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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, 2000
[ ] 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.)
2791 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, 2000, was $85,256,000 based upon the last reported
sale price of the Company's common stock as reported by the Nasdaq National
Market System.
There were 13,116,373 shares of common stock, $.001 par value, outstanding at
the close of business on December 31, 2000.
PART III is incorporated by reference from the Registrant's definitive Proxy
Statement for its 2001 Annual Meeting of Stockholders to be filed with the
Commission within 120 days of October 31, 2000.
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CAUTIONARY STATEMENTS AND RISK FACTORS
This report on Form 10-K contains certain forward looking statements, including
without limitation those regarding the Company's plans and expectations for
revenue growth, product lines, 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
weakens or the popularity of golf decreases.
- - Like other apparel manufacturers, the Company must correctly anticipate and
help direct fashion within its industry. The Company's results of operations
could suffer if it fails to develop fashions and styles that are well
received in any season.
- - The Company's business is seasonal, and revenues in the fourth calendar
quarter have historically been particularly weak.
- - 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 significant. Price competition or industry consolidation could
weaken the Company's competitive position.
- - Certain of the Company's competitors may be better positioned to capitalize
on the opportunities provided by e-commerce (i.e., revenues and marketing
over the Internet). This could result in weakening the Company's competitive
position.
- - The Company relies upon 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.
- - There can be no assurance that the Company's future revenue will not decline
due to various factors, including potential consolidation of the Company's
core green grass market, which could result in discounting, as well as
possible general declines in economic conditions from the levels recently
experienced.
- - 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 made in foreign currencies.
- - The Company maintains high levels of inventory to support its Basics
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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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. 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.
The Company has wholly-owned subsidiaries that own and operate the 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 opened a new division on
November 1, 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(R) brand exclusively to golf pro shops and resorts. The Company has
focused on developing a new look in golfwear over the past ten years, using
natural fibers 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 younger 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 and has been a leading
golf apparel line sold at pro shops in the United States over the past few
years.
ASHWORTH PRODUCTS
The 2000 collections are maintaining their reputation for comfort,
innovation, and quality. Through carefully blending comfortable and technical
fabrics, Ashworth has elevated their line to a new level. Basic materials such
as Cotton combined with Tencel, Nylon, Rayon, Polyester and Spandex are gaining
importance and have added considerable contributions into the 2000 collections.
Ashworth has added spandex and Ispira tactel to maximize comfort and
performance. By adding these technical fabrics, Ashworth has perfected the
balance of fashion, function and comfort.
Ashworth currently has two national licensees and eight international
licensees. E.S. Originals, Ashworth's exclusive footwear licensee, and Gilbert
Hosiery, Ashworth's exclusive sock licensee, have just signed to complete the
Ashworth line.
The Ashworth Men's Division designs two Spring, two Summer, one
Transition, one Fall, one Resort, one Holiday, two Weather Systems and one
Authentics collection per year. Each collection consists of approximately 35 to
50 styles including 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, introduced in 1998, has rapidly been
gaining market share each year. The Women's Division designs four Spring/Summer,
four Fall/Holiday and one Authentics collection per year. Each collection
consists of approximately 25 to 30 styles that focus on timeless, elegant
designs that are functional and sophisticated for the woman with a stylistic
language yet an active lifestyle.
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DISTRIBUTION CHANNELS
Approximately 90% of our products are warehoused in and shipped from our
distribution facilities in Carlsbad, California. Drop-shipments from off-shore
factories directly to international distributors, Ashworth, U.K., Ltd and
Ashworth Canada, account for 9% of the Company's products. Approximately 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 2000 Darrell Survey, a leading golf industry consumer usage
survey, Ashworth was the leading golf apparel company in the United States with
a 13.6% market share. 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 Nordstrom, Parisians, Golf America, Belk and
Bloomingdale's.
U.S. CORPORATE MARKET
The Company has established a Corporate division to leverage its brand
name and product line into corporate America. It has a dedicated sales force
that markets its clothing through top specialty-advertising firms that sell
Ashworth to Fortune 500 companies and other major corporations for use in their
company stores, sales meetings, company catalogs and recognition awards.
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 and other European
countries such as Germany, France, Spain, Sweden, Switzerland and Portugal. On
November 1, 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 licensed products
designed specifically for their market.
The Company also uses distributors to sell Ashworth products in other
countries such as, Indonesia, 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.
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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.
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 77 sales representatives in the United
States and 34 sales representatives in Europe and Canada. The Company uses 9
different distributors in other international locations.
In an effort to add exposure and consumer credibility to its Ashworth
brand, the Company currently has four popular and well-known golf celebrities
who wear and endorse the Company's products. They are: (1) Fred Couples,
considered by many to be one of the preeminent golfers in the world; (2) John
Cook; (3) Blaine McCalister; and (4) Jim Nantz, a popular CBS golf announcer.
The Company is using these players and celebrities in advertisements, in-store
displays, and for trade shows, store and other special appearances.
The Company maintains an Ashworth Advisory Team made up of 50
outstanding individuals from around the world who provide wear testing and brand
feedback from the field, assuring Ashworth's commitment to authenticity
on-course. 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 2000 and now has a
presence in approximately 900 locations throughout the United States. This
modular fixture program is designed to help 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, we
support collegiate golf by providing team uniforms to numerous high school,
college and university golf teams.
The domestic market for Ashworth apparel has been seasonal, with the
highest revenues traditionally in the period January through August and the
lowest revenues volume in the months of September through December. The Company
hopes that the addition of department and specialty retail store markets, the
corporate market, and additional business for fall and winter in the European
market will help to reduce the seasonality of the Company's business.
Net revenues in fiscal 2000 were $125,947,000, an increase of 16.7% over
net revenues of $107,921,000 in fiscal 1999. This increase was primarily the
result of an increase in domestic net revenues combined with a slightly smaller
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,
2000 1999 1998
-------- -------- --------
CONSOLIDATED NET REVENUES: (In Thousands)
Domestic $109,743 $ 93,527 $ 89,389
International:
Ashworth U.K. Ltd. 8,530 7,950 10,637
Other International Jurisdictions 7,674 6,444 7,315
-------- -------- --------
Total International 16,204 14,394 17,952
TOTAL NET REVENUES $125,947 $107,921 $107,341
======== ======== ========
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See Note 1 of Notes to the Consolidated Financial Statements for revenues,
operating income or loss and identifiable assets of Ashworth U.K., Ltd., and
Note 11 for market segment information.
At December 31, 2000, we had backlog orders of approximately $41,219,000
compared with approximately $41,316,000 at December 31, 1999. 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 which are received in the
quarter in which the goods are expected to be shipped. The current backlog
covers orders for goods expected to be shipped through approximately July 2001.
The amount of backlog orders at a particular time is affected by a number of
factors, including the timely flow of product from suppliers and local
contractors 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 Basics
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 goal is to increase the inventory turns and lower the overall
inventory levels relative to revenues.
COMPETITION
According to the 2000 Darrell Survey, the Ashworth brand was the leader
in the Company's core green grass market in 2000, with a 13.6% market share. 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 growing golf apparel market in recent years.
Many of the Company's competitors have greater financial resources and greater
experience than the Company. Ashworth competes with other golf apparel
manufacturers on design, product quality 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, we ceased contract manufacturing and no longer purchased
our own raw materials.
READY-MADE FINISHED GOODS: Approximately 95% of our production in fiscal
2000 was through purchases of ready-made goods, manufactured to our quality and
styling specifications domestically and from sources outside of the United
States. In fiscal 2000, approximately 90% of our finished goods were made
offshore while 10% were still made domestically. We now import products from
China, Hong Kong, Indonesia, Italy, Korea, Macau, Malaysia, Mexico, the
Philippines, Singapore, Sri Lanka, Taiwan, Thailand and other countries.
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IN-HOUSE MANUFACTURING: We discontinued our in-house hat manufacturing
facility in July 1998 and are currently purchasing our headwear offshore,
primarily from Taiwan and China. Following this change in 1998, the Company has
no in-house manufacturing operations.
IN-HOUSE EMBROIDERY: We embroider custom golf course and tournament
logos in-house on 50 multi-head, computer-controlled embroidery machines with a
total of 490 sewing heads. The embroidery design library contains over 29,000
Ashworth and customer designs. Embroidery is applied to both garments and
finished headwear. On average, the Company embroiders 105,000 logos per week on
approximately 70,000 garments.
YEAR 2000 COMPUTER CONVERSION
As of January 10, 2001, neither Ashworth nor any key vendors have
experienced any material adverse effects related to the Year 2000 issue. At this
time, Ashworth does not expect to encounter any Year 2000 issues that would have
a material adverse effect on the results of operations, liquidity and financial
condition of the Company.
TRADEMARKS
The Company owns and utilizes several trademarks, principal among which
are the Ashworth word and design marks, the Golfman word and design marks, the
Ashworth Harry Logan word mark, and the Weather Systems word mark. The Ashworth
word and design marks and the Golfman design marks have been registered for
apparel, shoes and leather goods (including golf bags) on the Principal Register
of the United States Patent and Trademark Office.
The Company has registered the Ashworth word and design and the Golfman
design marks for apparel shoes, luggage, and/or golf bags, which registrations
have effect in approximately 75 countries. Additionally, the Company has pending
trademark registrations in 2 additional countries. The application process
varies from country to country and can take approximately 1 to 3 years to
complete.
We regard our trademarks and other proprietary rights as valuable assets
and believe that they have significant value in the marketing of our products.
Although we believe that we have the exclusive right to use the trademarks and
intend to vigorously protect our trademarks against infringement, there can be
no assurance that we can successfully protect the trademarks from conflicting
uses or claims of ownership.
EMPLOYEES
At December 31, 2000, Ashworth had approximately 448 regular employees
and 165 seasonal temporary employees. We consider our labor relations to be
generally good.
ITEM 2. PROPERTIES
The Company owns two buildings located on Loker Avenue West in Carlsbad,
California which were purchased on December 9, 1993 for $3,500,000. The
buildings total approximately 77,000 square feet, consisting of space for
administrative, embroidery, warehousing and distribution functions. The existing
mortgage was refinanced on December 1, 2000 for $3,000,000 amortized over
twenty-five years but due and payable in five years.
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The Company and its subsidiaries have the following leases for
manufacturing and distribution facilities, as well as leases for retail space
for its stores:
Lease Min/Current Maximum
Square Expiration Base Rent Base Rent
Location Footage Date Per Month per Month
- -------- ------- ---------- ----------- ---------
($) ($)
MANUFACTURING AND DISTRIBUTION CENTERS:
Carlsbad, CA 47,800 02/28/01 30,000 30,000
Carlsbad, CA 93,900 12/31/05 80,750 92,663
Essex, England 5,500 10/31/02 3,414 3,414
Essex, England 5,500 10/31/02 3,750 3,750
Leeds, England 600 7/15/01 725 725
RETAIL STORES
San Ysidro, CA 2,450 4/30/03 4,599 4,974
San Marcos, TX 3,000 8/31/05 6,517 7,500
Vacaville, CA 2,500 11/30/05 5,060 5,798
Barstow, CA 3,400 9/30/04 5,837 6,378
Phoenix, AZ 4,000 9/30/05 6,444 7,123
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 9/30/01 4,088 4,088
CONCEPT STORE
Costa Mesa, CA 6,020 1/31/08 30,105 32,613
The Company also pays percentage rent based on revenues which exceed
certain breakpoints for all of the retail store 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
alleging violations of the Securities Exchange Act of 1934 by the Company and
certain of its officers and directors. The complaint alleged that, during the
class period, Company executives made positive statements about the Company's
business including statements concerning product demand, offshore production and
inventories. The complaint further alleged that the defendants knew these
statements to be false and concealed adverse conditions and trends in the
Company's business during the class period. The complaint sought to recover
unspecified damages on behalf of all purchasers of the Company's common stock
during the period September 4, 1997 to July 15, 1998. The Company was served a
copy of the complaint on January 26, 1999. Subsequently, two other suits were
served upon the Company making similar allegations. The three actions have been
consolidated by order of the United States District Court and lead counsel for
the plaintiffs has been appointed. Per order of the Court, Plaintiffs filed
their Amended and Consolidated Complaint on December 17, 1999. On February 18,
2000, the Company filed a motion to dismiss. On May 22, 2000, the Court heard
the motion to dismiss and took it under submission. On July 18, 2000, the U.S.
District Court granted the motion to dismiss the Amended and Consolidated
Complaint as to all defendants. The Court granted plaintiffs sixty days to amend
the complaint if they chose to do so. On September 18, 2000, plaintiffs served
their Second Consolidated Amended Complaint ("Second Amended Complaint") making
allegations and seeking remedies similar to those in the prior complaint. On
November 6, 2000, the Company filed its motion to
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dismiss the Second Amended Complaint. The matter is set for hearing before the
U.S. District Court in February of 2001. No discovery has taken place in this
matter to date.
In October 2000, former Ashworth sales representatives Regional Sales,
Inc. and Susan Stanley filed a complaint in San Diego Superior Court. They filed
a first amended complaint on November 29, 2000. By their amended complaint, the
plaintiffs allege, among other things, that the Company failed to pay
commissions and/or provide discounts on various sales; failed to honor an
agreement for plaintiffs to develop a corporate sales division, and will not
provide credit for the return of certain goods. Plaintiffs seek an accounting
and an unspecified amount of compensatory and punitive damages. On January 19,
2001, the Company filed an answer to the first amended complaint denying the
claims and asserting a number of defenses. On the same date, the Company filed a
cross-complaint against plaintiffs for failure to pay for goods. Discovery in
this case has just commenced.
Ashworth 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.
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 1999
Quarter ended January 31, 1999 $6 3/4 $4 1/8
Quarter ended April 30, 1999 5 1/2 3 1/8
Quarter ended July 31, 1999 6 3 9/16
Quarter ended October 31, 1999 5 1/2 3 7/8
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
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HOLDERS
There is only one class of common stock. As of December 29, 2000, there
were 605 stockholders of record and approximately 6,000 beneficial owners of the
Company's common stock.
DIVIDENDS
No dividends have been declared during the past two fiscal years with
respect to the common stock. In the past, management has chosen to reinvest
profits in the Company rather than declare a dividend. The Company does not
presently intend to pay cash dividends.
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, 2000, 1999 and
1998 and the balance sheet data as of October 31, 2000 and 1999 are derived
from, and should be read in conjunction with, the audited Consolidated Financial
Statements included elsewhere in this report. The statement of income data set
forth below with respect to the fiscal years ended October 31, 1997 and 1996 and
the balance sheet data as of October 31, 1998, 1997 and 1996 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,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
STATEMENT OF INCOME DATA:
Net revenues $125,947 $107,921 $107,341 $ 89,148 $ 75,413
Gross profit 48,984 39,363 40,622 34,103 27,395
Selling, general and administrative 36,603 32,867 31,691 25,282 24,087
expenses
Income from operations 12,381 6,496 8,931 8,821 3,308
Net income 6,597 3,817 5,300 4,827 1,403
Net income per basic share 0.49 0.27 0.37 0.39 0.12
Weighted average basic shares outstanding 13,406 14,035 14,185 12,403 12,026
Net income per diluted share 0.49 0.27 0.36 0.38 0.12
Weighted average diluted shares outstanding 13,467 14,045 14,805 12,564 12,078
AS OF OCTOBER 31,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands)
BALANCE SHEET DATA:
Working capital $ 59,996 $ 57,734 $ 54,768 $ 44,828 $ 31,583
Total assets 87,371 80,106 81,634 68,817 54,912
Long-term debt (less current portion) 3,293 2,764 3,445 4,336 5,307
Stockholders' equity 71,974 69,426 67,105 53,001 38,867
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
RESULTS OF OPERATIONS
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 revenues was driven by strong growth in all of our
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distribution channels. Domestic revenues for fiscal 2000 increased 17.3% to
$109,743,000 from $93,527,000 in fiscal 1999 primarily due to increased 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 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, revenues from the
Company's U.K. subsidiary in fiscal 2000 increased by $580,000 or 7.3% as
compared to revenues in fiscal 1999. Revenues from the Pacific Rim increased
$656,000 or 46.6% and revenues from Puerto Rico, Canada and others increased by
$574,000 or 11.4% as compared to 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.
Selling, general and administrative ("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
revenues. As a percent of 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 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.
1999 COMPARED TO 1998
Consolidated net revenues were $107,921,000 for fiscal 1999, an increase
of 0.5% over net revenues of $107,341,000 in fiscal 1998. An increase in
domestic revenues was largely offset by a decline in foreign revenues. Domestic
revenues for fiscal 1999 increased 4.6% to $93,527,000 from $89,389,000 in
fiscal 1998 primarily due to increased wholesale distribution. Foreign revenues
decreased by 19.8% to $14,394,000 in fiscal 1999 from $17,952,000 in fiscal 1998
due primarily to lower revenues in the Company's U.K. subsidiary. Revenues from
the Company's U.K. subsidiary, in fiscal 1999 decreased by 25.3% or $2,687,000,
as compared to revenues in the prior year due to softened demand.
The gross profit margin for fiscal 1999 decreased to 36.5% from 37.8% in
fiscal 1998. The decrease was primarily a result of revenues discounts and
increased markdowns of prior season inventory.
SG&A expenses for fiscal 1999 increased to 30.5% of net revenues
compared to 29.5% in 1998. Actual SG&A expenses were $32,867,000 in fiscal 1999
compared to $31,691,000 in 1998. This 3.7% increase is higher than the revenues
increase of 0.5% for the year and is due primarily to the addition of the
Canadian division following the third quarter of fiscal 1998 as well as
increased costs of distribution.
Net other expenses were $229,000 for fiscal 1999 compared to $241,000 in
fiscal 1998. Interest expense declined to $431,000 in fiscal year 1999 from
$451,000 in fiscal year 1998 due primarily to reduced borrowing on the Company's
line of credit with the bank.
11
12
The effective income tax rate for fiscal 1999 increased slightly to
39.1% from 39.0% in fiscal 1998.
During fiscal year 1999, the Company earned a net income of $3,817,000
as compared to a net income of $5,300,000 in the prior year. The reduction in
net income for fiscal year 1999 was primarily attributable to a lower gross
margin and higher SG&A expenses.
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 October through the
end of April 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 2001.
Operations in fiscal 2000 produced a positive cash flow of $881,000,
compared to a positive cash flow of $5,646,000 in fiscal 1999. The primary
reasons for the lower positive cash flow from operations was an increase in
inventories and accounts receivable. Inventory increased by 22.5% to $37,526,000
at October 31, 2000 compared to $30,644,000 at October 31, 1999 in anticipation
of higher revenue growth.
In June 2000, the Company extended its business loan agreement with Bank
of America through May 1, 2002. The agreement provides a revolving line of
credit of $25,000,000. Interest is charged at the bank's reference (prime) rate,
minus one-half of one percentage point. The loan agreement contains certain
financial covenants that include a requirement for Ashworth to maintain a
certain minimum tangible net worth and a minimum ratio of cash and accounts
receivable to current liabilities. The agreement permits the Company to acquire,
for value, shares of Ashworth stock in an 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 $11,261,000 at October 31,
2000 and $8,912,000 at December 31, 2000. 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,
2000, the Company had a loan balance of $1,490,000 outstanding with the bank. At
December 31, 2000, the loan balance outstanding was $12,240,000.
During fiscal 2000, the Company invested $4,184,000 in property and
equipment, primarily for computer equipment, embroidery machines, sales force
automation, warehouse automation and leasehold improvements. For fiscal 2001,
Ashworth management anticipates spending approximately $6,500,000 primarily for
leasehold improvements and furnishings for new office facilities, upgrades of
computer systems and equipment, warehouse automation, and sales fixtures.
Management intends to finance the purchase of its capital equipment from its own
cash resources, but may use leases or equipment financing agreements if
appropriate.
Ashworth's long-term debt on October 31, 2000, including the current
portion, is comprised of a mortgage on the two buildings it owns at 2791 & 2793
Loker Avenue West, Carlsbad, California, which had a balance outstanding of
$2,614,000, notes payable on equipment purchases totaling $1,341,000 and
capitalized leases with principal sum liabilities of $30,000. On December 1,
2000, the outstanding balance on the mortgage was refinanced for $3,000,000
amortized over twenty-five years but due and payable in five years.
12
13
During fiscal 2000, share capital and capital in excess of par value
decreased by $3,133,000, as a result of the Company repurchasing 668,000 shares
of its common stock in open market transactions at an average price of
approximately $4.69 per share.
CURRENCY FLUCTUATIONS
Ashworth U.K., Ltd., a wholly-owned subsidiary in England, maintains its
books of account in British pounds and Ashworth Canada, a division 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. The Company
has considered the impact of the Euro conversion to its business and does not
believe that it will have a material impact on its future results from
operations or its financial condition. (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 rate for the
Company. However, with respect to export revenues to Ashworth U.K., Ltd. and
Ashworth Canada, the foreign subsidiaries are at risk on their indebtedness to
Ashworth, Inc. The subsidiaries 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
subsidiary's financial statement. 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 the 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 is purchasing increasing quantities 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.
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.
13
14
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued 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. In July 1998, the FASB issued SFAS No. 137 which delays the
effective date of SFAS No. 133 to all fiscal years beginning after July 15,
2000. Thus, SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is
effective for our fiscal year ending October 31, 2001 and is not expected to
have a material effect on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB101), Revenue Recognition in Financial Statements,
summarizing their views for applying generally accepted accounting principles to
revenue recognition in financial statements. The adoption of this statement is
required for our fiscal year ending October 31, 2001 and is not expected to have
a material impact on the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's debt consists of a line of credit and notes payable with a
total balance of $5,475,000 at October 31, 2000. The debt bears interest at
variable and fixed rates ranging from 7.3% to 11.0%, which approximates fair
value based upon current rates offered for debt with similar risks and
maturities.
The Company's ability to sell its products in foreign markets and the
value of the U.S. dollars of 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. 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, 2000 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, 2000 and 1999, pages F-2
and F-3.
3. Consolidated Statements of Income for the years ended October 31,
2000, 1999 and 1998, page F-4.
4. Consolidated Statements of Stockholders' Equity for the years ended
October 31, 2000, 1999 and 1998, page F-5.
5. Consolidated Statements of Cash Flows for the years ended October
31, 2000, 1999 and 1998,
14
15
page F-6.
6. Notes to Consolidated Financial Statements, pages F-7 through F-21.
7. Independent Auditors' Report on Supplementary Schedule, page F-22.
8. Supplementary Schedule, page F-23.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 2001 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, 2001 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 2001 Annual Meeting of Stockholders under the caption
"Executive Compensation" which will be filed with the Securities and Exchange
Commission no later than February 28, 2001 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 2001 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,
2001 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 2001 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, 2001 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,
2000 and 1999
15
16
Consolidated Statements of Income for the years ended October 31, 2000,
1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended October 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements - October 31, 2000, 1999 and
1998
2. Financial Statement Schedule
Independent Auditors' Report on Supplementary Schedule
Schedule II - Valuation and Qualifying Accounts
3. Exhibits.
See Item (c) below.
(b) Reports on Form 8-K
On February 23, 2000 the Company filed a current Form 8-K reporting that
at a meeting of the Board of Directors of Ashworth, Inc., the board
considered and approved certain amendments to the Company's bylaws and
determined to amend and restate them in their entirety. A copy of the
amended and restated Bylaws was filed as Exhibit 3.1 to this Form 8-K.
On March 14, 2000 the Company filed a current Form 8-K reporting that at
a meeting of the Board of Directors of Ashworth, Inc., the board
considered and approved certain amendments to the Company's Rights
Agreement, dated as of October 6, 1998. A copy of the amended and
restated Rights Agreement was filed as Exhibit 4.1 to this Form 8-K.
(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).
16
17
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 June 1, 1998 by and among Ashworth, Inc.,
James W. Nantz, III and Nantz Communications, Inc. (filed as Exhibit
10(d) to Registrant's Form 10-K for the year ended October 31, 1998
(File No. 0-18553) and incorporated herein by reference).
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)* Personal Services Agreement and Acknowledgement of Termination of
Executive Employment effective May 31, 1999 by and between Ashworth,
Inc. and A. John Newman (filed as Exhibit 10(b) 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 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(g)* 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(h)* 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(i)* Amended and Restated Nonqualified Stock Option Plan dated November 1,
1996.
10(j)* Amended and Restated Incentive Stock Option Plan dated November 1, 1996.
10(k)* 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).
17
18
10(l)* 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(m)* Change in Control Agreement dated November 1, 2000 by and between
Ashworth, Inc. and Randall L. Herrel, Sr.
10(n)* Change in Control Agreement dated November 1, 2000 by and between
Ashworth, Inc. and Terence W. Tsang.
10(o)* Promotion Agreement effective November 1, 1999 by and between Ashworth,
Inc. and Fred Couples.
21 Subsidiaries of the Registrant
23 Consent of KPMG LLP
27 Financial Data Schedule
* Compensation plan, contract or agreement required to be filed as an Exhibit
pursuant to applicable rules of the Securities and Exchange Commission.
18
19
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Ashworth, Inc.:
We have audited the accompanying consolidated balance sheets of Ashworth, Inc.
(a Delaware corporation) and subsidiaries as of October 31, 2000 and 1999, 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, 2000.
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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
San Diego, California
December 11, 2000
F-1
20
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 2000 and 1999
ASSETS 2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 1,231,000 $ 6,507,000
Accounts receivable - trade, net of allowance for doubtful
accounts of $1,238,000 and $889,000 in 2000 and 1999,
respectively 25,578,000 21,194,000
Accounts receivable -- other 2,221,000 1,686,000
Inventories 37,526,000 30,644,000
Income tax receivable 582,000 1,099,000
Other current assets 1,891,000 1,928,000
Deferred income tax asset 1,614,000 1,503,000
------------ ------------
Total current assets 70,643,000 64,561,000
------------ ------------
Property, plant and equipment, at cost:
Land 1,200,000 1,200,000
Buildings and improvements 2,818,000 2,809,000
Production equipment 10,065,000 9,996,000
Furniture and equipment 13,639,000 11,152,000
Leasehold improvements 2,730,000 1,798,000
------------ ------------
30,452,000 26,955,000
Less accumulated depreciation and amortization (15,604,000) (13,852,000)
------------ ------------
14,848,000 13,103,000
Other assets 1,880,000 2,442,000
------------ ------------
$ 87,371,000 $ 80,106,000
============ ============
(Continued)
F-2
21
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
October 31, 2000 and 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------ ------------
Current liabilities:
Line of credit payable $ 1,490,000 $ --
Current portion of long-term debt 692,000 681,000
Accounts payable 4,477,000 3,460,000
Accrued liabilities:
Salaries and commissions 2,272,000 1,332,000
Other 1,716,000 1,354,000
------------ ------------
Total current liabilities 10,647,000 6,827,000
------------ ------------
Long-term debt, net of current portion 3,293,000 2,764,000
Deferred income tax liability 742,000 750,000
Other long-term liabilities 715,000 339,000
Stockholders' equity:
Common stock, $.001 par value; authorized 50,000,000 shares;
issued and outstanding 13,109,000 and 13,777,000 shares
in 2000 and 1999, respectively 13,000 14,000
Capital in excess of par value 37,698,000 40,830,000
Retained earnings 35,241,000 28,644,000
Accumulated other comprehensive loss (978,000) (62,000)
------------ ------------
Total stockholders' equity 71,974,000 69,426,000
------------ ------------
Commitments and contingencies
$ 87,371,000 $ 80,106,000
============ ============
See accompanying notes to consolidated financial statements.
F-3
22
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the years ended October 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
Net revenues $ 125,947,000 $ 107,921,000 $ 107,341,000
Cost of goods sold 76,963,000 68,558,000 66,719,000
------------- ------------- -------------
Gross profit 48,984,000 39,363,000 40,622,000
Selling, general and administrative expenses 36,603,000 32,867,000 31,691,000
------------- ------------- -------------
Income from operations 12,381,000 6,496,000 8,931,000
------------- ------------- -------------
Other income (expense):
Interest income 204,000 112,000 152,000
Interest expense (640,000) (431,000) (451,000)
Net foreign currency exchange gain (loss) (939,000) (23,000) 45,000
Other income (expense), net (18,000) 113,000 13,000
------------- ------------- -------------
(1,393,000) (229,000) (241,000)
------------- ------------- -------------
Income before provision for income taxes 10,988,000 6,267,000 8,690,000
Provision for income taxes 4,391,000 2,450,000 3,390,000
------------- ------------- -------------
Net income $ 6,597,000 $ 3,817,000 $ 5,300,000
============= ============= =============
Net income per share:
Basic .49 .27 .37
Diluted .49 .27 .36
Weighted-average shares outstanding:
Basic 13,406,000 14,035,000 14,185,000
Diluted 13,467,000 14,045,000 14,805,000
See accompanying notes to consolidated financial statements.
F-4
23
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended October 31, 2000, 1999 and 1998
Accumulated
Note Other
Common Stock Capital in Receivable Comprehen-
-------------------------- Excess of Retained Deferred from sive Income/
Shares Amount Par Value Earnings Compensation Stockholder (Loss) Total
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
OCTOBER 31, 1997 13,430,000 $ 13,000 $ 34,277,000 $ 19,527,000 $ (59,000) $ (850,000) $ 93,000 $ 53,001,000
Options exercised 1,327,000 2,000 13,197,000 -- -- -- -- 13,199,000
Treasury stock
acquired and
retired (677,000) (1,000) (5,215,000) -- -- -- -- (5,216,000)
Amortization of
deferred
compensation -- -- -- -- 51,000 -- -- 51,000
Net income -- -- -- 5,300,000 -- -- -- 5,300,000
Note receivable
from stockholder -- -- -- -- -- 850,000 -- 850,000
Translation
adjustment -- -- -- -- -- -- (80,000) (80,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
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
============ ============ ============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-5
24
ASHWORTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended October 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 6,597,000 $ 3,817,000 $ 5,300,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Amortization of deferred compensation -- 8,000 51,000
Depreciation and amortization 2,602,000 2,067,000 2,215,000
(Gain) loss on disposal of property, plant and equipment (1,000) 11,000 (2,000)
Deferred income tax asset (111,000) (5,000) (206,000)
Provision for doubtful accounts, markdowns and sales returns 744,000 309,000 608,000
Increase in accounts receivable (5,663,000) (2,806,000) (8,285,000)
Decrease (increase) in inventories (6,882,000) 4,644,000 (1,643,000)
Decrease in income tax receivable 517,000 50,000 373,000
Decrease (increase) in other current assets 210,000 (162,000) (1,071,000)
Decrease (increase) in other assets 181,000 634,000 (1,340,000)
Increase (decrease) in accounts payable 1,017,000 (2,800,000) 114,000
Increase (decrease) in accrued liabilities 1,302,000 (28,000) (165,000)
Increase (decrease) in other long-term liabilities 368,000 (93,000) (233,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities 881,000 5,646,000 (4,284,000)
------------ ------------ ------------
Cash flows from investing activities:
Net purchases of property, plant and equipment (4,184,000) (1,459,000) (2,365,000)
Proceeds from sale of property, plant and equipment 46,000 1,000 2,000
------------ ------------ ------------
Net cash used in investing activities (4,138,000) (1,458,000) (2,363,000)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (36,000) (53,000) (189,000)
Borrowings on line of credit 39,498,000 16,065,000 3,025,000
Payments on line of credit (38,008,000) (16,065,000) (3,025,000)
Proceeds from long-term debt 1,441,000 -- --
Principal payments on notes payable and long-term debt (865,000) (887,000) (941,000)
Proceeds from exercise of stock options -- -- 13,199,000
Treasury stock acquired (3,133,000) (1,429,000) (5,216,000)
Repayment of note receivable issued to stockholder for common stock -- -- 850,000
------------ ------------ ------------
Net cash provided by (used in) financing activities (1,103,000) (2,369,000) 7,703,000
------------ ------------ ------------
Effect of exchange rate changes on cash (916,000) (75,000) (80,000)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (5,276,000) 1,744,000 976,000
Cash and cash equivalents, beginning of year 6,507,000 4,763,000 3,787,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,231,000 $ 6,507,000 $ 4,763,000
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 640,000 $ 431,000 $ 451,000
Income taxes paid, net of refunds 3,903,000 2,400,000 395,000
Supplemental disclosures of noncash transactions:
Capital lease equipment acquired and related capital lease obligations -- -- 65,000
See accompanying notes to consolidated financial statements.
F-6
25
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2000, 1999 and 1998
(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(R) 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.
The Company has wholly-owned subsidiaries that own and operate the 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 opened on November 1, 1998 to distribute the
Company's products in Canada.
The Company and the Company's subsidiaries had aggregate foreign
revenues in Europe, Canada, Taiwan, Singapore, United Arab Emirates,
Japan, South Africa, Hong Kong and other countries of approximately
$16,204,000, $14,394,000 and $17,952,000 in the years ended October 31,
2000, 1999 and 1998, respectively. The Company's wholly-owned United
Kingdom subsidiary had revenues of $8,530,000, $7,950,000 and
$10,637,000 and operating income/(loss) of $422,000, $26,000 and
$(458,000) in the years ended October 31, 2000, 1999 and 1998,
respectively. Ashworth U.K., Ltd. had identifiable assets of $10,967,000
and $5,927,000 as of October 31, 2000 and 1999, 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 manufacturing overhead.
F-7
26
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Below is a summary of the components of inventories at October 31, 2000
and 1999:
2000 1999
----------- -----------
Raw materials $ 811,000 $ 2,499,000
Work in process -- 3,427,000
Finished products 36,715,000 24,718,000
----------- -----------
$37,526,000 $30,644,000
=========== ===========
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, which 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 costs,
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, 2000, 1999 and 1998 were $833,000,
$1,204,000 and $1,512,000, 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 rates is
recognized in income in the period that includes the enactment date.
F-8
27
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 based upon 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
On November 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma income per share disclosures for employee stock
option grants made in 1996 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. 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
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on November 1, 1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets
exceed the fair values of the assets. 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 value of the U.S. dollars of 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. The Company,
from time to time, 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
F-9
28
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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, 2000, the Company had no outstanding
foreign currency forward exchange contracts.
REVENUE RECOGNITION
The Company recognizes revenue at the time products are shipped or, for
retail sales, at the point of sale. Provisions are made currently for
estimated product returns and sales allowances.
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, 2000, 1999 and 1998, the Company
acquired $0, $0 and $65,000, respectively, of various equipment under
capital leases.
At October 31, 2000 and 1999, the accompanying consolidated balance
sheets include the following equipment under capital leases:
2000 1999
--------- ---------
Production equipment $ 234,000 $ 266,000
Less accumulated amortization (170,000) (163,000)
--------- ---------
$ 64,000 $ 103,000
========= =========
Amortization of assets held under capital leases is included in
depreciation and amortization expense.
F-10
29
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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,
2000, 1999 and 1998 was $1,864,000, $1,813,000 and $1,771,000,
respectively. Future minimum lease payments under noncancelable operating
leases and future minimum capital lease payments as of October 31, 2000
are:
CAPITAL OPERATING
YEAR ENDING OCTOBER 31, LEASES LEASES
----------------------- ----------- -----------
2001 $ 13,000 $ 1,750,000
2002 13,000 1,895,000
2003 9,000 1,826,000
2004 -- 1,865,000
2005 -- 1,781,000
Thereafter -- 1,072,000
----------- -----------
Total minimum lease payments 35,000 $10,189,000
===========
Less amount representing interest (at rates
ranging from 8.08% to 10.99%) (5,000)
-----------
Present value of future minimum capital lease
payments (Note 4) $ 30,000
===========
(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 interest rate on
borrowings is 0.5% below the bank's reference rate, which was 9.5% at
October 31, 2000. The line of credit agreement requires the payment of a
commitment fee of approximately 0.175% of the unused portion. The line of
credit agreement contains certain financial covenants, the most
restrictive of which require the Company to maintain, as defined, a
minimum tangible net worth, a maximum debt-to-equity ratio, and a minimum
ratio of cash and accounts receivable to current liabilities. The line of
credit agreement also limits the purchase of capital equipment and
requires the Company not to incur a net loss in any two consecutive
quarters. The agreement permits the Company to acquire, for value, shares
of Ashworth stock in an amount not to exceed $10,200,000 during the term
of the agreement. At October 31, 2000, the Company had a balance of $1.5
million outstanding on this line of credit. The Company had no borrowings
outstanding at October 31, 1999. 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 $11.3 million at October 31, 2000 and $8.5 million at October 31,
1999. The total amount of unused revolving credit available to the Company
at October 31, 2000 was $12.2 million.
F-11
30
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) LONG-TERM DEBT
Amounts outstanding under long-term debt agreements at October 31, 2000
and 1999 consist of the following:
2000 1999
----------- -----------
Installment notes bearing interest ranging from
7.3% to 8.1%, with due dates through April
2003, collateralized by various equipment $ 1,341,000 $ 733,000
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 2,614,000 2,646,000
Capital lease obligations (Note 2) 30,000 66,000
----------- -----------
3,985,000 3,445,000
Less current portion (692,000) (681,000)
----------- -----------
Long-term debt $ 3,293,000 $ 2,764,000
=========== ===========
Future maturities of long-term debt at October 31, 2000 are as follows:
YEAR ENDING OCTOBER 31,
-----------------------
2001 $ 692,000
2002 631,000
2003 393,000
2004 120,000
2005 2,149,000
----------
$3,985,000
==========
(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, 2000, 1999 and
1998 was $159,000, $136,000 and $144,000, respectively.
F-12
31
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, 2000, of the 1,900,000 shares of common stock
available for issuance under the 2000 Plan, the Company had options
covering 184,000 shares of common stock outstanding under the 2000 Plan
with exercise prices ranging from $4.00 to $5.25 and expiration dates
between December 2000 and June 2010. At October 31, 2000, a total of
1,716,000 shares of common stock remained available for issuance
pursuant to awards granted under the 2000 Plan. As of October 31, 2000,
the Company still had options covering 2,839,000 shares of common stock
outstanding under the Terminated Plans with exercise prices ranging from
$3.50 to $16.94 and expiration dates between December 2000 and July
2008.
The following is a summary of stock option activity for the fiscal years
ended October 31, 1998, October 31, 1999 and October 31, 2000:
SHARES OPTION EXERCISE PRICE PER SHARE
UNDERLYING -----------------------------------
OUTSTANDING WEIGHTED-
OPTIONS RANGE AVERAGE
----------- ------------------ -------------
Balance at October 31, 1997 3,300,000 $ 4.50 -- $11.00 $ 7.43
Granted 557,000 9.94 -- 16.94 11.54
Exercised (1,327,000) 4.50 -- 11.00 7.05
Canceled or Expired (127,000) 6.50 -- 11.13 8.60
----------
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
==========
F-13
32
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following is a summary of stock options outstanding at October 31,
2000:
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 1,710,000 4.6 $ 5.40 1,207,000 $ 5.78
6.79 -- 11.86 1,133,000 2.2 9.05 1,073,000 8.99
11.87 -- 16.94 180,000 4.8 14.28 170,000 14.13
--------- ---------
3,023,000 3.7 $ 7.29 2,450,000 $ 7.76
========= =========
At October 31, 2000, 1999 and 1998, the number of shares of common stock
underlying exercisable options was 2,450,000, 2,228,000 and 1,748,000,
respectively, and the weighted-average exercise price of those options
was $7.76, $8.06 and $8.49, 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 6.0% to 6.65% in 2000, 4.39% to 6.20% in
1999 and 5.41% to 5.94% in 1998; expected volatility of 57.6% to 60.5%
in 2000 and 57.8% to 60.2% in 1999 and 56.4% to 57.5% in 1998; and
expected life of 5 to 10 years in 2000 and 5 to 7 years in 1999 and 5 to
8 years in 1998. 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 $4.20 in 2000, $2.63 in 1999 and $7.60 in
1998. 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 $5,789,000 or $0.43 per diluted share
in 2000, net income of $2,646,000 or $0.19 per diluted share in 1999 and
net income of $2,501,000 or $0.17 per share in 1998. These pro forma
calculations only include the effects of 1999, 1998 and 1997 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
As of November 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components. SFAS
No. 130 requires the cumulative translation adjustment to be included as
a
F-14
33
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
component of the comprehensive income (loss) in addition to net income
(loss) for the period. For the quarters ended October 31, 2000 and 1999,
total comprehensive income (loss) was $730,000 and $476,000,
respectively. For the years ended October 31, 2000 and 1999, total
comprehensive income was $5,681,000 and $3,742,000, respectively.
(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,
2000 1999 1998
----------- ----------- -----------
NUMERATOR:
Net income -
numerator for basic and diluted earnings per
share -- income available to common stockholders $ 6,597,000 $ 3,817,000 $ 5,300,000
=========== =========== ===========
DENOMINATOR:
Denominator for basic earnings per share
- weighted average shares 13,406,000 14,035,000 14,185,000
Effect of dilutive securities
- stock options 61,000 10,000 620,000
----------- ----------- -----------
Denominator for diluted earnings per share
- adjusted weighted average shares and
assumed conversions 13,467,000 14,045,000 14,805,000
=========== =========== ===========
The diluted weighted average shares outstanding computation excludes
2,350,000, 2,502,000, and 226,000 anti-dilutive potential common shares
in 2000, 1999 and 1998, 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), all
of whom are related parties; 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 2000, 1999 and 1998 was $890,000, $814,000 and $760,000,
respectively, of which in 2000, $692,000 of the $890,000 was paid to the
related parties. Future minimum commitments under these agreements are
$1,319,000 payable in 2001, $1,257,000 payable in each of the years 2002
through 2005, $1,017,000 payable in 2006 and $1,000,000 payable in each
of the years 2007 through 2011 to the related parties, and $23,000
payable in 2001 to others.
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 $3,000,
$56,000 and $0 in
F-15
34
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
charges related to performance requirements in 2000, 1999 and 1998,
respectively, of which $0, $45,000 and $0 in 2000, 1999 and 1998,
respectively, was paid to a related party.
EXECUTIVE EMPLOYMENT AGREEMENTS
In fiscal years 2000, 1999 and 1998, the Company had an executive
employment agreement with Randall L. Herrel, Sr. and in fiscal years
1999 and 1998, the Company had an executive employment agreement with
Gerald W. Montiel.
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. 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 years 1999 and 1998. A $50,000 bonus was awarded to Mr.
Herrel in 1998, based on the Company's improved earnings per share in
fiscal year 1997. 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.
Mr. Montiel resigned as chairman, director and executive employee
effective December 31, 1998. The executive employment agreement contains
a noncompetition provision covering the term of employment and the
ten-year post-termination period which provides 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 alleging violations of the Securities Exchange
Act of 1934 by the Company and certain of its officers and directors.
The complaint alleged that, during the class period, Company executives
made positive statements about the Company's business including
statements concerning product demand,
F-16
35
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
offshore production and inventories. The complaint further alleged that
the defendants knew these statements to be false and concealed adverse
conditions and trends in the Company's business during the class period.
The complaint sought to recover unspecified damages on behalf of all
purchasers of the Company's common stock during the period September 4,
1997 to July 15, 1998. The Company was served a copy of the complaint on
January 26, 1999. Subsequently, two other suits were served upon the
Company making similar allegations. The three actions have been
consolidated by order of the United States District Court and lead
counsel for the plaintiffs has been appointed. Per order of the Court,
Plaintiffs filed their Amended and Consolidated Complaint on December
17, 1999. On February 18, 2000, the Company filed a motion to dismiss.
On May 22, 2000 the Court heard the motion to dismiss and took it under
submission. On July 18, 2000 the U.S. District Court granted the motion
to dismiss the Amended and Consolidated Complaint as to all defendants.
The Court granted plaintiffs sixty days to amend the complaint if they
chose to do so. On September 18, 2000, plaintiffs served their Second
Consolidated Amended Complaint ("Second Amended Complaint") making
allegations and seeking remedies similar to those in the prior
complaint. On November 6, 2000, the Company filed its motion to dismiss
the Second Amended Complaint. The matter is set for hearing before the
U.S. District Court in February of 2001. No discovery has taken place in
this matter to date.
In October 2000, former Ashworth sales representatives Regional Sales,
Inc. and Susan Stanley filed a complaint in San Diego Superior Court.
They filed a first amended complaint on November 29, 2000. By their
amended complaint, the plaintiffs allege, among other things, that the
Company failed to pay commissions and/or provide discounts on various
sales; failed to honor an agreement for plaintiffs to develop a
corporate sales division, and will not provide credit for the return of
certain goods. Plaintiffs seek an accounting and an unspecified amount
of compensatory and punitive damages. On January 19, 2001, the Company
filed an answer to the first amended complaint denying the claims and
asserting a number of defenses. On the same date, the Company filed a
cross-complaint against plaintiffs for failure to pay for goods.
Discovery in this case has just commenced.
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.
In September 1997, a stockholder of the Company exercised stock options
in exchange for a note receivable of $850,000. The note was secured by
the underlying common stock, and accrued interest annually at 8%. The
entire balance of the note was collected during 1998.
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, $228,000
and $323,000 for the years ended October 31, 2000, 1999 and 1998,
F-17
36
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
respectively.
The Company has promotional agreements with a director and certain
stockholders. (See Note 8.)
(10) INCOME TAXES
The provision for income taxes for the years ended October 31, 2000,
1999 and 1998 is as follows:
2000 1999 1998
----------- ----------- -----------
Current provision:
Federal $ 3,684,000 $ 2,047,000 $ 3,000,000
State 826,000 408,000 596,000
----------- ----------- -----------
Total 4,510,000 2,455,000 3,596,000
----------- ----------- -----------
Deferred provision (benefit):
Federal (44,000) (4,000) (98,000)
State (75,000) (1,000) (108,000)
----------- ----------- -----------
Total (119,000) (5,000) (206,000)
----------- ----------- -----------
$ 4,391,000 $ 2,450,000 $ 3,390,000
=========== =========== ===========
The components of the Company's deferred income tax benefit and
liability as of October 31, 2000 and 1999 are as follows:
2000 1999
----------- -----------
Current deferred income tax benefit:
Allowance for doubtful accounts $ 252,000 $ 95,000
Inventory reserves 412,000 579,000
Unearned royalty 31,000 117,000
Accrued compensation 370,000 103,000
Foreign subsidiary net operating loss 210,000 --
Other nondeductible accruals 475,000 536,000
Other deductible capitalized costs 74,000 73,000
----------- -----------
Total gross deferred tax assets $ 1,824,000 $ 1,503,000
Less valuation allowance (210,000) --
----------- -----------
Net deferred tax assets $ 1,614,000 $ 1,503,000
=========== ===========
Long-term deferred income tax liability --
depreciation $ 742,000 $ 750,000
=========== ===========
There was no valuation allowance for deferred tax assets as of November
1, 1999 and 1998. The net change in the total valuation allowance for
the years ended October 31, 2000 and 1999 was an increase of $210,000
and $0, respectively. The $210,000 valuation allowance was provided for
the foreign subsidiary's net operating loss for which the Company is
uncertain as to their realizability. 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
$872,000 and $753,000 as of October 31, 2000 and 1999, 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,
F-18
37
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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:
2000 1999 1998
----------- ----------- -----------
Computed income tax at the
expected statutory rate $ 3,736,000 $ 2,131,000 $ 2,955,000
State income tax, net of
federal tax benefits 458,000 306,000 349,000
Nondeductible expenses 98,000 113,000 110,000
Foreign sales corporation tax
benefit (8,000) (31,000) (30,000)
Foreign tax jurisdiction rate
differential 28,000 -- --
Increase in valuation allowance 210,000 -- --
Other (131,000) (69,000) 6,000
----------- ----------- -----------
Income tax provision $ 4,391,000 $ 2,450,000 $ 3,390,000
=========== =========== ===========
As of October 31, 2000, the Company has a foreign subsidiary net
operating loss of $702,000, which is available to offset foreign
subsidiary taxable income, if any, indefinitely.
F-19
38
ASHWORTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information", which established reporting disclosure standards for an
enterprise's operating segments. Operating segments are defined as
components of an enterprise for which separate financial information is
available and regularly reviewed by the Company's senior management. 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, 2000, 1999 and 1998 (in thousands).
2000 1999 1998
-------- -------- --------
NET REVENUE:
Domestic 109,743 93,527 89,389
International 16,204 14,394 17,952
-------- -------- --------
Total 125,947 107,921 107,341
======== ======== ========
INCOME (LOSS) FROM OPERATIONS:
Domestic 10,764 7,009 8,079
International 1,617 (513) 852
-------- -------- --------
Total 12,381 6,496 8,931
======== ======== ========
CAPITAL EXPENDITURES:
Domestic 4,040 1,199 2,120
International 144 260 245
-------- -------- --------
Total 4,184 1,459 2,365
======== ======== ========
TOTAL ASSETS:
Domestic 74,847 73,768 78,998
International 12,524 6,338 2,636
-------- -------- --------
Total 87,371 80,106 81,634
======== ======== ========
DEPRECIATION:
Domestic 2,037 1,910 2,063
International 153 144 141
-------- -------- --------
Total 2,190 2,054 2,204
======== ======== ========
F-20
39
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, 2000
and 1999 are shown below:
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
FIRST SECOND THIRD FOURTH
YEAR ENDED OCTOBER 31, 1999 QUARTER QUARTER QUARTER QUARTER
--------------------------- ------------ ------------ ------------ ------------
Net revenues $ 19,662,000 $ 35,690,000 $ 30,067,000 $ 22,502,000
Gross profit 6,241,000 13,570,000 10,854,000 8,698,000
Net income (loss) (487,000) 2,328,000 1,481,000 495,000
Net income (loss) per
basic share (.03) .17 .11 .04
Weighted-average basic
shares outstanding 14,080,000 14,080,000 14,064,000 13,917,000
Net income (loss) per
diluted share (.03) .17 .11 .04
Weighted-average diluted
shares outstanding 14,080,000 14,082,000 14,085,000 13,929,000
During the fourth quarter of fiscal year 2000 the Company had a net
income of $1,060,000 as compared to $495,000 in the same period of the
prior year primarily due to higher revenues volume, improved gross
margins and reduced expenses.
F-21
40
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Ashworth, Inc.:
Under date of December 11, 2000, we reported on the consolidated balance sheets
of Ashworth, Inc. (a Delaware Corporation) and subsidiaries as of October 31,
2000 and 1999, 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, 2000. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such 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 11, 2000
F-22
41
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, 1998:
Allowance for
Doubtful accounts $ 648,000 $ 608,000 $ -- $ 217,000 $1,039,000
========== ========== ====== ========== ==========
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
========== ========== ====== ========== ==========
F-23
42
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 29, 2001 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. PRESIDENT AND JANUARY 29, 2001
- ------------------------------- CHIEF EXECUTIVE OFFICER
RANDALL L. HERREL, SR. (PRINCIPAL EXECUTIVE OFFICER)
DIRECTOR
/S/ TERENCE W. TSANG EXECUTIVE VICE PRESIDENT, JANUARY 29, 2001
- ------------------------------- CHIEF OPERATING OFFICER
TERENCE W. TSANG CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
/S/ JOHN M. HANSON, JR. DIRECTOR JANUARY 29, 2001
- -------------------------------
JOHN M. HANSON, JR.
/S/ ANDRE P. GAMBUCCI DIRECTOR JANUARY 29, 2001
- -------------------------------
ANDRE P. GAMBUCCI
/S/ JAMES W. NANTZ, III DIRECTOR JANUARY 29, 2001
- -------------------------------
JAMES W. NANTZ, III
/S/ STEPHEN BARTOLIN, JR. DIRECTOR JANUARY 29, 2001
- -------------------------------
STEPHEN BARTOLIN, JR.
/S/ STEPHEN G. CARPENTER, JR. DIRECTOR JANUARY 29, 2001
- -------------------------------
STEPHEN G. CARPENTER, JR.
/S/ H. MICHAEL HECHT DIRECTOR JANUARY 29, 2001
- -------------------------------
H. MICHAEL HECHT