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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-18553
Ashworth, Inc.
(Exact name of registrant as specified in its charter)
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)
(Zip Code)
(619) 438-6610
(Registrant's telephone number, 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 as of March 6, 1997.
$.001 par value Common Stock 12,180,626
<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
<PAGE> ASHWORTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
January 31 October 31
1997 1996
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,546,533 $ 1,953,918
Accounts receivable-trade 15,403,411 8,835,663
Accounts receivable - other 830,990 877,471
Inventories 25,892,773 24,729,179
Deferred income tax benefit 1,051,934 1,755,216
Income tax refund receivable 116,352 1,769,119
Other current assets 1,767,654 1,815,128
---------- ----------
Total current assets 46,609,648 41,735,694
PROPERTY, PLANT AND EQUIPMENT 18,063,028 17,880,437
Less--Accumulated depreciation (7,156,161) (6,694,349)
---------- ----------
10,906,867 11,186,088
CAPITAL LEASES - EQUIPMENT 2,069,021 1,971,221
Less--accumulated amortization (1,013,299) (963,556)
---------- ----------
1,055,722 1,007,665
OTHER ASSETS 967,547 982,714
---------- ----------
$59,539,784 $54,912,161
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 4,560,000 0
Current portion of long-term debt 1,533,576 1,512,051
Accounts payable-trade 4,873,314 5,969,495
Accrued liabilities-
Salaries and commissions 946,304 946,465
Other 1,977,556 1,705,480
---------- ----------
Total current liabilities 13,890,750 10,152,491
LONG-TERM DEBT, net of current portion 5,020,242 5,307,284
DEFERRED INCOME TAX LIABILITY 623,663 585,815
STOCKHOLDERS' EQUITY:
Common stock 12,181 12,163
Capital in excess of par value 24,316,136 24,217,654
Retained earnings 15,863,076 14,699,461
Deferred compensation (97,267) (109,954)
Cumulative translation adjustment (88,997) 47,247
---------- ----------
40,005,129 38,866,571
---------- ----------
$59,539,784 $54,912,161
=========== ===========
</TABLE>
<PAGE>ASHWORTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended January 31
1997 1996
<S> <C> <C>
NET SALES $19,840,823 $17,069,864
COST OF GOODS SOLD 12,371,590 10,469,153
---------- ----------
Gross profit 7,469,233 6,600,711
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,420,943 4,856,524
---------- ----------
Income from operations 2,048,290 1,744,187
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 5,149 12,662
Interest expense (142,097) (318,585)
Other income (expense) 21,575 (1,237)
---------- ----------
(115,373) (307,160)
---------- ----------
Income before provision
for income taxes 1,932,917 1,437,027
PROVISION FOR INCOME TAXES 769,301 602,964
---------- ----------
Net income $ 1,163,616 $ 834,063
=========== ===========
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
Primary:
Weighted average shares
outstanding 12,216,960 11,958,206
Net earnings per share $0.10 $0.07
Fully diluted:
Weighted average shares
outstanding 12,304,171 12,032,045
Net earnings per share $0.09 $0.07
</TABLE>
<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 ($4,518,453) ($4,835,875)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (182,591) (1,564,944)
-------- ---------
Net cash used in investing activities (182,591) (1,564,944)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital
lease obligations (101,542) (171,771)
Borrowing on line of credit 7,960,000 5,275,000
Payments on line of credit (3,400,000) 0
Borrowing on notes payable
and long-term debt 0 930,014
Principal payments on notes payable
and long-term debt (263,299) (258,051)
Proceeds from issuance of common
stock 98,500 333,300
-------- ---------
Net cash provided by financing
activities 4,293,659 6,108,492
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (407,385) (292,327)
CASH AND CASH EQUIVALENTS,
beginning of period 1,953,918 1,613,029
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $1,546,533 $1,320,702
========== ==========
</TABLE>
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
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, 1996.
NOTE 2 - Inventories.
Inventories consisted of the following at January 31, 1997, and
October 31, 1996:
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
<S> <C> <C>
Raw materials $ 4,811,309 $ 3,258,555
Work in Process 1,816,955 1,937,069
Finished Goods 19,264,509 19,533,555
---------- ----------
$25,892,773 $24,729,179
========== ==========
</TABLE>
NOTE 3 - Long-Term Debt.
During the three month period, long term debt and the current portion
of long term debt decreased by $265,517. The Company entered into
an equipment leasing agreement for $99,324 to purchase an embroidery
machine. Principal repayments on notes payable and capital leases
were $364,841.
NOTE 4 - 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.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Consolidated Sales for the quarter were $19.8 million, an increase of 16.2%
over sales of $17.1 million for the same period in 1996. Domestic and
foreign sales were as follows:
<TABLE>
<CAPTION>
Jan Qtr 1997 Jan Qtr 1996
<S> <C> <C>
Domestic sales $13,688,119 $11,268,297
Foreign sales:
Ashworth UK Ltd 515,280 201,511
Other 5,637,424 5,600,056
---------- ----------
Total Foreign sales 6,152,704 5,801,567
---------- ----------
Total sales $19,840,823 $17,069,864
========== ==========
</TABLE>
Strong sell-through at the retail level in the golf pro shops, specialty
stores and upscale department stores, as well as factory outlet stores,
contributed to the increase in domestic sales. While Europe sales are
experiencing growth, the Company is currently reevaluating how to
distribute its products to Japan due to lower than expected commitments
from its current Japan distributor.
As of March 12, 1997, the Company had over 100 commitments for its Golfman
in-store shop/fixture program. The Company has designed a line of apparel
for the younger golfer under the AGCo label for the Fall 1997 season. The
Company also anticipates opening a new retail concept store, in July 1997,
to showcase its products.
Gross margin for the quarter was 37.7% compared to 38.7% in the January
quarter 1996 due primarily to a somewhat larger proportion of the sales mix
being at a lower margin.
Selling, general and administrative expenses decreased to 27.3% of net
sales in the quarter compared with 28.5% in 1996. The decrease resulted
from cost containment programs set in place by management, including
general expense reductions and a 5% reduction in the work force, as well
as elimination of budgeted but unfilled positions. The cost containment
program is estimated to result in an approximate annualized $1.5 to
$2 million savings, which will affect both selling, general and
administrative expenses and cost of sales. Management believes that these
effects will not be fully realized until fiscal 1997 fourth quarter or 1998
first quarter. Management intends to continue exploring other cost
containment measures.
Other expense shows a net decrease of $191,787 for the quarter due
primarily to lower borrowings from the bank resulting in lower interest
payments.
<PAGE>
FINANCIAL CONDITION
The Company has a business loan agreement with Bank of America which
provides a $20,000,000 revolving line of credit. At January 31, 1997, the
Company had an outstanding loan balance with the bank of $4,560,000
compared to a zero balance at October 31, 1996. Because of the seasonality
of the Company's business, the quarter-end loan balance should be
compared with the balance of $11,945,000 outstanding a year earlier. At
March 7, 1997, the loan balance outstanding was $2,065,000.
Trade receivables were $15,403,000 at January 31,1997, an increase of
$6,568,000 over the balance at October 31, 1996. Because the Company's
business is seasonal, the receivables balance should be compared to the
balance of $14,506,000 at January 31, 1996, rather than the year-end
balance. This shows an increase of 6.2% in receivables compared with an
increase of 16.2% in sales over the prior year's first quarter.
Inventory increased to $25,893,000 from $24,729,000 at October 31, 1996,
an increase of 4.7%. However, compared to the inventory of $30,677,000 at
January 31, 1996, inventory has decreased by 15.6% due primarily to better
forecasting and production control. Management intends to continue its
strategy of lowering inventory levels throughout 1997.
<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, 1997.
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 - NONE
Exhibit No. Description of Exhibit
10(o)(9) Registrant's guarantee of its subsidiaries obligations
under Lease Agreement dated October 30, 1996, for the
South Coast Plaza retail store.
27 Financial Data Schedule.
Form 8-K:
No reports on Form 8-K were filed during the first quarter ended
January 31, 1997.
<PAGE>
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
(Registrant)
Date: 3/14/97 /s/ Randall L. Herrel, Sr.
Randall L.Herrel, Sr.
President and
Chief Executive Officer
Date: 3/14/97 /s/ John Newman
John Newman
Chief Financial Officer
Exhibit 10(o)(9)
GUARANTY OF OBLIGATIONS
OF TENANT PURSUANT TO LEASE
In consideration of the execution of SOUTH COAST PLAZA, a
California partnership ("Landlord"), of that certain lease dated
October 30, 1996 (the "Lease") between Landlord, as landlord, and
ASHWORTH STORE III, INC., a Delaware corporation, as Tenant
("Tenant"), and as an inducement to Landlord to execute the Lease,
the undersigned hereby guarantee(s) to Landlord and to its
successors and assigns, the payment by Tenant when due of the rent
and all other sums provided for in the Lease and the due
performance by Tenant of all of the provisions of the Lease and any
and all modifications or extensions thereof. In the event of
Tenant's failure, or the failure of its successors or assigns, if
any, to pay said sums or to render any other performance required
of Tenant, when due, the undersigned will forthwith pay all amounts
that may be due and will forthwith perform all of the provisions of
said Lease to be performed by Tenant and pay all damages that may
result from the non-performance thereof by Tenant. The undersigned
hereby consent(s) to and waive(s) notice of any extensions of time
for performance which Landlord may grant to Tenant and to any
modifications or amendments of said Lease or extensions or renewals
of the term thereof to which Landlord and Tenant, or their
successors and assigns, may agree.
The undersigned waive(s) notice of acceptance of this Guaranty
and of any default in the payment of rent, additional rent or any
other amounts contained or reserved in said Lease,
and notice of any breach or non-performance of any of the
covenants, conditions or agreement contained in said Lease.
The undersigned further agree(s) that the liability under this
Guaranty of the undersigned shall be primary, and that in any right
of action which may accrue to Landlord, its successors or assigns,
under said Lease or this Guaranty, Landlord and its successors or
assigns, at their option may proceed against the undersigned
without having taken or commenced any action or obtained any
judgment against Tenant and without applying any security deposit
or other property of Tenant or any other person held as collateral
security for the performance of the obligations of Tenant under the
Lease or otherwise to the discharge of the obligations of Tenant
under the Lease. The undersigned waive(s) any right to require
Landlord to pursue any remedy in Landlord's power against Tenant
and waive(s) as defenses to the obligations hereunder the pleading
or defense of any statute of limitations. Any partial payment,
performance or other circumstance which operates to toll any
statute of limitations as to Tenant shall operate to toll the
statute of limitations as to the undersigned under this Guaranty.
The undersigned agree(s) that in the event Tenant shall become
insolvent or shall be adjudicated a bankrupt, or shall file a
petition for reorganization, arrangement or similar relief under
any present or future provision of the Federal Bankruptcy Code, or
any other act for the relief of debtors or any similar acts or law,
or if such a petition filed by creditors of Tenant
shall be approved by a Court, or if Tenant shall seek a judicial
readjustment of the rights of its creditors under any present or
future federal or state law or if a receiver of all or part of
Tenant's property and assets is appointed by any state or federal
court, and in any such proceeding the lease shall be terminated or
rejected, or the obligations of tenant thereunder shall be
modified, the undersigned shall immediately (a) pay to Landlord, or
its successors or assigns, an amount equal to all unpaid rent and
other amounts accrued under the Lease to the date of such
termination, rejection or modification, plus (b), at the option of
Landlord, its successors and assigns, either (I) pay to Landlord,
or its successors or assigns, an amount equal to the then cash
value of the rent which would have been payable under the Lease for
the unexpired portion of the term of the lease if it had not been
terminated, rejected or modified, less the then cash rental value
of the premises which are the subject of the Lease for such
unexpired portion of the term of the Lease, taking into
consideration the Lease as modified, if such is the case, or (ii)
if the Lease is terminated or rejected, execute and deliver to
Landlord, or its successors or assigns, a new lease with the
undersigned as tenant for the balance of the term and upon the same
terms and conditions as the terminated or rejected Lease, and will
pay Landlord interest on the amounts which become payable and are
designated in (a) and (b)(I)above at the maximum per annum rate
then chargeable by Landlord under the then applicable usury law
from the date of such termination, rejection or modification to the
date of payment, including any period of time after any breach by
the undersigned hereunder.
Neither the obligation of the undersigned to make payment in
accordance with the terms of the Guaranty nor any remedy for the
enforcement thereof shall be impaired, modified, changed,
released or limited in any manner whatsoever by any impairment,
modification, change, release or limitation of the liability of
Tenant, or its estate in bankruptcy, or otherwise, or of any remedy
for the enforcement thereof, resulting from the operation of any
present or future provision of the Federal Bankruptcy Code or any
other statute, or from the decision of any Court.
Landlord may, without notice to or demand upon the undersigned
and without affecting the obligation of the undersigned hereunder,
take and hold security for the obligations under this Guaranty and
the Lease, add to, exchange or release any such security, apply or
realize upon such security as Landlord determines and release, add
or substitute any one or more guarantors should more than one
person or entity be or become liable on this Guaranty. Landlord
may exercise any right or remedy it may have against Tenant or any
security held by Landlord without impairing the obligation of the
undersigned on this Guaranty, and the undersigned waive(s) any
defense arising
out of the absence, impairment or loss of any right of
reimbursement, subrogation or other remedy of the undersigned
against Tenant or any such security, whether resulting from any
election by Landlord or otherwise. Landlord may apply all payments
received by Landlord from Tenant or any guarantor in such manner
and in such priority as Landlord determines.
The undersigned assume(s) the reasonability to keep informed
of the financial condition of Tenant and all other circumstances
bearing upon the risk of non-payment or nonperformance by Tenant
under the Lease, and agree(s) that absent a request for such
information by the undersigned, Landlord shall have no duty to
advise the undersigned of information known to Landlord regarding
such condition or circumstances. If the undersigned is a natural
person, liability of the undersigned under this Guaranty shall not
be terminated by the death of the undersigned, and all obligations
of Tenant existing prior to the death of the undersigned or
thereafter accruing shall survive and be payable by the surviving
undersigned, if any, or by the estate of the undersigned. This
Guaranty shall bind the undersigned, and its or their heirs,
representatives, successors and assigns. If this Guaranty is
executed by more than one person or entity, the liability of the
undersigned hereunder shall be joint and several.
Should any action at law or in equity be filed or instituted
to construe the terms of, for the breach of, to enforce the terms
of, or to interpret or declare the rights of the parties under this
Guaranty, the successful party in such action shall, in addition to
all other relief afforded to the successful party, recover its
costs and expenses (whether or not taxable) and reasonable
attorney's fees incurred in such action.
The undersigned agree(s) that this Guaranty is made and
executed under and shall be construed in accordance with the laws
of the State of California, that the Courts of the State of
California shall have jurisdiction of any action brought upon this
Guaranty and that venue may be placed in the Superior Court of the
County of Orange with service of process in accordance with the
California Code of Civil Procedure as then in effect. In addition,
the arbitration provision contained in the Lease is hereby
incorporated into and made a part of the Guaranty by this
reference.
Landlord may, with or without notice to the undersigned,
assign this Guaranty in whole or in part. The undersigned
expressly waive(s) the provisions of Section 2845 of the Civil Code
of California.
All notices required or permitted pursuant to this Guaranty
shall be in writing and shall be personally served or sent by
registered or certified mail, return receipt requested to Landlord
at its address pursuant to the Lease or to the undersigned at the
address set forth below the signature of the undersigned. Any
notice personally served shall be effective upon delivery. Any
notice sent by registered or certified mail, properly addressed,
postage prepaid and deposited in the United
States mail in the State of California shall be effective on the
date of delivery, refusal or non-delivery indicated on the return
receipt. Either Landlord or the undersigned may change its
address for notices by written notice to the other(s) pursuant to
this paragraph.
EXECUTED this 15th day of November, 1996.
ASHWORTH, INC., a Delaware corporation
By:_/s/ Gerald W.Montiel___________________
Title:_________CEO_________________
By:_____________________________________
Title:____________________________________
Address for Notices:
______________________________________
/TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 1,546,533
<SECURITIES> 0
<RECEIVABLES> 16,829,345
<ALLOWANCES> 594,943
<INVENTORY> 25,892,773
<CURRENT-ASSETS> 46,609,648
<PP&E> 20,132,049
<DEPRECIATION> 8,169,460
<TOTAL-ASSETS> 59,539,784
<CURRENT-LIABILITIES> 13,890,750
<BONDS> 5,020,242
<COMMON> 12,181
0
0
<OTHER-SE> 39,992,948
<TOTAL-LIABILITY-AND-EQUITY> 59,539,784
<SALES> 19,840,823
<TOTAL-REVENUES> 19,840,823
<CGS> 12,371,590
<TOTAL-COSTS> 17,792,533
<OTHER-EXPENSES> (21,575)
<LOSS-PROVISION> 33,120
<INTEREST-EXPENSE> 136,948
<INCOME-PRETAX> 1,932,917
<INCOME-TAX> 769,301
<INCOME-CONTINUING> 1,163,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,163,616
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
