-----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, Jw2drIGcNfmUljDsFY8mMtTdPfcISItQk4kPQzZsSgOMaY1ssjBAOAPITg/0PVk/ TMY6qvuDDuqJ6n+sIjX09g== 0000927025-99-000004.txt : 19990114 0000927025-99-000004.hdr.sgml : 19990114 ACCESSION NUMBER: 0000927025-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAWLINGS SPORTING GOODS CO INC CENTRAL INDEX KEY: 0000921915 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 431674348 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24450 FILM NUMBER: 99505470 BUSINESS ADDRESS: STREET 1: 1859 INTERTECH DR CITY: FENTON STATE: MO ZIP: 63026 BUSINESS PHONE: 3143493500 MAIL ADDRESS: STREET 1: 1859 INTERTECH DR CITY: FENTON STATE: MO ZIP: 63026 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended November 30, 1998 Commission file number 0-24450 RAWLINGS SPORTING GOODS COMPANY, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 43-1674348 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 1859 Intertech Drive, Fenton, Missouri 63026 (Address of Principal Executive Offices) (Zip Code) (314) 349-3500 (Registrant's Telephone Number, Including Area Code) 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 _______ Number of shares outstanding of the issuer's Common Stock, par value $0.01 per share, as of December 22, 1998: 7,804,765 shares. Part I. FINANCIAL INFORMATION Item 1. Financial Statements Rawlings Sporting Goods Company, Inc. and Subsidiaries Consolidated Statements of Income (Amounts in thousands, except per share data) (Unaudited) Three Months Ended November 30, 1998 1997 Net revenues $34,123 $32,103 Cost of goods sold 22,710 22,739 Gross profit 11,413 9,364 Selling, general and administrative expenses 10,681 9,004 Unusual charge - 500 Operating income (loss) 732 (140) Interest expense, net 1,047 880 Other expense, net 37 41 Loss before income taxes 352) (1,061) Benefit for income taxes (130) (398) Net loss $(222) $(663) Net loss per common share: Basic $(0.03) $(0.09) Diluted $(0.03) $(0.09) Shares used in computing per share amounts: Basic 7,809 7,739 Assumed exercise of stock options 12 18 Diluted 7,821 7,757 The accompanying notes are an integral part of these consolidated statements. Rawlings Sporting Goods Company, Inc. and Subsidiaries Consolidated Balance Sheets (Amounts in thousands, except share data) (Unaudited) November 30, August 31, 1998 1998 Assets Current Assets: Cash and cash equivalents $ 686 $ 862 Accounts receivable, net of allowance of $2,191 and $2,043 respectively 43,416 40,352 Inventories 52,040 43,573 Prepaid expenses 786 673 Deferred income taxes 4,946 4,946 Total current assets 101,874 90,406 Property, plant and equipment, net 12,970 12,911 Other assets 545 568 Deferred income taxes 19,397 20,321 Goodwill, net 8,272 8,326 Total assets $143,058 $132,532 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 61 $ 61 Accounts payable 10,271 9,047 Accrued liabilities 13,140 12,547 Total current liabilities 23,472 21,655 Long-term debt, less current maturities 67,282 57,048 Other long-term liabilities 8,061 9,577 Total liabilities 98,815 88,280 Stockholders' equity: Preferred stock, none issued - - Common stock, 7,802,665 and 7,794,483 shares issued and outstanding, respectively 78 78 Additional paid-in capital 29,562 29,479 Stock subscription receivable (1,421) (1,421) Cumulative translation adjustment (1,451) (1,581) Retained earnings 17,475 17,697 Stockholders' equity 44,243 44,252 Total liabilities and stockholders' equity $143,058 $132,532 The accompanying notes are an integral part of these consolidated balance sheets. Rawlings Sporting Goods Company, Inc. and Subsidiaries Consolidated Statements of Cash Flow (Amounts in thousands) (Unaudited) Three Months Ended November 30, 1998 1997 Cash flows from operating activities: Net loss $(222) $ (663) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 610 390 Deferred income taxes 924 (444) Changes in operating assets and liabilities: Accounts receivable, net (3,064) (2,978) Inventories (8,467) (9,876) Prepaid expenses (113) (81) Other assets (2) (138) Accounts payable 1,224 2,289 Accrued liabilities and other (800) (1,218) Net cash used in operating activities (9,910) (12,719) Cash flows from investing activities: Capital expenditures (583) (726) Acquisition of business - (14,493) Net cash used in investing activities (583) (15,219) Cash flows from financing activities: Borrowings of long-term debt 16,534 67,330 Repayments of long-term debt (6,300) (41,000) Issuance of common stock 83 454 Issuance of warrants - 1,271 Net cash provided by financing activities 10,317 28,055 Net (decrease) increase in cash and cash equivalents (176) 117 Cash and cash equivalents, beginning of period. 862 732 Cash and cash equivalents, end of period $686 $849 The accompanying notes are an integral part of these consolidated statements. Rawlings Sporting Goods Company, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Summary of Significant Accounting Policies. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report for the year ended August 31, 1998. In the opinion of management, all adjustments consisting only of normal recurring adjustments considered necessary for a fair presentation of financial position and results of operations have been included therein. The results for the three months ended November 30, 1998 are not necessarily indicative of the results that may be expected for a full fiscal year. Note 2: Inventories Inventories consisted of the following (in thousands): November 30, August 31, 1998 1998 Raw materials $ 9,408 $ 9,552 Work in process 1,438 2,497 Finished goods 41,194 31,524 $52,040 $43,573 Note 3: Reclassification Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation. Note 4: Comprehensive Income In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" which establishes standards for reporting and disclosure of comprehensive income and its components. Effective September 1, 1998, the Company adopted SFAS No. 130. For the three months ended November 30, 1998 and 1997, comprehensive income (loss) was ($92,000) and ($787,000), respectively. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Quarter Ended November 30, 1998 Compared with Quarter Ended November 30, 1997 Net revenues for the quarter ended November 30, 1998 were $34,123,000 or 6.3 percent higher than net revenues of $32,103,000 for the same quarter last year. Increased net revenues from wood baseball bats and apparel partially offset by lower basketball net revenues were primarily responsible for the increase. The increase in net revenues from wood baseball bats was primarily driven by memorabilia sales related to the 1998 home run chase and to a lesser extent renewed interest in wood baseball bats as the NCAA and other governing bodies evaluate bat specifications. The increase in apparel net revenues is primarily the result of increased special order volume and net revenues related to a new line of outerwear apparel introduced during the second quarter of fiscal 1998. The decrease in basketball net revenues is primarily related to decreased sales at several large mass merchandisers related to the NBA players' strike, lower premium revenues and the overall soft condition of the basketball category. The Company's gross profit was $11,413,000 or 21.9 percent above the gross profit of $9,364,000 for the comparable prior year period. The gross profit margin for the quarter was 33.4 percent, 4.2 margin points higher than the comparable prior year quarter. The gross margin improvement is primarily related to increased net revenues of higher margin memorabilia wood baseball bats and to a lesser extent continued improvement in the Company's apparel gross margins, due to improved production efficiencies. That improvement was partially offset by lower licensing revenues related to the Company's domestic footwear licensee. The Company is continuing to look for further production efficiencies in apparel and other categories and is currently evaluating its manufacturing and distribution infrastructure to determine what opportunities exist to improve customer service and reduce the Company's overall cost structure. The Company expects to complete these evaluations, including analysis of asset realizability, before the end of fiscal 1999. Selling, general and administrative (SG&A) expenses were $10,681,000 or 18.6 percent higher than SG&A expenses of $9,004,000 in the comparable prior year period. The increase is primarily related to increased selling expenses including salaries and wages, royalties, advertising and promotion costs and player endorsements. SG&A expenses were 31.3 percent of net revenues, up 3.3 points from the comparable prior year quarter. The comparable prior year period includes an unusual charge of $500,000 related to changes in the Chief Executive Officer's position. No unusual charges occurred in the quarter ended November 30, 1998. Interest expense was $1,047,000, or 19.0 percent higher than interest expense of $880,000 in the comparable prior year period. Higher average borrowings primarily related to higher inventory levels were primarily responsible for the increase. Seasonality Net revenues of baseball equipment and team uniforms are highly seasonal. Customers generally place orders with the Company for baseball-related products beginning in August for shipment beginning in November (pre-season orders). These pre- season orders from customers generally represent approximately 50 percent to 65 percent of the customers' anticipated needs for the entire baseball season. The amount of these pre-season orders generally determines the Company's net revenues and profitability between November 1 and March 31. The Company then receives additional orders (fill-in orders) which depend upon customers' actual sales of products during the baseball season (sell- through). Fill-in orders are typically received by the Company between February and May. These orders generally represent approximately 35 percent to 50 percent of the Company's sales of baseball-related products during a particular season. Pre-season orders for certain baseball-related products from certain customers are not required to be paid until early spring. These extended terms increase the risk of collectibility of accounts receivable. An increasing number of customers are on automatic replenishment systems; therefore, more orders are received on a ship-at-once basis. This change has resulted in shipments to the customer closer to the time the products are actually sold. This trend has and may continue to have the effect of shifting the seasonality and quarterly results of the Company with higher inventory and debt levels required to meet orders for immediate delivery. The sell-through of baseball-related products also affects the amount of inventory held by customers at the end of the season which is carried over by the customer for sale in the next baseball season. Customers typically adjust their pre- season orders for the next baseball season to account for the level of inventory carried over from the preceding baseball season. Football equipment and team uniforms are both shipped by the Company and sold by retailers primarily in the period between March 1 and September 30. Hockey equipment and uniforms are shipped by the Company primarily in the period from May 1 to October 31. Basketballs and team uniforms generally are shipped and sold throughout the year. Because the Company's sales of baseball-related products exceed those of its other products, Rawlings' business is seasonal, with its highest net revenues and profitability recognized between November 1 and April 30. Year 2000 Issues The Company has initiated a comprehensive program to replace its computer systems and applications with a Year 2000 compliant enterprise-wide system. The assessment phase of the Company's system migrations is complete and the systems testing and implementation stages are in progress. To date, a majority of the Company's locations and processes have been successfully migrated to the new system with completion expected by June 1999. The Company has incurred capital expenditures, including hardware, software, outside consultants and other expenses, of approximately $2.7 million on its new enterprise-wide system and expects that full implementation of the system will require an additional $300,000 over the next year. In addition, the Company incurred approximately $300,000 in software selection and training costs that were expensed during fiscal 1998 and fiscal 1997. The Company has formally communicated with its major vendors and suppliers to determine the extent to which the Company may be vulnerable to those third parties' failure to remediate their own Year 2000 issues. The first phase, which included sending Year 2000 surveys and questionnaires to customers and vendors is complete and the response evaluation phase is currently in progress. The Company has not had sufficient response from vendors to provide an estimate of the potential impact of non- compliance on the part of such vendors. Management is currently developing contingency plans which include, but are not limited to, evaluating alternative vendors who are Year 2000 compliant and evaluating inventory management plans. It is too early to determine to what extent, if any, these contingency plans will have to be implemented. Although the Company expects to be Year 2000 compliant by mid-1999 and does not expect to be materially impacted by the external environment, such future events cannot be known with certainty. Furthermore, the Company's estimates of future migration costs and completion dates are based on presently available information and will be updated, as additional information becomes available. Liquidity and Capital Resources Working capital increased by $9,651,000 during the three months ended November 30, 1998, primarily as a result of the seasonal increase in accounts receivable and inventory. The current inventory levels maintained by the Company are higher than what management believes is optimal. Inventory reduction programs and improved inventory management practices are being initiated to reduce inventory levels and improve cash flow. Cash flows used in operating activities for the quarter ended November 30, 1998 were $9,910,000, or 22.1 percent lower than the $12,719,000 used in the comparable prior year period. The decrease is primarily the result of a smaller increase in inventory, a smaller net loss, higher depreciation and amortization and a larger increase in accrued liabilities. Capital expenditures were $583,000 for the quarter ended November 30, 1998 compared to $726,000 in the comparable prior year period. With the ongoing upgrade of the Company's computer system and other planned expenditures for improved production and distribution efficiencies the Company expects capital expenditures of $2,500,000 to $3,000,000 in fiscal 1999. The Company had net borrowings, primarily related to seasonal working capital needs, of $10,234,000 in the quarter ended November 30, 1998. This resulted in total debt as of November 30, 1998 of $67,343,000, or 14.1 percent higher than the total debt as of November 30, 1997. The increase in total debt is primarily the result of higher inventory levels. Cautionary Factors That May Affect Future Results or the Financial Condition of the Business. Except for the historical information contained herein, the matters outlined in the management's discussion and analysis are forward looking statements that involve risks and uncertainties, including quarterly fluctuations in results, ongoing customer changes in buying patterns, retail sell rates for the Company's products, demand and performance of the Company's new products, which may result in more or less orders than those anticipated and the impact of competitive products and pricing. In addition, other risks and uncertainties are detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year ended August 31, 1998. Item 3. Quantitative and Qualitative Disclosure about Market Risk The Company has no material sensitivity to changes in foreign currency exchange rates on its net exposed derivative financial instrument position. Part II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2 Changes in Securities and Use of Proceeds None. Item 3. Defaults on Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (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. RAWLINGS SPORTING GOODS COMPANY, INC. Date: January 12, 1999 /s/ STEPHEN M. O'HARA Stephen M. O'Hara Chairman of the Board and Chief Executive Officer Date: January 12, 1999 /s/ PAUL E. MARTIN Paul E. Martin Chief Financial Officer (Principal Accounting Officer) EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS AUG-31-1999 NOV-30-1998 686 0 45,607 2,191 52,040 101,874 27,240 14,270 143,058 23,472 75,343 0 0 78 44,165 143,058 34,123 34,123 22,710 22,710 10,681 0 1,047 (352) (130) (222) 0 0 0 (222) (.03) (.03)
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