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 April 30, 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)
(760) 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 at May 31, 1997
$.001 par value Common Stock 12,214,376
<PAGE>
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Part II. Other Information 8
Signatures 9
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 30 October 31
1997 1996
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,091,631 $ 1,953,918
Accounts receivable-trade 22,929,305 8,835,663
Accounts receivable - other 636,969 877,471
Inventories 22,205,425 24,729,179
Deferred income tax benefit 1,145,342 1,755,216
Income tax refund receivable 0 1,769,119
Other current assets 1,881,827 1,815,128
---------- ----------
Total current assets 49,890,499 41,735,694
PROPERTY AND EQUIPMENT 18,484,091 17,880,437
Less accumulated depreciation (7,877,439) (6,694,349)
---------- ----------
10,606,652 11,186,088
CAPITAL LEASES - EQUIPMENT 1,803,955 1,971,221
Less accumulated amortization (829,182) (963,556)
---------- ----------
974,773 1,007,665
OTHER ASSETS 850,802 982,714
---------- ----------
$62,322,726 $54,912,161
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $1,310,000 $0
Current portion of long-term debt 1,534,231 1,512,051
Accounts payable-trade 5,709,921 5,969,495
Income tax payable 1,677,056 0
Accrued salaries and commissions 1,466,673 965,465
Accrued liabilities-other 1,901,327 1,705,480
---------- ----------
Total current liabilities 13,599,208 10,152,491
LONG-TERM DEBT, less current portion 4,647,509 5,307,284
DEFERRED INCOME TAX LIABILITY 627,712 585,815
STOCKHOLDERS' EQUITY:
Common stock 12,213 12,163
Capital in excess of par value 24,816,298 24,217,654
Retained earnings 18,754,884 14,699,461
Deferred compensation (84,580) (109,954)
Accumulated translation-
currency conversion (50,518) 47,247
---------- ----------
Total stockholders' equity 43,448,297 38,866,571
---------- ----------
$62,322,726 $54,912,161
========== ==========
</TABLE>
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended April 30 Six months ended April 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $30,618,033 $26,355,684 $50,458,856 $43,425,548
COST OF GOODS SOLD 18,962,865 15,400,546 31,334,455 25,869,699
---------- ---------- ---------- ----------
Gross profit 11,655,168 10,955,138 19,124,401 17,555,849
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,747,427 6,499,782 12,168,370 11,356,306
---------- ---------- ---------- ----------
Operating profit 4,907,741 4,455,356 6,956,031 6,199,543
OTHER INCOME (EXPENSE):
Interest income 3,508 9,752 8,656 22,414
Interest expense (192,933) (379,501) (335,029) (698,086)
Other income (expense) (38,485) (33,247) (16,910) (34,484)
---------- ---------- ---------- ----------
Total other
income (expense) (227,910) (402,996) (343,283) (710,156)
Income before income
tax provision 4,679,831 4,052,360 6,612,748 5,489,387
INCOME TAX PROVISION 1,788,024 1,535,175 2,557,325 2,138,139
---------- ---------- ---------- ----------
Net Income $2,891,807 $2,517,185 $4,055,423 $3,351,248
========== ========= ========== ==========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary:
Weighted average shares
outstanding 12,653,378 12,232,755 12,475,840 12,061,644
Net earnings per share $0.23 $0.21 $0.33 $0.28
Fully Diluted:
Weighted average shares
outstanding 12,733,578 12,232,755 12,697,098 12,120,697
Net earnings per share $0.23 $0.21 $0.32 $0.28
</TABLE>
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended April 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net cash used in operating activities ($1,698,224) ($2,655,242)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (335,838) (1,839,878)
---------- ----------
Net cash used in investing activities (335,838) (1,839,878)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 598,694 344,300
Proceeds from revolving line of credit 14,110,000 16,905,000
Principal payments on
revolving line of credit (12,800,000) (13,675,000)
Proceeds from long-term borrowings 0 1,930,013
Principal payments on long-term debt (526,598) (570,040)
Principal payments on
capital lease obligations (210,321) (481,878)
---------- ----------
Net cash provided by
financing activities 1,171,775 4,452,395
---------- ----------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (862,287) (42,725)
CASH AND CASH EQUIVALENTS,
beginning of period 1,953,918 1,613,029
---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $1,091,631 $1,570,304
========== ==========
</TABLE>
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997
NOTE 1- Basis of Presentation.
In the opinion of management, the accompanying condensed consolidated
balance sheets and related interim condensed consolidated statements
of income 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 April 30, 1997 and October
31, 1996:
<TABLE>
<CAPTION>
April 30 October 31
1997 1996
<S> <C> <C>
Raw materials $ 4,693,259 $ 3,258,555
Work in Process 2,001,095 1,937,069
Finished Goods 15,511,071 19,533,555
---------- ----------
$22,205,425 $24,729,179
========== ==========
</TABLE>
NOTE 3 - Property & Equipment - Leased.
During the six month period ended April 30, 1997, equipment leases
with an original capital value of $267,816 expired, or were soon to
expire, and were purchased for their residual values. The original
capitalized amounts were transferred to Property and Equipment
(Company-owned).
NOTE 4 - Long-Term Debt.
During the six month period ended April 30, 1997, long-term debt and
the current portion of long-term debt decreased by $637,595. The
Company entered into a capital lease for $99,324 to acquire an
embroidery machine in its Ashworth UK operation. Principal
repayments on equipment financing agreements and capital leases were
$736,919.
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Results of Operations
Second Quarter 1997 compared to Second Quarter 1996
<TABLE>
<CAPTION>
Apr Qtr 1997 Apr Qtr 1996
Consolidated Sales:
<S> <C> <C>
Domestic sales $24,460,297 $21,091,174
Foreign sales:
Ashworth UK Ltd 4,486,612 3,802,274
Other 1,671,124 1,462,236
---------- ----------
Total Foreign sales 6,157,736 5,264,510
---------- ----------
Total sales $30,618,033 $26,355,684
========== ==========
</TABLE>
Consolidated sales for the quarter increased 16.2% to $30,618,000
from $26,356,000 for the same period in 1996. This increase was
primarily due to increased sales volume. Domestic sales for the quarter
increased 16% to $24,460,000 from $21,091,000 in the April quarter 1996,
the result of continuing strong sell-through at the retail level, both
in green grass shops, and specialty and upscale department stores.
Foreign sales increased 17% to $6,158,000 from $5,265,000. Sales in
Europe continue to grow through the Company's subsidiary in England. The
Company's newly implemented in-store shop program, the Golfman Shop
program, has been extremely successful in gaining momentum, with
commitments for over 125 shops since its inception six months ago.
Gross profit decreased to 38.1% from 41.6% in 1996, due primarily to
a higher mix of lower margin products in the quarter, and sales of prior
season inventory.
Selling, General and Administrative expenses decreased in the
quarter to 22.0% of sales compared to 24.7% in the April quarter 1996.
The decrease resulted from the cost containment programs set in place
earlier in the year, and management expects this trend of lower expenses
as a percent of sales to continue.
Other expense decreased to $228,000 from $403,000 in the second
quarter of 1996, due primarily to lower bank borrowings resulting in
lower interest payments.
<PAGE>
April Half Year 1997 compared to April Half Year 1996
<TABLE>
<CAPTION>
Apr Half year Apr Half year
Consolidated Sales: 1997 1996
<S> <C> <C>
Domestic sales $38,148,416 $32,359,471
Foreign sales:
Ashworth UK Ltd 5,001,892 4,003,785
Other 7,308,548 7,062,292
---------- ----------
Total Foreign sales 12,310,440 11,066,077
---------- ----------
Total sales $50,458,856 $43,425,548
========== ==========
</TABLE>
Consolidated sales for the first half of fiscal 1997 increased 16.2%
to $50,459,000 from $43,426,000 for the same period in 1996. This
increase was primarily due to increased sales volume.
Gross profit decreased to 37.9% from 40.4% in 1996, due primarily to
a somewhat larger proportion of the sales mix being at a lower margin in
the first half of fiscal 1997.
Selling, General and Administrative expenses decreased in the six
month period to 24.1% of sales compared to 26.2% in the same period of
the prior year. A cost containment program was set in place during the
first quarter of fiscal 1997 and management intends to continue
exploring other cost containment measures.
Other expense decreased to $343,000 from $710,000 in the first half
of fiscal 1996. The Company has incurred lower interest payments as a
result of lower bank borrowings.
Financial Condition
The Company has a working capital line of credit with Bank of America.
At April 30, 1997, borrowings against the line were $1,310,000
as compared to $0 at October 31, 1996, and $9,900,000 at April 30, 1996.
At June 3, 1997, repayments by the Company had reduced the balance
outstanding to $0. The current available line of credit is $20,000,000
and management believes that the line of credit base is adequate for the
remainder of the 1997 fiscal year.
Trade receivables were $22,929,000 at April 30, 1997, an increase of
$14,093,000 over the balance at October 31, 1996. Because the Company's
business is seasonal, the receivables balance should be compared to the
balance of $19,900,000 at April 30, 1996, rather than the balance at
October 31, 1996. This 15.2% increase was in line with the 16.2%
increase in sales.
Inventory decreased to $22,205,000 from $24,729,000 at October 31,
1996, a reduction of 10.2%. The inventory was down 16.3% from the level
of $26,541,000 a year earlier. Management will continue to reduce
inventory in selected categories throughout the remainder of 1997.
However, in-stock levels of the Company's Basics products will be
increased, due to higher demand and the growing customer base.
During the six months ended April 30, 1997, the Company expended
$436,388 on capital equipment. The expenditure was for an embroidery
machine, computer equipment, warehouse equipment and leasehold
improvements.
Common stock and additional paid-in capital increased by $598,694
in the six months ended April 30, 1997. Stock options for 50,750 shares
were exercised in the period contributing $325,398 of the increase.
Additionally, the period's share of the fair value of stock options
granted to golf professionals and consultants since December 15, 1995,
amounting to $273,296, was added to additional paid-in capital under the
rules of FAS 123 - Accounting for Stock-Based Compensation.
Derivatives
The Company has a foreign currency exposure risk in relation to
its subsidiary Ashworth U.K., Ltd. To reduce this risk, management has
entered into foreign exchange contracts with its bank to hedge against
the impact of currency fluctuations between the U.S dollar and the
British pound. Currently, the Company has four contracts outstanding
and each one provides that the Company will sell 300,000 GB pounds to
the bank for a specified number of U.S. dollars on a specified date.
<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
April 30, 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
April 29, 1997 - Annual Meeting:
<TABLE>
<CAPTION>
(1) Director elected at the meeting:
<S> <C>
John M. Hanson
Number of votes FOR 10,002,772
Number of votes WITHHELD 90,743
</TABLE>
<TABLE>
<CAPTION>
(2) Director elected at the meeting:
<S> <C>
Randall L. Herrel, Sr.
Number of votes FOR 10,012,197
Number of votes WITHHELD 81,318
</TABLE>
Each other director whose term of office as a director continued
after the meeting:
Gerald W. Montiel
John L. Ashworth
Andre P. Gambucci
(3) Other matters voted upon at the meeting:
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:
Form 8-K was filed on April 25, 1997, reporting the change of
independent accountants, and a Form 8-K/A was filed on April 28, 1997,
with a technical amentdment of Form 8-K.
<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
Date: June 9, 1997 By: /s/ Randall L. Herrel, Sr.
Randall L. Herrel, Sr.
President and
Chief Executive Officer
Date: June 9, 1997 By: /s/ John Newman
John Newman
Chief Financial Officer and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 1,091,631
<SECURITIES> 0
<RECEIVABLES> 23,638,184
<ALLOWANCES> 708,879
<INVENTORY> 22,205,425
<CURRENT-ASSETS> 49,890,499
<PP&E> 20,288,046
<DEPRECIATION> 8,706,621
<TOTAL-ASSETS> 62,322,726
<CURRENT-LIABILITIES> 13,599,208
<BONDS> 4,647,509
<COMMON> 12,213
0
0
<OTHER-SE> 43,436,084
<TOTAL-LIABILITY-AND-EQUITY> 62,322,726
<SALES> 50,458,856
<TOTAL-REVENUES> 50,458,856
<CGS> 31,334,455
<TOTAL-COSTS> 43,502,825
<OTHER-EXPENSES> 16,910
<LOSS-PROVISION> 87,753
<INTEREST-EXPENSE> 326,373
<INCOME-PRETAX> 6,612,748
<INCOME-TAX> 2,557,325
<INCOME-CONTINUING> 4,055,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,055,423
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
