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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2001
[ ] 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. Employer
incorporation or organization) Identification No.)
2765 LOKER AVENUE WEST, CARLSBAD, CA 92008
(Address of Principal Executive Office, including Zip Code)
(760) 438-6610
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
common stock, $.001 Par Value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by nonaffiliates of the
Registrant as of December 31, 2001, was $103,740,000 based upon the last
reported sale price of the Company's common stock as reported by the Nasdaq
National Market System.
There were 13,148,308 shares of common stock, $.001 par value, outstanding at
the close of business on December 31, 2001.
PART III is incorporated by reference from the Registrant's definitive Proxy
Statement for its 2002 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of October 31, 2001.
CAUTIONARY STATEMENTS AND RISK FACTORS
This report contains certain forward-looking statements, including without
limitation those regarding the Company's plans and expectations for revenue
growth, product lines, strategic alliances, designs and seasonal collections,
marketing programs, foreign sourcing, cost controls, inventory levels and
availability of working capital. These forward looking statements may contain
the words "believe," "anticipate," "expect," "estimate," "project," "will be,"
"will continue," "will likely result," or other similar words and phrases.
Forward looking statements and the Company's plans and expectations are subject
to a number of risks and uncertainties that could cause actual results to differ
materially from those anticipated, and the Company's business in general is
subject to certain risks that could affect the value of the Company's stock.
These risks include, but are not limited to, the following:
- - Demand for the Company's products may decrease significantly if the economy
continues to weaken or if the popularity of golf decreases.
- - Like other apparel manufacturers, the Company must correctly anticipate and
help direct fashion trends within its industry. The Company's results of
operations could suffer if the Company fails to develop fashions and styles
that are well received in any season.
- - The Company is party to a multi-year licensing agreement to design, source
and sell Callaway Golf(R) apparel primarily in the United States, Europe,
Canada and Australia. The Company must correctly anticipate the fashion
trends and demand for this product line. The Company's results of
operations could suffer if it fails to develop fashions and styles that are
well received in any season.
- - The market for golf apparel and sportswear is extremely competitive. While
the Company is currently a leader in the core green grass market, it has
several strong competitors that are better capitalized and have stronger
distribution systems. Outside the green grass market, the Company's market
share is not as significant. Price competition or industry consolidation
could weaken the Company's competitive position.
- - The Company relies on domestic and foreign contractors to manufacture
various products. If these contractors deliver goods late or fail to meet
the Company's quality standards, the Company could lose sales.
- - Fluctuations in foreign currency exchange rates could affect the Company's
ability to sell its products in foreign markets and the value in U.S.
dollars of revenues received in foreign currencies.
- - If economic conditions do not improve, our customers' ability to pay
current obligations may be adversely impacted and the Company may
experience an increase in delinquent and uncollectable accounts.
- - The Company maintains high levels of inventory to support its Authentics
program. Additional products, greater sales volume, and customer trends
toward increased "at-once" ordering may require increased inventory.
Disposal of excess prior season inventory is an ongoing part of the
Company's business, and writedowns of inventories may materially impair the
Company's financial performance in any period. Particular inventories may
be subject to multiple writedowns if the Company's initial reserve
estimates for inventory obsolescence or lack of throughput prove to be too
low. These risks increase as inventory grows.
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2002 ANNUAL MEETING OF STOCKHOLDERS
The Company's annual meeting of stockholders will be held at 8:00 a.m.
on Tuesday, March 19, 2002 at the Westin South Coast Plaza Hotel, 686 Anton
Boulevard, Costa Mesa, California.
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF THE COMPANY
Ashworth, Inc., based in Carlsbad, California, was incorporated in
Delaware on March 19, 1987. As used in this report, the terms "we," "us," "our,"
"Ashworth," and the "Company" refer to Ashworth, Inc., its predecessors,
subsidiaries and affiliates, unless the context indicates otherwise. The Company
designs, markets and distributes a full line of quality sports apparel,
headwear, and accessories under the Ashworth(R) label. More recently, the
Company agreed to a multi-year licensing agreement to design, source, market and
sell Callaway Golf(R) apparel. Ashworth products are sold in golf pro shops,
resorts, to corporate customers, at better department and specialty retail
stores and Ashworth retail stores.
The Company has wholly-owned subsidiaries that currently own and
operate eight Company outlet stores and the Ashworth Concept Store. A
wholly-owned United Kingdom subsidiary distributes our products in Europe. The
Company also established a wholly-owned subsidiary in the Virgin Islands as a
foreign sales corporation to take advantage of certain federal income tax
benefits with respect to profits from foreign sales. The Company established a
division in 1998 to distribute Ashworth products in Canada.
At its inception, Ashworth designed and marketed classically styled,
natural fiber golfwear and distributed it in the United States under the
Ashworth brand exclusively to golf pro shops and resorts. In the years since
then the Company has focused on developing a new look in golfwear using superior
fabrics and a loose relaxed fit emphasizing quality in product and presentation,
which are now industry standards. Its men's and women's golf lifestyle apparel
is aimed predominately at the active male and female consumers in the
middle/upper middle income range and is priced in the middle to upper middle
price range for golf apparel. Ashworth is a leading golf apparel line sold at
pro shops in the United States and has been for the past several years.
ASHWORTH PRODUCTS
The 2001 collections maintained their reputation for comfort,
innovation, and quality through careful blending of comfortable and technical
fabrics.
The Ashworth Men's Division typically designs eight fashion, two
Ashworth 7, two Weather Systems(R) and one Authentics collections per year. Each
fashion collection consists of knit and woven shirts, pullovers, jackets,
sweaters, vests, pants, shorts, hats and accessories. Product design focuses on
classic, timeless designs with emphasis on quality and innovation.
The Ashworth Women's Division was re-introduced in 1998 and typically
designs six fashion, one Weather Systems(R) and one Authentics collections per
year. The collections focus on timeless, elegant designs that are functional and
sophisticated for the woman with a fashion sense yet an active lifestyle.
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In May 2001, Ashworth agreed to a multi-year exclusive licensing
agreement with Callaway Golf Company to create complete lines of men's and
women's Callaway Golf(R) apparel. The first product offering was designed for
Fall 2002 and includes three separate ranges.
The Callaway Golf(R) apparel men's Collections includes one classic and
three fashion lines featuring knit and woven shirts, pullovers, jackets,
sweaters, vests, pants, shorts, hats and accessories. The designs focus on
sophisticated styling using luxury fabrics.
The Callaway Golf(R) apparel men's Sport range includes one classic and
three fashion lines featuring knit shirts, pullovers, vests, jackets, sweaters,
pants, shorts, hats and accessories. The designs aim to appeal to the active
consumer.
The Callaway Golf(R) apparel women's Collection consists of one classic
and two fashion lines. The lines mirror the men's Collection product assortment.
The designs range in style from elegant to functional and innovative.
DISTRIBUTION CHANNELS
Approximately 90% of our products are warehoused in and shipped from
Ashworth's distribution facilities in Carlsbad, California. Drop-shipments from
off-shore factories directly to international distributors, Ashworth, U.K., Ltd
and Ashworth Canada, account for approximately 10% of the Company's products.
Less than 1% of the Company's products are made in Europe for delivery to
Ashworth U.K., Ltd.
The Company currently distributes and sells its products primarily
through the following six channels of distribution:
U.S. GOLF PRO SHOPS, RESORTS AND OFF-COURSE GOLF SPECIALTY SHOPS
The Company's core customers are golf pro shops located at golf
courses. According to the 2001 Darrell Survey, a leading golf industry consumer
usage survey, Ashworth was the leading golf apparel company in the United States
with a 12.6% market share in shirt usage among golfers which was nearly double
that of Ashworth's closest competitor. We currently distribute to pro shops in
nearly all of the 50 states.
U.S. DEPARTMENT STORES AND SPECIALTY STORES
Ashworth currently sells its products to selected upscale department
and specialty stores, including Parisians, Belks, Bloomingdale's and Nordstrom.
U.S. CORPORATE MARKET
The Company markets through top specialty-advertising firms that sell
Ashworth products to Fortune 500 companies and other major corporations for use
in their company stores, sales meetings, company catalogs and corporate events.
INTERNATIONAL MARKET
The Company operates a wholly-owned subsidiary in Essex, England that
distributes Ashworth products to customers, either directly or through
independent sales representatives, in the United Kingdom
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and other European countries such as Germany, France, Spain, Sweden, Switzerland
and Portugal. In 1998, the Company opened a division, operated by Almec Leisure
Group, which distributes Ashworth products in Canada.
The Company has entered into licensing and distribution agreements with
various partners in countries such as Japan, Korea, Australia, Taiwan, Hong
Kong, Singapore and others. Under these agreements, the licensees will import
certain product lines from Ashworth and manufacture other approved licensed
products designed specifically for their market.
The Company also uses distributors to sell Ashworth products in other
countries such as the United Arab Emirates and South Africa.
ASHWORTH RETAIL STORES
The Company operates, through wholly-owned subsidiaries, eight retail
stores in California, Texas, Colorado, Arizona, Utah and Nevada. The main
purpose of these stores is to help control and manage inventory by selling prior
season and irregular merchandise. Occasionally the Company sells excess
inventory through third party discount stores.
ASHWORTH CONCEPT STORE
The Company opened an Ashworth Concept Store in Costa Mesa, California
in October 1997 to retail lifestyle products. These include products such as
Ashworth apparel, accessories and small gift items.
CALLAWAY GOLF(R) APPAREL
The Callaway Golf(R) apparel men's and women's Collection lines will be
sold through private golf clubs, resorts and better specialty and department
stores. The men's Sport lines will be offered at private and public golf courses
and off-course specialty retailers.
SALES AND MARKETING
The Company's products are sold in the United States and Europe largely
by independent sales representatives who are not employees of the Company or its
subsidiaries. The Company currently has approximately 110 sales representatives
worldwide. The Company uses nine different distributors and licensees in various
international locations.
In an effort to add exposure and consumer credibility to its Ashworth
brand, the Company has golf celebrities who wear and endorse the Company's
products. At October 31, 2001 they were: (1) Fred Couples, considered by many to
be one of the preeminent golfers in the world; (2) Scott Verplank; (3) Blaine
McCallister; (4) John Cook and (5) Jim Nantz, a popular CBS golf announcer. The
Company uses these players and celebrities in advertisements, in-store displays,
and for trade shows, store and other special appearances.
The Ashworth marketing platform is designed to heighten brand
awareness, brand strength and brand growth globally through print, moving media,
communications and promotional initiatives.
Ashworth again expanded its in-store shop program in 2001 and now has a
presence in approximately 1,200 locations throughout the United States and
Europe. This modular fixture program is designed to help
5
create a dedicated in-store shop for Ashworth products coupled with pictures and
displays of our spokespersons and golf professionals.
In an effort to introduce new young customers to the Ashworth brand,
the Company supports collegiate golf by providing team uniforms to selected high
school, college and university golf teams.
The domestic market for Ashworth apparel has been seasonal, with the
highest revenues traditionally in the period February through August and the
lowest revenues volume in the months of September through January. The Company
expects that the addition of department and specialty retail store markets, the
corporate market, and additional product categories for fall and winter in the
European market will help to reduce the seasonality of the Company's business.
Net revenues in fiscal 2001 were $124,727,000, a decrease of 1.0% from
net revenues of $125,947,000 in fiscal 2000. This decrease was primarily the
result of a decrease in domestic net revenues which was partially offset by a
small increase in foreign net revenues.
During the last three fiscal years, the Company had the following
domestic and international revenues from Ashworth products:
YEAR ENDED OCTOBER 31,
------------------------------------
2001 2000 1999
-------- -------- --------
CONSOLIDATED NET REVENUES: (In thousands)
Domestic $107,684 $109,743 $ 93,527
International:
Ashworth U.K. Ltd. 9,133 8,530 7,950
Other international jurisdictions 7,910 7,674 6,444
-------- -------- --------
Total international 17,043 16,204 14,394
TOTAL NET REVENUES $124,727 $125,947 $107,921
======== ======== ========
See Note 1 of Notes to the Consolidated Financial Statements, Business,
for revenues, operating income and identifiable assets of Ashworth U.K., Ltd.,
and Note 11 for market segment information.
The Company's revenues from its International segment may be adversely
affected by currency fluctuations, taxation and laws or policies of the foreign
countries in which it has operations, as well as laws and policies of the United
States affecting foreign trade, investment and taxation.
For more information regarding the risks of currency fluctuations that
could affect the Company's ability to sell its products in foreign markets, the
value in U.S. dollars of revenues received in foreign currencies, the impact of
such fluctuations on the Company's International segment and strategies the
Company may use to manage the risks presented by currency exchange rate
fluctuations, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity And Capital Resources - Currency
Fluctuations," "Item 7A, Quantitative and Qualitative Disclosures about Market
Risk," and "Note 1 of Notes to the Consolidated Financial Statements, Foreign
Currency."
At December 31, 2001, we had backlog orders of approximately
$34,934,000 from independent third parties, which is approximately $1,270,000
higher than the comparable number last year. Backlog reflects orders that are
placed with the Company prior to the quarter in which the goods are to be
shipped, as opposed to "at-once" orders that are received in the quarter in
which the goods are expected to be shipped. The
6
current backlog covers orders for goods expected to be shipped through
approximately June 2002. The amount of backlog orders at a particular time is
affected by a number of factors, including the timely flow of product from
suppliers which can impact the Company's ability to ship on time, and the timing
of customers' orders. Accordingly, a comparison of backlog orders from period to
period is not necessarily meaningful and may not be indicative of eventual
actual shipments in any period. In addition, orders may be changed or canceled
prior to shipment, preventing the Company from converting backlog into revenue.
INVENTORY
The Company maintains high levels of inventory to support its
Authentics program, and additional products, greater revenues volume, and
customer trends toward increased "at-once" ordering may require increased
inventory. Disposal of excess prior season inventory is an ongoing part of the
Company's business, and inventory writedowns may impair the Company's financial
performance in any period. Particular inventory may be subject to multiple
writedowns if the Company's initial reserve estimates for inventory obsolescence
or lack of throughput prove to be too low. These risks increase as inventory
grows. The Company's goals are to increase the inventory turns and lower the
overall inventory levels relative to revenues.
COMPETITION
According to the 2001 Darrell Survey, the Ashworth brand was the leader
in the Company's core green grass market in 2001, with a 12.6% market share in
shirt usage among golfers. The Company's share of other markets it has more
recently entered, including upscale department stores and the corporate market,
is minor, however. The golf apparel market is not dominated by any single
company, and is highly competitive both in the United States and abroad. The
Company competes not only with golf apparel manufacturers, but also with other
branded sports and sportswear apparel manufacturers that have entered the golf
apparel market in recent years. Many of the Company's competitors have greater
financial resources. Ashworth competes with other golf apparel manufacturers on
design, product quality, customer servicing and brand image.
PRODUCT SOURCING
Ashworth sources its products in the following ways:
CONTRACT MANUFACTURING: At the beginning of fiscal 2000, starting with
the Spring 2000 line, Ashworth ceased most contract manufacturing and stopped
purchasing its own raw materials. Ashworth is using a contract manufacturer in
Central America to cut and sew its remaining raw materials.
READY-MADE FINISHED GOODS: During fiscal 2001 nearly all of Ashworth's
production was through "full package" purchases of ready-made goods,
manufactured to the Company's quality and styling specifications domestically
and by sources outside of the United States. In fiscal 2001, approximately 80%
of Ashworth's finished goods were made in Asian countries while 20% were made in
Europe, Canada, the United States, Central and South America. Asian countries
included China, Hong Kong, Indonesia, Korea, Macau, Malaysia, the Philippines,
Sri Lanka, Taiwan, Thailand and India.
IN-HOUSE EMBROIDERY: Ashworth embroiders custom golf course and
tournament corporate logos in-house on approximately 55 multi-head,
computer-controlled embroidery machines with a total of approximately 550 sewing
heads. The embroidery design library contains over 36,000 Ashworth and customer
designs. Embroidery is applied to both garments and finished headwear. On
average, the Company
7
embroiders 105,000 logos per week on approximately 85,000 garments.
TRADEMARKS
The Company owns and utilizes several trademarks, principal among which
are the Ashworth typed and design marks, the Golfman design mark, and the
Weather Systems design mark. The Ashworth typed and design marks, the Golfman
design marks and the Weather Systems design mark have been registered for
apparel, shoes, leather goods and/or golf bags on the Principal Register of the
United States Patent and Trademark Office.
The Company has registered the Ashworth typed and design marks and/or
the Golfman design marks for apparel, shoes, luggage, and/or golf bags, which
registrations have effect in approximately 70 countries. Additionally, the
Company has pending trademark applications in three additional countries. The
application process varies from country to country and can take approximately
one to three years to complete.
Ashworth regards its trademarks and other proprietary rights as
valuable assets and believes that they have significant value in the marketing
of its products. Although Ashworth believes that it has the exclusive right to
use the trademarks and intends to vigorously protect its trademarks against
infringement, there can be no assurance that Ashworth can successfully protect
the trademarks from conflicting uses or claims of ownership in cases where the
trademarks were used and/or registered previous to Ashworth's lawful
registrations.
EMPLOYEES
At December 31, 2001, Ashworth had approximately 425 regular employees
and 100 seasonal temporary employees. Ashworth considers its labor relations to
be generally good.
ITEM 2. PROPERTIES
The Company owns two buildings located on Loker Avenue West in
Carlsbad, California that were purchased on December 9, 1993 for $3,500,000. The
buildings total approximately 77,000 square feet, consisting of space for
embroidery, warehousing and distribution functions. The mortgage was refinanced
on December 1, 2000 for $3,000,000 amortized over 25 years but is due and
payable in five years.
The Company and its subsidiaries have the following leases for
administrative and distribution facilities, as well as store leases for retail
space:
LEASE MIN/CURRENT MAXIMUM
SQUARE EXPIRATION BASE RENT BASE RENT
LOCATION FOOTAGE DATE PER MONTH($) PER MONTH($)
- -------- ------- ---------- ------------ -------------
ADMINISTRATIVE AND DISTRIBUTION CENTERS:
Carlsbad, CA 93,900 12/31/05 80,750 92,663
Essex, England 5,500 9/30/03 3,424 3,424
Essex, England 5,500 9/30/03 3,424 3,424
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LEASE MIN/CURRENT MAXIMUM
SQUARE EXPIRATION BASE RENT BASE RENT
LOCATION FOOTAGE DATE PER MONTH($) PER MONTH($)
- -------- ------- ---------- ------------ ------------
RETAIL STORES
San Ysidro, CA 2,597 4/30/03 5,415 5,632
San Marcos, TX 3,000 8/31/05 4,902 5,642
Vacaville, CA 2,500 11/30/05 5,798 5,798
Barstow, CA 3,400 9/30/04 6,012 6,378
Phoenix, AZ 4,000 9/30/05 6,308 6,308
Park City, UT 2,250 5/31/05 3,386 3,762
Silverthorne, CO 2,250 6/30/05 4,333 4,333
Las Vegas, NV 2,450 9/30/06 4,855 4,855
CONCEPT STORE
Costa Mesa, CA 6,020 1/31/08 30,105 32,613
The Company also pays percentage rent based on revenues that exceed
certain breakpoints for all of the retail and concept store leases. All of the
leases require the Company to pay its pro rata share of taxes, insurance and
maintenance expenses. The Company guarantees at least some portion of several
leases held by Ashworth subsidiaries.
ITEM 3. LEGAL PROCEEDINGS.
On January 22, 1999, Milberg Weiss Bershad Hynes & Lerach LLP filed a
class action in the United States District Court for the Southern District of
California ("U.S. District Court") on behalf of purchasers of the Company's
common stock during the period between September 4, 1997 and July 15, 1998. The
action was subsequently consolidated with two similar suits and plaintiffs filed
their Amended and Consolidated Complaint on December 17, 1999. Upon the
Company's motion, the U.S. District Court dismissed the Complaint with leave to
amend on July 18, 2000. On September 18, 2000, plaintiffs served their Second
Consolidated Amended Complaint ("Second Amended Complaint"). On November 6,
2000, the Company filed its motion to dismiss the Second Amended Complaint,
which the U.S. District Court granted, in part, and denied, in part. The
remaining portions of the Second Amended Complaint allege that, among other
things, during the class period and in violation of the Securities Exchange Act
of 1934, the Company's financial statements, as reported, did not conform to
generally accepted accounting principles with respect to revenues and inventory
levels. It further alleges that certain Company executives made false or
misleading statements or omissions concerning product demand and that two former
executives engaged in insider trading. The plaintiffs seek unspecified damages.
Discovery will commence shortly.
In October 2000, former Ashworth sales representatives Regional Sales,
Inc. and Susan Stanley filed a complaint in San Diego Superior Court against
Ashworth. In October of 2001, the parties reached a confidential resolution of
the matter in which the Company admitted no wrongdoing and the matter was
dismissed with prejudice.
The Company is party to other claims and litigation proceedings arising
in the normal course of business. Although the legal responsibility and
financial impact with respect to such other claims and litigation cannot
currently be ascertained, the Company does not believe that these other matters
will result in payment by the Company of monetary damages, net of any applicable
insurance proceeds, that, in the aggregate, would be material in relation to the
consolidated financial position or results of operations of the Company.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report, either by
proxy solicitation or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "ASHW." The following table sets forth the high and low sale
prices on the Nasdaq National Market for the quarters indicated.
HIGH LOW
-------------- ---------------
FISCAL YEAR 2000
Quarter ended January 31, 2000 $ 4 5/16 $3 3/4
Quarter ended April 30, 2000 5 13/32 3 13/16
Quarter ended July 31, 2000 5 11/16 4 1/8
Quarter ended October 31, 2000 7 7/8 5 1/16
HIGH LOW
-------------- ---------------
FISCAL YEAR 2001
Quarter ended January 31, 2001 $ 8 3/16 $6 1/8
Quarter ended April 30, 2001 9 3/8 5 5/16
Quarter ended July 31, 2001 8 1/5 5 7/16
Quarter ended October 31, 2001 7 4 11/32
HOLDERS
There is only one class of common stock. As of December 31, 2001, there
were 569 stockholders of record and approximately 5,300 beneficial owners of the
Company's common stock.
DIVIDENDS
No dividends have ever been declared with respect to the common stock.
In the past, the Board of Directors has chosen to reinvest profits in the
Company rather than declare a dividend. The Company does not currently intend to
pay cash dividends for the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
which are included elsewhere in this report. The statement of income data set
forth below with respect to the fiscal years ended October 31, 2001, 2000 and
1999 and the balance sheet data as of October 31, 2001 and 2000 are derived
from, and should be read in conjunction with, the audited Consolidated Financial
Statements included elsewhere in this report. The
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statement of income data set forth below with respect to the fiscal years ended
October 31, 1998 and 1997 and the balance sheet data as of October 31, 1999,
1998 and 1997 are derived from audited financial statements not included in this
report. No dividends have been paid for any of the periods presented.
YEARS ENDED OCTOBER 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
STATEMENT OF INCOME DATA: (In thousands, except per share amounts)
Net revenues $124,727 $125,947 $107,921 $107,341 $ 89,148
Gross profit 48,279 48,984 39,363 40,622 34,103
Selling, general and administrative expenses 42,118 36,603 32,867 31,691 25,282
Income from operations 6,161 12,381 6,496 8,931 8,821
Net income 2,828 6,597 3,817 5,300 4,827
Net income per basic share 0.22 0.49 0.27 0.37 0.39
Weighted average basic shares outstanding 13,140 13,406 14,035 14,185 12,403
Net income per diluted share 0.21 0.49 0.27 0.36 0.38
Weighted average diluted shares outstanding 13,408 13,467 14,045 14,805 12,564
AS OF OCTOBER 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands)
BALANCE SHEET DATA:
Working capital $ 56,927 $ 59,996 $ 57,734 $ 54,768 $ 44,828
Total assets 93,656 87,371 80,106 81,634 68,817
Long-term debt (less current portion) 3,166 3,293 2,764 3,445 4,336
Stockholders' equity 74,994 71,974 69,426 67,105 53,001
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
Consolidated net revenues were $124,727,000 for fiscal 2001, a decrease
of 1.0% from net revenues of $125,947,000 in fiscal 2000. The decrease in
consolidated net revenues was primarily due to unusually cold and wet weather
and the generally poor economic conditions in the second half of the year.
During the fourth quarter of fiscal 2001 net revenues decreased $6,824,000 as
compared to the same period of the prior year primarily due to overall weakness
in the economy and from the September 11, 2001 tragedy. Domestic net revenues
for fiscal 2001 decreased 1.9% to $107,684,000 from $109,743,000 in fiscal 2000
primarily due to decreased net revenues in green grass and off-course specialty
stores which decreased by $2,470,000 or 3.4% and retail which decreased by
$284,000 or 2.1%. The decrease was partially offset by higher net revenues in
corporate which increased $604,000 or 3.7%. International net revenues increased
by 5.2% to $17,043,000 in fiscal 2001 from $16,204,000 in fiscal 2000. Net
revenues from the Company's U.K. subsidiary in fiscal 2001 increased by $603,000
or 7.1% as compared to net revenues in fiscal 2000 primarily due to contracted
sales to The Open at Royal Lytham and St. Anne's. Increased net revenues from
the Pacific Rim and Australia were partially offset by decreased net revenues
from Africa, the Caribbean, Canada and other countries.
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The gross profit margin for fiscal 2001 was 38.7% and remained
relatively flat as compared to 38.9% in fiscal 2000. The slight decrease was
primarily due to industry wide price pressure for basic pique shirts.
Selling, general and administrative ("SG&A") expenses increased 15.1%
to $42,118,000 in fiscal 2001 compared to $36,603,000 in fiscal 2000 primarily
reflecting additional investment in infrastructure and startup costs for
launching the Callaway Golf(R) apparel product line. In addition, because of
weakness in the economy, the Company has increased its allowance for doubtful
accounts. The Company anticipates that if economic conditions do not improve,
the Company may experience an increase in delinquent and uncollectable customer
accounts. As a percent of net revenue, SG&A expenses increased to 33.8% of net
revenues in fiscal 2001 as compared to 29.1% in fiscal 2000.
Net other expenses were $1,448,000 for fiscal 2001 compared to
$1,393,000 in fiscal 2000. Foreign exchange losses decreased to $90,000 in
fiscal 2001 from $939,000 in fiscal 2000 as a result of management action to
consolidate the use of various European currencies to the Euro as well as a more
stable British Pound. Interest expense increased to $1,352,000 in fiscal 2001
from $640,000 in fiscal 2000 due primarily to increased average borrowing on the
Company's line of credit with the bank.
The effective income tax rate for fiscal 2001 remained at 40.0%.
During fiscal year 2001, the Company earned net income of $2,828,000 as
compared to net income of $6,597,000 in the prior year. The decrease in net
income for fiscal year 2001 was primarily attributable to lower revenues and
higher SG&A expenses as outlined above.
2000 COMPARED TO 1999
Consolidated net revenues were $125,947,000 for fiscal 2000, an
increase of 16.7% over net revenues of $107,921,000 in fiscal 1999. The increase
in domestic net revenues was driven by strong growth in all of our distribution
channels. Domestic net revenues for fiscal 2000 increased 17.3% to $109,743,000
from $93,527,000 in fiscal 1999 primarily due to increased net revenues in green
grass and off-course specialty stores which increased by $9,993,000 or 15.9% and
corporate which increased by $6,843,000 or 72.0%. Foreign net revenues increased
by 12.6% to $16,204,000 in fiscal 2000 from $14,394,000 in fiscal 1999.
Notwithstanding a lower Euro and British Pound, net revenues from the Company's
U.K. subsidiary in fiscal 2000 increased by $580,000 or 7.3% as compared to net
revenues in fiscal 1999. Net revenues from the Pacific Rim increased $656,000 or
46.6% and net revenues from Puerto Rico, Canada and others increased by $574,000
or 11.4% as compared to net revenues in the prior year.
The gross profit margin for fiscal 2000 increased to 38.9% from 36.5%
in fiscal 1999. The increase was primarily a result of better pricing from
improved offshore sourcing and inventory control.
SG&A expenses increased 11.4% to $36,603,000 in fiscal 2000 compared to
$32,867,000 in 1999 reflecting additional investment in infrastructure as well
as higher selling expenses due to increased net revenues. As a percent of net
revenue, SG&A expenses decreased to 29.1% of net revenues in fiscal 2000 as
compared to 30.5% in 1999.
Net other expenses were $1,393,000 for fiscal 2000 compared to $229,000
in fiscal 1999. Foreign exchange losses increased to $939,000 in fiscal 2000
from $23,000 in fiscal 1999 as a result of the weak Euro and British Pound.
Based on foreign exchange rates in effect at the beginning of our fiscal year
compared to actual rates, our net income would have been $564,000 higher than
the reported $6,597,000, or an 87.6% increase over the prior year compared to
the reported 72.8% increase. Foreign exchange rates could continue to adversely
affect our total revenue throughout fiscal 2001 if the U.S. dollar strengthens
relative to foreign
12
currencies. Interest expense increased to $640,000 in fiscal year 2000 from
$431,000 in fiscal year 1999 due primarily to increased average borrowing on the
Company's line of credit with the bank.
The effective income tax rate for fiscal 2000 increased to 40.0% from
39.1% in fiscal 1999 due to a higher than expected loss in the U.K. subsidiary.
During fiscal year 2000, the Company earned net income of $6,597,000 as
compared to net income of $3,817,000 in the prior year. The increase in net
income for fiscal year 2000 was primarily attributable to increased revenues,
higher gross margin and proportionately lower SG&A expenses as a percent of
revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are expected to be cash
flows from operations, a working capital line of credit with its bank, and other
financial alternatives such as leasing. Ashworth's need for working capital is
seasonal with the greatest requirements from approximately December through the
end of July each year. The inventory build-up during this period is to provide
product for shipment for the spring/summer selling season. Management believes
that cash from operations, the bank line of credit and leasing alternatives will
be sufficient to meet our working capital requirements through fiscal 2002.
Operations in fiscal 2001 produced a positive cash flow of $2,156,000,
compared to a positive cash flow of $881,000 in fiscal 2000. The primary reasons
for the higher positive cash flow from operations was a decrease in inventories.
Inventory decreased by 4.5% to $35,841,000 at October 31, 2001 compared to
$37,526,000 at October 31, 2000.
In June 2000, the Company extended its business loan agreement with our
bank through May 1, 2002. The agreement provides a revolving line of credit of
$25,000,000. The Company negotiated an amendment to the line of credit agreement
effective January 31, 2001. The amendment provides for a seasonal increase in
the line of credit to $35,000,000 for the periods from March 1, 2001 to June 1,
2001 and again from March 1, 2002 to May 1, 2002. Interest is charged at the
bank's reference (prime) rate, minus one-half of one percentage point. The
agreement also provides for optional interest rates based on inter-bank offered
rates ("IBOR") for periods of at least 30 days in increments of $500,000. The
loan agreement contains various restrictive covenants requiring, among other
matters, the maintenance of certain financial ratios. The Company believes it
was in compliance with or had obtained waivers for all such covenants as of
October 31, 2001. The agreement permits the Company to acquire, for value,
shares of Ashworth stock in an aggregate amount not to exceed $10,200,000 during
the term of the agreement. The line of credit may also be used to finance
commercial letters of credit and standby letters of credit. Commercial letters
of credit outstanding under this agreement totaled $5,506,000 at October 31,
2001 and $6,673,000 at December 31, 2001. Additionally, the agreement allows the
Company to enter into spot and forward foreign exchange contracts. (See Note 1
to the Consolidated Financial Statements, Foreign Currency and Item 7A,
Quantitative and Qualitative Disclosures about Market Risk.) At October 31,
2001, the Company had a loan balance of $5,950,000 outstanding with the bank. At
December 31, 2001, the loan balance outstanding was $10,250,000.
During fiscal 2001, the Company invested $6,669,000 in property and
equipment, primarily for leasehold improvements, furnishings for new office
facilities, upgrades of computer systems and equipment, warehouse automation,
and sales fixtures. For fiscal 2002, Ashworth management anticipates spending
approximately $2,900,000 primarily for upgrades of computer systems and
equipment, warehouse automation, and sales fixtures. Management intends to
finance the purchase of the Company's capital equipment from its own cash
resources, but may use leases or equipment financing agreements if appropriate.
13
Ashworth's long-term debt on October 31, 2001, including the current
portion, is comprised of a mortgage on the two buildings it owns at 2791 and
2793 Loker Avenue West, Carlsbad, California, which had a balance outstanding of
$2,890,000, notes payable on equipment purchases totaling $763,000 and
capitalized leases with principal sum liabilities of $172,000. The mortgage was
refinanced on December 1, 2000 for $3,000,000 amortized over 25 years but is due
and payable in five years.
During fiscal 2001, share capital and capital in excess of par value
increased by $261,000. An increase of $740,000 due to the issuance of 125,000
shares on exercise of options was offset by a decrease of $479,000 as a result
of the Company repurchasing 86,000 shares of its common stock in the open market
at an average price of $5.57 per share.
CURRENCY FLUCTUATIONS
Ashworth U.K., Ltd., a wholly-owned subsidiary of the Company,
operating in England, maintains its books of account in British pounds and
Ashworth Canada, a division of the Company, operating in Montreal, Canada,
maintains its books of account in Canadian dollars. For consolidation purposes,
the assets and liabilities of Ashworth U.K., Ltd. and Ashworth Canada are
converted to U.S. dollars at the month-end exchange rate and results of
operations are converted using an average rate during the month. A translation
difference arises for share capital and retained earnings, which are converted
at rates other than the month-end rate, and these amounts are reported in the
stockholders' equity section of the balance sheets.
Ashworth U.K., Ltd. sells Ashworth products to other countries in the
European Union, largely with revenues denominated in the local currency.
Fluctuations in the currency rates between the United Kingdom and those other
countries give rise to a loss or gain that is reported in earnings. (See Note 1
to the Consolidated Financial Statements, Foreign Currency.)
Ashworth Canada sells Ashworth products within Canada with the revenues
denominated in Canadian dollars and ordinarily there is no transaction
adjustment for currency exchange rates for the Company.
All export revenues by Ashworth, Inc. are U.S. dollar denominated and
ordinarily there is no transaction adjustment for currency exchange rates for
the Company. However, with respect to export revenues to Ashworth U.K., Ltd. and
Ashworth Canada, the foreign entities are at risk on their indebtedness to
Ashworth, Inc. The foreign entities maintain their accounts with Ashworth, Inc.,
in British pounds or Canadian dollars, but owe Ashworth, Inc. in U.S. dollars.
At the end of every accounting period, the debt is adjusted to British pounds or
Canadian dollars by multiplying the indebtedness by the closing British
pound/U.S. dollar or U.S. dollar/Canadian dollar exchange rate to ensure that
the account has sufficient British pounds or Canadian dollars to meet its U.S.
dollar obligation. This remeasurement is either income or an expense in each
entity's financial statements. When the financial statements of Ashworth U.K.,
Ltd. and Ashworth Canada are consolidated with the financial statements of the
parent company, the gain or loss on transactions, relating to any long-term
portion of the intercompany indebtedness, is eliminated from the income
statement and appears in the stockholders' equity section of the consolidated
balance sheet under "Accumulated other comprehensive income (loss)."
The Company purchases most of its products from offshore manufacturers.
All of these purchases were U.S. dollar denominated, or in British pounds for
the Ashworth subsidiary in England, and consequently there was no foreign
currency exchange risk.
14
INFLATION
Management believes that inflation has not had a material effect on our
results of operations during the three most recent fiscal years. There can be no
assurance that a high rate of inflation in the future would not have an adverse
effect on the Company's results of operations.
NEW ACCOUNTING STANDARDS
Effective November 1, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, which establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Accounting for changes in the fair value of a derivative depends on the intended
use and resulting designation of the derivative. For derivatives designated as
hedges, changes in the fair value are either offset against the change in fair
value of the assets or liabilities through earnings or recognized in other
comprehensive income in the balance sheet until the hedged item is recognized
into earnings. For the year ended October 31, 2001, the Company did not engage
in any hedging activities and was not a party to any derivative instruments.
In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and/or normal use of the asset.
SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, the
Company will recognize a gain or loss on settlement.
The Company is required and plans to adopt the provisions of SFAS No.
143 for the quarter ending January 31, 2003. To accomplish this, the Company
must identify all legal obligations for asset retirement obligations, if any,
and determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to gather
market information and develop cash flow models. Additionally, the Company will
be required to develop processes to track and monitor these obligations. Because
of the effort necessary to comply with the adoption of SFAS No. 143, it is not
practicable for management to estimate the impact of adopting this statement at
the date of this report.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and SFAS No.142, Goodwill and Other Intangible
Assets, which supersede Accounting Principles Board Opinion No. 17, Intangible
Assets. SFAS No.141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition
of intangible assets that meet one of the two criteria, as defined in the
statement. This statement applies to all business combinations initiated after
June 30, 2001. Under SFAS No.142, goodwill and intangible assets with indefinite
lives are no longer amortized but are tested at least annually for impairment.
Separable intangible assets with defined lives will continue to be amortized
over their useful lives. The provisions of SFAS No.142 will apply to goodwill
and intangible assets acquired before and after the statement's effective date.
As permitted by SFAS No. 142, we plan to adopt the new standard in the first
quarter of the fiscal year 2002.
15
We are currently evaluating the effect that adoption of the provisions of SFAS
No. 142 will have on our results of operations and financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's debt consists of notes payable with a total balance of
$3,825,000 at October 31, 2001. The debt bears interest at variable and fixed
rates ranging from 7.3% to 11.0%, which approximates fair value based on current
rates offered for debt with similar risks and maturities. The Company also has
$5,950,000 outstanding on its revolving line of credit with interest charged at
the bank's reference (prime) rate minus one-half of one percentage point. A
hypothetical 10% increase in interest rates during the year ended October 31,
2001 would have resulted in a $59,000 decrease in net income.
The Company's ability to sell its products in foreign markets and the
U.S. dollar value of the sales made in foreign currencies can be significantly
influenced by foreign currency fluctuations. A decrease in the value of foreign
currencies relative to the U.S. dollar could result in downward price pressure
for the Company's products or losses from currency exchange rates. Although the
Company and its subsidiaries did not do so during fiscal 2001, from time to
time, the Company enters into short-term foreign exchange contracts with its
bank to hedge against the impact of currency fluctuations between the U.S.
dollar and the British pound. The contracts provide that, on specified dates,
the Company would sell the bank a specified number of British pounds in exchange
for a specified number of U.S. dollars. Additionally, the Company's subsidiary
in England enters into similar contracts with its bank to hedge against currency
fluctuations between the British pound and other European currencies. Realized
gains and losses on these contracts are recognized in the same period as the
hedged transaction. These contracts have maturity dates that do not normally
exceed 12 months. The Company will continue to assess the benefits and risks of
strategies to manage the risks presented by currency exchange rate fluctuations.
There is no assurance that any strategy will be successful in avoiding losses
due to exchange rate fluctuations, or that the failure to manage currency risks
effectively would not have a material adverse effect on the Company's results of
operations. As of October 31, 2001 the Company had no outstanding foreign
currency forward exchange contracts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements with respect to the Company are
submitted herewith:
1. Independent Auditors' Report, page F-1.
2. Consolidated Balance Sheets - October 31, 2001 and 2000, pages F-2 and
F-3.
3. Consolidated Statements of Income for the years ended October 31, 2001,
2000 and 1999, page F-4.
4. Consolidated Statements of Stockholders' Equity for the years ended
October 31, 2001, 2000 and 1999, page F-5.
5. Consolidated Statements of Cash Flows for the years ended October 31,
2001, 2000 and 1999, page F-6.
6. Notes to Consolidated Financial Statements, pages F-7 through F-20.
7. Independent Auditors' Report on Supplementary Schedule, page F-21.
8. Supplementary Schedule, page F-22.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is included in the Company's
Proxy Statement for the 2002 Annual Meeting of Stockholders under the caption
"Directors and Executive Officers" which will be filed with the Securities and
Exchange Commission no later than February 28, 2002 and is incorporated into
this Item by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is included in the Company's
Proxy Statement for the 2002 Annual Meeting of Stockholders under the caption
"Executive Compensation" which will be filed with the Securities and Exchange
Commission no later than February 28, 2002 and is incorporated into this Item by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is included in the Company's
Proxy Statement for the 2002 Annual Meeting of Stockholders under the caption
"Security Ownership of Certain Beneficial Owners and Management" which will be
filed with the Securities and Exchange Commission no later than February 28,
2002 and is incorporated into this Item by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is included in the Company's
Proxy Statement for the 2002 Annual Meeting of Stockholders under the caption
"Certain Relationships and Related Transactions" which will be filed with the
Securities and Exchange Commission no later than February 28, 2002 and is
incorporated into this Item by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - October 31, 2001 and 2000
Consolidated Statements of Income for the years ended October 31, 2001,
2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended October 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements - October 31, 2001, 2000 and
1999
2. Financial Statement Schedule
Independent Auditors' Report on Supplementary Schedule
Schedule II - Valuation and Qualifying Accounts
17
3. Exhibits.
See Item (c) below.
(b) Reports on Form 8-K - NONE
(c) Exhibits
3(a) Certificate of Incorporation as filed March 19, 1987 with the
Secretary of State of Delaware, Amendment to Certificate of
Incorporation as filed August 3, 1987 and Amendment to Certificate of
Incorporation as filed April 26, 1991 (filed as Exhibit 3(a) to
Registrant's Registration Statement dated February 21, 1992 (File
No.33-45078) and incorporated herein by reference) and Amendment to
Certificate of Incorporation as filed April 6, 1995 (filed as Exhibit
3(a) to the Registrant's Form 10-K for fiscal year ended October 31,
1994 (File No. 0-18553) and incorporated herein by reference).
3(b) Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.1
to Registrant's Current Report on Form 8-K on February 22, 2000 (File
No. 0-18553) and incorporated herein by reference).
4(a) Specimen certificate for Common Stock, par value $.001, of the
Registrant (filed as Exhibit 4(a) to Registrant's Registration
Statement dated November 4, 1987 (File No.33-16714-D) and
incorporated herein by reference).
4(b)(1) Specimen certificate for Options granted under the Amended and
Restated Nonqualified Stock Option Plan dated March 12, 1992 (filed
as Exhibit 4(b) to Registrant's Form 10-K for the fiscal year ended
October 31, 1993 (File No. 0-18553) and incorporated herein by
reference).
4(b)(2) Specimen certificate for Options granted under the Founders Stock
Option Plan dated November 6, 1992 (filed as Exhibit 4(b)(2) to
Registrant's Form 10-K for the fiscal year ended October 31, 1993
(File No. 0-18553) and incorporated herein by reference).
4(c) Specimen certificate for Options granted under the Incentive Stock
Option Plan dated June 15, 1993 (filed as Exhibit 4(c) to
Registrant's Form 10-K for the fiscal year ended October 31, 1993
(File No. 0-18553) and incorporated herein by reference).
4(d) Rights Agreement dated as of October 6, 1998 and amended on February
22, 2000 by and between Ashworth, Inc. and American Securities
Transfer & Trust, Inc. (filed as Exhibit 4.1 to Registrant's Form 8-K
filed on March 14, 2000 (File No. 0-18553) and incorporated herein by
reference).
10(a)* Personal Services Agreement and Acknowledgement of Termination of
Executive Employment effective December 31, 1998 by and between
Ashworth, Inc. and Gerald W. Montiel (filed as Exhibit 10(b) to
Registrant's Form 10-K for the year ended October 31, 1998 (File No.
0-18553) and incorporated herein by reference).
10(b)* Amendment to Personal Services Agreement effective January 1, 1999 by
and between Ashworth, Inc. and Gerald W. Montiel (filed as Exhibit
10(c) to Registrant's Form 10-K for the year ended October 31, 1998
(File No. 0-18553) and incorporated herein by reference).
10(c) Promotion Agreement effective November 1, 2001 by and among Ashworth,
Inc., James W. Nantz, III and Nantz Communications, Inc.
18
10(d)* First Amended and Restated Executive Employment Agreement effective
February 22, 1999 by and between Ashworth, Inc. and Randall L.
Herrel, Sr. (filed as Exhibit 10(a) to Registrant's Form 10-Q for the
quarter ended April 30, 1999 (File No. 0-18553) and incorporated
herein by reference).
10(e)* Offer and Acceptance of Executive Employment effective March 15, 1999
by and between Ashworth, Inc. and Terence W. Tsang (filed as Exhibit
10(d) to Registrant's Form 10-Q for the quarter ended April 30, 1999
(File No. 0-18553) and incorporated herein by reference).
10(f)* Offer and Acceptance of Executive Employment effective June 1, 1999
by and between Ashworth, Inc. and Suzi Chauvel (filed as Exhibit
10(a) to Registrant's Form 10-Q for the quarter ended July 31, 1999
(File No. 0-18553) and incorporated herein by reference).
10(g)* Founders Stock Option Plan dated November 6, 1992 (filed as Exhibit
10(g) to Registrant's Form 10-K for the year ended October 31, 1993
(File No. 0-18553) and incorporated herein by reference).
10(h)* Amended and Restated Nonqualified Stock Option Plan dated November 1,
1996 (filed as Exhibit 10(i) to Registrant's Form 10-K for the year
ended October 31, 2000 (File No. 0-18553) and incorporated herein by
reference).
10(i)* Amended and Restated Incentive Stock Option Plan dated November 1,
1996 (filed as Exhibit 10(j) to Registrant's Form 10-K for the year
ended October 31, 2000 (File No. 0-18553) and incorporated herein by
reference).
10(j)* Amended and Restated 2000 Equity Incentive Plan dated December 14,
1999 adopted by the stockholders on March 24, 2000 (filed as Exhibit
4.1 to Registrant's Form S-8 filed on December 12, 2000 (File No.
333-51730) and incorporated herein by reference).
10(k)(1) Business Loan Agreement dated June 1, 2000, between the Registrant
and Bank of America, expiring May 1, 2002. Under the agreement, the
Bank provides the Company with a revolving line of credit of up to
$25,000,000 with a Foreign Exchange Facility of up to a maximum of
$5,000,000 (filed as Exhibit 10(m) to Registrant's Form 10-Q for the
quarter ended April 30, 2000 (File No. 0-18553) and incorporated
herein by reference).
10(k)(2) Amendment to the Business Loan Agreement dated June 1, 2000,
effective January 31, 2001, between Ashworth, Inc., Ashworth Store I,
Inc., Ashworth Store II, Inc., Ashworth International, Inc., Ashworth
U.K. Ltd. and Bank of America, N. A. expiring May 1, 2002. (filed as
Exhibit 10(l)(2) to Registrant's Form 10-Q for the quarter ended
January 31, 2001 (File No. 0-18553) and incorporated herein by
reference).
10(l)* Change in Control Agreement dated November 1, 2000 by and between
Ashworth, Inc. and Randall L. Herrel, Sr. (filed as Exhibit 10(m) to
Registrant's Form 10-K for the year ended October 31, 2000 (File No.
0-18553) and incorporated herein by reference).
10(m)* Change in Control Agreement dated November 1, 2000 by and between
Ashworth, Inc. and Terence W. Tsang (filed as Exhibit 10(n) to
Registrant's Form 10-K for the year ended October 31, 2000 (File No.
0-18553) and incorporated herein by reference).
10(n) Promotion Agreement effective November 1, 1999 by and between
Ashworth, Inc. and Fred Couples (filed as Exhibit 10(o) to
Registrant's Form 10-K for the year ended October 31, 2000 (File No.
0-18553) and incorporated herein by reference).
10(o)* Amended and Restated Offer and Acceptance of Executive Employment
effective February 1, 2000 by and between Ashworth, Inc. and
Nicoletta Larucci-Miele. (filed as Exhibit 10(p) to
19
Registrant's Form 10-Q for the quarter ended January 31, 2001 (File
No. 0-18553) and incorporated herein by reference).
10(p)* Offer and Acceptance of Executive Employment effective November 29,
1999 by and between Ashworth, Inc. and Anthony Wilkinson. (filed as
Exhibit 10(q) to Registrant's Form 10-Q for the quarter ended January
31, 2001 (File No. 0-18553) and incorporated herein by reference).
21. Subsidiaries of the Registrant
23. Consent of KPMG LLP
* Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K
and applicable rules of the Securities and Exchange Commission.
20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ashworth, Inc.:
We have audited the accompanying consolidated balance sheets of Ashworth, Inc.
(a Delaware corporation) and subsidiaries as of October 31, 2001 and 2000, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended October 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ashworth, Inc. and
subsidiaries as of October 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
San Diego, California
December 10, 2001
F-1
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 2001 and 2000
ASSETS 2001 2000
------------ ------------
Current assets:
Cash and cash equivalents $ 1,055,000 $ 1,231,000
Accounts receivable - trade, net of allowance for doubtful accounts of
$2,141,000 and $1,238,000 in 2001 and 2000, respectively 26,817,000 25,578,000
Accounts receivable - other 2,199,000 2,221,000
Inventories, net 35,841,000 37,526,000
Income tax receivable 941,000 582,000
Other current assets 2,359,000 1,891,000
Deferred income tax asset 1,833,000 1,614,000
------------ ------------
Total current assets 71,045,000 70,643,000
------------ ------------
Property, plant and equipment, at cost:
Land 1,200,000 1,200,000
Buildings and improvements 2,889,000 2,818,000
Production equipment 10,314,000 10,065,000
Furniture and equipment 18,014,000 13,639,000
Leasehold improvements 4,090,000 2,730,000
------------ ------------
36,507,000 30,452,000
Less accumulated depreciation and amortization (17,862,000) (15,604,000)
------------ ------------
18,645,000 14,848,000
Other assets 3,966,000 1,880,000
------------ ------------
Total assets $ 93,656,000 $ 87,371,000
============ ============
(Continued)
F-2
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
October 31, 2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------------ ------------
Current liabilities:
Line of credit payable $ 5,950,000 $ 1,490,000
Current portion of long-term debt 659,000 692,000
Accounts payable 4,203,000 4,477,000
Accrued liabilities:
Salaries and commissions 1,675,000 2,272,000
Other 1,631,000 1,716,000
------------ ------------
Total current liabilities 14,118,000 10,647,000
------------ ------------
Long-term debt, net of current portion 3,166,000 3,293,000
Deferred income tax liability 752,000 742,000
Other long-term liabilities 626,000 715,000
Stockholders' equity:
Common stock, $.001 par value; authorized 50,000,000 shares; issued and
outstanding 13,148,000 and 13,109,000 shares
in 2001 and 2000, respectively 13,000 13,000
Capital in excess of par value 37,959,000 37,698,000
Retained earnings 38,069,000 35,241,000
Accumulated other comprehensive loss (1,047,000) (978,000)
------------ ------------
Total stockholders' equity 74,994,000 71,974,000
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 93,656,000 $ 87,371,000
============ ============
See accompanying notes to consolidated financial statements.
F-3
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the years ended October 31, 2001, 2000 and 1999
2001 2000 1999
------------- ------------- -------------
Net revenues $ 124,727,000 $ 125,947,000 $ 107,921,000
Cost of goods sold 76,448,000 76,963,000 68,558,000
------------- ------------- -------------
Gross profit 48,279,000 48,984,000 39,363,000
Selling, general and administrative expenses 42,118,000 36,603,000 32,867,000
------------- ------------- -------------
Income from operations 6,161,000 12,381,000 6,496,000
------------- ------------- -------------
Other income (expense):
Interest income 21,000 204,000 112,000
Interest expense (1,352,000) (640,000) (431,000)
Net foreign currency exchange loss (90,000) (939,000) (23,000)
Other income (expense), net (27,000) (18,000) 113,000
------------- ------------- -------------
Total other expense (1,448,000) (1,393,000) (229,000)
------------- ------------- -------------
Income before provision for income taxes 4,713,000 10,988,000 6,267,000
Provision for income taxes 1,885,000 4,391,000 2,450,000
------------- ------------- -------------
Net income $ 2,828,000 $ 6,597,000 $ 3,817,000
============= ============= =============
Net income per share:
Basic .22 .49 .27
Diluted .21 .49 .27
Weighted-average shares outstanding:
Basic 13,140,000 13,406,000 14,035,000
Diluted 13,408,000 13,467,000 14,045,000
See accompanying notes to consolidated financial statements.
F-4
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended October 31, 2001, 2000 and 1999
ACCUMULATED
OTHER
COMMON STOCK CAPITAL IN DEFERRED COMPREHEN-
---------------------------- EXCESS OF RETAINED COMPEN- SIVE INCOME/
SHARES AMOUNT PAR VALUE EARNINGS SATION (LOSS) TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
OCTOBER 31, 1998 14,080,000 $ 14,000 $ 42,259,000 $ 24,827,000 $ (8,000) $ 13,000 $ 67,105,000
Treasury stock
acquired and
retired (303,000) -- (1,429,000) -- -- -- (1,429,000)
Amortization of
deferred
compensation -- -- -- -- 8,000 -- 8,000
Net income -- -- -- 3,817,000 -- -- 3,817,000
Translation
adjustment -- -- -- -- -- (75,000) (75,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
OCTOBER 31, 1999 13,777,000 14,000 40,830,000 28,644,000 -- (62,000) 69,426,000
Treasury stock
acquired and
retired (668,000) (1,000) (3,132,000) -- -- -- (3,133,000)
Net income -- -- -- 6,597,000 -- -- 6,597,000
Translation
adjustment -- -- -- -- -- (916,000) (916,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
OCTOBER 31, 2000 13,109,000 13,000 37,698,000 35,241,000 -- (978,000) 71,974,000
Options Exercised 125,000 -- 740,000 -- -- -- 740,000
Treasury stock
acquired and
retired (86,000) -- (479,000) -- -- -- (479,000)
Net income -- -- -- 2,828,000 -- -- 2,828,000
Translation
adjustment -- -- -- -- -- (69,000) (69,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
OCTOBER 31, 2001 13,148,000 $ 13,000 $ 37,959,000 $ 38,069,000 $ -- $ (1,047,000) $ 74,994,000
============ ============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-5
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended October 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 2,828,000 $ 6,597,000 $ 3,817,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred compensation -- -- 8,000
Depreciation and amortization 3,125,000 2,602,000 2,067,000
(Gain) loss on disposal of property, plant and equipment 83,000 (1,000) 11,000
Increase in deferred income tax asset (209,000) (119,000) (5,000)
Provision for doubtful accounts, markdowns and sales returns 1,664,000 744,000 309,000
Increase in accounts receivable (2,903,000) (5,663,000) (2,806,000)
Decrease (increase) in inventories 1,685,000 (6,882,000) 4,644,000
Decrease (increase) in income tax receivable (359,000) 517,000 50,000
Decrease (increase) in other current assets (390,000) 210,000 (162,000)
Decrease (increase) in other assets (2,323,000) 181,000 634,000
Increase (decrease) in accounts payable (274,000) 1,017,000 (2,800,000)
Increase (decrease) in accrued liabilities (682,000) 1,302,000 (28,000)
Increase (decrease) in other long-term liabilities (89,000) 376,000 (93,000)
------------ ------------ ------------
Net cash provided by operating activities 2,156,000 881,000 5,646,000
------------ ------------ ------------
Cash flows from investing activities:
Net purchases of property, plant and equipment (6,669,000) (4,184,000) (1,459,000)
Proceeds from sale of property, plant and equipment 8,000 46,000 1,000
------------ ------------ ------------
Net cash used in investing activities (6,661,000) (4,138,000) (1,458,000)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (22,000) (36,000) (53,000)
Borrowings on line of credit 47,475,000 39,498,000 16,065,000
Payments on line of credit (43,015,000) (38,008,000) (16,065,000)
Proceeds from long-term debt 3,000,000 1,441,000 --
Principal payments on notes payable and long-term debt (3,301,000) (865,000) (887,000)
Proceeds from exercise of stock options 740,000 -- --
Treasury stock acquired (479,000) (3,133,000) (1,429,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 4,398,000 (1,103,000) (2,369,000)
------------ ------------ ------------
Effect of exchange rate changes on cash (69,000) (916,000) (75,000)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (176,000) (5,276,000) 1,744,000
Cash and cash equivalents, beginning of year 1,231,000 6,507,000 4,763,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,055,000 $ 1,231,000 $ 6,507,000
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 1,352,000 $ 640,000 $ 431,000
Income taxes paid, net of refunds 2,248,000 3,903,000 2,400,000
Supplemental disclosures of noncash transactions:
Capital lease equipment acquired and related capital lease
obligations 163,000 -- --
See accompanying notes to consolidated financial statements.
F-6
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2001, 2000 and 1999
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Ashworth, Inc. (the "Company"), based in Carlsbad, California, designs,
markets and distributes a full line of quality sports apparel, headwear,
and accessories under the Ashworth label. Ashworth products are sold in
golf pro shops, resorts, to corporate customers, at better department and
specialty retail stores, Ashworth retail stores, and in selected
international markets.
In May 2001, Ashworth agreed to a multi-year exclusive licensing
agreement with Callaway Golf Company to design, market and distribute
complete lines of men's and women's Callaway Golf(R) apparel. The
agreement allows Ashworth to sell Callaway Golf(R) apparel primarily in
the United States, Europe, Canada and Australia. Callaway Golf(R) apparel
will debut in April of 2002.
The Company has wholly-owned subsidiaries that currently own and operate
eight Company outlet stores and the Ashworth Concept Store. A
wholly-owned United Kingdom subsidiary distributes the Company's products
in Europe. The Company also established a wholly-owned subsidiary in the
Virgin Islands as a foreign sales corporation to take advantage of
certain federal income tax benefits with respect to profits from foreign
revenues. A division was established in 1998 to distribute the Company's
products in Canada.
The Company and the Company's subsidiaries had aggregate net foreign
revenues in Europe, Canada, Singapore, United Arab Emirates, Australia,
Japan, Taiwan, Mexico, Hong Kong, South Africa and other countries of
approximately $17,043,000, $16,204,000 and $14,394,000 in the years ended
October 31, 2001, 2000 and 1999, respectively. The Company's wholly-owned
United Kingdom subsidiary had net revenues of $9,133,000, $8,530,000 and
$7,950,000 and operating income of $636,000, $422,000 and $26,000 in the
years ended October 31, 2001, 2000 and 1999, respectively. Ashworth U.K.,
Ltd. had identifiable assets of $11,576,000 and $10,967,000 as of October
31, 2001 and 2000, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. Cost includes materials, labor and overhead.
F-7
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Below is a summary of the components of net inventories at October 31,
2001 and 2000:
2001 2000
----------- -----------
Raw materials $ 449,000 $ 811,000
Work in process 107,000 --
Finished products 35,285,000 36,715,000
----------- -----------
Inventories, net $35,841,000 $37,526,000
=========== ===========
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
Depreciation and amortization have been provided using straight-line and
accelerated methods over the following estimated useful lives:
Buildings and improvements 20 to 30 years
Production equipment 5 to 12 years
Furniture and equipment 3 to 7 years
Leasehold improvements Shorter of life of lease or useful life
All maintenance and repair costs are charged to operations as incurred.
When assets are sold or otherwise disposed of, the costs and accumulated
depreciation or amortization are removed from the accounts and any
resulting gain or loss is reflected in operations.
INTANGIBLE ASSETS
Intangible assets, including trademark costs, distribution rights and a
non-compete agreement, that are included in other non-current assets, are
capitalized and amortized over periods ranging from two to ten years.
ADVERTISING EXPENSES
Advertising costs, which consist primarily of product advertising, are
included in selling, general and administrative expenses and are expensed
in the period the costs are incurred. Advertising expenses for the years
ended October 31, 2001, 2000 and 1999 were $1,123,000, $833,000 and
$1,204,000, respectively.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax
F-8
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
rates is recognized in income in the period that includes the enactment
date.
NET INCOME PER SHARE
The Company calculates basic EPS by dividing net income by the
weighted-average common shares outstanding during the period. Diluted EPS
reflects the potential dilution to basic EPS that could occur upon
conversion or exercise of dilutive securities, options, or other such
items, to common shares using the treasury stock method using the
weighted-average fair value of the Company's common shares during the
period (See Note 7, "Net Income Per Share" for computation of EPS.)
STOCK OPTION PLAN
The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123. (See Note 6, "Stockholders' Equity".)
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.
FOREIGN CURRENCY
The Company's primary functional currency is the U.S. dollar. Assets and
liabilities of the Company denominated in foreign currencies are
translated at the rate of exchange at the balance sheet date, while
revenue and expenses are translated using the average exchange rate.
Gains and losses on foreign currency transactions are recognized as
incurred. Gains and losses on remeasurement of transactions denominated
in currency other than the reporting currency of individual subsidiaries
are recognized at each balance sheet date. Cumulative translation
adjustments resulting from the translation of the financial statements of
foreign subsidiaries are included as a separate component of
stockholders' equity. The Company's ability to sell its products in
foreign markets and the U.S. dollar value of the sales made in foreign
currencies can be significantly influenced by foreign currency
fluctuations. A decrease in the value of foreign currencies relative to
the U.S. dollar could result in downward price pressure for the Company's
products or losses from currency exchange rates. Although the Company and
its subsidiaries did not do so during fiscal 2001, from time to time, the
Company enters into short-term foreign exchange contracts with its bank
to hedge against the impact of currency fluctuations. Realized gains and
losses on these contracts are recognized in the same period as the hedged
transactions. These contracts have maturity dates that do not normally
exceed 12 months. The Company will continue to assess the benefits and
risks of strategies to manage the risks presented by currency exchange
rate fluctuations. There is no assurance that any strategy will be
successful in avoiding losses due to exchange rate fluctuations, or that
the failure to manage currency risks effectively would not have a
material adverse effect on the Company's results of operations. As of
October 31, 2001, the Company had no outstanding foreign currency forward
exchange contracts.
REVENUE RECOGNITION
The Company recognizes revenue at the time products are shipped or, for
Company stores, at the point of sale. Provisions are made currently for
estimated product returns and sales allowances.
F-9
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the Company's
line of credit and long-term debt approximates the carrying value. The
carrying value of all other financial instruments potentially subject to
valuation risk (principally consisting of cash and cash equivalents,
accounts receivable, accounts payable and capital leases) also
approximate fair value due to the short term nature of those instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to certain prior year balances
in order to conform with current year presentation.
(2) LEASES
During the years ended October 31, 2001, 2000 and 1999, the Company
acquired $163,000, $0 and $0, respectively, of various equipment under
capital leases.
At October 31, 2001 and 2000, the accompanying consolidated balance
sheets include the following equipment under capital leases:
2001 2000
--------- ---------
Production equipment $ 234,000 $ 234,000
Furniture and equipment 163,000 --
--------- ---------
Total equipment under capital leases 397,000 234,000
Less accumulated amortization (225,000) (170,000)
--------- ---------
Total equipment under capital leases, net $ 172,000 $ 64,000
========= =========
Amortization of assets held under capital leases is included in
depreciation and amortization expense.
The Company also leases certain production, warehouse and outlet store
facilities under operating leases. These leases expire in various fiscal
years through January 2008. Rent expense for the years ended October 31,
2001, 2000 and 1999 was $2,559,000, $1,864,000 and $1,813,000,
respectively. Future minimum lease payments under noncancelable operating
leases and future minimum capital lease payments as of October 31, 2001
are:
F-10
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CAPITAL OPERATING
YEAR ENDING OCTOBER 31, LEASES LEASES
-------------------------------------------- --------- -----------
2002 $ 53,000 $ 1,936,000
2003 49,000 1,924,000
2004 40,000 1,891,000
2005 40,000 1,812,000
2006 23,000 636,000
Thereafter - 489,000
--------- -----------
Total minimum lease payments 205,000 $ 8,688,000
===========
Less amount representing interest (at rates ranging from
8.08% to 10.99%) (33,000)
---------
Present value of future minimum capital lease payments
(Note 4) $ 172,000
=========
(3) LINE OF CREDIT AGREEMENT
The Company has a $25 million working capital line of credit agreement
with a bank, which expires on May 1, 2002 and is collateralized by
substantially all of the assets of the Company. The Company negotiated an
amendment to the line of credit agreement effective as of January 31,
2001. The amendment provides for a seasonal increase in the line of
credit to $35 million for the periods from March 1, 2001 to June 1, 2001
and again from March 1, 2002 to May 1, 2002. The interest rate on
borrowings is 0.5% below the bank's reference rate, which was 5.5% at
October 31, 2001. The Company has chosen to use the optional IBOR rates
from time to time during the fiscal year with rates ranging from 8.25% in
November 2000 to 5.21% in September 2001. The line of credit agreement
requires the payment of a commitment fee of approximately 0.175% of the
unused portion. The loan agreement contains various restrictive covenants
requiring, among other matters, the maintenance of certain financial
ratios. The Company believes it was in compliance with or had obtained
waivers for all such covenants as of October 31, 2001. The agreement
permits the Company to acquire, for value, shares of Ashworth stock in an
aggregate amount not to exceed $10,200,000 during the term of the
agreement. At October 31, 2001, the Company had a balance of $6.0 million
outstanding on this line of credit compared to $1.5 million outstanding
at October 31, 2000. The line of credit also provides for a $25.0 million
limit for the sum of advances under the line of credit and the
outstanding commercial letters of credit and standby letters of credit.
Commercial letters of credit outstanding under this agreement totaled
$5.5 million at October 31, 2001 and $11.3 million at October 31, 2000.
The total amount of unused revolving credit available to the Company at
October 31, 2001 was $13.5 million.
F-11
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) LONG-TERM DEBT
Amounts outstanding under long-term debt agreements at October 31, 2001
and 2000 consist of the following:
2001 2000
----------- -----------
Installment notes bearing interest ranging from 7.3% to 8.1%, with
due dates through April 2003, collateralized by various equipment $ 763,000 $ 1,341,000
Note payable to a bank, bearing interest at 8.4%, payable in monthly
principal payments of $10,000 plus interest on the outstanding
principal balance through November 2005, with a balloon payment of
approximately $2.0 million payable on November 30, 2005;
collateralized by land and buildings 2,890,000 2,614,000
Capital lease obligations (Note 2) 172,000 30,000
----------- -----------
3,825,000 3,985,000
Less current portion (659,000) (692,000)
----------- -----------
Long-term debt $ 3,166,000 $ 3,293,000
=========== ===========
Future maturities of long-term debt at October 31, 2001 are as follows:
YEAR ENDING OCTOBER 31,
-------------------------
2002 $ 659,000
2003 424,000
2004 153,000
2005 156,000
2006 2,433,000
-----------
$ 3,825,000
===========
(5) EMPLOYEES' 401(k) PLAN
The Company maintains a retirement plan covering substantially all
employees. Company contributions, which are voluntary and at the
discretion of the Company's Board of Directors, are currently being made
at 50% of the amount the employee contributes, up to 3% of compensation.
The Company's expense for the years ended October 31, 2001, 2000 and 1999
was $242,000, $159,000 and $136,000, respectively.
F-12
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) STOCKHOLDERS' EQUITY
Common Stock Options
On December 14, 1999, the Company adopted the Ashworth, Inc. 2000 Equity
Incentive Plan which was subsequently amended (as amended to date, the
"2000 Plan"). The stockholders adopted the 2000 Plan on March 24, 2000
and concurrently terminated the Company's Incentive Stock Option Plan,
the Founders' Nonqualified Stock Option Plan and the Nonqualified Stock
Option Plan (together, the "Terminated Plans"). With the adoption of the
2000 Plan and the concurrent termination of the Terminated Plans, the
Company reduced the aggregate number of shares available for issuance
under its stock plans from 2,041,439 under the Terminated Plans to
1,900,000 shares of common stock under the 2000 Plan. On December 12,
2000 the Company filed Form S-8 (File No. 333-51730) to register the
1,900,000 shares of common stock available for issuance under the 2000
Plan.
As of October 31, 2001, of the 1,900,000 shares of common stock available
for issuance under the 2000 Plan, the Company had options covering
506,000 shares of common stock outstanding under the 2000 Plan with
exercise prices ranging from $4.00 to $7.19 and expiration dates between
December 2009 and September 2011. At October 31, 2001, a total of
1,371,000 shares of common stock remained available for issuance pursuant
to awards granted under the 2000 Plan. As of October 31, 2001, the
Company still had options covering 2,212,000 shares of common stock
outstanding under the Terminated Plans with exercise prices ranging from
$3.50 to $16.94 and expiration dates between December 2001 and November
2007.
The following is a summary of stock option activity under the 2000 Plan
and the Terminated Plans for the fiscal years ended October 31, 1999,
October 31, 2000 and October 31, 2001:
SHARES OPTION EXERCISE PRICE PER SHARE
UNDERLYING -------------------------------
OUTSTANDING WEIGHTED-
OPTIONS RANGE AVERAGE
------------ -------------- ---------
Balance at October 31, 1998 2,403,000 $5.00 - $16.94 $8.52
Granted 650,000 3.50 - 6.00 5.16
Exercised 0 0.00 - 0.00 0.00
Canceled or Expired (261,000) 5.50 - 10.81 8.23
------------
Balance at October 31, 1999 2,792,000 3.50 - 16.94 7.80
Granted 402,000 4.00 - 5.25 4.26
Exercised 0 0.00 - 0.00 0.00
Canceled or Expired (171,000) 4.16 - 14.63 8.16
------------
Balance at October 31, 2000 3,023,000 3.50 - 16.94 7.29
Granted 400,000 6.00 - 7.19 6.85
Exercised (125,000 4.00 - 6.63 5.28
Canceled or Expired (580,000) 4.00 - 10.19 8.19
------------
Balance at October 31, 2001 2,718,000 3.50 - 16.94 7.13
============
F-13
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following is a summary of stock options outstanding at October 31,
2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES (SHARES) LIFE PRICE (SHARES) PRICE
-------------------- ------------ ----------- --------- ----------- ---------
$ 3.50 - $ 6.78 1,532,000 4.2 $ 5.43 1,265,000 $5.60
6.79 - 11.86 1,006,000 4.3 8.44 741,000 8.98
11.87 - 16.94 180,000 3.8 14.28 180,000 14.28
---------- ----------
2,718,000 4.2 7.13 2,186,000 7.46
========== ==========
At October 31, 2001, 2000 and 1999, the number of shares of common stock
underlying exercisable options was 2,186,000, 2,450,000 and 2,228,000,
respectively, and the weighted-average exercise price of those options
was $7.46, $7.76 and $8.06, respectively.
For purposes of the following pro forma disclosures required by SFAS No.
123, the fair value of each option granted after fiscal 1995 has been
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants:
risk-free interest rates of 4.78% to 5.82% in 2001, 6.00% to 6.65% in
2000 and 4.39% to 6.20% in 1999; expected volatility of 58.19% to 63.79%
in 2001 and 57.6% to 60.5% in 2000 and 57.8% to 60.2% in 1999; and
expected life of 10 years in 2001 and 5 to 10 years in 2000 and 5 to 7
years in 1999. The Company has not paid any cash or other dividends and
does not anticipate paying dividends in the foreseeable future;
therefore, the expected dividend yield is zero. The weighted-average fair
value of options granted was $6.85 in 2001, $4.26 in 2000 and $5.16 in
1999. Had compensation cost for the Company's employee-based stock option
plans been determined consistent with SFAS No. 123, the Company would
have recorded net income of $1,844,000 or $0.14 per diluted share in
2001, net income of $5,789,000 or $0.43 per diluted share in 2000 and net
income of $2,646,000 or $0.19 per share in 1999. These pro forma
calculations only include the effects of 1996 through 2001 grants. As
such, the impacts may not be representative of the effects on reported
net income in future years.
DEFERRED COMPENSATION
During fiscal 1993, common stock was issued to a golf professional for
future services to the Company for a total value of $305,000. The service
arrangements covered a six-year period and the value of the stock was
amortized to operating expenses over this period. The unamortized portion
of the deferred compensation was reported as a reduction in stockholders'
equity.
COMPREHENSIVE INCOME
For the quarters ended October 31, 2001 and 2000, total comprehensive
income (loss) was ($2,059,000) and $730,000, respectively. For the years
ended October 31, 2001 and 2000, total comprehensive income was
$2,759,000 and $5,681,000, respectively.
F-14
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) NET INCOME PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations:
YEAR ENDED OCTOBER 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------
NUMERATOR:
Net income -
numerator for basic and diluted earnings per share -
income available to common stockholders $ 2,828,000 $ 6,597,000 $ 3,817,000
=========== =========== ===========
DENOMINATOR:
Denominator for basic earnings per share
- weighted average shares 13,140,000 13,406,000 14,035,000
Effect of dilutive securities
- stock options 268,000 61,000 10,000
----------- ----------- -----------
Denominator for diluted earnings per share
- adjusted weighted average shares and
assumed conversions 13,408,000 13,467,000 14,045,000
=========== =========== ===========
The diluted weighted average shares outstanding computation excludes
1,149,000, 2,350,000, and 2,502,000 options whose impact would have an
anti-dilutive effect in 2001, 2000 and 1999, respectively.
(8) COMMITMENTS AND CONTINGENCIES
PROMOTIONAL AGREEMENTS WITH PGA PROFESSIONALS AND A TELEVISION
PERSONALITY
The Company had promotional agreements with several PGA professionals
(including Fred Couples, a significant stockholder of the Company and a
related party); Jim Nantz, a television personality and member of the
Company's board of directors, also a related party; and a management
company. Under the terms of these agreements, the Company is obligated to
pay cash compensation and, in some cases, to issue options (at fair
market value) to purchase shares of the Company's common stock.
The aggregate annual cash compensation recognized under these agreements
in fiscal year 2001, 2000 and 1999 was $1,354,000, $890,000 and $814,000,
respectively. In fiscal 2001, all of the $1,354,000 was paid to the
related parties. Future minimum commitments under these agreements are
$1,287,000 payable in 2002, $1,297,000 payable in 2003, $1,307,000
payable in 2004, $1,257,000 payable in 2005, $1,017,000 payable in 2006
and $1,000,000 payable in each of the years 2007 through 2011 all of
which is payable to related parties.
These agreements have certain performance requirements that allow the
players to earn additional cash compensation. Obligations under this
provision, if any, are accrued and charged to operations during the
period in which they arise. The Company incurred approximately $0, $3,000
and $56,000 in charges related to performance requirements in 2001, 2000
and 1999, respectively, of which $0, $0 and $45,000 in 2001, 2000 and
1999, respectively, was paid to a related party.
F-15
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
EXECUTIVE EMPLOYMENT AGREEMENTS
In fiscal years 2001, 2000 and 1999, the Company had an executive
employment agreement with Randall L. Herrel, Sr. and in fiscal year 1999
the Company had an executive employment agreement with Gerald W. Montiel
who resigned effective December 31, 1998.
The agreement with Mr. Herrel provides for a base salary of not less than
$325,000 and bonuses to be determined periodically at the discretion of
the Board of Directors on the basis of merit and the Company's financial
success and progress. No bonus was awarded to Mr. Herrel for fiscal year
2001. A $169,000 bonus was awarded to Mr. Herrel in December 2000, based
on the Company having achieved the goals set forth in the fiscal year
2000 bonus plan. No bonus was paid to him for fiscal year 1999. The
Company maintains a life insurance policy for $1,000,000, the beneficiary
of which may be named by Mr. Herrel. The agreement with Mr. Herrel
includes severance payments upon termination of employment under specific
circumstances, such payments ranging from one-half to two times his then
annual base salary.
Effective December 31, 1998, in connection with the termination of Mr.
Montiel's executive employment and resignation as chairman and director,
the Company entered into a Personal Services Agreement and
Acknowledgement of Termination of Executive Employment with Mr. Montiel.
The agreement provides that effective with the termination of employment,
all the terms and conditions of Section 13, the noncompetition provision
of Mr. Montiel's 1995 executive employment agreement covering the
ten-year post-termination period, are applicable. The noncompetition
provision states that, as consideration for Montiel's non-compete
agreement, the Company shall pay Montiel compensation equal to (i) 100%
of his then current salary plus (ii) nine times an amount equal to 40% of
his then current salary, provided, however, such compensation shall not
be less than $1,437,500. The present value of the estimated cash payments
to be made was accrued and recorded in the accompanying consolidated
balance sheets. The corresponding asset is being amortized using the
straight-line method over the ten-year non-compete period.
Effective June 25, 1997, in connection with the termination of John
Ashworth's executive employment, the Company entered into a Personal
Services Agreement and Acknowledgement of Termination of Executive
Employment with Mr. Ashworth. The agreement included a non-compete
provision that provided an initial payment to Mr. Ashworth of $263,000
for the first year, and 40% of such amount over each of the next nine
years. The present value of the estimated cash payments to be made was
accrued and recorded in the accompanying consolidated balance sheets. The
corresponding asset was being amortized using the straight-line method
over the ten-year non-compete period. However, in June 2000, Mr. Ashworth
chose to terminate the non-compete provision in the agreement and will
therefore receive no further payments. The balance of the accrued present
value of the estimated cash payments and the unamortized balance of the
asset were written off in fiscal year 2000.
LEGAL PROCEEDINGS
On January 22, 1999, Milberg Weiss Bershad Hynes & Lerach LLP filed a
class action in the United States District Court for the Southern
District of California ("U.S. District Court") on behalf of purchasers of
the Company's common stock during the period between September 4, 1997
and July 15, 1998. The action was subsequently consolidated with two
similar suits and plaintiffs filed their Amended and Consolidated
Complaint on December 17, 1999. Upon the Company's motion, the U.S.
F-16
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
District Court dismissed the Complaint with leave to amend on July 18,
2000. On September 18, 2000, plaintiffs served their Second Consolidated
Amended Complaint ("Second Amended Complaint"). On November 6, 2000, the
Company filed its motion to dismiss the Second Amended Complaint, which
the U.S. District Court granted, in part, and denied, in part. The
remaining portions of the Second Amended Complaint allege that, among
other things, during the class period and in violation of the Securities
Exchange Act of 1934, the Company's financial statements, as reported,
did not conform to generally accepted accounting principles with respect
to revenues and inventory levels. It further alleges that certain Company
executives made false or misleading statements or omissions concerning
product demand and that two former executives engaged in insider trading.
The plaintiffs seek unspecified damages. Discovery will commence shortly.
In October 2000, former Ashworth sales representatives Regional Sales,
Inc. and Susan Stanley filed a complaint in San Diego Superior Court
against Ashworth. In October of 2001, the parties reached a confidential
resolution of the matter in which the Company admitted no wrongdoing and
the matter was dismissed with prejudice.
The Company is party to other claims and litigation proceedings arising
in the normal course of business. Although the legal responsibility and
financial impact with respect to such other claims and litigation cannot
currently be ascertained, the Company does not believe that these other
matters will result in payment by the Company of monetary damages, net of
any applicable insurance proceeds, that, in the aggregate, would be
material in relation to the consolidated financial position or results of
operations of the Company.
(9) RELATED-PARTY TRANSACTIONS
At October 31, 1999, the Company had a note receivable from an officer
for $70,000. The note was secured by a Short Form Deed of Trust and
accrued interest annually at 6%. The entire balance of the note was
collected during fiscal year 2000.
Starting in 1997, the Company began using as one of its external sales
representatives, a company which was owned in part by a related party.
Sales commissions paid to that company were approximately $0, $0 and
$228,000 for the years ended October 31, 2001, 2000 and 1999,
respectively.
The Company has promotional agreements with a director and certain
stockholders. (See Note 8.)
F-17
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) INCOME TAXES
The provision for income taxes for the years ended October 31, 2001, 2000
and 1999 is as follows:
2001 2000 1999
----------- ----------- -----------
Current provision:
Federal $ 1,519,000 $ 3,684,000 $ 2,047,000
State 463,000 826,000 408,000
Foreign 112,000 -- --
----------- ----------- -----------
Total 2,094,000 4,510,000 2,455,000
----------- ----------- -----------
Deferred provision (benefit):
Federal (124,000) (44,000) (4,000)
State (19,000) (75,000) (1,000)
Foreign (66,000) -- --
----------- ----------- -----------
Total (209,000) (119,000) (5,000)
----------- ----------- -----------
Total provision for income taxes $ 1,885,000 $ 4,391,000 $ 2,450,000
=========== =========== ===========
The components of the Company's deferred income tax benefit and liability
as of October 31, 2001 and 2000 are as follows:
2001 2000
----------- -----------
Current deferred income tax benefit:
Allowance for doubtful accounts $ 361,000 $ 252,000
Inventory reserves 298,000 412,000
Unearned royalty -- 31,000
Accrued compensation 312,000 370,000
Foreign subsidiary net operating loss -- 210,000
Other nondeductible accruals 795,000 475,000
Other deductible capitalized costs 67,000 74,000
----------- -----------
Total gross deferred tax assets 1,833,000 1,824,000
Less valuation allowance -- (210,000)
----------- -----------
Net deferred tax assets $ 1,833,000 $ 1,614,000
=========== ===========
Long-term deferred income tax liability - depreciation $ 752,000 $ 742,000
=========== ===========
The net change in the total valuation allowance for the years ended
October 31, 2001 and 2000 was a decrease of $210,000 and an increase of
$210,000, respectively. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
Company has recorded a net deferred income tax asset of $1,081,000 and
$872,000 as of October 31, 2001 and 2000, respectively. The realization
of this net asset may be dependent upon the Company's ability to generate
sufficient taxable income in future years. Although realization is not
assured, management believes it is more likely than not that the net
deferred income tax asset will be realized. The amount of the net
deferred income tax asset considered realizable, however, could be
reduced in the near term if tax rates are lowered.
A reconciliation of the provision for income taxes at the statutory rate
to the Company's effective rate is as follows:
F-18
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2001 2000 1999
----------- ----------- -----------
Computed income tax at the expected
statutory rate $ 1,602,000 $ 3,736,000 $ 2,131,000
State income tax, net of federal tax
benefits 300,000 458,000 306,000
Nondeductible expenses 72,000 98,000 113,000
Foreign sales corporation tax benefit -- (8,000) (31,000)
Foreign tax jurisdiction rate
differential (43,000) 28,000 --
Change in valuation allowance (210,000) 210,000 --
Other 164,000 (131,000) (69,000)
----------- ----------- -----------
Income tax provision $ 1,885,000 $ 4,391,000 $ 2,450,000
=========== =========== ===========
(11) SEGMENT INFORMATION
The Company has the following two reportable segments: Domestic and
International. Management evaluates segment performance based primarily
on revenues and income from operations. Interest income and expense is
evaluated on a consolidated basis and is not allocated to the Company's
business segments. Segment information is summarized as follows for the
years ended October 31, 2001, 2000 and 1999 (in thousands).
2001 2000 1999
-------- -------- --------
NET REVENUE:
Domestic 107,684 109,743 93,527
International 17,043 16,204 14,394
-------- -------- --------
Total 124,727 125,947 107,921
======== ======== ========
INCOME (LOSS) FROM OPERATIONS:
Domestic 5,452 10,764 7,009
International 709 1,617 (513)
-------- -------- --------
Total 6,161 12,381 6,496
======== ======== ========
CAPITAL EXPENDITURES:
Domestic 6,142 4,040 1,199
International 527 144 260
-------- -------- --------
Total 6,669 4,184 1,459
======== ======== ========
TOTAL ASSETS:
Domestic 79,878 74,847 73,768
International 13,778 12,524 6,338
-------- -------- --------
Total 93,656 87,371 80,106
======== ======== ========
DEPRECIATION:
Domestic 2,647 2,037 1,910
International 241 153 144
-------- -------- --------
Total 2,888 2,190 2,054
======== ======== ========
F-19
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) RESULTS BY QUARTER (UNAUDITED)
The unaudited results by quarter for the years ended October 31, 2001 and
2000 are shown below:
FIRST SECOND THIRD FOURTH
YEAR ENDED OCTOBER 31, 2001 QUARTER QUARTER QUARTER QUARTER
- --------------------------------- ------------ ------------ ------------ ------------
Net revenues $ 27,706,000 $ 46,908,000 $ 29,765,000 $ 20,348,000
Gross profit 9,946,000 19,253,000 11,421,000 7,659,000
Net income (loss) 381,000 4,011,000 615,000 (2,179,000)
Net income (loss) per basic share .03 .31 .05 (.17)
Weighted-average basic shares
outstanding 13,118,000 13,149,000 13,155,000 13,176,000
Net income (loss) per diluted
share .03 .30 .05 (.16)
Weighted-average diluted shares
outstanding 13,437,000 13,584,000 13,370,000 13,300,000
FIRST SECOND THIRD FOURTH
YEAR ENDED OCTOBER 31, 2000 QUARTER QUARTER QUARTER QUARTER
- --------------------------------- ------------ ------------ ------------ ------------
Net revenues $ 22,499,000 $ 41,272,000 $ 35,004,000 $ 27,172,000
Gross profit 8,030,000 16,891,000 13,367,000 10,696,000
Net income 273,000 3,444,000 1,820,000 1,060,000
Net income per basic share .02 .26 .14 .08
Weighted-average basic shares
outstanding 13,684,000 13,467,000 13,320,000 13,154,000
Net income per diluted share .02 .26 .14 .08
Weighted-average diluted shares
outstanding 13,696,000 13,498,000 13,370,000 13,331,000
During the fourth quarter of fiscal year 2001, the Company had a net loss
of $2,179,000 as compared to net income of $1,060,000 in the same period
of the prior year primarily due to lower revenues caused by overall
weakness in the economy and from the September 11, 2001 tragedy; and
increased expenses due to startup costs associated with the Callaway
Golf(R) apparel license.
F-20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ashworth, Inc.:
Under date of December 10, 2001, we reported on the consolidated balance sheets
of Ashworth, Inc. (a Delaware Corporation) and subsidiaries as of October 31,
2001 and 2000, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
October 31, 2001. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our
audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
San Diego, California
December 10, 2001
F-21
ASHWORTH, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
Description OF YEAR EXPENSE ACCOUNTS DEDUCTIONS OF YEAR
- ----------- ---------- ---------- ---------- ---------- ----------
FOR THE YEAR ENDED
OCTOBER 31, 1999:
Allowance for
Doubtful accounts $1,039,000 $ 309,000 $ -- $ 459,000 $ 889,000
========== ========== ========== ========== ==========
FOR THE YEAR ENDED
OCTOBER 31, 2000:
Allowance for
Doubtful accounts $ 889,000 $ 744,000 $ -- $ 395,000 $1,238,000
========== ========== ========== ========== ==========
FOR THE YEAR ENDED
OCTOBER 31, 2001:
Allowance for
Doubtful accounts $1,238,000 $1,664,000 $ -- $ 761,000 $2,141,000
========== ========== ========== ========== ==========
F-22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: JANUARY 28, 2002 BY: /s/ RANDALL L. HERREL, SR.
-------------------------------
RANDALL L. HERREL, SR.
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RANDALL L. HERREL, SR. CHAIRMAN, PRESIDENT AND JANUARY 28, 2002
- ------------------------------- CHIEF EXECUTIVE OFFICER
RANDALL L. HERREL, SR. (PRINCIPAL EXECUTIVE OFFICER)
DIRECTOR
/s/ TERENCE W. TSANG EXECUTIVE VICE PRESIDENT, JANUARY 28, 2002
- ------------------------------- CHIEF OPERATING OFFICER
TERENCE W. TSANG CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
/s/ STEPHEN BARTOLIN, JR. DIRECTOR JANUARY 28, 2002
- -------------------------------
STEPHEN BARTOLIN, JR.
/s/ STEPHEN G. CARPENTER DIRECTOR JANUARY 28, 2002
- -------------------------------
STEPHEN G. CARPENTER
/s/ ANDRE P. GAMBUCCI DIRECTOR JANUARY 28, 2002
- -------------------------------
ANDRE P. GAMBUCCI
/s/ JOHN M. HANSON, JR. DIRECTOR JANUARY 28, 2002
- -------------------------------
JOHN M. HANSON, JR.
/s/ H. MICHAEL HECHT DIRECTOR JANUARY 28, 2002
- -------------------------------
H. MICHAEL HECHT
/s/ JAMES W. NANTZ, III DIRECTOR JANUARY 28, 2002
- -------------------------------
JAMES W. NANTZ, III