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 January 2, 1998 Commission File Number 0-921
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THE ARNOLD PALMER GOLF COMPANY
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(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
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(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 .
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As of January 30, 1998, 833,333 shares of Series NB Preferred Stock and
3,054,367 shares of Common Stock were outstanding.
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INDEX
Pages
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Part I. Financial Information
Balance Sheets - January 2, 1998 and
September 30, 1997 1
Statements of Operations - Three Months Ended
January 2, 1998 and December 31, 1996
2
Statements of Cash Flows - Three Months Ended
January 2, 1998 and December 31, 1996 3
Notes to Financial Statements 4 - 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 9
Part II. Other Information 10
Signature Page 11
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Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BALANCE SHEETS
JANUARY 2, 1998 AND SEPTEMBER 30, 1997
($ in thousands)
Jan 2, 1998 Sept 30, 1997
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(Unaudited)
ASSETS
Current assets:
Cash $ 121 $ 703
Trade receivables 4,539 6,154
less: allowance for doubtful accounts (778) (843)
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Net receivables 3,761 5,311
Inventories, net 8,524 7,375
Prepaid expenses and other 1,049 847
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Total current assets 13,455 14,236
Property, plant and equipment 4,498 4,465
less: accumulated depreciation (3,121) (2,972)
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Net property, plant and equipment 1,377 1,493
Other assets:
Investment in NBHI 5,000 5,000
Property held for sale 170 170
Goodwill 495 502
Other 1,417 1,352
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7,082 7,024
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TOTAL ASSETS $ 21,914 $ 22,753
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations $ 109 $ 102
Short-term borrowings 1,050 150
Accounts payable 3,045 2,121
Accrued liabilities 1,846 1,370
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Total current liabilities 6,050 3,743
Long-term obligations, net of
current maturities 26,235 26,162
Redeemable preferred stock 5,000 5,000
Stockholders' equity (deficit):
Common stock, $.50 par value,
10,000,000 shares authorized,
3,004,367 shares issued and
outstanding at January 2, 1998
and September 30, 1997 1,502 1,502
Additional paid-in capital 6,313 6,313
Accumulated deficit (23,186) (19,967)
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Total stockholders' equity (deficit) (15,371) (12,152)
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TOTAL LIABILITIES & STOCK-
HOLDERS' EQUITY (DEFICIT) $ 21,914 $ 22,753
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The accompanying notes are an integral part of these financial
statements.
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Page 2 Form 10-Q
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 2, 1998 AND DECEMBER 31, 1996
(UNAUDITED)
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
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JAN 2, 1998 DEC 31, 1996
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NET SALES $ 3,987 $ 4,928
COST OF SALES 3,471 3,664
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GROSS PROFIT 516 1,264
SELLING AND MARKETING EXPENSES 1,654 1,350
GENERAL AND ADMINISTRATIVE EXPENSES 1,146 850
SEVERANCE AND RESTRUCTURING EXPENSES 670 --
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LOSS FROM OPERATIONS (2,954) (936)
OTHER INCOME:
ROYALTY AND SUB-LICENSE INCOME, NET 361 483
OTHER, NET 4 55
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365 538
LOSS BEFORE INTEREST AND INCOME TAXES (2,589) (398)
INTEREST EXPENSE 629 433
LOSS BEFORE INCOME TAXES (3,218) (831)
PROVISION FOR INCOME TAXES -- --
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NET LOSS $(3,218) $ (831)
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NET LOSS PER SHARE - BASIC $ (1.07) $ (0.28)
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NET LOSS PER SHARE - DILUTED $ (1.07) $ (0.28)
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The accompanying notes are an integral part of these financial statements.
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Page 3 Form 10-Q
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 2, 1998 AND DECEMBER 31, 1996
(Unaudited)
($ in thousands)
Jan. 2, 1998 Dec. 31, 1996
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CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $(3,218) $ (831)
Adjustments to reconcile net loss
to net cash used for operating activities -
Depreciation 148 59
Amortization 96 120
(Gain) loss on sale of assets -- (1)
Changes in operating assets
and liabilities -
Receivables 1,550 (587)
Inventories (1,149) (2,274)
Prepaid expenses and other (268) (45)
Accounts payable 924 1,344
Accrued liabilities 476 (329)
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Net cash used for operating activities (1,441) (2,544)
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CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property, plant and
equipment (33) (146)
Proceeds from sale of property,
plant & equipment -- 2
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Net cash used for
investing activities (33) (144)
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CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase in short-term
borrowings from bank $ 900 $ 1,754
Advance from shareholder -- 1,100
Principal payments on long-term
obligations (8) (18)
Net cash provided by
financing activities 892 2,836
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NET CHANGE IN CASH (582) 148
CASH, beginning of period 703 47
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CASH, end of period $ 121 $ 195
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Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ 477 $ 322
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Income taxes $-- $--
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The accompanying notes are an integral part of these financial statements.
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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 January 2, 1998; and (2) the results of its
operations and its cash flows for the three months ended January 2, 1998 and
December 31, 1996, 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, 1997, for a discussion of the Company's significant
accounting policies.
NOTE 2
INCOME TAXES:
The Company had federal tax loss carry forwards of approximately $32.3 million
at September 30, 1997. There was no current income tax provision or benefit
recorded during the three months ending January 2, 1998 and December 31, 1996
due to the losses sustained by the Company.
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Page 5 Form 10-Q
NOTE 3
SHORT-TERM BORROWINGS:
Short-term borrowings consist of advances under a $12.0 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 and Chief
Executive Officer (the "Guarantor").
At the option of the borrower, advances under the line of credit bear interest
at prime minus 0.50% or one, two or three month LIBOR plus 2.0% (8.0% at January
2, 1998).
NOTE 4
NET INCOME (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 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.
Three Months Ended
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Jan 2, 1998 Dec 31, 1996
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Loss Shares Per Share Loss Shares Per Share
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Net loss - Basic and Diluted $(3,218) 3,004 $(1.07) $(821) 2,926 $(.28)
At January 2, 1998, there were options outstanding to purchase 629,395 shares of
stock, with per share prices ranging from $2.94 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. Also, the Company has 833,333 shares of
redeemable preferred stock, which have a stated value of $6.00 per share and are
convertible to common on a one to one ratio.
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Page 6 Form 10-Q
NOTE 5
INVENTORIES:
Inventories as of January 2, 1998 and September 30, 1997, were as follows (in
thousands):
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Jan. 2, Sept. 30,
1998 1997
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Inventories:
Raw Materials $3,286 $3,602
Work-in-process 6 14
Finished Goods 5,232 3,759
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Total $8,524 $7,375
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NOTE 6
SEVERANCE AND RESTRUCTURING EXPENSES:
In the quarter ended January 2, 1998, certain executives left the Company under
severance agreements. Additionally, further work force reductions were
announced. As a result of these items, the Company recorded a charge of $0.67
million in the quarter.
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Page 7 Form 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
As of January 2, 1998, the Company had working capital of $7.4 million and a
current ratio of 2.2 to one. As of September 30, 1997, the Company's working
capital was $10.5 million and its current ratio was 3.8 to one. Major components
of the change in working capital were decreases in cash of $0.6 million and
accounts receivable of $1.5 million, while inventory increased $1.1 million.
Accounts payable and accrued liabilities increased $1.4 million and borrowings
under the Company's line of credit increased $0.9 million.
Due to the Company's terms of sale and the seasonality of the golf industry,
receivable collections are historically slower during the Company's first and
second fiscal quarters, which consists of the period from October through March.
The Company also maintains higher inventory levels during the second and third
fiscal quarters, January through June. The company's working capital
requirements will be met primarily through increased borrowings under its line
of credit through the month of May. The Company has available a $12.0 million
line of credit agreement with a bank, due December 31, 1998. Borrowings under
the line of credit were $1.05 million at January 2, 1998. The Company's capital
expenditures are expected to total approximately $1.0 million for fiscal 1998,
and will be funded through borrowings and internally generated cash.
RESULTS OF OPERATIONS
The table below compares net sales by market segment and product line for the
quarters ending January 2, 1998 and December 31, 1996.
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Page 8 Form 10-Q
Sales by Product Line
($'s in thousands)
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Jan 2, 1998 Dec. 31, 1996 % Change
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Clubs 2,052 2,696 -23.9%
Bags 1,421 1,911 -25.6%
Outlet Stores 189 147 28.6%
Components 268 174 54.9%
Apparel 57 -- --
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Total 3,987 4,928 -19.1%
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Sales by Market Segment
($'s in thousands)
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Jan 2, 1998 Dec. 31, 1996 % Change
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Pro 2,390 2,912 -17.9%
Retail 973 1,297 -37.9%
Outlet Stores 189 147 28.6%
Components 268 174 54.9%
Export 41 55 -25.5%
Contract 126 73 72.6%
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Total 3,987 4,928 -19.1%
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Total sales for the quarter ending January 2, 1998, were $4.0 million compared
to $4.9 million for the quarter ending December 31, 1996, a 19.1% decrease. The
primary decrease in club sales related to the Company's Gripless driver. Net
sales of this product were approximately $0.5 million less in the first quarter
of 1998, compared to last year. The decrease in bag sales was the result of a
major retailer buying their fall merchandise in the Company's fourth fiscal 1997
quarter. Historically, this major retailer placed orders for their fall
merchandise in the Companys first fiscal quarter. Additionally, a number of the
Company's off-course accounts had excess inventory remaining from the summer
season, thus orders for the Christmas season were not as strong in the Company's
first fiscal quarter of 1998. Contract sales represent direct shipments to
customers from the Company's bag manufacturer in China.
The Company realized gross profit of $0.5 million on sales of $4.0 million for
quarter ending January 2, 1998. This compares to gross profit for quarter ending
December 31, 1996 of $1.3 million on sales of $4.9 million. The decline in gross
profit contribution is attributable to margins on club sales as well as higher
closeout sales for the Company's first fiscal quarter. Fiscal 1997's first
quarter club sales included the Gripless driver, which generated higher than
average margins.
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Page 9 Form 10-Q
Selling and marketing expenses increased $0.3 million for the quarter ending
January 2, 1998 over the comparable prior year period. The increase in selling
expense was primarily in payroll and related personnel costs for additional
sales management personnel not in place as of December 31, 1996. Marketing
expenses increased as the Company began promoting its Nancy Lopez Golf division.
General and administrative expenses increased $0.3 million for quarter ending
January 2, 1998 compared to quarter ending December 31, 1996. The increase
relates to the Company's management change in its fiscal 1997 fourth quarter.
Severance and restructuring charges of $0.67 million relates to severance of
certain executives as well as other layoffs and related charges.
Interest expense increased approximately $0.2 million during quarter ending
January 2, 1998 over the comparable prior year period. The increase was due to
maintaining higher borrowings under the Company's credit facility during its
fiscal 1998 first quarter. Due to operating losses sustained during fiscal 1997,
the Company's average borrowings were $7.9 million greater during its current
fiscal quarter over the same prior year period.
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Page 10 Form 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
See Exhibit Index on page 12 of this Form 10-Q.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during
the quarter ending January 2, 1998. Subsequent to the end of
the quarter, the Registrant filed a Form 8-K on January 30,
1998 announcing the delisting from the NASDAQ SmallCap
Market.
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Page 11 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
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(Registrant)
/s/ John T. Lupton
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John T. Lupton
Chairman and Chief Executive Officer
/s/ David J. Kirby
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David J. Kirby
Vice President Finance
(Chief Accounting Officer)
Date February 12, 1998
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Page 12 Form 10-Q
Exhibit Index
Exhibit
Number Description
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3.1* Amended and Restated Charter of The Arnold Palmer
Golf Company.
3.2** Amended and Restated Bylaws of ProGroup, Inc.
10.1 Term Note of the Company in the amount of $10,000,000 dated
December 29, 1997
10.2 Master Note of the Company in the amount of $12,000,000 dated
December 29, 1997
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.