FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-18553
Ashworth, Inc.
Delaware 84-1052000
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
2791 LOKER AVENUE WEST
CARLSBAD, CA 92008
(Address of Principal Executive Offices)
(619) 438-6610
(Telephone No. Including Area Code)
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. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding
$.001 par value Common Stock 12,038,626
<PAGE>
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements.
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Notes to consolidated financial statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Part II. Other Information 7
Signatures 8
-i-
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
January 31 October 31
1996 1995
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,320,702 $ 1,613,029
Accounts receivable-Trade 14,506,179 10,040,200
Accounts receivable - Other 1,093,333 1,133,771
Inventories 30,676,800 27,845,721
Deferred income tax benefit 1,779,121 1,684,776
Income tax refund receivable 613,892 1,239,648
Other current assets 1,660,948 1,650,792
--------------- ---------------
Total current assets 51,650,975 45,207,937
PROPERTY, PLANT AND EQUIPMENT 15,740,810 13,778,742
Less--Accumulated depreciation (4,815,263) (4,169,348)
--------------- ---------------
10,925,547 9,609,394
CAPITAL LEASES - EQUIPMENT 3,160,333 3,561,512
Less--accumulated amortization (1,242,912) (1,401,653)
--------------- ---------------
1,917,421 2,159,859
OTHER ASSETS 1,241,072 1,094,834
--------------- --------------
$65,735,015 $58,072,024
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $11,945,000 $ 6,670,000
Current portion of long-term debt 1,556,054 1,557,006
Accounts payable-trade 4,615,655 5,865,878
Accrued liabilities-
Salaries and commissions 1,205,087 972,094
Other 2,633,730 926,857
--------------- ---------------
Total current liabilities 21,955,526 15,991,835
LONG-TERM DEBT, net of current portion 5,696,578 5,195,434
DEFERRED INCOME TAX LIABILITY 512,853 494,747
STOCKHOLDERS' EQUITY:
Common stock 12,039 11,902
Capital in excess of par value 23,575,553 23,242,390
Retained earnings 14,130,481 13,296,418
Deferred compensation (148,015) (160,702)
---------------- ----------------
37,570,058 36,390,008
---------------- ----------------
$65,735,015 $58,072,024
========= =========
</TABLE>
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<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended January 31
1996 1995
<S> <C> <C>
NET SALES $17,069,864 $14,590,696
COST OF GOODS SOLD 10,469,153 9,093,032
---------------- ----------------
Gross profit 6,600,711 5,497,664
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,856,524 3,915,461
---------------- ----------------
Income from operations 1,744,187 1,582,203
---------------- ----------------
OTHER INCOME (EXPENSE):
Interest income 12,662 22,649
Interest expense (318,585) (148,797)
Other income (expense) (1,237) (38,753)
---------------- ----------------
(307,160) (164,901)
---------------- ----------------
Income before provision for income taxes 1,437,027 1,417,302
PROVISION FOR INCOME TAXES 602,964 611,371
---------------- ----------------
Net income $834,063 $805,931
========== ==========
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
Primary:
Weighted average shares outstanding 11,958,206 12,020,191
Net earnings per share $0.07 $0.07
Fully diluted:
Weighted average shares outstanding 12,032,045 12,020,191
Net earnings per share $0.07 $0.07
</TABLE>
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<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended January 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net cash used in operating activities ($4,835,875) ($8,524,167)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,564,944) (660,452)
Proceeds from sale of equipment 0 0
-------------- --------------
Net cash used in investing activities (1,564,944) (660,452)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (171,771) (176,665)
Borrowing on line of credit 5,275,000 5,750,000
Payments on line of credit 0 0
Borrowing on notes payable
and long-term debt 930,014 0
Principal payments on notes payable
and long-term debt (258,051) (189,283)
Proceeds from issuance of common stock 333,300 354,800
-------------- --------------
Net cash provided by financing activities 6,108,492 5,738,852
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (292,327) (3,445,767)
CASH AND CASH EQUIVALENTS, beginning of period 1,613,029 5,344,244
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $1,320,702 $1,898,477
========= =========
</TABLE>
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<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1996
NOTE 1- Basis of Presentation.
In the opinion of management, the accompanying balance sheets and related
interim statements of operations and cash flows include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation. 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,
liabilities, revenues, and expenses. Actual results could differ from those
estimates. Interim results are not necessarily indicative of results for a
full year.
Certain information in footnote disclosure normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. The information
included in this Form 10-Q should be read in conjunction with Management's
Discussion and Analysis and financial statements and notes thereto included
in the annual report on Form 10-K for the year ended October 31, 1995.
NOTE 2 - Inventories.
Inventories consisted of the following at January 31, 1996, and October 31,
1995:
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
<S> <C> <C>
Raw materials $ 4,083,191 $ 4,317,017
Work in Process 1,864,268 2,839,828
Finished Goods 24,729,341 20,688,876
--------------- ---------------
$30,676,800 $27,845,721
========= =========
</TABLE>
NOTE 3 - Property & Equipment - Leased.
During the quarter, equipment leases with a capital value of approximately
$400,000 expired and were purchased by the Company for the residual values.
The original capitalized amounts were transferred to Property and Equipment
(Company-owned).
NOTE 4 - Long-Term Debt.
During the three-month period, long-term debt and the current portion of
long-term debt increased by $500,192. The Company entered into two
equipment financing agreements, one for $602,513 to purchase warehouse
racking and the other for $327,500 to pay for upgrading the AS400 computer.
Principal repayments on equipment financing agreements and capital leases
were $429,821.
NOTE 5 - Per Share Information.
Earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be
outstanding assuming the conversion of the outstanding dilutive options,
all of which are considered to be Common Stock equivalents. The number of
shares that would be issued from the exercise of stock options has been
reduced by the number of shares that could have been purchased from the
proceeds at the average market price of the Company's stock.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Results of Operations
Consolidated sales for the quarter were $17.1 million, an increase of 17%
over sales of $14.6 million for the same period in 1995. A higher demand for the
Company's products and higher percentage fill rate on shipments to customers
were the primary reasons for this increase.
Sales in the Company's main areas of business were as follows:
<TABLE>
<CAPTION>
Three months ended January 31,
1996 1995
(In Thousands)
Consolidated Sales:
<S> <C> <C>
Ashworth Apparel $12,075 $11,528
Ashworth Headwear 1,066 937
Ashworth Footwear 253 357
---------- ----------
Ashworth Brand Sales 13,394 12,822
Ashworth Harry Logan Apparel 1,228 615
Ashworth Outlet stores 2,246 1,073
Ashworth U.K., Ltd. 202 81
---------- ----------
Total Consolidated Sales $17,070 $14,591
====== ======
Consolidated Sales Analysis - Domestic & Foreign:
Sales from the United States
Canada $ 959 $ 843
Japan 3,181 3,885
Other 1,460 1,135
----------- -----------
Total Sales from U.S. 5,600 5,863
Ashworth U.K., Ltd. 202 81
----------- ----------
Total Foreign Sales 5,802 5,944
Total Domestic Sales 11,268 8,647
----------- ----------
Total Consolidated Sales $17,070 $14,591
====== ======
</TABLE>
The reduction of sales of Ashworth footwear in the 1996 quarter as com-
pared to the 1995 quarter is partly a reflection of 1995 footwear sales required
to fill distribution channels and the provision of an allowance by the Company
for the return of defective and under-performing merchandise.
Foreign sales were down largely as a result of a decrease in Japan
sales. Such decrease was the result primarily of the economic and competitive
conditions in the Japanese markets. Management anticipates such conditions will
continue to be a factor in sales to customers in Japan during fiscal 1996.
-5-
<PAGE>
Gross margin for the quarter was 38.7% compared to 37.7% in the first
1995 fiscal quarter. This improvement arose largely from higher margins on
outlet store sales.
Selling, general and administrative expenses increased to 28.5% of net
sales in the quarter compared with 26.8% in 1995. This increase resulted mainly
from the cost of promotional giveaways of the Company's product, higher sales
commissions, and an increase in the cost of compensating the golf professionals
who endorse the Company's products.
Other income (expense) shows a net increase in expense of $142,259 for
the quarter. A major part of this increase is attributable to the interest on
borrowing on the bank line of credit.
Management does not anticipate a major increase in sales for the fiscal
quarter ending April 30, 1996 as compared to sales for the same quarter in 1995.
This is due in part to the discontinuance of the women's line, which contributed
approximately $1.7 million to sales in the 1995 quarter. Sales in footwear will
also be lower in the 1996 quarter. Sales of footwear in the 1995 quarter were
$2.3 million, but approximately $1.3 million of such sales were experienced
in filling the distribution channels.
FINANCIAL CONDITION
On March 15, 1996, the Company entered into a new business loan agree-
ment with Bank of America which runs through February 28, 1997. The agreement
provides a working capital line of credit collateralized by substantially all of
the Company's assets and those of its subsidiaries. The line of credit amount
is the lesser of $17,000,000 and the borrowing base. The borrowing base is the
sum of (a) 75% of acceptable receivables and (b) 30% of acceptable inventory
and, through August 31, 1996, 15% of inventory segregated for sales through the
outlet stores, subject to borrowings against the inventory base being no greater
than the borrowings against the receivables base. At January 31, 1996, borrow-
ings against the old line of credit were $11,945,000, compared to borrowings of
$6,670,000 at October 31, 1995. The maximum borrowing amount permitted under
the line at January 31, 1996, was $13,000,000. During the January quarter, the
Company did not achieve the required quick ratio or tangible net worth amount,
but the bank has granted a waiver for these violations.
Trade receivables were $14,506,000 at January 31, 1996, an increase of
$4,466,000 over the balance at October 31, 1995. Because the Company's business
is seasonal, the receivables balance should be compared to the balance of
$13,763,000 at January 31, 1995, rather than the balance at October 31, 1995.
This shows an increase of 5.4% in receivables compared with an increase of 17%
in sales over the prior year's first quarter.
Inventory for the first quarter of fiscal 1996 increased to $30.7
million from $27.8 million at October 31, 1995, an increase of 10.2%. Management
believes the inventory levels are higher than needed for anticipated sales and
is taking action to reduce the inventory throughout the 1996 fiscal year,
largely through outlet store sales. Such steps could have an adverse effect on
gross margins.
Share capital and capital in excess of par value increased by $333,300
during the three months from October 31, 1995. This increase resulted from the
exercise of options for 137,000 shares of Common Stock.
During the quarter, management negotiated a termination agreement with
its distributor in Europe. In consideration for the rights to the distributor's
customer base and customer orders already booked for spring and summer 1996, the
Company paid $200,000 in January 1996 and will pay up to $75,000 in each of the
calendar years 1997 and 1998.
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<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
There were no material pending or threatened legal proceedings as to
which the Company or any of its subsidiaries was a party or of which any of
their property was the subject during the fiscal quarter ended January 31, 1996.
Item 2. Changes in Securities - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit No. Description of Exhibit
27 Financial Data Schedule.
Form 8-K:
No reports on Form 8-K were filed by the Company during the first
quarter of the fiscal year ended October 31, 1996.
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.
Ashworth, Inc
Date: March 15, 1996 By:/s/ Gerald W. Montiel
Gerald W. Montiel
Chairman of Board of Directors,
President and
Chief Executive Officer
Date: March 15, 1996 By: /s/ John Newman
John Newman
Chief Financial Officer and
Chief Accounting Officer
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 1,320,702
<SECURITIES> 0
<RECEIVABLES> 16,388,387
<ALLOWANCES> 788,875
<INVENTORY> 30,676,800
<CURRENT-ASSETS> 51,650,975
<PP&E> 18,901,143
<DEPRECIATION> 6,058,175
<TOTAL-ASSETS> 65,735,015
<CURRENT-LIABILITIES> 21,955,526
<BONDS> 5,696,578
<COMMON> 12,039
0
0
<OTHER-SE> 37,558,019
<TOTAL-LIABILITY-AND-EQUITY> 65,735,015
<SALES> 17,069,864
<TOTAL-REVENUES> 17,069,864
<CGS> 10,469,153
<TOTAL-COSTS> 15,325,677
<OTHER-EXPENSES> 1,237
<LOSS-PROVISION> 25,176
<INTEREST-EXPENSE> 305,923
<INCOME-PRETAX> 1,437,027
<INCOME-TAX> 602,964
<INCOME-CONTINUING> 834,063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 834,063
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
