<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Commission file number: 0-19298
RIDDELL SPORTS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2890400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1450 Broadway, Suite 2001, New York, NY, 10018
(Address of principal executive offices) (Zip code)
(212) 921-8101
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[ X ] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
9,452,250 Common Shares as of November 13, 2000
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RIDDELL SPORTS INC.
INDEX
Page
Form 10-Q Cover Page . . . . . . . . . . . . . . . . . . . . . . . . 1
Form 10-Q Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity . 5
Condensed Consolidated Statements of Cash Flows . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 10
Part II. Other Information:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain statements which are "forward-looking"
statements under the federal securities laws that are based on the beliefs of
management as well as assumptions made by and information currently available
to management. Forward-looking statements appear in Note 5 of Notes to
Condensed Consolidated Financial Statements and throughout Item 2 of Part I,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning Riddell's determination of product liability reserves,
the seasonal patterns of working capital and revenue and operating results in
its business. Certain factors could cause actual results to differ materially
from those forward-looking statements including without limitation, (i)
continuation of historical patterns of demand for Riddell's products and
Riddell's ability to meet the demand; (ii) actions by competitors, including
without limitation new product introductions; (iii) the loss of domestic or
foreign suppliers; (iv) changes in business strategy or new product lines and
Riddell's ability to successfully implement same; (v) the outcome of pending
product liability claims and potential future claims; and (vi) changes in
interest rates and general economic conditions. Riddell does not intend to
update these forward-looking statements.
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<PAGE> 3
Part 1. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTIONS>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, December 31, September 30,
2000 1999 1999
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $1,649 $513 $ 368
Accounts receivable, trade, less allowance for doubtful
accounts ($1,620, $1,863 and $1,619 respectively) . . . . 63,387 32,524 56,064
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 33,391 33,388 30,356
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 4,468 7,578 4,435
Other receivables . . . . . . . . . . . . . . . . . . . . . 1,764 2,020 1,612
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . 2,076 2,076 271
--------- --------- ---------
Total current assets . . . . . . . . . . . . . . . . 106,735 78,099 93,106
Property, plant and equipment, less accumulated
depreciation ($11,869, $9,723 and $9,086 respectively) . . . 8,213 7,771 8,095
Intangibles and deferred charges, less accumulated
amortization ($20,974, $17,893 and $16,903 respectively) . . 103,197 105,952 106,674
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,107 2,514 2,425
--------- --------- ---------
$221,252 $194,336 $ 210,300
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $16,519 $10,318 $ 14,224
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 10,854 11,783 10,876
Customer deposits . . . . . . . . . . . . . . . . . . . . . 3,299 6,090 2,896
--------- --------- ---------
Total current liabilities . . . . . . . . . . . . . 30,672 28,191 27,996
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 150,339 136,097 145,144
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . 2,076 2,076 271
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,040 3,107 3,254
Contingent liabilities (Note 6) . . . . . . . . . . . . . . . . - - -
Stockholders' equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . - - -
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 95 93 93
Additional paid in capital . . . . . . . . . . . . . . . . . 37,306 36,862 36,849
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (2,276) (12,090) (3,307)
--------- --------- ---------
35,125 24,865 33,635
--------- --------- ---------
$221,252 $194,336 $ 210,300
========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTIONS>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Net sales, products and reconditioning . $61,586 $56,253 $150,110 $132,767
Camps and events . . . . . . . . . . . . 26,282 23,546 51,477 46,219
Royalty income . . . . . . . . . . . . . 312 166 892 764
--------- --------- --------- ---------
88,180 79,965 202,479 179,750
--------- --------- --------- ---------
Cost of revenues:
Products and reconditioning . . . . . . . 34,528 30,609 84,483 72,993
Camps and events . . . . . . . . . . . . 17,965 16,445 35,122 31,976
--------- --------- --------- ---------
Cost of sales . . . . . . . . . . . . . . . . 52,493 47,054 119,605 104,969
--------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . 35,687 32,911 82,874 74,781
Selling, general and
administrative expenses . . . . . . . . . . 21,314 18,909 60,571 54,024
--------- --------- --------- ---------
Income from operations . . . . . . . . . . . 14,373 14,002 22,303 20,757
Interest expense . . . . . . . . . . . . . . 4,281 3,923 12,489 11,668
--------- --------- --------- ---------
Income before taxes . . . . . . . . . . . . . 10,092 10,079 9,814 9,089
Income taxes . . . . . . . . . . . . . . . . - 905 - 905
--------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . . . $10,092 $ 9,174 $9,814 $ 8,184
========= ========= ========= =========
Net earnings per share :
Basic . . . . . . . . . . . . . . . . $1.07 $0.99 $1.05 $0.88
Diluted . . . . . . . . . . . . . . . $0.92 $0.86 $0.93 $0.78
Weighted average number of common and
common equivalent shares outstanding:
Basic . . . . . . . . . . . . . . . . 9,449 9,259 9,369 9,259
Diluted . . . . . . . . . . . . . . . 11,111 10,745 10,852 10,862
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTIONS>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
Retained
Common Stock Additional earnings Total
--------------------- paid in (Accumulated Stockholders'
Shares Amount capital deficit) equity
-------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the nine months ended September 30, 1999:
Balance, January 1, 1999 . . . . 9,259 $ 93 $ 36,849 ($11,491) $ 25,451
Net income for the period . . - - - 8,184 8,184
-------- -------- ----------- ---------- ----------
Balance, September 30, 1999 . . 9,259 $ 93 $36,849 ($3,307) $33,635
======== ======== =========== ========== ==========
For the nine months ended September 30, 2000:
Balance, January 1, 2000 . . . 9,263 $ 93 $ 36,862 ($ 12,090) $ 24,865
Stock issued to employees . . 54 - 169 - 169
Issuance of common stock upon
exercise of stock options . 135 2 275 - 277
Net income for the period . . - - - 9,814 9,814
-------- -------- ----------- ---------- ----------
Balance, September 30, 2000 . . 9,452 $ 95 $ 37,306 ($ 2,276) $ 35,125
======== ======== =========== ========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTIONS>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . $10,092 $9,174 $9,814 $8,184
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization:
Amortization of debt issue costs . . . . 216 223 648 633
Other depreciation and amortization . . . 1,589 1,468 4,579 4,285
Provision for losses on accounts receivable 459 277 959 718
Deferred taxes . . . . . . . . . . . . . . - 905 - 905
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable, trade . . . . . . 4,363 2,959 (31,822) (28,766)
Inventories . . . . . . . . . . . . . . 7,975 7,909 20 (1,593)
Prepaid expenses . . . . . . . . . . . 2,269 3,183 3,118 2,058
Other receivables . . . . . . . . . . . 69 2 256 32
Other assets . . . . . . . . . . . . . 175 98 (593) (741)
Increase (decrease) in:
Accounts payable . . . . . . . . . . . (3,883) (2,776) 6,171 1,480
Accrued liabilities . . . . . . . . . . (2,237) (2,248) (773) (377)
Customer deposits . . . . . . . . . . . (11,396) (7,449) (2,836) (3,065)
Other liabilities . . . . . . . . . . (40) - (67) (300)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities . . . . . . . 9,651 13,725 (10,526) (16,547)
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . (554) (601) (2,438) (2,097)
Other . . . . . . . . . . . . . . . . . . (43) - (419) (419)
--------- --------- --------- ---------
Net cash used in investing activities (597) (601) (2,857) (2,516)
--------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under
line-of-credit agreement . . . . . . . . . (8,870) (14,321) 14,242 18,244
Debt issue costs . . . . . . . . . . . . . . - (33) - (565)
Proceeds from issuance of common stock . . . 21 - 277 -
--------- --------- --------- ---------
Net cash provided by financing activities (8,849) (14,354) 14,519 17,679
--------- --------- --------- ---------
Net increase (decrease) in cash . . . . . . . . 205 (1,230) 1,136 (1,384)
Cash, beginning . . . . . . . . . . . . . . . . . 1,444 1,598 513 1,752
--------- --------- --------- ---------
Cash, end . . . . . . . . . . . . . . . . . . $1,649 $368 $1,649 $368
========= ========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 7
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
The condensed consolidated financial statements include the accounts of
Riddell Sports Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. These statements
are unaudited, and in the opinion of management include all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation of Riddell's condensed consolidated financial position and the
condensed consolidated results of its operations and cash flows at September
30, 2000 and 1999 and for the periods then ended. Certain information and
footnote disclosures made in Riddell's last Annual Report on Form 10-K have
been condensed or omitted for these interim statements. Accordingly, these
condensed consolidated financial statements should be read in conjunction with
Riddell's Annual Report on Form 10-K for the year ended December 31, 1999.
Operating results for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected during the remainder of
2000.
2. Earnings per share
Basic earnings per share amounts have been computed by dividing earnings
by the weighted average number of outstanding common shares. Diluted earnings
per share is computed by adjusting earnings for the effect of the assumed
conversion of dilutive securities and dividing the result by the weighted
average number of common shares and common equivalent shares relating to
dilutive securities. A reconciliation between the numerators and denominators
for these calculations follows:
<TABLE>
<CAPTIONS>
Three months ended Nine months ended
September 30, September 30,
------------------ --------------------
2000 1999 2000 1999
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Earnings - numerator:
Net income $10,092 $9,174 $9,814 $8,184
Effect of assumed conversion of convertible debt,
interest savings net of tax 105 105 314 314
------- ------- ------- -------
Numerator for diluted per share computation $10,197 $ 9,279 $10,128 $8,498
======= ======= ======= =======
Shares - denominator:
Weighted average number of outstanding common shares 9,449 9,259 9,369 9,259
Weighted average common equivalent shares:
Options, assumed exercise of dilutive options net of
treasury shares which could have been purchased
from the proceeds of the assumed exercise based
on average market prices 267 91 88 208
Convertible debt, assumed conversion 1,395 1,395 1,395 1,395
------- ------- ------- -------
Denominator for diluted per share computation 11,111 10,745 10,852 10,862
======= ======= ======= =======
</TABLE>
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<PAGE> 8
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Receivables
Accounts receivable include unbilled shipments of approximately
$3,612,000, $1,315,000 and $3,053,000 at September 30, 2000, December 31, 1999
and September 30, 1999, respectively. It is Riddell's policy to record
revenues when the related goods have been shipped. Unbilled shipments
represent receivables for shipments that have not yet been invoiced. These
amounts relate principally to partial shipments to customers who are not
invoiced until their order is shipped in its entirety or customers with orders
containing other terms that require a deferral in the issuance of an invoice.
Management believes that substantially all of these unbilled receivables will
be invoiced within the current sales season.
4. Inventories
Inventories consist of the following:
(In thousands) Sept. 30, Dec. 31, Sept. 30,
2000 1999 1999
-------- --------- ---------
Finished goods $20,409 $20,459 $18,696
Work-in-process 3,454 3,088 1,878
Raw materials 9,528 9,841 9,782
-------- --------- ---------
$33,391 $33,388 $ 30,356
======== ========= =========
5. Litigation matters and contingencies
At September 30, 2000, Riddell was a defendant in 8 product liability suits
relating to personal injuries allegedly related to the use of helmets
manufactured or reconditioned by subsidiaries of Riddell. The ultimate outcome
of these claims, or potential future claims, cannot presently be determined.
Riddell estimates that the uninsured portion of future costs and expenses
related to these claims, and incurred but not reported claims, will amount to
at least $4,100,000 and, accordingly, a reserve in this amount is included in
the Condensed Consolidated Balance Sheet at September 30, 2000, as part of
accrued liabilities and other liabilities. These reserves are based on
estimates of losses and defense costs anticipated to result from such claims,
from within a range of potential outcomes, based on available information,
including an analysis of historical data such as the rate of occurrence and the
settlement amounts of past cases. However, due to the uncertainty involved
with estimates actual results have at times varied substantially from earlier
estimates and could do so in the future. Accordingly there can be no assurance
that the ultimate costs of such claims will fall within the established
reserves.
6. Supplemental cash flow information
Cash paid for interest was $7,036,000 and $7,075,000 for the quarterly
periods ended September 30, 2000 and 1999, respectively, and $14,730,000 and
$14,043,000 for the nine-month periods ended September 30, 2000 and 1999,
respectively. Income tax payments, or refunds, were not significant for the
periods ended September 30, 2000 and 1999.
8
<PAGE> 9
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the nine-month period ended September 30, 2000, Riddell issued shares
of its common stock, valued at $169,000 based on quoted market values at the
time of grant, to certain employees in satisfaction of an accrual for
compensation included in accrued liabilities at December 31, 1999.
7. Segment information:
Net revenues and income or loss from operations for the Company's three
reportable segments are as follows:
<TABLE>
<CAPTIONS>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Net revenues:
Extracurricular products and services . . $81,954 $74,647 $188,607 $166,786
Retail products . . . . . . . . . . . . . 5,906 5,152 12,972 12,200
Trademark licensing . . . . . . . . . . . 312 166 892 764
Other . . . . . . . . . . . . . . . . . . 8 - 8 -
--------- --------- --------- ---------
Consolidated total . . . . . . . . . $88,180 $79,965 $202,479 $179,750
========= ========= ========= =========
Income (loss) from operations:
Extracurricular products and services . . $14,801 $14,744 $25,464 $22,946
Retail products . . . . . . . . . . . . . 910 659 761 676
Trademark licensing . . . . . . . . . . . 149 (48) 338 191
Corporate and unallocated expenses . . . (1,487) (1,353) (4,260) (3,056)
--------- --------- --------- ---------
Consolidated total . . . . . . . . . $14,373 $14,002 $22,303 $20,757
========= ========= ========= =========
</TABLE>
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview and seasonality
Operations for the nine-month period ended September 30, 2000 resulted in
net income of $9.8 million, or $0.93 per share on a diluted basis, a 20%
increase in comparison to net income of $8.2 million, or $0.78 per share on a
diluted basis, for the first nine months of 1999. Net income for the nine-
month period of 1999 included a $905,000 tax provision relating to an
adjustment in the valuation of deferred taxes whereas no tax expense was
accrued for the nine-month period of 2000 because of Riddell's existing tax
loss carryforwards.
Income before taxes for the nine-month period of 2000 increased 8%, or
$0.7 million to $9.8 million from $9.1 million in the first nine months of
1999. In the third quarter, income before taxes was approximately the same for
the third quarters of both 2000 and 1999 at $10.1 million.
For the first nine months of 2000, Riddell benefitted from increased
revenues and declining selling, general and administrative expenses as a
percentage of sales, as described in more detail in the discussion which
follows this overview. The improvements in net income and income before taxes
in 2000 were achieved in spite of increased expenses relating to Riddell's new
Internet sites and the costs of a canceled rights offering. Internet expenses
were $0.5 million in the third quarter, and $1.3 million in the nine-month
period of 2000, as compared to $0.2 million in both the third quarter and nine
month period of 1999. Costs relating to the rights offering of $0.3 million
were charged to expense earlier this year when the rights offering was
canceled. Pre-tax income before these expenses would have been $11.4 million
in the nine-month period of 2000, an increase of 24% over the first nine months
of 1999 and in the third quarter of 2000 would have been $10.6 million, an
increase of 3% over the third quarter of 1999.
The third quarter has typically been Riddell's most profitable quarter.
In recent years, operations have been most profitable in the second and third
quarters, with the third quarter typically the strongest, and losses have been
incurred in the first and fourth quarters. Factors influencing this seasonal
pattern were discussed in our last Annual Report on Form 10-K.
Revenues
Revenues for the three-month period ended September 30, 2000 increased
10%, or $8.2 million, to $88.2 million from $80.0 million in the third quarter
of 1999. For the nine-month period ended September 30, 2000 revenues increased
13%, or $22.7 million, to $202.5 million from $179.8 million in the first nine
months of 1999.
Most of the revenue gains for both periods came from our extracurricular
segment where sales increased 10%, or $7.3 million, to $82.0 million in the
third quarter of 2000 from $74.7 million in the third quarter of 1999. For the
nine-month period, extracurricular revenues increased 13%, or $21.8 million,
to $188.6 million in the first nine months of 2000 from $166.8 million in the
first nine months of 1999. All extracurricular product lines showed sales
increases over the year-ago periods. Increased unit volume and higher camp
attendance accounted for most of the revenue growth, with modest price
increases contributing to a lesser extent.
10
<PAGE> 11
Extracurricular revenue gains included an increase in school spirit
revenues of $6.8 million, or 13%, in the third quarter and $13.6 million, or
13%, in the nine-month period with both periods reflecting gains in both our
uniform and accessory product lines and in our camp and event operations.
Sales of team sports products and services increased $8.2 million, or 13%, in
the first nine months of 2000. Since most of the team sports sales gains
occurred earlier in the year, the third quarter increase was a more modest gain
of 2%, or $0.5 million over the third quarter of 1999. Team sports gains for
the first nine-months of 2000 included sales increases from Umbro-branded team
soccer products, other athletic clothing and our historical reconditioning and
new equipment businesses.
Retail segment revenues increased $0.8 million, or 15%, in the third
quarter and $0.8, or 6% in the nine-month period. The increases related to
sales of sports collectible products which were offset in part, by an internal
shift in the responsibility for certain international customers of athletic
equipment to the extracurricular segment.
Revenues from trademark licensing increased by $146,000 to $312,000 in the
third quarter and by $128,000 to $892,000 in the nine-month period.
Gross Profit
Gross profit for the third quarter of 2000 increased by 8% to $35.7
million from $32.9 million in the 1999 quarter and for the nine-month period
increased by 11% to $82.9 million in 2000 from $74.8 million in 1999. Gross
margin rates for the quarter decreased by 0.7 points to 40.5% in the third
quarter of 2000 from 41.2% in the third quarter of 1999. For the year-to-date
period, gross margin rates also decreased by 0.7 points, to 40.9% in the first
nine months of 2000 from 41.6% in the first nine months of 1999. While the
margin rate for the retail segment improved, this gain was offset by lower
margins in the substantially larger extracurricular segment.
Gross margin rates for the extracurricular segment decreased to 40.2% in
the third quarter of 2000 from 41.2% in the third quarter of 1999. For the
nine-month period the segment's margin rates decreased to 40.8% in 2000 from
41.7% in the first nine months of 1999. These decreases were largely due to a
shift in product mix, as a portion of the segment's revenue gains occurred in
product lines which carry below average margins. Margins from reconditioning
operations were also lower in 2000, as we continued to incur expenses from
facilities slated for closure while we brought our new, more-efficient
reconditioning facility online. While selling prices for extracurricular
products and services were generally higher, margins were also negatively
impacted by the sale of some discontinued Umbro products at a lower than normal
margins.
Gross margin rates for the retail segment increased to 40.9% in the third
quarter of 2000 from 38.4% in the third quarter of 1999. For the nine-month
period the segment's margin rates increased to 38.1% in 2000 from 36.2% in the
first nine months of 1999. These gains related to shifts in product mix as the
segment had revenue gains in product lines with above average margins and
decreases in sales of product lines with below average margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to 24.2% of
revenues in the third quarter of 2000 from 23.6% in the third quarter of 1999,
primarily as a result of higher Internet spending in 2000 than in 1999.
Without the increased Internet costs our selling, general and administrative
expenses would have been 23.8% in the third quarter of 2000.
11
<PAGE> 12
For the nine-month period selling, general and administrative expenses
decreased as a percentage of revenues to 29.9% of revenues from 30.1% in the
first nine months of 1999. The year-to-date improvement is principally due to
the positive operating leverage which occurs as increased revenues more
efficiently absorb the fixed and relatively-fixed portions of expenses. The
year-to-date improvement was achieved in spite of higher Internet expenses than
last year and the costs of the canceled rights offering discussed in the
overview above. Without these increased costs our selling, general and
administrative expenses would have been 29.2% in the first nine months of 2000.
Selling, general and administrative expenses rates for the extracurricular
segment increased to 22.1% of revenues in the third quarter of 2000 from 21.5%
in the third quarter of 1999. For the nine-month period the segment's selling,
general and administrative expenses decreased to 27.3% of revenues in 2000 from
28.0% in the first nine months of 1999. The year-to-date gains were due to
improved operating leverage as discussed in the preceding paragraph. The
increase during the quarter for the segment related to the timing of expenses
and revenue increases within the year-to-date period. Expenses were also
impacted by increased expenses related to Riddell's expansion in its team
sports uniform and studio dance lines.
Selling, general and administrative expenses rates for the retail segment
were 25.5% of revenues in the third quarter of 2000 in comparison to 25.6% in
the third quarter of 1999. For the nine-month period the segment's expense
rate increased to 32.2% in 2000 from 30.6% in the first nine months of 1999.
Higher marketing expenses resulted in an increase in the expense rate for the
year-to-date period.
Interest Expense
Interest expense increased by $0.4 million to $4.3 million in the third
quarter of 2000 from $3.9 million in the third quarter of 1999. For the nine-
month period ended September 30, 2000, interest expense increased by $0.8
million to $12.5 million from $11.7 million in the first nine months of 1999.
The increases for both the third quarter and nine-month periods related to
interest costs on our revolving line of credit which increased due to higher
outstanding indebtedness during the periods and increases in the prime and
Libor interest rates. Outstanding indebtedness increased in line with working
capital demands related to our line of Umbro-branded team soccer products,
which was still in its initial start-up phase in the early part of 1999, and
volume growth in other product lines.
Income Taxes
Operating results for the third quarter and first nine months 2000
included no income tax expense or credit because of our existing net operating
loss carryforwards, while a $905,000 tax charge was taken in the third quarter
of 1999, as discussed above.
Liquidity and Capital Resources
The seasonality of our working capital needs is impacted by three key
factors. First, a significant portion of the products we sell in the
extracurricular segment are sold throughout the year on dated-payment terms,
with the related receivables mostly becoming due during the July to October
period, as the new the school year approaches. Second, we incur costs relating
to our summer camp business from the fourth quarter and into the second quarter
as we prepare for the upcoming camp season, while camp revenues are mostly
collected in the June to August period. Lastly, our debt structure impacts our
working capital requirements, as the semi-annual interest payments on our $115
million, 10.5% Senior Notes come due each January and July.
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To finance these seasonal working capital demands, we maintain a credit
facility in the form of a revolving line of credit. The outstanding balance on
the credit facility usually follows the seasonal cycles described above,
increasing during the early part of the operating cycle in the first and second
quarters of each year and then decreasing from the middle of the third quarter
and into the fourth quarter as collections are used to reduce the outstanding
balance.
At September 30, 2000 the outstanding balance under the credit facility
was $27.8 million. This compares with outstanding balances of $13.6 million at
December 31, 1999 and $22.6 million at September 30, 1999. The change in the
outstanding balance between December 31, 1999 and September 30, 2000 reflects
the seasonal working capital pattern presented above. The increase in the
outstanding balance between September 30, 2000 and September 30, 1999 reflects
increased working capital demands related to our volume growth. Net borrowings
on the facility during the first nine months of 2000 were $4.0 million lower
than the year-ago period, in line with a $6.0 million decline in net cash used
in operating activities between the two periods. The principal differences in
cash flows from operating activities are that in 1999 we drew funds to finance
the initial working capital needs of our Umbro operations.
Our current debt service obligations are significant and, accordingly, our
ability to meet our debt service and other obligations will depend on our
future performance and is subject to financial, economic and other factors,
some of which are beyond our control. Furthermore, due to the seasonality of
our working capital demands described above, year-over-year growth in our
business and working capital could lead to higher debt levels in future
periods. We believe that operating cash flow together with funds available
from our credit facility will be sufficient to fund our current debt service,
seasonal and other current working capital requirements. However, many
factors, including growth and expansion of our business, could necessitate the
need for increased lines of credit or other changes in our credit facilities in
the future.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in certain product liability proceedings and
from time to time becomes involved in various claims and lawsuits incidental to
its business including, without limitation, product liability, personal injury
and employment-related litigation. See Note 5 of "Notes to Condensed
Consolidated Financial Statements".
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit index:
27 Financial Data Schedule (submitted in electronic form to
SEC only)
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIDDELL SPORTS INC.
Date: November 13, 2000 By /s/ DAVID MAUER
----------------------
David Mauer
President and
Chief Executive Officer
Date: November 13, 2000 By /s/ DAVID GROELINGER
----------------------
David Groelinger
Executive Vice President and
Chief Financial Officer
Date: November 13, 2000 By /s/ LAWRENCE F. SIMON
----------------------
Lawrence F. Simon
Senior Vice President
(Principal Accounting Officer)
15
