-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TET/tjNrJ645/pYv07+ZhAFPN9tXKI2bLmSP9bcaUvKKdYYANYi5MdvDHZslEYkf /Cio21PFZNM8tB1xJbZ/LA== /in/edgar/work/20000814/0000874786-00-000005/0000874786-00-000005.txt : 20000921 0000874786-00-000005.hdr.sgml : 20000921 ACCESSION NUMBER: 0000874786-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIDDELL SPORTS INC CENTRAL INDEX KEY: 0000874786 STANDARD INDUSTRIAL CLASSIFICATION: [3949 ] IRS NUMBER: 222890400 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14629 FILM NUMBER: 698576 BUSINESS ADDRESS: STREET 1: 1450 BROADWAY STREET 2: SUITE 2001 CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: (212) 921-8101 MAIL ADDRESS: STREET 1: 1450 BROADWAY STREET 2: SUITE 2001 CITY: NEW YORK STATE: NY ZIP: 10018 10-Q 1 0001.txt 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000 Commission file number: 0-19298 RIDDELL SPORTS INC. (Exact name of registrant as specified in its charter) DELAWARE 22-2890400 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1450 Broadway, Suite 2001, New York, NY, 10018 (Address of principal executive offices) (Zip code) (212) 921-8101 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[ X ] No [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 9,447,957 Common Shares as of August 11, 2000 1 2 RIDDELL SPORTS INC. INDEX Page Form 10-Q Cover Page . . . . . . . . . . . . . . . . . . . . . . . . 1 Form 10-Q Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Part I. Financial Information: Item 1. Financial Statements: Condensed Consolidated Balance Sheets . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations . . . . . . 4 Condensed Consolidated Statements of Stockholders' Equity . 5 Condensed Consolidated Statements of Cash Flows . . . . . . 6 Notes to Condensed Consolidated Financial Statements . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . 10 Part II. Other Information: Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 14 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 14 Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Security Holders . . . . 14 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 15 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Report contains certain statements which are "forward-looking" statements under the federal securities laws that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements appear in Note 5 of Notes to Condensed Consolidated Financial Statements and throughout Item 2 of Part I, "Management's Discussion and Analysis of Financial Condition and Results of Operations" concerning Riddell's determination of product liability reserves, the seasonal patterns of working capital and revenue and operating results in its business. Certain factors could cause actual results to differ materially from those in the forward-looking statements including without limitation, (i) continuation of historical patterns of demand for Riddell's products and Riddell's ability to meet the demand; (ii) actions by competitors, including without limitation new product introductions; (iii) the loss of domestic or foreign suppliers; (iv) changes in business strategy or new product lines and Riddell's ability to successfully implement these; (v) the outcome of pending product liability claims and potential future claims; and (vi) changes in interest rates and general economic conditions. Riddell does not intend to update these forward-looking statements. 2 3 Part 1. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS RIDDELL SPORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) June 30, December 31, June 30, 2000 1999 1999 --------- --------- --------- ASSETS Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $1,444 $513 $1,598 Accounts receivable, trade, less allowance for doubtful accounts ($1,175, $1,863 and $1,227 respectively) . . . . . 68,209 32,524 59,300 Inventories . . . . . . . . . . . . . . . . . . . . . . . . 41,366 33,388 38,265 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 6,737 7,578 7,618 Other receivables . . . . . . . . . . . . . . . . . . . . . 1,833 2,020 1,614 Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . 2,076 2,076 1,253 --------- --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . 121,665 78,099 109,648 Property, plant and equipment, less accumulated depreciation ($11,096, $9,723 and $8,421 respectively) . . . . 8,432 7,771 8,159 Intangibles and deferred charges, less accumulated amortization ($19,942, $17,893 and $15,877 respectively) . . 104,186 105,952 107,667 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,282 2,514 2,523 --------- --------- --------- $237,565 $194,336 $227,997 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . $20,402 $10,318 $17,000 Accrued liabilities . . . . . . . . . . . . . . . . . . . . 13,091 11,783 13,124 Customer deposits . . . . . . . . . . . . . . . . . . . . . 14,695 6,090 10,345 --------- --------- --------- Total current liabilities . . . . . . . . . . . . . 48,188 28,191 40,469 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 159,209 136,097 159,465 Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . 2,076 2,076 348 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,080 3,107 3,254 Contingent liabilities . . . . . . . . . . . . . . . . . . . . - - - Stockholders' equity Preferred stock . . . . . . . . . . . . . . . . . . . . . . - - - Common stock . . . . . . . . . . . . . . . . . . . . . . . . 94 93 93 Additional paid in capital . . . . . . . . . . . . . . . . . 37,286 36,862 36,849 Accumulated deficit . . . . . . . . . . . . . . . . . . . . (12,368) (12,090) (12,481) --------- --------- --------- 25,012 24,865 24,461 --------- --------- --------- $237,565 $194,336 $227,997 ========= ========= ========= See notes to condensed consolidated financial statements.
3 4 RIDDELL SPORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ------------------------- --------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net revenues: Net sales, products and reconditioning . $60,056 $ 52,701 $ 88,524 $ 76,514 Camps and events . . . . . . . . . . . . 14,640 12,540 25,195 22,673 Royalty income . . . . . . . . . . . . . 323 285 580 598 --------- --------- --------- --------- 75,019 65,526 114,299 99,785 --------- --------- --------- --------- Cost of revenues: Products and reconditioning . . . . . . . 32,878 28,280 49,955 42,384 Camps and events . . . . . . . . . . . . 10,589 9,149 17,157 15,531 --------- --------- --------- --------- Cost of revenues . . . . . . . . . . . . . . 43,467 37,429 67,112 57,915 --------- --------- --------- --------- Gross profit . . . . . . . . . . . . . . . . 31,552 28,097 47,187 41,870 Selling, general and administrative expenses . . . . . . . . . . 20,900 18,633 39,257 35,115 --------- --------- --------- --------- Income from operations . . . . . . . . . . . 10,652 9,464 7,930 6,755 Interest expense . . . . . . . . . . . . . . 4,211 4,097 8,208 7,745 --------- --------- --------- --------- Income (loss) before taxes . . . . . . . . . 6,441 5,367 (278) (990) Income taxes . . . . . . . . . . . . . . . . - - - - --------- --------- --------- --------- Net income (loss) . . . . . . . . . . . . . . $6,441 $5,367 ($ 278) ($ 990) ========= ========= ========= ========= Net earnings (loss) per share : Basic . . . . . . . . . . . . . . . . $0.69 $0.58 ($0.03) ($0.11) Diluted . . . . . . . . . . . . . . . 0.61 $0.51 ($0.03) ($0.11) Weighted average number common and common equivalent shares outstanding: Basic . . . . . . . . . . . . . . . . 9,357 9,259 9,327 9,259 Diluted . . . . . . . . . . . . . . . 10,784 10,754 9,327 9,259 See notes to condensed consolidated financial statements.
4 5 RIDDELL SPORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (In thousands) Retained Common Stock Additional earnings Total --------------------- paid in (Accumulated Stockholders' Shares Amount capital deficit) equity -------- -------- ----------- ---------- ---------- For the six months ended June 30, 1999: Balance, January 1, 1999 . . . 9,259 $ 93 $ 36,849 ($ 11,491) $ 25,451 Net loss for the period . . . - - - (990) (990) -------- -------- ----------- ---------- ---------- Balance, June 30, 1999 . . . . . 9,259 $ 93 $ 36,849 ($ 12,481) $ 24,461 ======== ======== =========== ========== ========== For the six months ended June 30, 2000: Balance, January 1, 2000 . . . . 9,263 $ 93 $ 36,862 ($ 12,090) $ 24,865 Stock issued to employees . . 54 - 169 - 169 Issuance of common stock upon exercise of stock options . 131 1 255 - 256 Net loss for the period . . . - - - (278) (278) -------- -------- ----------- ---------- ---------- Balance, June 30, 2000 . . . . . 9,448 $ 94 $ 37,286 ($ 12,368) $ 25,012 ======== ======== =========== ========== ========== See notes to condensed consolidated financial statements.
5 6 RIDDELL SPORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . $6,441 $5,367 ($278) ($ 990) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization: Amortization of debt issue costs . . . . 216 209 432 410 Other depreciation and amortization . . . 1,513 1,398 2,990 2,817 Provision for losses on accounts receivable 338 68 500 441 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable, trade . . . . . . (32,146) (28,145) (36,185) (31,725) Inventories . . . . . . . . . . . . . . (2,209) (3,371) (7,955) (9,502) Prepaid expenses . . . . . . . . . . . 1,882 (606) 849 (1,125) Other receivables . . . . . . . . . . . (53) (115) 187 30 Other assets . . . . . . . . . . . . . (402) 11 (768) (839) Increase (decrease) in: Accounts payable . . . . . . . . . . . 6,212 5,380 10,054 4,256 Accrued liabilities . . . . . . . . . . 5,181 5,091 1,464 1,871 Customer deposits . . . . . . . . . . . 10,157 6,885 8,560 4,384 Other liabilities . . . . . . . . . . . (27) (300) (27) (300) --------- --------- --------- --------- Net cash used in operating activities (2,897) (8,128) (20,177) (30,272) --------- --------- --------- --------- Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . (628) (770) (1,884) (1,496) Other . . . . . . . . . . . . . . . . . . (376) - (376) (419) --------- --------- --------- --------- Net cash used in investing activities (1,004) (770) (2,260) (1,915) --------- --------- --------- --------- Cash flows from financing activities: Net borrowings under line-of-credit agreement 3,488 9,765 23,112 32,565 Debt issue costs . . . . . . . . . . . . . . - (532) - (532) Proceeds from issuance of common stock . . . 256 - 256 - --------- --------- --------- --------- Net cash provided by financing activities 3,744 9,233 23,368 32,033 --------- --------- --------- --------- Net increase (decrease) in cash . . . . . . . . (157) 335 931 (154) Cash, beginning . . . . . . . . . . . . . . . . . 1,601 1,263 513 1,752 --------- --------- --------- --------- Cash, end . . . . . . . . . . . . . . . . . . $1,444 $1,598 $1,444 $1,598 ========= ========= ========= ========= See notes to condensed consolidated financial statements.
6 7 RIDDELL SPORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation The condensed consolidated financial statements include the accounts of Riddell Sports Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. These statements are unaudited, and in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation of Riddell's condensed consolidated financial position and the condensed consolidated results of its operations and cash flows at June 30, 2000 and 1999 and for the periods then ended. Certain information and footnote disclosures made in Riddell's last Annual Report on Form 10-K have been condensed or omitted for these interim statements. Accordingly, these condensed consolidated financial statements should be read in conjunction with Riddell's Annual Report on Form 10-K for the year ended December 31, 1999. Operating results for the three months ended June 30, 2000 are not necessarily indicative of the results to be expected during the remainder of 2000. 2. Earnings per share Basic earnings (loss) per share amounts have been computed by dividing earnings (loss) by the weighted average number of outstanding common shares. Diluted earnings (loss) per share is computed by adjusting earnings for the effect of the assumed conversion of dilutive securities and dividing the result by the weighted average number of common shares and common equivalent shares relating to dilutive securities. A reconciliation between the numerators and denominators for these calculations follows: Three months ended Six months ended June 30, June 30, ------------------ -------------------- 2000 1999 2000 1999 ------- ------- ------- ------- (In thousands) Earnings (loss) - numerator: Net income (loss) $ 6,441 $ 5,367 ($278) ($ 990) Effect of assumed conversion of convertible debt, when dilutive, - interest savings 105 105 - - ------- ------- ------- ------- Numerator for diluted per share computation $ 6,546 $ 5,472 ($278) ($ 990) ======= ======= ======= ======= Shares - denominator: Weighted average number of outstanding common shares 9,357 9,259 9,327 9,259 Weighted average common equivalent shares: Options, assumed exercise of dilutive options, net of treasury shares which could have been purchased from the proceeds of the assumed exercise based on average market prices 32 100 - - Convertible debt, assumed conversion when dilutive 1,395 1,395 - - ------- ------- ------- ------- Denominator for diluted per share computation 10,784 10,754 9,327 9,259 ======= ======= ======= =======
For the six-month periods ended June 30, 2000 and 1999 potentially dilutive securities, which include convertible debt and common stock options, were not dilutive due to the net losses incurred and were excluded from the computation of diluted earnings per share. 7 8 RIDDELL SPORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Receivables Accounts receivable include unbilled shipments of approximately $18,700,000, $1,315,000 and $12,769,000 at June 30, 2000, December 31, 1999 and June 30, 1999, respectively. It is Riddell's policy to record revenues when the related goods have been shipped. Unbilled shipments represent receivables for shipments that have not yet been invoiced. These amounts relate principally to partial shipments to customers who are not invoiced until their order is shipped in its entirety or customers with orders containing other terms that require a deferral in the issuance of an invoice. Management believes that substantially all of these unbilled receivables will be invoiced within the current sales season. 4. Inventories Inventories consist of the following: (In thousands) June 31, December 31, June 31, 2000 1999 1999 -------- ----------- --------- Finished goods $ 23,999 $ 20,459 $24,895 Work-in-process 4,281 3,088 2,562 Raw materials 13,086 9,841 10,808 -------- -------- -------- $ 41,366 $33,388 $38,265 ======== ======== ======== 5. Litigation matters and contingencies At June 30, 2000, Riddell was a defendant in 7 product liability suits relating to personal injuries allegedly related to the use of helmets manufactured or reconditioned by subsidiaries of Riddell. The ultimate outcome of these claims, or potential future claims, cannot presently be determined. Riddell estimates that the uninsured portion of future costs and expenses related to these claims, and incurred but not reported claims, will amount to at least $3,900,000 and, accordingly, a reserve in this amount is included in the Condensed Consolidated Balance Sheet at June 30, 2000, as part of accrued liabilities and other liabilities. These reserves are based on estimates of losses and defense costs anticipated to result from such claims, from within a range of potential outcomes, based on available information, including an analysis of historical data such as the rate of occurrence and the settlement amounts of past cases. However, due to the uncertainty involved with estimates actual results have at times varied substantially from earlier estimates and could do so in the future. Accordingly there can be no assurance that the ultimate costs of such claims will fall within the established reserves. 6. Supplemental cash flow information Cash paid for interest was $1,059,000 and $609,000 for the quarterly periods ended June 30, 2000 and 1999, respectively, and $7,694,000 and $6,968,000 for the six-month periods ended June 30, 2000 and 1999, respectively. Income tax payments, or refunds, were not significant for the periods ended June 30, 2000 and 1999. During the six-month period ended June 30, 2000, Riddell issued shares of its common stock, valued at $169,000 based on quoted market values at the time of grant, to certain employees in satisfaction of an accrual for compensation included in accrued liabilities at December 31, 1999. 8 9 RIDDELL SPORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Segment information: Net revenues and income or loss from operations for the Company's three reportable segments are as follows: Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- (In thousands) Net revenues: Institutional products and services . . . $70,747 $61,782 $106,653 $92,139 Retail products . . . . . . . . . . . . . 3,949 3,459 7,066 7,048 Trademark licensing . . . . . . . . . . . 323 285 580 598 --------- --------- --------- --------- Consolidated total . . . . . . . . . $75,019 $65,526 $114,299 $99,785 ========= ========= ========= ========= Income (loss) from operations: Institutional products and services . . . $11,960 $10,244 $ 10,663 $ 8,202 Retail products . . . . . . . . . . . . . 74 (30) (149) 17 Trademark licensing . . . . . . . . . . . 129 98 189 239 Corporate and unallocated expenses . . . (1,511 ) (848) (2,773) (1,703) --------- --------- --------- --------- Consolidated total . . . . . . . . . $10,652 $ 9,464 $7,930 $ 6,755 ========= ========= ========= =========
9 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview and seasonality Operations for the three-month period ended June 30, 2000 resulted in net income of $6.4 million, or $0.61 per share on a diluted basis, a 20% increase in comparison to net income of $5.4 million, or $0.51 per share on a diluted basis, for the second quarter of 1999. Operating income before interest and taxes for the second quarter of 2000 increased by 13%, or $1.2 million to $10.7 million from $9.5 million in the second quarter of 1999. For the six-month period, operating income before interest and taxes increased 17%, or $1.2 million, in 2000 to $7.9 million from $6.7 million in the first half of 1999. Riddell benefitted from increased revenues and declining selling, general and administrative expenses as a percentage of sales, as described in more detail in the discussion which follows this overview. The operating income improvement was achieved in spite of expenses relating to Riddell's new Internet sites and a canceled rights offering. Internet expenses were $382,000 in the second quarter and $807,000 in the six-month period of 2000. Costs relating to the rights offering were $328,000 and were charged to expense in the second quarter when the rights offering was canceled. Operating income before these expenses would have been $11.4 million for the second quarter of 2000, an increase of 20% over the second quarter of 1999 and for the first half of 2000 would have been $9.1 million, an increase of 34% over the first half of 1999. Although the Company has typically been profitable in the second quarter, it has historically reported a loss in the first half of the year, because of relatively low revenues and relatively high costs during the first quarter. In the first half of 2000, the Company had a net loss of $0.3 million, as compared to a net loss of $1.0 million in the first half of 1999. The loss in the first half of 2000 was anticipated, is consistent with the seasonality of our business and was lower than the loss in the first half of 1999. In recent years, operations have been most profitable in the second and third quarters, with the third quarter typically the strongest, and losses have been incurred in the first and fourth quarters. Factors influencing this seasonal pattern were discussed in our last Annual Report on Form 10-K. Revenues Revenues for the three-month period ended June 30, 2000 increased 14%, or $9.5 million, to $75.0 million from $65.5 million in the second quarter of 1999. For the six-month period ended June 30, 2000 revenues increased 15%, or $14.5 million, to $114.3 million from $99.8 million in the first half of 1999. Most of the revenue gains for both periods came from our extracurricular segment where sales increased 15%, or $8.9 million, to $70.7 million in the second quarter of 2000 from $61.8 million in the second quarter of 1999. For the six-month period, extracurricular revenues increased 16%, or $14.5 million, to $106.7 million in the first half of 2000 from $92.2 million in the first half of 1999. All extracurricular product lines showed sales increases over the year-ago periods. Unit volume increases accounted for most of the revenue growth, with modest price increases contributing as well. Extracurricular revenue gains included an increase in school spirit revenues of $6.1 million, or 15%, in the second quarter and $6.8 million, or 12%, in the six-month period with both periods reflecting gains in both our uniform and accessory product lines and in our camp and event operations. Sales of team sports 10 11 products and services increased $2.8 million, or 14%, in the second quarter and $7.7 million, or 21%, in the six-month period. Team sports gains for the quarter included sales increases from Umbro-branded team soccer products, other athletic clothing and our historical reconditioning and new equipment businesses. Retail segment revenues increased $0.5 million, or 14%, in the second quarter. For the year-to-date period retail segment revenues were stable with an increase of under 1% from the year ago period. Sales of sports collectible products while higher, were offset in part, because of an internal shift in the responsibility for certain international customers of athletic equipment to the extracurricular segment. These customers had accounted for approximately $230,000 of sales in the second quarter of 1999 and $580,000 of sales in the six-month period of 1999. Revenues from trademark licensing were relatively stable at $0.3 million in the second quarter of both 2000 and 1999 and $0.6 million in the six-month periods of both 2000 and 1999. Gross Profit Gross profit for the second quarter of 2000 increased by 12% to $31.6 million from $28.1 million in the 1999 quarter and for the six-month period increased by 13% to $47.2 million in 2000 from $41.9 million in 1999. Gross margin rates for the quarter decreased by 0.8 points to 42.1% in the second quarter of 2000 from 42.9% in the second quarter of 1999. For the year-to-date period, gross margin rates decreased by 0.7 points to 41.3% in the first half of 2000 from 42.0% in the first half of 1999. While the margin rate for the retail segment improved, this gain was offset by lower margins in the substantially larger extracurricular segment. Gross margin rates for the extracurricular segment decreased to 42.1% in the second quarter of 2000 from 43.1% in the second quarter of 1999. For the six-month period the segment's margin rates decreased to 41.3% in 2000 from 42.2% in the first half of 1999. These decreases were largely due to a shift in product mix, as a portion of the segment's revenue gains occurred in product lines which carry below average margins. Margins from reconditioning operations were also lower in 2000, as we continued to incur expenses from facilities slated for closure while we brought our new, more-efficient reconditioning facility online. While selling prices for extracurricular products and services were generally higher, margins were also negatively impacted by the sale of some discontinued Umbro products at a lower than normal margin. Gross margin rates for the retail segment increased to 37.1% in the second quarter of 2000 from 34.5% in the second quarter of 1999. For the six-month period the segment's margin rates increased to 35.7% in 2000 from 34.5% in the first half of 1999. These gains related to shifts in product mix as the segment had revenue gains in product lines with above average margins and decreases in sales of product lines with below average margins. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased as a percentage of revenues to 27.9% of revenues in the second quarter of 2000 from 28.4% in the second quarter of 1999. For the year-to-date period, selling, general and administrative expenses rates decreased to 34.3% of revenues in the first half of 2000 from 35.2% in the first half of 1999. The improvement is principally due to the positive operating leverage which occurs as increased revenues more efficiently absorb the fixed and relatively-fixed portions of expenses. The improvement was achieved in spite of higher Internet expenses than last year and the costs of the canceled rights offering discussed in the overview above. Without these costs our selling, general and 11 12 administrative expenses would have been 26.9% in the second quarter of 2000 and 33.4% in the first half of 2000. Selling, general and administrative expenses rates for the extracurricular segment decreased to 25.2% in the second quarter of 2000 from 26.5% in the second quarter of 1999. For the six-month period the segment's selling, general and administrative expenses decreased to 31.3% in 2000 from 33.2% in the first half of 1999. These gains were due to improved operating leverage as discussed in the preceding paragraph. Selling, general and administrative expenses rates for the retail segment decreased to 35.2% in the second quarter of 2000 from 35.4% in the second quarter of 1999. For the six-month period the segment's expense rate increased to 37.8% in 2000 from 34.3% in the first half of 1999. Marginally higher marketing expenses resulted in an increase in the expense rate for the year-to- date period where sales were relatively stable in comparison to the year-ago period. For the second quarter the expense rate decreased, as sales increased proportionately more than expenses. Interest Expense Interest expense increased by $0.1 million to $4.2 million in the second quarter of 2000 from $4.1 million in the second quarter of 1999. For the six- month period ended June 30, 2000, interest expense increased by $0.5 million to $8.2 million from $7.7 million in the first six months of 1999. The increases for both the second quarter and six-month periods related to interest on our revolving line of credit which increased due to higher outstanding indebtedness during the periods and increases in the prime and Libor interest rates. Outstanding indebtedness began the year higher than the previous year, but ended the six-month period at a lower level. Income Taxes Operating results for the second quarter and first six months of both 2000 and 1999 included no income tax expense or credit because of our existing net operating loss carryforwards. Liquidity and Capital Resources The seasonality of our working capital needs is impacted by three key factors. First, a significant portion of the products we sell in the extracurricular segment are sold throughout the year on dated-payment terms, with the related receivables becoming due during the July to October period, as the new the school year approaches. Second, we incur costs relating to our summer camp business from the fourth quarter and into the second quarter as we prepare for the upcoming camp season, while camp revenues are mostly collected in the June to August period. Lastly, our debt structure impacts our working capital requirements, as the semi-annual interest payments on our $115 million, 10.5% Senior Notes come due each January and July. To finance these seasonal working capital demands, we maintain a credit facility in the form of a revolving line of credit. The outstanding balance on the credit facility usually follows the seasonal cycles described above, increasing during the early part of the operating cycle in the first and second quarters of each year and then decreasing from the middle of the third quarter and into the fourth quarter as collections are used to reduce the outstanding balance. 12 13 At June 30, 2000 the outstanding balance under the credit facility was $36.7 million. This compares with outstanding balances of $13.6 million at December 31, 1999 and $37.0 million at June 30, 1999. The change in the outstanding balance between December 31, 1999 and June 30, 2000 reflects the seasonal working capital pattern presented above. The outstanding balance on the facility at June 30, 2000 is $0.3 million lower than at June 30, 1999 even though we began 2000 with a balance $9.2 million higher than the beginning of 1999. Net borrowings on the facility during the first half of 2000 were $9.5 million lower than the year-ago period, in line with a $10.1 million decline in net cash used in operating activities between the two periods. The principal differences in cash flows from operating activities are that in 1999 we drew funds to finance the initial inventory needs of our Umbro operations, and in 2000 we have more aggressively managed our trade payables. Our current debt service obligations are significant and, accordingly, our ability to meet our debt service and other obligations will depend on our future performance and is subject to financial, economic and other factors, some of which are beyond our control. Furthermore, due to the seasonality of our working capital demands described above, year-over-year growth in our business and working capital could lead to higher debt levels in future periods. We believe that operating cash flow together with funds available from our credit facility will be sufficient to fund our current debt service, seasonal and other current working capital requirements. However, many factors, including growth and expansion of our business, could necessitate the need for increased lines of credit or other changes in our credit facilities in the future. 13 14 Part II. OTHER INFORMATION Item 1. Legal Proceedings The Company is a defendant in certain product liability proceedings and from time to time becomes involved in various claims and lawsuits incidental to its business including, without limitation, product liability, personal injury and employment-related litigation. See Note 5 of "Notes to Condensed Consolidated Financial Statements". Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders On May 16, 2000 Riddell held its Annual Meeting of Stockholders. At the Meeting the stockholders elected the following individuals to serve as members of the Board of Directors until the next annual meeting of stockholders or until their earlier removal or resignation: For Against Abstentions --------- -------- ----------- Don R. Kornstein 8,397,259 525,222 None David M. Mauer 8,397,259 525,222 None John McConnaughy, Jr. 8,397,259 525,222 None Robert E. Nederlander 8,397,259 525,222 None Glenn E. "Bo" Schembechler 8,397,247 525,234 None Arthur N. Seessel III 8,397,259 525,222 None Leonard Toboroff 8,397,259 525,222 None Jeffrey G. Webb 8,397,259 525,222 None The stockholders also voted to amend Riddell's certificate of incorporation to provide Riddell with the ability to issue "blank check" preferred stock. The voting for this proposition was 5,690,172 in favor; 571,172 against and 1,635 abstentions. The stockholders also voted to ratify the appointment of Grant Thornton LLP as its independent certified public accountants for the year ending December 31, 2000. The voting for this proposition was 8,888,443 in favor; 33,204 against; and 834 abstentions. Item 5. Other Information None 14 15 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit index: 27 Financial Data Schedule (submitted in electronic form to SEC only) (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RIDDELL SPORTS INC. Date: August 11, 2000 By /s/ DAVID MAUER ---------------------- David Mauer President and Chief Executive Officer Date: August 11, 2000 By /s/ DAVID GROELINGER ---------------------- David Groelinger Executive Vice President and Chief Financial Officer Date: August 11, 2000 By /s/ LAWRENCE F. SIMON ---------------------- Lawrence F. Simon Senior Vice President (Principal Accounting Officer) 15 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF RIDDELL'S QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1,444 0 69,384 1,175 41,366 121,665 19,528 11,096 237,565 48,188 159,209 0 0 94 24,918 237,565 88,524 114,299 49,955 67,112 0 500 8,208 (278) 0 (278) 0 0 0 (278) (0.03) (0.03)
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