the three months ended July 2, 1999 and
June 26, 1998, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.
Reference is also made to the Company's annual report on Form 10-K for the year
ended September 30, 1998, for a discussion of the Company's significant
accounting policies.
NOTE 2
INCOME TAXES:
The Company has federal tax loss carry forwards of approximately $48.3 million
at September 30, 1998. There was no current income tax provision or benefit
recorded during the nine months ending July 2, 1999 due to the losses sustained
by the Company.
<PAGE> 7
Page 5 Form 10-Q
NOTE 3
SHORT-TERM BORROWINGS:
Short-term borrowings consist of advances under a $5.0 million line of credit
agreement with a bank. There are no financial covenants under the line of
credit, which is unconditionally guaranteed by the Company's Chairman (the
"Guarantor"), and which the bank may put to the John T. Lupton Trust u/w Thomas
Cartter Lupton ("TCL Trust").
At the option of the Company, advances under the line of credit bear interest at
prime minus 0.50% or one, two or three month LIBOR plus 1.5% (7.75% at July 2,
1999).
On October 20, 1998, an affiliate of the Guarantor, TCL Trust purchased the
Company's $5.0 million investment in Nevada Bob's Holdings, Inc. Series D
Preferred Stock at cost. Proceeds from the sale of the investment were used to
pay $5.0 million on the Company's September 30, 1998 revolver balance of $12.3
million. On October 30, 1998, the bank put the revolving credit line and the
term loans to the TCL Trust, and the TCL Trust purchased them for their
outstanding balance of $7.3 million and $22.0 million respectively.
The TCL Trust agreed to extend the maturity date of the revolving credit loan to
December 31, 1999 and has agreed to waive the payment of interest on the debt
due to the TCL Trust. Also on March 31, 1999, the Trust agreed to contribute to
paid in capital of the Company, accrued interest in the amount of $1,051,000
owed on the debt to the Trust for the period October 1998 through March 1999.
Interest since March 1999 has continued to be accrued.
All the Company's long-term debt and subordinated notes are due and payable on
or before December 31, 1999, and are therefore classified as current obligations
on the Company's balance sheet.
NOTE 4
NET LOSS PER COMMON SHARE:
The computation of basic net loss per share is based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share would also include dilutive common share equivalents outstanding. Due to
the Company's net loss for all periods presented, all common stock equivalents
would be anti-dilutive to Basic EPS.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------------------------------------
July 2, 1999 June 26, 1998 July 2, 1999 June 26, 1998
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss (in thousands) $ (1,294) $ (3,433) $ (4,240) $ (9,360)
Weighted average shares 3,927,700 3,054,367 3,914,077 3,036,895
Net loss per share - basic and diluted $ (0.33) $ (1.12) $ (1.08) $ (3.08)
</TABLE>
<PAGE> 8
Page 6 Form 10-Q
At July 2, 1999, there were options outstanding to purchase 631,127 shares of
stock, with per share prices ranging from $1.55 to $10.93. Additionally there
were warrants outstanding to purchase 1,390,000 shares of stock with per share
prices ranging from $5.00 to $5.50.
NOTE 5
INVENTORIES:
Inventories as of July 2, 1999 and September 30, 1998, were as follows (in
thousands):
<TABLE>
<CAPTION>
------------ --------------
July 2, 1999 Sept. 30, 1998
------------ --------------
<S> <C> <C>
Raw Materials $ 2,337 $ 3,503
Work-in-process 9 9
Finished Goods 2,183 3,492
------------ --------------
Total $ 4,529 $ 7,004
------------ --------------
</TABLE>
NOTE 6
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in the contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. The Company may also implement the
Statement as of the beginning of any fiscal quarter after issuance (that is,
fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be
applied retroactively. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the Company's election, before January 1, 1998).
SFAS No. 133 could increase the volatility in earnings and other comprehensive
income, however, based on the Company's current and anticipated level of
derivative instruments and hedging activities, the Company does not believe the
impact would be material.
<PAGE> 9
Page 7 Form 10-Q
NOTE 7
AGREEMENT FOR BUY-OUT
The Company has entered into a merger agreement with APGC Holdings Company, LLC,
pursuant to which APGC Acquisition Corp., a wholly-owned subsidiary of APGC
Holdings Company, LLC, will merge with the Company with the public shareholders
of the Company receiving $1.20 per share cash. APGC Holdings Company, LLC, is a
closely held company formed by Cindy L. Davis, President and Chief Executive
Officer of the Company, and John T. Lupton and Arnold D. Palmer, directors and
shareholders of the Company, and certain of their affiliates.
The board of directors of the Company, relying upon the recommendation of a
specially-appointed committee of disinterested directors that such transaction
is fair from a financial point of view to the Company shareholders, has approved
the transaction and recommended to the Company shareholders that the merger be
approved.
The merger is conditioned upon a majority of outstanding shares of the Company
common stock voting in favor of the transaction and certain other customary
conditions. Under the merger agreement, the transaction can be terminated by
APGC Holdings Company, LLC in certain circumstances, including a materiel
adverse change in the business of the Company, and can be terminated by the
Company in the event it receives an unsolicited competing offer and pursuant to
the exercise of its fiduciary responsibilities enters into an agreement with a
third party and in certain other circumstances.
<PAGE> 10
Page 8 Form 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company generally relies upon internally generated cash and short-term
borrowings to satisfy working capital and capital expenditure requirements.
Generally, short-term borrowings increase from December to April, because the
Company builds inventory through these months to support its spring shipping
season. Capital expenditures for 1999 are expected to be minimal.
All the Company's long-term debt and subordinated notes (as discussed below),
are due and payable on or before December 31, 1999, and are therefore classified
as current obligations on the Company's balance sheet. As of July 2, 1999, the
Company had negative working capital of $28.9 million and a current ratio of
0.25 to one. This compares to negative working capital of $4.2 million and a
current ratio of 0.74 to one at September 30, 1998. As of July 2, 1999, the
Company's outstanding balance on its revolving credit facility was $1.8 million
compared to $12.3 million at September 30, 1998.
On October 20, 1998, an affiliate of the Guarantor, the Thomas C. Lupton Trust,
("Trust"), purchased the Company's $5.0 million investment in Nevada Bob's
Holdings, Inc. Series D Preferred Stock at cost. Proceeds from the sale of the
investment were used to pay $5.0 million on the Company's September 30, 1998
revolver balance of $12.3 million. On October 30, 1998, the bank put the
revolving credit line and the term loans to the TCL Trust, and the TCL trust
purchased them for their outstanding balance of $7.3 million and $22.0 million
respectively.
The TCL Trust agreed to extend the maturity date of the revolving credit loan to
December 31, 1999 and has agreed to waive the payment of interest on the debt
due to the TCL Trust. Also on March 31, 1999, the Trust agreed to contribute to
paid in capital of the Company, accrued interest in the amount of $1,051,000
owed on the debt to the Trust for the period October 1998 through March 1999.
Interest since March 1999 has continued to be accrued.
On December 1, 1998, a $5.0 million revolving credit facility was established
with a bank. This credit facility is an unsecured promissory note due on
December 30, 1999, and is guaranteed by the Guarantor and which the bank may put
to the TCL Trust. The Company believes this facility will satisfy working
capital and capital expenditure requirements through fiscal 1999.
In November 1994, the Company completed a private placement of $5.0 million in
subordinated notes to related parties. These notes, which bear interest payable
monthly at 6%, are due to mature on November 2, 1999. The Company's Chairman and
another director, who collectively hold $3.0 million of the notes, agreed to
forego interest payments and agreed that accrued interest would be added to the
principal balance due in November 1999. The note balance at July
<PAGE> 11
Page 9 Form 10-Q
2, 1999 was $4.8 million (the face value of $5.0 million less the unamortized
portion of the original subordinated debt discount), and is carried on the
Company's balance sheet as current obligations.
The Company has deferred pursuing discussions with the holders of its long-term
debt and subordinated notes regarding the restructuring of such debt, pending
the consideration of the buy-out proposal by the shareholders. It is unlikely
that the long-term debt and subordinated notes can be refinanced through third
party lenders. Accordingly, the liquidity of the Company is dependent upon the
ability of the Company to restructure the long-term debt and subordinated notes
with the current holders of the long-term debt and subordinated notes. Only with
the financial support of the Guarantor and of his affiliates, has the Company
been able to meet its outstanding financial commitments.
RESULTS OF OPERATIONS
The tables below compare net sales by product line and market segment for the
Company's third quarter and nine months ending July 2, 1999, to the comparable
prior year periods.
<TABLE>
<CAPTION>
Sales By Product Line
($'s in thousands)
Three Months Ended Nine Months Ended
---------------------------------------------- -----------------------------------------------
July 2, 1999 June 26, 1998 %Change July 2, 1999 June 26, 1998 %Change
---------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clubs $ 2,352 $ 4,596 (48.8) $ 5,882 $ 8,816 (33.3)
Bags 2,447 2,635 (7.1) 6,773 6,693 1.2
Outlet 162 307 (47.2) 411 679 (39.5)
Components --- 718 (100.0) --- 1,497 (100.0)
Apparel 17 50 (66.0) 60 196 (69.4)
---------------------------------------------- -----------------------------------------------
Total $ 4,978 $ 8,306 (40.1) $ 13,126 $ 17,881 (26.6)
---------------------------------------------- -----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Sales By Market Segment
($'s in thousands)
Three Months Ended Nine Months Ended
---------------------------------------------------- ---------------------------------------------
July 2, 1999 June 26, 1998 %Change July 2, 1999 June 26, 1998 %Change
---------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pro $ 2,676 $ 4,980 (46.3) $ 7,122 $ 9,860 (27.8)
Retail 2,140 2,248 (4.8) 5,593 5,517 1.4
Contract --- 53 (100.0) --- 328 (100.0)
Outlet 162 307 (47.2) 411 679 (39.5)
Components --- 718 (100.0) --- 1,497 (100.0)
---------------------------------------------------- ---------------------------------------------
Total $ 4,978 $ 8,306 (40.1) $ 13,126 $ 17,881 (26.6)
---------------------------------------------------- ---------------------------------------------
</TABLE>
<PAGE> 12
Page 10 Form 10-Q
Net sales for the quarter ending July 2, 1999 were $5.0 million compared to $8.3
million for the comparable prior year period, a decrease of 40.1%. Sales for the
nine month period decreased 26.6% to $13.1 million, from $17.9 million in the
prior year same nine month period. The Company's prior year sales include
component sales generated by its component division (National Golf Suppliers),
which the Company sold in September 1998. Excluding these sales from prior year,
the Company's decrease in sales were 34.4% and 19.9% for its third quarter and
nine months ending July 2, 1999. Excluding component sales from prior year
figures, over eighty percent of the decline in the Company's sales during its
third quarter and nine months ending July 2, 1999 were in its pro-line products.
This trend was due in part to the continuing depressed market conditions within
the golf industry.
The Company's gross profit as a percentage of net sales for the third quarter
and nine month period ending July 2, 1999, was 23.6% and 22.5% respectively.
Gross profit for the comparable prior year periods was 2.8% and 10.3%. Gross
profit for the period ending June 26, 1998 included a $1.6 million charge for
inventory reserves. Excluding the prior year charge for inventory reserves, the
Company's gross profit for its third quarter and nine months ending June 26,
1998 were 21.5% and 19.0% respectively.
Selling and marketing expenses decreased $1.0 million and $2.5 million for the
three months and nine months ending July 2, 1999 from the comparable prior year
periods. During the nine month period ending July 2, 1999, the most significant
decreases were in salaries and related payroll costs- $0.8 million, travel and
living - $0.4 million, advertising and promotion - $0.6 million, royalties -
$0.4 million and research and development - $0.1 million. Royalty expenses
decreased due to the waiver of royalty payments required under a licensing
agreement with a licensor. Marketing expenses related to the Company's component
division (National Golf Suppliers) accounted for $0.2 million of the decrease as
the Company sold its component division in September 1998.
General and administrative expenses decreased $0.4 million and $1.7 million for
the quarter and year to date periods ending July 2, 1999 over the same prior
year periods. For the nine months ending July 2, 1999, salaries and related
payroll costs decreased $0.2 million and legal and other professional services
decreased $1.2 million. Prior year other professional services included $1.1
million related to the Company's management change and reorganization in 1998.
General and administrative expenses related to the Company's component division
were $0.3 million for the prior year nine month period ending June 26, 1998.
Other income for the nine months ending July 2, 1999 decreased $0.6 million from
the prior year nine month period. The decrease was primarily due to a licensing
agreement held by the Company which provided for annual royalty income of $1.0
million through September 30, 1998. Beginning October 1, 1998, the maximum
annual royalty per the agreement is $50,000.
Interest expense for the nine months ending July 2, 1999 was $2.5 million
compared to $2.1 million for nine month period ending June 26, 1998. The
increase was due to higher debt
<PAGE> 13
Page 11 Form 10-Q
balances during the Company's current nine month period compared to the same
prior year period. Average short-term and long-term debt for the nine months
ending July 2, 1999 was $30.9 million compared to an average debt balance of
$27.6 million for the same prior year period. Cash paid for interest expense
during the nine months ending July 2, 1999 was $0.4 million compared to $1.7
million during the same prior year period. The decrease in cash interest
payments was due to the suspension of interest payments to the Trust as
described above.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in the contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. The Company may also implement the
Statement as of the beginning of any fiscal quarter after issuance (that is,
fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be
applied retroactively. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the Company's election, before January 1, 1998).
SFAS No. 133 could increase the volatility in earnings and other comprehensive
income, however, based on the Company's current and anticipated level of
derivative instruments and hedging activities, the Company does not believe the
impact would be material.
YEAR 2000
The Company's information system and business processes applications operate on
an IBM AS/400 mid range computer. The hardware and its related License Internal
Code (LIC) has been upgraded to a Year 2000 Compliance level. The Company's
software applications operating on the AS/400, is a fully integrated management
information system developed by JBA International. The Company began the
conversion to the JBA software in mid calendar year 1996. The only remaining JBA
application to be implemented is Fixed Assets, which the Company anticipates
having implemented no later than September 30, 1999. The Company's PC based
applications, which primarily involves Lotus Smart Suite and cc: Mail, have been
upgraded to a Year 2000 Compliant level. The cost for completing the upgrades
are expected to be minimal.
<PAGE> 14
Page 12 Form 10-Q
The Company does not feel there are any significant risks to its continuing
operations related to Year 2000 issues. Certain customers in the mass
merchandise market, submit their orders via EDI processing to the Company. These
customers have notified the Company that their systems will be Year 2000
compliant within the required time frame to ensure uninterrupted data
interchange related to order fulfillment. The Company has also received
notification from certain raw material suppliers that their systems will be Year
2000 compliant within the required time frame. Although the Company does not
anticipate any issues related to timely supply of raw materials, it is seeking
confirmation from its other major suppliers that their systems will likewise be
Year 2000 compliant.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, which are based on
management's beliefs and assumptions about expectations, estimates, strategies
and projections for the Company. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult
to predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward looking statements. The Company
undertakes no obligation to update publicly any forward looking statements
whether as a result of new information, future events or otherwise.
The risks, uncertainties and assumptions regarding forward looking statements
include, but are not limited to, the Company's operations, performance,
financial condition and discussions with holders of the Company's long-term debt
and subordinated notes, product demand and market acceptance risks, product
development risks, such as delays or difficulties in developing, producing and
marketing new products, the impact of competitive products, pricing and
advertising, constraints resulting from the financial condition of the Company,
including the degree to which the Company is leveraged, debt service
requirements and the ability of the Company to meet its obligations and other
risks described in the Company's Securities and Exchange Commission filings.
<PAGE> 15
Page 13 Form 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
See Exhibit Index on page 15 of this Form 10-Q.
(b) Reports on Form 8-K -
On April 30, 1999, the Company filed a Form 8-K announcing the
receipt of the buy-out proposal from APGC Holdings Company,
LLC.
On May 28, 1999, the Company filed a Form 8-K reporting the
receipt of an independent fairness opinion related to the
buyout proposal from APGC Holdings Company, LLC.
On June 4, 1999, the Company filed a Form 8-K reporting the
Company had entered into an Agreement and Plan of Merger
between the Company, APGC Holdings Company, LLC and APGC
Acquisition Corp.
<PAGE> 16
Page 14 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ARNOLD PALMER GOLF COMPANY
(Registrant)
/s/ Cindy L. Davis
------------------------------------------------
Cindy L. Davis
President and Chief Executive Officer
/s/ David J. Kirby
------------------------------------------------
David J. Kirby
Vice President Finance (Chief Accounting Officer)
Date August 10, 1999
<PAGE> 17
Page 15 Form 10-Q
Exhibit Index
Exhibit
Number Description
------ -----------
2.1* Agreement and Plan of Merger dated as of June, 1999, by and
between the Company, APGC Holdings Company, LLC and APGC
Acquisition Corp.
3.1** Amended and Restated Charter of The Arnold Palmer Golf
Company.
3.2*** Amended and Restated Bylaws of The Arnold Palmer Golf Company
27 Financial Data Schedule (for SEC use only).
* Incorporated by reference herein from the Company's Form 8-K
filed June 4, 1999.
** 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ARNOLD PALMER GOLF COMPANY FOR THE NINE MONTHS ENDED
JULY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUL-02-1999
<CASH> 1,032
<SECURITIES> 0
<RECEIVABLES> 4,677
<ALLOWANCES> 705
<INVENTORY> 4,529
<CURRENT-ASSETS> 9,671
<PP&E> 4,281
<DEPRECIATION> 2,875
<TOTAL-ASSETS> 13,176
<CURRENT-LIABILITIES> 38,613
<BONDS> 0
0
0
<COMMON> 1,964
<OTHER-SE> (27,401)
<TOTAL-LIABILITY-AND-EQUITY> 13,176
<SALES> 13,126
<TOTAL-REVENUES> 13,126
<CGS> 10,167
<TOTAL-COSTS> 10,167
<OTHER-EXPENSES> 5,326
<LOSS-PROVISION> 154
<INTEREST-EXPENSE> 2,479
<INCOME-PRETAX> (4,240)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,240)
<EPS-BASIC> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
