-----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, HExdzWlC8nIQ0Gvv0UnTuVDnEPkFqXukHI+e+Bv43SP6kEnNvGJjuCbxIt/AniLi V5RIexeg9lOzbh2A5j8TAQ== 0000950124-01-504179.txt : 20020412 0000950124-01-504179.hdr.sgml : 20020412 ACCESSION NUMBER: 0000950124-01-504179 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010831 FILED AS OF DATE: 20011128 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24450 FILM NUMBER: 1800582 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-K 1 c66314e10-k.txt FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2001. 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 of (I.R.S. Employer incorporation or organization) Identification No.) 1859 Intertech Drive, Fenton, Missouri 63026 - ---------------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (636) 349-3500 -------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of Class) 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 the filing requirements for at least the past 90 days. Yes X No ------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting Common Stock held by nonaffiliates of the registrant as of October 31, 2001 was $26,074,311. The number of shares of the registrant's Common Stock, $.01 par value, outstanding as of October 31, 2001 was 8,022,865. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement for the annual meeting of stockholders are incorporated by reference into Items 10, 11, 12 and 13 of Part III of this report TABLE OF CONTENTS
Page PART I .................................................................................................1 - ------ Item 1. Business.........................................................................................1 Item 2. Properties......................................................................................14 Item 3. Legal Proceedings...............................................................................14 Item 4. Submission of Matters to a Vote of Security Holders.............................................15 PART II ................................................................................................15 - ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...........................15 Item 6. Selected Financial Data.........................................................................16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........16 Item 7a. Quantitative and Qualitative Disclosures Above Market Risk......................................21 Item 8. Financial Statements and Supplementary Data ....................................................22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............42 PART III ................................................................................................43 - -------- Item 10. Directors and Executive Officers of the Registrant..............................................43 Item 11. Executive Compensation..........................................................................43 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................43 Item 13. Certain Relationships and Related Transactions..................................................43 PART IV ................................................................................................44 - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................44
1 PART I ITEM 1. BUSINESS. General Rawlings Sporting Goods Company, Inc., ("Rawlings" or the "Company") is a leading supplier of team sports equipment in North America and, through its licensee, of baseball equipment and uniforms in Japan. Under the Rawlings(R) brand name, the Company provides an extensive line of equipment and team uniforms for the sports of baseball, basketball and football. The Company's products are sold through a variety of distribution channels, including mass merchandisers, sporting goods retailers and institutional sporting goods dealers. The Company has the exclusive right, for which it pays royalty fees, to use the logos of certain sports organizations and events on selected products, including the logos of the National and American Leagues, Major League Baseball (MLB), All-Star Game and World Series games for baseballs and the National Collegiate Athletic Association (the "NCAA") for the sports of basketball and baseball. In addition, Rawlings' products are endorsed by more than 43 college coaches, 27 sports organizations and numerous athletes, including approximately 500 Major League Baseball players. These persons or entities have entered into agreements with the Company under which they are paid or provided products for endorsing Rawlings' products or for permitting the Company to use their names or logos. Rawlings was founded in 1887 and since then, the Company has established a long-standing tradition of innovation in team sports equipment and uniforms, including the development and introduction of the first football shoulder pads in 1902, the original deep pocket baseball glove in 1920 and double knit nylon and cotton uniforms for Major League Baseball in 1970. Today, Rawlings manufactures and distributes a broad array of team sports equipment and products, including baseball gloves, baseballs, baseball bats, batter's helmets, catcher's and umpire's protective gear, basketballs, footballs, volleyballs, soccer balls, football shoulder pads and other protective gear, team uniforms and various team sports accessories. In addition, licensees of the Company sell numerous products including athletic shoes, retail active wear, apparel, and socks, using the Rawlings(R) brand name and logo. Since 1977, the Company has been the exclusive supplier of baseballs to the National and American Leagues, the All-Star Game and the World Series games, with agreements expiring in 2005 for the All-Star Game and World Series games. In 1999, Rawlings extended its exclusive rights to the National and American Leagues through 2005 and in 2000 amended this agreement to combine both league balls to one MLB ball. Since 1994, the Company has been the exclusive supplier of baseballs to 19 Minor Leagues with the agreement expiring in 2002. The Company is the leading supplier of baseball gloves to Major and Minor League players. 1 Since 1986, Rawlings has been the exclusive supplier of basketballs for the NCAA Men's and Women's Division I, II and III tournament championship games, including the Final Four with an agreement expiring in August 2002 and which will not be renewed. In 1999, Rawlings became the official supplier of baseballs for the NCAA baseball World Series and tournament expiring in 2004. Products and Markets The following is a summary of net revenues by principal product line for the three fiscal years ended August 31, 2001. Also, refer to Note 15 of the financial statements for additional information on the Company's operating segments. Net Revenues by Segment and Primary Product Category (Amounts in millions) (Unaudited)
Years Ended August 31, ------------------------------------------------------------- 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Sports Equipment: Baseball $ 107.0 $ 107.6 $ 95.9 Basketball, football, soccer and volleyball 33.6 32.6 31.5 Apparel 25.7 24.4 22.1 Miscellaneous 3.1 3.7 4.3 Licensing 5.1 5.6 6.0 - --------------------------------------------------------------------------------------------------------------------------- Net revenues $ 174.5 $ 173.9 $ 159.8 - ---------------------------------------------------------------------------------------------------------------------------
Sports Equipment Baseball. The Company is a leading supplier of baseball equipment in North America and, through its licensee, in Japan. The Company's products in this area include baseball gloves, baseballs, softballs, batter's helmets, catcher's and umpire's protective equipment, aluminum and wood baseball bats, batter's gloves and miscellaneous accessories. Rawlings believes it is the leading supplier and offers the broadest selection of baseball gloves in North America. The Company offers approximately 134 styles, which are often customized to meet customer preferences. Its gloves range in retail price from $5.99 for beginners to more than $299.99 for the new Pro Preferred(R) series introduced in 2000. Rawlings' Heart of the Hide(R) series and the new Pro Preferred(R) series are used by more than half of the Major League Baseball players. Rawlings developed the original deep pocket glove in 1920. The Company designed this glove in consultation with Bill Doak, a spitball throwing southpaw with the St. Louis Cardinals, establishing the Company's tradition of developing innovative products in consultation with players and coaches. Rawlings has continued to be a leader in baseball glove design and 2 innovation and has patented a number of designs, including the Trap-Eze(R) pocket design featuring a modified web giving the appearance of a six-finger glove, the Fastback(R) closed back design, the Basket-Web(R) pocket design which features interwoven strips forming a natural break on the back to assist in closing the glove and the Pad Lock(TM) design which uses an adjustable inner cushion pad and velcro wrist strap to stabilize the hand inside the glove. Rawlings believes it is the leading supplier of baseballs in North America. It offers 14 types of baseballs, which differ by their design and the materials used in their construction, including different types of centers, winding materials and covers which can be made of rubber, vinyl or different qualities of leather. Rawlings' baseballs range from lower-priced rubber balls to the professional baseballs that are sold to Major League Baseball teams. Rawlings' baseballs are systematically weighed, measured, tested and inspected to ensure that they meet Rawlings' quality standards. The Major League Baseball teams, All-Star and World Series baseballs are covered with alum-tanned leather produced at Rawlings' leather tannery in Tullahoma, Tennessee and hand-sewn at Rawlings' manufacturing facility in Turrialba, Costa Rica. The Company manufactures its professional baseballs in strict accordance with the rigorous specifications established by Major League Baseball to ensure comparability of players' statistics over time. Since 1977, Rawlings has sold the official baseballs used in all National and American League games and has furnished the official baseballs for the All-Star Game and the World Series games on an exclusive basis. As the official baseball of the Major Leagues, Rawlings' baseballs are purchased by consumers in the collectors' and memorabilia market. Rawlings also has nonexclusive rights to vinyl baseballs with Club logos. Effective in 1994, Rawlings received the exclusive right to sell the official baseball to all of the Minor League teams. Rawlings also sells an official baseball, in certain cases on an exclusive basis, to a number of leagues and organizations including the NCAA, the National Junior College Athletic Association, the National Association of Intercollegiate Athletics, the Men's Senior Baseball League, Little League Baseball and a number of international baseball organizations. Rawlings believes that it is the leading supplier of baseball protective equipment in North America. In 2001, the Company introduced the new 950 series of protective equipment which molds the catcher's chest protector and leg guard to the catcher's body shape. In 1996, the Company introduced the pony tail batter's helmet for women. In 1995, the Company introduced a one size fits all batter's helmet that received the award for most innovative product design at the 1995 National Sporting Goods Association trade show. Rawlings believes that it is the second leading supplier of wood baseball bats sold in North America. The Company sells bats to a number of Major League and Minor League teams including substantially all of the wood baseball bats used by Mark McGwire. The Rawlings' line of wood bats is manufactured at its Dolgeville, New York facility under the Rawlings(R) and Adirondack(R) names. The Company also maintains a line of aluminum baseball and softball bats. 3 Basketball, Football, Soccer and Volleyball. Rawlings sells 25 different models of basketballs, including full-grain, composite and synthetic leather and rubber basketballs for men and women in both the youth and adult markets. Since 1986, Rawlings has been the exclusive supplier of basketballs for the NCAA Men's and Women's Division I, II and III championship games (including the Final Four). The basketball contract with the NCAA expires in August 2002. The Company does not expect to renew the contract beyond August 2002. The Company is also the official supplier of basketballs to the National Association of Intercollegiate Athletics. Rawlings sells 24 different models of footballs, including full-grain and split leather, vinyl and rubber for both the youth and adult markets. In addition, the Company sells college football shoulder pads, other protective gear (other than football helmets) and accessories. From 1987 to mid-1999, Rawlings was the exclusive supplier of footballs to the NCAA Division IAA, II and III championship games. While Rawlings continues to supply the official football to the National Association of Intercollegiate Athletics, Rawlings determined the cost of renewing the NCAA football contract was prohibitive and chose to reinvest those funds into other programs, such as endorsements by Peyton Manning. Apparel. Rawlings has been selling team uniforms for approximately 100 years. Rawlings is the official uniform for eight Major League Baseball teams and has the exclusive retail rights for authentic uniforms for these teams. Apparel comprised 14.7% of the net revenues of the Company in the year ended August 31, 2001. The Company believes it has growth opportunities related to apparel. Custom uniforms are manufactured in the Company's Licking, Missouri facility. Miscellaneous. Rawlings derives other net revenues from its outlet store and from its leather tanning facility. The outlet store sells seconds, irregular quality and discontinued and overstocked items. Approximately 28% of the leather tanned at Rawlings' tanning facility is sold to third parties for use in a variety of products. Licensing In the year ended August 31, 2001, the Company generated $5.1 million of licensing revenues on approximately $120 million of sales made by third parties in Japan and the United States of products on which the Rawlings(R) brand name appeared under licensing agreements with the Company. Rawlings has licensed the use of its brand name since the mid-1970s when it licensed a Japanese company to use the Rawlings(R) brand name on clothing sold in Japan. Since then, Rawlings has licensed its name to ASICS Corporation, a leading Japanese sporting goods company, for use on all types of baseball equipment, team uniforms and practice clothing sold in Japan. In 2000, the license with ASICS Corporation was expanded to include all active wear in Japan. 4 In the United States, Rawlings currently has licensing agreements with 10 companies which are using the Rawlings(R) brand name on various products including sportswear, shoes, sports bags, socks and toys. The Company retains the right under its licensing agreements to sample and inspect all licensed products to ensure that products bearing the Rawlings(R) brand name meet the Company's quality standards. The Company intends to continue to license the Rawlings(R) brand name to strategically extend the name to other related quality products and to new geographic areas. The Company believes that such strategic licensing will enhance the Company's image, consumer recognition and sales of all of its products. Foreign The Company's foreign net revenues constituted approximately 5.0% of its total net revenues in the year ended August 31, 2001. Rawlings currently distributes its products in more than 55 countries primarily through independent distributors. Of the Company's foreign net revenues in the year ended August 31, 2001, approximately $4.8 million, or 2.8% of total net sales, came from direct sales in Canada. The Company works closely with foreign sports organizations to build participation levels in American team sports outside of the U.S. The Company supplies baseball, basketball and football equipment and team uniforms to international sports organizations, and to leagues in Puerto Rico and a number of foreign countries including those where Rawlings supplies baseballs (Argentina, Australia and Spain) and basketballs (Czech Republic, Germany and Italy). Due to the growing international popularity of American team sports, the Company believes that opportunities exist to increase its foreign net revenues. Sales, Marketing and Distribution Rawlings' products are sold worldwide. In the United States, Rawlings sells directly to approximately 5,000 customers including local sporting goods stores, institutional dealers (entities that service the sports equipment needs of high school, collegiate and amateur sports organizations), regional sporting goods chains (such as Dick's and Modell's), national sporting goods chains (such as Gart's and The Sports Authority) and mass merchandisers (such as Wal-Mart, Target and K-Mart). In recent years, sales to sporting goods chains and mass merchandisers have accounted for an increasing amount of the net revenues of Rawlings. Sales to the ten largest customers of Rawlings constituted approximately 41% of the total net revenues of Rawlings in the year ended August 31, 2001 including one customer (Wal-Mart) which accounted for approximately 17% of 2001 net revenues. The Company has 44 direct sales employees and 12 manufacturers' representatives who sell its products in the United States. The Company has two separate sales forces, one to serve larger retail accounts and one to service institutional dealers and local sporting goods stores. Sales in Canada are handled by seven manufacturers' representatives. In addition, seven employees directly service professional and college teams, coaches and athletes. The Company primarily utilizes distributors to sell products overseas, except in Japan, which is covered by licensing agreements. Rawlings' products are currently distributed from its warehouses in Washington and Licking, Missouri; Dolgeville, New York; Tullahoma, Tennessee and Brantford, Ontario, Canada. 5 The consolidation of the Company's distribution facilities formally located in Springfield, Missouri to a single location in Washington, Missouri was completed in the fourth quarter of fiscal 2001. Distribution formally at Ava, Missouri was consolidated in Washington in the first quarter of 2002. The Company utilizes a variety of promotional techniques to build brand awareness. Since 1958, Rawlings has annually presented the Rawlings Gold Glove Award(R) to the best fielder at each position in each of the National and American Leagues. The Rawlings Gold Glove Award(R) is the most prestigious award a baseball player can receive for his fielding abilities. In addition, Rawlings promotes its products through the Rawlings Sports Caravan and other promotional vehicles. The Rawlings Sports Caravan is comprised of a tandem tractor trailer containing exhibits on the evolution of baseball, basketball and football equipment and uniforms, and a workshop in which demonstrations on the manufacture and repair of baseball gloves, balls and bats are performed. In addition, the Caravan appears at sports events such as spring training, opening day games, the All-Star Game, the World Series games and the Baseball Hall of Fame induction ceremony. The Company also promotes its products through product endorsements by numerous professional athletes, coaches and sports organizations. The Company makes available to retailers various co-op advertising programs and participates in selected joint marketing and advertising programs. In November 1997 the Company entered into a five-year strategic marketing alliance with Host Communication, Inc. (HCI), a sports marketing company. This agreement provides for the joint marketing and sales by Rawlings and HCI of Rawlings' products primarily through corporate promotions and grassroots events. Affiliations and Endorsements Rawlings has the right to use the logos of several professional and amateur sports organizations and events on certain of its products. These arrangements include: The National League of Professional Baseball Clubs (National League games); The American League of Professional Baseball Clubs (American League games); Major League Baseball Properties, Inc. (All-Star, World Series, Divisional Playoffs and League Championship Series games); the NCAA (baseball and basketball championships and Final Four games); 19 Minor Leagues (Minor League games); the National Association of Intercollegiate Athletics; the National Junior College Athletic Association; and the Men's Senior Baseball League. In addition, the Company's baseball products are endorsed by numerous athletes, including approximately 500 Major League Baseball players such as Ken Griffey Jr., Randy Johnson, Mark McGwire, Cal Ripken Jr., Pedro Martinez, and Sammy Sosa. The Company's basketball products carry endorsements from approximately 29 college coaches including basketball's Tubby Smith, Lute Olson and Kristy Curry. The Company's football products are endorsed by Peyton Manning of the Indianapolis Colts. 6 The Company believes that endorsements by professional athletes and college coaches and affiliations with sports organizations enhance the Company's image and improve sales of its products. The Company's strategy is to obtain a broad array of endorsements and affiliations from national and regional sports organizations, select college coaches and professional athletes in order to position its products to appeal to regional customer preferences, as well as to achieve national recognition. The licensing agreements with Major League Baseball Properties, Inc. and the 19 Minor Leagues, under which Rawlings is licensed to produce the baseballs used in the Major League games, All-Star, World Series, Divisional Playoffs and League Championship Series games, the official baseballs for the Minor League games and the NCAA basketball and baseball contracts, provide that the agreements will be subject to termination upon a change of control of Rawlings, as defined in the agreements, unless the change of control is approved by the Major League Baseball Properties, Inc., the Minor Leagues or the NCAA. Manufacturing, Product Procurement and Raw Materials Products manufactured in Rawlings' five plants constituted approximately 24% of its net revenues in the year ended August 31, 2001 and the balance was derived from the sale of products manufactured by third-parties in Asia, Latin America and the United States, and from licensing fees. The third-party sourced products are manufactured according to the Company's specifications. Five third-party manufacturers account for approximately 65% of the Company's raw material and finished goods purchases. The Company seeks to establish and build close working relationships with its third-party manufacturers that emphasize service, quality, reliability, loyalty and commitment. The Company continually monitors its sourced products to ensure they meet the Company's quality standards. The Company's arrangements with its non U.S. suppliers are subject to the risks of doing business abroad. The Company believes that the loss of any one of its non U.S. manufacturers while causing temporary difficulties would not have a material adverse effect on the Company's business and results of operations because other manufacturers are available to fulfill the Company's requirements. Rawlings operates five manufacturing facilities in the United States and Costa Rica where it makes baseballs, apparel, baseball gloves, injection molded batter's helmets and wood baseball bats, tans leather and performs other miscellaneous value added processes. In 2001, Rawlings continued its policy of outsourcing items where internal manufacturing does not provide a competitive advantage such as stock team apparel. In the fourth quarter of fiscal 2001 the Company began relocating the manufacturing operations performed at Ava, Missouri to the new location in Washington, Missouri. The relocation was completed in the first quarter of fiscal 2002. After the relocation the only operation to remain in Ava will be the repair of baseball gloves. Rawlings obtains its raw materials from various sources which it considers to be adequate for fulfilling its requirements. To assure access to the highest quality leather for its baseballs, the Company acquired its Tennessee leather tanning facility in 1985. The Company depends upon a limited number of vendors for leather for its Heart of the Hide(R) baseball gloves. If any of these sources of raw materials were unavailable to the Company, the Company's operations could be adversely affected until alternative sources were found in the necessary quantities. 7 Trademarks and Patents The Rawlings(R) brand name and logo and the red "R"(R) logo as well as a number of product trademarks, including Finest in the Field(R), Rawlings Gold Glove Award(R), The Mark of a Pro(R), and ProPreferred(R) are protected trademarks in various countries. As of August 31, 2001, Rawlings held 36 U.S. and 8 non U.S. patents, and had 6 non U.S. patent applications pending. Although Rawlings 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. Competition Rawlings competes with numerous national and international companies which manufacture and distribute broad lines of sporting goods and related equipment and sports clothing as well as numerous manufacturers and suppliers of a limited variety of such products. Certain of the Company's competitors offer sports equipment not sold by the Company. Some of the Company's competitors are larger and have substantially greater financial and other resources than Rawlings. The Company's principal competitors include Wilson Sporting Goods Company (a wholly owned subsidiary of Amer Group Ltd.), Diamond Baseball Company, Nike and Mizuno Company Limited in the baseball product line; Wilson Sporting Goods Company, Spalding and Riddell Sports Inc. in the basketball and football lines; and Russell Corporation, Majestic and Wilson Sporting Goods Company in the apparel line. While Rawlings is one of the leading manufacturers and distributors of team sports equipment in North America, competition in the sporting goods industry is intense and is based upon quality, price, product features and brand recognition. In addition, the competitive barriers to entry into the sporting goods industry in general are not significant. 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 January 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 8 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. To offset these risks, the Company implemented for the Spring 2000 season a Port of Entry (POE) program to encourage retailers to place and receive early orders, as well as other changes in credit terms to reduce risk and debt levels. 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. 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. Employees As of August 31, 2001, Rawlings employed approximately 1,059 people on a full-time basis, of whom 567 were based in the United States, 489 in Costa Rica and 3 in Canada. Of the total number of employees, approximately 897 were engaged in manufacturing and distribution, 119 were engaged in marketing and sales and 43 were engaged in administration. Approximately 178 of Rawlings' domestic employees are represented by the Union of Needletrades of Industrial Textile Employees, AFL-CIO-CLC or the Local 682 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, under collective bargaining agreements which expire in November 2002 and February 2003, respectively. Both of these agreements automatically renew themselves for a period of twelve months from year to year thereafter, unless modified or terminated by written notice at least sixty days prior to any subsequent anniversary date. Rawlings believes that relations with its employees are good and that the collective bargaining agreements will be extended without material changes from the current contract. In addition, as of August 31, 2001 approximately 155 people are engaged in manufacturing and distribution at the Company's Washington, Missouri location under an employee lease agreement. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION OR BUSINESS Statements made in this report, other reports and proxy statements filed with the Securities and Exchange Commission, communications to stockholders, press releases and oral statements made by representatives of the Company 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" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, 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 9 note that any such performance, and 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 as well as those discussed elsewhere in 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, financial condition or business over time. Dependence on Baseball. Sales of baseball-related products constituted approximately 61% of the total net revenues of Rawlings in the year ended August 31, 2001. Adverse publicity or news coverage regarding professional or amateur baseball, strikes or other stoppages in play by athletes or umpires could create fan disaffection that could have a material adverse effect on the Company's sales. The current contract between Major League Baseball and its players expired after the 2001 season. A strike or lockout prior to the 2002 season and/or adverse publicity is possible. Similarly, poor weather conditions during the spring baseball retail selling season could have a material adverse effect on the Company's sales. Dependence on Foreign Manufacturing. The Company's dependence on foreign manufacturing is described above under "Manufacturing, Product Procurement and Raw Materials" and is subject to the risks of doing business abroad, such as changes in import duties, trade restrictions, work stoppages, labor laws, political instability, shipping delays due to increased security, foreign currency fluctuations and other factors which could have a material adverse effect on the Company's business and results of operations. Seasonality. Customers generally place orders with the Company for baseball-related products beginning in August for shipment beginning in November (pre-season orders). However, a large part of the Company's orders arrive after January as ship-at-once orders against a retailer's forecast or as fill-in orders. 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. This seasonality requires working capital and expense investments before revenues are certain. Inaccurate forecasting could inflate working capital, depress profitability and increase debt. Reliance on Certain Customers. Sales to the ten largest customers of Rawlings constituted approximately 41% of the total net revenues of Rawlings in the year ended August 31, 2001, including one customer, Wal-Mart, which accounted for approximately 17% of 2001 net revenues. Although the Company has long-established relationships with many of its customers, the Company does not have long-term supply contracts with them. A decrease in business from any of its major customers could have a material adverse effect on the Company's results of operations and financial condition. Litigation. Like similar manufacturing companies, the Company is subject to various federal, state and local environmental laws relating to air emissions, water discharges and the storage, handling, disposal and remediation of petroleum and hazardous substances. In addition, the Company is periodically subjected to product liability claims and proceedings involving its patents, employee matters and other legal proceedings which have not historically had a material 10 adverse effect on the Company. See "Legal Proceedings." Credit Agreement Restrictions. In December 1999, the Company refinanced its long-term credit facility. The credit facility is asset-based and supported by the Company's receivables, inventory and property, plant and equipment. Additionally, the facility provides for an incremental seasonal advance. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." The Company's credit agreement with its existing lender contains certain restrictions on the Company, including maintaining certain financial ratios, restricting payment of cash dividends, restricting incurrence of additional indebtedness and limiting capital expenditures. There can be no assurance that the Company will be able to achieve and maintain compliance with those restrictions or obtain waivers to any non-compliance. Consideration of Strategic Alternatives. During the Company's fiscal year 1999, the Board of Directors approved the consideration of strategic alternatives. As a result of that process, the Company incurred significant legal, accounting and financial advisor expenses, totaling approximately $700,000 during fiscal year 2000. From time to time, the Company has been and may continue to be approached by parties interested in acquiring all or a portion of the Company or its business. The Board may desire to consider a proposal made by such parties, in which case significant expenses may be incurred, while no assurance can be obtained that a transaction acceptable to the Board or the shareholders of the Company will be consummated. Such expenses may adversely affect the Company's results of operations and financial condition. Further, it is the Company's policy that it will not comment on pending discussions regarding merger and acquisition proposals. Additional Factors. Additional risks and uncertainties that may affect future results of operations, financial condition or business of the Company include, but are not limited to: (i) interest in collectible sports memorabilia and the financial condition of memorabilia resellers; (ii) demand for the Company's products; (iii) the effect of economic and industry conditions on prices for the Company's products and its cost structure; (iv) negative reports by brokerage firms, industry and financial analysts regarding the Company or its products which may have the effect of reducing the reputation, goodwill or customer demand for, or confidence in, the Company's products; and (v) the ability to attract and retain capital for growth and operations on competitive terms. (See discussion above on Credit Agreement restrictions.) 11 EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION - ---------------------------------- -------- ------------------------------------------------------------------- Stephen M. O'Hara 46 Chairman of the Board and Chief Executive Officer Howard B. Keene 59 President Stan W. Morrison 50 Executive Vice President, Marketing Ted C. Sizemore 56 Senior Vice President, Worldwide Baseball Affairs William F. Lacey 44 Vice President and Chief Financial Officer J. Michael Thompson 44 Vice President, Sales
Stephen M. O'Hara has served as Chairman of the Board and Chief Executive Officer since November 1998. From November 1994 until August 1998, Mr. O'Hara served as President of Specialty Catalog Corporation (SC), a public company, which is a direct marketer of niche consumer products. From November 1991 through November 1994, Mr. O'Hara was President of SC's largest subsidiary, Wigs by Paula, Inc. Prior to 1991, Mr. O'Hara held various marketing positions at consumer product companies including Procter & Gamble, Kraft General Foods and CML Group. Mr. O'Hara has a MBA degree from the Harvard Graduate School of Business and an AB degree from Harvard College. Howard B. Keene has served as President since October 1997. From November 1992 to October 1997 Mr. Keene held a variety of positions with Rawlings. From February 1990 to November 1992, Mr. Keene served as International Purchasing Consultant for all divisions of Figgie International, Inc. He was President of Rawlings from 1987 to February 1990. From 1973 to 1987, Mr. Keene held various positions at Rawlings, primarily in product procurement. Mr. Keene has an undergraduate degree from Southern Illinois University. Stan W. Morrison has served as Executive Vice President, Marketing of Rawlings since September 2001 having re-joined Rawlings as Vice President of Sales and Marketing in September of 1998. From 1993 to 1998, Mr. Morrison served as President of Legends Athletic, a $22 million sports apparel company. From 1985 to 1993, Mr. Morrison served as Senior Vice President of Sales and Marketing for Swingster, a $180 million sports apparel company. Prior to 1985, Mr. Morrison held various sales and marketing positions at Rawlings. Mr. Morrison has an undergraduate degree from the University of Missouri. Ted C. Sizemore has served as Senior Vice President, Worldwide Baseball Affairs for Rawlings since 1984, with primary responsibility for maintaining and strengthening the Company's relationship with sports organizations, players and coaches. Prior to 1984, Mr. Sizemore was a Major League Baseball player who played second base for a number of teams, including the Los Angeles Dodgers, the St. Louis Cardinals and the Philadelphia Phillies. Mr. 12 Sizemore received Rookie of the Year honors with the Los Angeles Dodgers in 1969. Mr. Sizemore has an undergraduate degree from the University of Michigan. William F. Lacey has served as Vice President and Chief Financial Officer since December 2000. From December 1998 until joining the Company, Mr. Lacey served as Vice President and Chief Financial Officer of Collins Signs, Inc., a corporate identification company. From September 1997 until December 1998 Mr. Lacey served as Chief Financial Officer of Paklite Corporation, a manufacturer of packaging and custom foam products. From October 1984 until September 1997 Mr. Lacey held various positions, ultimately Chief Financial Officer of DP Fitness, Inc. (aka Diversified Products Corporation) a manufacturer of home fitness products. Mr. Lacey has an undergraduate degree from the University of Alabama. J. Michael Thompson has served as Vice President, Sales of Rawlings since July 1994. Mr. Thompson joined Rawlings in 1984 as a sales representative and was promoted in 1989 to western regional sales manager. Mr. Thompson has an undergraduate degree from the University of Southern Colorado. 13 ITEM 2. PROPERTIES The following table sets forth certain information as of August 31, 2001 relating to Rawlings' principal properties:
Approximate Owned or Location Purpose/Products Size (sq. ft.) Leased -------------------------------- ---------------------------------------------------- ----------------- ------------- Washington, Missouri Warehouse/distribution center, manufacturing of 432,000 Leased injection molded batter's helmets, as well as ball inflation and customization Ava, Missouri Manufacturing of baseball gloves and injection 90,000 Leased (two adjoining facilities) molded batter's helmets, as well as ball inflation 60,000 Leased and customization in process of being relocated to Washington, Missouri at August 31, 2001 Dolgeville, New York Manufacturing of wood baseball bats 80,500 Owned (three properties) Licking, Missouri Manufacturing of apparel 55,400 Owned (two facilities) 55,000 Leased Tullahoma, Tennessee Leather Tanning 69,000 Owned Turrialba, Costa Rica Manufacturing of baseballs 54,000 Owned Fenton, Missouri Corporate headquarters 26,100 Leased Brantford, Warehouse/ Canadian distribution center and sales 20,000 Leased Ontario, Canada office Ava, Missouri Baseball glove repair 1,450 Leased
In addition, Rawlings leases 6,615 square feet for an outlet store in Reading, Pennsylvania. Rawlings also leases space for four regional sales offices. ITEM 3. LEGAL PROCEEDINGS. The nature of the Company's products has subjected it to product liability claims from time to time which have not had a material adverse effect on the Company. In addition, the Company is from time to time subject to proceedings involving its patents which have not had a material adverse effect on the Company. The Company expects that it will be subject to product liability claims and proceedings involving its patents in the future due to the nature of its products. 14 The Company intends to vigorously defend all product liability matters and patent claims. The Company believes that these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flow. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. STOCK EXCHANGE LISTING Rawlings' common stock is quoted on the Nasdaq National Market System under the symbol RAWL. As of August 31, 2001, there were 655 shareholders of record.
Common Stock High Low Close - ------------------------------------------------------------------ 2001 4th Qtr. $ 5.25 $ 4.05 $ 4.20 3rd Qtr 5.30 3.938 5.25 2nd Qtr 6.188 3.813 4.50 1st Qtr 6.50 4.813 5.563 2000 4th Qtr. $ 7.00 $ 5.313 $ 6.063 3rd Qtr 6.844 4.50 5.875 2nd Qtr 9.00 5.25 6.00 1st Qtr 10.375 7.625 7.625
In November 1997 the Company issued warrants to purchase 925,804 shares of common stock at $12.00 per share to Bull Run Corporation for $3.07 per warrant. These warrants will expire in November 2001. The Company has paid no dividends. The Company's existing amended and restated credit agreement has certain requirements including a restriction on the Company's ability to pay cash dividends. 15 ITEM 6. SELECTED FINANCIAL DATA. FIVE-YEAR FINANCIAL HIGHLIGHTS The following table sets forth selected historical consolidated financial data for the business conducted by Rawlings Sporting Goods Company, Inc. (Rawlings or the Company) for the five fiscal years ended August 31, 2001.
(Amounts in thousands, except per share data) Years Ended August 31, ----------------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------------------------------------------------------------------- INCOME STATEMENT DATA : Net revenues $174,528 $173,903 $159,765 $164,393 $149,562 Operating income 6,853 8,096 2,151 10,714 12,003 Income (loss) from continuing operations before extraordinary item 1,757 1,281 (2,482) 4,151 5,470 Net income (loss) 1,757 (13,005) (3,361) 3,660 5,470 Income (loss) per common share, basic and diluted: Continuing operations 0.22 0.16 (0.32) 0.53 0.71 Net income (loss) 0.22 (1.64) (0.43) 0.47 0.71 BALANCE SHEET DATA: Total assets $ 98,541 $108,725 $120,675 $131,838 $101,264 Total debt, including current maturities 38,926 45,582 51,148 57,109 32,673
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations may constitute "forward-looking statements." These statements are not guarantees of future financial condition, performance or operations and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify. A description of the important factors that could cause the Company's future results to differ materially from past results is set forth in Item 1, above. As explained in Note 1 to the financial statements, in fiscal 2001 the Company adopted EITF 00-10, which states that amounts invoiced for shipping costs be included in net revenues and the costs of shipping be included in cost of goods sold. Additionally the Company adopted EITF 00-25, which states that co-op advertising be recorded as a sales contra compared to the previous inclusion in selling, general and administrative expenses. Accordingly, all amounts discussed in Management's Discussion and Analysis for all periods reflect those changes in accounting policy. 16 YEAR ENDED AUGUST 31, 2001 COMPARED TO THE YEAR ENDED AUGUST 31, 2000 RESULTS OF OPERATIONS Net revenues for the year ended August 31, 2001 (2001) of $174,528,000 were $625,000, or 0.4% higher than the year ended August 31, 2000 (2000). The increase in net revenues was primarily the result of higher sales of apparel, footballs, and baseballs offset by lower sales of baseball gloves and reduced licensing revenue. Gross margin in 2001 was 27.2% down 1.6 points from the prior year. The decrease reflects lower margins on baseballs and baseball gloves and the reduced licensing revenues. Selling, general and administrative (SG&A) expenses decreased $173,000 in 2001. SG&A expenses as a percent of sales in 2001 were 23.1% compared to 23.3% in 2000. Lower depreciation, sales commissions and expenses related to sales meetings offset by increases in advertising and promotion and endorsement contracts were primarily responsible for the net decrease. In connection with the relocation of distribution facilities to a new single location in Washington, Missouri, the Springfield, Missouri distribution center was sold in September 2000. The move to Washington was completed in the fourth quarter of fiscal 2001. Transition and facility clean up costs incurred during the move to Washington of $1,527,000, offset by the gain on the sale of Springfield of $1,115,000, have been included as unusual items in the Consolidated Statement of Income in fiscal 2001. Interest expense of $4,510,000 in 2001 was $1,554,000 or 25.6% lower than the prior year. Lower debt levels partially due to debt repayments resulting from the proceeds from the sale of the Springfield distribution center and from the sale of the discontinued operation along with lower rates accounted for the reduction in interest expense. The effective tax rate for 2001 was 25% which is lower than the statutory rate of 35% because foreign income which has lower tax rates represented a higher percent of income and there was a decrease in the Company's valuation allowance. Income from continuing operations increased $476,000, or 37.2% to $1,757,000 continuing the improvement trend which began in 2000. The sale of the Vic hockey business was completed during the third quarter of fiscal 2001 under substantially the same terms as originally provided in 2000. Inflationary pressure did not have a significant impact on the Company's results of operations or financial position during the three-year period ended August 31, 2001. 17 YEAR ENDED AUGUST 31, 2000 COMPARED TO THE YEAR ENDED AUGUST 31, 1999 RESULTS OF OPERATIONS Net revenues increased $14,138,000 to $173,903,000 during 2000. The 8.8% growth over the year ended August 31, 1999 (1999) was fueled by strong consumer demand for baseball products. Specifically, Rawlings' sales of baseball gloves increased $6.3 million and the pro and memorabilia baseballs sold at major league events increased $2.5 million. Net revenues also benefited from the new Major League team uniform contract which generated an additional $1.5 million in sales. Basketball sales to large national accounts increased $2 million. These net revenue increases were partially offset by fewer outlet store sales as the Company closed certain under performing stores. The gross margin rate increased 2.2 points to 28.8% during 2000. This was primarily the result of large unusual write downs taken in 1999 for the slow pitch softball aluminum bat voluntary recall of $1.6 million and the $1 million write-down of the radar speed sensing baseball inventory to net realizable value. SG&A expenses increased $94,000 during 2000. SG&A expenses as a percent of sales in 2000 were 23.3%, excluding the early retirement program and strategic review costs, compared to 25.3% in 1999. The Company's increased efficiency is the result of the cost reduction plans initiated at the beginning of 2000, including the voluntary retirement program completed in the first quarter of 2000 that eliminated $800,000 in annual salaries. The charge for the early retirement program was recorded as an unusual item in the income statement and amounted to $759,000. Strategic review initiatives were also completed in the first half of 2000 and totaled $738,000. Interest costs increased $1,155,000 during 2000 to $6,064,000. This increase was due to a higher interest rate environment and the higher borrowing rate on the new credit facility. The weighted average borrowing rate increased 325 basis points to 10.7% during 2000. The rate increase was partially offset by working capital reduction programs that lowered average borrowings to $55,000,000 throughout 2000, down $10,000,000 from the 1999 average borrowing balance. The effective tax rate for 2000 was 37% which is higher than the statutory rate of 35% because of state taxes that are partially offset by lower tax rates on foreign income. Income from continuing operations increased $3,763,000 to $1,281,000 during 2000. Excluding the unusual items net income after tax was $2,224,000 in 2000. 18 During the third quarter the Company made a strategic decision to seek a buyer for its hockey business and recorded a charge in connection with the accounting for the hockey business as a discontinued segment. The total net loss on hockey operations was $13,640,000 after taxes and included operating losses of $2,314,000 and a provision of $1,500,000 for operating losses during the phase-out period. The Company continued to operate the hockey business during the sale process. In connection with the December 1999 credit agreement Rawlings wrote-off the old deferred debt issuance costs as an extraordinary item that totaled $646,000 after tax. The net loss was $13,005,000 in 2000 compared to a net loss of $3,361,000 in 1999. The increased loss was attributable to the discontinuance of the hockey business. Net revenues from the discontinued segment for the year ended August 31, 2000 were $8,383,000, 2.4% higher than net revenues from the discontinued segment of $8,184,000 for the comparable prior year period. Loss from operations for the discontinued segment for the year ended August 31, 2000 was $2,314,000 or $1,435,000 higher than the loss from operations of $879,000 for the comparable prior year period. The increased loss from operations was primarily the result of higher sales of low margin discontinued product and increased provisions for inventory obsolescence and reserve for bad debts. SEASONALITY See discussion on Seasonality in Part I, Item 1 of this document. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash provided by operating activities and the credit agreement negotiated with a financing company in December 1999 as amended, which is more fully described in Note 8 to the financial statements. The agreement provides for borrowings based on a percentage of qualified receivables and inventory coupled with seasonal advances during the Company's peak selling period in addition to term loans. The Company's primary use of cash is to fund its working capital needs, capital expenditures and debt service requirements. The Company's working capital requirements are seasonal with higher investments in working capital generally required in the period that begins in September and ends in April of the succeeding year. The change in the timing of orders and shipments to retailers closer to when the products are actually sold to the retailers' customers may increase the amount of working capital required by the Company and may increase required levels of financing. Detailed information on the Company's cash flows is presented in the consolidated statements of cash flows. The Company believes its cash position and current credit facility are adequate to provide for its operations. 19 YEAR ENDED AUGUST 31, 2001 Combined operating activities of continued and discontinued operations provided $3,300,000 of cash during 2001. The cash provided from operations was $3,408,000 lower than 2000 primarily due to decreases in accounts payable and accrued liabilities offset by cash generated by lower inventory levels. Net cash provided by investing activities totaled $2,499,000 which included proceeds from the sale of the Springfield distribution center of $2,376,000 and proceeds from the sale of the discontinued operations of $1,474,000. Capital expenditures were $1,351,000 in 2001 compared to $938,000 in 2000. The increase in capital expenditures was primarily related to equipment at the new Washington distribution center. The Company used $6,302,000 in financing activities primarily to reduce its debt outstanding. YEAR ENDED AUGUST 31, 2000 Combined operating activities of continued and discontinued operations provided $6,708,000 of cash during 2000. The cash provided from operations was $361,000 lower than 1999 as the Company increased inventories and receivables. Capital expenditures were $994,000 lower in 2000 compared to 1999 and totaled $938,000. The Company used $5,250,000 in financing activities primarily to reduce its debt outstanding. YEAR ENDED AUGUST 31, 1999 Operating activities provided cash of $7,069,000 during 1999. Operating cash flows were $15,791,000 million higher than 1998 primarily as a result of lower accounts receivable and inventories. Investing activities used cash of $1,932,000 primarily for capital expenditures for normal property and plant improvements. Financing activities used cash of $4,957,000 which included net repayment of borrowings of $5,961,000 and the issuance of common stock of $1,004,000. NEW ACCOUNTING PRONOUNCEMENTS In compliance with EITF 00-10 issued by the Emerging Issues Task Force, amounts billed to customers for shipping and handling are now reported as a component of net revenue in the statement of income and the shipping costs are included in cost of goods sold. Historically, the Company had recorded the amount billed as an offset to the costs incurred and recorded the net amount in selling, general and administrative expenses. Additionally under EITF 00-25, amounts accrued for co-op advertising previously included in selling, general and administrative expense are now recorded as contra sales in computing net revenues. The Company reflected the needed adjustments in the statements of income in the fourth quarter of 2001 in accordance with the pronouncements and restated all previously reported quarterly and prior year data to conform with the new presentation. There was no impact to the Company's net income (loss) as a result of the adoption of these new pronouncements. The Financial Accounting Standards Board has issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill 20 and other intangible assets acquired in a business combination. The Financial Accounting Standards Board has issued SFAS No. 142, "Goodwill and Other Intangible Assets." Under the new standard, entities will no longer be required or permitted to amortize goodwill reflected on the balance sheet. However, entities will be required to evaluate goodwill reflected on the balance sheet to determine whether the goodwill is impaired under the guidelines of the standard. If an entity determines that the goodwill is impaired, it will be required to write-off all or a portion of the goodwill. Adoption of SFAS No. 142 in fiscal 2002 is not expected to impact our consolidated financial position. The Financial Accounting Standards Board has issued SFAS No. 143, "Asset Retirement Obligations." The new standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. Adoption of SFAS No. 143 is not expected to impact our consolidated financial position. The Company will adopt SFAS No. 143 in fiscal 2003. The Financial Accounting Standards Board has issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The new standard replaces FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The primary objectives of this statement were to develop one accounting model, based on the framework established in Statement 121, for long-lived assets to be disposed of by sale and to address significant implementation issues. Statement 144 requires that all long-lived assets, including discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The standard is effective for fiscal years beginning after December 15, 2001. Adoption of SFAS No. 144 is not expected to impact our consolidated financial position. The Company will adopt SFAS No. 144 in fiscal 2003. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. INTEREST RATE AND FOREIGN CURRENCY MANAGEMENT ACTIVITIES As of August 31, 2001 the Company did not have any outstanding interest rate swaps or foreign currency contracts. Due to the relative size of the Company's foreign operations, the Company believes it does not have any material exposure to foreign currency fluctuations. The Company has minimal market risk exposure related to interest rates. The Company is exposed to market risks related to fluctuations in interest rates for its variable rate borrowings of $38,861,000 as of August 31, 2001. A change in interest rates of 1% on the balance outstanding at 21 August 31, 2001 would cause a change in total annual pre-tax earnings and cash flows of $389,000 assuming other factors are held constant. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS OF RAWLINGS SPORTING GOODS COMPANY, INC.: We have audited the accompanying consolidated balance sheets of Rawlings Sporting Goods Company, Inc. (a Delaware corporation) and subsidiaries (the Company) as of August 31, 2001 and 2000 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended August 31, 2001. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rawlings Sporting Goods Company, Inc. and subsidiaries as of August 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP St. Louis, Missouri October 25, 2001 22 RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share data)
August 31, ------------------------------- 2001 2000 ------------------------------- Assets Current assets: Cash and cash equivalents $ 921 $ 1,424 Accounts receivable, net of allowance of $2,871 and $2,561, respectively 27,750 28,246 Inventories 33,379 38,100 Deferred income taxes 4,277 6,079 Prepaid expenses 606 819 Net assets of discontinued segment - 2,624 ------------------------------- Total current assets 66,933 77,292 Property, plant and equipment 7,271 8,873 Deferred income taxes 22,367 20,802 Other assets 1,970 1,211 Noncurrent assets of discontinued segment - 547 ------------------------------- Total assets $98,541 $108,725 =============================== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt and revolving credit agreement $ 34,684 $ 37,178 Accounts payable 10,178 13,804 Accrued liabilities 8,740 10,729 ------------------------------- Total current liabilities 53,602 61,711 Long-term debt, less current maturities 4,242 8,404 Other long-term liabilities 9,291 9,291 ------------------------------- Total liabilities 67,135 79,406 ------------------------------- Stockholders' equity: Preferred stock, none issued - - Common stock, $.01 par value, 50,000,000 shares authorized, 8,011,145 and 7,946,338 shares issued and outstanding, respectively 80 79 Additional paid-in capital 31,151 30,798 Stock subscription receivable (1,421) (1,421) Accumulated other comprehensive loss (1,492) (1,468) Retained earnings 3,088 1,331 ------------------------------- Stockholders' equity 31,406 29,319 ------------------------------- Total liabilities and stockholders' equity $98,541 $108,725 ===============================
The accompanying notes are an integral part of these consolidated balance sheets. 23 RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share data)
Years Ended August 31, -------------------------------------------------- 2001 2000 1999 -------------------------------------------------- Net revenues $ 174,528 $173,903 $159,765 Cost of goods sold 126,996 123,870 117,268 -------------------------------------------------- Gross profit 47,532 50,033 42,497 Selling, general and administrative expenses 40,267 40,440 40,346 Unusual items 412 1,497 - -------------------------------------------------- Operating income 6,853 8,096 2,151 Interest expense 4,510 6,064 4,909 -------------------------------------------------- Income (loss) from continuing operations before income taxes 2,343 2,032 (2,758) Provision (benefit) for income taxes 586 751 (276) -------------------------------------------------- Income (loss) from continuing operations before extraordinary item 1,757 1,281 (2,482) Discontinued operations: Loss from operations of discontinued segment, net of tax - (2,314) (879) Loss on disposal of discontinued segment, net of tax - (11,326) - -------------------------------------------------- Income (loss) before extraordinary item 1,757 (12,359) (3,361) Extraordinary item, net of tax - (646) - -------------------------------------------------- Net income (loss) $ 1,757 $(13,005) $ (3,361) ================================================== Income (loss) per common share, basic and diluted: Continuing operations $ 0.22 $ 0.16 $ (0.32) Discontinued segment - (1.72) (0.11) Extraordinary item - (0.08) - -------------------------------------------------- Net income (loss) $ 0.22 $ (1.64) $ (0.43) ================================================== Shares used in computing per share amounts: Basic 8,025 7,948 7,853 Assumed exercise of stock options 1 4 21 -------------------------------------------------- Diluted 8,026 7,952 7,874 ==================================================
The accompanying notes are an integral part of these consolidated statements. 24 RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Amounts in thousands, except share data)
Accumulated Common Stock Additional Stock Other Total ---------------------- Paid-in Subscription Comprehensive Retained Stockholders' Comprehensive Shares Amount Capital Receivable Income (Loss) Earnings Equity Income (Loss) ----------- ---------- ---------- ------------ -------------- ---------- -------------- --------------- Balance, August 31, 1998 7,794,483 $78 $29,479 $(1,421) $(1,581) $17,697 $44,252 Net loss - - - - - (3,361) (3,361) $ (3,361) Issuance of common stock 103,225 1 1,003 - - - 1,004 - Translation adjustments - - - - 182 - 182 182 --------------- Comprehensive loss $ (3,179) ----------- ---------- ---------- ------------ -------------- ---------- -------------- =============== Balance, August 31, 1999 7,897,708 79 30,482 (1,421) (1,399) 14,336 42,077 Net loss - - - - - (13,005) (13,005) $(13,005) Issuance of common stock 48,630 - 316 - - - 316 - Translation adjustments - - - - (69) - (69) (69) --------------- Comprehensive loss - - - - - - - $(13,074) ----------- ---------- ---------- ------------ -------------- ---------- -------------- =============== Balance, August 31, 2000 7,946,338 79 30,798 (1,421) (1,468) 1,331 29,319 Net income - - - - - 1,757 1,757 $ 1,757 Issuance of common stock 64,807 1 353 - - - 354 - Translation adjustments - - - - (24) - (24) (24) --------------- Comprehensive income - - - - - - - $ 1,733 ----------- ---------- ---------- ------------ -------------- ---------- -------------- =============== Balance, August 31, 2001 8,011,145 $80 $31,151 $(1,421) $(1,492) $ 3,088 $31,406 =========== ========== ========== ============ ============== ========== ==============
The accompanying notes are an integral part of these consolidated statements. 25 RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Years Ended August 31, ------------------------------------------------------------- 2001 2000 1999 -------------------- --------------------- ------------------ Cash flows from operating activities: Net income (loss) $ 1,757 $ (13,005) $ (3,361) Add loss from discontinued segment - 13,640 879 Add extraordinary item - 646 - -------------------- --------------------- ------------------ Income (loss) from continuing operations 1,757 1,281 (2,482) Adjustment to reconcile income (loss) from continuing operations to net cash provided by continuing operations: Depreciation and amortization 1,999 2,690 2,087 Gain on sale of Springfield distribution center (1,115) - - Changes in operating assets and liabilities: Accounts receivable 496 (1,327) 9,215 Inventories 4,721 (2,880) 3,974 Accounts payable (3,626) 5,835 (746) Other (2,009) (62) (2,172) -------------------- --------------------- ------------------ Net cash provided by continuing operations 2,223 5,537 9,876 Net cash provided by (used in) discontinued segment 1,077 1,171 (2,807) -------------------- --------------------- ------------------ Net cash provided by operating activities 3,300 6,708 7,069 -------------------- --------------------- ------------------ Cash flows from investing activities: Capital expenditures of continuing operations (1,296) (862) (1,723) Capital expenditures of discontinued segment (55) (76) (209) Proceeds from sale of Springfield distribution center 2,376 - - Proceeds from sale of discontinued operations 1,474 - - -------------------- --------------------- ------------------ Net cash provided by (used in) investing activities 2,499 (938) (1,932) -------------------- --------------------- ------------------ Cash flows from financing activities: Net decrease in revolving credit agreement (2,323) (15,311) - Borrowings of long-term debt - 10,000 44,050 Repayments of long-term debt (4,333) (255) (50,011) Issuance of common stock 354 316 1,004 -------------------- --------------------- ------------------ Net cash used in financing activities (6,302) (5,250) (4,957) -------------------- --------------------- ------------------ Net increase (decrease) in cash and cash equivalents (503) 520 180 Cash and cash equivalents, beginning of year 1,424 904 724 -------------------- --------------------- ------------------ Cash and cash equivalents, end of year $ 921 $ 1,424 $ 904 ==================== ===================== ================== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 4,403 $ 6,100 $ 4,564 Income taxes 398 86 300
The accompanying notes are an integral part of these consolidated statements. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per share data) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Rawlings Sporting Goods Company, Inc. and all of its wholly-owned subsidiaries (Rawlings or the Company). All significant intercompany transactions and balances have been eliminated. BUSINESS Rawlings manufactures and distributes sports equipment and uniforms for team sports such as baseball, basketball and football predominately in the United States. Revenue is recorded when title and risk of loss passes to the customer which is typically when the product is shipped. Returns and sales allowances are included in net revenues. INVENTORIES Inventories are valued at the lower of cost or market with cost determined on a first-in, first-out method. Cost includes materials and conversion costs. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost and depreciated on a straight-line basis over the estimated useful life. The principal estimated useful lives are as follows: Buildings and improvements 20-30 years Machinery and equipment 5-12 years Other 4-10 years When equipment is sold or retired, its cost and accumulated depreciation are removed from the balance sheet, and any gain or loss is included in income during the period of the disposition. Repair and maintenance is charged to expense as incurred. LONG-LIVED ASSETS Long-lived assets, primarily property plant and equipment, are periodically reviewed for impairment by comparing the carrying value of the assets with the expected future undiscounted cash flows before consideration of income taxes. If an impairment has occurred on assets held for use, the loss is calculated as the difference between the carrying value and fair value. Long-lived assets that are to be disposed are recorded at the lower of carrying value or fair value less costs to sell. 27 INCOME TAXES Income taxes are accounted for using a balance sheet approach known as the liability method. The liability method accounts for deferred income taxes by applying the statutory tax rates in effect at the date of the balance sheet to the differences between the book basis and the tax basis of the assets and liabilities. TRANSLATION OF FOREIGN CURRENCIES The assets and liabilities of foreign branches and subsidiaries are translated into U.S. dollars at current exchange rates and profit and loss accounts are translated at average annual exchange rates. Resulting translation gains and losses are included in accumulated other comprehensive income (loss), a separate component in Stockholders' Equity. Foreign exchange transaction income (loss) of $(26), $0 and $(10) were included in the results of operations for the fiscal years ended August 31, 2001, 2000 and 1999, respectively. FINANCIAL INSTRUMENTS The fair value of the Company's financial instruments approximates their carrying amounts. The Company's debt is primarily variable in nature and accordingly the fair value approximates the carrying value. RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation. The reclassifications had no impact on previously reported net income (loss) or total stockholders' equity. USE OF ESTIMATES These financial statements have been prepared on the accrual basis of accounting which requires the use of certain estimates in determining the Company's assets, liabilities, revenues and expenses. Resolution of certain matters could differ significantly from the resolution that is currently expected. NEW ACCOUNTING PRONOUNCEMENTS In compliance with EITF 00-10 issued by the Emerging Issues Task Force, amounts billed to customers for shipping and handling are now reported as a component of net revenue in the statement of income and the shipping costs are included in cost of goods sold. Historically, the Company had recorded the amount billed as an offset to the costs incurred and recorded the net amount in selling, general and administrative expenses. Additionally in compliance with EITF 00-25, amounts accrued for co-op advertising previously included in selling, general and administrative expense are now recorded as contra sales in computing net revenues. The Company reflected the needed adjustments in the statements of income in the fourth quarter of 28 2001 in accordance with the pronouncements and restated all previously reported quarterly and prior year data to conform with the new presentation. There was no impact to the Company's net income (loss) as a result of the adoption of these new pronouncements. The Financial Accounting Standards Board has issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Financial Accounting Standards Board has issued SFAS No. 142, "Goodwill and Other Intangible Assets." Under the new standard, entities will no longer be required or permitted to amortize goodwill reflected on the balance sheet. However, entities will be required to evaluate goodwill reflected on the balance sheet to determine whether the goodwill is impaired under the guidelines of the standard. If an entity determines that the goodwill is impaired, it will be required to write-off all or a portion of the goodwill. Adoption of SFAS No. 142 in fiscal 2002 is not expected to impact our consolidated financial position. The Financial Accounting Standards Board has issued SFAS No. 143, "Asset Retirement Obligations." The new standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. Adoption of SFAS No. 143 is not expected to impact our consolidated financial position. The Company will adopt SFAS No. 143 in fiscal 2003. The Financial Accounting Standards Board has issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The new standard replaces FASB Statement No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The primary objectives of this statement were to develop one accounting model, based on the framework established in Statement 121, for long-lived assets to be disposed of by sale and to address significant implementation issues. Statement 144 requires that all long-lived assets, including discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The standard is effective for fiscal years beginning after December 15, 2001. Adoption of SFAS No. 144 is not expected to impact our consolidated financial position. The Company will adopt SFAS No. 144 in fiscal 2003. NOTE 2. DISCONTINUED SEGMENT On June 26, 2000 the Company made a strategic decision to seek a buyer for its Vic hockey business. Vic provides an extensive line of equipment for hockey teams including hockey sticks, hockey protective equipment and goalie protective equipment. The sale of the Vic hockey business was completed during the third quarter of fiscal 2001 under substantially the same terms 29 as originally provided. Proceeds from the sale totaled $3,169 including cash of $1,474 at closing and $1,695 of 7% notes to be received through May 2004 which are included in Other Assets on the Consolidated Balance Sheet. Operating results for the hockey business are included in the Consolidated Statements of Income as net loss from discontinued segment through May 31, 2000. Operating results subsequent to May 31, 2000 are included in the provision for operating losses during the phase-out period that was recorded in the third quarter of fiscal 2000. Results for the discontinued segment are as follows:
2001 2000 1999 --------------- ------------- --------------- Net revenues $ 2,664 $ 8,383 $ 8,184 =============== ============= =============== Loss from operations of discontinued segment before incomes taxes $ - $ (2,744) $ (1,392) Benefit for income taxes - (430) (513) --------------- ------------- --------------- Net loss from operations of discontinued segment $ - $ (2,314) $ (879) =============== ============= =============== Loss on disposal of discontinued segment before income taxes $ - $ (13,000) $ - Benefit for income taxes - (1,674) - --------------- ------------- --------------- Net loss on disposal of discontinued segment $ - $ (11,326) $ - =============== ============= ===============
The loss on disposal included the writedown of assets of the hockey business ($10,750) to estimated net realizable value, the provision for operating losses during the phaseout period of $1,500 and the estimated costs to dispose of this business of $750. 30 NOTE 3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
2001 2000 1999 --------------- ---------------- -------------- Balance at beginning of year $ 2,561 $ 2,242 $ 1,751 Provision 1,020 1,001 1,040 Charge-offs, net of recoveries (710) (682) (549) --------------- ---------------- -------------- Balance at end of year $ 2,871 $ 2,561 $ 2,242 =============== ================ ==============
NOTE 4. INVENTORIES Inventories consist of the following:
August 31, --------------------------- 2001 2000 ------------- ------------- Raw materials $ 6,629 $ 9,777 Work in process 531 900 Finished goods 26,219 27,423 ------------- ------------- Total inventories $ 33,379 $ 38,100 ============= =============
NOTE 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
August 31, -------------------------- 2001 2000 ------------- ------------ Buildings and improvements $ 4,121 $ 5,724 Machinery and equipment 18,559 18,297 Other 2,747 2,932 ------------- ------------ Total property, plant and equipment 25,427 26,953 Less - Accumulated depreciation (18,156) (18,080) ------------- ------------ Property, plant and equipment $ 7,271 $ 8,873 ============= ============
31 NOTE 6. INCOME TAXES The income tax provision (benefit) from continuing operations is as follows:
2001 2000 1999 ---------------- ---------------- ---------------- Current: Federal $ - $ - $ - State 59 - - Foreign 290 277 252 ---------------- ---------------- ---------------- Total current 349 277 252 ---------------- ---------------- ---------------- Deferred: Federal 736 437 (1,278) State and other 39 37 (496) Valuation allowance (538) - 1,246 ---------------- ---------------- ---------------- Total deferred 237 474 (528) ---------------- ---------------- ---------------- Total income tax provision (benefit) $ 586 $ 751 $ (276) ================ ================ ================
A reconciliation between the provision for income taxes computed at the federal statutory rate and the effective tax rate from continuing operations is as follows:
2001 2000 1999 ------------------------ ----------------------- ------------------------ Amount % Amount % Amount % ------------- ---------- ------------- --------- ------------- ---------- Expected provision (benefit) at the statutory rate $ 820 35.0 $711 35.0 $ (965) (35.0) State & other taxes, net of federal tax benefit 25 1.1 77 3.8 (117) (4.2) Foreign taxes and credits 286 12.2 (37) (1.8) (551) (20.0) Valuation allowance (538) (23.0) - - 1,246 45.2 Other (7) (0.3) - - 111 4.0 ------------- ---------- ------------- --------- ------------- ---------- Total income tax provision (benefit) $ 586 25.0 $751 37.0 $ (276) (10.0) ============= ========== ============= ========= ============= ==========
32 The significant components of deferred taxes which are included in the accompanying consolidated balance sheets are as follows:
2001 2000 ---------------------------------- --------------------------------- Deferred Deferred Deferred Deferred Tax Assets Tax Liabilities Tax Assets Tax Liabilities ---------------- ----------------- ---------------- ---------------- Intangible assets $ 15,280 $ - $ 20,277 $ - Loss carryforwards and credits 10,533 - 5,924 - Receivable reserve 1,110 - 851 - Inventories 624 - 1,905 - Other 2,683 1,071 2,490 1,513 Valuation allowance (2,515) - (3,053) - ---------------- ----------------- ---------------- ---------------- Total $ 27,715 $ 1,071 $ 28,394 $ 1,513 ================ ================= ================ ================
The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred income tax asset will not be realizable. As of August 31, 2001, the Company has provided a valuation allowance of $2,515 related to a capital loss carry forward that expires in 2006 generated from the sale of the hockey business. The valuation allowance decreased (increased) by $538, ($1,807), and ($1,246) during 2001, 2000, and 1999, respectively. The valuation allowance provision of $1,807 recorded in 2000 was reflected through discontinued operations. The Company's net operating loss carry-forward deferred tax asset of $8,018 as of August 31, 2001 expires from 2019 to 2021. Income taxes have not been provided on the undistributed income (approximately $7,723 as of August 31, 2001) for a foreign subsidiary, which the Company does not intend to be remitted to the U.S. In July 1994, Figgie International, Inc. (the former parent, presently a subsidiary of Tyco International) transferred the net assets of the Rawlings business to the Company. The assets and liabilities transferred to Rawlings were recorded at the predecessor's cost for financial reporting purposes. For tax purposes, the transaction resulted in a step-up of the basis of the assets transferred determined by the fair value paid by the Company for the Rawlings business. The tax effected book versus tax difference related to the tax step-up is recorded as a deferred tax asset titled intangible assets in the above table as of August 31, 2001 and 2000. Under the terms of a tax sharing and separation agreement between the Company and the former parent, the Company is required to pay the former parent 43 percent of the tax benefits resulting from the step-up in the tax basis of the assets as the benefit of the step-up is realized. The amount of the obligation to pay the former parent that is not expected to be paid in the next year is recorded and titled as other long-term liabilities. 33 NOTE 7. ACCRUED LIABILITIES Accrued liabilities consist of the following:
August 31, ------------------------------------ 2001 2000 ------------------- ---------------- Salary, benefits and other taxes $ 3,893 $ 4,846 Co-op advertising 1,549 1,490 Royalties 1,388 1,032 Other 1,910 3,361 ------------------- ---------------- Accrued liabilities $ 8,740 $ 10,729 =================== ================
NOTE 8. DEBT Debt consists of the following:
August 31, ---------------------------------- 2001 2000 ---------------- ----------------- Revolving credit agreement, average year-end interest rate of 5.84% and 9.30%, respectively $ 33,316 $ 35,639 Term loan A, interest rate of 9.24% - 2,400 Term loan B, interest rate of 6.54% and 9.50%, respectively, due in monthly installments of $89 plus $231 every May and the balance due on December 1, 2004 5,545 7,411 Other 65 132 ---------------- ----------------- Total debt 38,926 45,582 Less current portion (34,684) (37,178) ---------------- ----------------- Total long-term debt $ 4,242 $ 8,404 ================ =================
On December 28, 1999, the Company refinanced its credit facility by entering into a five-year credit agreement expiring December 1, 2004 with a financial institution. Actual availability is based on the Company's outstanding receivables and inventories. Total unused availability at August 31, 2001 was approximately $4,555. The facility also allows for a $3,000 seasonal advance from November through April. Borrowings under the agreement are based on an interest rate of LIBOR plus 2.25 percent. A commitment fee of 0.50 percent is charged on any unused portion of the facility. 34 On May 15, 2000 and on July 20, 2000 the Company and its lenders amended the credit agreement to convert $2,500 (term loan A) and $7,500 (term loan B), respectively, of the facility to term loans. The term loans provide for monthly installment payments and the aggregate outstanding principal balance of the term loans becomes due and payable in full on the termination date of the credit facility. The term loans bear interest at LIBOR plus 2.50 percent and LIBOR plus 2.75 percent, respectively. The revolving loan agreement limit was reduced to $65,000 as part of the July 20, 2000 amendment. Under the terms of the revised agreement 75% of any proceeds from the sale of assets are to be applied to the term loans with the balance to be applied to the outstanding revolver balance. Therefore 75% of the net proceeds from the sale of the Springfield distribution center and the sale of the discontinued operations were used to repay term loan A in total and to reduce term loan B during fiscal 2001. The credit facility includes various covenants, including requirements that the Company achieve certain EBITDA levels as defined in the agreement, maintain a fixed charge ratio of 1.1 to 1 and limit capital expenditures and restrict the payment of dividends. EBITDA for the twelve months ended August 31, 2001 was $8,852, or $252 over the $8,600 minimum required for that period as prescribed in the October 2001 credit agreement amendment. The EBITDA requirement increases to $9,000 for each of the fiscal 2002 quarter-end compliance calculations that are based on a rolling four quarters of EBITDA. In accordance with EITF 95-22 "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement", the Company has classified the revolving credit facility as a current obligation. The extraordinary item of $646 recorded in fiscal 2000 was due to the write-off of deferred financing costs associated with the early extinguishment of the previous credit facility. The Company's principal debt maturities on its term and other long term debt for the four years subsequent to August 31, 2001 are $1,367, $1,302, $1,302 and $1,639, respectively. NOTE 9. UNUSUAL ITEMS 2001 UNUSUAL ITEMS In connection with the relocation of distribution facilities to a new single location in Washington, Missouri, the Springfield, Missouri distribution center was sold in September 2000. The move to Washington was completed in the fourth quarter of fiscal 2001. Transition and facility clean up costs incurred during the move to Washington of $1,527, offset by the gain on the sale of Springfield of $1,115, have been included as unusual items in the Consolidated Statement of Income in fiscal 2001. 35 2000 UNUSUAL ITEMS During the first quarter of 2000, the Company completed a voluntary early retirement program for certain of its employees. The cost of the program totaled approximately $759 and was substantially paid out as of August 31, 2000. The costs primarily related to severance and medical benefits. Additionally, during the first half of 2000, the Company completed a review of its strategic alternatives that cost approximately $738. NOTE 10. EMPLOYEE BENEFITS COMPANY-SPONSORED DEFINED CONTRIBUTION PLANS Substantially all U.S. salaried employees and certain U.S. hourly employees are covered by a defined contribution (Section 401(k)) plan that provides funding based on a percentage of compensation. The Company's contributions to the plan were $286, $303 and $323 in 2001, 2000 and 1999, respectively. MULTI-EMPLOYER PENSION PLANS Certain union employees participate in multi-employer defined benefit pension plans. Contributions to the plans were $38, $65 and $171 in 2001, 2000 and 1999, respectively. NOTE 11. STOCK OPTIONS The 1994 Rawlings Long-Term Incentive Plan, as amended (the 1994 Incentive Plan), provides for the issuance of up to 1,125,000 shares of Rawlings common stock upon the exercise of stock options and stock appreciation rights, and as restricted stock, deferred stock, stock granted as a bonus or in lieu of other awards and other equity-based awards. The 1994 Non-Employee Directors Stock Plan (the 1994 Directors Stock Plan), as amended, provides for the issuance of up to 250,000 shares of Rawlings common stock to non-employee directors upon the exercise of stock options or in lieu of director's fees. The 2000 Non-Employee Directors Stock Plan (the 2000 Directors Stock Plan) provides for the issuance of up to 25,000 shares of Rawlings common stock to non-employee directors upon exercise of stock options or in lieu of directors' fees. The Employment Agreement by and between Rawlings and Stephen M. O'Hara, Chief Executive Officer (the Employment Agreement), provides for the issuance of up to 450,000 shares of Rawlings common stock upon exercise of stock options. Stock options granted under the 1994 Incentive Plan, the 1994 Directors Stock Plan and the 2000 Directors Stock Plan have exercise prices equal to the market price on the date of grant, vest over three to four years from the date of grant and, once vested, are generally exercisable over ten years following the date of grant. 36 The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 2001, 2000 and 1999 consistent with the provisions of this statement, the Company's net income and net income per share would have been as follows:
Pro forma 2001 2000 1999 - -------------------------------------- ---------------- -------------- ------------ Net income (loss) $ 938 $(13,472) $(4,542) Net income (loss) per share $0.12 $ (1.70) $ (0.58)
For purposes of the pro forma disclosure, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
2001 2000 1999 ----------- ----------- ----------- Assumptions: Volatility 56% 46% 43% Risk-free interest rate 5.4% 6.3% 4.8% Dividend yield - - - Expected life of options (years) 7 7 6 Weighted average grant date fair value of options: $3.51 $3.82 $4.77
37 The following table summarizes the stock option transactions pursuant to the Company's stock incentive and stock option plans for the three-year period ended August 31, 2001:
Weighted Average Shares Exercise Price (000s) Per Share ----------------------------------- OPTIONS OUTSTANDING AT AUGUST 31, 1998 611 $ 11.33 Granted 413 10.90 Exercised (71) 9.37 Forfeited (86) 12.37 ----------- OPTIONS OUTSTANDING AT AUGUST 31, 1999 867 11.18 Granted 197 6.10 Exercised - - Forfeited (63) 9.08 ----------- OPTIONS OUTSTANDING AT AUGUST 31, 2000 1,001 10.31 Granted 370 4.89 Exercised - - Forfeited (73) 8.91 ----------- OPTIONS OUTSTANDING AT AUGUST 31, 2001 1,298 $ 8.85 =================================== Exercisable options at August 31, 2001 787 $ 10.05 =================================== Options available for grant at August 31, 2001 436 ===========
The following table summarizes information about stock options outstanding at August 31, 2001:
Options Outstanding Options Exercisable ------------------------------------------------ -------------------------------- Weighted Number Average Weighted Number Weighted Outstanding Remaining Average Exercisable at Average at 8/31/01 Contractual Exercise 8/31/01 Exercise (000s) Life (Years) Price (000s) Price ----------------- --------------- -------------- ----------------- -------------- Range of exercise price $4.18 to $10.00 823 8.16 $ 6.70 417 $8.04 $10.01 to $14.00 475 5.88 12.56 370 12.31 ----------------- ----------------- Total 1,298 7.33 $ 8.85 787 $10.05 ================= =============== ============== ================= ==============
38 NOTE 12. WARRANTS In November 1997, the Company issued warrants to purchase 925,804 shares of common stock at $12.00 per share to Bull Run Corporation for $3.07 per warrant. These warrants will expire unexercisable on November 21, 2001 and accordingly, these warrants are not included in the Company's earnings per share calculation. One half of the purchase price of the warrants was paid in cash with the other half payable with interest at 7 percent at the time of exercise or expiration of the warrants. The receivable for the unpaid portion of the warrants is classified as a stock subscription receivable in the accompanying balance sheet. NOTE 13. RELATED PARTY TRANSACTIONS During 2001, 2000 and 1999, the Company sold approximately $442, $355 and $285, respectively, of products to a professional baseball club in which two of the Company's directors are part owners and one of which is the secretary and treasurer. Additionally, the Company purchased goods and services of $110, $71, and $39 during 2001, 2000, and 1999, respectively, from the club. The Company believes that the terms and prices for the sales and purchases of these products are no less favorable than those obtained from unaffiliated parties. During the fiscal years ended August 31, 2001, 2000 and 1999, the Company purchased approximately $33, $140 and $442, respectively, of catalogs, promotional items and web services from a company in which one of the Company's directors is the Chief Executive Officer. The Company believes that the terms and prices for these purchases are no less favorable than those obtained from unaffiliated parties. NOTE 14. COMMITMENTS AND CONTINGENCIES The Company operates certain facilities and equipment under operating lease agreements. The lease expense was $2,845, $2,144, and $1,873 for years 2001, 2000 and 1999, respectively. Future minimum payments under noncancelable leases, royalty and licensing agreements as of August 31, 2001 are as follows:
Royalty and Operating Licensing Leases Agreements ------------------------ ------------------------ Fiscal 2002 $ 2,142 $ 4,633 Fiscal 2003 1,938 1,381 Fiscal 2004 1,444 914 Fiscal 2005 1,260 100 Fiscal 2006 1,262 - Thereafter 6,330 225 ------------------------ ------------------------ Total minimum lease payments $ 14,376 $ 7,253 ======================== ========================
39 The Company has conducted environmental investigation and remediation activities at its Dolgeville, New York facility (the "Site") with respect to the release of wood pitch into surrounding soil and surface water. In November 1997, the Company entered into a Voluntary Agreement with the New York State Department of Environmental Conservation (the "NYSDEC") to conduct certain environmental remediation activities related to the presence of wood pitch in the soils at the Site. The wood pitch was generated as a result of the operation, before Rawlings' ownership of the Site, of a retort facility by a third party unrelated to Rawlings. During October 2000, the Company completed the excavation and removal of the wood pitch. Based on reports from legal counsel and environmental engineers, NYSDEC has accepted the final technical report memorializing the excavation and off-site disposal of the wood pitch impacted soil and the subsequent groundwater monitoring and no further remedial work on the Site is necessary. The Company does not anticipate incurring any future expense related to this item. A roll-forward of the Company's environmental reserve is as follows:
2001 2000 1999 -------------- ------------- -------------- Beginning of year $ 778 $ 987 $ 1,082 Payments (778) (209) (95) -------------- ------------- -------------- End of year $ - $ 778 $ 987 ============== ============= ==============
In June 1998, the Company filed an action in the Northern District of New York against Trident Rowan Group, Inc. (Trident Rowan), which the Company believes is the successor to the entity which owned the wood pitch Site during the period in which the wood pitch contamination occurred. The Company believes that the case against Trident Rowan is strong and is seeking recovery of the clean up costs associated with the wood pitch at the Site. However, due to the uncertainty associated with this matter, no receivable associated with a potential recovery has been recorded at this time and there can be no assurance that any amount will be recovered. Rawlings is periodically subjected to product liability claims and other legal proceedings. In the opinion of management, the ultimate liabilities resulting from various pending legal proceedings will not have a material adverse effect on the financial condition or results of operations of the Company. 40 NOTE 15. OPERATING SEGMENTS Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has identified operating segments based on internal management reports. Aggregation of similar operating segments into a single reportable operating segment is permitted if the businesses are considered to have similar long-term economic characteristics. The Company has four operating segments based on its product categories, which in applying the aggregation criteria, have been aggregated into two reportable segments: Sports Equipment and Licensing.
2001 2000 1999 --------- --------- --------- Net revenues Sports equipment $ 169,457 $ 168,340 $ 153,796 Licensing 5,071 5,563 5,969 --------- --------- --------- Consolidated net revenues $ 174,528 $ 173,903 $ 159,765 ========= ========= ========= Operating income (loss) Sports equipment $ 1,782 $ 2,533 $ (3,818) Licensing 5,071 5,563 5,969 --------- --------- --------- Consolidated operating income $ 6,853 $ 8,096 $ 2,151 ========= ========= ========= Total assets Sports equipment $ 98,222 $ 107,814 $ 119,446 Licensing 319 911 1,229 --------- --------- --------- Consolidated total assets $ 98,541 $ 108,725 $ 120,675 ========= ========= =========
The sports equipment segment manufactures and distributes sports equipment and uniforms for team sports including baseball, basketball, and football. The licensing segment licenses the Rawlings brand name on products sold by other companies and includes products such as footwear and activewear. There are no significant determinable operating expenses or interest costs for the licensing segment. The accounting policies of the segments are the same as those described in Note 1 for the Company. The revenues generated and long-lived assets located outside the United States are not significant for separate presentation. One customer's purchases of products sold by Rawlings were 17 percent, 15 percent and 14 percent of net revenues of Rawlings for 2001, 2000 and 1999, respectively. 41 NOTE 16. QUARTERLY RESULTS (UNAUDITED) Quarterly results are determined in accordance with annual accounting policies. They include certain items based upon estimates for the entire year. Summarized quarterly results for the last two years were:
2001 ------------------------------------------------------------------------------ First Second Third Fourth Year ----- ------ ----- ------ ---- Net revenues $ 36,839 $ 66,105 $ 43,467 $ 28,117 $174,528 Gross profit 10,631 20,219 11,894 4,788 47,532 Net income (loss) 346 5,199 120 (3,908) 1,757 Net income (loss) per share: (1) 0.04 0.65 0.01 (0.49) 0.22 2000 ------------------------------------------------------------------------------ First Second Third Fourth Year ----- ------ ----- ------ ---- Net revenues $ 34,357 $ 63,902 $ 46,599 $ 29,045 $173,903 Gross profit 10,069 19,406 14,347 6,211 50,033 Income (loss) from continuing operations before extraordinary item (1,339) 4,486 1,470 (3,336) 1,281 Net income (loss) (1,586) 3,231 (11,314) (3,336) (13,005) Income (loss) per share: (1) Continuing operations (0.17) 0.57 0.18 (0.42) 0.16 Net income (loss) (0.20) 0.41 (1.42) (0.42) (1.64)
(1) Earnings per share were computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of computing average quarterly shares outstanding for each period. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 42 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Identification of Directors Information with respect to the members of the Board of Directors is set forth under the caption "Election of Directors" in the Company's proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. (b) Identification of Executive Officers Information with respect to the executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" contained in Part I, Item 1 of this report, which information is incorporated herein by reference. (c) Compliance with Section 16(a) of the Exchange Act Information with respect to the filing of certain securities reports required to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information required by Item 11 is set forth under the captions "Compensation of Directors" and "Executive Compensation" in the Company's proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by Item 14 is set forth under the captions "Principal Stockholders" and "Stock Ownership of Directors, the Nominees for Directors and Executive Officers" in the Company's proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required by this Item is set forth under the caption "Certain Transactions" in the Company's proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) Financial Statements: The financial statements filed as a part of this report are listed in Part II, Item 8. (a) (2) Financial Statement Schedules: None. (a) (3) Exhibits 3.1 Certificate of Incorporation, included as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 33-77906), is hereby incorporated herein by reference. 3.2 By-Laws, included as Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File No. 33-77906), is hereby incorporated herein by reference. 3.3 By-Law amendment included as Exhibit 3.3 to the Company's Form 10-K for the fiscal year ended August 31, 1996, is hereby incorporated herein by reference. 4.1 Rights Agreement dated as of July 1, 1994 between the Company and Boatmen's Trust Company as Rights Agent, included as Exhibit 4.1 to the Company's Form 10-Q for the quarter ended June 30, 1994, is hereby incorporated herein by reference. 4.2 Amendment of Rights Agreement dated November 21, 1997 between the Company, Boatmen's Trust Company and ChaseMellon Shareholder Services, Inc., included as Exhibit 4.2 to the Company's Form 8-K dated November 21, 1997 is hereby incorporated herein by reference. 4.2.1 Second Amendment to Rights Agreement, dated April 19, 1999, between the Company and the Rights Agent, included as Exhibit 4.1 to the Company's Form 8-K dated April 30,1999, is hereby incorporated herein by reference. 4.2.2 Third Amendment to Rights Agreement, dated April 23, 1999, between the Company and the Rights Agent, included as Exhibit 4.2 to the Company's Form 8-K dated April 30, 1999, is hereby incorporated herein by reference. 44 4.3 Common Stock Purchase Warrant dated November 21, 1997 issued by the Company to Bull Run Corporation included as Exhibit 4.1 to the Company's Form 8-K dated November 21, 1997 is hereby incorporated herein by reference. 10.1 Credit Agreement, dated as of December 28, 1999, by and among the Company as Borrower, certain other credit parties named therein, and certain Lenders signatory thereto, included as Exhibit 10 to the Company's Form 8-K dated December 28, 1999, is hereby incorporated herein by reference. 10.2 Amendment No. 1 to the Credit Agreement among Rawlings Sporting Goods Company, Inc., General Electric Capital Corporation and LaSalle Bank National Association dated February 29, 2000, included as Exhibit 10.2 to the Company's Form 10-K for the fiscal year ended August 31, 2000, is hereby incorporated herein by reference. 10.3 Amendment No. 2 to the Credit Agreement among Rawlings Sporting Goods Company, Inc., General Electric Capital Corporation and LaSalle Bank National Association dated May 15, 2000, included as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended May 31, 2000, is hereby incorporated herein by reference. 10.4 Amendment No. 3 to the Credit Agreement among Rawlings Sporting Goods Company, Inc., General Electric Capital Corporation and LaSalle Bank National Association dated July 20, 2000, included as Exhibit 10.4 to the Company's Form 10-K for the fiscal year ended August 31, 2000, is hereby incorporated herein by reference. 10.5 Amendment No. 4 to the Credit Agreement among Rawlings Sporting Goods Company, Inc., General Electric Capital Corporation and LaSalle Bank National Association dated May 15, 2001. 10.6 Amendment No. 5 to the Credit Agreement among Rawlings Sporting Goods Company, Inc., General Electric Capital Corporation and LaSalle Bank National Association dated July 9, 2001. 10.7 Amendment No. 6 to the Credit Agreement among Rawlings Sporting Goods Company, Inc., General Electric Capital Corporation and LaSalle Bank National Association dated September 17, 2001. 10.8 Assets Transfer Agreement dated as of July 8, 1994 by and among Figgie, Figgie Licensing Corporation, Figgie International Real Estate, Inc., Figgie Properties, Inc. and the Company, included as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1994, is hereby incorporated herein by reference. 45 10.9 Transitional Services Agreement dated as of July 8, 1994 between Figgie and the Company, included as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1994, is hereby incorporated herein by reference. 10.10 Tax Sharing and Separation Agreement dated July 8, 1994 between the Company and Figgie, included as Exhibit 10.3 to the Company's Form 10-Q for the quarter ended June 30, 1994, is hereby incorporated herein by reference. * 10.11 The Company's 1994 Long-Term Incentive Plan, included as Exhibit A to the Company's proxy statement dated December 9, 1994, is hereby incorporated herein by reference. * 10.12 The Company's 1994 Non-Employee Directors' Stock Plan, as amended, included as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (File No. 333-70368) is hereby incorporated herein by reference. 10.13 The Company's 2000 Non-Employee Directors' Stock Plan, included as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (File No. 333-43124) is hereby incorporated herein by reference. 10.14 Amendment Agreement between Rawlings Sporting Goods Company and ASICS Corporation, dated January 21, 1991, included as Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 33-77906), is hereby incorporated herein by reference. * 10.15 Form of Indemnity Agreement entered into with directors and executive officers, included as Exhibit 10.7 to the Company's Form 10-K for the fiscal year ended August 31, 1994, is hereby incorporated herein by reference. * 10.16 Form of Severance Agreement entered into with executive officers included as Exhibit 10.8 to the Company's Form 10-K for the year ended August 31, 1995 is hereby incorporated herein by reference. 10.17 Investment Purchase Agreement dated November 21, 1997 between the Company and Bull Run Corporation, included as Exhibit 99.1 to the Company's Form 8-K dated November 21, 1997 is hereby incorporated herein by reference. 10.18 Standstill Agreement dated November 21, 1997 between the Company and Bull Run Corporation, included as Exhibit 99.2 to the Company's Form 8-K dated November 21, 1997 is hereby incorporated herein by reference. 46 10.19 Amendment Number 1 of Standstill Agreement dated April 23, 1999, between the Company and Bull Run Corporation included as Exhibit 99.1 to the Company's Form 8-K dated April 30, 1999, is hereby incorporated herein by reference. 10.20 Registration Rights Agreement dated November 21, 1997 between the Company and Bull Run Corporation, included as Exhibit 99.3 to the Company's Form 8-K dated November 21, 1997 is hereby incorporated herein by reference. * 10.21 Employment Agreement entered into between the Company and Stephen M. O'Hara, dated as of November 2, 1998, as amended, included as Exhibit 4.2 to the Company's Registration Statement on Form S-8 (File No. 333-43124) is hereby incorporated herein by reference. 10.22 Standstill Agreement, dated April 23, 1999 among the Company and the Shapiro Parties, included as Exhibit 99.2 to the Company's Form 8-K dated April 30, 1999 is hereby incorporated herein by reference. 21. Subsidiaries of the Company. 23. Consent of Arthur Andersen LLP. * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the Item 14(c) of this report. (b) Reports on Form 8-K None. 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RAWLINGS SPORTING GOODS COMPANY, INC. Date: November 26, 2001 By: William F. Lacey ------------------------------- William F. Lacey Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the date indicated. SIGNATURE DATE By: Stephen M. O'Hara ----------------------------------- --------------------------- Stephen M. O'Hara Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: William F. Lacey ----------------------------------- --------------------------- William F. Lacey Vice President and Chief Financial Officer (Principal Financial Officer and Accounting Officer) By: Andrew N. Baur ----------------------------------- --------------------------- Andrew N. Baur Director By: Linda L. Griggs ----------------------------------- --------------------------- Linda L. Griggs Director By: W. James Host ----------------------------------- --------------------------- W. James Host Director By: Michael McDonnell ----------------------------------- --------------------------- Michael McDonnell Director By: Robert S. Prather Jr. ----------------------------------- --------------------------- Robert S. Prather Jr. Director 48 By: William C. Robinson ----------------------------------- --------------------------- William C. Robinson Director By: Edward F. Ryan ----------------------------------- --------------------------- Edward F. Ryan Director 49 EX-10.5 3 c66314ex10-5.txt AMENDMENT NO. 4 TO THE CREDIT AGREEMENT EXHIBIT 10.5 AMENDMENT NO. 4 AND CONSENT TO CREDIT AGREEMENT AMENDMENT NO. 4 AND CONSENT TO CREDIT AGREEMENT (this "Amendment and Consent"), dated as of May 15, 2001, among RAWLINGS SPORTING GOODS COMPANY, INC., a Delaware corporation ("Borrower"); RAWLINGS CANADA, INCORPORATED, a Nova Scotia company ("Rawlings Canada"), the other Credit Parties signatory to the hereinafter defined Credit Agreement; GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders ("Agent"), and the other Lenders signatory to the hereinafter defined Credit Agreement. W I T N E S S E T H : WHEREAS, the Borrower, the other Credit Parties, the Agent and the Lenders are party to that certain Credit Agreement, dated as of December 28, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, the Borrower and Rawlings Canada wish to sell the assets (other than real estate, but including Accounts) related to their Victoriaville, Vic and McMartin product lines of ice skates, hockey sticks, protective equipment and other hockey equipment and accessories to Vic Hockey Company Inc. (the "Vic Buyer") for a purchase price of $2,766,336 (plus $865,208 for the Accounts being sold) subject to certain adjustments as set forth in that certain Asset Purchase Agreement dated as of April 30, 2001 (the "Asset Purchase Agreement") by and among Borrower, Rawlings Canada and Vic Hockey Company Inc. (the "Vic Sale") and have requested that the Agent and the Lenders consent to such sale; WHEREAS, the Agent and the Lenders have agreed to such consent only upon the terms and subject to the conditions set forth herein; WHEREAS, this Amendment and Consent shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment and Consent; capitalized terms used herein without definition are so used as defined in Annex A to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. Amendment. (a) Section 1.1(e)(ii) of the Credit Agreement is amended by deleting the first sentence of such Section and replacing such sentence with the following: "Borrower shall pay the principal amount of the Term Loan B installments, payable as follows:
Payment Dates Installment Amounts ------------- ------------------- May 15, 2001 $794,752.03 June 1, 2001 $ 89,285.74 July 1, 2001 $ 89,285.74 August 1, 2001 $ 89,285.74 September 1, 2001 $ 89,285.74 October 1, 2001 $ 89,285.74 November 1, 2001 $ 89,285.74 December 1, 2001 $ 89,285.74 January 1, 2002 $ 89,285.74 February 1, 2002 $ 89,285.74 March 1, 2002 $ 89,285.74 April 1, 2002 $ 89,285.74 May 1, 2002 $ 89,285.74 May 15, 2002 $230,528.08 June 1, 2002 $ 89,285.74 July 1, 2002 $ 89,285.74 August 1, 2002 $ 89,285.74 September 1, 2002 $ 89,285.74 October 1, 2002 $ 89,285.74 November 1, 2002 $ 89,285.74 December 1, 2002 $ 89,285.74 January 1, 2003 $ 89,285.74 February 1, 2003 $ 89,285.74 March 1, 2003 $ 89,285.74 April 1, 2003 $ 89,285.74 May 1, 2003 $ 89,285.74 May 15, 2003 $230,528.08 June 1, 2003 $ 89,285.74 July 1, 2003 $ 89,285.74 August 1, 2003 $ 89,285.74 September 1, 2003 $ 89,285.74 October 1, 2003 $ 89,285.74 November 1, 2003 $ 89,285.74 December 1, 2003 $ 89,285.74 January 1, 2004 $ 89,285.74 February 1, 2004 $ 89,285.74 March 1, 2004 $ 89,285.74 April 1, 2004 $ 89,285.74
-2-
Payment Dates Installment Amounts ------------- ------------------- May 1, 2004 $ 89,285.74 May 15, 2004 $ 230,528.08 June 1, 2004 $ 89,285.74 July 1, 2004 $ 89,285.74 August 1, 2004 $ 89,285.74 September 1, 2004 $ 89,285.74 October 1, 2004 $ 89,285.74 November 1, 2004 $ 89,285.74 December 1, 2004 $1,370,805.24
(b) Annex A of the Credit Agreement is amended by inserting as the final text of clause (b) of the definition of "Fixed Charges" contained therein the parenthetical phrase "(excluding Term Loan B principal installments scheduled to be paid on May 15 of any Fiscal Year)". 2. Consent. Notwithstanding the provisions of Sections 6.2 and 6.8 of the Credit Agreement, the Agent and the Lenders hereby (a) consent to the Vic Sale and the receipt by Rawlings Canada, as partial consideration therefor, of a promissory note in the initial principal amount of $1,383,168 (the "Vic Buyer Note") from the Vic Buyer in favor of Rawlings Canada and guaranteed by VP Sports, Inc., (b) agree that the Liens of the Agent on the assets sold pursuant to the Vic Sale shall be released upon Agent's receipt of the initial cash consideration of the Vic Sale and (c) waive any Default or Event of Default caused solely by the backdating of the documents delivered in connection with the Vic Sale to April 30, 2001 so long as the Vic Sale does not occur prior to the effective date hereof; provided in each case, that the proceeds of the Vic Sale (other than any "Holdback Amount" pursuant to Section 2.3 of the Asset Purchase Agreement) and payments under the Vic Buyer Note shall be applied first, to interest then due and payable on Term Loan A, second, to prepay the scheduled installments on Term Loan A in the inverse order of maturity until Term Loan A is paid in full, third, to interest then due and payable on the Revolving Credit Advances, and fourth to the outstanding principal balance of Revolving Credit Advances; provided further in each case, that any Holdback Amount distributed pursuant to Section 2.3 of the Asset Purchase Agreement shall be applied fifty percent (50%) to Term Loan B in the following order: first, to interest then due and payable on Term Loan B, second, to prepay the scheduled installments on Term Loan B in inverse order of maturity, until such Loan shall have been prepaid in full; and fifty percent (50%) to the Revolving Credit Advances in the following order: first, to interest then due and payable on the Revolving Credit Advances, and second to the outstanding principal balance of Revolving Credit Advances. 3. Representations and Warranties of Credit Parties. In order to induce Agent and Lenders to enter into this Amendment and Consent, each Credit Party hereby jointly and severally represents and warrants to Agent and Lenders that: -3- (a) Representations and Warranties. After giving effect to this Amendment and Consent, no representation or warranty of any Credit Party contained in the Credit Agreement or any of the other Loan Documents, including this Amendment and Consent, shall be untrue or incorrect in any material respect as of the date hereof, except to the extent that such representation or warranty expressly relates to an earlier date. (b) Authorization, etc. Each Credit Party has the power and authority to execute, deliver and perform this Amendment and Consent. Each Credit Party has taken all necessary action (including, without limitation, obtaining approval of its stockholders, if necessary) to authorize its execution, delivery and performance of this Amendment and Consent. No consent, approval or authorization of, or declaration or filing with, any Governmental Authority, and no consent of any other Person, is required in connection with any Credit Party's execution, delivery and performance of this Amendment and Consent, except for those already duly obtained. This Amendment and Consent has been duly executed and delivered by each Credit Party and constitutes the legal, valid and binding obligation of each Credit Party, enforceable against it in accordance with its terms. No Credit Party's execution, delivery or performance of this Amendment and Consent conflicts with, or constitutes a violation or breach of, or constitutes a default under, or results in the creation or imposition of any Lien upon the property of any Credit Party by reason of the terms of (i) any contract, mortgage, lease, agreement, indenture or instrument to which any Credit Party is a party or which is binding upon it, (ii) any law or regulation or order or decree of any court applicable to any Credit Party, or (iii) the certificate or articles of incorporation or by-laws of any Credit Party. (c) No Default. No Default or Event of Default has occurred or is continuing, or would result after giving effect hereto. 4. Conditions to Effectiveness. The effectiveness of this Amendment and Consent is expressly conditioned upon the satisfaction of each condition set forth in this Section 3 on or prior to the date hereof and consummation of all of the transactions contemplated thereby: (a) Documentation. Borrower shall have delivered to Agent (on behalf of itself and Lenders) all of the following documents, all in form and substance acceptable to Agent in its discretion: (i) Amendment and Consent. Duly executed originals of this Amendment and Consent. (ii) Vic Buyer Note. The Agent shall have received the original executed Vic Buyer Note, in form and substance satisfactory to Agent, and an executed blank undated note power for such Vic Buyer Note, in the form attached hereto as Exhibit A. (iii) Vic Sale Documents. The Agent shall have received true and correct copies of all documents and schedules delivered in connection with the Vic Sale, which documents shall include a consent of the Vic Buyer and VP -4- Sports, Inc. to the collateral assignment by the Borrower and Rawlings Canada to the Agent and the Lenders of the Vic Buyer Note and the rights of the Borrower and Rawlings Canada under such documents and shall otherwise be in form and substance satisfactory to Agent. (iv) Other Documents. All other agreements, certificates, opinions and other documents as Agent may reasonably request to accomplish the purposes of this Amendment and Consent. (b) No Default. No Default or Event of Default shall have occurred and be continuing, or would result after giving effect hereto. (c) Consents. Each Credit Party shall have obtained all consents, approvals and acknowledgments which may be required with respect to the execution, delivery and performance of this Amendment and Consent. 5. Reference to and Effect on Loan Documents. (a) Ratification. Except as specifically provided in this Amendment and Consent, the Credit Agreement and the other Loan Documents shall remain in full force and effect and each Credit Party hereby ratifies and confirms each such Loan Document. (b) No Waiver. Except as specifically provided in this Amendment and Consent, the execution, delivery and effectiveness of this Amendment and Consent shall not operate as a waiver or forbearance of any right, power or remedy of Agent or any Lender under the Credit Agreement or any of the other Loan Documents, or constitute a consent, waiver or modification with respect to any provision of the Credit Agreement or any of the other Loan Documents. Upon the effectiveness of this Amendment and Consent each reference in (a) the Credit Agreement to "this Agreement," "hereunder," "hereof," or words of similar import and (b) any other Loan Document to "the Agreement" shall, in each case and except as otherwise specifically stated therein, mean and be a reference to the Credit Agreement as amended hereby. 6. Miscellaneous. (a) Successors and Assigns. This Amendment and Consent shall be binding on and shall inure to the benefit of the Credit Parties, Agent and Lenders and their respective successors and assigns, except as otherwise provided herein. No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of Agent and Lenders. The terms and provisions of this Amendment and Consent are for the purpose of defining the relative rights and obligations of the Credit Parties, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment and Consent. (b) Entire Agreement. This Amendment and Consent, including all schedules and other documents attached hereto or incorporated by reference herein or delivered in -5- connection herewith, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other understandings, oral or written, with respect to the subject matter hereof. (c) Fees and Expenses. As provided in Section 11.3 of the Credit Agreement, Borrower agrees to pay on demand all fees, costs and expenses incurred by Agent in connection with the preparation, execution and delivery of this Amendment and Consent. Borrower agrees to pay on demand all legal fees, costs and expenses incurred by LaSalle Bank National Association, as Lender, in connection with its review, execution and delivery of this Amendment and Consent. (d) Headings. Section headings in this Amendment and Consent are included herein for convenience of reference only and shall not constitute a part of this Amendment and Consent for any other purpose. (e) Severability. Wherever possible, each provision of this Amendment and Consent shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment and Consent shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment and Consent. (f) Conflict of Terms. Except as otherwise provided in this Amendment and Consent, if any provision contained in this Amendment and Consent is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Amendment and Consent shall govern and control. (g) Counterparts. This Amendment and Consent may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. Delivery of an executed signature page to this Amendment and Consent by telecopy shall be effective as delivery of a manually executed signature page to this Amendment and Consent. (h) Incorporation of Credit Agreement. The provisions contained in Sections 11.9 and 11.13 of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety, except with reference to this Amendment and Consent rather than the Credit Agreement. (i) Acknowledgment. Each Credit Party hereby acknowledges its status as a Credit Party and affirms its obligations under the Credit Agreement and represents and warrants that there are no liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages or costs, or expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent (collectively, the "Claims"), which any Credit Party may have or claim to have against Agent or any Lender, or any of their respective affiliates, agents, employees, officers, directors, representatives, attorneys, successors and assigns (collectively, the "Lender Released Parties"), which might arise out of or be connected with any act of commission or -6- omission of the Lender Released Parties existing or occurring on or prior to the date of this Amendment and Consent, including, without limitation, any Claims arising with respect to the Obligations or any Loan Documents. In furtherance of the foregoing, each Credit Party hereby releases, acquits and forever discharges the Lender Released Parties from any and all Claims that any Credit Party may have or claim to have, relating to or arising out of or in connection with the Obligations or any Loan Documents or any other agreement or transaction contemplated thereby or any action taken in connection therewith from the beginning of time up to and including the date of the execution and delivery of this Amendment and Consent. Each Credit Party further agrees forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against any Lender Released Parties with respect to any and all Claims. [signature pages follow] -7- IN WITNESS WHEREOF, this Amendment and Consent has been duly executed and delivered as of the day and year first above written. RAWLINGS SPORTING GOODS COMPANY, INC. By: ----------------------------------------- Title: -------------------------------------- RAWLINGS CANADA, INCORPORATED By: ----------------------------------------- Title: -------------------------------------- RAWLINGS DE COSTA RICA, S.A. By: ----------------------------------------- Title: -------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By: ----------------------------------------- Title: Duly Authorized Signatory LASALLE BANK NATIONAL ASSOCIATION, as Lender By: ----------------------------------------- Title: -------------------------------------- Exhibit A NOTE POWER FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________________________ that certain $1,383,168 note dated as of ________, 2001 (the "Note") issued by Vic Hockey Company, Inc. and guaranteed by VP Sports, Inc. and does hereby irrevocably constitute and appoint ________________________ attorney to transfer the Note with full power of substitution. Dated: ______________ RAWLINGS CANADA, INCORPORATED By: ----------------------------------------- Title: -------------------------------------- EX-10.6 4 c66314ex10-6.txt AMENDMENT NO. 5 TO THE CREDIT AGREEMENT EXHIBIT 10.6 AMENDMENT NO. 5 AND WAIVER TO CREDIT AGREEMENT AMENDMENT NO. 5 AND WAIVER TO CREDIT AGREEMENT (this "Amendment and Waiver"), dated as of July 9, 2001, among RAWLINGS SPORTING GOODS COMPANY, INC., a Delaware corporation ("Borrower"); RAWLINGS CANADA, INCORPORATED, a Nova Scotia company ("Rawlings Canada"), the other Credit Parties signatory to the hereinafter defined Credit Agreement; GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders ("Agent"), and the other Lenders signatory to the hereinafter defined Credit Agreement. W I T N E S S E T H : WHEREAS, the Borrower, the other Credit Parties, the Agent and the Lenders are party to that certain Credit Agreement, dated as of December 28, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, on and subject to the terms and conditions hereof, Borrower and the other Credit Parties have requested that Agent and Lenders, and Agent and Lenders are willing to, (i) waive compliance with the minimum EBITDA financial covenant for the twelve-month period ended May 31, 2001 and (ii) amend certain provisions of the Credit Agreement, all as set forth herein; WHEREAS, this Amendment and Consent shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment and Consent; capitalized terms used herein without definition are so used as defined in Annex A to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. Amendment. (a) Section 1.6(r) of the Credit Agreement is amended by deleting the parenthetical text contained in such Section and replacing such text with the following: "(or, in the case of WalMart, 20% during the months of November, December and January of each Fiscal Year and 15% during each other month). " (b) Annex A to the Credit Agreement is amended such that each of the following terms shall have the respective meanings ascribed thereto in the Code as in effect from and after July 1, 2001: "Account Debtor", "Accounts", "Chattel Paper", "Documents", "Fixtures", "General Intangibles", "Goods", "Instruments", "Inventory", "Investment Property", "Proceeds" and "Equipment"; provided that the term "Equipment" shall also include all motor vehicles, trailers, and rolling stock. As amended hereby, the foregoing terms shall include all such assets now owned or hereafter acquired by any Credit Party, wherever located. All other terms defined in the Code and not otherwise defined herein or in Annex A to the Credit Agreement shall have the meanings ascribed thereto in the Code as in effect from and after July 1, 2001. (c) The following defined terms are added to Annex A to the Credit Agreement in alphabetical order: "Letter-of-Credit Rights" means letter-of-credit rights as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, including rights to payment or performance under a letter of credit, whether or not such Credit Party, as beneficiary, has demanded or is entitled to demand payment or performance. "Software" means all "software" as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, other than software embedded in any category of goods, including all computer programs and all supporting information provided in connection with a transaction related to any program. "Supporting Obligations" means all supporting obligations as such term is defined in the Code, including letters of credit and guaranties issued in support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments, or Investment Property. " (d) Annex A of the Credit Agreement is amended by inserting the text ", plus (e) cash taxes paid during such period to the extent not included in the calculation of EBITDA" immediately before the period at the end of the definition of "Fixed Charges." (e) Annex G of the Credit Agreement is amended by deleting the table set forth in the table contained in paragraph (c) thereof and replacing such table with the following:
"Fiscal Quarter EBITDA --------------- ------ Third Fiscal Quarter of Fiscal Year 2001 $ 9,000,000 Fourth Fiscal Quarter of Fiscal Year 2001 $ 9,000,000 First Fiscal Quarter of Fiscal Year 2002 $ 9,000,000 Second Fiscal Quarter of Fiscal Year 2002 $ 9,000,000 Third Fiscal Quarter of Fiscal Year 2002 $ 9,000,000 Fourth Fiscal Quarter of Fiscal Year 2002 $ 9,000,000 First Fiscal Quarter of Fiscal Year 2003 $ 9,125,000 Second Fiscal Quarter of Fiscal Year 2003 $ 9,250,000 Third Fiscal Quarter of Fiscal Year 2003 $ 9,375,000 Fourth Fiscal Quarter of Fiscal Year 2003 $ 9,500,000 First Fiscal Quarter of Fiscal Year 2004 $ 9,625,000 Second Fiscal Quarter of Fiscal Year 2004 $ 9,750,000 Third Fiscal Quarter of Fiscal Year 2004 $ 9,875,000 Fourth Fiscal Quarter of Fiscal Year 2004 $ 10,000,000 First Fiscal Quarter of Fiscal Year 2005 $ 10,125,000 and each Fiscal Quarter thereafter. "
-2- 2. Waiver. Subject to the conditions and effectiveness of this Agreement and otherwise notwithstanding the provisions of any Loan Document, Agent and Lenders hereby waive any Event of Default arising under Section 8.1(b) of the Credit Agreement resulting solely from Borrower's failure to comply with paragraph (c) of Annex G to the Credit Agreement for the twelve-month period ended May 31, 2001. 3. Representations and Warranties of Credit Parties. In order to induce Agent and Lenders to enter into this Amendment and Waiver, each Credit Party hereby jointly and severally represents and warrants to Agent and Lenders that: (a) Representations and Warranties. After giving effect to this Amendment and Waiver, no representation or warranty of any Credit Party contained in the Credit Agreement or any of the other Loan Documents, including this Amendment and Waiver, shall be untrue or incorrect in any material respect as of the date hereof, except to the extent that such representation or warranty expressly relates to an earlier date. (b) Authorization, etc. Each Credit Party has the power and authority to execute, deliver and perform this Amendment and Waiver. Each Credit Party has taken all necessary action (including, without limitation, obtaining approval of its stockholders, if necessary) to authorize its execution, delivery and performance of this Amendment and Waiver. No consent, approval or authorization of, or declaration or filing with, any Governmental Authority, and no consent of any other Person, is required in connection with any Credit Party's execution, delivery and performance of this Amendment and Waiver, except for those already duly obtained. This Amendment and Waiver has been duly executed and delivered by each Credit Party and constitutes the legal, valid and binding obligation of each Credit Party, enforceable against it in accordance with its terms. No Credit Party's execution, delivery or performance of this Amendment and Waiver conflicts with, or constitutes a violation or breach of, or constitutes a default under, or results in the creation or imposition of any Lien upon the property of any Credit Party by reason of the terms of (i) any contract, mortgage, lease, agreement, indenture or instrument to which any Credit Party is a party or which is binding upon it, (ii) any law or regulation or order or decree of any court applicable to any Credit Party, or (iii) the certificate or articles of incorporation or by-laws of any Credit Party. (c) No Default. No Default or Event of Default has occurred or is continuing, or would result after giving effect hereto. 4. Conditions to Effectiveness. The effectiveness of this Amendment and Waiver is expressly conditioned upon the satisfaction of each condition set forth in this Section 3 on or prior to the date hereof and consummation of all of the transactions contemplated thereby: (a) Documentation. Borrower shall have delivered to Agent (on behalf of itself and Lenders) all of the following documents, all in form and substance acceptable to Agent in its discretion: (i) Amendment and Waiver. Duly executed originals of this Amendment and Waiver. -3- (ii) Supplements to Security Agreements. Duly executed originals of the Supplement to the Security Agreements by Borrower and Rawlings Canada, each in form and substance satisfactory to Agent. (iii) Other Documents. All other agreements, certificates, opinions and other documents as Agent may reasonably request to accomplish the purposes of this Amendment and Waiver. (b) Fees, Costs and Expenses. Agent shall have received (at Agent's option, by payment or as a charge against the Revolving Loan) an amendment fee equal to $100,000, for the ratable benefit of the Lenders. (c) No Default. No Default or Event of Default shall have occurred and be continuing, or would result after giving effect hereto. (d) Consents. Each Credit Party shall have obtained all consents, approvals and acknowledgments which may be required with respect to the execution, delivery and performance of this Amendment and Waiver. 5. Reference to and Effect on Loan Documents. (a) Ratification. Except as specifically provided in this Amendment and Waiver, the Credit Agreement and the other Loan Documents shall remain in full force and effect and each Credit Party hereby ratifies and confirms each such Loan Document. (b) No Waiver. Except as specifically provided in this Amendment and Waiver, the execution, delivery and effectiveness of this Amendment and Waiver shall not operate as a waiver or forbearance of any right, power or remedy of Agent or any Lender under the Credit Agreement or any of the other Loan Documents, or constitute a consent, waiver or modification with respect to any provision of the Credit Agreement or any of the other Loan Documents. Upon the effectiveness of this Amendment and Waiver each reference in (a) the Credit Agreement to "this Agreement," "hereunder," "hereof," or words of similar import and (b) any other Loan Document to "the Agreement" shall, in each case and except as otherwise specifically stated therein, mean and be a reference to the Credit Agreement as amended hereby. 6. Miscellaneous. (a) Successors and Assigns. This Amendment and Waiver shall be binding on and shall inure to the benefit of the Credit Parties, Agent and Lenders and their respective successors and assigns, except as otherwise provided herein. No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of Agent and Lenders. The terms and provisions of this Amendment and Waiver are for the purpose of defining the relative rights and obligations of the Credit Parties, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment and Waiver. -4- (b) Entire Agreement. This Amendment and Waiver, including all schedules and other documents attached hereto or incorporated by reference herein or delivered in connection herewith, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other understandings, oral or written, with respect to the subject matter hereof. (c) Fees and Expenses. As provided in Section 11.3 of the Credit Agreement, Borrower agrees to pay on demand all fees, costs and expenses incurred by Agent in connection with the preparation, execution and delivery of this Amendment and Waiver, but only to the extent that such fees, costs and expenses exceed $5,000. (d) Headings. Section headings in this Amendment and Waiver are included herein for convenience of reference only and shall not constitute a part of this Amendment and Waiver for any other purpose. (e) Severability. Wherever possible, each provision of this Amendment and Waiver shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment and Waiver shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment and Waiver. (f) Conflict of Terms. Except as otherwise provided in this Amendment and Waiver, if any provision contained in this Amendment and Waiver is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Amendment and Waiver shall govern and control. (g) Counterparts. This Amendment and Waiver may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. Delivery of an executed signature page to this Amendment and Waiver by telecopy shall be effective as delivery of a manually executed signature page to this Amendment and Waiver. (h) Incorporation of Credit Agreement. The provisions contained in Sections 11.9 and 11.13 of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety, except with reference to this Amendment and Waiver rather than the Credit Agreement. (i) Acknowledgment. Each Credit Party hereby acknowledges its status as a Credit Party and affirms its obligations under the Credit Agreement and represents and warrants that there are no liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages or costs, or expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent (collectively, the "Claims"), which any Credit Party may have or claim to have against Agent or any Lender, or any of their respective affiliates, agents, employees, officers, directors, representatives, attorneys, successors and assigns (collectively, the "Lender Released Parties"), which might arise out of or be connected with any act of commission or -5- omission of the Lender Released Parties existing or occurring on or prior to the date of this Amendment and Waiver, including, without limitation, any Claims arising with respect to the Obligations or any Loan Documents. In furtherance of the foregoing, each Credit Party hereby releases, acquits and forever discharges the Lender Released Parties from any and all Claims that any Credit Party may have or claim to have, relating to or arising out of or in connection with the Obligations or any Loan Documents or any other agreement or transaction contemplated thereby or any action taken in connection therewith from the beginning of time up to and including the date of the execution and delivery of this Amendment and Waiver. Each Credit Party further agrees forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against any Lender Released Parties with respect to any and all Claims. [signature pages follow] -6- IN WITNESS WHEREOF, this Amendment and Waiver has been duly executed and delivered as of the day and year first above written. RAWLINGS SPORTING GOODS COMPANY, INC. By: ------------------------------------------ Title: --------------------------------------- RAWLINGS CANADA, INCORPORATED By: ------------------------------------------ Title: --------------------------------------- RAWLINGS de COSTA RICA, S.A. By: ------------------------------------------ Title: --------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By: ------------------------------------------ Title: Duly Authorized Signatory LASALLE BANK NATIONAL ASSOCIATION, as Lender By: ------------------------------------------ Title: --------------------------------------- EX-10.7 5 c66314ex10-7.txt AMENDMENT NO. 6 TO THE CREDIT AGREEMENT EXHIBIT 10.7 EXECUTION COPY AMENDMENT NO. 6 TO CREDIT AGREEMENT AMENDMENT NO. 6 TO CREDIT AGREEMENT (this "Amendment"), dated as of September _, 2001, among RAWLINGS SPORTING GOODS COMPANY, INC., a Delaware corporation ("Borrower"); RAWLINGS CANADA, INCORPORATED, a Nova Scotia company ("Rawlings Canada"), the other Credit Parties signatory to the hereinafter defined Credit Agreement; GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders ("Agent"), and the other Lenders signatory to the hereinafter defined Credit Agreement. W I T N E S S E T H : WHEREAS, the Borrower, the other Credit Parties, the Agent and the Lenders are party to that certain Credit Agreement, dated as of December 28, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, on and subject to the terms and conditions hereof, Borrower and the other Credit Parties have requested that Agent and Lenders, and Agent and Lenders are willing to, amend certain provisions of the Credit Agreement, all as set forth herein; WHEREAS, this Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment; capitalized terms used herein without definition are so used as defined in Annex A to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. Amendment. (a) The definition of "Borrowing Base" in Annex A to the Credit Agreement is amended by deleting each reference therein to "November 1" and replacing each such reference with a reference to "August 10." (b) The definition of "Overadvance Period" in Annex A to the Credit Agreement is deleted in its entirety and replaced with the following new definition." "Overadvance Period" shall mean the period from August 10 until February 10 of each Fiscal Year. 2. Representations and Warranties of Credit Parties. In order to induce Agent and Lenders to enter into this Amendment, each Credit Party hereby jointly and severally represents and warrants to Agent and Lenders that: (a) Representations and Warranties. After giving effect to this Amendment, no representation or warranty of any Credit Party contained in the Credit Agreement or any of the other Loan Documents, including this Amendment, shall be untrue or incorrect in any material respect as of the date hereof, except to the extent that such representation or warranty expressly relates to an earlier date. (b) Authorization, etc. Each Credit Party has the power and authority to execute, deliver and perform this Amendment. Each Credit Party has taken all necessary action (including, without limitation, obtaining approval of its stockholders, if necessary) to authorize its execution, delivery and performance of this Amendment. No consent, approval or authorization of, or declaration or filing with, any Governmental Authority, and no consent of any other Person, is required in connection with any Credit Party's execution, delivery and performance of this Amendment, except for those already duly obtained. This Amendment has been duly executed and delivered by each Credit Party and constitutes the legal, valid and binding obligation of each Credit Party, enforceable against it in accordance with its terms. No Credit Party's execution, delivery or performance of this Amendment conflicts with, or constitutes a violation or breach of, or constitutes a default under, or results in the creation or imposition of any Lien upon the property of any Credit Party by reason of the terms of (i) any contract, mortgage, lease, agreement, indenture or instrument to which any Credit Party is a party or which is binding upon it, (ii) any law or regulation or order or decree of any court applicable to any Credit Party, or (iii) the certificate or articles of incorporation or by-laws of any Credit Party. (c) No Default. No Default or Event of Default has occurred or is continuing, or would result after giving effect hereto. 3. Conditions to Effectiveness. The effectiveness of this Amendment is expressly conditioned upon the satisfaction of each condition set forth in this Section 3 on or prior to the date hereof: (a) Documentation. Borrower shall have delivered to Agent (on behalf of itself and Lenders) duly executed originals of this Amendment. (b) No Default. No Default or Event of Default shall have occurred and be continuing, or would result after giving effect hereto. 4. Reference to and Effect on Loan Documents. (a) Ratification. Except as specifically provided in this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and each Credit Party hereby ratifies and confirms each such Loan Document. (b) No Waiver. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver or forbearance of any right, power or remedy of Agent or any Lender under the Credit Agreement or any of the other Loan Documents, or constitute a consent, waiver or modification with respect to any provision of the Credit Agreement or any of the other -2- Loan Documents. Upon the effectiveness of this Amendment each reference in (a) the Credit Agreement to "this Agreement," "hereunder," "hereof," or words of similar import and (b) any other Loan Document to "the Agreement" shall, in each case and except as otherwise specifically stated therein, mean and be a reference to the Credit Agreement as amended hereby. 5. Miscellaneous. (a) Successors and Assigns. This Amendment shall be binding on and shall inure to the benefit of the Credit Parties, Agent and Lenders and their respective successors and assigns, except as otherwise provided herein. No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of Agent and Lenders. The terms and provisions of this Amendment are for the purpose of defining the relative rights and obligations of the Credit Parties, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment. (b) Entire Agreement. This Amendment, including all schedules and other documents attached hereto or incorporated by reference herein or delivered in connection herewith, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other understandings, oral or written, with respect to the subject matter hereof. (c) Fees and Expenses. As provided in Section 11.3 of the Credit Agreement, Borrower agrees to pay on demand all fees, costs and expenses incurred by Agent in connection with the preparation, execution and delivery of this Amendment. (d) Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (e) Severability. Wherever possible, each provision of this Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. (f) Conflict of Terms. Except as otherwise provided in this Amendment, if any provision contained in this Amendment is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Amendment shall govern and control. (g) Counterparts. This Amendment may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. Delivery of an executed signature page to this Amendment by telecopy shall be effective as delivery of a manually executed signature page to this Amendment. -3- (h) Incorporation of Credit Agreement. The provisions contained in Sections 11.9 and 11.13 of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety, except with reference to this Amendment rather than the Credit Agreement. (i) Acknowledgment. Each Credit Party hereby acknowledges its status as a Credit Party and affirms its obligations under the Credit Agreement and represents and warrants that there are no liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages or costs, or expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent (collectively, the "Claims"), which any Credit Party may have or claim to have against Agent or any Lender, or any of their respective affiliates, agents, employees, officers, directors, representatives, attorneys, successors and assigns (collectively, the "Lender Released Parties"), which might arise out of or be connected with any act of commission or omission of the Lender Released Parties existing or occurring on or prior to the date of this Amendment, including, without limitation, any Claims arising with respect to the Obligations or any Loan Documents. In furtherance of the foregoing, each Credit Party hereby releases, acquits and forever discharges the Lender Released Parties from any and all Claims that any Credit Party may have or claim to have, relating to or arising out of or in connection with the Obligations or any Loan Documents or any other agreement or transaction contemplated thereby or any action taken in connection therewith from the beginning of time up to and including the date of the execution and delivery of this Amendment. Each Credit Party further agrees forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against any Lender Released Parties with respect to any and all Claims. [signature pages follow] -4- IN WITNESS WHEREOF, this Amendment No. 6 has been duly executed and delivered as of the day and year first above written. RAWLINGS SPORTING GOODS COMPANY, INC. By: ------------------------------------------- Title: ---------------------------------------- RAWLINGS CANADA, INCORPORATED By: ------------------------------------------- Title: ---------------------------------------- RAWLINGS DE COSTA RICA, S.A. By: ------------------------------------------- Title: ---------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By: ------------------------------------------- Title: Duly Authorized Signatory LASALLE BANK NATIONAL ASSOCIATION, as Lender By: ------------------------------------------- Title: ---------------------------------------- EX-21 6 c66314ex21.txt SUBSIDIARES OF THE COMPANY EXHIBIT 21 RAWLINGS SPORTING GOODS COMPANY, INC. Rawlings Sporting Goods Company, Inc., a Delaware corporation (the "Company") is the parent. The subsidiaries of the Company, each of which is wholly-owned by the Company, are as follows:
Jurisdiction of Incorporation Name or Organization - -------------------------------------------------------------- ----------------------------------- Rawlings de Costa Rica Costa Rica Rawlings Sporting Goods Company of Missouri Missouri Rawlings Canada, Inc. Nova Scotia
50 EX-23 7 c66314ex23.txt CONSENF OF ARTHUR ANDERSEN LLP EXHIBIT 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K, into the Company's previously filed Registration Statements File Nos. 333-70368, 333-43124, 33-86354 and 33-83958. Arthur Andersen LLP St. Louis, Missouri, November 26, 2001 51 -----END PRIVACY-ENHANCED MESSAGE-----