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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K

                                   (MARK ONE)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                      FOR THE YEAR ENDED DECEMBER 31, 1999

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 333-14569

                         SPALDING HOLDINGS CORPORATION
               (FORMERLY EVENFLO & SPALDING HOLDINGS CORPORATION)
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      59-2439656
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

              425 MEADOW STREET,
           CHICOPEE, MASSACHUSETTS                                 01013
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (413) 536-1200
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                      NAME OF EACH EXCHANGE
TITLE OF EACH CLASS    ON WHICH REGISTERED
-------------------   ---------------------
<S>                   <C>
   NONE                       NONE
</TABLE>

       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE

     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
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.  [X]
     The number of shares of the registrant's Common stock, par value $.01 per
share, outstanding at March 20, 2000, was 98,401,747 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                     None.

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                         SPALDING HOLDINGS CORPORATION

                            FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

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                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
PART I
Item 1    Business....................................................    2
Item 2    Properties..................................................   10
Item 3    Legal Proceedings...........................................   10
Item 4    Submission of Matters to a Vote of Security Holders.........   11

PART II
Item 5    Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................   11
Item 6    Selected Financial Data.....................................   12
Item 7    Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   13
Item 7A   Quantitative and Qualitative Disclosures About Market
          Risk........................................................   25
Item 8    Financial Statements and Supplementary Data.................   26
Item 9    Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   54

PART III
Item 10   Directors and Executive Officers of the Company.............   54
Item 11   Executive Compensation......................................   57
Item 12   Security Ownership of Certain Beneficial Owners and
          Management..................................................   61
Item 13   Certain Relationships and Related Transactions..............   63

PART IV
Item 14   Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................   65
</TABLE>

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                                     PART I

ITEM 1:  BUSINESS

     Spalding Holdings Corporation (formerly Evenflo & Spalding Holdings
Corporation) and subsidiaries (the "Company") is a global manufacturer and
marketer of branded consumer products serving the sporting goods markets under
the primary trade names SPALDING(R), TOP-FLITE(R), ETONIC(R), STRATA(R), BEN
HOGAN(R) and DUDLEY(R). The primary subsidiary of the Company is Spalding Sports
Worldwide, Inc. (formerly Spalding & Evenflo Companies, Inc.) ("Spalding").
Spalding markets and licenses a variety of recreational and athletic products
such as golf balls, golf clubs, golf shoes, golf bags and accessories,
basketballs, volleyballs, footballs, soccer balls, softball and baseball bats,
balls and gloves, and clothing and equipment for many other sports.

     On September 30, 1996, the Company underwent a recapitalization (the
"Recapitalization") under the Recapitalization and Stock Purchase Agreement (the
"Recapitalization Agreement") whereby Strata Associates L.P. ("Strata"), an
entity organized by Kohlberg Kravis Roberts & Co., L.P. ("KKR"), acquired
control of the Company from Abarco N.V. ("Abarco"), the prior parent of the
Company. For additional information on the Recapitalization see Note A of the
Notes to the Consolidated Financial Statements appearing elsewhere in this Form
10-K.

     Prior to August 20, 1998, Evenflo Company, Inc. ("Evenflo") was also a
subsidiary of the Company. Evenflo markets specialty juvenile products under the
EVENFLO(R), GERRY(R) and SNUGLI(R) trade names including reusable and disposable
baby bottle feeding systems, breast-feeding aids, pacifiers and oral development
items, baby bath, health and safety items, monitors and other baby care products
and accessories, as well as juvenile car seats, stationary activity products,
strollers, high chairs, portable play yards, cribs, dressers and changing
tables, gates, soft carriers and frame carriers, child carriers and mattresses.

     On August 20, 1998, the Company separated its two businesses, Spalding and
Evenflo, into two stand-alone companies (the "Reorganization"). As part of the
reorganization, KKR 1996 Fund L.P., an affiliate of the Company, acquired 51% of
the outstanding shares of common stock of Evenflo from Spalding for a purchase
price of $25.5 million and preferred stock of Evenflo from Spalding for a
purchase price of $40.0 million. In addition, Great Star Corporation, an
affiliate of Abarco, N.V. (a shareholder of the Company) acquired 6.6% of the
outstanding shares of Evenflo from Spalding for a purchase price of $3.3
million. Following completion of the Reorganization, the Company's headquarters
in Tampa, Florida were closed and its functions transferred to the separate
Spalding and Evenflo operations. After giving effect to the Reorganization, the
Company continued to own 42.4% of the common stock of Evenflo. On December 23,
1999, the Company sold its remaining investment in Evenflo's common stock to the
KKR 1996 Fund L.P. for $23.6 million.

     Subsequent to the realignment of the businesses, the Company elected Edwin
L. Artzt (former Chairman and Chief Executive Officer of Procter & Gamble
Company) in October 1998 as Chairman of the Board of Directors and hired James
R. Craigie (formerly an Executive Vice President of Kraft, Inc.) in December
1998 as President and Chief Executive Officer. Under this new leadership, the
management of the Company has formulated new brand strategies for its key
product lines and repositioned its businesses to improve earnings and cash flow
and grow market share. The Company is in the final phases of a plan that is
designed to reposition the SPALDING(R), TOP-FLITE(R), ETONIC(R), STRATA(R), BEN
HOGAN(R) and DUDLEY(R) brands within the sporting goods industry.

     In concert with its new brand strategy, the Company repositioned its golf
ball line under the brand names STRATA(R) and TOP-FLITE(R) (XL(TM) and XL
2000(TM)) and realigned the golf club brands of BEN HOGAN(R), TOP-FLITE(R) and
SPALDING(R) to more clearly define their target audience. In recognition of
continuing golf club market softness and competitive pricing pressures as well
as the Company's new strategic direction, the Company implemented pricing and
other actions that contributed to writing down the value of those products that
were inconsistent with the repositioned brands by $20.6 million during the
period October 1, 1998 through December 31, 1998 and by $8.7 million during
1999. The inventory writedowns allow the Company to execute its new strategies
without the burden of discontinued products.
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     On January 19, 1999 the Company filed Form 8-K electing to change its year
end from September 30 to December 31. The financial statements in this Form 10-K
include the consolidated balance sheet as of December 31, 1999 and 1998 and the
statements of operations, statement of consolidated cash flows, and statements
of consolidated shareholders' equity (deficiency) for the year ended December
31, 1999, the period from October 1, 1998 through December 31, 1998 (the
"Transition Period"), and for the fiscal years ended September 30, 1998 and
1997.

     All references to fiscal year in this Form 10-K refer to the fiscal year
ending on September 30th of each year. For periods prior to the date of the
Reorganization, references to the Company include Spalding and Evenflo on a
consolidated basis. After August 20, 1998, references to the Company mean the
operations of Spalding and its equity investment in Evenflo until December 23,
1999. References to fiscal 1998 include the operations of Spalding for the
entire fiscal year ending September 30, 1998, the operations of Evenflo for the
period from October 1, 1997 to August 20, 1998 and the Company's 42.4% equity
investment in Evenflo from August 21, 1998 to September 30, 1998.

     All references to market share and demographic data in this Form 10-K are
based on industry publications and Company data.

SPALDING

     Spalding is one of the most recognized consumer product companies serving
the sporting goods industry, and in 1998, sold more golf balls, basketballs and
softballs than any other company in the U.S.

     Spalding was founded in 1876 by Hall of Fame baseball pitcher Albert G.
Spalding and is one of the oldest, largest and best-known sporting goods
companies in the world. Spalding produced the first official major league
baseball in 1876 and the first basketballs and volleyballs in the 1890's.
Additional early achievements were the first U.S.-made footballs, golf clubs,
golf balls, tennis rackets and tennis balls. Spalding introduced the first
"dimpled" golf ball in the United States in 1908; the first two-piece, solid
core golf ball in 1966, which today is the most commonly played type of ball;
the Surlyn cut-resistant golf ball cover in 1971; and the first multi-layer golf
ball in 1996. Spalding continues to focus on creating innovative new products
and Spalding's products are endorsed by numerous leagues and players.

     With net sales of $431.2 in 1999, $56.8 million during the Transition
Period and $536.9 million in fiscal 1998, Spalding is a leader in the $2.7
billion U.S. wholesale golf industry and in the $60 billion U.S. wholesale
sporting goods industry, with some of the most widely recognized branded
consumer product names such as SPALDING(R), TOP-FLITE(R), ETONIC(R), STRATA(R),
BEN HOGAN(R) and DUDLEY(R). Spalding's brand names are currently featured on
over 2,000 products with an emphasis on two primary categories: (i) golf
products and (ii) sporting goods products. Spalding also licenses the brand
names on an assortment of athletic products, including apparel and footwear. To
broaden Spalding's line of golf products, in July 1996 the Company acquired
Etonic's line of golf accessories and in November 1997 the Company acquired
Hogan's line of golf clubs, and accessories. Golf products include golf balls
sold under the STRATA(R), TOP-FLITE(R) and SPALDING(R) brand names; golf clubs
sold under the BEN HOGAN(R), TOP-FLITE(R) and SPALDING(R) brand names; golf
shoes sold under the ETONIC(R) brand name and accessories sold under the
STRATA(R), BEN HOGAN(R), TOP-FLITE(R) and SPALDING(R) brand names. Sporting
goods products (other than golf and softball) and licensed products are sold
primarily under the SPALDING(R) brand.

     For information on sales by industry segment, see Note G of the Notes to
the Consolidated Financial Statements appearing elsewhere in this Form 10-K.

     GOLF PRODUCTS

     GENERAL.  Golf products are Spalding's largest product category generating
worldwide net sales of $334 million in 1999, $30 million during the Transition
Period and $407 million in fiscal 1998, or approximately 77%, 53% and 76% of
Spalding's total worldwide net sales, in these respective periods. Spalding is
the U.S. market share leader in the manufacture and marketing of golf equipment,
primarily under its TOP-FLITE(R), STRATA(R) and BEN HOGAN(R) brand names, as
well as an industry leader in introducing innovative new golf products. Spalding
offers a comprehensive array of golf clubs, golf shoes and other golf
accessories. Spalding's
                                        3
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golf products are endorsed by leading golf professionals including Lee Trevino,
Justin Leonard, Mark O'Meara, Jim Furyk, Hal Sutton and Kelli Kuehne.

     GOLF BALLS.  The worldwide market for golf ball sales was $1.2 billion in
1998. Spalding's worldwide net sales totaled $235 million in 1999, $22 million
during the Transition Period and $218 million in fiscal 1998. Spalding currently
markets its line of golf balls under numerous names including STRATA(R) TOUR
PROFESSIONAL(TM), STRATA(R) ML BALATA(TM), STRATA(R) DISTANCE(TM), TOP FLITE(R)
XL 2000(TM) and TOP FLITE(R) XL(TM). Spalding believes that its family of
TOP-FLITE(R) golf balls has sold more golf balls than any other family of golf
balls in the world. Spalding focuses its marketing efforts on pro shops,
off-course golf specialty shops, sporting goods stores and other retail outlets
where the STRATA(R) and TOP-FLITE(R) names are widely recognized.

     Spalding believes that the golf ball market is highly receptive to new
product development, and therefore, Spalding seeks to lead the industry in
product innovation. Through its research and development efforts, Spalding has
successfully introduced new lines of advanced performance golf balls in each of
the last five years. Spalding also customizes its golf balls with customers'
names or logos (a market which management believes to represent approximately
20% of the U.S. golf ball market).

     GOLF CLUBS.  Worldwide sales of golf clubs generated $51 million in 1999,
$2 million during the Transition Period and $112 million in fiscal 1998. In
1998, the worldwide wholesale sales of golf clubs was estimated at $3 billion.
Spalding's strategy is to design golf clubs for men, women and seniors of all
ability levels. BEN HOGAN(R) APEX(TM) branded clubs are premium forgings
designed for the world's most discriminating players. During the fourth quarter
of 1999, the BEN HOGAN(R) line successfully introduced the APEX PLUS(TM) irons.
These clubs combine forged craftsmanship with perimeter weighting and are
designed for game improvement for the better and average golfer. APEX(TM) and
APEX PLUS(TM) irons are sold primarily in pro-shops and off-course golf
specialty stores. TOP-FLITE(R) clubs are premium metal castings that utilize
design features such as perimeter weighting, graphite shafts, titanium head
inserts and the Company's patented stabilizer bar design. TOP-FLITE(R) branded
clubs are played on the professional tours and are primarily sold in the better
pro shops, off-course shops and sporting goods stores. SPALDING(R) branded clubs
historically satisfied the recreational/value segments of the market.
SPALDING(R) clubs have been primarily sold in the off-course golf shops,
sporting goods stores, mass merchants and warehouse clubs. The Company
periodically updates all of the club products through computer-aided design and
modeling software and technical advances in head, shaft and grip designs
available in the market.

     GOLF SHOES AND ACCESSORIES.  Spalding is a leading designer and marketer of
professional grade spikeless golf shoes and premium golf gloves under the
ETONIC(R) brand (acquired in 1996). In 1999, ETONIC(R) golf shoes and gloves are
marketed under several brand names including the DIFFERENCE TOUR(TM) and
DIFFERENCE 2000(TM), both of which are premium grade products used by touring
professionals. During 1999, the Company introduced the ETONIC(R) DIFFERENCE
2000(TM) golf shoe. Premium golf accessories, including golf bags, hats, club
covers, tees, towels, and sports luggage are sold under the BEN HOGAN(R) and
TOP-FLITE(R) brand names. In the golf shoe and accessories category, Spalding
generated net sales of $48 million in 1999, $6 million during the Transition
Period and $78 million in fiscal 1998. In 1998, the worldwide wholesale market
for golf shoes and accessories was approximately $1.1 billion.

SPORTING GOODS PRODUCTS

     GENERAL.  The sporting goods products segment includes basketballs, a broad
line of softball products, volleyballs, soccer balls and other sports products.
Spalding's sporting goods products (other than golf) accounted for $97 million
of net sales in 1999, $27 million in the Transition Period and $130 million in
fiscal 1998.

     BASKETBALLS.  Spalding produced the first basketball in 1894 and is the
worldwide market share leader in the estimated $145 million (1998) U.S. market
for basketballs and basketball accessories. Net sales were $46 million in 1999,
$13 million in the Transition Period and $58 million in fiscal 1998. Spalding is
the exclusive official basketball of the NBA and WNBA and has used these
endorsements, as well as the endorsement of other leagues and professional
players, to gain U.S. and worldwide market share in this product category.
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Spalding's NBA license extends through July 2001, while its WNBA license extends
through September 2002. Internationally, the Spalding basketball is the official
basketball of professional leagues and national teams in more than 25 basketball
markets.

     Spalding continues to develop its leadership in the basketball market
through innovative product designs such as the ZK-Composite(R) basketball and
the Zi/O(R) indoor/outdoor basketball. Introduced in 1991, the ZK-Composite(R)
basketball utilizes composite materials technology to offer excellent
performance characteristics at lower price points than leather balls.

     OTHER SPORTS PRODUCTS.  Spalding markets a number of other sporting goods
and sports related products serving softball, volleyball, soccer, football, and
other sports activities. Worldwide net sales of such items totaled $51 million
in 1999, $14 million during the Transition Period and $72 million in fiscal
1998. No single sporting good product (other than basketball) accounted for more
than 10% of the Company's total revenues in 1999, the Transition Period or
fiscal 1998. Spalding's DUDLEY(R) brand is the leading supplier of softballs in
the world. Spalding also produced the first volleyball in 1895 and today is a
leading provider of volleyballs in the U.S. Spalding has the endorsement for
volleyballs of the NCAA and the American Volleyball Association (AVA).

     LICENSING.  Spalding is one of the leading general sports brand licensors
with approximately 80 licensees and sub-licensees worldwide. In exchange for
royalty fees, Spalding grants licensees the exclusive right to use specified
Spalding trademarks in product categories and geographical areas where Spalding
does not enjoy competitive advantages as a manufacturer of sporting goods. The
SPALDING(R), TOP-FLITE(R) ETONIC(R) and BEN HOGAN(R) brand names are licensed in
over 100 product categories. Other Spalding licensed products include sport bags
and other accessories. Worldwide sales of licensed Spalding products totaled
approximately $271 million in 1999, $48 million during the Transition Period and
$259 million in fiscal 1998. The loss of any single licensee would not be
material to the Company.

     Spalding maintains quality control by inspecting licensed products to
maintain compliance with Spalding's quality standards. Spalding believes that
selectively licensing its brand names for use on quality products promotes
greater consumer awareness of its name and increases its visibility in the
marketplace. Spalding expects continued growth and market penetration through
licensing of footwear, active apparel and accessories for all sports.

     INTERNATIONAL.  Spalding sells or licenses its products in over 95
countries through approximately 100 independent distributors and six
wholly-owned foreign subsidiaries in Australia, Canada, Japan, New Zealand,
Sweden and the United Kingdom. Spalding's international sales were $101 million
in 1999, $15 million for the Transition Period, and $128 million in fiscal 1998,
due in large part to the popularity of golf and basketball outside the United
States.

     SALES, MARKETING AND DISTRIBUTION.  In the U.S., Spalding primarily sells
its products directly to approximately 20,000 retailers, including pro shops and
ranges, off-course golf specialty shops, sporting goods stores and mass
merchants. The Company also markets to corporations for special events, the
military and warehouse clubs and generates sales from catalogs. Outside of the
U.S., Spalding maintains direct sales, marketing and distribution activities in
Canada, Australia, United Kingdom, Sweden, and New Zealand. Liaison offices in
Japan and Italy assist in the co-ordination of the regional distributors in the
Japanese/ Southeast Asian markets and European markets, respectively, as well as
assist in the development activity in the respective regions. During 1999, the
Transition Period and in fiscal 1998, one U.S. customer amounted to 13%, 24% and
13%, respectively, of net sales.

     Marketing for Spalding's golf and sporting goods products utilizes the
endorsements of professional and amateur leagues and players. Spalding believes
that endorsements by professional athletes and affiliations with sports
organizations enhance Spalding's image and improve sales of its products.

     Spalding's golf marketing campaign incorporates all of its golf products
and is intended to develop the BEN HOGAN(R), STRATA(R) and ETONIC(R) brands as
ultra-premium products, designed for the world's most discriminating players and
played on the professional tours. In addition, the marketing campaign is
designed to develop TOP-FLITE(R) as a global "megabrand" for performance grade
golf products.
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     MANUFACTURING, PRODUCT PROCUREMENT AND RAW MATERIALS.  The manufacture of
Spalding products involves a number of highly specialized processes. Spalding
manufactures golf balls, finishes custom golf balls and assembles its golf clubs
at its own facilities. Spalding's primary manufacturing facility is located in
Chicopee, Massachusetts and comprises approximately 838,000 square feet of
manufacturing, office and distribution space. Spalding believes that it is one
of the lowest cost producers of golf balls in the world.

     Spalding utilizes third-party manufacturers, located primarily in China,
Thailand, Taiwan and other countries in Southeast Asia, to produce most of its
non-golf ball products. Such third-party manufacturers produced products and
components representing approximately 57%, 62% and 58% of Spalding's net sales
in 1999, the Transition Period and fiscal 1998, respectively. No supplier
accounted for products representing more than 10% of Spalding's 1999, Transition
Period or fiscal 1998 net sales. Spalding believes it has alternative sources of
supplies for substantially all of the products currently produced by third-party
manufacturers.

     Sourced products are manufactured according to Spalding's strict quality
control specifications. To assure the quality of its sourced products, the
Company works closely with third-party manufacturers, emphasizing product
reliability and performance standards and strict quality controls to which all
producers must adhere. Spalding monitors its sourced products to improve
quality. Certain of Spalding's third-party manufacturers produce only Spalding
products. In addition, Spalding jointly develops new products with certain of
its suppliers as part of Spalding's increasingly global product development
efforts. Spalding maintains a liaison office in Taiwan to assist in order
expediting and quality control.

     The principal raw materials used by Spalding in the manufacture of its
products include synthetic rubber, ionomers, metals, synthetic leathers,
composite materials and other chemical compounds, as well as plastic, paper and
cardboard in packaging. While all raw materials are purchased from outside
sources, Spalding is not dependent upon a single supplier in any of its
operations for any material essential to its business or not otherwise
commercially available to the Company. Spalding has not experienced, and does
not anticipate, any material shortages of sourced products or supplies used in
manufacturing. Certain materials used in the production of golf balls are
petroleum derivatives and are therefore sensitive to fluctuations in the price
of oil.

     TRADEMARKS AND PATENTS.  Spalding has proprietary rights to a number of
trademarks that are important to its business, including SPALDING(R),
TOP-FLITE(R), ETONIC(R), STRATA(R), DUDLEY(R) and BEN HOGAN(R). The Company
actively guards against trademark infringement through legal and other measures.

     The policy of the Company is to protect proprietary products by obtaining
patents for such products when practicable. At December 31, 1999, Spalding owned
265 patents and had 152 applications pending at the U.S. Patent and Trademark
Office. In addition, the Company also maintains patent protection for certain of
its products in other countries. Although the Company believes that,
collectively, its patents are important to its business, the loss of any one
patent would not have a material adverse effect on the Company's business and
results of operations.

     SEASONALITY.  Spalding's business is seasonal, as many sporting goods
marketed by Spalding, especially golf products, experience higher levels of
sales in the spring and summer months. For 1999, Spalding's quarterly net sales
as a percentage of its total net sales were approximately 26%, 30%, 21% and 23%,
respectively, for the first through the fourth quarters of 1999.

     COMPETITION.  The sporting goods industry is highly competitive. Spalding
competes primarily on the basis of product features, brand recognition, quality
and price. Spalding competes with numerous national and international companies
that manufacture and distribute sporting goods and related equipment and sports
apparel. Certain of Spalding's competitors offer types of sports equipment not
sold by Spalding. Some of Spalding's competitors are larger and have
substantially greater financial and other resources than the Company. Spalding
competes in one or several individual market segments against competitors such
as Acushnet Company (a subsidiary of Fortune Brands, Inc., the producer of
Titleist, Footjoy and Cobra golf products), Callaway Golf Co., Karsten
Manufacturing Corp. (producers of Ping golf products), Nike, Inc., Rawlings
Sporting Goods Company, Inc., Taylor Made (a subsidiary of Adidas AG) and Wilson
Sporting

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Goods Co. (a subsidiary of Amer Group Ltd.). Additionally, Nike, Inc.,
Taylor-Made and Callaway Golf Co. have recently entered the premium golf ball
market.

RESEARCH AND DEVELOPMENT

     The Spalding research and development department consists of more than 30
scientists, engineers and technicians. Spalding introduced the first dimpled
golf ball in the U.S., invented the first two-piece golf ball, and developed and
patented the blended Surlyn cut-resistant golf ball cover as well as the
multi-layer golf ball. Spalding has also introduced a number of golf club
innovations, including one of the first titanium irons in the market. In
addition, the popularity of Spalding's patented ZK-Composite(R) materials for
basketballs has contributed to the number one market share in that market.
Research and development expenditures as a percentage of net sales amounted to
1.5% in 1999, 3.5% in the Transition Period and 1.6% in fiscal 1998.

ENVIRONMENTAL MATTERS

     The Company's operations are subject to federal, state, and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage, and disposal of
certain materials, substances, and wastes and the remediation of environmental
contaminants ("Environmental Laws") that continue to be adopted and amended.
These Environmental Laws regulate, among other things, air and water emissions
and discharges at the Company's manufacturing facilities; the generation,
storage, treatment, transportation and disposal of solid and hazardous waste by
the Company; the remediation of environmental contamination; the release of
toxic substances, pollutants and contaminants into the environment at properties
operated by the Company and at other sites; and, in some circumstances, the
environmental condition of property prior to a transfer or sale (including
certain facilities previously owned or operated by the Company). Risks of
significant costs and liabilities are inherent in the Company's operations and
facilities, as they are with other companies engaged in like businesses. The
Company believes, however, that its operations are in substantial compliance
with all applicable Environmental Laws.

     While historically the costs of environmental compliance have not had a
material adverse effect on the consolidated financial condition, results of
operations or cash flows of the Company, the Company cannot predict with
certainty its future costs of environmental compliance because of continually
changing compliance standards and technology. The Company expects that future
regulations and changes in the text or interpretation of existing Environmental
Laws may subject its operations to increasingly stringent standards. Compliance
with such requirements may make it necessary, at costs which may be substantial,
to retrofit existing facilities with additional pollution-control equipment and
to undertake new measures in connection with the storage, transportation,
treatment and disposal of by-products and wastes.

     The Company has been named as a potentially responsible party ("PRP") with
respect to the generation and disposal of hazardous substances at 3 sites under
the federal "Superfund" statute and/or certain analogous state statutes.
Pursuant to various federal, state and local laws and regulations, PRPs can
become liable for the costs of removal and/or remediation of those hazardous
substances disposed on, in or about such properties. The liability imposed by
the Superfund statute and analogous state statutes generally is joint and
several and imposed without regard to whether the generator knew of, or was
responsible for, the presence of such hazardous substances. In the opinion of
management, these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.

     Regulations resulting from the 1990 Amendments to the Clean Air Act (the
"1990 Amendments") that will pertain to the Company's manufacturing operations
are currently not expected to be promulgated for 3 to 5 years. The Company
cannot predict the level of required capital expenditures resulting from future
environmental regulations such as those forthcoming as a result of the 1990
Amendments; however, the Company does not anticipate expenditures that will be
required by such regulations to be material.

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EMPLOYEES

     The Company's worldwide workforce consisted of approximately 1,517
employees as of December 31, 1999.

     At the Company's facility in Chicopee, Massachusetts, approximately 500 of
the Company's employees are represented under a collective bargaining agreement
that expires in 2001. The Company does not anticipate any difficulty in
extending or negotiating this agreement when it expires. The Company believes
that its labor relations are good and no material labor cost increases, other
than in the ordinary course of business, are anticipated.

EVENFLO

     As previously indicated, prior to August 20, 1998, Evenflo was a subsidiary
of the Company. On August 20, 1998, the Company sold 51% of the outstanding
shares of Evenflo's common stock to an affiliate (KKR 1996 Fund). From August
20, 1998 through December 23, 1999, the Company accounted for its remaining
investment in Evenflo (42.4% of Evenflo's common stock) as an equity investment.
On December 23, 1999, the Company sold its remaining investment in Evenflo's
common stock to KKR 1996 Fund.

     Evenflo is one of the largest manufacturers and marketers of juvenile
products in the United States as well as a leader in several international
markets. Evenflo distinguishes itself from its competitors by developing
innovative, high quality products which have sometimes redefined their products
categories. For example, the 1994 introduction of the EXERSAUCER(TM) redefined
the activity product category. Evenflo followed this success with the
introduction of the ON MY WAY TRAVEL SYSTEM(TM) in 1996. The Company further
distinguishes itself from its competitors through its co-branded product
offerings with other national brands such as OSHKOSH B'GOSH(TM) and SERTA(TM).
The Company's products fall into four principal categories, representing the
daily activities in which the products are used: (i) "On the Go" products,
including car seats, strollers, travel systems and carriers, (ii) "Play Time"
products, including stationary activity products, swings, gates and doorway
jumpers, (iii) "Bed and Bath" products, including cribs, portable play yards,
monitors, mattresses, bath items and toilet trainers and (iv) "Feeding Time"
products, including reusable and disposable nurser systems, breastfeeding aids,
high chairs, oral development items such as teethers and pacifiers, bibs and
other feeding accessories. In April 1997, Evenflo acquired certain net assets of
Gerry Baby Products ("Gerry") for a purchase price of $68.7 million (the "Gerry
Acquisition"). The Gerry Acquisition provided Evenflo with additional market
leading products in categories such as gates, monitors, infant carriers and
baths, which complemented the Company's traditional strengths in juvenile
furniture and infant feeding products.

     Evenflo's products are subject to the provisions of the Federal Consumer
Product Safety Act and the Federal Hazardous Substances Act, the Highway Safety
Act of 1970 (collectively, the "Safety Acts") and the regulations promulgated
thereunder. The Safety Acts authorized the Consumer Products Safety Commission
("CPSC") to protect the public from products that present a substantial risk of
injury. The Highway Safety Act of 1970 authorizes the National Highway Traffic
Safety Administration ("NHTSA") to protect the public from risk of injury from
motor vehicles and motor vehicle equipment. The CPSC, the NHTSA and the Federal
Trade Commission (the "FTC") can initiate litigation requesting that a
manufacturer be required to remedy, repurchase or recall articles which fail to
comply with federal regulations, which contain a safety related defect or which
represent a substantial risk or injury to others. They may also impose fines or
penalties on the manufacturer. Similar laws exist in some states and in other
countries in which Evenflo markets its products.

     On August 20, 1998, Spalding and Evenflo entered into an indemnification
agreement (the "Indemnification Agreement") pursuant to which Spalding agreed to
indemnify Evenflo for all losses and liabilities of any kind relating to any
non-Evenflo related matters, and Evenflo agreed to indemnify Spalding for all
losses and liabilities of any kind relating to the Evenflo business. In
addition, Spalding agreed to indemnify Evenflo for the expense of product
recalls and corrective actions relating to products manufactured by Evenflo
prior to August 20, 1998. As of December 31, 1999, Spalding has incurred $819
($367 in 1999) in costs related to the

                                        8
<PAGE>   10

Indemnification Agreement. In addition, the Company has purchased insurance to
protect against a catastrophic liability that expires in 2001.

     Due to the nature of Evenflo's products, Evenflo has been engaged in the
defense of product liability claims related to its products, particularly with
respect to juvenile car seats and play yards. Such claims have caused Evenflo to
incur material litigation and insurance expenses. As of August 20, 1998, Evenflo
is solely responsible for its product liability exposure.

FORWARD-LOOKING STATEMENTS

     Sections of this Form 10-K, including Management's Discussion and Analysis
of Financial Conditions and Results of Operations, contain various
forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, with respect to the financial condition, results
of operation and business of the Company. Examples of forward-looking statements
are statements that use the words "expect", "anticipate", "plan", "intend",
"project", "believe" and similar expressions. These forward-looking statements
involve certain risks and uncertainties, and no assurance can be given that any
of such matters will be realized. Actual results may differ materially from
those contemplated by such forward looking statements as a result of, among
other things, failure by the Company to predict accurately customer preferences;
a decline in the demand for merchandise offered by the Company; competitive
influences; changes in levels of consumer spending habits; effectiveness of the
Company's brand awareness and marketing programs; general economic conditions
that are less favorable than expected or a downturn in the consumer products
industry; a significant change in the regulatory environment applicable to the
Company's business; an increase in the rate of import duties or export quotas
with respect to the Company's merchandise; or an adverse outcome of the
litigation referred to in "Legal Proceedings" that materially and adversely
affects the Company's financial condition. The Company assumes no obligation to
update or revise any such forward looking statements, which speak only as of
their date, even if experience or future events or changes make it clear that
any projected financial or operating results implied by such forward-looking
statements will not be realized.

                                        9
<PAGE>   11

ITEM 2:  PROPERTIES

     The Company's manufacturing and distribution facilities and U.S. sales
operations are generally located on owned premises or leased premises. The
Company conducts a significant portion of its international sales operations on
leased premises, which have remaining terms generally ranging from one to ten
years.

     Substantially all leases contain renewal options pursuant to which the
Company may extend the lease terms in increments of three to five years. The
Company does not anticipate any difficulties in renewing its leases as they
expire. The Company believes that its facilities are suitable for their present
and intended purposes and are adequate for the Company's current and expected
levels of operations.

     The following table sets forth information as of December 31, 1999 with
respect to the manufacturing, warehousing and office facilities used by the
Company in its businesses:

<TABLE>
<CAPTION>
                                                       OWNED/   SQUARE
LOCATION                       DESCRIPTION             LEASED   FOOTAGE
--------             --------------------------------  ------   -------
<S>                  <C>                               <C>      <C>
Chicopee, MA         Manufacturing/Warehousing/Office   Owned   560,500
Chicopee, MA         Warehousing/Office                 Owned   166,650
Chicopee, MA         Manufacturing/Warehousing/Office   Owned   110,725
Fort Worth, TX       Manufacturing/Warehousing/Office  Leased    40,321
Gloversville, NY     Manufacturing/Warehousing/Office   Owned    65,225
Sellersville, PA     Office                            Leased     1,200
West Palm Beach, FL  Golf Equipment Test Site          Leased       625
Woodbridge, Ontario  Manufacturing/Warehousing/Office  Leased    93,649
Australia            Manufacturing/Warehousing/Office   Owned    59,493
Australia            Warehousing/Office                Leased    10,000
Australia            Warehousing/Office                Leased     3,875
Australia            Warehousing/Office                Leased     2,820
Australia            Warehousing/Office                Leased     2,260
Italy                Office                            Leased     2,603
Japan                Office                            Leased     1,306
New Zealand          Warehousing/Office                Leased     9,297
Sweden               Warehousing/Office                Leased    15,424
Taiwan               Office                            Leased     3,744
United Kingdom       Warehousing/Office                Leased    25,860
Gloversville, NY     Currently not in use              Leased    80,000
Richmond, ME         Currently not in use               Owned    61,000
</TABLE>

Substantially all of the assets of Spalding are encumbered by liens securing the
Company's senior credit facilities. The lease for the facility in Gloversville
that is currently not in use will expire in June 2000.

ITEM 3:  LEGAL PROCEEDINGS

     From time to time the Company is involved in patent infringement actions.
The Company believes that it is not presently a defendant or plaintiff in any
patent infringement actions, the outcome of which would have a material adverse
effect on its consolidated financial position, results of operations or cash
flows.

     In addition, the Company is a party to various lawsuits arising in the
ordinary course of business. None of these lawsuits are believed to be material
with respect to the business assets and continuing operations of the Company.

     Evenflo has recalled certain of its products, in response to consumer
complaints and following internal company testing. Product recalls have been
primarily in the juvenile car seat and play yard categories.

                                       10
<PAGE>   12

Remedial measures have included increasing notices to consumers on the product
itself and design revisions. As part of the Reorganization, the Company retained
the liability for recalls of all Evenflo products manufactured prior to August
20, 1998. See "Certain Relationships and Related Transactions." As of December
31, 1999, Spalding has incurred $819 ($367 in 1999) in costs related to the
Indemnification Agreement. In addition, the Company has purchased insurance to
protect against a catastrophic liability that expires in 2001.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On December 22, 1999, the Company received a written consent signed by
Strata Associates and KKR 1996 Fund L.P, representing a majority of holders of
the Company's stock, that amended the 1996 Stock Purchase and Option Plan for
the Employees of Spalding Holdings Corporation and Subsidiaries, whereby the
number of shares available under the plan increased to 16,300,000.

     No other matters were submitted to a vote of the Company's security holders
(through the solicitation of proxies or otherwise) during the year ended
December 31, 1999.

                                    PART II

ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's common stock is not registered under the Securities Exchange
Act of 1934, as amended, and no trading market exists for such common stock. As
of March 20, 2000, there were 94 holders of the Company's common stock.

     The Company has never paid dividends on the common stock and does not
intend to pay dividends in the foreseeable future. As a holding company, the
ability of the Company to pay dividends is dependent upon the receipt of
dividends or other payments from Spalding Sports Worldwide. The payment of
dividends by Spalding Sports Worldwide to the Company is subject to certain
restrictions under the Company's credit agreements. Any determination to pay
cash dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
at that time by the Company's Board.

                                       11
<PAGE>   13

ITEM 6:  SELECTED FINANCIAL DATA

     The following table sets forth certain selected historical consolidated
financial data of the Company. The historical consolidated financial statements
of the Company for the year ended December 31, 1999, the Transition Period and
the four fiscal years ended September 30, 1998 have been audited. The historical
consolidated financial data for the year ended December 31, 1999, the Transition
Period and two fiscal years ended September 30, 1998 have been derived from, and
should be read in conjunction with, the audited consolidated financial
statements of the Company and the related notes thereto included elsewhere in
this Form 10-K. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                       OCTOBER 1,
                                           YEAR           1998
                                          ENDED         THROUGH               YEARS ENDED SEPTEMBER 30,
                                       DECEMBER 31,   DECEMBER 31,   --------------------------------------------
                                           1999         1998(4)        1998        1997        1996        1995
                                       ------------   ------------   ---------   ---------   ---------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                    <C>            <C>            <C>         <C>         <C>         <C>
OPERATING STATEMENT DATA(3)(5)
Spalding net sales...................   $ 431,172      $  56,774     $ 536,901   $ 553,436   $ 471,338   $441,777
Evenflo net sales....................                                  290,791     296,743     237,165    210,039
                                        ---------      ---------     ---------   ---------   ---------   --------
Total net sales......................     431,172         56,774       827,692     850,179     708,503    651,816
Cost of sales........................     249,729         77,420       557,417     560,179     446,425    400,457
                                        ---------      ---------     ---------   ---------   ---------   --------
Gross profit (loss)..................     181,443        (20,646)      270,275     290,000     262,078    251,359
Selling, general and administrative
  expenses...........................     177,490         61,354       297,800     258,089     222,044    203,396
Royalty income, net..................     (11,373)        (2,039)      (13,509)    (14,109)    (14,339)   (13,514)
Restructuring costs(1)...............         812          2,969        21,563      12,001
1994 Management Stock Ownership Plan
  expense............................                                                           20,828      1,130
Recapitalization costs...............                                                            7,700
Litigation settlement expense........                                                                       2,400
                                        ---------      ---------     ---------   ---------   ---------   --------
Income (loss) from operations........      14,514        (82,930)      (35,579)     34,019      25,845     57,947
Interest expense, net................      54,970         13,911        78,041      71,326      37,718     38,108
Currency (gain) loss, net............        (543)        (2,595)        2,936       1,236         775        381
Equity in net (earnings) loss of
  Evenflo Company, Inc...............         248          3,768        (1,476)
                                        ---------      ---------     ---------   ---------   ---------   --------
Earnings (loss) before income taxes
  and extraordinary loss.............     (40,161)       (98,014)     (115,080)    (38,543)    (12,648)    19,458
Income taxes (benefit)...............     (13,100)       (30,193)      (34,218)     (8,503)      9,206      8,605
                                        ---------      ---------     ---------   ---------   ---------   --------
Earnings (loss) before extraordinary
  loss...............................     (27,061)       (67,821)      (80,862)    (30,040)    (21,854)    10,853
Extraordinary loss on early
  extinguishment of debt, net of
  income tax benefit of $140, $0,
  $3,182, $0, $3,200, and $0,
  respectively.......................         260                        5,909                   5,987
                                        ---------      ---------     ---------   ---------   ---------   --------
Net earnings (loss)..................   $ (27,321)     $ (67,821)    $ (86,771)  $ (30,040)  $ (27,841)  $ 10,853
                                        =========      =========     =========   =========   =========   ========
Ratio of earnings to fixed
  charges(2).........................          --             --            --          --          --      1.49x
BALANCE SHEET DATA(3)(5)
Working capital......................   $  19,440      $  48,965     $ 123,939   $ 127,877   $ 167,360   $ 86,201
Total assets.........................     444,412        476,177       532,636     759,802     689,337    535,011
Long-term debt (net of current
  portion) and redeemable preferred
  stock..............................     510,700        524,519       503,074     609,900     775,800    313,073
Shareholders' equity (deficiency)....    (226,212)      (211,441)     (140,477)   (172,060)   (350,020)   (13,610)
</TABLE>

                                       12
<PAGE>   14

---------------
(1) See Note F of the Notes to the Consolidated Financial Statements appearing
    elsewhere in this Form 10-K.

(2) For purposes of determining the ratio of earnings to fixed charges, earnings
    are defined as earnings (loss) before income taxes, extraordinary loss,
    cumulative effect of accounting changes, and other comprehensive earnings
    (loss) plus "fixed charges" (except that capitalized interest is excluded).
    "Fixed charges" consist of interest on all indebtedness, whether expensed or
    capitalized, amortization of deferred financing costs, and one-third of
    rental expense on operating leases, representing that portion of rental
    expense deemed by the Company to be attributable to interest. The deficiency
    of earnings to fixed charges for 1999, the Transition Period and for fiscal
    1998, 1997, and 1996 was approximately $40.2 million, $98.0 million, $115.1
    million, $38.5 million and $12.6 million, respectively.

(3) Certain reclassifications have been made to prior year amounts to conform
    with current year presentations.

(4) Following fiscal 1998, the Company elected to change its year-end from
    September 30 to December 31.

(5) Prior to 1999, costs for a majority of the U.S. inventories were determined
    by the use of the last-in, first out costing method ("LIFO"). Effective
    January 1, 1999, the Company changed its method of valuing U.S. inventories
    from LIFO to the first-in, first-out costing method ("FIFO") to more
    properly reflect the method of product consumption. All previously reported
    amounts have been restated to reflect the retroactive application of this
    accounting change as required by generally accepted accounting principles.
    As of December 31, 1998, the effect of this change resulted in a $5.1
    million decrease in inventory, a $1.8 million increase in deferred tax
    assets and an overall $3.3 million decrease in equity. The accounting change
    increased the net loss for the fiscal years ended September 30, 1998, 1996
    and 1995 by $1.9 million, $0.2 million and $0.1 million respectively. The
    effect on the fiscal year ended September 30, 1997 was insignificant.

ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     BASIS OF PRESENTATION.  As previously stated, on August 20, 1998, the
Company separated its two businesses, Spalding and Evenflo, into two stand-alone
companies (Spalding retained a 42.4% ownership). From August 20, 1998 through
December 23, 1999, the Company accounted for its remaining investment in Evenflo
as an equity investment. On December 23, 1999, the Company sold its remaining
investment in Evenflo's common stock to the KKR 1996 Fund. In addition,
effective October 1, 1998, the Company changed its year-end from September 30 to
December 31. For improved comparability, the Company has provided below, summary
pro forma results of operations for the year ended December 31, 1998 giving
impact to the elimination of Evenflo from the historical information as if the
Reorganization had occurred on January 1, 1998. The management's discussion and
analysis provides analysis comparing results for the year ended December 31,
1999 to the pro forma year ended December 31, 1998.

                                       13
<PAGE>   15

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

                CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
               FOR THE YEAR ENDED DECEMBER 31, 1999 AND PRO FORMA
           FOR THE YEAR ENDED DECEMBER 31, 1998 GIVING EFFECT TO THE
                       EXCLUSION OF EVENFLO COMPANY, INC.
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED
                                                              ----------------------------
                                                                                PROFORMA
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
                                                                              (UNAUDITED)
<S>                                                           <C>             <C>
NET SALES...................................................    $431,172       $ 501,120
  Cost of sales.............................................     249,729         344,706
                                                                --------       ---------
GROSS PROFIT................................................     181,443         156,414
  Selling, general and administrative expenses..............     177,490         250,584
  Royalty income, net.......................................     (11,373)        (11,225)
  Restructuring and other unusual costs.....................         812          22,737
                                                                --------       ---------
INCOME (LOSS) FROM OPERATIONS...............................      14,514        (105,682)
  Interest expense, net.....................................      54,970          66,441
  Currency (gain) loss, net.................................        (543)         (1,225)
  Equity in net loss of Evenflo Company, Inc. ..............         248           2,292
                                                                --------       ---------
EARNINGS (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY
  LOSS......................................................     (40,161)       (173,190)
  Income taxes (benefit)....................................     (13,100)        (54,415)
                                                                --------       ---------
EARNINGS (LOSS) BEFORE EXTRAORDINARY LOSS...................     (27,061)       (118,775)
  EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,NET OF
     INCOME TAX BENEFIT.....................................         260           4,609
                                                                --------       ---------
NET EARNINGS (LOSS).........................................    $(27,321)      $(123,384)
                                                                ========       =========
</TABLE>

                                       14
<PAGE>   16

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO THE YEAR ENDED DECEMBER 31,
1998 ("PRO FORMA 1998").

     KEY DEVELOPMENTS.  During 1999, the Company achieved significant
improvement in its financial results due to its commitment in implementing the
strategic initiatives developed during the Transition Period of (i)
repositioning core brands for growth, (ii) restructuring the organization to
increase efficiency and effectiveness and (iii) re-engineering business systems
and practices to lower working capital and operating expenses. Also driving
these improvements was a new senior management team committed to delivering on
these strategic initiatives.

     As a result of the new brand strategy, the Company launched the new
TOP-FLITE(R) XL 2000(TM) golf ball line that became the number one new golf ball
line of the year with sales more than double the combined results from new golf
ball products from Nike, Cobra and Taylor-Made. In addition, the STRATA(R) brand
was successfully relaunched and sales increased by 76% over 1998. In 1999, the
Company also introduced the APEX PLUS(TM) line of BEN HOGAN(R) irons. These
forged clubs are designed for game improvement for the better and average
golfer.

     In 1999, the Company continued to increase the effectiveness and efficiency
of the organization through the restructuring of operations. To this end, the
Company reviewed operations to rationalize its infrastructure. As a result, the
Company closed its warehousing operations in Reno, Nevada, closed the
manufacturing facility in Richmond, Maine (Etonic) and consolidated the
Gloversville, New York club assembly into the Chicopee, Massachusetts location.
The consolidation of its facilities and increased efficiency at its corporate
office resulted in the elimination of approximately 274 positions during 1999.

     During October 1999, the Company substantially completed the implementation
of a fully-integrated computer system for its domestic operations. The
implementation included significant changes to customer service, warehousing,
distribution and financial processes. The Company encountered some start-up
difficulties that primarily affected the efficiency of warehouse and
distribution operations. While the Company was able to process and fulfill
orders, it was not able to do so at an adequate rate, thus risking the loss of
future business if immediate action was not taken to fulfill all orders.
Accordingly, the Company returned to certain components of its prior computer
system to deliver a level of distribution activity that will meet the ongoing
demands for its products. The financial modules of the new computer system were
successfully implemented in October 1999 and are currently in use. The Company
is currently assessing the aspects of the new computer system that caused the
difficulties and expects to decide on a long-term solution in the second quarter
of 2000. To the extent that elements of the new system are not part of the
long-term solution, the applicable portion of the capitalized costs would be
written off at that time. To date, the Company has capitalized $13.5 million in
costs related to this project (including $4.3 million related to the financial
modules that are in use). This amount is included in the Company's fixed assets.

     NET SALES are gross sales net of returns, allowances and trade discounts.
The Company's net sales decreased $69.9 million or 14.0% to $431.2 million for
1999. Of the total decrease, $65.6 million occured in the first half of 1999 as
compared to the same period during Pro Forma 1998 due to the Company's strategic
decision to exit low margin products and loss generating business. U.S. Golf net
sales decreased 9.5% to $249.5 million for 1999 compared to $275.7 million for
Pro Forma 1998. The decrease in net sales was expected as the Company continued
its plan to exit low margin products and loss generating businesses. U.S.
Sporting Goods decreased 23.8% to $80.5 million for 1999 compared to $105.6
million for Pro Forma 1998. The decrease is across all product lines, and is
also primarily attributable to the Company's strategy of eliminating lower end,
less profitable products. International sales decreased 15.5% to $101.2 million
for 1999 compared to $119.8 million for Pro Forma 1998. The international
decrease is related to the 1998 closure of subsidiary operations in Mexico,
Spain, Italy, France and Germany and the downsizing of operations in Japan.

     GROSS PROFIT is net sales less cost of sales, which includes the costs
necessary to make the Company's products, including the costs of raw materials
and production. Comparative discussions of gross profit exclude unusual and non-
recurring charges for inventory write-downs ($8.7 million for the year ended
December 31, 1999; $20.6 million for the year ended December 31, 1998). The
Company's gross profit increased to $190.1

                                       15
<PAGE>   17

million in 1999 from $177.0 million for Pro Forma 1998, an increase of $13.1
million despite the decrease in net sales noted above. Gross profit as a
percentage of net sales, or gross margin, increased to 44.1% for 1999 from 35.3%
for Pro Forma 1998.

     The increase in the gross profit margin rates was primarily driven by
improved margins in golf balls, golf accessories, basketballs, as well as
increased international gross profit margins. Improvements in gross margin were
also favorably impacted by the non-recurrence of downward pricing pressures that
resulted in a $10.6 million reduction of sales in 1998.

     SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSE decreased to $177.5
million for 1999 from $250.6 million for Pro Forma 1998, a decrease of $73.1
million or 29.2%.

     SG&A in the U.S. decreased to $146.7 million from $199.9 million, a
decrease of $53.2 million or 26.6%. The decrease is primarily attributable to
(i) $20.0 million of lower advertising expenses related to golf clubs and (ii)
$41.7 million of reduced selling and administrative costs associated with the
restructuring of the sales force and corporate office activities which was
offset by $8.5 million in implementation costs associated with a new integrated
information system for domestic operations. Internationally, the SG&A expense
decreased to $30.8 million from $50.7 million, a decrease of $19.9 million or
39.3%. The decrease in the International segment was primarily the result of
expense reductions within Japan's downsized operation and the closure of
operations in Mexico, Spain, France, Germany and Italy. The remainder of the
reduction is a result of the elimination of U.S. overheads related to the
international operations.

     ROYALTY INCOME increased to $11.4 million in 1999 months from $11.2 million
for Pro Forma 1998.

     RESTRUCTURING AND OTHER UNUSUAL COSTS.  During 1999, the Company recorded
$0.8 million of restructuring charges. These charges included costs for the
further consolidation of facilities and the elimination of positions at the
Company's headquarters. Restructuring costs for 1998 were $22.7 million and
included severance costs, closure of the Company's corporate office in Tampa,
Florida and closing expenses for operations in France, Italy, Spain and Germany.
Refer to note F of the consolidated financial statements.

     INTEREST EXPENSE decreased $11.4 million to $55.0 million in 1999 from
$66.4 million for Pro Forma 1998, a decrease of 17.2%. The decrease is
principally due to the sale of a majority interest in Evenflo and the paydown of
$278.8 million of debt on August 20, 1998 with the proceeds. This repayment
resulted in a decrease in average borrowings under the Company's Credit
Facility. The Revolving Credit Facility and the Term Loans make up the
outstanding portion of the Company's $650.0 million Credit Facility (the "Credit
Facility"). The Company has outstanding $200.0 million of 10 3/8% Series B
Senior Subordinated Notes ("Notes") due 2006. The Company's average balance
under the Notes, Credit Facility, certain non-U.S. borrowing and other financing
agreements for 1999 was $548 million compared to $674 million during Pro Forma
1998.

     NET CURRENCY GAINS of $0.5 million were $0.7 million lower in 1999 than in
Pro Forma 1998. See "Liquidity and Capital Resources".

     INCOME TAXES were a tax benefit of $13.1 million for 1999, which represents
an effective tax rate 32.6% in relation to a loss before income taxes of $40.2
million. For Pro Forma 1998, the tax benefit was $54.4 million based on a loss
before taxes of $173.2 million, representing an effective tax rate of 31.4%. For
both years, the effective tax rates varied from the U.S. federal statutory rate
of 35% due to the inability to utilize the tax benefit of the losses from
non-U.S. operations, coupled with non-U.S. withholding taxes.

     NET LOSS was $27.3 million for 1999 compared to $123.4 million for Pro
Forma 1998. The $96.1 million improvement was a result of a $120.2 million
increase in earning from operations (driven by improvement in gross profit and
gross margins, decreases in S,G&A and lower restructuring costs), plus a
decrease in interest expense of $11.4 million, a decrease of $2 million in the
loss associated with the Company's remaining investment in Evenflo and a $4.6
million extraordinary loss incurred in 1998 for the early extinguishment of debt
(net of taxes) as compared to $0.3 million for 1999. These gains were partially
offset by $41.3 million of lower income tax benefits.

                                       16
<PAGE>   18

    PERIOD OF OCTOBER 1, 1998 THROUGH DECEMBER 31, 1998 ("TRANSITION PERIOD")
    COMPARED TO OCTOBER 1, 1997 THROUGH DECEMBER 31, 1997 ("1997 PERIOD")

     KEY EVENTS DURING THE TRANSITION PERIOD.  During October 1998 of the
Transition Period, Edwin L. Artzt (former Chairman and Chief Executive Officer
of Proctor & Gamble Company) was named Chairman of Spalding Holdings
Corporation. Mr. Artzt subsequently hired James R. Craigie (former Executive
Vice President of Kraft, Inc.) as President and Chief Executive Officer in
December 1998. Under this new leadership, the management of the Company
formulated revised brand strategies for its key product lines to reposition the
businesses to improve earnings and cash flow and grow market share.

     This new strategy included repositioning the SPALDING(R), TOP-FLITE(R),
ETONIC(R), STRATA(R), BEN HOGAN(R) and DUDLEY(R) brands to make the Company a
premier competitor in the sporting goods industry. It also included the
transitioning of a new senior management team, key personnel in the marketing
department, a review of the Company's distribution and manufacturing
infrastructure and a 9-month implementation of the SAP integrated computer
software.

     To implement the new brand strategy, the Company made the strategic
decision to clear the market of certain products by (i) incurring the cost of
repositioning Top-Flite golf clubs to reflect pricing pressures and continued
softness in the club market (including price adjustments and acceptance of
higher than normal returns rates), (ii) eliminating discontinued golf and
sporting goods products through close-out sales, write-downs and write-offs and
(iii) reducing SKU's in all product categories. As a result of these actions
during the Transition Period, the Company incurred price adjustments of $10.6
million, made inventory write-downs or write-offs totaling $20.6 million and
accepted returns of $11.2 million. Restructuring costs of $3.0 million during
the Transition Period are comprised primarily of closing expenses for
international affiliates in central Europe and severance expense. In addition,
the Company sold closed-out merchandise of $22.2 million (at negative margins).

     To achieve these objectives, golf balls were separately positioned and
re-launched under the STRATA(R) and TOP-FLITE(R) XL 2000(TM) brands. New golf
ball products were introduced under the STRATA(R) and TOP-FLITE(R) XL 2000(TM)
brands that focus on key attributes that a golfer may want to improve in their
game. The new products include STRATA(R) TOUR PROFESSIONAL(TM), STRATA(R) ML
BALATA(TM), STRATA(R) DISTANCE(TM), TOP-FLITE(R) XL 2000(TM) EXCEPTIONAL SPIN,
TOP-FLITE(R) XL 2000(TM) SUPER TITANIUM, TOP-FLITE(R) XL 2000(TM) EXTRA LONG,
AND TOP-FLITE(R) XL 2000(TM) MAGNA EXTRA CONTROL(TM). The Strata family of
products will continue to be manufactured under the Company's patented
three-piece technology. TOP-FLITE(R) XL 2000(TM) products provide golfers the
ability to increase distance, accuracy, or control. All of the new TOP-FLITE(R)
XL 2000(TM) products are manufactured with tungsten in the core for softness and
feel and titanium in the cover for enhanced distance. Traditional TOP-FLITE(R)
XL(TM) products, already considered by the Company to be the largest selling
family of golf balls, will continue to be sold in key channels of distribution.

     The Company's golf club brands were aligned under the BEN HOGAN(R),
TOP-FLITE(R) and SPALDING(R) trademarks to more clearly define their target
audiences. Etonic golf as well as basketball and the other sporting goods
products also underwent a similar SKU rationalization and brand repositioning
which will emphasize quality and image versus price.

     NET SALES.  The Company's net sales decreased to $56.8 million during the
Transition Period from $162.2 million in the 1997 Period, a decrease of $105.4
million. The decrease of $105.4 million is primarily attributable to the loss of
Evenflo's sales which totaled $69.7 million in the 1997 Period and did not recur
in the Transition Period because Evenflo was sold in August of 1998, price
adjustments of $10.6 million (primarily golf products), accepted returns
totaling $11.2 million, decline in sales revenues of $6.3 million in
international markets (particularly in Mexico, Italy, France, Germany, Spain and
Japan) and less aggressive sales programs while the brands were being
repositioned. While the fourth calendar quarter was seasonally the slowest
quarter, as a result of pursuing the brand repositioning, the Company's revenues
declined to $56.8 million.

                                       17
<PAGE>   19

     Golf sales decreased to $29.7 million for the Transition Period from $69.2
million for the 1997 Period, a decrease of $39.5 million or 57.1%. Core line
full margin product sales amounted to $36.2 million while sales of golf products
being rationalized as part of the new brand strategy totaled $14.0 million and
were sold at a margin loss. The decrease of $39.5 million is primarily
attributable to pricing adjustments to customer inventory for changes in golf
club and other golf products totaling $10.1 million and returns of $10.4 million
suppressed the net sales of golf products to an even greater extent. The
remaining difference is attributable to less aggressive sales programs during
the Transition Period resulting from the repositioning of the brands. In
addition, as the golf ball line was being overhauled for a January 1999
introduction, sales programs were not as aggressive as in previous years.

     Sporting goods sales were $22.7 million for the Transition Period in
comparison to $19.6 million for the 1997 Period, an increase of $3.1 million or
15.8%.

     International sales decreased $6.3 million to $15.1 million during the
Transition Period in comparison to the 1997 Period. The decrease is primarily
attributable to the closing of the Mexico, Spain, Italy, France and Germany
operations that occurred during fiscal 1998 as part of the restructuring
activities. These operations were closed during Fiscal 1998 and the sales
responsibilities transitioned to third party distributors. The Japan operation
was downsized significantly and the sales responsibility was transitioned to
third party distributors. These six closed operations accounted for $4.7 million
of the decrease. Weak economic conditions in Pacific Rim markets made up the
remainder of the shortfall.

     GROSS PROFIT.  The Company's gross profit decreased to a negative $20.6
million during the Transition Period from $48.6 million for the 1997 Period or a
difference of $69.2 million. The sale of Evenflo represents $11.6 million of the
decline. The remainder is primarily comprised of $7.6 million of lost margin on
product discontinued as part of the brand rationalization, $5.2 million in
higher sales returns, $10.6 million in adjustments to customer inventory for
changes in golf club prices, and $20.6 million in inventory writedowns or
write-offs related to products discontinued as part of the new brand strategies.
Additionally, lower sales in the Transition Period accounted for the remainder
of the difference.

     U.S. golf and sporting goods products represented 95% of the margin
variance. International gross profit was lower than the comparable period in
1997 as a result of actions similar to those undertaken in the U.S. However, the
volume of product that was necessary to be discontinued in international markets
was a much smaller percentage of the total inventory on hand.

     SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES.  The Company's SG&A
expenses decreased to $61.4 million for the Transition Period from $61.8 million
for the 1997 Period, a decrease of $0.4 million or 0.6%. Evenflo represented
$15.2 million of the 1997 Period amount and zero of the Transition Period total
as Evenflo was sold in August 1998. Giving effect to the Evenflo sale,
Spalding's SG&A increased by $14.8 million. The increase is primarily
attributable to higher advertising and general and administrative expenses in
the U.S. Advertising increased by $3.8 million due to (i) pro golf tour expenses
totaling $2.1 million, (ii) expenses related to the NBA contract totaling $1.2
million and (iii) other advertising expenses totaling $0.4 million. The general
and administrative increases relate to (i) professional and consulting services
related expenses totaling $2.0 million, (ii) insurance and accruals related to
Evenflo product recall claims totaling $2.8 million and (iii) $1.4 million of
selling expenses related to changing from a commission based salesforce to a
salaried salesforce.

     ROYALTY INCOME.  Royalty income is primarily from licensing Spalding's
worldwide trademarks. Royalty income decreased to $2.0 million during the
Transition Period versus $4.0 million of earned royalties during the 1997
Period. The decrease of $2.0 million is attributable to the following: (i) $1.3
million of the decline is attributable to the sale of Evenflo, (ii) $0.2 million
lower clothing royalties in the U.S. as a result of a reorganization of the
product category and (iii) $0.5 million primarily resulting from the
discontinuance of licensees that no longer matched the brand strategies.

     RESTRUCTURING COSTS.  In the Transition Period, the Company had $3.0
million of restructuring costs comprised primarily of (i) severance and related
expenses totaling $2.3 million and (ii) expenses related to

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<PAGE>   20

closing the international operations in France, Spain, Italy and Germany
totaling $0.4 million and (iii) foreign exchange losses totaling $0.3 million.

     INTEREST EXPENSE.  Interest expense decreased $4.3 million to $13.9 million
in the Transition Period from $18.2 million for the 1997 Period. The decrease is
principally due to the sale of Evenflo and the repayment of the $278.8 million
of debt on August 20, 1998. The Company's weighted average outstanding balances
for the Transition Period of $518.7 million compared to $673.2 million under the
Company's borrowing arrangements in the 1997 Period. The decrease in the
Company's weighted average outstanding balances for the Transition Period were
partially offset by higher interest rates agreed to in an amendment to the
Company's senior credit facility. The Company's average U.S. borrowing rate
increased to 10.2% from 9.9% in the 1997 Period.

     CURRENCY GAIN (LOSS).  For the Transition Period, the Company's currency
gain of $2.6 million was $3.5 million higher than the currency loss for the 1997
Period. See "Liquidity and Capital Resources."

     INCOME TAXES.  In the Transition Period, the Company recorded a $30.2
million tax benefit, which represents an effective income tax rate of 31% in
relation to its loss before income taxes. The inability to utilize the tax
benefit of the losses from non-U.S. operations, coupled with payments of certain
non-U.S. withholding taxes, resulted in a lower than expected statutory
effective tax rate.

     NET LOSS.  The Company recorded a net loss of $67.8 million for the
Transition Period compared to a $18.9 million net loss for the 1997 Period or a
variance of $48.9 million. The primary variances included in the decreases to
earnings were: (i) $5.2 million loss on higher than normal sales returns that
were a result of the lower sales due to a change in the Company's branding
strategies and market pressures in golf club, (ii) $20.6 million in inventory
writedowns and write-offs related to products discontinued as part of the new
brand strategies and (iii) $10.6 million for a one time price adjustment to
customer's field inventories of golf clubs to reflect market pricing pressures.
In addition, the Company did not aggressively execute its previous marketing
strategy during the period it was developing its new brand strategy.

    YEAR ENDED SEPTEMBER 30, 1998 ("FISCAL 1998") COMPARED TO YEAR ENDED
    SEPTEMBER 30, 1997 ("FISCAL 1997")

     NET SALES.  The Company's net sales decreased to $827.7 million in Fiscal
1998 from $850.2 million in Fiscal 1997, a decrease of $22.5 million or 2.6%.

     Spalding's net sales decreased to $536.9 million for Fiscal 1998 from
$553.4 million for Fiscal 1997, a decrease of $16.5 million or 3.0%.
International affiliate operations in Japan, Mexico, Spain, France, Germany, and
Italy underwent restructuring activities (see "Restructuring Costs") and
accounted for $20.9 million of the net sales reduction. Sales in these countries
are now being handled through independent distributors. Additional declines in
Australia and Southeast Asia are attributable to weaker currencies compared to
the U.S. dollar, the elimination of certain unprofitable product lines in
Australia, and economic conditions in Southeast Asia. These net sales declines
were partially offset by record sales in Canada. Total international net sales
declined $25.3 million in Fiscal 1998.

     Net sales in the U.S. operations increased by $8.8 million in Fiscal 1998
due to an increase in sales of U.S. golf products compared to Fiscal 1997 of
$27.1 million, or 9.5%. The growth in U.S. sales of golf products was led by a
strong demand for SPALDING(R) branded golf clubs, such as the SPALDING
EXECUTIVE(R) model, which achieved sales increases of 32.2% compared to Fiscal
1997, as well as a 48% increase in premium golf ball products, such as
STRATA(R), to the on and off course channels. Mark O'Meara's two wins in 1998,
the Masters and the British Open, and his being named Golfer of the Year,
contributed to the ongoing Strata success. The market for premium golf clubs is
currently saturated with inventory as manufacturers, including Spalding, built
product in anticipation of demand that did not materialize. As a result, the
aggregate net sales of premium grade TOP-FLITE(R) tour irons and INTIMIDATOR(TM)
metal woods were flat compared to Fiscal 1997 levels. Net sales of ETONIC(R)
golf shoes and golf accessories grew by 9.6% to $57.9 million in Fiscal 1998 on
the continuing success of THE DIFFERENCE(R) spikeless golf shoe, which became
the number one selling model in the off-course channel of distribution, as well
as improved sales of golf gloves and golf bags. Increases in golf products were
partially offset by declines in sporting goods and athletic shoes totaling

                                       19
<PAGE>   21

$29.3 million, or 18.6%, when compared to Fiscal 1997 net sales. The declines in
sales of sporting goods were primarily attributable to declines in sales of
basketballs, athletic shoes and product lines that are being discontinued.

     Net sales for Evenflo that are included in the consolidation were $290.8
million for the ten and one-half month period ended August 20, 1998, a decrease
of $5.9 million, or 2%, from the Fiscal 1997 twelve month period amount of
$296.7 million. Subsequent to August 20, 1998, Evenflo's results of operations
were accounted for under the equity method of accounting. The net sales decrease
was due to (i) the difference in the length of the periods (10 1/2 months for
Fiscal 1998 versus 12 months for Fiscal 1997) that Evenflo's operations were
consolidated into the Company's financial statements (ii) discontinue certain
Gerry products that did not fit with Evenflo's product line strategies and (iii)
the withdrawal of certain Gerry products from the market place in order to
re-engineer such products to meet Evenflo's standards. Net sales were also
negatively impacted by (a) an increased level of returns of breast pumps,
monitors and strollers, (b) lower net sales of play yards, due to the expiration
of a patent license for the manufacture of play yards and a nine-month delay in
introducing the Play Crib, Evenflo's newest entrant in the play yard category,
which began to be shipped to retailers in February 1998, and (c) the effects of
certain product safety campaigns. Evenflo's Fiscal 1998 international net sales
were down $6.0 million compared to the Fiscal 1997 levels due primarily to the
10 1/2 month period versus the full 12 month fiscal year.

     GROSS PROFIT.  The Company's gross profit decreased to $270.3 million in
Fiscal 1998 from $290.0 million for Fiscal 1997, a decrease of $19.7 million or
6.8%. Gross profit as a percentage of net sales declined to 32.7% in Fiscal 1998
from 34.1% in Fiscal 1997. Spalding's gross profit decreased to $214.1 million
in Fiscal 1998 from $229.2 million in Fiscal 1997, a decrease of $15.1 million
or 6.6%. Evenflo's gross profit decreased to $56.2 million in Fiscal 1998 (ten
and one-half months) from $60.8 million in Fiscal 1997 (twelve months), a
decrease of $4.6 million or 7.6% and is primarily attributable to the sale of
57.6% of the Company's investment in Evenflo on August 20, 1998 and the
accounting for Evenflo's results of operations subsequent to August 20, 1998
under the equity method of accounting.

     The decline in Spalding's gross profit is principally due to (i) increased
sales of products with lower margins, such as SPALDING EXECUTIVE(R) clubs, (ii)
close-out sales activity of spiked golf shoes as the market transitioned to
spikeless shoes, (iii) $3.5 million in inventory write-downs resulting from a
decision to close certain international affiliates and to discontinue certain
U.S. product lines, (iv) close out activity on certain U.S. sporting goods
products, (v) price competition in the premium golf club market, (vi) declines
in international sales, and (vii) declines in sales of sporting goods.
Spalding's gross margin declined due to price compression on golf clubs
resulting from excessive inventory in the retail channels and from price
compression on golf shoes, the result of the transitions from spiked shoes to
spikeless shoes. Gross margin on sporting goods also decreased as a result of
lost product placements in key accounts.

     Evenflo's gross profit dollars that are included in the consolidation are
$56.2 million for the ten and one-half month period ended August 20, 1998, a
decrease of $4.6 million from the Fiscal 1997 twelve month period amount of
$60.8 million, or a 7.6% decline. Evenflo's gross margins decreased to 19.3% of
net sales in Fiscal 1998 from 20.5% of net sales in Fiscal 1997 principally due
to (i) the addition of lower margin products such as gates, booster car seats,
bath products, monitors and toilet trainers acquired in the Gerry Acquisition,
(ii) the higher costs associated with the process of integrating Gerry's
operations with those of Evenflo, (iii) an increased level of returns of breast
pumps, monitors and strollers, (iv) an increase in distribution costs, (v) a
less favorable international sales mix due to the strength of the U.S. dollar
versus certain international currencies and (vi) a less favorable margin in
international markets due to increased costs without a compensating increase in
selling price. The dollar decline is principally due to the difference in the
length of the periods (10 1/2 months for Fiscal 1998 versus 12 months for Fiscal
1997).

     SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES.  The Company's SG&A
expenses increased to $297.8 million for Fiscal 1998 from $258.1 million for
Fiscal 1997, an increase of $39.7 million or 15.4%.

     Spalding's SG&A expenses increased $32.3 million during Fiscal 1998 as
compared with Fiscal 1997. As a percentage of net sales, SG&A expenses increased
to 39.9% for Fiscal 1998 from 35.7% for Fiscal 1997. The increase in Fiscal 1998
is principally due to (i) $9.6 million in higher domestic advertising,
promotion,
                                       20
<PAGE>   22

royalties and endorsement costs (including the NBA contractual increases), (ii)
$5.7 million in a write-off of funds advanced to a freight bill processor, (iii)
$3.5 million in unusual costs primarily associated with closing affiliate
operations in Japan, Mexico, Spain, France, Germany, and Italy, (iv) $2.9
million in higher U.S. selling expenses principally for salaries and related
benefits, (v) $2.0 million increase in legal expenses to protect the Company's
intellectual property, (vi) $7.2 million increase in bad debt allowance because
of concerns about the collectibility of a receivable from one customer (vii)
$1.0 increase of costs to secure orders and distribute product and (viii) $0.4
million in recovery from the settlement of a 1996 Etonic computer software
dispute that occurred in fiscal 1997 and did not repeat itself in Fiscal 1998.

     SG&A for Evenflo that are included in the consolidation is $61.9 million
for the ten and one-half month period ended August 20, 1998, an increase of $5.8
million from the Fiscal 1997 twelve month period. As a percentage of net sales,
SG&A expenses increased to 21.3% in Fiscal 1998 from 18.9% in Fiscal 1997.
Evenflo's $6.0 million increase in SG&A expenses was principally due to (i) an
increase in the number of selling and administrative personnel during the Gerry
integration, (ii) increased product development and engineering efforts related
to a number of the product lines, (iii) higher advertising and promotional
costs, and (iv) $4.0 million in expenses related to the Reorganization
transaction, partially offset by (a) lower product liability expenses compared
to Fiscal 1997, and (b) lower costs from the elimination of certain redundant
functions as part of the Gerry integration.

     The corporate office SG&A expenses decreased $0.1 million to $5.3 million
during Fiscal 1998 as compared with a Fiscal 1997 amount of $5.4 million. The
decrease is attributable to closing the Tampa office and Fiscal 1997 transaction
costs that did not recur in Fiscal 1998.

     ROYALTY INCOME.  Royalty income is primarily from licensing Spalding's
worldwide trademarks. Royalty income decreased to $13.5 million in Fiscal 1998
from $14.1 million in Fiscal 1997. The $0.6 million decrease was principally due
to (i) the weaker Japanese yen compared to the U.S. dollar and (ii) elimination
of licensees that were inconsistent with the strategic direction of the Company.

     RESTRUCTURING COSTS.  In Fiscal 1998, the Company had $21.5 million of
restructuring costs comprised of (i) $5.3 million of expenses related to the
closure of the Tampa headquarters, (ii) $8.1 million of severance and related
expenses at Spalding, (iii) $3.5 million of other expenses associated with the
closing of the Spalding affiliates in Japan, Mexico, Spain, France, Germany, and
Italy, (iv) $2.8 million of write-offs related to accumulated foreign currency
translation adjustments, (v) $0.4 million in consolidations of expenses related
primarily to lease terminations, and (vi) $1.4 million in expenses related to
Evenflo integrating Gerry operations into its facilities.

     INTEREST EXPENSE.  Interest expense increased $6.7 million to $78.0 million
in Fiscal 1998 from $71.3 million for Fiscal 1997. The increase is principally
due to the Company's weighted average outstanding balances for Fiscal 1998 of
$704.8 million compared to $679.0 million under the Company's borrowing
arrangements then in effect for Fiscal 1997. The increase in the Company's
weighted average outstanding balances for fiscal 1998 was partially offset by
lower interest rates as the Company's average U.S. borrowing rate decreased to
9.1% from 9.8% in Fiscal 1997.

     CURRENCY LOSS.  For Fiscal 1998, the Company's currency loss of $2.9
million was $1.7 million higher than the currency loss for Fiscal 1997. See
"Liquidity and Capital Resources."

     INCOME TAXES.  In Fiscal 1998, the Company recorded a $34.2 million tax
benefit which represents an effective income tax rate of 30% in relation to a
loss before income taxes and extraordinary item of $115.1 million. The inability
to assure a tax benefit on losses from non-U.S. operations, coupled with
payments of certain non-U.S. withholding taxes, resulted in a lower effective
tax rate.

     NET LOSS.  The Company recorded a net loss of $86.8 million for Fiscal 1998
compared to a $30.0 million net loss for Fiscal 1997. The primary variances
included in the decreases to earnings were: (i) $16.8 million decrease in gross
profit of which $4.3 million relates to unusual costs (see Restructuring and
Unusual Costs) and the remainder relates to volume, mix and close-out activity
(ii) $6.7 million relates to increased interest on higher debt levels, (iii)
$8.2 million in higher domestic advertising, promotion, and endorsement costs,
(iv) $5.7 million in a write-off of funds advanced to freight bill processor,
(v) $3.5 million in unusual
                                       21
<PAGE>   23

costs primarily associated with closing affiliate operations in Japan, Mexico,
Spain, France, Germany, and Italy, (vi) $2.9 million in higher U.S. selling
expenses, (vii) $2.0 million increase in legal expenses (viii) $0.4 million in
recovery from settlement of 1996 Etonic computer software dispute that occurred
in Fiscal 1997 and did not repeat itself in Fiscal 1998, (ix) $4.0 million in
expenses related to the Reorganization transaction, (x) $5.9 million in
extraordinary losses related to the write-off of deferred financing expense on
the early extinguishment of debt, (xi) $0.6 million of lower royalty income,
(xii) $9.6 million increase in restructuring costs and (xiii) $1.7 million in
higher currency losses, (xiv) $7.2 million increase in bad debt allowance
because of concerns about the collectibility of a receivable from one customer,
(xv) $6.7 increase in customer service, distribution and freight costs, offset
by (i) $3.2 million aggregate decrease of spending in affiliate operations that
were transitioned to independent distributors (ii) the Company's equity in net
earnings of Evenflo (August 21, 1998 through September 30, 1998) totaling $1.5
million and (iii) income tax benefit of $24.7 million.

LIQUIDITY AND CAPITAL RESOURCES

     HISTORICAL.  Historically, the Company's primary sources of liquidity have
been borrowings under various credit facilities, and periodically, proceeds from
the issuance of common stock and proceeds from the issuance of preferred stock.
For 1999, quarterly net sales as a percentage of total net sales were
approximately 26%, 30%, 21%, and 23%, respectively, for the first through the
fourth quarters of the fiscal year. Many sporting goods marketed by Spalding,
especially golf products, experience higher levels of sales in the spring and
summer months. Based on a calendar year, the Company's need for cash
historically has been greater in its first and fourth quarters when cash
generated from operating activities coupled with drawdowns from bank lines have
been invested in receivables and inventories.

     In 1999, operating activities used $0.1 million of net cash compared to
usage for the calendar year 1998 of $83.3 million. The improvement in cash flow
from operations was generated primarily based on the decrease in the Company's
net loss from $123.4 million to $27.3 million. Other factors affecting cash flow
include lower inventory balances which were driven by improved inventory
management.

     In the Transition Period, the Company's operating activities used $20.3
million of net cash, compared to usage of $33.3 million in the 1997 Period. The
improvement is primarily attributable to the sale of Evenflo offset by the net
loss totaling $67.8 million. Other factors affecting cash flow were changes in
working capital due to (i) a $24.5 million decline in receivables on lower sales
and strong cash collections; (ii) lower inventory resulting from close out of
merchandise costing $26.7 million at negative margins partially offset by
inventory build of the new golf products and (iii) funding of the reserves
established during Fiscal 1998 for restructuring and unusual items totaling $4.1
million. The Transition Period cash flows includes $3.0 million of restructuring
costs that are related primarily to severance costs and related expenses.

     In Fiscal 1998, operating activities used $96.2 million of net cash
compared to $31.5 million in Fiscal 1997. The 1998 improvement is principally
attributable to a $54.9 million increase in net loss. Other factors affecting
cash flow were changes in working capital due to: (i) a decline in receivables
on lower fourth quarter sales, (ii) higher golf inventory resulting from slower
sales in the golf club market as well as the purchase of the assets of Hogan and
(iii) lower payables (primarily associated with lower bankers acceptances).

     Capital expenditures for 1999 totaled $16.3 million. This amount was funded
by borrowings under the Company's credit facilities and existing cash balances.
Capital expenditures for 1999 are primarily costs incurred for the
implementation of the new computer system for domestic operations totaling $11.4
million, as well as expenditures for machinery and equipment and capital costs
related to the consolidation of facilities. Capital expenditures for the
Transition Period were $3.5 million compared with $6.5 million during the 1997
Period. Capital expenditures were used primarily for golf ball plant expansion.
Capital expenditures for Fiscal 1998 were $26.6 million compared with $35.1
million in Fiscal 1997. Capital expenditures were used primarily for new product
introductions and new distribution facilities. During 2000, the Company expects
to spend approximately $20.0 million in capital related expenditures.

     On November 26, 1997, the Company acquired certain assets and assumed
certain liabilities of Ben Hogan Co. for a purchase price of $14.6 million,
consisting of $10.0 million in Company common stock

                                       22
<PAGE>   24

(2 million shares), $3.0 million in a 10 1/2% note due November 25, 2000, and
$1.6 million in cash. Hogan manufactures and/or markets golf clubs and golf
accessories under the Hogan brand name.

     On April 21, 1997, Evenflo acquired the net assets of Gerry for a purchase
price of $68.7 million.

     The Company's principal sources of liquidity will come from cash flow
generated from operations, borrowings under the Company's $250 million revolving
credit facility and by non-U.S. subsidiaries (the majority of which non-U.S.
borrowings are guaranteed by the Company). The Company's principal uses of
liquidity will be to provide working capital, meet debt service requirements and
finance the Company's strategic plans. At December 31, 1999, the Company had an
available borrowing capacity of $48.7 million (net of $44.8 million of
outstanding letters of credit and bankers' acceptances) under the revolving
credit facility. The Company does not have any required amortization of Term
Loans in calendar 2000.

     FINANCING.  The financing entered into in connection with the 1996
Recapitalization included, (i) $650 million under the credit facilities
comprised of a $400 million term loan facility and a $250 million revolving
credit facility (the "Credit Facilities"), (ii) $200 million of 10 3/8% senior
subordinated notes due 2006, (iii) $150 million of preferred stock which was
exchanged for common shares on June 25, 1997 and (iv) a $221 million equity
investment. The proceeds from the Credit Facilities, senior subordinated notes,
preferred stock and equity investment were used to effect the Recapitalization
and pay fees and expenses in connection therewith.

     On June 25, 1997, Strata exchanged all the Company's outstanding preferred
stock (liquidation value of $164.2 million) for 32,834,840 additional shares of
the Company's common stock at an exchange price of $5.00 per common share.

     On July 15, 1997, an affiliate of Strata L.L.C. invested $45.6 million and
Abarco N.V. invested $3.4 million for 9,800,000 additional shares of the
Company's common stock at a price of $5.00 per common share. This additional
equity investment was made to partially fund the acquisition of Gerry on April
21, 1997, and the proceeds were used to pay down revolver borrowings incurred in
connection with such acquisition.

     On August 20, 1998, the Company effectively completed the separation of
Spalding and Evenflo into two stand-alone companies. The Company initiated the
Reorganization by contributing the Spalding Sports Worldwide investments in the
common stock of the Company's Evenflo subsidiaries to Evenflo Company, Inc. and
simultaneously received cumulative preferred stock of Evenflo Company, Inc. (the
"Evenflo Preferred Stock") with an aggregate liquidation preference of $40.0
million and a cumulative dividend rate of 14%. As a result of these
transactions, Evenflo Company, Inc. became the parent company of the other
subsidiaries and divisions of subsidiaries included in the Evenflo segment of
the Company. The realignment of the Company's two businesses was accounted for
as a reorganization of these companies under common control in a manner similar
to a pooling of interests.

     To complete the Reorganization on August 20, 1998, KKR 1996 Fund L.P. ("KKR
1996 Fund"), a limited partnership affiliated with Kohlberg Kravis Roberts &
Co., L.P. ("KKR"), acquired from the Company 51% (5,100,000 shares) of the
outstanding common shares of Evenflo Company, Inc. for a purchase price of $25.5
million and the Evenflo Preferred Stock (400,000 shares) for a purchase price of
$40.0 million. Great Star Corporation, an affiliate of Abarco N.V. ("Abarco"),
acquired from the Company 6.6% (660,000 shares) of the outstanding common shares
of Evenflo Company, Inc. for a purchase price of $3.3 million. Strata LLC, an
affiliate of KKR 1996 Fund, KKR 1996 Fund and Abarco are currently shareholders
of the Company. After these sales of common stock, the Company retained
ownership of 42.4% (4,240,000 shares) of the outstanding shares of common stock
of Evenflo Company, Inc. Also on August 20, 1998 Evenflo (i) issued and sold
$110.0 million aggregate principal amount of 11 3/4% senior notes due 2006 in a
private offering, and (ii) entered into a $100.0 million revolving credit
facility with a syndicate of banks and other financial institutions and borrowed
$10.0 million under such credit facility. Evenflo Company, Inc. paid the net
proceeds of these two financing transactions, $110.0 million, to the Company as
a partial payment of intercompany indebtedness. The remainder of the
intercompany indebtedness due to the Company by Evenflo Company, Inc. was
treated as a contribution of capital by the Company to Evenflo Company, Inc.

     During 1999, the Company sold its remaining investment in Evenflo
(representing 42.4% of Evenflo's common stock) for $23.6 million. Based on the
terms of the Company's credit facility, the net proceeds of $23.0 were used to
pay down portions of its term loans.
                                       23
<PAGE>   25

     The Company's ability to fund its operations, make capital expenditures and
make scheduled payments or to refinance its indebtedness will depend upon its
future financial and operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, some of which are
beyond its control. There can be no assurance that the Company's results of
operations, cash flow and capital resources will be sufficient to fund its
operations, capital expenditures, or its debt service obligations. In the
absence of improved operating results, the Company may face liquidity problems
and might be required to dispose of material assets or operations to fund its
operations and capital expenditures and to meet its debt service and other
obligations, and there can be no assurances as to the timing of such sales or
the proceeds that the Company could realize therefrom.

     EBITDA represents earnings before interest, taxes, depreciation and
amortization, and excludes extraordinary items. EBITDA is not intended to
represent cash flows from operations as defined by generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to net income
as an indicator of the Company's operating performance or to cash flows as a
measure of liquidity. EBITDA is included as a basis upon which the Company
assesses its financial performance, and certain covenants in the Company's
borrowing arrangements are tied to similar measures. The following sets forth
the calculation of the Company's EBITDA for the year ended December 31, 1999 and
1998 (pro forma basis)

<TABLE>
<CAPTION>
                                                                       PROFORMA
                                                     DECEMBER 31,    DECEMBER 31,
                                                         1999            1998
                                                     ------------    ------------
                                                            (IN THOUSANDS)
<S>                                                  <C>             <C>
Net loss...........................................    $(27,321)      $(123,384)
Interest expense...................................      54,970          66,441
Income taxes (benefit).............................     (13,100)        (54,415)
Depreciation.......................................       9,528           8,742
Amortization.......................................       4,521           4,488
Extraordinary loss.................................         260           4,609
                                                       --------       ---------
EBITDA.............................................    $ 28,858       $ (93,519)
                                                       ========       =========
</TABLE>

     CURRENCY HEDGING.  In 1999, the Transition Period and in Fiscal 1998,
approximately 21.2%, 20.4% and 17.1%, respectively, of the total Company net
sales were generated in non-U.S. currencies. Fluctuations in the value of these
currencies relative to the U.S. dollar could have a material effect on the
Company's results of operations. The Company, in its discretion, uses forward
exchange contracts to hedge up to one year transaction exposures from U.S.
dollar purchases made by its non-U.S. operations. As of December 31, 1999,
outstanding forward exchange contracts totaled $10.0 million.

     INFLATION.  Inflation has not been material to the Company's operations
within the periods presented.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends upon the intended use of the
derivative and resulting designation if used as a hedge. SFAS No. 133, as
amended by SFAS No. 137 "Deferral of the Effective Date of SFAS No. 133", is
effective beginning January 1, 2001. Management is currently evaluating the
impact of these statements and believes their adoption will not affect the
Company's consolidated financial position, results of operations or cash flows.

FORWARD-LOOKING STATEMENTS

     Sections of this Form 10-K, including Management's Discussion and Analysis
of Results of Operations and Financial Condition ("MD&A"), contain various
forward-looking statements, within the meaning of the

                                       24
<PAGE>   26

Private Securities Litigation Reform Act of 1995, with respect to the financial
condition, results of operation and business of the Company. Examples of
forward-looking statements are statements that use the words "expect",
"anticipate", "plan", "intend", "project", "believe" and similar expressions.
These forward-looking statements involve certain risks and uncertainties, and no
assurance can be given that any of such matters will be realized. Actual results
may differ materially from those contemplated by such forward looking statements
as a result of, among other things, failure by the Company to predict accurately
customer preferences; a decline in the demand for merchandise offered by the
Company; failure of the Company's brand repositioning strategy and
organizational restructuring; competitive influences; changes in levels of
consumer spending habits; effectiveness of the Company's brand awareness and
marketing programs; general economic conditions that are less favorable than
expected or a downturn in the consumer products industry; a significant change
in the regulatory environment applicable to the Company's business; an increase
in the rate of import duties or export quotas with respect to the Company's
merchandise; any unforeseen problems relating to the implementation of an
integrated information system, or an adverse outcome of the litigation referred
to in "Legal Proceedings" that materially and adversely affects the Company's
financial condition. The Company assumes no obligation to update or revise any
such forward looking statements, which speak only as of their date, even if
experience or future events or changes make it clear that any projected
financial or operating results implied by such forward-looking statements will
not be realized.

ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DISCLOSURE ABOUT FOREIGN CURRENCY RISK

     Although the majority of the Company's transactions are in U.S. dollars,
affiliates operate in their local currency with certain transactions for
inventory and royalties being denominated in U.S. dollars. The Company may
purchase short-term forward exchange contracts to hedge payments that require
conversion to U.S. dollars. The purpose of entering these hedge contracts is to
minimize the impact of foreign currency fluctuation on the results of
operations. Certain increases or decreases in the affiliate U.S. dollar payments
are offset by gains and losses on the hedges. The contracts have maturity dates
that do not exceed twelve months. The Company does not purchase short-term
forward exchange contracts for trading purposes.

     As of December 31, 1999, the Company had outstanding the following
purchased foreign exchange forward contracts (in thousands of U.S. dollars):

<TABLE>
<CAPTION>
                                                                 WEIGHTED
                                                   CONTRACT       AVERAGE       UNREALIZED
                                                    AMOUNT     CONTRACT RATE    GAIN (LOSS)
                                                   --------    -------------    -----------
<S>                                                <C>         <C>              <C>
Foreign Currency Forward Contracts:
  Canadian dollar................................   $9,825          .683           $(143)
  British pound..................................      162         1.624               1
                                                    ------                         -----
Total............................................   $9,987                         $(142)
                                                    ======                         =====
</TABLE>

DISCLOSURE ABOUT INTEREST RATE RISK

     The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing, and cash management activities. The
Company utilizes a balanced mix of debt maturities along with both fixed-rate
and variable-rate debt to manage its exposures to changes in interest rates.
(See Note H to the Consolidated Financial Statements appearing elsewhere in this
Form 10-K.) The Company does not expect changes in interest rates to have a
material effect on income or cash flows in 1999, although there can be no
assurances that interest rates will not significantly change.

     In order to manage the impact of fluctuating rates on its variable rate
debt, in November of 1999 the Company fixed $293.2 million of its variable rate
debt in accordance with the terms of its credit agreements until May 2000 at a
weighted-average rate of 6.0%. In addition, in January 2000 the Company entered
into an interest rate cap agreement on $300.0 million of its variable rate debt
that commences in May 2000 (total variable rate debt based on the Eurodollar
rate at December 31, 1999 was $298.2 million). The cap has a strike rate of
6.34% and expires on July 26, 2000. At March 20, 2000, the effective Eurodollar
interest rate was 6.11%.

                                       25
<PAGE>   27

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   27
Statements of Consolidated Operations for the year ended
  December 31, 1999, the Transition Period October 1, 1998
  through December 31, 1998 and for the fiscal years ended
  September 30, 1998 and 1997...............................   28
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................   29
Statements of Consolidated Cash Flows for the year ended
  December 31, 1999, the Transition Period October 1, 1998
  through December 31, 1998 and for the fiscal years ended
  September 30, 1998 and 1997...............................   30
Statements of Consolidated Shareholders' Equity (Deficiency)
  for the year ended December 31, 1999, the Transition
  Period October 1, 1998 through December 31, 1998 and for
  the fiscal years ended September 30, 1998 and 1997........   31
Notes to Consolidated Financial Statements..................   32
</TABLE>

                                       26
<PAGE>   28

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Spalding Holdings Corporation
Chicopee, Massachusetts

     We have audited the accompanying consolidated balance sheets of Spalding
Holdings Corporation and subsidiaries (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of operations, cash flows and
shareholders' equity (deficiency) for the year ended December 31, 1999, for the
transition period October 1, 1998 through December 31, 1998 and for each of the
two fiscal years in the period ended September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Spalding Holdings Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999, for the
transition period October 1, 1998 through December 31, 1998 and for each of the
two fiscal years in the period ended September 30, 1998 in conformity with
accounting principles generally accepted in the United States of America.

     As discussed in Note B to the consolidated financial statements, effective
January 1, 1999, the Company changed its method of valuing U.S. inventories from
the Last-in, First-out costing method to the First-in, First-out costing method
and, retroactively, restated all periods presented for the change.

DELOITTE & TOUCHE LLP

Hartford, Connecticut
March 17, 2000

                                       27
<PAGE>   29

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

                     STATEMENTS OF CONSOLIDATED OPERATIONS
                     FOR THE YEAR ENDED DECEMBER 31, 1999,
      THE TRANSITION PERIOD OCTOBER 1, 1998 THROUGH DECEMBER 31, 1998 AND
             FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                               YEAR         OCTOBER 1,
                                              ENDED          THROUGH        YEARS ENDED SEPTEMBER 30,
                                           DECEMBER 31,    DECEMBER 31,    ----------------------------
                                               1999            1998           1998            1997
                                           ------------    ------------    -----------    -------------
                                                          (DOLLAR AMOUNTS IN THOUSANDS)
<S>                                        <C>             <C>             <C>            <C>
Net sales................................    $431,172        $ 56,774       $ 827,692       $850,179
  Cost of sales..........................     249,729          77,420         557,417        560,179
                                             --------        --------       ---------       --------
Gross profit (loss)......................     181,443         (20,646)        270,275        290,000
  Selling, general and administrative
     expenses............................     177,490          61,354         297,800        258,089
  Royalty income, net....................     (11,373)         (2,039)        (13,509)       (14,109)
  Restructuring and other unusual
     costs...............................         812           2,969          21,563         12,001
                                             --------        --------       ---------       --------
Income (loss) from operations............      14,514         (82,930)        (35,579)        34,019
  Interest expense, net..................      54,970          13,911          78,041         71,326
  Currency (gain) loss, net..............        (543)         (2,595)          2,936          1,236
  Equity in net (earnings) loss of
     Evenflo Company, Inc................         248           3,768          (1,476)
                                             --------        --------       ---------       --------
Earnings (loss) before income taxes and
  extraordinary loss.....................     (40,161)        (98,014)       (115,080)       (38,543)
  Income taxes (benefit).................     (13,100)        (30,193)        (34,218)        (8,503)
                                             --------        --------       ---------       --------
Earnings (loss) before extraordinary
  loss...................................     (27,061)        (67,821)        (80,862)       (30,040)
  Extraordinary loss on early
     extinguishment of debt, net of
     income tax benefit of $140 in 1999
     and $3,182 in fiscal 1998...........         260                           5,909
                                             --------        --------       ---------       --------
Net earnings (loss)......................    $(27,321)       $(67,821)      $ (86,771)      $(30,040)
                                             ========        ========       =========       ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.
                                       28
<PAGE>   30

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                              DECEMBER 31,     DECEMBER 31,
                                                                  1999             1998
                                                              -------------    -------------
                                                              (DOLLAR AMOUNTS IN THOUSANDS,
                                                                  EXCEPT SHARE AMOUNTS)
<S>                                                           <C>              <C>
ASSETS
CURRENT ASSETS
Cash........................................................    $   2,931        $   8,036
Receivables, less allowance of $2,050 and $3,491,
  respectively..............................................       95,829           86,196
Inventories.................................................       49,012           89,166
Deferred income taxes.......................................       12,218           11,592
Prepaid expenses............................................        1,555            1,098
                                                                ---------        ---------
          Total current assets..............................      161,545          196,088
Property, plant and equipment, net..........................       58,734           51,660
Intangible assets, net......................................      108,135          112,662
Deferred income taxes.......................................       99,877           85,838
Deferred financing costs....................................       15,721           19,395
Investment in Evenflo Company, Inc..........................                        10,340
Other.......................................................          400              194
                                                                ---------        ---------
          Total assets......................................    $ 444,412        $ 476,177
                                                                =========        =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Non-U.S. bank loans.........................................    $   4,081        $   6,531
Short-term debt.............................................        3,341
Accounts payable............................................       74,098           85,198
Accrued expenses............................................       60,270           55,045
Income taxes................................................          315              349
                                                                ---------        ---------
          Total current liabilities.........................      142,105          147,123
Long-term debt..............................................      510,700          524,519
Pension benefits............................................        9,787            8,360
Postretirement benefits.....................................        7,940            7,549
Other.......................................................           92               67
                                                                ---------        ---------
          Total liabilities.................................      670,624          687,618
COMMITMENTS AND CONTINGENCIES (NOTES K, L, M, N, AND O)
Shareholders' equity (deficiency)
Preferred stock, $.01 par value, 50,000,000 shares
  authorized; 1,000,000 outstanding (liquidation value
  $120.9 million and $105.1 million, respectively)..........      100,000          100,000
Common stock, $.01 par value, 150,000,000 shares authorized
  98,058,948 issued in 1999; 96,933,963 issued in 1998......          981              969
Additional paid-in capital..................................      466,088          452,434
Accumulated deficit.........................................     (788,679)        (761,358)
Treasury stock, 27,441 shares in 1999; 17,222 shares in
  1998, at cost.............................................         (128)             (77)
Loans for stock.............................................         (644)
Deferred compensation.......................................         (200)
Accumulated other comprehensive earnings (loss) -- currency
  translation adjustments...................................       (3,630)          (3,409)
                                                                ---------        ---------
          Total shareholders' equity (deficiency)...........     (226,212)        (211,441)
                                                                ---------        ---------
          Total liabilities and shareholders' equity
            (deficiency)....................................    $ 444,412        $ 476,177
                                                                =========        =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.
                                       29
<PAGE>   31

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

                     STATEMENTS OF CONSOLIDATED CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1999
      THE TRANSITION PERIOD OCTOBER 1, 1998 THROUGH DECEMBER 31, 1998, AND
               THE FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                  YEAR        OCTOBER 1,        YEARS ENDED
                                                                 ENDED         THROUGH          SEPTEMBER 30
                                                              DECEMBER 31,   DECEMBER 31,   --------------------
                                                                  1999           1998         1998       1997
                                                              ------------   ------------   --------   ---------
                                                                        (DOLLAR AMOUNTS IN THOUSANDS)
<S>                                                           <C>            <C>            <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).........................................    $(27,321)      $(67,821)    $(86,771)  $ (30,040)
Adjustments to reconcile net earnings (loss) to net cash
  provided by (used) in operating activities:
  Write-down of inventories.................................       8,662         20,570
  Non-cash compensation and amortization of deferred
    compensation............................................         250
  Depreciation..............................................       9,258          2,183       20,471      16,884
  Equity in (earnings) loss of Evenflo Company, Inc.........         248          3,768       (1,476)
  Intangibles amortization..................................       4,521          1,086        5,776       4,885
  Bad debt expense..........................................       2,669            880       12,591       4,284
  Deferred income taxes.....................................     (14,665)       (30,430)     (35,782)     (3,719)
  Deferred financing cost amortization......................       3,273            818        5,206       4,637
  Write-off of fixed assets.................................                      1,591
  Extraordinary loss on early extinguishment of debt........         400                       9,091
  Other.....................................................        (786)           498        3,722         734
Changes in assets and liabilities:
  Receivables...............................................     (12,302)        48,448       16,534     (33,739)
  Inventories...............................................      31,492          3,970      (20,960)    (28,333)
  Prepaids and other assets.................................        (663)           834        3,467           0
  Current liabilities, excluding bank loans.................      (6,709)        (6,024)     (27,071)     38,592
  Long term liabilities.....................................       1,617           (719)      (1,042)     (5,658)
                                                                --------       --------     --------   ---------
    Net cash provided by (used in) operating activities.....         (56)       (20,348)     (96,244)    (31,473)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................     (16,332)        (3,543)     (26,649)    (35,070)
Payment to purchase net assets of Gerry.....................                                             (68,652)
Acquisition of Hogan........................................                                  (1,641)
Sale of Evenflo and settlement of intercompany balances:
  Sale of Evenflo Common Stock..............................      23,600                      28,800
  Sale of Evenflo Preferred Stock...........................                                  40,000
  Repayment of intercompany debt by Evenflo.................                                 110,000
  Effect of cash on sale of Evenflo.........................                                  (6,739)
                                                                --------       --------     --------   ---------
    Net cash flows provided by (used in) investing
      activities............................................       7,268         (3,543)     143,771    (103,722)
                                                                --------       --------     --------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment under credit agreement............................     (23,000)                   (228,800)
Net borrowings under revolving credit loan..................      12,521         21,445       94,800       1,600
Net borrowings (repayments) of non U.S. bank loans..........      (2,450)          (213)      (4,430)      4,646
Proceeds from issuance of preferred stock and warrants......                                 100,000
Proceeds from issuance of common stock......................         612                       1,422      59,102
Repurchase of common stock..................................                                     (77)       (283)
Payments of deferred financing costs........................                                  (4,915)
                                                                --------       --------     --------   ---------
    Net cash flows provided by (used in) financing
      activities............................................     (12,317)        21,232      (42,000)     65,065
                                                                --------       --------     --------   ---------
    Net increase (decrease) in cash.........................      (5,105)        (2,659)       5,527     (70,130)
    Cash balance, beginning of period.......................       8,036         10,695        5,168      75,298
                                                                --------       --------     --------   ---------
    Cash balance, end of period.............................    $  2,931       $  8,036     $ 10,695   $   5,168
                                                                ========       ========     ========   =========
SUPPLEMENTAL CASH FLOW DATA:
Interest paid...............................................    $ 49,722         17,685       80,667      53,163
Income taxes paid...........................................       1,565             72          170       2,332
NON-CASH TRANSACTIONS:
Purchase of treasury stock via cancellation of notes
  receivable................................................          51
Issuance of notes receivable for sale of common stock.......         644
Non-cash exchange of preferred stock for common stock.......                                             164,174
Non-cash preferred stock dividend acquisition...............                                  13,025
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       30
<PAGE>   32

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

          STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIENCY)
                     FOR THE YEAR ENDED DECEMBER 31, 1999,
      THE TRANSITION PERIOD OCTOBER 1, 1998 THROUGH DECEMBER 31, 1998, AND
             FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>

                                                                             RETAINED
                                             PREFERRED   COMMON   PAID-IN    EARNINGS    TREASURY   LOANS FOR     DEFERED
                                               STOCK     STOCK    CAPITAL    (DEFICIT)    STOCK       STOCK     COMPENSATION
                                             ---------   ------   --------   ---------   --------   ---------   ------------
                                                                      (DOLLAR AMOUNTS IN THOUSANDS)
<S>                                          <C>         <C>      <C>        <C>         <C>        <C>         <C>
September 30, 1996.........................  $      0     $500    $223,125   $(570,173)   $   0       $   0        $   0
Net earnings (loss)........................                                    (30,040)
Currency translation adjustments...........
Comprehensive earnings (loss)..............
Cash proceeds from issuance of common
  stock....................................                118      58,984
Exchange of common stock for preferred
  stock....................................                329     163,845
Preferred stock dividend...................                        (14,174)
Repurchase of common stock -- final
  purchase price adjustment................                                       (283)
                                             --------     ----    --------   ---------    -----       -----        -----
September 30, 1997.........................                947     431,780    (600,496)
Net earnings (loss)........................                                    (86,771)
Currency translation adjustment............
Comprehensive earnings (loss)..............
Cash proceeds from issuance of common
  stock....................................                  2       1,420
Stock issued in Hogan acquisition..........                 20       9,980
Repurchase of treasury stock...............                                                 (77)
Issuance of preferred stock and warrants...   100,000
Sale price of 57.6% of Evenflo in excess of
  related net book value...................                          9,254
Deferred tax adjustment on acquired
  Trademarks...............................                                     (6,270)
                                             --------     ----    --------   ---------    -----       -----        -----
September 30, 1998.........................   100,000      969     452,434    (693,537)     (77)
Net earnings (loss)........................                                    (67,821)
Currency translation adjustments...........
                                             --------     ----    --------   ---------    -----       -----        -----
Comprehensive earnings (loss)..............
December 31, 1998..........................   100,000      969     452,434    (761,358)     (77)
Net earnings (loss)........................                                    (27,321)
Currency translation adjustments...........
Comprehensive earnings (loss)..............
Repurchase of common stock.................                                                 (51)
Issuance of common stock...................                 12       1,494                             (644)        (250)
Amortization of deferred compensation......                                                                           50
Sale of Evenflo............................                         12,160
                                             --------     ----    --------   ---------    -----       -----        -----
December 31, 1999..........................  $100,000     $981    $466,088   $(788,679)   $(128)      $(644)       $(200)
                                             ========     ====    ========   =========    =====       =====        =====

<CAPTION>
                                               ACCUMULATED
                                                  OTHER
                                              COMPREHENSIVE     COMPREHENSIVE
                                             EARNINGS (LOSS)   EARNINGS (LOSS)     TOTAL
                                             ---------------   ---------------   ---------
                                                     (DOLLAR AMOUNTS IN THOUSANDS)
<S>                                          <C>               <C>               <C>
September 30, 1996.........................      $(3,472)                        $(350,020)
Net earnings (loss)........................                       $(30,040)        (30,040)
Currency translation adjustments...........         (819)             (819)           (819)
                                                                  --------
Comprehensive earnings (loss)..............                       $(30,859)
                                                                  ========
Cash proceeds from issuance of common
  stock....................................                                         59,102
Exchange of common stock for preferred
  stock....................................                                        164,174
Preferred stock dividend...................                                        (14,174)
Repurchase of common stock -- final
  purchase price adjustment................                                           (283)
                                                 -------                         ---------
September 30, 1997.........................       (4,291)                         (172,060)
Net earnings (loss)........................                       $(86,771)        (86,771)
Currency translation adjustment............        2,405             2,405           2,405
                                                                  --------
Comprehensive earnings (loss)..............                       $(84,366)
                                                                  ========
Cash proceeds from issuance of common
  stock....................................                                          1,422
Stock issued in Hogan acquisition..........                                         10,000
Repurchase of treasury stock...............                                            (77)
Issuance of preferred stock and warrants...                                        100,000
Sale price of 57.6% of Evenflo in excess of
  related net book value...................        1,620                            10,874
Deferred tax adjustment on acquired
  Trademarks...............................                                         (6,270)
                                                 -------                         ---------
September 30, 1998.........................         (266)                         (140,477)
Net earnings (loss)........................                       $(67,821)        (67,821)
Currency translation adjustments...........       (3,143)           (3,143)         (3,143)
                                                 -------          --------       ---------
Comprehensive earnings (loss)..............                       $(70,964)
                                                                  ========
December 31, 1998..........................       (3,409)                         (211,441)
Net earnings (loss)........................                       $(27,321)        (27,321)
Currency translation adjustments...........         (786)             (786)           (786)
                                                                  --------
Comprehensive earnings (loss)..............                       $(28,107)
                                                                  ========
Repurchase of common stock.................                                            (51)
Issuance of common stock...................                                            612
Amortization of deferred compensation......                                             50
Sale of Evenflo............................          565                            12,725
                                                 -------                         ---------
December 31, 1999..........................      $(3,630)                        $(226,212)
                                                 =======                         =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       31
<PAGE>   33

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE A -- ORGANIZATION

     BUSINESS AND REORGANIZATION.  Spalding Holdings Corporation (formerly
Evenflo & Spalding Holdings Corporation) and subsidiaries (the "Company") is a
global manufacturer and marketer of branded consumer products serving the
sporting goods markets under the primary trade names Spalding(R), Top-Flite(R),
Etonic(R), Strata(R), Ben Hogan(R) and Dudley(R). The primary subsidiary of the
Company is Spalding Sports Worldwide, Inc. ("SSW"), formerly named Spalding &
Evenflo Companies, Inc. The Company markets and licenses a variety of
recreational and athletic products such as golf balls, golf clubs, golf shoes,
golf bags and accessories, basketballs, volleyballs, footballs, soccer balls,
softball and clothing, shoes and equipment for many other sports.

     Prior to August 20, 1998, the Company operated in a second business segment
known as Evenflo ("Evenflo Segment"), which serves the infant and juvenile
product market. The Evenflo Segment consisted of Evenflo Company, Inc., a SSW
wholly-owned subsidiary, and certain other wholly-owned SSW subsidiaries and
divisions of subsidiaries that sell infant and juvenile products in other
countries and that hold the Evenflo Segment patents and trademarks. The Evenflo
Segment manufactures and markets, under the Evenflo, Gerry and Snugli trade
names, specialty juvenile products including reusable and disposable baby bottle
feeding systems, breast-feeding aids, pacifiers and oral development items, baby
bath, health and safety items, monitors and other baby care products and
accessories, as well as juvenile car seats, stationary activity products,
strollers, high chairs, portable play yards, cribs, dressers and changing
tables, gates, soft carriers and frame carriers, child carriers and mattresses.

     On August 20, 1998, the Company effectively completed the separation of
these two businesses, the Spalding and the Evenflo Segments, into two
stand-alone companies (the "Reorganization"). The Company initiated the
Reorganization on May 20, 1998 by contributing the SSW investments in its other
subsidiaries included in the Evenflo Segment to Evenflo Company, Inc. and
receiving newly issued cumulative, variable rate, preferred stock (400,000
shares) of Evenflo Company, Inc. (the "Evenflo Preferred Stock") with a face
value of $40,000 and an initial dividend rate of 14%. As a result of these
transactions, Evenflo Company, Inc. became the parent company of all the other
subsidiaries and divisions of subsidiaries formerly included in the Evenflo
Segment. The realignment of the Company's two businesses was accounted for as a
reorganization of companies under common control in a manner similar to a
pooling of interests.

     On August 20, 1998, KKR 1996 Fund L.P. ("KKR 1996 Fund"), a limited
partnership affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR"),
acquired from the Company (i) 51% (5,100,000 shares) of the outstanding common
shares of Evenflo Company, Inc. for a purchase price of $25,500 and (ii) the
Evenflo Preferred Stock for a purchase price of $40,000. Prior to such KKR 1996
Fund stock purchases, Great Star Corporation, an affiliate of Abarco N.V.
("Abarco"), acquired from the Company 6.6% (660,000 shares) of the outstanding
common shares of Evenflo Company, Inc. for a purchase price of $3,300. Strata
LLP, an affiliate of KKR 1996 Fund, KKR 1996 Fund and Abarco are currently
shareholders of the Company; both Abarco and Great Star are owned by the same
entity (see "Recapitalization and Stock Purchase Agreement" below). After these
sales of common stock, the Company retained ownership of 42.4% (4,240,000
shares) of the outstanding common stock of Evenflo Company, Inc. Also on August
20, 1998 Evenflo Company, Inc. (i) issued and sold $110,000 aggregate principal
amount of senior notes in a private offering, and (ii) entered into a $100,000
revolving credit facility with a syndicate of banks and other financial
institutions and borrowed $10,000 under the credit facility. Evenflo Company,
Inc. paid the net proceeds of these two borrowing transactions, $110,000, to the
Company as a partial payment of intercompany indebtedness. The remainder of the
intercompany indebtedness of Evenflo Company, Inc. was treated as a contribution
of capital by the Company to Evenflo Company, Inc. The Company has no guaranty
or other obligations with respect to the debt of Evenflo Company, Inc., and
Evenflo Company, Inc. has no such obligations with respect to the Company's
debt.

                                       32
<PAGE>   34
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     Also on August 20, 1998, KKR 1996 Fund invested $100,000 in the Company to
acquire cumulative, variable rate, preferred stock of the Company together with
44,100,000 Warrants to purchase common stock of the Company (see Note K). The
Company used the proceeds from the issuance of its preferred stock, from the
Evenflo Company, Inc. stock sales, and from the repayment of intercompany
indebtedness by Evenflo Company, Inc. to repay $278,800 of the Company's senior
credit facilities and Revolver (see Note H).

     Effective December 23, 1999, KKR 1996 Fund purchased the Company's
remaining 42.4% common stock ownership interest in Evenflo Company, Inc. for
$23,600 (Note R). The net proceeds were used to repay term loans under the
Company's senior credit facilities (Note H).

     ACQUISITION OF BEN HOGAN.  On November 26, 1997, the Company acquired
certain assets and assumed certain liabilities of the Ben Hogan Co. ("Hogan")
for a purchase price of $14,666, consisting of $10,000 in Company common stock
(2 million shares), $3,025 in a 10 1/2% note due November 25, 2000, and $1,641
in cash. Hogan manufactures and/or markets golf clubs, and golf accessories
under the Hogan brand name. The purchased assets and assumed liabilities consist
of the following:

<TABLE>
<S>                                                           <C>
Inventories.................................................  $ 3,383
Fixed assets................................................      162
Intangibles (primarily trademarks)..........................   12,221
                                                              -------
Total.......................................................   15,766
Accrued liabilities.........................................   (1,100)
                                                              -------
Net assets purchased........................................  $14,666
                                                              =======
</TABLE>

     The Hogan acquisition was accounted for using the purchase method;
accordingly, the operating results of Hogan have been included in the statement
of consolidated earnings (loss) from the date of acquisition. If the acquisition
had taken place on October 1, 1996 rather than on November 26, 1997,
consolidated pro forma net sales and net loss would not have been materially
different from the Company's reported amounts for 1998 and 1997.

     ACQUISITION OF GERRY.  On April 21, 1997, the Company, through its
wholly-owned subsidiary, Evenflo Company, Inc., acquired the net assets of Gerry
Baby Products Company ("Gerry") for a purchase price of $68,652. Gerry had
manufacturing operations in Colorado and in Wisconsin and maintained its
administrative operations in Colorado.

     The Gerry acquisition was accounted for using the purchase method of
accounting; accordingly, the operating results of Gerry have been included in
the statements of consolidated earnings (loss) from the date of acquisition. In
applying purchase accounting, inventories were increased by $1,268, which is the
amount of acquired profit related to the expected future sale of the Gerry
finished goods acquired. Accordingly, the Company's loss for 1997 was increased
by $1,268 from selling, in the ordinary course of business, inventory which was
written up to fair value at date of acquisition. If the acquisition had taken
place at October 1, 1995 rather than in April 1997, Gerry's unaudited results of
operations would have changed pro forma consolidated net sales and net earnings
(loss) by $61,362 and $(1,735) for the year ended September 30, 1997.

     RECAPITALIZATION AND STOCK PURCHASE AGREEMENT.  Prior to September 30,
1996, the Company was a wholly-owned subsidiary of Abarco. On August 15, 1996,
Abarco and Strata Associates L.P. ("Strata") an affiliate of KKR, entered into a
Recapitalization and Stock Purchase Agreement (the "Recapitalization Agreement")
pursuant to which Strata acquired control of the Company (the
"Recapitalization"). The closing of the Recapitalization took place on September
30, 1996 (the "Closing"). In connection with the Recapitalization a portion of
the common stock owned by Abarco was redeemed for total consideration of
$581,933 in 1996 (see details below) plus an adjustment to the redemption price
of $283 in 1997. After the

                                       33
<PAGE>   35
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Recapitalization Strata and its affiliate owned approximately 88% of the
Company's common stock and Abarco retained approximately 12% of the Company's
common stock.

     The Recapitalization was financed with $221,000 cash proceeds of newly
issued common stock to Strata, $150,000 proceeds of non-voting redeemable
preferred stock issued to Strata (of which $50,000 was issued immediately after
the Closing), proceeds of $625,800 from certain borrowings (see Note H) and
$2,209 of the Company's cash balances. These funds were used to (i) redeem a
portion of the common stock held by Abarco for $524,150 in cash plus the fair
value of the Company's investments in an affiliate promissory note of $49,395
and in the E&S Realco, Inc. ("Realco") common stock and note receivable of
$8,388; (ii) repay principal and interest of $367,894 for existing indebtedness,
including the promissory notes issued to acquire Etonic; (iii) redeem, for a net
payment of $21,330 all of the remaining subsidiary shares issued under the 1994
Management Stock Ownership Plan (see Note K); (iv) pay $31,471 in transaction
fees and expenses; (v) purchase certain non-U.S. trademarks and assignment
rights from an affiliate of Abarco for $5,135; (vi) pay a transaction bonus of
$5,375 to certain members of management of SSW; and (vii) provide working
capital of $45,654 (of this amount $25,800 was used to repay borrowings under
the revolving credit loan on October 1, 1996).

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION.  The consolidated financial statements include
the accounts of Spalding Holdings Corporation and its subsidiaries, all of
which, including Evenflo Company, Inc. and subsidiaries until August 20, 1998,
are wholly-owned. All intercompany accounts and transactions have been
eliminated in consolidation.

     INVESTMENT IN AFFILIATED COMPANY.  The Company's investment in Evenflo
Company, Inc., subsequent to the August 20, 1998 sale (a 42.4% common stock
ownership interest) was accounted for using the equity method of accounting. As
of December 23, 1999, the Company sold its remaining investment in Evenflo to a
related party. Refer to Note A and Note R for further details.

     YEAR-END.  Following fiscal 1998, the Company elected to change its
year-end from September 30 to December 31. Included herein are consolidated
balance sheets as of December 31, 1999 and 1998 and the statements of operations
statements of consolidated cash flows and statements of consolidated
shareholders' equity (deficiency) for 1999, the period October 1, 1998 through
December 31, 1998 (the "Transition Period") and for the fiscal years ended
September 30, 1998 and 1997. Unaudited financial information for the period
October 1, 1997 through December 31, 1997 is as follows: net sales $162,209;
gross profit $48,586; loss from operations ($9,585); income tax benefit
($9,845); and net loss $(18,925).

     REVENUE RECOGNITION.  The Company records revenue when goods are shipped.

     FAIR VALUE OF FINANCIAL INSTRUMENTS.  The estimated fair value of amounts
reported in the consolidated financial statements has been determined by using
available market information and appropriate valuation methodologies. The
carrying value of all current assets and current liabilities approximates fair
value because of their short-term nature.

     INVENTORIES.  Prior to 1999, costs for a majority of the U.S. inventories
were determined by the use of the last-in, first out costing method ("LIFO").
Effective January 1, 1999, the Company changed its method of valuing U.S.
inventories from LIFO to the first-in, first-out costing method ("FIFO") to more
properly reflect the method of product consumption. All previously reported
amounts have been restated to reflect the retroactive application of this
accounting change as required by generally accepted accounting principles. As of
December 31, 1998, the effect of this change resulted in a $5,120 decrease in
inventory, a $1,792 increase in deferred tax assets and an overall $3,328
decrease in equity.

                                       34
<PAGE>   36
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     PROPERTY, PLANT AND EQUIPMENT.  These assets are stated at cost and are
depreciated principally using the straight-line method over estimated useful
lives which range from 3 to 20 years. Certain assets are depreciated for income
tax purposes using accelerated methods.

     INTANGIBLE ASSETS.  All material intangible assets are amortized on the
straight-line basis using a 40 year life.

     IMPAIRMENT OF LONG-LIVED ASSETS.  The Company evaluates its long-lived
assets for impairment annually or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The Company compares
the carrying value of its long-lived assets to an estimate of their expected
future cash flows (undiscounted and without interest charges) to evaluate the
reasonableness of the carrying value and remaining depreciation or amortization
period. If the sum of the expected future cash flows is less than the carrying
amount of the asset, an impairment is recognized.

     DEFERRED FINANCING COSTS.  The costs incurred to obtain financing
agreements have been capitalized and are amortized using the interest method
over the term of the related debt.

     INCOME TAXES.  Income tax expense is based on reported earnings before
income taxes. Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes. In accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years the temporary differences are expected to reverse.
The effect on deferred taxes of a change in tax rates is recognized in income in
the period that the change in rate is enacted.

     RETIREMENT PLANS AND POSTRETIREMENT BENEFITS.  Current service costs of
retirement plans and post-retirement healthcare and life insurance benefits are
accrued annually. Prior service costs resulting from amendments to the plans are
amortized over the average remaining service period of employees expected to
receive benefits.

     EMPLOYEE STOCK OWNERSHIP PLANS.  Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
encourages, but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), and related interpretations.
Accordingly, compensation cost for the stock options included under the
Company's 1996 Stock Purchase and Option Plan for Key Employees of Spalding
Holdings Corporation and Subsidiaries (the "1996 Employee Stock Ownership Plan")
is measured as the excess, if any, of the fair value of the Company's stock at
the date of the grant over the amount an employee must pay to acquire the stock.

     ADVERTISING.  Advertising costs (other than production media) are expensed
as incurred. Costs associated with production media (television commercials) are
expensed when the advertising first takes place. Advertising and promotion
expenses amounted to $60,271, $20,142, $99,013 and $91,982 in 1999, the
Transition Period, 1998 and 1997, respectively.

     CURRENCY TRANSLATION.  Non-U.S. currency-denominated assets and liabilities
are translated into U.S. dollars at the exchange rates existing at the balance
sheet dates. Income and expense items are translated at the average exchange
rates during the respective periods. Translation adjustments resulting from
fluctuations in the exchange rates are recorded as a separate component of
shareholders' equity (deficiency) as accumulated other comprehensive income
(loss).

                                       35
<PAGE>   37
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     CURRENCY EXCHANGE CONTRACTS.  Open forward currency exchange contracts are
marked-to-market using the spot rates at each balance sheet date and the change
in market value is recorded by the Company as a currency gain or loss.

     USE OF ESTIMATES.  The preparation of the accompanying 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 the disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of sales and expenses during the reported period. Actual
results could differ from these estimates.

     CASH FLOWS.  For purposes of the statements of consolidated cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.

     NEW ACCOUNTING PRONOUNCEMENTS.  In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends upon the intended use of the derivative and resulting
designation if used as a hedge. SFAS No. 133, as amended by SFAS No. 137
"Deferral of the Effective Date of SFAS No. 133", is effective beginning January
1, 2001. Management is currently evaluating the impact of these statements and
believes their adoption will not affect the Company's consolidated financial
position, results of operations or cash flows.

     RECLASSIFICATIONS.  Certain reclassifications have been made to prior year
amounts to conform with current year presentations.

NOTE C -- INVENTORIES

<TABLE>
<CAPTION>
                                                     DECEMBER 31,    DECEMBER 31,
                                                         1999            1998
                                                     ------------    ------------
<S>                                                  <C>             <C>
Finished goods.....................................    $34,729         $68,018
Work in process....................................      2,798           3,385
Raw materials......................................     11,485          17,763
                                                       -------         -------
Total inventories..................................    $49,012         $89,166
                                                       =======         =======
</TABLE>

NOTE D -- PROPERTY, PLANT AND EQUIPMENT, NET

<TABLE>
<CAPTION>
                                                     DECEMBER 31,    DECEMBER 31,
                                                         1999            1998
                                                     ------------    ------------
<S>                                                  <C>             <C>
Land...............................................    $  2,619        $  2,583
Buildings and building improvements................      36,712          35,950
Machinery and equipment............................      62,116          44,689
Construction in progress...........................       9,229          13,110
                                                       --------        --------
                                                        110,676          96,332
Accumulated depreciation...........................     (51,942)        (44,672)
                                                       --------        --------
  Property, plant and equipment, net...............    $ 58,734        $ 51,660
                                                       ========        ========
</TABLE>

                                       36
<PAGE>   38
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE E -- INTANGIBLE ASSETS, NET

<TABLE>
<CAPTION>
                                                     DECEMBER 31,    DECEMBER 31,
                                                         1999            1998
                                                     ------------    ------------
<S>                                                  <C>             <C>
United States trademarks...........................    $ 71,703        $ 71,703
Non-U.S. trademarks................................      13,378          13,378
Goodwill...........................................      75,817          75,817
                                                       --------        --------
                                                        160,898         160,898
Accumulated amortization...........................     (52,763)        (48,236)
                                                       --------        --------
  Intangible assets, net...........................    $108,135        $112,662
                                                       ========        ========
</TABLE>

NOTE F -- ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                                     DECEMBER 31,    DECEMBER 31,
                                                         1999            1998
                                                     ------------    ------------
<S>                                                  <C>             <C>
Compensation and other employee benefits...........    $12,486         $ 6,251
Liability for restructuring costs..................      3,960          11,369
Interest...........................................      8,968           6,994
Advertising and promotion..........................     13,409           8,593
Other, principally operating expenses..............     21,447          21,838
                                                       -------         -------
     Total accrued expenses........................    $60,270         $55,045
                                                       =======         =======
</TABLE>

  SPALDING RESTRUCTURING AND OTHER UNUSUAL COSTS.

     In 1997, the Company implemented a plan to restructure the Spalding
domestic and international operations to focus on core line golf and sporting
goods products. In 1998 the plan was expanded to reduce the infrastructure
needed to support the international operations, close the Mexico operations,
consolidate European operations with the closure of locations in France,
Germany, Italy and Spain, and to significantly downsize the Japanese operation.
These facility closures resulted in the elimination of approximately 116
international positions at various levels. As a result, sales activities in
Mexico, and the closed European operations are handled through distributors.
Additionally, the U.S. operations recognized certain management severance costs
associated with the elimination of approximately 100 domestic positions and
closed the headquarters in Tampa, Florida. In 1999, additional costs included
the further consolidation of manufacturing and warehousing operations. These
actions included the closure of the Company's golf shoe manufacturing facility
in Richmond, Maine and the consolidation of the golf club manufacturing
activities in Gloversville, New York to Chicopee, Massachusetts. These actions
resulted in the elimination of approximately 244 positions. Additional U.S.
severance costs include the Company's elimination of approximately 30 positions
at its corporate office.

     As of December 31, 1999, the restructuring activities are substantially
complete. As the restructuring activities were finalized, some of the Company's
initial estimates of the ultimate costs of various restructuring components
proved to be different than the actual costs incurred. As a result, the original
charges for international severance and related costs were under estimated,
while costs for the closure of the former corporate headquarters in Tampa were
over estimated, principally due to the subsequent subleasing of that

                                       37
<PAGE>   39
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

facility relieving the Company of such lease payments. As a result, the
Company's restructuring costs are as follows:

<TABLE>
<CAPTION>
                                             YEAR         OCTOBER 1,     FOR THE YEARS ENDED
                                            ENDED          THROUGH          SEPTEMBER 30,
                                         DECEMBER 31,    DECEMBER 31,    -------------------
                                             1999            1998          1998       1997
                                         ------------    ------------    --------    -------
<S>                                      <C>             <C>             <C>         <C>
Tampa headquarters closing costs.......    $(1,491)         $    0       $ 5,347     $    0
International severance costs and
  related expense......................        733             596         3,010        923
U.S. severance costs and related
  expense..............................        849           1,717         5,118          0
Facilities closings....................        705               0             0          0
Write-off of accumulated translation
  adjustment...........................          0             342         2,761          0
Lease terminations.....................          0               0           409        758
Termination of service contracts.......          0               0         1,237          0
Other costs............................         16             314         2,238        729
                                           -------          ------       -------     ------
     Total.............................    $   812          $2,969       $20,120     $2,410
                                           =======          ======       =======     ======
</TABLE>

     The Company has paid $6,525 of these restructuring costs in 1999, $4,061 in
the Transition Period and $7,080 and $1,322 in fiscal 1998 and 1997,
respectively. The Company has also charged $1,696 in 1999, $1,441 in the
Transition Period and $2,761 and $0 in fiscal 1998 and 1997, respectively, of
non-cash write-offs against the restructuring accruals. The remaining
restructuring accruals at December 31, 1999 totaling $3,960 are primarily
ongoing severance payments that continue into 2001.

     EVENFLO RESTRUCTURING AND OTHER UNUSUAL COSTS.  In July 1997, Company
management adopted a plan to relocate the Gerry Colorado administrative and
manufacturing operations to Evenflo's Ohio and Georgia locations. As a result,
the Company recorded restructuring costs for the period from October 1, 1997 to
August 20, 1998 and for the year ended September 30, 1997, as follows:

<TABLE>
<CAPTION>
                                                             FOR THE PERIOD ENDED
                                                                SEPTEMBER 30,
                                                             --------------------
                                                               1998        1997
                                                             --------    --------
<S>                                                          <C>         <C>
Severance costs for Colorado employees.....................   $    0      $4,105
Shut-down costs of the Colorado facility...................        0       2,630
Other costs................................................    1,443       2,856
                                                              ------      ------
Total......................................................   $1,443      $9,591
                                                              ======      ======
</TABLE>

NOTE G -- SEGMENT INFORMATION

     The Company manages the operations of the business based on three operating
segments: U.S. Golf Products, U.S. Sporting Goods Products and International
Operations. The following table is presented in accordance with Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an

                                       38
<PAGE>   40
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Enterprise and Related Information" and summarizes key information used by the
Company in evaluating the performance of each segment.

<TABLE>
<CAPTION>
                                                  U.S.
                                                SPORTING
                                    U.S. GOLF    GOODS     INTERNATIONAL   EVENFLO    ALL OTHER    TOTAL
                                    ---------   --------   -------------   --------   ---------   --------
<S>                                 <C>         <C>        <C>             <C>        <C>         <C>
AS OF AND FOR THE YEAR ENDED
  DECEMBER 31, 1999
     Net sales....................  $249,462    $ 80,530     $101,180      $     --    $    --    $431,172
     Depreciation and
       amortization...............    11,915         481        1,383            --         --      13,779
     Operating income (loss)......     3,642      (7,983)       7,826            --     11,029      14,514
     Total assets                     30,835      11,739       72,923            --    328,915     444,412
AS OF AND FOR THE YEAR ENDED
  SEPTEMBER 30, 1998
     Net sales....................  $311,053    $ 98,405     $127,444      $290,790    $    --    $827,692
     Depreciation and
       amortization...............    11,599         261        1,251        13,136         --      26,247
     Operating income (loss)......    (8,003)     (8,996)     (23,829)       (5,626)    10,875     (35,579)
     Total assets                     52,646      20,226       88,656        14,606    356,502     532,636
AS OF AND FOR THE YEAR ENDED
  SEPTEMBER 30, 1997
     Net sales....................  $283,378    $117,258     $152,800      $296,743    $    --    $850,179
     Depreciation and
       amortization...............    10,564         398        1,477         9,330         --      21,769
     Operating income (loss)......    28,704       1,623       (4,870)       (3,905)    12,467      34,019
     Total assets                     33,356      15,731       97,416       255,724    357,575     759,802
</TABLE>

     Net sales for the Transition Period by segment were as follows: U.S. Golf
$18.9 million; U.S. Sporting Goods $22.8 million; and International $15.1
million. Other segment information for the Transition Period is not available.

     U.S. Golf Products represent Spalding's largest operating segment. The
products included in this segment are golf balls, golf clubs, golf shoes and
golf accessories (bags, hats, club covers, towels and sports luggage).

     Spalding currently markets its golf products under the following brand
names:

<TABLE>
<CAPTION>
GOLF BALLS                       GOLF CLUBS                       GOLF SHOES AND ACCESSORIES
----------                       ----------                       --------------------------
<S>                              <C>                              <C>
Strata(R)                        Ben Hogan(R)                     Etonic(R)
Top-Flite(R)                     Top-Flite(R)                     Ben Hogan(R)
Spalding(R)                      Spalding(R)                      Top-Flite(R)
Molitor(R)                                                        Spalding(R)
</TABLE>

     U.S. Sporting Goods includes basketballs, softball and baseball products,
volleyballs, soccer balls and other sports products. These products are
primarily sold under the Spalding(R) trademark. Softball products are also
marketed under the Dudley(R) trademark.

     The International segment conducts operations outside of the U.S. and
consists of both subsidiary and third party distributors. Subsidiary operations
are maintained in key golf and sporting goods markets outside the U.S.,
including operations in Canada, Australia, New Zealand, United Kingdom, Sweden
and Japan. In addition to the subsidiary operations, Spalding conducts business
with over 100 third-party distributors in other markets throughout the world. In
both the subsidiary and distributor territories, Spalding markets a line of golf
and sporting goods products similar to those in the U.S. segments. In 1999, no
foreign country (other than U.S. domestic operations) accounted for net sales
representing more than 10% of total consolidated net sales.
                                       39
<PAGE>   41
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     The "All Other" category includes worldwide licensing and other items not
allocable to one of the segments. Worldwide licensing is a result of Spalding
granting licensees the exclusive right to use specified Spalding trademarks for
specific product categories, in specific markets. The SPALDING(R), TOP-FLITE(R),
ETONIC(R) and BEN HOGAN(R) names are licensed in a broad range of product
categories, including shoe and apparel lines. In exchange for these exclusive
licenses, Spalding receives royalty fees. The majority of royalty revenues are
generated in the U.S. and Japanese markets.

NOTE H -- DEBT

     The Company's U.S. operations have long-term bank financing arrangements to
support working capital needs and other general corporate requirements. The
operations utilized these arrangements primarily by use of direct bank
borrowings, acceptances and letters of credit. The Company's non-U.S.
subsidiaries have short-term bank financing arrangements to support
international working capital requirements. The subsidiaries utilize these
arrangements by use of direct bank borrowings and letters of credit. The
Company's borrowing activities are as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1999            1998
                                                             ------------    ------------
<S>                                                          <C>             <C>
Available lines of credit and outstanding debt:
  United States............................................    $607,541        $630,874
  International............................................       7,886          14,218
                                                               --------        --------
     Total.................................................    $615,427        $645,092
                                                               ========        ========
Amount outstanding
Direct borrowings
  United States............................................    $514,041        $524,519
  International............................................       4,081           6,531
                                                               --------        --------
     Total direct borrowings...............................     518,122         531,050
  Bankers acceptances (included in accounts payable).......      30,832          35,705
  Discounted receivables (netted against accounts
     receivable)...........................................           0           4,879
                                                               --------        --------
     Total borrowings......................................    $548,954        $571,634
                                                               ========        ========
  Letters of credit not yet funded.........................    $ 13,972        $ 13,083
                                                               ========        ========
United States direct borrowings consist of:
  Secured credit facility:
     Revolving credit loans................................    $156,500        $143,645
     Term loans............................................     148,200         171,200
  Senior subordinated notes................................     200,000         200,000
  Other indebtedness.......................................       9,341           9,674
                                                               --------        --------
     Total United States debt..............................     514,041         524,519
  Current maturities of debt...............................       3,341               0
                                                               --------        --------
     Long-term debt........................................    $510,700        $524,519
                                                               ========        ========
  Maximum borrowings.......................................    $556,474        $537,205
  Weighted average outstanding balances....................    $541,996        $518,691
  Weighted average interest rates..........................        9.68%          10.02%
</TABLE>

                                       40
<PAGE>   42
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     SECURED CREDIT FACILITY.  On September 30, 1996, the Company entered into a
secured credit facility (the "Credit Facility") with a syndicate of banks and
other financial institutions. The Credit Facility provided for a $650,000
maximum credit commitment (however, see below for a description of the
reductions of this commitment on August 20, 1998 and December 23, 1999),
consisting of a seven year $250,000 revolving credit loan ("Revolving Credit
Loan") and $400,000 in term loans ("Term Loans"). Term Loans consist of (i)
$175,000 seven year Term Loan A, (ii) $87,500 eight year Term Loan B, (iii)
$87,500 nine year Term Loan C and (iv) $50,000 nine and one half year Term Loan
D. Revolving Credit Loans may be used for working capital needs, special
facility obligations (letters of credit and acceptances), general corporate
purposes and for borrowings on same-day notice ("Swingline Loans"). Special
facility obligations are limited to a maximum of $180,000 and Swingline Loans
are limited to a maximum of $30,000. Each of the Term Loans required annual
amortization beginning September 30, 1998 and each subsequent September 30
thereafter until maturity as well as certain mandatory prepayments, among
others, with the proceeds of certain asset sales.

     In conjunction with the receipt of the $278,800 in proceeds from the
Reorganization in 1998 and the net receipt of $23,000 for the Company's sale of
its 42.4% ownership in Evenflo on December 23, 1999 (see Note A), the Company
was required to prepay portions of its Term Loans as follows:

<TABLE>
<CAPTION>
                                              BALANCE PRIOR                    BALANCE AFTER
                                              TO PREPAYMENTS    PREPAYMENTS     PREPAYMENTS
                                              --------------    -----------    -------------
<S>                                           <C>               <C>            <C>
Term Loan A.................................     $175,000        $159,208        $ 15,792
Term Loan B.................................       87,500          36,094          51,406
Term Loan C.................................       87,500          36,094          51,406
Term Loan D.................................       50,000          20,404          29,596
                                                 --------        --------        --------
     Total..................................     $400,000        $251,800        $148,200
                                                 ========        ========        ========
</TABLE>

     The Company also prepaid $25,000 of the Revolving Credit Loan and $25,000
of a seasonal credit facility that was opened during 1998 (see Note Q).

     All Term Loans and Revolving Credit Loans will bear interest, at the
Company's option, at either: (A) a "base rate" equal to the higher of (i) the
federal funds rate plus 0.50% per annum or (ii) the administrative agent's prime
rate, plus (a) in the case of Term Loan A, a debt to EBITDA-dependent rate
ranging from 0.00% to 1.50% per annum, (b) in the case of Term Loan B, 1.75% to
2.00% per annum, (c) in the case of Term Loan C, 2.25% to 2.50% per annum, (d)
in the case of Term Loan D, 2.75% to 3.00% per annum, (e) in the case of a
Revolving Credit Loan and Swingline Loans, a debt to EBITDA-dependent rate
ranging from 0.00% to 1.50% per annum or (B) a "eurodollar rate" plus (i) in the
case of Term Loan A, a debt to EBITDA-dependent rate ranging from 0.625% to
2.50% per annum, (ii) in the case of Term Loan B, 2.75% to 3.00% per annum,
(iii) in the case of Term Loan C, 3.25% to 3.50% per annum, (iv) in the case of
Term Loan D, 3.75% to 4.00% per annum or (v) in the case of Revolving Credit
Loans, a debt to EBITDA-dependent rate ranging from 0.625% to 2.50% per annum.
Swingline Loans may only be "base rate" loans. The carrying value of the Term
Loans and Revolving Credit Loans approximates fair value.

     The Company pays a commitment fee calculated at a debt to EBITDA-dependent
rate ranging from 0.20% to 0.50% per annum of the available unused commitment
under the Revolving Credit Loan in effect on each day. Such fee is payable
quarterly in arrears and upon termination of the Revolving Credit Loan. In
addition, the Company pays a fee to the administrative agent of $100 per annum,
payable quarterly in arrears.

     The Company pays a letter of credit fee calculated at a debt to
EBITDA-dependent rate ranging from 0.50% to 2.375% per annum of the face amount
of each letter of credit and a fronting fee calculated at a rate equal to 0.125%
per annum of the face amount of each letter of credit. Such fees, except
fronting fee, are

                                       41
<PAGE>   43
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

payable quarterly in arrears and upon the termination of the Revolving Credit
Loan. In addition, the Company pays customary transaction charges in connection
with any letters of credit.

     The Term Loans are subject to mandatory prepayments (i) with the proceeds
of certain asset sales and certain debt offerings (excluding the Senior
Subordinated Notes) and (ii) on an annual basis with 50% of the Company's excess
cash flow (as defined in the Credit Facility) for so long as the ratio of the
Company's total debt (as defined in the Credit Facility) to EBITDA (as defined
in the Credit Facility) is greater than 4.0 to 1.0.

     The Credit Facility prohibits the Company from repurchasing any senior
subordinated notes subject to limited exceptions. The Company's obligations
under the Credit Facility are secured by a pledge of the stock of certain of its
subsidiaries. The Company's obligations under the Credit Facility are secured by
a pledge of the stock of certain of its subsidiaries and a security interest in
substantially all other tangible and intangible assets, including accounts
receivable, inventory, equipment and contracts.

     The Credit Facility contains customary covenants and restrictions on the
Company's ability to engage in certain activities including (i) limitations on
liens, (ii) limitations on consolidations and mergers of the Company and sales
of the assets of the Company, (iii) restrictions on the purchase, redemption or
acquisition of any capital stock, equity interest or any other obligations or
other securities and restrictions on the advances, loans, extension of credit or
capital contributions to, or investments in, other entities, (iv) restrictions
on additional indebtedness to be incurred by the Company, (v) restrictions on
payments of dividends or other distribution of assets, and (vi) compliance with
certain financial covenants relating to certain interest coverage, fixed charge
ratios, and a leverage ratio. In connection with the Reorganization (see Note
A), the Company reached agreement with its bank syndicate to amend its Credit
Facility to remove certain financial ratio requirements until December 31, 1999
and to amend other covenants. The Credit Facility includes customary events of
default.

     Scheduled maturities of the Term Loans are as follows at December 31, 1999:

<TABLE>
<CAPTION>
                                               TERM       TERM       TERM       TERM
                                              LOAN A     LOAN B     LOAN C     LOAN D
                                              -------    -------    -------    -------
<S>                                           <C>        <C>        <C>        <C>
2003........................................  $15,792    $   623    $   623    $   309
2004........................................        0     50,783        623        312
2005........................................        0          0     50,160        312
2006 (March 31, 2006).......................        0          0          0     28,663
                                              -------    -------    -------    -------
     Total..................................  $15,792    $51,406    $51,406    $29,596
                                              =======    =======    =======    =======
</TABLE>

     SENIOR SUBORDINATED NOTES.  In conjunction with the closing of the
Recapitalization of September 30, 1996 (see Note A), the Company issued $200
million aggregate principal amount of 10 3/8% Senior Subordinated Notes. In
January 1997, the Company completed a public debt offering which resulted in the
Company exchanging its 10 3/8% Senior Subordinated Notes for new 10 3/8% Series
B Senior Subordinated Notes (the "Senior Subordinated Notes"). The Senior
Subordinated Notes will mature on October 1, 2006 and are unsecured senior
subordinated obligations of the Company. Interest on the Senior Subordinated
Notes is payable semiannually April 1 and October 1 of each year.

     The Senior Subordinated Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after October 1, 2001. At
December 31, 1999, the estimated fair value of the Senior Subordinated Notes was
favorable 60% based on dealer quotes.

     The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the Senior Subordinated Notes, except if
holders request that the Company repurchase the Senior

                                       42
<PAGE>   44
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Subordinated Notes in the event of a change of control (as defined in the
indenture relating to the Senior Subordinated Notes) or upon the Company's
receipt of the proceeds of certain asset sales that are not reinvested or
applied to reduce indebtedness within a certain time period.

     The Senior Subordinated Notes contain customary covenants and restrictions
on the Company's ability to engage in certain activities, which include (i)
limitations on restricted payments for the payment of dividends, (ii)
limitations on incurrence of additional indebtedness and issuance of
disqualified stock, (iii) restrictions on the merger, consolidation, or sale of
substantially all assets of the Company, (iv) limitations on transactions with
affiliates relating to the sale, lease, transfer or disposition of any of its
properties or assets in excess of certain amounts, (v) limitations on guarantees
of indebtedness by the Company, (vi) limitations on incurrence of other
subordinated indebtedness by the Company and (vii) certain reporting
requirements in accordance with Securities and Exchange Commission rules. The
Senior Subordinated Notes include customary events of default.

     OTHER INDEBTEDNESS.  The other indebtedness primarily consists of the
10 1/2% note in the amount of $3,341 due in November 2000 incurred in connection
with the purchase of Ben Hogan (see Note A) and a 7.57% note in the amount of
$6,000, incurred in 1998 in connection with the construction of a new warehouse
located in Chicopee, MA., due in monthly installments through February 2018. The
interest rate on the $6,000 loan will convert after five years to 300 basis
points over the one-year U.S. Treasury rate. There are no amortization
requirements for the first five years of the loan followed by principal payments
of $33 per month until maturity. The Lender has been granted a security interest
in the warehouse.

NOTE I -- INCOME TAXES

     Earnings (loss) before income taxes and extraordinary loss in the United
States and outside the United States, along with the components of the income
tax provision (benefit), are as follows:

<TABLE>
<CAPTION>
                                         YEAR         OCTOBER 1,      FOR THE YEARS ENDED
                                        ENDED          THROUGH           SEPTEMBER 30,
                                     DECEMBER 31,    DECEMBER 31,    ---------------------
                                         1999            1998          1998         1997
                                     ------------    ------------    ---------    --------
<S>                                  <C>             <C>             <C>          <C>
Earnings (loss) before income taxes
  and extraordinary loss:
  United States....................    $(37,735)       $(90,539)     $(104,277)   $(32,965)
  Other nations....................      (2,426)         (7,475)       (10,803)     (5,578)
                                       --------        --------      ---------    --------
          Total....................    $(40,161)       $(98,014)     $(115,080)   $(38,543)
                                       ========        ========      =========    ========
Income tax provision (benefit):
  Current taxes:
     Federal taxes.................    $      0        $      0      $     129    $ (7,136)
     State taxes...................         819             237            489         565
     Other nations' taxes..........         746               0            946       1,790
                                       --------        --------      ---------    --------
          Total....................    $  1,565        $    237      $   1,564    $ (4,781)
                                       --------        --------      ---------    --------
  Deferred taxes:
     Federal taxes.................    $(14,683)       $(30,428)     $ (35,819)   $ (3,715)
     Other nations' taxes..........          18              (2)            37          (7)
                                       --------        --------      ---------    --------
          Total....................     (14,665)        (30,430)       (35,782)     (3,722)
                                       --------        --------      ---------    --------
          Total income taxes
            (benefit)..............    $(13,100)       $(30,193)     $ (34,218)   $ (8,503)
                                       ========        ========      =========    ========
</TABLE>

                                       43
<PAGE>   45
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     The differences between the effective income tax rate and the U.S.
statutory rate are as follows:

<TABLE>
<CAPTION>
                                               YEAR         OCTOBER 1,     FOR THE YEARS ENDED
                                              ENDED          THROUGH          SEPTEMBER 30,
                                           DECEMBER 31,    DECEMBER 31,    --------------------
                                               1999            1998         1998          1997
                                           ------------    ------------    ------        ------
<S>                                        <C>             <C>             <C>           <C>
U.S. statutory rate (benefit)............      (35)%           (35)%         (35)%         (35)%
State income taxes, net of federal
  benefit................................        1               0             0             1
Non-U.S. tax rate differences............        0               0             0             2
Non-U.S. losses for which no taxes were
  recorded...............................        4               3             4             7
Other....................................       (2)              1             1             3
                                               ---             ---           ---           ---
  Effective tax rate.....................      (32)%           (31)%         (30)%         (22)%
                                               ===             ===           ===           ===
</TABLE>

     Under the asset and liability method prescribed by SFAS 109, deferred
income taxes, net of appropriate valuation allowances, are provided for the
temporary differences between the financial reporting and tax basis of assets
and liabilities using enacted tax rates expected to apply to taxable income in
the years the temporary differences are expected to reverse. Temporary
differences and carryforwards, are as follows:

<TABLE>
<CAPTION>
                                                     NET DEFERRED TAX ASSET
                                  ------------------------------------------------------------
                                            CURRENT                        NONCURRENT
                                  ----------------------------    ----------------------------
                                  DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                      1999            1998            1999            1998
                                  ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>
Acquired non-U.S. trademarks....    $     0         $     0         $ 29,906        $ 33,051
Intangibles amortization........          0               0          (20,082)        (20,394)
Depreciation....................          0               0            1,311           1,324
Accrued liabilities.............      7,106           8,292                0               0
Pension.........................          0               0            3,310           2,724
Postretirement benefits.........          0               0            2,886           3,024
Net operating loss
  carryforwards.................          0               0          112,908          91,525
Capital loss carryforward.......          0               0            8,179           8,179
Other...........................      5,112           3,300              (28)             32
                                    -------         -------         --------        --------
     Total deferred income
       taxes....................     12,218          11,592          138,390         119,465
  Valuation allowance on net
     operating losses and
     capital loss...............          0               0          (38,513)        (33,627)
                                    -------         -------         --------        --------
  Net deferred income taxes.....    $12,218         $11,592         $ 99,877        $ 85,838
                                    =======         =======         ========        ========
</TABLE>

     On December 31, 1999, the Company had net operating loss carryforwards of
$268,074 consisting of $231,650 from U.S. operations which begin to expire in
2011, and $36,424 in non-U.S. subsidiaries, which begin to expire in 2001.
Deferred tax benefits of $111,412 have been established on these losses and a
1999 valuation allowance in the amount of $30,334 has been provided on the
entire state and non-U.S. portions of the deferred tax benefits. On December 31,
1999, the Company had capital loss carryforwards of $20,972 for which a 1999
valuation allowance in the amount of $8,179 has been provided on the entire
deferred tax benefits. Subsequent recognition of the tax benefits, if any,
relating to the capital loss carryforward will be credited to retained earnings.

                                       44
<PAGE>   46
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     As part of the Recapitalization Agreement, Abarco has indemnified the
Company for any potential income tax obligations through September 30, 1996. The
Company's federal income tax returns through September 30, 1995 have been
examined by, and settled with, the Internal Revenue Service.

     On September 22, 1998, the Company entered into an agreement with the
Internal Revenue Service (IRS) completing the audit of the September 30, 1994
and 1995 consolidated federal income tax returns, and finally determining the
Company's tax liability for those years. The primary issue in that audit was the
tax treatment accorded the 1994 acquisition of the Acquired Trademarks from
Abarco. Under the agreement with the IRS, the trademarks were determined to have
a fair market value of $155,000 on the date of purchase, and the difference
between that value and the $176,000 transferred to Abarco was determined to be a
dividend to shareholders. As a result of that settlement, withholding and income
tax in the amount of $6,856 and interest in the amount of $2,534 were paid to
the IRS. Under the Recapitalization Agreement, Abarco indemnified the Company
for this liability.

     Under generally accepted accounting principles the 1994 acquisition of the
Acquired Trademarks from an affiliate of Abarco for $176,000 was not revalued to
fair market value but was recorded at the affiliate's net book value. The $8,250
carrying value of the Acquired Trademarks is being amortized over 40 years for
book purposes while the $176,000 fair market value ($155,000 after the IRS
settlement discussed in the preceding paragraph) is being amortized over 15
years for income tax purposes. The $58,712 deferred income tax effect at the
date the trademarks were acquired is reduced as the Company recognizes the tax
benefit of the difference between the carrying value of $8,250 and the tax basis
of $176,000. The carrying value of the deferred tax asset at December 31, 1999
and 1998 was $29,906 and $33,051 (after giving effect to the settlement with the
IRS), respectively.

     On December 31, 1999 undistributed earnings of non-U.S. subsidiaries
included in consolidated retained earnings amounted to $202. The Company intends
to continue to indefinitely reinvest these earnings, which reflect full
provision for non-U.S. income taxes, to expand its continuing international
operations. Accordingly, no provision has been made for U.S. income taxes that
might be payable upon repatriation of such earnings.

NOTE J -- PENSION PLANS AND POSTRETIREMENT BENEFITS

     The Company's United States operations have noncontributory, defined
benefit pension plans covering substantially all employees. These plans provide
employees with pension benefits that either are based on age and compensation or
are based on stated amounts for each year of service. The Company's funding
policy is to contribute annually the minimum amounts permitted by the Internal
Revenue Code. Plan assets are invested in a broadly diversified portfolio
consisting primarily of common stock and fixed income securities.

     The Company also provides certain postretirement health care and life
insurance benefits for its domestic retired employees and their dependents.
Substantially all of the Company's United States employees may become eligible
for those benefits if they reach normal retirement age while working for the
Company. Most international employees are covered by government sponsored
programs and the cost to the Company is not significant. The Company does not
fund retiree health care benefits in advance and has the right to modify these
plans in the future.

     Prior to August 20, 1998, the Company maintained certain pension plans that
covered employees in both the Spalding and Evenflo Segments. Consistent with the
Reorganization, pension plans attributable to Evenflo Company, Inc. are no
longer a liability to the Company. The reorganization of the pension plans has
been treated as a "Separation of Funds" rather than a combined curtailment and
settlement as described under Statement of Financial Accounting Standards No. 88
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" ("SFAS No. 88"). The net impact of
this decision is that Evenflo Company, Inc. retains the (accrued)/prepaid
balance at August 20, 1998 and

                                       45
<PAGE>   47
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

amortizes any deferrals (gains/losses, prior service cost, transition
obligation, etc.) associated with the plans rather than immediately recognizing
them. Pension plan expenses attributable to Evenflo Company, Inc. are included
in the Company's consolidated financial statements through August 20, 1998.

     Consistent with the Reorganization, postretirement benefits attributable to
Evenflo Company, Inc. are no longer a liability to the Company. The
reorganization of the post-retirement benefits has been treated as a "Separation
of Plans" rather than a combined curtailment and settlement as described under
SFAS No. 88. The net impact of this decision is that Evenflo Company, Inc.
retains the (accrued)/prepaid balance at August 20, 1998 and amortizes any
deferrals (gains/losses, prior service cost, transition obligation, etc.)
associated with the plans rather than immediately recognizing them.
Postretirement benefit expenses attributable to Evenflo Company, Inc. are
included in the Company's consolidated financial statements through August 20,
1998.

     The December 31, 1999 and 1998 funded status of the Company's United States
defined benefit pension plans consists of the following:

<TABLE>
<CAPTION>
                                                     PENSION BENEFITS           POSTRETIREMENT BENEFITS
                                                ---------------------------   ---------------------------
                                                DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                    1999           1998           1999           1998
                                                ------------   ------------   ------------   ------------
<S>                                             <C>            <C>            <C>            <C>
CHANGES IN BENEFIT OBLIGATION
Benefit obligation at beginning of period.....    $(50,248)      $(52,888)      $(7,797)       $(8,188)
Service cost..................................      (2,492)          (712)         (238)           (60)
Interest cost.................................      (3,092)          (814)         (526)          (127)
Plan amendments...............................      (1,064)             0             0              0
Actuarial gain................................       3,613          2,870           875            453
Benefits paid.................................       7,879          1,282           364            125
Administrative expenses paid..................          47             14             0              0
                                                  --------       --------       -------        -------
Benefit obligation at end of period...........     (45,357)       (50,248)       (7,322)        (7,797)
CHANGE IN PLAN ASSETS
Market value of assets at beginning of
  period......................................    $ 53,405       $ 47,813       $     0        $     0
Actual return on assets.......................       8,028          6,879             0              0
Employer contributions received during
  period......................................         130              9             0              0
Benefits paid during period...................      (7,879)        (1,282)            0              0
Administrative expenses paid during period....         (47)           (14)            0              0
                                                  --------       --------       -------        -------
Market value of assets as end of period.......      53,637         53,405             0              0
                                                  --------       --------       -------        -------
Funded status.................................       8,280          3,157        (7,322)        (7,797)
Unrecognized net transition
  (asset)/obligation..........................        (275)          (413)            0              0
Unrecognized prior service cost...............        (132)          (102)          124            138
Unrecognized net (gain)/loss..................     (17,660)       (11,002)         (742)           110
                                                  --------       --------       -------        -------
(Accrued)/prepaid pension costs...............    $ (9,787)      $ (8,360)      $(7,940)       $(7,549)
                                                  ========       ========       =======        =======
</TABLE>

                                       46
<PAGE>   48
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     Assumptions used in accounting for United States defined benefit pension
plans as of December 31, 1999 and 1998 and September 30, 1998 and 1997 were:

                 WEIGHTED-AVERAGE ASSUMPTIONS AT END OF PERIOD

<TABLE>
<CAPTION>
                                                                               SEPTEMBER 30,
                                                DECEMBER 31,   DECEMBER 31,    --------------
                                                    1999           1998        1998     1997
                                                ------------   ------------    -----    -----
<S>                                             <C>            <C>             <C>      <C>
Discount rate.................................      7.50%          6.75%       6.25%    7.00%
Expected return on plan assets................      8.50%          8.50%       8.50%    8.50%
Rate of compensation increase.................      4.50%          4.50%       4.50%    4.50%
</TABLE>

<TABLE>
<CAPTION>
                                              PENSION BENEFITS                             POSTRETIREMENT BENEFITS
                                            FOR THE PERIODS ENDED                           FOR THE PERIODS ENDED
                               -----------------------------------------------   -------------------------------------------
                               DECEMBER 31,   DECEMBER 31,     SEPTEMBER 30,     DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,
                               ------------   ------------   -----------------   ------------   ------------   -------------
                                   1999           1998        1998      1997         1999           1998       1998    1997
                               ------------   ------------   -------   -------   ------------   ------------   -----   -----
<S>                            <C>            <C>            <C>       <C>       <C>            <C>            <C>     <C>
COMPONENTS OF NET PERIODIC
  BENEFIT COSTS
Service costs................    $ 2,492        $   712      $ 3,124   $ 2,814       $238           $ 60       $230    $147
Interest costs...............      3,092            814        3,963     3,942        526            127        599     608
Expected return on assets....     (4,150)        (1,000)      (5,286)   (4,243)         0              0          0       0
Amortization on unrecognized
  transition
  (asset)/obligation.........       (127)           (32)        (139)     (445)         0              0         16       0
Amortization of unrecognized
  prior service costs........         30              7         (193)        0         14              4          0       0
Amortization of unrecognized
  net (gain)/ loss...........       (474)             7         (530)        0        (24)             2        (85)    (41)
Cost of early retirement SFAS
  No. 88.....................        694              0            0         0          0              0          0       0
                                 -------        -------      -------   -------       ----           ----       ----    ----
Net periodic pension costs...    $ 1,557        $   508      $   939   $ 2,068       $754           $193       $760    $714
                                 =======        =======      =======   =======       ====           ====       ====    ====
</TABLE>

     Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:

<TABLE>
<CAPTION>
                                                    1-PERCENTAGE      1-PERCENTAGE
                                                   POINT INCREASE    POINT DECREASE
                                                   --------------    --------------
<S>                                                <C>               <C>
Effect on total of service and interest cost
  components.....................................       $ 81             $ (74)
Effect on postretirement benefit obligation......       $630             $(566)
</TABLE>

     The Company's United States operations and most non-U.S. subsidiaries have
separate defined contribution plans. The purpose of these defined contribution
plans is generally to provide additional financial security during retirement by
providing employees with an incentive to make regular savings. Company
contributions to the plans are based on employee contributions or compensation.
The non-U.S. plans are integrated with the benefits required by the laws of the
various countries. The Company's defined contribution plans' expenses totaled
$870 in 1999, $581 in the Transition Period, $600 in 1998 and $2,210 in 1997.

NOTE K -- SHAREHOLDERS' EQUITY

     PREFERRED STOCK.  On September 27, 1996 the Company's certificate of
incorporation was amended to establish and authorize 50,000,000 shares of
preferred stock, $.01 par value, with other preferences and attributes to be
determined by the Board of Directors at the time of each issuance of preferred
stock.

                                       47
<PAGE>   49
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     On August 20, 1998, the Company and KKR 1996 Fund entered into an
investment agreement whereby the Company agreed to sell to KKR 1996 Fund
1,000,000 shares of nonvoting, cumulative, variable rate preferred stock with a
face value and liquidation value of $100 a share (the "Cumulative Preferred
Stock") together with detachable stock purchase warrants (the "Warrants") for
$100,000. The Warrants will allow KKR 1996 Fund to purchase 44,100,000 shares of
the Company's common stock, par value $0.01 at an exercise price of $2.00 per
share. The term of the Warrants is eight years and the expiration date is August
20, 2006. The separate fair value of the Warrants is not significant. If KKR
1996 Fund decides to purchase common shares by exercising the Warrants, KKR 1996
Fund could elect to pay for those shares by exchanging a portion of the
Cumulative Preferred Stock.

     The holder of the Cumulative Preferred Stock is entitled to receive, when,
as and if declared by the Board of Directors, dividends on each outstanding
share of the Cumulative Preferred Stock, at a variable rate based on the
ten-year treasury rate, based on the then effective liquidation preference per
share of Cumulative Preferred Stock. Dividends on the Cumulative Preferred Stock
are payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year. The initial dividend rate with respect to the Cumulative
Preferred Stock is 14% per annum. As of December 31, 1999, the dividend rate was
14%. The right to dividends on the Cumulative Preferred Stock is cumulative and
dividends accrue (whether or not declared), without interest, from the date of
issuance of the Cumulative Preferred Stock. Since the Board of Directors has not
declared any preferred dividends as of December 31, 1999, the amount of the
Cumulative Preferred Stock dividends in arrears as of that date was $20,855.

     The Company at its option may, but shall not be required to, redeem, at any
time, for cash, in whole or in part, any or all of the shares of Cumulative
Preferred Stock at a redemption price equal to 100% of the aggregate liquidation
preference of such shares, together with all accumulated and unpaid dividends to
the redemption date.

     Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the holder of the Cumulative Preferred Stock will be entitled to be
paid out of the assets of the Company available for distribution $100 per share,
plus an amount in cash equal to all accumulated and unpaid dividends thereon to
the date fixed for liquidation, dissolution or winding-up of the Company.

     COMMON STOCK.  The 1996 Employee Stock Ownership Plan consists of an
aggregate of 16,300,000 shares of common stock, which may be sold or granted as
options to key employees of the Company. The share issuance price and the option
price must be at least 50% of the fair market value of the common shares on the
date of the sale or grant and an option's maximum term is ten years. The options
vest ratably over a five-year period. Any outstanding options will become
immediately exercisable upon a change in control of the Company. If an employee
retires, any shares owned may be put to the Company or the Company can call the
shares based on a fair market value formula, as defined. If an employee dies,
becomes permanently disabled or terminates employment, the Company can call the
shares based on a fair market value formula, as defined.

                                       48
<PAGE>   50
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     Transactions involving common share options are as follows:

<TABLE>
<CAPTION>
                                                                            WEIGHTED
                                                                            AVERAGE
                                                                NUMBER      EXERCISE
                                                              OF SHARES      PRICE
                                                              ----------    --------
<S>                                                           <C>           <C>
OPTION SHARES
Outstanding September 30, 1996..............................           0
Granted in 1997.............................................   6,670,793     $5.00
Cancelled in 1997...........................................           0     $5.00
Exercised in 1997...........................................           0       N/A
                                                              ----------     -----
Outstanding September 30, 1997 (none exercisable) (1,023,729
  became exercisable October 1, 1997).......................   6,670,793     $5.00
Granted in 1998.............................................     295,559     $5.00
Cancelled in 1998...........................................    (988,103)    $5.00
Exercised in 1998...........................................           0       N/A
                                                              ----------     -----
Outstanding September 30, 1998 (1,023,729 exercisable and
  3,252,558 became exercisable October 1, 1998).............   5,978,249     $5.00
Granted October 1, 1998 through December 31, 1998...........           0     $5.00
Cancelled October 1, 1998 through December 31, 1998.........  (2,346,099)    $5.00
Exercised October 1, 1998 through December 31, 1998.........           0       N/A
                                                              ----------     -----
Outstanding December 31, 1998 (1,955,238 exercisable).......   3,632,150     $5.00
Granted in 1999.............................................   7,685,015     $2.00
Cancelled in 1999...........................................  (1,279,777)    $5.00
Exercised in 1999...........................................           0       N/A
                                                              ----------     -----
Outstanding December 31, 1999 (2,343,448 exercisable).......  10,037,388      2.69
                                                              ==========     =====
Aggregate unissued shares and options December 31, 1999.....   2,615,945       N/A
</TABLE>

     The following table summarizes information for options outstanding and
exercisable at December 31, 1999:

<TABLE>
<CAPTION>
                          OPTIONS OUTSTANDING    OPTIONS EXERCISABLE
                         ---------------------   --------------------
                         WTD. AVG.   WTD. AVG.              WTD. AVG.
 RANGE OF                REMAINING   EXERCISE               EXERCISE
  PRICES       NUMBER      LIFE        PRICE      NUMBER      PRICE
----------   ----------  ---------   ---------   ---------  ---------
<S>          <C>         <C>         <C>         <C>        <C>
  $2.00      7,685,015      9.5        $2.00       400,000    $2.00
   5.00      2,352,373      7.0         5.00     1,943,448     5.00
             ----------    ----        -----     ---------    -----
$2.00 - 5.00 10,037,388     8.9        $2.72     2,343,448    $4.49
             ==========    ====        =====     =========    =====
</TABLE>

     In 1999, the Company sold 1,124,985 shares to certain members of senior
management for total consideration of $1,506. Of the $1,506, $612, was received
in the form of cash, $644, represented notes receivable to the Company (bearing
interest at 9.25% per annum) and $250 was recorded as deferred compensation for
future services. The deferred compensation was a result of the grant of
restricted shares that vest ratably over five years. The value of such
compensation was recorded based on the fair value of the shares (net of
consideration paid). In addition to the employee options granted under the 1996
Stock Plan, the Company has also granted 250,000 options to purchase shares of
Common Stock pursuant to an agreement with a consultant. As of December 31,
1999, none of these options were exercisable.

                                       49
<PAGE>   51
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     In 1998, the Company sold 278,885 shares for proceeds of $1,422 and in 1997
sold 2,020,238 shares for proceeds of $10,102.

     DISCLOSURES UNDER SFAS NO. 123.  The Company has elected the
disclosure-only basis provisions of SFAS No. 123. Accordingly, no compensation
cost has been recognized for the options. Had compensation cost been determined
based on the fair market value at the grant date consistent with the method
provided by SFAS No. 123, the Company's pro forma net earnings (loss) would have
been $(28,278) for 1999, $(67,892) for the Transition Period, $(87,728) for
1998, and $(30,952) for 1997 as compared to the reported amounts of $(27,321),
$(67,821), $(86,771) and $(30,040), respectively.

     The estimated fair value was determined using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1999 and fiscal years ended September 30, 1998 and 1997 (there were no
new grants in the Transition Period):

<TABLE>
<CAPTION>
                                              DECEMBER 31,      SEPTEMBER 30,
                                              ------------    ------------------
                                                  1999         1998       1997
                                              ------------    -------    -------
<S>                                           <C>             <C>        <C>
Dividend yield..............................          0%            0%         0%
Expected volatility.........................          0%            0%         0%
Risk-free interest rate.....................       5.25%         5.62%      6.38%
Weighted average expected life..............    5 years       5 years    5 years
Weighted average fair value of options
  granted...................................    $  0.00       $  1.19    $  1.37
</TABLE>

NOTE L -- LEASE COMMITMENTS

     The Company leases certain manufacturing, warehousing and office
facilities, and equipment under various operating lease arrangements expiring
periodically through 2014. The Company has no material capital leases.

     The following is a schedule by year of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1999:

<TABLE>
<S>                                                           <C>
2000........................................................  $  968
2001........................................................     688
2002........................................................     440
2003........................................................     369
2004........................................................     312
Thereafter..................................................     641
                                                              ------
Total minimum lease payments................................  $3,418
                                                              ======
</TABLE>

     Rental expense under operating leases was $1,156 in 1999, $326 in the
Transition Period, $5,756 in 1998 and $5,185 in 1997.

NOTE M -- CURRENCY EXCHANGE CONTRACTS

     The Company may from time to time enter into forward currency exchange
contracts to protect inventory purchases and affiliated note activities against
changes in future currency exchange rates. A forward currency exchange contract
is an agreement between two parties to buy or sell currency at a set price on a
future date. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is marked-to-market using the spot rate at
the end of each accounting period and the change in market value is recorded by
the Company as currency gain or loss. Risk may arise upon entering into these
contracts from

                                       50
<PAGE>   52
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

unanticipated movements in the value of a foreign currency relative to the U.S.
dollar. As of December 31, 1999 and 1998, the Company had approximately $9,987
and $8,236 of currency contracts outstanding, with an unrealized currency loss
in 1999 of approximately $142 in 1999 and an unrealized gain of $166 in the
Transition Period. These contracts mature within twelve months.

NOTE N -- CONCENTRATION OF CREDIT RISK

     The Company sells a broad range of consumer products in North America,
Europe and the Pacific Rim. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. Ongoing credit evaluations of customers' financial
condition are performed and, generally no collateral is required. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations. During 1999, the
Transition Period, and fiscal 1998 and 1997 the Company's sales to one U.S.
customer amounted to 13%, 24%, 13% and 12%, respectively of net sales. No other
customer exceeded 10% in 1999, the Transition Period and the fiscal years ended
September 30, 1998 and 1997.

NOTE O -- CONTINGENCIES

     The Company is both a plaintiff and defendant in numerous lawsuits
incidental to its current and former operations, some alleging substantial
claims. In addition, the Company's operations are subject to federal, state and
local environmental laws and regulations. The Company has entered into
settlement agreements with the U.S. Environmental Protection Agency and other
parties on several sites and is still negotiating on other sites. The settlement
amounts and estimated liabilities are not significant.

     Management is of the opinion that, after taking into account the merits of
defenses, insurance coverage and established reserves, the ultimate resolution
of these matters will not have a material adverse effect in relation to the
Company's consolidated financial statements.

     During October 1999, the Company substantially completed the implementation
of a fully-integrated computer system for its domestic operations. The
implementation included significant changes to customer service, warehousing,
distribution and financial processes. The Company encountered some start-up
difficulties that primarily affected the efficiency of warehouse and
distribution operations. While the Company was able to process and fulfill
orders, it was not able to do so at an adequate rate, thus risking the loss of
future business if immediate action was not taken to fulfill all orders.
Accordingly, the Company returned to certain components of its prior computer
system to deliver a level of distribution activity that will meet the ongoing
demands for its products. The financial modules of the new computer system were
successfully implemented in October 1999 and are currently in use. The Company
is currently assessing the aspects of the new computer system that caused the
difficulties and expects to decide on a long-term solution in the second quarter
of 2000. To the extent that elements of the new system are not part of the
long-term solution, the applicable portion of the capitalized costs would be
written off at that time. To date, the Company has capitalized $13.5 million in
costs related to this project (including $4.3 million related to the financial
modules that are in use). This amount is included in the Company's fixed assets.

NOTE P -- RELATED PARTY TRANSACTIONS

     On December 23, 1999, the Company sold its 42.4% common stock ownership
interest in Evenflo Company, Inc. to the KKR 1996 Fund.

     See Note A for a description of the transactions related to the
Reorganization of the Company.

     Effective with the Reorganization on August 20, 1998, the Company and
Evenflo Company, Inc. entered into an Indemnity Agreement whereby the Company
and Evenflo Company, Inc. indemnified the other
                                       51
<PAGE>   53
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

against liability or obligation related to their respective operations or
business whether arising prior to or after the Reorganization. Additionally, the
Company indemnified Evenflo Company, Inc. against damages, as defined in the
agreement, incurred or sustained as a result of any recall (voluntary or
involuntary), safety advisory or other corrective action relating to any
products manufactured by Evenflo Company, Inc. prior to the close of business on
August 20, 1998.

     Effective with the Reorganization on August 20, 1998, the Company and
Evenflo entered into a Transition Services Agreement whereby the Company agreed
to provide insurance, tax and other related financial systems/accounting
services to Evenflo Company, Inc. through February 20, 1999, or as otherwise
agreed upon. During the Transition Period, Spalding billed Evenflo for $303 in
expenses related to bills paid or expenses incurred on their behalf. These
amounts were offset against expenses incurred under the Indemnification
Agreement.

     See Note A for a description of the Recapitalization Agreement, which
resulted in the redemption of a portion of the common stock owned by Abarco.

     See Note K for a description of the Company's 1996 Employee Stock Ownership
Plan.

     Effective October 1, 1996, the Company and KKR, an affiliate of the
Company, entered into a management agreement providing for the performance by
KKR of certain management services for the Company. The Company expensed $700 in
1999, $392 in the Transition Period, $966 in fiscal 1998 and $1,000 in fiscal
1997 pursuant to such management agreement with KKR.

NOTE Q -- EXTRAORDINARY LOSS

     The extraordinary loss on early extinguishment of debt in 1999 relates to a
$400 write-off of the deferred financing costs related to the mandatory
prepayment of $23,000 against the Term Loans under the Credit Facility (see note
H). The tax effect of this loss totaled $140, resulting in a net extraordinary
loss of $260.

     The extraordinary loss on early extinguishment of debt in 1998 relates to a
$9,091 write-off of the deferred financing costs made in conjunction with a
mandatory prepayment of $228,800 against the Term Loans under the Credit
Facility (see Note G). The tax effect of this loss totaled $3,132 resulting in a
net extraordinary loss in 1998 of $5,909.

NOTE R -- INVESTMENT IN AFFILIATE

     On August 20, 1998, the Company effectively completed the separation of
Spalding and Evenflo segment, into two stand-alone companies. Evenflo's
financial statements prior to August 20, 1998 had been consolidated with those
of the Company. Subsequent to this separation, the company continued to own
42.4% of Evenflo and accounted for its results using the equity method of
accounting. During the fourth quarter of 1999, the Company sold its remaining
investment in Evenflo (refer to Notes A and B). The financial statements for the
periods subsequent to the August 20, 1998 sale through the third quarter of 1999
include the portion of Evenflo's results attributable to the Company's ownership
on an equity accounting basis.

                                       52
<PAGE>   54
                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     Summarized financial information of Evenflo for the nine months ended
September 30, 1999 and the Transition Period October 1, 1998 through December
31, 1998 is set forth below:

                     CONDENSED INCOME STATEMENT INFORMATION

<TABLE>
<CAPTION>
                                                                    OCTOBER 1, 1998
                                             NINE MONTHS ENDED          THROUGH
                                             SEPTEMBER 30, 1999    DECEMBER 31, 1998
                                             ------------------    -----------------
<S>                                          <C>                   <C>
Net Sales..................................       $258,595             $ 72,552
                                                  ========             ========
Gross Profit...............................       $ 62,440             $  5,741
                                                  ========             ========
Earnings (loss) before income tax and
  extraordinary items......................       $ (2,054)            $(14,299)
                                                  ========             ========
Net earnings (loss)........................       $   (583)              (8,886)
                                                  ========             ========
Company's Proportionate share (42.4%)......       $   (248)            $ (3,768)
                                                  ========             ========
</TABLE>

                                       53
<PAGE>   55

ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     Set forth below are names, ages and positions with the Company of the
persons who will serve as directors and executive officers of the Company,
together with certain other key personnel. The terms of the directors and
executive officers of the Company expire annually upon the election and
qualification of successors at the annual meetings of shareholders.

<TABLE>
<CAPTION>
NAME                                         AGE                    POSITION
----                                         ---                    --------
<S>                                          <C>   <C>
Edwin L. Artzt.............................  69    Chairman of the Board of Directors
James R. Craigie...........................  46    President and Chief Executive Officer
                                                   Vice President Secretary and General
Peter A. Arturi............................  46    Counsel
Edward R. Binder...........................  39    Executive Vice President Marketing
Michael W. Esch............................  43    Executive Vice President Operations
Daniel S. Frey.............................  35    Chief Financial Officer
Thomas J. Kennedy..........................  41    Vice President Research & Development
Stephanie Lawrence.........................  41    Vice President Licensing
Richard J. McGuff..........................  42    Vice President of International Operations
Vaughn F. Rist.............................  57    Vice President of Human Resources
Christine A. Rousseau......................  48    Vice President & CIO
Edward G. Several..........................  38    Vice President Marketing Services
Louis H. Tursi.............................  38    Executive Vice President Sales
Henry R. Kravis............................  55    Director
George R. Roberts..........................  56    Director
Michael T. Tokarz..........................  50    Director
Brian F. Carroll...........................  28    Director
Gustavo A. Cisneros........................  54    Director
David W. Checketts.........................  44    Director
</TABLE>

     Edwin L. Artzt has been a director of the Company since September 1997 and
Chairman of the Board of Directors since August 1998. Mr. Artzt is the former
Chairman and Chief Executive Officer of The Procter & Gamble Company (P&G). In
addition, Mr. Artzt is a director of American Express Company, GTE Corporation,
Delta Airlines and the Evenflo Company. He is also a member of the boards of
University of Pennsylvania's Wharton School of Business, UCLA's Anderson School
of Business and Emory Graduate School of Business. He has also served on
President Clinton's Advisory Committee on Trade Policy and Negotiations, the
Committee for Economic Development, and the Business Roundtable.

     James R. Craigie joined the Company as President and Chief Executive
Officer on December 7, 1998. Prior to that he had been employed since 1983 by
Kraft, Inc., now a subsidiary of Phillip Morris Companies, Inc. He became
Executive Vice President of Kraft, Inc. in 1994. From 1997 to 1998 he served as
President of its Beverage and Desserts Division. From 1994 to 1997 he was
General Manager of the Beverage Division after serving as General Manager of the
Dinners and Enhancers Division earlier in 1994.

     Peter A. Arturi has been senior legal counsel since he joined the Company
in October of 1998. Previously Mr. Arturi was a partner in Baker Law Firm P.C.
from September 1996 to October 1998 and also as a partner with Baker, Moots &
Pellegrini from 1990 to 1996.

     Edward R. Binder has been the Executive Vice President of Marketing since
April 1999 when he joined the Company. From January 1995 through March 1999, Mr.
Binder was the Vice President of Marketing for

                                       54
<PAGE>   56

Dunkin' Donuts. Prior to that he was Senior Vice President, Director Client
Services for the advertising agency of Leonard, Monahan, Lubars & Kelly from
October 1992 through November 1994.

     Michael W. Esch joined the Company in June 1999 as Vice President
Operations and was promoted to Executive Vice President Operations in October
1999. From 1981 through May of 1999 Kraft Foods, Inc. employed Mr. Esch where he
held various positions including Operations Business Manager for multiple Kraft
manufacturing sites.

     Daniel S. Frey has been the Chief Financial Officer since September 1999
when he joined the Company. From July 1994 through August 1999, Mr. Frey held
various financial positions leading to Director, Shared Services Center in 1998
for Duracell International Inc. Prior to Duracell, Mr. Frey was an audit manager
at Deloitte & Touche LLP.

     Thomas J. Kennedy became Vice President Research & Development on November
1, 1999. Mr. Kennedy joined the Company in 1985 as Senior Scientist and has held
various positions including Manager of Finishes and Coatings, and Director of
Research.

     Stephanie Lawrence joined Spalding on February 7, 2000 as Vice President
Licensing. Prior to joining the Company she was Vice President of Licensing for
the Timberland Company from 1996 to February 1999. From 1994 through October
1996 she was Vice President of Product Development for M.C. Berger and Company,
Inc.

     Richard J. McGuff became Vice President of International Operations in
January 2000. Mr. McGuff joined Spalding in 1982 as Product Manager for Spalding
Canada. He progressed through a series of positions leading to the Director of
Sales & Marketing before he was promoted to Managing Director for Spalding
United Kingdom in 1997.

     Vaughn F. Rist joined the Company in 1975 as Director of Employee
Relations, and today is Vice President of Human Resources for worldwide
operations.

     Christine A. Rousseau became Vice President and CIO in September 1999. Mrs.
Rousseau joined the Company in 1987 as Information Systems Manager and has held
various positions including Director Information Technology. Prior to joining
the Company, Ms. Rousseau was Manager of Technical Services for Wang
Laboratories.

     Edward G. Several joined the company in March of 1999 as Vice President
Marketing Services. Prior to joining Spalding, Mr. Several was employed by Kraft
Foods for fourteen years where he held various senior management positions
leading to the Director Of Customer Retail Marketing & Merchandising.

     Louis H. Tursi joined Spalding in 1999 as Director of Sales Planning and
was promoted to Vice President of Sales in July and to Executive Vice President
Sales & Customer Service on December 31, 1999. Prior to Spalding, Mr. Tursi was
Vice President Sales for Vlasic Foods International in 1998. From 1983 to 1998
he held a series of positions for Kraft Foods Inc. ending as Regional Sales
Manager.

     Henry R. Kravis is a managing member of KKR & Co. L.L.C., a limited
liability company which serves as the general partner of KKR. He is also a
director of Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds
Collection, Ltd., Bruno's, Inc., Evenflo, The Gillette Company, IDEX
Corporation, KinderCare Learning Centers, Inc., KSL Recreation Group, Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Regal Cinemas,
Inc. Safeway Inc., and Union Texas Petroleum Holdings, Inc.

     George G. Roberts is a managing member of KKR & Co. L.L.C., a limited
liability company which serves as the general partner of KKR. He is also a
director of Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds
Collection, Ltd., Evenflo, IDEX Corporation, KinderCare Learning Centers, Inc.,
KSL Recreation Group, Inc., Owens-Illinois, Inc., Owens-Illinois Group, Inc.,
PRIMEDIA, Inc., and Safeway Inc.

                                       55
<PAGE>   57

     Michael T. Tokarz is a member of KKR & Co. L.L.C., a limited liability
company which serves as the general partner of KKR. He is also a director of
Evenflo, IDEX Corporation, KSL Recreation Corporation, PRIMEDIA, Inc., Walter
Industries, Inc. and KAMAZ, Inc.

     Brian F. Carroll has been an Executive of Kohlberg Kravis Roberts & Co.
since July 1999. From September 1997 to June 1999 he attended the Stanford
University Graduate School of Business. From March 1995 to August 1997 he was an
Executive of Kohlberg Kravis Roberts & Co. Prior thereto, he was an investment
banker with Donaldson, Lufkin & Jenrette Securities Corporation. He is also a
Director of Evenflo Company, Inc. and WKI Holding Company, Inc.

     Gustavo A. Cisneros has been a director of the Company since 1984. Since
1990 he has been a direct or indirect investor in and a director of certain
companies forming part of diverse commercial enterprises in Venezuela and
elsewhere. Mr. Cisneros is also a director of Pueblo Xtra International, Inc.,
Pan American Beverages Company, Inc. and RSL Communications, Ltd.

     David W. Checketts has been a Director of the Company since September 1998.
He has been the President and Chief Executive Officer of Madison Square Garden
since 1994. He was President of the New York Knicks Basketball Club from 1991 to
1994. From September 1990 through March 1991 he was Vice President, Development
of the National Basketball Association. From 1984 until 1990 he was President of
the Utah Jazz Basketball Club. Prior to that, he was with Bain and Company, a
management consulting firm. In addition, he served as a board member for the
Multiple Sclerosis Society from March 1996 to December 1999 and was also a board
member for the Children's Blood Foundation from January 1996 to December 1999.
Mr. Checketts is currently on the board of directors of Jet Blue Airways.

     Messrs. Kravis and Roberts are first cousins.

     The business address of Messrs. Kravis, Tokarz and Carroll is 9 West 57th
Street, New York, New York 10019 and of Mr. Roberts is 2800 Sand Hill Road,
Suite 200, Menlo Park, California 94025. The business address of Mr. Cisneros is
Final Av. La Salle, EdF. Venevision 5to. Piso, Colina Los Caobos, Caracas,
Venezuela. The business address of Mr. Artzt is 1 Procter & Gamble Plaza,
Cincinnati, Ohio 45202.

COMPENSATION OF DIRECTORS

     All directors are reimbursed for their usual and customary expenses
incurred in attending all board and committee meetings. Each director who is not
an employee of the Company receives an aggregate annual fee of $25,000, payable
in quarterly installments. Directors who are also employees of the Company
receive no remuneration for serving as directors.

                                       56
<PAGE>   58

ITEM 11:  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table sets forth the compensation paid, accrued or awarded by
the Company for the account of each of the chief executive officer at the end of
1999 and the most highly compensated executive officers receiving compensation
on an annualized basis from the Company in excess of $100,000 compensation (the
"Named Executive Officers") for their services in all capacities to the Company
during 1999, the Transition Period and the fiscal years ended September 30, 1998
and 1997.
<TABLE>
<CAPTION>
                                                                                                        LONG-TERM
                                                                                                       COMPENSATION
                                                                                                   --------------------
                                                                                                     AWARDS     PAYOUTS
                                                      ANNUAL COMPENSATION                          ----------   -------
                                            ---------------------------------------                SECURITIES
  NAME AND PRINCIPAL                                                 OTHER ANNUAL     RESTRICTED   UNDERLYING    LTIP
       POSITION               YEAR           SALARY    BONUSES(1)   COMPENSATION(2)    STOCK(3)    OPTIONS #    PAYOUTS
  ------------------    -----------------   --------   ----------   ---------------   ----------   ----------   -------
<S>                     <C>                 <C>        <C>          <C>               <C>          <C>          <C>
James R. Craigie......        1999          $375,000    $562,500        $ 2,899        $250,000     2,500,000         0
  President and Chief   Transition Period     31,250     215,000              0               0             0         0
  Executive Officer           1998                 0           0              0               0             0         0
                              1997                 0           0              0               0             0         0

Scott H.                      1999                       201,073         24,352               0       194,000         0
  Creelman(5).........                       321,717
  Executive Vice        Transition Period     79,898           0              0               0             0         0
  President                   1998           276,476           0              0               0             0         0
                              1997           235,008           0              0                       138,250   176,836

Edward R. Binder......        1999           243,750     221,875         66,444               0       388,890         0
  Executive Vice        Transition Period          0           0              0               0             0         0
  President Marketing         1998                 0           0              0               0             0         0
                              1997                 0           0              0               0             0         0

Edward G. Several.....        1999           181,442     179,381         96,674               0       388,890         0
  Vice President        Transition Period          0           0              0               0             0         0
  Marketing Services          1998                 0           0              0               0             0         0
                              1997                 0           0              0               0             0         0

Vaughn F. Rist........        1999           177,674      52,668          2,269               0       144,000         0
  Vice President        Transition Period          0           0              0               0             0         0
  Employee Relations          1998                 0           0              0               0             0         0
                              1997                 0           0              0               0             0         0

<CAPTION>

  NAME AND PRINCIPAL       ALL OTHER
       POSITION         COMPENSATION(4)
  ------------------    ---------------
<S>                     <C>
James R. Craigie......      $5,000
  President and Chief            0
  Executive Officer              0
                                 0
Scott H.
  Creelman(5).........       5,000
  Executive Vice                 0
  President                  5,000
                             4,750
Edward R. Binder......       5,000
  Executive Vice                 0
  President Marketing            0
                                 0
Edward G. Several.....       2,250
  Vice President                 0
  Marketing Services             0
                                 0
Vaughn F. Rist........       5,000
  Vice President                 0
  Employee Relations             0
                                 0
</TABLE>

---------------
(1) 1999 bonus amounts for Mr. Binder and Mr. Several include hiring bonuses of
    $100,000 each. In addition, Mr. Craigie's bonus for 1998 was a hiring bonus.

(2) Other annual compensation was received in the form of club allowances and
    dues, automobile allowances, contributions to the Company's SERP Plan and
    taxes reimbursed by the Company for taxable relocation costs.

(3) 500,000 restricted shares of common stock were granted to Mr. Craigie during
    1999 at a value (out of consideration paid) of $250,000. These shares vest
    over 5 years (100,000 shares per year). At December 31, 1999, 100,000 shares
    of restricted stock were vested. In addition, at December 31, 1999, the
    500,000 shares of restricted stock held by Mr. Craigie had a value of
    $200,000.

(4) Company matching contributions to the Savings Plus Plan.

(5) Mr. Creelman resigned his position with the Company in December 1999. In
    connection with the terms of his separation from the Company, Mr. Creelman
    will receive his annual salary and health benefits for a 24 month period.

                                       57
<PAGE>   59

STOCK OPTION GRANTS IN 1999, TRANSITION PERIOD AND IN FISCAL 1998.

     The following table sets forth certain information with respect to stock
options granted to the named executive officers during the year ended December
31, 1999.

<TABLE>
<CAPTION>
                          # OF SECURITIES       AS A % OF TOTAL
                         UNDERLYING OPTIONS    OPTIONS GRANTED TO    EXERCISE PRICE
NAME                          GRANTED          EMPLOYEES IN 1999       ($/SHARE)          EXPIRATION DATE
----                     ------------------    ------------------    --------------    ---------------------
<S>                      <C>                   <C>                   <C>               <C>
James R. Craigie.......      2,500,000                32.1%              $2.00         Various dates in 2009
Scott H. Creelman......        194,000                 2.5%               2.00                     July 2009
Edward R. Binder.......        388,890                 5.0%               2.00                     July 2009
Edward G. Several......        388,890                 5.0%               2.00                     July 2009
Vaughn F. Rist.........        144,000                 1.8%               2.00                     July 2009
</TABLE>

AGGREGATE OPTIONS EXERCISED IN 1999, TRANSITION PERIOD AND IN FISCAL 1998 AND
DECEMBER 31, 1999 OPTION VALUES.

     No stock options were exercised in 1999, the Transition Period and fiscal
1998 and no value can be presently ascribed to previous grants of stock options.

MANAGEMENT INCENTIVE BONUS PLAN

     The Company maintains a Management Incentive Bonus Plan ("MIBP") for
certain identified key executives of the Company, including department managers
and executives senior thereto, including the Named Executive Officers, pursuant
to which eligible employees are awarded bonuses based on the Company's annual
operating profit (as determined in accordance with generally accepted accounting
principles), as compared with a target established prior to the beginning of the
year. Awards under the MIBP range within a guideline of 15% to 100% of annual
salary payments, depending upon a participant's position and commensurate
responsibility related to consolidated operations. If the annual results do not
meet the pre-established objectives, no bonus is earned. If annual results
exceed the pre-established objectives, the bonus paid is increased
proportionally, up to an additional bonus of no more than 100% of the employee's
guideline bonus percentage.

1996 EMPLOYEE STOCK OWNERSHIP PLAN

     The 1996 Stock Purchase and Option Plan for Key Employees of Spalding
Holdings Corporation and Subsidiaries (the "1996 Employee Stock Ownership Plan")
provides for the issuance of shares of authorized but unissued or reacquired
shares of common stock, subject to adjustment to reflect certain events such as
stock dividends, stock splits, recapitalizations, mergers or reorganizations of
or by the Company. The 1996 Employee Stock Ownership Plan is intended to assist
the Company in attracting and retaining employees of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company. The 1996 Employee Stock Ownership Plan permits the issuance of
common stock (the "Purchase Stock") and the grant of non-qualified stock options
and incentive stock options (the "Options") to purchase shares of common stock
and other stock-based awards (the issuance of Purchase Stock and the grant of
Options and other stock-based awards pursuant to the 1996 Employee Stock
Ownership Plan being a "Grant"). Unless sooner terminated by the Company's Board
of Directors, the 1996 Employee Stock Ownership Plan will expire ten years after
its inception. Such termination will not affect the validity of any Grant
outstanding on the date of termination.

     The Compensation Committee of the Board of Directors administers the 1996
Employee Stock Ownership Plan, including, without limitation, the determination
of the employees to whom Grants will be made, the number of shares of common
stock subject to each Grant, and the various terms of such Grants. The
Compensation Committee of the Board of Directors may from time to time amend the
terms of any Grant, but, except for adjustments made upon a change in the common
stock of the Company by reason of a stock split, spin-off, stock dividend, stock
combination or reclassification, recapitalization, reorganization,
consolidation, change of control, or similar event, such action shall not
adversely affect the rights of any participant under the 1996 Employee Stock
Ownership Plan with respect to the Purchase Stock and the

                                       58
<PAGE>   60

Options without such participant's consent. The Board of Directors retains the
right to amend, suspend or terminate the 1996 Employee Stock Ownership Plan.

LONG-TERM INCENTIVE PLAN

     In connection with the 1996 Employee Stock Ownership Plan, the Company
cancelled the Long-Term Incentive Plan ("LTIP") and paid the total outstanding
awards in the 1997 fiscal year.

     The LTIP's provided certain key employees with cash awards based upon the
attainment of established financial goals for a predefined period, generally
three years. Each participant made an election at the beginning of each program
period to receive full payments upon vesting or to defer partial or total
payment up to seven years. This cash payout was based upon the value of a unit,
which was determined by a net earnings formula set forth in the LTIP and
calculated as of the September 30 preceding the payment. The LTIP had been in
effect since 1985. Most participants elected to defer all or a portion of their
cash award at the end of each cycle. The value of units for which payment was
deferred was based on the net earnings formula set forth in the LTIP.

RETIREMENT PLANS

     Spalding Employees Retirement Account Plan ("SERA").  The Company sponsors
SERA, a cash balance defined benefit pension plan qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), for substantially
all U.S. salaried employees. SERA covers all eligible full-time employees who
are over age 20 and have at least one year of service. Annually, an addition is
made to each participant's account based on a percentage of the participant's
salary for that year up to a maximum salary of $160,000. The percentage ranges
from 2% of pay for employees under age 25 to 9% of pay for employees 60 and
over. The accounts are credited with interest at a rate determined annually
based on an average of 30 year Treasury Bonds.

     Supplemental Retirement Plan ("SRP").  As a supplement to the SERA, the
Company sponsors the non-qualified SRP which covers highly compensated employees
whose benefits are limited by compensation and benefit limitations under the
Code. For employees with a salary in excess of $160,000, an addition is made to
each participant's account based on a percentage of the participant's salary for
that year. The percentage ranges from 2% of pay for employees under age 25 to 9%
of pay for employees 60 and over. The accounts are credited with interest at a
rate determined annually based on an average of 30 year Treasury Bonds.

     The estimated annual benefits payable under SERA and SRP upon retirement at
normal retirement age for each of the Named Executive Officers is as follows:

<TABLE>
<CAPTION>
                                                                       ESTIMATED
                                                                         ANNUAL
                                                                   BENEFIT IF RETIRES
                                                                       AT NORMAL
                                                   YEAR ATTAINS        RETIREMENT
                                                      AGE 65             AGE(1)
                                                   ------------    ------------------
<S>                                                <C>             <C>
James R. Craigie.................................      2018             $78,790
Scott H. Creelman................................      2008              55,651
Edward R. Binder.................................      2025              96,570
Edward G. Several................................      2026              66,835
Vaughn F. Rist...................................      2007              35,822
</TABLE>

---------------
(1) Under SERA and SRP the normal retirement age is 65. The plans allow benefits
    to be paid as a lump sum payment. The estimated annual benefits shown above
    are in the form of a single life annuity which is the equivalent of the
    individual's projected cash balance account. Benefits have been determined
    assuming no increase in 1999 compensation levels and an annual interest
    credit of 6.0% which is the 1999 rate for the interest credit. Benefits are
    computed without reference to limitations on compensation and benefits to
    which the SERA is subject under the Code because any benefits for the Named
    Executive Officers that are affected by such limitations are made up under
    the Company's SRP.

                                       59
<PAGE>   61

     SAVINGS PLUS PLAN.  The Company sponsors defined contribution plans
qualified under the Code, commonly referred to as a 401(k) plan, for
substantially all U.S. salaried employees and the non-union Gloversville, New
York hourly employees (the "Savings Plus Plan"). Participants may make pre-tax
contributions up to 15% of their aggregate annual salaries. The Company makes a
50% matching contribution on the first 6% of participant contributions. The
Company does not match participant contributions in excess of 6%. In addition,
the Company maintains a defined contribution plan for its union employees in
Chicopee, Massachusetts. The Company does not match participant contribution to
this plan.

CHANGE IN CONTROL SEVERANCE AGREEMENTS

     The Company maintains Change In Control Severance Agreements (the
"Severance Contracts") for certain executives of the Company pursuant to which
these employees could be compensated and could receive severance payments when a
change in control or potential change in control of the Company occurs. The
September 30, 1996 Recapitalization was a change in control under the provisions
of the Severance Contracts.

     The Severance Contracts generally permit an eligible employee to receive
severance payments for a period of 12, 24 or 35 months, as the case may be, or
until the employee reaches the age of 65 whichever comes first consisting of (a)
monthly payments of a combination of 1/12 of such person's highest annual base
salary and bonus, and (b) continued life, disability, accident and health
insurance benefits offset by such person's COBRA benefits. In addition, selected
senior and top management will receive an additional lump-sum payment of 50% and
100%, respectively, of the amount by which the employee's benefit under their
tax-qualified retirement plans maintained by the Company or one of its
subsidiaries would have been increased if contributions and/or benefit accruals
under such plans had continued during the period of continued benefits. During
fiscal 1998, Messrs. Dickerman, Senecal and Doleva from Spalding (the "Spalding
Severance Contracts") and Messrs. Paul Whiting, Chairman and Chief Executive
Officer, Mr. Kipphut, Vice President and Treasurer, and on September 30, 1998,
Mr. Stephen Dryer, Vice President and Controller from the Tampa corporate office
(the "Tampa Severance Contracts"), exercised their rights to resign. At
September 30, 1998, all remaining Severance Contracts were either exercised or
expired.

     The compensation under the terms of the Spalding Severance Contracts that
is expected to be paid subsequent to December 31, 1999 is $0.8 million in 2000.
The compensation under the terms of the Tampa Severance Contracts that is
expected to be paid subsequent to December 31, 1999 is $1.0 million and $0.6
million in 2000 and 2001, respectively.

     As of December 31, 1999, several members of senior management have
employment agreements that would provide benefits for twelve months, namely
salary continuation, in the event their employment with the Company is
involuntarily terminated ( except for cause ).

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee of the Board of Directors (the "Committee")
consists entirely of non-employee Directors. The Committee establishes and
regularly reviews executive compensation levels and policies, and authorizes
short- and long-term awards in the form of cash or stock.

     Compensation for executives is based on the principles that compensation
must (a) be competitive with other quality companies in order to help attract,
motivate and retain the talent needed to lead and grow the company's business,
(b) provide a strong incentive for key managers to achieve the Company's goals,
and (c) make prudent use of the Company's resources.

     No person who served during fiscal 1999 as an executive officer of the
Company serves or has served on the Committee or as a director of another
company, one of whose executive officers serves as a director of the Company.

                                       60
<PAGE>   62

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table, as of March 20, 2000, sets forth certain information
regarding the beneficial owners of the Company's Common Stock by (i) all persons
known to the Company to own beneficially more than 5% of the Common Stock, (ii)
each director, (iii) each of the Named Executive Officers (as defined) and (iv)
all directors and Named Executive Officers as a group.

<TABLE>
<CAPTION>
                                                                 NUMBER OF
NAME                                                          SHARES OWNED(1)    PERCENTAGE
----                                                          ---------------    ----------
<S>                                                           <C>                <C>
Strata L.L.C.(1)............................................    77,034,840          78.6
  c/o Kohlberg Kravis Roberts & Co. L.P.
  9 West 57th Street
  New York, NY 10019
KKR 1996 GP LLC(2)..........................................     9,120,000           9.3
  c/o Kohlberg Kravis Roberts & Co. L.P.
  9 West 57th Street
  New York, NY 10019
Abarco N.V.(3)..............................................     6,480,000           6.7
  c/o ABN Trust Company
  (Curacao N.V.)
  P.O. Box 224, 15 Pietermaai
  Curacao, Netherlands Antilles
L.F. Loree, III and Norwood H. Davis, Jr., Trustees (for
  various trusts)...........................................     2,000,000           2.0
Henry R. Kravis(1)(2).......................................            --             *
George R. Roberts(1)(2).....................................            --             *
Michael T. Tokarz(1)(2).....................................            --             *
Brian F. Carroll(1)(2)......................................            --             *
Gustavo A. Cisneros(3)......................................            --             *
Edwin L. Artzt..............................................       542,799             *
James Craigie(4)............................................       750,000
Edward R. Binder(4).........................................       111,110
Edward G. Several(4)........................................       111,110
Vaughn Rist(4)..............................................        66,387
Scott H. Creelman(4)........................................       119,522             *
David W. Checketts..........................................            --             *
All named officers and directors as a group.................     1,700,928           1.4
</TABLE>

---------------
 *  Beneficial ownership does not exceed 1.0% of the respective class of
    securities.

(1) Shares of Common Stock shown as beneficially owned by Strata L.L.C. are held
    by Strata Associates L.P. Strata L.L.C. is the sole general partner of KKR
    Associates (Strata). KKR Associates (Strata), L.P., is the sole general
    partner of Strata Associates L.P. and possesses sole voting and investment
    power with respect to such shares. Strata L.L.C. is a limited liability
    company, the members of which are Messrs. Henry R. Kravis, George R.
    Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson,
    Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Scott M. Stuart and
    Edward A. Gilhuly. Messrs. Kravis and Roberts are members of the Executive
    Committee of Strata L.L.C. Messrs. Kravis, Roberts and Tokarz are also
    directors of the Company. Mr. Brian F. Carroll is a director of the Company
    and an executive of KKR. Each of such individuals may be deemed to share
    beneficial ownership of the shares shown as beneficially owned by Strata
    L.L.C. Each of such individuals disclaim beneficial ownership of such
    shares.

                                       61
<PAGE>   63

(2) Shares of Common Stock shown as beneficially owned by KKR 1996 GP LLC are
    held by KKR 1996 Fund L.P. KKR 1996 GP LLC is the sole general partner of
    KKR Associates 1996 L.P., a Delaware limited partnership. KKR Associates
    1996 L.P. is the sole general partner of KKR 1996 Fund L.P. KKR 1996 GP LLC
    is a Delaware limited liability company, the managing members of which are
    Messrs. Henry R. Kravis and George R. Roberts and the other members of which
    are Messrs. Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson,
    Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Scott M. Stuart and
    Edward A. Gilhuly, Messrs. Kravis, Roberts and Tokarz are directors of the
    Company. Each of Messrs. Kravis, Roberts, MacDonnell, Raether, Michelson,
    Tokarz, Greene, Golkin, Stuart and Gilhuly may be deemed to share beneficial
    ownership of the shares shown as beneficially owned by KKR 1996 GP LLC. Each
    of such individuals disclaims beneficial ownership of such shares. Mr. Brian
    F. Carroll is a director of the Company and is also an executive of KKR and
    a limited partner of KKR Associates 1996 L.P. Mr. Carroll disclaims that he
    is the beneficial owner of any shares beneficially owned by KKR Associates
    1996.

(3) A trust for the benefit of relatives of Gustavo A. Cisneros and a trust for
    the benefit of Ricardo J. Cisneros and relatives of Ricardo J. Cisneros each
    owns a 50% indirect beneficial ownership interest in the equity of Abarco.
    The trustees of both trusts are Dr. Peter Marxer and Protec Trust Management
    Establishment, each with the address Postfach 484, Heiligkreuz 6, F1 9490
    Vaduz, Liechtenstein. Mr. Gustavo A. Cisneros is also a director of the
    Company. Mr. Gustavo A. Cisneros may be deemed to have beneficial ownership
    of the shares beneficially owned by the trusts created by him. Mr. Gustavo
    A. Cisneros disclaims beneficial ownership of such shares.

(4) Pursuant to Rule 13d-3, stock options that are presently exercisable or
    exercisable within 60 days after December 15, 1999, which are owned by each
    individual are deemed to be outstanding for purposes of computing the
    percentage of shares owned by that individual. Therefore, each percentage is
    computed based on the sum of (i) the shares actually outstanding as of
    December 15, 1999 and (ii) the number of stock options exercisable within 60
    days of December 15, 1999, owned by that individual or entity whose
    percentage of share ownership is being computed, but not taking account of
    the exercise of stock options by any other person or entity.

     In addition, KKR 1996 Fund acquired, on the date of the Reorganization,
1,000,000 shares of preferred stock, par value $0.01 per share, and warrants to
purchase 44,100,000 shares of Common Stock (exercise price of $2 per share) for
a cash purchase price of $100 million.

                                       62
<PAGE>   64

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See Note A of the Notes to the Consolidated Financial Statements appearing
elsewhere on this Form 10-K for a description of the Recapitalization Agreement,
which resulted in the redemption of a portion of the common stock owned by
Abarco.

     See Note K of the Notes to the Consolidated Financial Statements appearing
elsewhere on this Form 10-K for a description of the Company's 1996 Employee
Stock Ownership.

     See Notes A and P of the Notes to the Consolidated Financial Statements
appearing elsewhere on this Form 10-K for a description of the sale of Evenflo
and the related indemnity agreement.

     Effective October 1, 1996, the Company and KKR, an affiliate of the
Company, entered into a management agreement providing for the performance by
KKR of certain management services for the Company. The Company expensed $700
thousand in 1999, $392 thousand during the Transition Period and $976 thousand
in fiscal 1998 pursuant to such management agreement with KKR.

     On August 20, 1998 (the "Closing Date"), KKR 1996 Fund L.P., a Delaware
limited partnership affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR"),
entered into a stock purchase agreement pursuant to which KKR 1996 Fund L.P.
acquired from Lisco, Inc., a wholly-owned subsidiary of Spalding ("Lisco"), (i)
51% (5,100,000 shares) of the outstanding shares of common stock, par value
$1.00 per share, of Evenflo (the "Evenflo Common Stock"), for a purchase price
of $25.5 million and (ii) 400,000 shares of variable rate cumulative preferred
stock with a liquidation preference of $100.00 per share (the "Cumulative
Preferred Stock") for a purchase price of $40.0 million, representing 100% of
the outstanding shares of Cumulative Preferred Stock. Lisco received the 400,000
shares of newly-authorized Cumulative Preferred Stock as a distribution from
Evenflo (the "Preferred Stock Distribution"). KKR 1996 Fund L.P. also entered
into an agreement on August 18, 1998, with the Company through which KKR 1996
Fund L.P. purchased 1,000,000 shares of preferred stock, par value of $0.01 per
share, and acquired warrants to purchase 44,100,000 shares of common stock, par
value $0.01 per share, for a purchase price of $100.0 million, payable in cash.
In addition, on the Closing Date, Great Star Corporation ("Great Star"), an
affiliate of Abarco N.V., entered into a stock purchase agreement pursuant to
which, prior to the acquisition of Common Stock by KKR 1996 Fund L.P., Great
Star acquired 6.6% (660,000 shares) of the outstanding shares of Common Stock
from Lisco for a purchase price of $3.3 million.

     On the Closing Date, Evenflo, KKR 1996 Fund L.P. and Lisco entered into a
stockholders agreement (the "KKR Stockholders Agreement"). Pursuant to the KKR
Stockholders Agreement, Lisco has the right to participate pro rata in certain
sales of Common Stock by KKR 1996 Fund L.P. and affiliates (a "Tag Along"), and
KKR 1996 Fund L.P. has the right to require Lisco to participate pro rata in
certain sales of Common Stock by KKR 1996 Fund L.P. and affiliates ( a "Drag
Along"). The KKR Stockholders Agreement provides Lisco with "piggyback"
registration rights and two demand registrations rights and provides for certain
restrictions and rights regarding the transfer of Common Stock by Lisco. The KKR
Stockholders Agreement also grants Lisco the right to appoint one member of
Evenflo's Board of Directors, subject to maintaining specified ownership
thresholds.

     On the Closing Date, Spalding and Evenflo entered into an indemnification
agreement (the "Indemnification Agreement") pursuant to which Spalding agreed to
indemnify Evenflo for all losses and liabilities of any kind relating to any
non-Evenflo related matters, and Evenflo agreed to indemnify Spalding for all
losses and liabilities of any kind relating to the Evenflo business. In
addition, Spalding agreed to indemnify Evenflo for the expense of product
recalls and corrective actions relating to products manufactured by Evenflo
prior to the Closing Date.

     Spalding and Evenflo entered into an Employee Matters Agreement, dated
August 20, 1998, to allocate assets and liabilities with respect to labor,
employment and employee benefit matters. The Employee Matters Agreement provides
that Evenflo will retain all employment-related responsibility no matter when
incurred for current and former employees of Evenflo. Evenflo will provide, for
at least one year following the Closing Date, employee benefits that are, in the
aggregate, no less favorable than those maintained for the Evenflo employees
immediately prior to the closing of the Reorganization. Furthermore, Evenflo
will establish plans
                                       63
<PAGE>   65

that are substantially similar to the SERA Plan, the Spalding & Evenflo Savings
Plus Plan, the Spalding & Evenflo Supplemental Retirement Plan and Spalding's
postretirement health and life insurance benefits, and assets for the Evenflo
employees will be transferred from the Spalding plans, except in the case of
postretirement benefits for which Spalding will cause to be accrued on the books
of Evenflo a pro-rata portion of the funding contribution due in 1998. Evenflo
will also establish a stock option plan to provide for the issuance of
stock-based awards. Evenflo will continue to honor its obligations under and
maintain certain deferred compensation and change in control agreements with
individual executives, retirement plans, welfare plans and collective bargaining
agreements.

     Prior to the Closing Date, Evenflo and its subsidiaries filed a
consolidated United States federal income tax return together with Spalding and
its other subsidiaries (collectively, the Spalding Consolidated Group). As of
the Closing Date, Evenflo and its subsidiaries (collectively, the Evenflo Group)
will no longer be eligible to file United States federal income tax returns on a
consolidated basis with Spalding and its subsidiaries (other than members of the
Evenflo Group) (collectively, the Spalding Group). Consequently, on the Closing
Date, Spalding and Evenflo entered into a tax allocation and indemnity agreement
(the "Tax Allocation Agreement").

     Pursuant to the Tax Allocation Agreement, (i) the tax attributes of the
Spalding Consolidated Group (e.g., net operating losses, net capital losses and
tax credits) will be allocated and apportioned among the members of the Evenflo
Group and the members of the Spalding Group in accordance with the applicable
Treasury regulations, (ii) Spalding will be responsible for (x) preparing and
filing all consolidated United States federal income tax returns (including any
amended returns) for the taxable years during which Evenflo and its subsidiaries
were members of the Spalding consolidated group and (y) paying all taxes shown
as due and owing on such consolidated returns, and (iii) Spalding will have the
sole right to represent Evenflo's and its subsidiaries' interests in any audit
or other administrative or judicial proceeding related to such consolidated
returns.

     Under the Tax Allocation Agreement, Evenflo and its subsidiaries are
required to pay to Spalding the amount of United States federal income taxes
that are attributable to Evenflo and its subsidiaries (as determined in
accordance with the provisions of the Consolidated Federal Income Tax Liability
Allocation Agreement among Spalding and its Subsidiaries, dated as of September
30, 1993 (the "Old Tax Sharing Agreement")) for all taxable years during which
Evenflo and its subsidiaries were members of the Spalding Consolidated Group
(including, without limitation, any such taxes that are imposed as a result of
an audit or other adjustment). Evenflo and its subsidiaries will be entitled to
any refunds of such taxes and Spalding is required to pay Evenflo and its
subsidiaries the amount of any tax refund attributable to such parties. In
addition, under the Tax Allocation Agreement, the members of the Evenflo Group
will be required to reimburse the Spalding Group for any tax attributes of the
Spalding Group that are utilized by the Evenflo Group (or any member thereof) to
reduce its tax liability and Spalding and the other members of the Spalding
Group will have similar obligation to reimburse the Evenflo Group for any tax
attributes of the Evenflo Group that are utilized by the Spalding Group (or any
member thereof).

     Spalding and the other members of the Spalding Group will jointly and
severally indemnify and hold harmless Evenflo and its subsidiaries for any taxes
imposed on Spalding or other members of the Spalding Group other than taxes that
are attributable to Evenflo and its subsidiaries.

     Pursuant to the terms of the Tax Allocation Agreement, the principles
described herein also will govern the filing of any state, local or foreign tax
returns required to be filed by Spalding or other members of the Spalding Group
on a consolidated, combined or unitary basis with the Company or any of its
subsidiaries and the allocation of the liability for any taxes with respect
thereto.

     On December 23, 1999, the Company sold its 42.4% common stock ownership
interest in Evenflo Company, Inc. to KKR 1996 fund, L.P., an affiliate of
Kohlberg Kravis Roberts & Co., L.P. The net proceeds from the $23.0 million sale
were used to repay term loans under the Company's senior credit facilities.

                                       64
<PAGE>   66

                                    PART IV

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   27
Statements of Consolidated Operations for the year ended
  December 31, 1999, the Transition Period October 1,
  1998 through December 31, 1998 and for the fiscal years
  ended September 30, 1998 and 1997.........................   28
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................   29
Statements of Consolidated Cash Flows for the year ended
  December 31, 1999, the Transition Period October 1, 1998
  through December 31, 1998 and for the fiscal years ended
  September 30, 1998 and 1997...............................   30
Statements of Consolidated Shareholders' Equity (Deficiency)
  for the year ended December 31, 1999, the Transition
  Period October 1, 1998 through December 31,1998 and for
  the fiscal years ended September 30, 1998 and 1997........   31
Notes to Consolidated Financial Statements..................   32
</TABLE>

2. FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
SCHEDULE                                                        PAGE
--------                                                        ----
<S>                                                             <C>
Independent Auditors' Report on Schedule....................     68
II -- Valuation and Qualifying Accounts.....................     69
</TABLE>

     SCHEDULES OTHER THAN THE ABOVE HAVE BEEN OMITTED BECAUSE THEY ARE EITHER
NOT APPLICABLE OR THE REQUIRED INFORMATION HAS BEEN DISCLOSED IN THE
CONSOLIDATED FINANCIAL STATEMENTS OR NOTES THERETO.

3. EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)

<TABLE>
<CAPTION>
EXHIBIT                           DESCRIPTION
-------                           -----------
<C>       <S>
  2.1     Recapitalization and Stock Purchase Agreement, dated August
          15, 1996, by and among Strata Holdings L.P., E&S Holdings
          Corporation and Abarco N.V. (incorporated by reference from
          Exhibit 2.1 to Registration Statement No. 333-14569 filed by
          the Company on January 9, 1997).
  2.2     Amendment No. 1 to the Recapitalization and Stock Purchase
          Agreement, dated September 30, 1996, by and among Strata
          Holdings L.P., E&S Holdings Corporation and Abarco N.V.
          (incorporated by reference from Exhibit 3.2 to Registration
          Statement No. 333-14569 filed by the Company on January 9,
          1997).
  3.1     Restated Certificate of Incorporation of Evenflo & Spalding
          Holdings Corporation (incorporated by reference from Exhibit
          3.1 October 2, 1999 to the Company's Quarterly Report 10-Q
          for the fiscal quarter ended April 3, 1999, filed by the
          Company on November 15, 1999).
  3.2     Bylaws of E&S Holdings Corporation (incorporated by
          reference from Exhibit 3.2 to Registration Statement No.
          333-14569 filed by the Company on January 9, 1997).
  4.1     Indenture between E&S Holdings Corporation and Marine
          Midland Bank, as Trustee (incorporated by reference from
          Exhibit 4.1 to Registration Statement No. 333-14569 filed by
          the Company on January 9, 1997).
  4.2     Form of 10 3/8% Series B Senior Subordinated Notes due 2006
          (incorporated by reference from Exhibit 4.3 to Registration
          Statement No. 333-14569 filed by the Company on January 9,
          1997).
  4.3     Form of Amended and Restricted 1996 Employee Stock Purchase
          Option Plan for key employees of Spalding Holdings
          Corporation and Subsidiaries (incorporated by reference from
          Exhibit 4.9 to Registration Statement No. 333-31154 filed by
          the Company on February 25, 2000).
</TABLE>

                                       65
<PAGE>   67

<TABLE>
<CAPTION>
EXHIBIT                           DESCRIPTION
-------                           -----------
<C>       <S>
  4.4     Stock Purchase Warrants, dated August 20, 1998, by and among
          Evenflo & Spalding Holdings Corporation and KKR 1996 Fund
          L.P., relating to the purchase of 44,100,000 shares of
          Common Stock of the Company granted to KKR 1996 Fund L.P.
          (incorporated by reference from Exhibit 4.4 to the Company's
          Annual Report 10-K for the Transition Period ended December
          31, 1998, filed by the Company on March 29, 1999.)
  4.5     Stockholders' Agreement dated August 20, 1998, by and among
          Evenflo Company, Inc. KKR 1996 Fund L.P. and Lisco, Inc.
          (incorporated by reference from Exhibit 4.5 to the Company's
          Annual Report 10-K for the Transition Period ended December
          31, 1998, filed by the Company on March 29, 1999.)
  4.6     Certificate of Designations of Variable Rate Cumulative
          Preferred Stock of Evenflo & Spalding Holdings Corporation,
          dated August 19, 1998. (incorporated by reference from
          Exhibit 4.6 to the Company's Annual Report 10-K for the
          Transition Period ended December 31, 1998, filed by the
          Company on March 29, 1999.)
 10.1     $650,000,000 Credit Agreement dated as of September 30,
          1996, among E&S Holdings Corporation, as the Borrower, Bank
          of America National Trust and Savings Association, as Swing
          Line Lender, as Fronting Lender and as Administrative Agent,
          Merrill Lynch Capital Corporation, as Documentation Agent,
          NationsBank, N.A. (South), as Syndication Agent, and lenders
          (incorporated by reference from Exhibit 10.1 to Registration
          Statement No. 333-14569 filed by the Company on January 9,
          1997).
 10.2     Guaranty dated as of September 30, 1996, made by Spalding &
          Evenflo Companies, Inc., Evenflo Company, Inc., Etonic
          Worldwide Corporation, S&E Finance Co., Inc., Lisco, Inc.,
          Lisco Sports, Inc., Lisco Feeding, Inc., Lisco Furniture,
          Inc., and EWW Lisco, Inc. in favor of Bank of America
          National Trust and Savings Association (incorporated by
          reference from Exhibit 10.2 to Registration Statement No.
          333-14569 filed by the Company on January 9, 1997).
 10.3     Pledge Agreement dated as of September 30, 1996, made by E&S
          Holdings Corporation in favor of Bank of America National
          Trust and Savings Association (incorporated by reference
          from Exhibit 10.3 to Registration Statement No. 333-14569
          filed by the Company on January 9, 1997).
 10.4     Credit Agreement Amendment No. 1, dated December 11, 1996,
          by and among Evenflo & Spalding Holdings Corporation (the
          "Borrower") and the financial institutions that are or may
          become parties to the Credit Agreement dated as of September
          30, 1996.
 10.5     Credit Agreement Amendment No. 2, dated March 31, 1998, by
          and Among Evenflo & Spalding Holdings Corporation (the
          "Borrower") and the financial institutions that are or may
          become parties to the Credit Agreement dated as of September
          30, 1996.
 10.6     Credit Agreement Amendment No. 3, dated July 30, 1998, by
          and Among Evenflo & Spalding Holdings Corporation (the
          "Borrower") and the financial institutions that are or may
          become parties to the Credit Agreement dated as of September
          30, 1996.
 10.7     Registration Rights Agreement dated as of September 30, 1996
          by and among E&S Holdings Corporation, Strata Associates,
          L.P., and KKR Partners II, L.P. (incorporated by reference
          from Exhibit 10.4 to Registration Statement No. 333-14569
          filed by the Company on January 9, 1997).
 10.8     Form of Change of Control Agreement (Senior Managers)
          (incorporated by reference from Exhibit 10.8 to Registration
          Statement No. 333-14569 filed by the Company on January 9,
          1997).
 10.9     Form of Change of Control Agreement (Top Managers)
          (incorporated by reference from Exhibit 10.9 to Registration
          Statement No. 333-14569 filed by the Company on January 9,
          1997).
 10.10    Form of Change of Control Agreement (Other Managers)
          (incorporated by reference from Exhibit 10.10 to
          Registration Statement No. 333-14569 filed by the Company on
          January 9, 1997).
 10.11    Form of Letter of Agreement between the Company and Kohlberg
          Kravis Roberts & Co., L.P. (incorporated by reference from
          Exhibit 10.11 to Registration Statement No. 333-14569 filed
          by the Company on January 9, 1997).
 10.12    Agreement dated as of February 3, 1997, by and between NBA
          Properties, Inc. and Spalding & Evenflo Companies, Inc.
          (incorporated by reference from Exhibit 10 to the Company's
          Quarterly Report 10-Q for the fiscal quarter ended December
          31, 1996, filed by the Company on February 14, 1997).
</TABLE>

                                       66
<PAGE>   68

<TABLE>
<CAPTION>
EXHIBIT                           DESCRIPTION
-------                           -----------
<C>       <S>
 10.13    Asset Purchase Agreement dated as of March 7, 1997, by and
          among Gerry Baby Products Company, Gerry Wood Products
          Company, Huffy Corporation, as sellers and Evenflo Company,
          Inc. as purchaser (incorporated by reference from Exhibit
          10.1 to the Company's Quarterly Report 10-Q for the fiscal
          quarter ended June 30, 1997, filed by the Company on August
          7, 1997).
 10.14    Asset Purchase Agreement among Ben Hogan Co., the Trusts for
          the Benefit of William Goodwin's Children, and Evenflo &
          Spalding Holdings Corporation dated as of November 26, 1997.
 10.15    Tax Allocation and Indemnification Agreement, dated August
          20, 1998 by and among Evenflo & Spalding Holdings
          Corporation and Evenflo Company, Inc.
 10.16    Employee Matters Agreement, dated August 20, 1998, by and
          among Evenflo & Spalding Holdings Corporation and Evenflo
          Company, Inc.
 10.17    Transition Services Agreement, dated August 20, 1998, by and
          among Evenflo & Spalding Holdings Corporation and Evenflo
          Company, Inc.
 10.18    Evenflo & Spalding Holdings Corporation Management Incentive
          Bonus Plan dated January 15, 1997 (incorporated by reference
          from Exhibit 99 to the Company's Quarterly Report 10-Q for
          the fiscal quarter ended December 31, 1996, filed by the
          Company on February 14, 1997).
 10.19    Employment agreement between Spalding Holdings Corporation
          and James R. Craigie, President and Chief Executive Officer
          of Spalding Holdings Corporation (incorporated by reference
          form Exhibit 10.19 to the Company's Quarterly Report 10-Q
          for the fiscal quarter ended April 3, 1999, filed by the
          Company on May 15, 1999.
 10.20    Restricted stock award agreement between Spalding Holdings
          Corporation and James R. Craigie (incorporated by reference
          for Exhibit 10.20 to the Company's Quarterly Report 10-Q for
          the fiscal quarter ended April 3, 1999, filed by the Company
          on May 15, 1999).
 12       Computation of Ratio of Earnings to Fixed Charges.
 18       Preferability letter relating to the charge in accounting
          principle (incorporated by reference for Exhibit 18 to the
          Company's Quarterly Report 10-Q for the fiscal quarter ended
          April 3, 1999, filed by the Company on May 15, 1999).
 21       List of Subsidiaries.
 23.1     Consent of Deloitte & Touche LLP, independent certified
          public accountants.
 27       Financial Data Schedule.
 27.1     Restated Financial Data Schedule for the Fiscal Year Ended
          September 30, 1998
 27.2     Restated Financial Data Schedule for the Fiscal Year Ended
          September 30, 1997
</TABLE>

(b) REPORTS ON FORM 8-K

     The Company filed a current report on Form 8-K with the Securities and
Exchange Commission dated October 1, 1999 to disclose additional pro forma
financial information as a result of the separation of Spalding Holdings
Corporation and Evenflo Company, Inc. into two stand-alone companies, effective
August 21, 1998.

     The Company filed a current report on 8-K with the Securities and Exchange
Commission dated October 1, 1999 to announce the appointment of Dan Frey as
Chief Financial Officer.

     The Company filed a current report on 8-K with the Securities and Exchange
Commission dated January 21, 2000 announcing the sale of its remaining 42.4%
investment in Evenflo Company, Inc.

                                       67
<PAGE>   69

                          INDEPENDENT AUDITORS REPORT

The Board of Directors
Spalding Holdings Corporation
Chicopee, Massacusetts

     We have audited the consolidated financial statements of Spalding Holdings
Corporation and subsidiaries (the"Company") as of December 31, 1999 and for the
transition period October 1, 1998 through December 31, 1998 and for each of the
two fiscal years in the period ended September 30, 1998, and have issued our
report thereon dated March 17, 2000 (which report includes an explanatory
paragraph regarding a change in the method of inventory valuations); such report
is included elsewhere in this Form 10-K. Our audits also included the financial
statement schedule of Spalding Holdings Corporation, listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion 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.

DELOITTE & TOUCHE LLP

Hartford, Connecticut
March 17, 2000

                                       68
<PAGE>   70

                                  SCHEDULE II

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                     FOR THE YEAR ENDED DECEMBER 31, 1999,
        THE TRANSITION PERIOD OCTOBER 1, 1998 THROUGH DECEMBER 31, 1998
           AND FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                        BALANCE AT    CHARGED TO     CHARGED
                                       BEGINNING OF    COST AND     TO OTHER                      BALANCE AT
DESCRIPTION                               PERIOD       EXPENSES    ACCOUNTS(A)   DEDUCTIONS(B)   END OF PERIOD
-----------                            ------------   ----------   -----------   -------------   -------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                    <C>            <C>          <C>           <C>             <C>
1999 Allowances for doubtful
  accounts...........................    $ 3,491       $ 2,669        $ 89          $(4,199)        $ 2,050
Transition Period Allowance for
  doubtful accounts..................     10,539         1,761          --           (8,809)          3,491
Fiscal 1998-Allowance for doubtful
  accounts...........................      3,941        12,591          --           (5,993)         10,539
Fiscal 1997-Allowance for doubtful
  accounts...........................      4,373         4,284         646           (5,362)          3,941
</TABLE>

NOTES:
(A) Recoveries on accounts previously charged off. The amount for 1997 includes
    $386 for the beginning allowance from the Gerry Acquisition.

(B) Uncollectible accounts written off. In 1998, amount includes $1,594 of
    Evenflo balance sold in the Reorganization transaction.

                                       69
<PAGE>   71

                                                                      EXHIBIT 12

                 SPALDING HOLDINGS CORPORATION AND SUBSIDIARIES

                       RATIO OF EARNINGS TO FIXED CHARGES
                     FOR THE YEAR ENDED DECEMBER 31, 1999,
                 THE TRANSITION PERIOD OCTOBER 1, 1998 THROUGH
                DECEMBER 31, 1998 AND FOR THE FISCAL YEARS ENDED
                    SEPTEMBER 30, 1998, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                       DECEMBER 31,    DECEMBER 31,
                           1999            1998          1998         1997        1996       1995
                       ------------    ------------    ---------    --------    --------    -------
<S>                    <C>             <C>             <C>          <C>         <C>         <C>
EARNINGS:
Earnings (loss)
  before income taxes
  and extraordinary
  item...............    $(40,161)       $(98,014)     $(115,080)   $(38,543)   $(12,648)   $19,458
Interest expense.....      54,970          13,911         78,041      71,326      37,718     38,108
Rent expense.........       2,630             108          1,918       2,912       1,994      1,692
                         --------        --------      ---------    --------    --------    -------
                         $ 17,439        $(83,995)     $ (35,121)   $ 35,695    $ 27,064    $59,258
                         ========        ========      =========    ========    ========    =======
FIXED CHARGES:
Interest expense.....    $ 54,970        $ 13,911      $  78,041    $ 71,326    $ 37,718    $38,108
Rent expense.........       2,630             108          1,918       2,912       1,994      1,692
                         --------        --------      ---------    --------    --------    -------
                         $ 57,600        $ 14,019      $  79,959    $ 74,238    $ 39,712    $39,800
                         ========        ========      =========    ========    ========    =======
Ratio of earnings to
  fixed charges......    $     --        $     --      $      --    $     --    $     --    $  1.49
                         ========        ========      =========    ========    ========    =======
Deficiency of
  earnings to fixed
  charges............    $ 40,161        $ 98,014      $ 115,080    $ 38,543    $ 12,648
                         ========        ========      =========    ========    ========
</TABLE>

                                       70
<PAGE>   72

                                   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.

                                          SPALDING HOLDINGS CORPORATION

                                          By: /s/ DANIEL S. FREY
                                            ------------------------------------
                                            Daniel S. Frey
                                            Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been duly signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                    TITLE                      DATE
                     ---------                                    -----                      ----
<C>                                                  <S>                                <C>

                /s/ EDWIN L. ARTZT                   Chairman of Board of Directors     March 30, 2000
---------------------------------------------------
                  Edwin L. Artzt

               /s/ JAMES R. CRAIGIE                  President and Chief Executive      March 30, 2000
---------------------------------------------------  Officer
                 James R. Craigie

                /s/ DANIEL S. FREY                   Chief Financial Officer            March 30, 2000
---------------------------------------------------  (Principal Financial Officer)
                  Daniel S. Frey

                /s/ PETER A. ARTURI                  Vice President, Secretary and      March 30, 2000
---------------------------------------------------  General Counsel
                  Peter A. Arturi

                /s/ HENRY R. KRAVIS                  Director                           March 30, 2000
---------------------------------------------------
                  Henry R. Kravis

               /s/ GEORGE R. ROBERTS                 Director                           March 30, 2000
---------------------------------------------------
                 George R. Roberts

               /s/ MICHAEL T. TOKARZ                 Director                           March 30, 2000
---------------------------------------------------
                 Michael T. Tokarz

               /s/ BRIAN F. CARROLL                  Director                           March 30, 2000
---------------------------------------------------
                 Brian F. Carroll

              /s/ GUSTAVO A. CISNEROS                Director                           March 30, 2000
---------------------------------------------------
                Gustavo A. Cisneros

              /s/ DAVID W. CHECKETTS                 Director                           March 30, 2000
---------------------------------------------------
                David W. Checketts
</TABLE>

                                       71