-----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, F7Ihtf/8HUwuFvin9OoB82gc4Wx+3EjIhXwoTvKvS10M9Um1+DnR1u+ZevK9B/yu NeKufDj5kP52HeOD3QaMYA== 0000927025-99-000041.txt : 19990415 0000927025-99-000041.hdr.sgml : 19990415 ACCESSION NUMBER: 0000927025-99-000041 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: 99593726 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 February 28, 1999 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 March 31, 1999: 7,851,570 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) Quarter Ended Six Months Ended February 28, February 28, 1999 1998 1999 1998 Net revenues $57,408 $61,822 $91,531 $93,925 Cost of goods sold 39,079 42,404 61,789 65,143 Gross profit 18,329 19,418 29,742 28,782 Selling, general and administrative expenses 12,285 10,590 22,966 19,594 Unusual charge - - - 500 Operating income 6,044 8,828 6,776 8,688 Interest expense, net 1,186 1,215 2,233 2,095 Other expense, net 30 30 67 71 Income before income taxes 4,828 7,583 4,476 6,522 Provision for income taxes 1,786 2,844 1,656 2,446 Net income $ 3,042 $ 4,739 $ 2,820 $ 4,076 Net income per common share: Basic $0.39 $0.61 $0.36 $0.53 Diluted $0.39 $0.61 $0.36 $0.52 Shares used in computing per share amounts: Basic 7,834 7,783 7,823 7,759 Assumed exercise of stock options 29 28 19 24 Diluted 7,863 7,811 7,842 7,783 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) February 28, August 31, 1999 1998 Assets Current Assets: Cash and cash equivalents $ 1,563 $ 862 Accounts receivable, net of allowance of $2,365 and $2,043 respectively 63,621 40,352 Inventories 52,045 43,573 Prepaid expenses 879 673 Deferred income taxes 4,946 4,946 Total current assets 123,054 90,406 Property, plant and equipment, net 12,989 12,911 Other assets 536 568 Deferred income taxes 17,691 20,321 Goodwill, net 8,219 8,326 Total assets $162,489 $132,532 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 63 $ 61 Accounts payable 17,733 9,047 Accrued liabilities 12,358 12,547 Total current liabilities 30,154 21,655 Long-term debt, less current maturities 77,116 57,048 Other long-term liabilities 7,578 9,577 Total liabilities 114,848 88,280 Stockholders' equity: Preferred stock, none issued - - Common stock, 7,834,173 and 7,794,483 shares issued and outstanding, respectively 78 78 Additional paid-in capital 29,859 29,479 Stock subscription receivable (1,421) (1,421) Cumulative translation adjustment (1,392) (1,581) Retained earnings 20,517 17,697 Stockholders' equity 47,641 44,252 Total liabilities and stockholders' equity $162,489 $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) Six Months Ended February 28, 1999 1998 Cash flows from operating activities: Net income $2,820 $4,076 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,232 799 Deferred income taxes 2,630 2,052 Changes in operating assets and liabilities: Accounts receivable, net (23,269) (30,919) Inventories (8,472) (9,250) Prepaid expenses (206) 113 Other assets (18) (231) Accounts payable 8,686 5,624 Accrued liabilities and other (2,007) (1,782) Net cash used in operating activities (18,604) (29,518) Cash flows from investing activities: Capital expenditures (1,145) (1,699) Acquisition of business - (14,098) Net cash used in investing activities (1,145) (15,797) Cash flows from financing activities: Borrowings of long-term debt 33,300 89,900 Repayments of long-term debt (13,230) (46,534) Issuance of common stock 380 540 Issuance of warrants - 1,271 Net cash provided by financing activities 20,450 45,177 Net increase (decrease) in cash and cash equivalents 701 (138) Cash and cash equivalents, beginning of period 862 732 Cash and cash equivalents, end of period $1,563 $ 594 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 six months ended February 28, 1999 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): February 28, August 31, 1999 1998 Raw materials $10,114 $ 9,552 Work in process 1,650 2,497 Finished goods 40,281 31,524 $52,045 $43,573 Note 3: Long Term Debt In April 1999, the Company amended the current unsecured credit agreement with a bank group which, among other matters, changed the interest rate structure based on the ratio of average debt to adjusted EBITDA. The amended credit agreement, among other matters, requires the Company to meet certain financial covenants including a minimum fixed charge coverage, a required ratio of maximum total debt to capitalization, a maximum ratio of year end debt to adjusted EBITDA, and a minimum tangible net worth. The Company is in compliance with these covenants. Note 4: Reclassification Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation. Note 5: 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 February 28, 1999 and 1998, comprehensive income was $3,101,000 and $4,586,000 respectively. Comprehensive income for the six months ended February 28, 1999 and 1998 was $3,009,000 and $3,799,000, respectively. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Statements made in this report that are not historical in nature, or that state the Company's, or management's intentions, hopes, beliefs, expectations, or predictions of the future, are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties. The words "should", "will be", "intended", "continue", "believe", "may", "expect", "hope", "anticipate", "goal", "forecast" and similar expressions are intended to identify such forward-looking statements. It is important to note that any such forward-looking statements are not guarantees of future performance, and the Company's actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below under the caption "Cautionary Factors That May Affect Future Results or the Financial Condition of the Business", as well as those discussed elsewhere in the Company's reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results over time. RESULTS OF OPERATIONS Quarter Ended February 28, 1999 Compared with Quarter Ended February 28, 1998 Net revenues for the quarter ended February 28, 1999 were $57,408,000 or 7.1 percent lower than net revenues of $61,822,000 for the same quarter last year. Net revenues from baseball gloves were down $2,782,000, basketballs were down $1,167,000 and baseballs were down $863,000 from the comparable prior year quarter. These decreases were partially offset by higher wood baseball bat net revenues which were up $759,000 from the comparable prior year quarter. The decrease in net revenues of baseball gloves and baseballs is primarily due to one large mass merchandiser pushing orders back until closer to the baseball season. 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 increase in net revenues from wood baseball bats was primarily driven by Mark McGwire memorabilia and youth baseball and bat combo sets. The Company's gross profit was $18,329,000 or 5.6 percent lower than the gross profit of $19,418,000 for the comparable prior year period. The gross margin for the quarter was 31.9 percent, 0.5 margin points higher than the comparable prior year quarter. The gross margin improvement is a result of increased net revenues of higher margin memorabilia wood baseball bats and margin improvement on baseball gloves as a result of higher volume and increased efficiencies on the domestic gloves and a lower volume of closeout import gloves. 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 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. In addition, the Company is in the process of formulating a multi-year plan which is expected to be completed by the end of June 1999 and reviewed with the Board of Directors in July 1999. Selling, general and administrative expenses (SG&A) were $12,285,000 or 16.0 percent higher than SG&A expenses of $10,590,000 in the comparable prior year quarter. The increase is primarily related to increases in salaries and wages, royalties, advertising and promotion, professional fees, bad debt expense and depreciation. SG&A expenses were 21.4 percent of net revenues, up 4.3 points from the comparable prior year quarter. Interest expense for the quarter ended February 28, 1999 was $1,186,000 or 2.4 percent lower than the interest expense of $1,215,000 in the comparable prior year period. Lower average interest rates were partially offset by higher average borrowings, primarily due to higher inventory levels. Six Months Ended February 28, 1999 Compared With the Six Months Ended February 28, 1998 Net revenues for the six months ended February 28, 1999 were $91,531,000 or 2.5 percent lower than the net revenues of $93,925,000 in the comparable six month period last year. Net revenues from baseball gloves were down $2,291,000 and basketballs were down $1,940,000 from the comparable prior year period. These decreases were partially offset by higher wood baseball bat revenues which were up $2,336,000 from the comparable prior year period. The decrease in baseball gloves is primarily related to one large mass merchandiser pushing orders back until closer to the baseball season. 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 increase in net revenues from wood baseball bats was primarily driven by Mark McGwire memorabilia and youth baseball and bat combo sets. Gross margin for the six months ended February 28, 1999 was 32.5 percent, 1.9 margin points higher than the comparable period last year. The gross margin improvement is a result of increased net revenues of higher margin memorabilia wood baseball bats and margin improvement on baseball gloves as a result of higher volume and increased efficiencies on the domestic gloves and a lower volume of closeout import gloves. That improvement was partially offset by lower licensing revenues related to the Company's domestic footwear licensee. SG&A expenses for the six months ended February 28, 1999 were $22,966,000 compared to SG&A expenses of $19,594,000 in the comparable prior year period. The increase is primarily related to increases in salaries and wages, royalties, advertising and promotion, professional fees, bad debt expense and depreciation. SG&A expenses were 25.1 percent of net revenues, up 4.2 points from the prior year period. The comparable prior year period included an unusual charge of $500,000 related to changes in the Chief Executive Officer's position. No unusual charge occurred in the six months ended February 28, 1999. Interest expense for the six months ended February 28, 1999 was $2,233,000 or 6.6 percent higher than interest expense of $2,095,000 in the comparable prior year six month period. Higher average borrowings as a result of higher working capital levels were primarily responsible for the increase. Effective interest rates were lower in the six months ended February 28, 1999 than in the comparable prior year six month period. 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 Readiness Disclosure Many software applications, hardware and equipment and chip systems identify dates using only the last two digits of the year. These products may be unable to distinguish between dates in the Year 2000 and dates in the Year 1900. That inability (referred to as the "Year 2000" issue), if not addressed, could cause applications, equipment or systems to fail or provide incorrect information after December 31, 1999, or when using dates after December 31, 1999. This in turn could have an adverse effect on the Company due to the Company's direct dependence on its own applications, equipment and systems and indirect dependence on those of other entities with which the Company must interact. 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 integrated 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 $2.9 million on its new enterprise-wide system and expects that full implementation of the system will require an additional $100,000 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 $24,149,000 during the six months ended February 28, 1999 primarily the result of the seasonal increase in accounts receivable and inventories. The current accounts receivable and inventory levels maintained by the Company are higher than what management believes is optimal. Management is currently evaluating its existing terms and dating programs in order to reduce the accounts receivable balance in the future. Inventory reduction programs and improved inventory management practices are also being initiated to reduce inventory levels and improve cash flow. Cash flows used in operating activities for the six months ended February 28, 1999 were $18,604,000, or 37.0 percent lower than the $29,518,000 used in the comparable prior year period. The decrease is primarily the result of smaller increases in accounts receivable and inventory, partially offset by an increase in accounts payable. Capital expenditures were $1,145,000 for six months ended February 28, 1999 compared to $1,699,000 in the comparable prior year period. The Company incurred additional net borrowings, primarily related to seasonal working capital needs, of $20,070,000 in the six months ended February 28, 1999. This resulted in total debt as of February 28, 1999 of $77,179,000, or 1.5 percent higher than the total debt as of February 28, 1998. The increase in total debt is primarily the result of higher receivable and inventory levels. As of February 28, 1999 the Company had outstanding letters of credit of $3,737,000 and available borrowing capacity of $7,313,000 under its $86,000,000 credit agreement with banks. Management believes that its current unsecured credit facility is sufficient to adequately finance its existing and future operations. 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, such as the intent of the Company to restructure operations and to finalize a multi-year business plan. It is important to note that actual results and ultimate corporate actions could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, 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 or changes in interest rates. 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 The annual Stockholders' Meeting was held on January 14, 1999. At the meeting the following nominees were elected pursuant to the following votes: Number of Number of Nominee Votes for Votes Withheld Linda L. Griggs 6,970,353 33,446 William C. Robinson 6,981,838 21,961 The following directors' term of office continued after the meeting: Linda L. Griggs Charles L. Jarvie Michael McDonnell Stephen M. O'Hara Michael J. Roarty William C. Robinson The approval of the Board of Directors' selection of Arthur Andersen LLP as independent public accountants was approved pursuant to the following vote: For Against Abstain 6,984,079 13,453 6,267 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: April 14, 1999 /s/ STEPHEN M. O'HARA Stephen M. O'Hara Chairman of the Board and Chief Executive Officer Date: April 14, 1999 /s/ REXFORD K. PETERSON Rexford K. Peterson Chief Financial Officer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF RAWLINGS SPORTING GOODS COMPANY, INC. CONTAINED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS AUG-31-1999 FEB-28-1999 1,563 0 65,986 2,365 52,045 123,054 27,782 14,793 162,489 30,154 84,694 0 0 78 47,563 162,489 91,531 91,531 61,789 61,789 22,966 0 2,233 4,476 1,656 2,820 0 0 0 2,820 .36 .36
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