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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
TO THE
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 0-19596
THE HOCKEY COMPANY
(Formerly SLM INTERNATIONAL, INC.)
(Exact name of registrant as specified in its charter)
Delaware 13-36-32297
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Maska U.S., Inc., 929 Harvest Lane, P.O. Box 1200, Williston, VT 05495
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 872-4226
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
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 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 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 statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 26, 1999 has not been determined due to the extremely
limited trading volume in the Registrant's Common Stock; however, 658,500 shares
of the voting stock were held by non-affiliates of the registrant on March 26,
1999.
As of March 26, 1999, 6,500,507 shares of the Registrant's Common Stock, $.01
par value per share, were outstanding.
Documents Incorporated By Reference
NONE
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<PAGE>
TABLE OF CONTENTS
Page
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PART I
Item 1. Business...........................................................1
Item 2. Properties.........................................................5
Item 3. Legal Proceedings..................................................6
Item 4. Submission of Matters to a Vote of Security Holders................8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................8
Item 6. Selected Financial Data............................................8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................11
Item 8. Financial Statements and Supplementary Data.......................20
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................61
PART III
Item 10. Directors and Executive Officers of the Registrant................62
Item 11. Executive Compensation............................................64
Item 12. Security Ownership of Certain Beneficial Owners and Management....67
Item 13. Certain Relationships and Related Transactions....................68
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................68
<PAGE>
PART I
Item 1. Business
Overview
The Hockey Company ("THC" or the "Company") was incorporated in September 1991
and reorganized in April 1997.
On January 31, 1999, the Board of Directors of THC adopted an amendment to the
Company's Certificate of Incorporation by unanimous written consent to change
the name of the Company from SLM International, Inc. to The Hockey Company. The
amendment was filed with the Secretary of State of the State of Delaware on
February 9, 1999.
The operations of THC and its subsidiaries (collectively, the "Company") include
the design, development, manufacturing and marketing of a broad range of
sporting goods. The Company manufactures hockey and hockey related products,
including hockey uniforms, hockey sticks, protective equipment, hockey, figure
and inline skates and street hockey products, marketed under the CCM(R),
Koho(R), Jofa(R), Titan(R), Canadien(R) and Heaton(R) brand names, and private
label brands and licensed sports apparel under the CCM(R), and #1 Apparel(TM)
names.
The Company sells its products worldwide to a diverse customer base consisting
of mass merchandisers, retailers, wholesalers, sporting goods shops and
international distributors. The Company manufactures and distributes most of its
products at facilities in North America, Finland and Sweden and sources products
internationally.
Reorganization Case
THC and six of its subsidiaries (collectively, "Old THC") filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code (the
"Filing") in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on October 24, 1995 (the "Petition Date"). The
Bankruptcy Court entered an order authorizing the joint administration of Old
THC's Chapter 11 cases (the "Chapter 11 Cases"). On September 12, 1996, Old THC
filed a Chapter 11 Plan of Reorganization and on November 13, 1996, Old THC
filed a First Amended Chapter 11 Plan of Reorganization, as amended from time to
time (the "Reorganization Plan"), with the Bankruptcy Court. On January 23,
1997, the Bankruptcy Court confirmed the Reorganization Plan which became
effective on April 11, 1997 (the "Effective Date") and Old THC emerged from
bankruptcy ("New THC"). See Note 2b) to the Notes to Consolidated Financial
Statements, page 38.
Fresh-Start Accounting
In connection with the emergence from bankruptcy, the Company adopted
fresh-start reporting, as of April 11, 1997, in accordance with the requirements
of Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code ("SOP 90-7"). See Note 21 to the Notes to Consolidated
Financial Statements, page 56.
1
<PAGE>
Operations
Industry Background
The worldwide hockey equipment market is estimated at approximately $500 million
and is divided into the following segments:
Ice hockey skates $160 Million (33%)
Protective equipment $140 Million (27%)
Hockey sticks $120 Million (23%)
Goaltender's equipment $ 30 Million ( 6%)
Roller hockey skates $ 50 Million (11%)
The NHL(R) licensed business represents approximately $1.2 billion of the
estimated $4 billion North American licensed business. Approximately 58% or $700
million of the NHL(R) licensed sales consists of apparel.
Strategy
The Company's strategy with respect to hockey products is to maximize the
visibility of its brand names in the NHL(R) and other professional and amateur
hockey leagues. This strategy is based upon the Company's belief that the high
visibility of its brand names leads to greater retail sales of its hockey
products. The Company's brands appear on players' helmets, jerseys, pants,
gloves, skates, sticks and goaltenders' equipment. Unlike some of its
competitors, the Company has pursued a strategy of a limited number of player
endorsees, and enhancing its relationships with the major hockey leagues.
Hockey Skates
The Company markets a range of hockey and figure skates from professional
caliber premium hockey skates to popular priced figure and recreational hockey
skates. Most of these products, including the TACKS(R) line of premium hockey
skates, are sold under the CCM(R) brand. The Company estimates that during the
1998-1999 season more than 35% of NHL(R) players are wearing its hockey skates.
The Company also manufactures private label skates using specific retailers'
brand names, as well as the CCM(R), Koho(R) and Jofa(R) brands. The Company
believes that it was the second largest manufacturer of hockey and figure skates
in North America in 1998, based on units sold.
Protective Equipment
The Company manufactures and markets a complete line of hockey helmets, pants,
shin pads, shoulder pads, elbow pads and gloves. These products are marketed
under the CCM(R), Jofa(R), Koho(R) and Canadien(TM) brand names. The Company
estimates that during the 1998-1999 hockey season, more than 50% of NHL(R)
players are using its hockey pants, gloves or helmets, and more than 80% are
using its shin, shoulder and elbow pads.
2
<PAGE>
Hockey Sticks
The Company manufactures and markets wood-fiberglass hockey sticks and
replacement blades under the CCM(R), Heaton(R), Koho(R), Titan(R) and
Canadien(TM) brands. The Company estimates that it is the largest hockey stick
manufacturer in the world, manufacturing sticks in its facilities in Cowansville
and Drummondville, Quebec, Canada, and Forssa, Finland. It has been an innovator
in manufacturing technology.
Goaltenders' Equipment
The Company manufactures and markets a complete range of goaltenders' equipment
under the Heaton(R) and Koho(R) brands. The product offering includes skates,
leg pads, catch mitts, blockers, pants, masks and arm and body protectors. The
Company has grown rapidly in this segment, and has become an industry leader.
Sports Apparel
Hockey Apparel. The Company markets a broad range of hockey apparel under the
CCM(R) brand, including authentic and replica NHL(R) hockey jerseys for all
NHL(R) teams which are sold pursuant to certain license agreements with the
NHL(R). The Company also manufactures the authentic jerseys that are used by
eight teams in the East Coast Hockey League and most major NCAA hockey teams, as
well as many amateur hockey teams in North America. These authentic and replica
jerseys are sold primarily through retailers. The Company believes that it is
among the world's largest manufacturers of hockey jerseys (authentic, replica
and amateur gamewear) based on total dollars and units sold.
#1 Apparel(TM). The Company's #1 Apparel division manufactures and markets a
high quality line of baseball style caps, jackets and other casual apparel using
its own designs and graphics under licenses from the NHL(R), IHL, AHL, ECHL,
major colleges and universities and the NCAA. This division also operates a
corporate, premium business, selling to major corporations in North America.
Sales and Marketing
The Company's products are sold throughout the world. In North America, the
Company sells to more than 4,000 customers, including independent sporting goods
stores, cooperative buying groups, mass merchandisers, sporting goods chains,
department stores and wholesalers. Internationally, the Company has selling
offices in France, Sweden and Finland and distributors in 28 countries in
Europe, South America, Central America, Africa, Australia and the Far East.
Sporting goods products are sold to certain large customers by the Company's
in-house sales staff, while other accounts are serviced by an extensive network
of approximately 90 independent sales representatives. In 1998, no single
account represented more than 10% of the Company's consolidated net sales. The
Company distributes its products from distribution centers in the United States,
Canada, Finland and Sweden.
Retail sales of hockey products are seasonal, with the majority of retail sales
occurring in the second and third calendar quarters.
General
Timing of Orders
The timing of orders is largely influenced by the degree of consumer demand for
product lines, inventory levels of retailers, marketing strategies, seasonality
and overall economic conditions. The major period during which the Company
receives its booking orders is January to April.
3
<PAGE>
Trademarks, Patents and Licenses
The principal trademarks used by the Company are listed in the table set forth
below. All are owned by the Company except for the "CCM(R)" trademarks which are
owned by CCM Holdings (1983) Inc., which in turn is 50% owned by the Company
through certain of its subsidiaries. The remaining 50% is owned by an
unaffiliated Canadian company. All of the trademarks, including the "CCM(R)"
trademark, are exclusive and perpetual for the product categories indicated. All
of the trademarks, excluding the "CCM(R)" trademark, are also royalty free. The
"CCM(R)" trademark carries a nominal annual fixed fee due to CCM Holdings (1983)
Inc. which is not based on sales.
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Trademarks Category
CCM(R) Hockey apparel, ice and roller hockey protective
equipment, ice figure and roller hockey skates, ice and
roller hockey sticks and related accessories
Canadien(R) Hockey sticks, protective equipment and related
accessories
Heaton(R) Goalie protective equipment, goaltender sticks and
related accessories
Jofa(R) Ice skates and roller hockey sticks, protective
equipment and related accessories
Koho(R) Ice and roller hockey skates, protective equipment
(including goaltender equipment), ice and roller hockey
sticks and related accessories
Titan(R) Ice hockey sticks and related accessories
# 1 Apparel(TM) Apparel
- --------------------------------------------------------------------------------
The Company's principal license agreements are with National Hockey League
Enterprises, L.P. ("NHLE") and the National Hockey League Players Association
("NHLPA"). Under the NHLE agreements the Company has the right to use NHL(R)
team logos, names and designs on hockey jerseys, headwear and accessories.
Beginning with the 1999-2000 season, the Company has signed a "Center Ice"
license agreement with the NHLE allowing it to market t-shirts, golf shirts,
workout wear, outerwear & activewear bearing NHL(R) logos, names and designs.
The Company also manufactures and markets hockey protective equipment under
license from the NHLE. The protective equipment includes two categories, "Center
Ice", also referred to as "the official equipment worn by the NHL(R)" in the
shoulder, elbow and shinguard categories and "Licensed Equipment", in the same
three categories sold at more popular price points and targeted at the youth
market.
Under the NHLPA agreements, the Company has the right to use NHL(R) player names
and numbers on NHL(R) licensed jerseys.
The NHLE agreements provide the Company with the exclusive right to market and
sell a) the authentic jerseys for 10 NHL(R) teams in the 1998-1999 season, and
15 NHL teams beginning with the 1999-2000 season, b) the authentic and replica
NHL(R) All-Star game jerseys and c) the authentic and replica practice jerseys.
They also provide the non-exclusive right to market and sell replica jerseys,
headwear and accessories for all NHL(R) teams.
The NHLE agreements expire on June 30, 2004. The NHLPA agreements expire on
June 30, 1999. The Company presently believes that this agreement will be
renewed in the ordinary course.
4
<PAGE>
Manufacturing and Sourcing
North America. The Company manufactures and distributes the majority of its
products in 12 facilities located in Vermont, Ontario and Quebec. Collectively
these facilities have capabilities for knitting, cutting, sewing, embroidery,
silk screen printing, injection and vacuum molding, skate and equipment
manufacturing, and hockey stick manufacturing.
Foreign. The Company manufactures and distributes some of its products in three
facilities in Sweden and Finland. In addition, the Company sources products from
China, Hong Kong, Korea, Taiwan, Thailand, the Philippines and the Czech
Republic.
The Company currently has one supplier who is responsible for products which are
included as components in more than 10% of the Company's consolidated net sales.
The Company has mitigated associated risks through retention of title and
ownership of the tools and molds used in the process and, if required, could
transition the process to other suppliers with no significant effect on the
Company's operations.
Research and Product Development
The majority of the Company's products are conceived of and developed at its own
facilities, or are developed jointly with third party inventors. The Company
operates research and development facilities in St. Jean, Quebec and Malung,
Sweden. The employees include designers, engineers and model makers. These
facilities include testing equipment, woodworking, spray painting, molding and
sculpting capabilities, and have creative services departments which are
responsible for packaging, catalogue design and development.
Competition
The sporting goods industry is highly fragmented. The Company competes with
numerous companies in team related sporting goods, equipment and sports apparel.
The Company is renowned for its high quality and innovative products and
provides high levels of service to its customers. The Company competes directly
with a number of ice hockey and roller hockey specific vendors. The Company's
major competitors are Bauer/Nike/Hockey Inc., Easton Sports, Mission, Sherwood
and Vaughn.
In NHL(R) licensed apparel, the Company competes with Starter Inc. and
Bauer/Nike/Hockey Inc. through the end of the 1998-1999 season and will compete
with Pro Player beginning with the 1999-2000 season.
Employees
As of December 31, 1998, the Company employed approximately 1,800 persons.
Approximately 1,575 are employed in Canada, 75 are employed in the United States
and the balance are employed abroad. None of the Company's employees in the
United States are unionized. Approximately 350 of its employees at its St. Jean,
Quebec facility and 75 employees at its Drummondville, Quebec facility are
unionized. The collective bargaining agreements with the unions expire in 2001
for Drummondville and in 2003 for St. Jean.
Item 2. Properties
The Company believes that its existing manufacturing and distribution facilities
have sufficient capacity to support the Company's business without the need for
significant additional or upgraded equipment or capital expenditures. The
following table summarizes each of the Company's principal facilities for its
operations.
5
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<TABLE>
<CAPTION>
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Approximate Lease/
Location Use Square Feet Own
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<S> <C> <C> <C>
United States
Bradford, Vermont U.S. apparel distribution 84,000 Own
Georgia, Vermont Cross-dock and warehouse 16,500 Lease
Williston, Vermont U.S. hardgoods distribution center, executive and 70,000 Lease
administrative offices
Canada
Cowansville, Quebec Hockey stick manufacturing 45,533 Own
Drummondville, Quebec Hockey stick manufacturing 65,837 Own
Lachine, Quebec Administrative offices and distribution center 68,461 Lease
St. Jean, Quebec Hockey equipment and skate manufacturing 138,000 Lease
St. Hyacinthe, Quebec Hockey apparel, cutting and sewing 72,000 Lease
St. Hyacinthe, Quebec Canadian distribution center and administrative offices 200,000 Lease
Cap de la Madeleine,
Quebec Hockey apparel sewing
Westmount, Quebec Executive offices 12,000 Lease
Mt. Forest, Ontario Apparel manufacturing 7,000 Lease
Harrow, Ontario Goaltender equipment manufacturing 135,000 Own
15,000 Lease
Europe
Paris, France European sales office 2,000 Lease
Forssa, Finland Warehouse 2,500 Lease
Tammela, Finland Hockey stick factory, warehouse and offices 6,900 Lease
Helsinki, Finland Sales office 137 Lease
Malung, Sweden Protective equipment factory, warehouse and offices 11,000 Lease
Fredrikstad, Norway Office and warehouse 1,300 Lease
===============================================================================================================
</TABLE>
Item 3. Legal Proceedings
A. Environmental Litigation:
In April 1996, Maska U.S., Inc. ("Maska"), a wholly-owned subsidiary of the
Company, and the State of Vermont entered into a consent decree ("Consent
Decree") setting forth the terms under which Maska has agreed to remediate
specified hazardous materials if, and to the extent, found on its Bradford,
Vermont property or caused by Maska. The Consent Decree was approved by the
Bankruptcy Court on May 14, 1996 and approved and entered in Vermont Superior
Court on June 20, 1996. The Consent Decree is subject to several conditions,
including ongoing payment by the Company of certain State of Vermont oversight
fees up to a maximum of $60 per year. In addition, the Company paid to Vermont a
civil penalty of $250. Maska undertook an investigation required by the Consent
Decree to determine the extent of contamination, the rate of movement and the
concentration of the contaminants and developed a Corrective Action Plan ("CAP")
which was approved by the Vermont Department of Environmental Conservation in
July 1998. The remediation of the property has begun. The estimated cost of
remediating the property, as detailed in the CAP, is approximately $2,550. These
amounts have and will be paid out over the term of the remediation currently
estimated to be 30 years. The Company believes it has accrued sufficient amounts
for this matter.
6
<PAGE>
In 1992, T. Copeland & Sons, Inc. ("Copeland"), the owner of a property adjacent
to Maska's manufacturing facility in Bradford, Vermont, filed an action in
Vermont Superior Court alleging that its property had been contaminated as a
result of the Company's manufacturing activities and seeking compensatory and
punitive damages under the Vermont Groundwater Protection Law and various common
law theories. In June 1995, Maska settled this action for $1,000 cash, paid in
July 1995, and a $6,000 promissory note plus certain additional interest and
other costs. Under the Reorganization Plan, Copeland received a distribution of
shares of New THC's New Common Stock to satisfy the note. Copeland asserted the
right to recover from the Company the difference between the aggregate value of
the New Common Stock and the amount of the promissory note plus certain
additional interest and other costs. In October 1998, the Bankruptcy Court
disallowed Copeland's claim to recover this difference. Copeland filed an appeal
of this decision which is pending.
Maska commenced an action in the United States District Court for the District
of Vermont (the "Vermont District Court") entitled Maska U.S. Inc. v. Kansa, et
al., Doc. No. 1:93-CV-309 against its liability insurers seeking coverage for
environmental cleanup costs arising out of claims brought by the State of
Vermont and Copeland for their failure to defend or to indemnify Maska with
respect to these claims. Maska reached settlements with three of the liability
insurers prior to trial. In September 1998, the Company received $4,950 from
these liability insurers and included this income, net of $829 of related
professional fees, as other income in the Consolidated Statements of Operations.
The trial against three remaining liability insurers resulted in a jury verdict,
in July 1998, in Maska's favor in the amount of $9,151. The jury verdict
compensated Maska for its costs to defend itself against the claims and to clean
up the soil and groundwater around its property. In October 1998, appeals were
filed by two of the remaining liability insurers in the United States Court of
Appeals for the Second Circuit. Those appeals are pending. The Company will
continue to account for the verdict and settlements in its financial statements
when realized.
B. Product Liability Litigation:
The Company is unaware of any personal injury claims for which there is
inadequate insurance coverage.
American Home Assurance Company ("American Home") commenced, in 1991, a
declaratory judgment action against the Company in the U.S. District Court for
the District of Massachusetts ("Massachusetts District Court") in respect of its
duty to defend and to indemnify the Company in an action in Quebec Superior
Court in Montreal, Canada to recover defense costs related to a personal injury
claim filed in 1989. The Company filed a response to the declaratory judgment
action and a counterclaim in Quebec Superior Court alleging American Home failed
to fulfill its duty to defend the Company. American Home has alleged that it is
entitled to payment in full for any amounts it recovers against the Company.
These actions have been settled, providing for a net final payment of $25 to
American Home and the execution of mutual releases by all involved parties.
C. Other Litigation:
On October 16, 1997, ZMD Sports Investments Inc. and 2938201 Canada Inc.,
landlords of the Company's properties located in St. Jean, Quebec and St.
Hyacinthe, Quebec, brought motions against the Company requiring the Company to
undertake certain repairs to the properties for an estimated amount of $630. The
Company believes these motions to be without merit.
In October 1997, Sports Holdings Corp., a subsidiary of the Company since
November 1998, sold the assets of its ski and snowboard division to Trak Inc.
and 3410137 Inc. (collectively, "Trak"). In July 1998, Trak filed a claim
against certain of the Company's subsidiaries alleging certain incorrect
representations and warranties in the context of this sale. Trak is claiming an
amount in excess of $350. The Company believes that this claim is without merit.
7
<PAGE>
Other than certain legal proceedings arising from the ordinary course of
business, which the Company believes will not have a material adverse effect on
the financial position, results of operations, or cash flows, there is no other
litigation pending or threatened against the Company.
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
A. Price Range of Common Stock
Between May 24, 1995 and April 11, 1997, Old THC's common stock ("Old Common
Stock") traded on the NASD Electronic Bulletin Board ("EBB") under the symbol
"SLMI" (through October 1996) and "SLMIQ" thereafter. Prior to that date, Old
THC's Old Common Stock was traded on the NASDAQ Stock Market ("NASDAQ").
On April 11, 1997, the Effective Date of the Company's Plan of Reorganization,
Old THC's Old Common Stock was extinguished and the holders of the Old Common
Stock received a total of 300,000 five-year warrants (the "Warrants") to
purchase an aggregate of 300,000 shares of new common stock ("New Common Stock")
at an exercise price of $16.92 per share (subject to adjustments for stock
splits, stock dividends, recapitalizations and similar transactions). Each
holder of 67 shares of Old Common Stock received one Warrant to purchase, for
cash, one share of new common stock, with no fractional warrants issued. On the
Effective Date, New THC issued an aggregate of 6,500,000 shares of New Common
Stock, $0.01 par value (as adjusted to take account of fractional interests
pursuant to the Plan). New THC's New Common Stock and Warrants are quoted on the
OTC Bulletin Board under the trade symbols "SLMM-BB" and "SLMMW-BB",
respectively. The range of closing prices of the New Common Stock is not
provided as there has been a limited amount of trading activity in New THC's New
Common Stock.
B. Approximate Number of Equity Security Holders
The approximate number of record holders of New THC's New Common Stock as of
March 26, 1999 was 300. The Company did not pay dividends on its Old Common
Stock and has no current plans to pay cash dividends on its New Common Stock in
the foreseeable future.
Item 6. Selected Financial Data
The selected combined consolidated financial data presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes thereto included elsewhere in this Form 10-K. The selected consolidated
financial data as of and for the years ended December 31, 1998, 1997, 1996, 1995
and 1994 are derived from the consolidated financial statements of the Company.
For the presentation of this statement, results for New THC and Old THC have
been combined for 1997.
The Company's financial statements following its emergence from bankruptcy are
not comparable to the historical financial statements preceding its emergence,
which do not reflect the Reorganization Plan. Following emergence from
bankruptcy the Company adopted fresh-start reporting in accordance with
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code ("SOP 90-7").
In December 1994, the Company determined that it would hold its investment in
its toy and fitness businesses operated by its Buddy L Inc. and Buddy L Canada
Inc. subsidiaries for sale. Accordingly, these businesses
8
<PAGE>
have been reported as discontinued operations for all income statement data
presented below. However, balance sheet data prior to December 31, 1994 has not
been restated for these discontinued operations.
9
<PAGE>
Years Ended December 31
(in thousands, except share data)
<TABLE>
<CAPTION>
Combined
1998 (2) 1997 (1) 1996(1) 1995 (1) 1994 (1)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 110,817 $ 123,754 $ 140,321 $ 160,973 $ 180,806
Cost of goods sold 65,026 73,775 92,613 107,266 113,577
-----------------------------------------------------------------------------
Gross profit 45,791 49,979 47,708 53,707 67,229
Gross profit margin (%) 41.3% 40.4% 34.0% 33.4% 37.2%
Selling, general and administrative expenses 35,272 38,237 45,831 59,753 67,031
Amortization of excess reorganization value
and goodwill 2,606 1,712 -- -- --
Restructuring and unusual charges 1,900 6,315 4,033 15,471 --
-----------------------------------------------------------------------------
Operating income (loss) 6,013 3,715 (2,156) (21,517) 198
Chapter 11 and debt related fees -- 1,243 7,432 11,195 --
Other (income) expense, net (4,588) 712 27 1,484 (260)
Interest expense 4,108 3,922 9,555 17,078 6,713
-----------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and extraordinary gain
on discharge of debt 6,493 (2,162) (19,170) (51,274) (6,255)
Income taxes 4,603 4,665 (448) 605 (11)
-----------------------------------------------------------------------------
Income (loss) from continuing operations
before extraordinary gain on discharge of
debt 1,890 (6,827) (18,722) (51,879) (6,244)
Extraordinary gain on discharge of debt -- 58,726 -- -- --
-----------------------------------------------------------------------------
Income (loss) from continuing operations 1,890 $ 51,899 $ (18,722) $ (51,879) $ (6,244)
Preferred stock dividend 190 -- -- -- --
Accretion of preferred stock 35 -- -- -- --
-----------------------------------------------------------------------------
Income (loss) from continuing operations
attributable to common stockholders $ 1,665 $ 51,899 $ (18,722) $ (51,879) $ (6,244)
=============================================================================
Net income per share
Basic net income per share .26
Diluted net income per share .25
Balance Sheet Data:
Working capital (deficit) $ 51,149 $ 45,736 $ 50,678 $ 110,088 $ (38,360)
Total assets 207,178 118,780 124,925 138,028 192,838
Short-term debt, including, current portion
of long-term debt, and current portion of
liabilities subject to compromise under
reorganization proceedings 9,702 2,966 45,404 702 173,471
Long-term debt 88,568 30,064 -- -- --
Liabilities subject to compromise under
reorganization proceedings -- -- 160,164 201,814 --
Stockholders' equity (deficit) 69,238 68,882 (97,189) (78,642) (6,284)
=============================================================================================================================
</TABLE>
(1) Common shares and per share data are omitted because, due to the
Reorganization Plan and implementation of fresh-start reporting, they are
not meaningful.
(2) Effective November 19, 1998, the Company acquired all of the issued and
outstanding share capital of Sport Holdings Corp. The results of
operations related to this acquisition have been included in these
consolidated financial statements from the effective date of acquisition.
See Note 2 to the Notes to Consolidated Financial Statements for more
information.
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
See Part I, Item 1 Overview
The following discussion provides an assessment of the Company's results of
continuing operations, financial condition and liquidity and capital resources,
and should be read in conjunction with the Consolidated Financial Statements of
the Company and Notes thereto included elsewhere herein. (All references to
"Note(s)" refer to the Notes to the Consolidated Financial Statements.) The
combined consolidated financial information presented below should be read in
conjunction with the Results of Operations included in this Form 10-K. For the
presentation of this statement, financial comparisons herein are based on
results of New THC for the year ended December 31, 1998, as compared to combined
results for New THC and Old THC for the year ended December 31, 1997 and results
of Old THC for the year ended December 1996. A Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1997 giving effect to
the consummation of the Reorganization Plan, including the implementation of
fresh-start reporting, as if consummation had occurred on January 1, 1997 is
provided in Note 21 to the Notes to Consolidated Financial Statements on page 56
of this Form 10-K.
Effective November 19, 1998, the Company acquired all of the issued and
outstanding share capital of Sports Holdings Corp., a privately held
manufacturer and marketer of hockey equipment. The results of operations related
to this acquisition have been included in these consolidated financial
statements from the effective date of acquisition.
Results of Operations
The Company's results of operations as a percentage of net sales for the periods
indicated were as follows:
<TABLE>
<CAPTION>
Combined
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 41.3% 40.4% 34.0%
Selling, general and administrative expenses 31.8% 30.9% 32.7%
Amortization of excess reorganization value and 2.4% 1.4% --
goodwill
Restructuring and unusual charges 1.7% 5.1% 2.9%
Operating income (loss) 5.4% 3.0% (1.6%)
Chapter 11 and debt related fees -- 1.0% 5.3%
Other (income) expense, net (4.1%) 0.6% --
Interest expense 3.7% 3.1% 6.8%
Income (Loss) before income taxes and
extraordinary gain on discharge of debt 5.9% (1.7%) (13.7%)
Income taxes 4.2% 3.8% (0.4%)
Income (Loss) before extraordinary gain on
discharge of debt 1.7% (5.5%) (13.3%)
Extraordinary gain on discharge of debt -- 47.4% --
Net income (loss) 1.7% 41.9% (13.3%)
</TABLE>
11
<PAGE>
1998 Compared to 1997
Net sales decreased 10.5% to $110.8 million for the year ended December 31, 1998
as compared to $123.8 million in the year ended December 31, 1997. The decline
in sales resulted primarily from continued softness of the inline skate market,
including the Company's decision to exit the recreational inline skate market,
the continued softness in the licensed sports apparel industry, and in licensed
hockey apparel in particular, the unfavorable exchange rate for the Canadian
dollar in comparison to 1997 and a severe ice storm that struck the north
eastern parts of North America in January 1998, paralyzing businesses throughout
the affected regions including the Company's Quebec operations during January
and part of February 1998. In addition, sales of discontinued inventory were
significantly below 1997 levels as the Company significantly reduced its excess
inventory during 1997. Also, net sales in 1997 included $1.2 million of sales
from Mitchel & King Skates Limited which was sold in May 1997. Helping partially
offset this shortfall is the fact that sales from new subsidiaries acquired in
November 1998 are included in 1998 sales ($7.2 million).
Gross profit was $45.8 million in 1998 compared to $50.0 million in 1997, a
decrease of 8.4%. Measured as a percentage of net sales, gross profit margin
increased to 41.3% in 1998 from 40.4% in 1997. These higher gross profit margins
were the result of ongoing manufacturing cost reductions due to strategic
investments made in plant and equipment during the last two years, favorable
product mix and reduced sales of discontinued inventory at lower gross margins.
The decrease in gross profit resulted primarily from the decreased net sales
noted above, offset in part, by the improved gross profit margins.
For the year ended December 31, 1998, selling, general and administrative
expenses decreased 7.6% to $35.3 million compared to $38.2 million in the prior
year period. Measured as a percentage of net sales, these expenses were 31.8% in
1998 versus 30.9% in 1997. Selling, general and administrative expenses
decreased due to generally lower operating expenses resulting from the Company's
restructuring efforts, lower variable expenses associated with the decline in
sales mentioned above, a reduction in the allowance for doubtful accounts as a
result of a change in estimate related to a major customer offset, in part, by
increased advertising costs, which are expected to have a favorable future
impact.
The amortization of excess reorganization value and goodwill increased from $1.7
million in 1997 to $2.6 million in 1998. The increase is mainly due to the fact
that in 1997, the Company began amortizing its excess reorganization value,
which was established in accordance with fresh start reporting, in April 1997.
This amortization approximated $2.4 million in 1998 compared to $1.7 million in
1997. The 1998 expense also includes amortization of the goodwill created by the
acquisition of Sports Holdings Corp. in November 1998 ($0.2 million).
During the year ended December 31, 1998, the Company recorded restructuring and
unusual costs of $1.9 million. These charges are related to severance costs
associated with the reorganization of the Company's operations following the
acquisition of Sports Holdings Corp. ($1.5 million) and the portion of
unrecoverable costs resulting from a severe ice storm that struck the north
eastern parts of North America in January 1998. During 1997, prior to its
emergence from bankruptcy, the Company recorded significant restructuring
charges totaling $6.3 million to reflect the impact of strategically
reorganizing its operations to position itself to sustain ongoing profitability.
These costs consisted primarily of lease cancellation costs ($2.3 million) at
its Peterborough, N.H. and Beauport, Quebec facilities, impairment of fixed
assets ($1.7 million), principally leasehold improvements at its Peterborough,
N.H. facility, and severance costs associated with the shut down of three of the
Company's manufacturing facilities.
Operating income for the year ended December 1998 was $6.0 million, compared to
$3.7 million in the year ended December 1997.
12
<PAGE>
As a result of Old THC's Chapter 11 Cases, the Company incurred significant
legal and professional fees totaling $1.2 million for the year ended December
31, 1997. These fees include the cost of the Company's legal counselors,
financial advisors and consultants, as well as those of its bankers, senior
noteholders and creditors. These costs are included as Chapter 11 and debt
related fees in the Consolidated Statements of Operations.
The Company received $5.0 million in 1998 as proceeds from settlements with
three of its former liability insurers relative to an action against these
insurers (see Note 18). Other income for the year ended December 31, 1998
includes this $5.0 million of income, net of $0.8 million of related
professional fees.
During the reorganization proceedings the Company was generally not permitted to
pay interest. Therefore, the Company recorded interest expense only to the
extent paid or earned during the proceedings and to the extent it was probable
that the Bankruptcy Court would allow interest on Pre-Petition Date debt as a
priority, secured or unsecured claim. On the Effective Date, the Company entered
into various debt agreements (see "Liquidity and Capital Resources" below)
resulting in interest expense thereafter. Interest expenses approximated $4.1
million and $3.9 million for 1998 and 1997, respectively.
The Company's income (loss) before income taxes and extraordinary gain on
discharge of debt was $6.5 million and ($2.2) million for 1998 and 1997,
respectively, excluding restructuring and unusual charges, amortization of
excess reorganizational value and goodwill and Chapter 11 and debt related fees.
The Company's income (loss) before extraordinary gain on discharge of debt for
the year ended December 31, 1998 was $1.9 million compared to a loss of $6.8
million in the year ended December 31, 1997. On April 11, 1997, the Company
emerged from bankruptcy and as a result of its Reorganization Plan and
implementation of fresh start reporting, approximately $58.7 million of its
liabilities were forgiven and were included in Extraordinary Gain on Discharge
of Debt in the Consolidated Statements of operations in 1997.
The Company's net income for the year ended December 31, 1998 was $1.9 million
compared to $51.9 million in the year ended December 31, 1997.
1997 Compared to 1996
Net sales decreased 11.8% to $123.8 million for the year ended December 31, 1997
as compared to $140.3 million in the year ended December 31, 1996. While the
Company experienced an overall decline in net sales of 11.8%, recreational
inline skate sales decreased approximately 51.5%, representing a significant
portion of the overall sales decline. This decline was caused to a large extent
by the Company's decision to exit the recreational inline skate market and to
concentrate its efforts on the premium or high-end roller hockey skate market in
1997. As well, a generally weak retail environment in the recreational inline
skate market, increased amounts of deeply discounted merchandise offered by
other manufacturers and delays in receiving goods from overseas suppliers during
the second half of 1997 led to lower sales of inline skates. Sales in 1997
continued to be negatively affected by the Company's Chapter 11 status, despite
the Company's emergence from bankruptcy in April 1997, as the major period
during which the Company receives its booking orders is January to April.
Finally, the Company has reduced the levels of business it conducts with certain
specialty retailers and mass merchandisers to whom previous sales were made at
low margins and high credit risk, and has reduced or eliminated certain
incentives to customers, negatively affecting overall sales as compared to 1996.
Gross profit was $50.0 million in 1997 compared to $47.7 million in 1996, an
increase of 4.8%. Measured as a percentage of net sales, gross profit margins
increased to 40.4% in 1997 from 34.0% in 1996. These higher gross profit margins
are a result of favorable customer and product mixes, improved utilization of
manufacturing capacities, reduced overhead costs resulting from restructuring
efforts and reduced sales of excess, obsolete and slow moving inventories as
compared to 1996.
13
<PAGE>
For the year ended December 31, 1997, selling, general and administrative
expenses decreased 16.6% to $38.2 million compared to $45.8 million in the prior
year period. Measured as a percentage of net sales, these expenses were 30.9% in
1997 versus 32.7% in 1996. Selling general and administrative expenses decreased
due to generally lower operating expenses resulting from the Company's ongoing
efforts to reduce costs, including reduced variable selling costs, and lower
distribution and administrative expenses.
Effective April 12, 1997, the Company began amortizing its excess reorganization
value which was established in accordance with fresh-start reporting. This
non-cash amortization amounted to $1.7 million in the period April 12 through
December 31, 1997.
During the year ended December 31, 1997, the Company recorded restructuring
costs of $6.3 million relating to the downsizing of its manufacturing and
distribution operations. These costs consist primarily of lease cancellation
costs ($2.3 million) at its Peterborough, N.H. and Beauport, Quebec facilities,
impairment of fixed assets ($1.7 million), principally leasehold improvements at
its Peterborough, N.H. facility, and severance and employee costs associated
with the shutdown of three of the Company's manufacturing facilities, and are
included in Restructuring and Unusual Charges in the Consolidated Statements of
Operations. During 1996, the Company recorded restructuring charges totaling
$4.0 million. These costs consisted primarily of severance pay ($3.4 million),
including that of the Company's former Chief Executive and Chief Financial
Officers, and the impairment of long lived assets ($0.6 million), primarily
machinery and equipment at one of its Canadian facilities. These restructuring
charges represent 92.5% and 21.5% of the Company's income (loss) from continuing
operations before extraordinary gain on discharge of debt for the years ended
December 31, 1997 and 1996, respectively.
Operating income for the year ended December 31, 1997 was $11.7 million,
compared to $1.9 million in the year ended December 31, 1996, excluding the
amortization of excess reorganization value and restructuring and unusual
charges. The 1997 operating income was primarily the result of increased gross
profit margins and lower selling, general and administrative expenses discussed
above. Including the amortization of excess reorganization value and
restructuring and unusual charges, operating income was $3.7 million in the year
ended December 31, 1997 compared to an operating loss of $2.2 million for the
year ended December 31, 1996.
As a result of Old THC's Chapter 11 Cases, the Company incurred significant
legal and professional fees totaling $1.2 million and $7.4 million for the years
ended December 31, 1997 and 1996, respectively. These fees include the cost of
the Company's legal counselors, financial advisors and consultants, as well as
those of its bankers, senior noteholders and creditors. These costs are included
as Chapter 11 and Debt Related Fees in the Consolidated Statements of Operations
for the periods then ended. These costs represent approximately 18.2% and 39.7%
of the Company's income (loss) before extraordinary gain on discharge of debt
for the years ended December 31, 1997 and 1996, respectively.
Interest expense approximated $3.9 million and $9.6 million for 1997 and 1996,
respectively. During the reorganization proceedings the Company was generally
not permitted to pay interest. Therefore, the Company recorded interest expense
only to the extent paid or earned during the proceedings and to the extent it
was probable that the Bankruptcy Court would allow interest on pre-Petition Date
debt as a priority, secured or unsecured claim. On the Effective Date, the
Company entered into various debt agreements resulting in 1997 interest expense
(see "Liquidity and Capital Resources" below).
The Company's income (loss) from continuing operations before extraordinary gain
on discharge of debt was $2.4 million and $(7.3) million for 1997 and 1996,
respectively, excluding restructuring and unusual charges, amortization of
excess reorganizational value and Chapter 11 and debt related fees. The
Company's loss from continuing operations before extraordinary gain on discharge
of debt for the year ended December 31, 1997 was $6.8 million compared to a loss
of $18.7 million in the year ended December 31, 1996. The restructuring and
14
<PAGE>
unusual charges, amortization of excess reorganizational value and Chapter 11
and debt related fees represented 135.8% and 61.2% of the Company's income
(loss) from continuing operations before extraordinary gain on discharge of debt
for the years ended December 31, 1997 and 1996, respectively.
On April 11, 1997, the Company emerged from bankruptcy and, as a result of its
Reorganization Plan and implementation of fresh-start reporting, approximately
$58.7 million of its liabilities were forgiven and are included in Extraordinary
Gain on Discharge of Debt in the Consolidated Statements of Operations.
The Company's net income for the year ended December 31, 1997 was $51.9 million
compared to a net loss of $18.7 million in the year ended December 31, 1996.
Income Taxes
The Company's income tax provision is comprised of both United States and
foreign tax components. Due to changes in the relative contribution of income or
loss by country, differences in the effective tax rates between countries
(principally the U.S. and Canada) and permanent differences in effective tax
rates between income for financial statement purposes and tax purposes, the
consolidated effective tax rates may vary significantly from period to period.
The Company and its U.S. subsidiaries consolidate their income for U.S. federal
income tax purposes. However, gains and losses of certain subsidiaries may not
be available to other subsidiaries for tax purposes.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Fresh-start reporting requires the Company to report a provision in lieu of
income taxes when there is a book taxable income and utilization of a
pre-reorganization net operating loss carryforward. This requirement applies
despite the fact that the Company's pre-reorganization net operating loss
carryforward and other deferred tax assets would eliminate the related federal
income tax payable. The current and future year tax benefit related to the
carryforward is recorded as a reduction of reorganizational value in excess of
amounts allocable to identifiable assets until exhausted and then as a direct
increase to paid in capital. The amount of income tax provision which has been
used to reduce the reorganizational value in excess of amounts allocable to
identifiable assets is reflected as a provision in lieu of income taxes in the
Company's Consolidated Statements of Operations.
Liquidity and Capital Resources
On October 24, 1995, THC and six of its subsidiaries filed for relief under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. From the Filing to April 11, 1997, the
Company and those subsidiaries operated their businesses in the ordinary course
as debtors-in-possession subject to the jurisdiction of the Bankruptcy Court.
The Bankruptcy Court entered an order authorizing the joint administration of
Old THC's Chapter 11 Cases. On September 12, 1996, Old THC filed a Chapter 11
Plan of Reorganization and on November 13, 1996, Old THC filed a First Amended
Chapter 11 Plan of Reorganization, as amended from time to time (the
"Reorganization Plan"), with the Bankruptcy Court. On January 23, 1997, the
Bankruptcy Court confirmed the Reorganization Plan and the Plan became effective
on April 11, 1997.
15
<PAGE>
The Filing enabled the Company to stabilize its liquidity position as the cash
requirements for the payment of accrued interest, accounts payable and other
liabilities, which arose prior to the Filing, were in most cases deferred until
the Reorganization Plan was approved by the Bankruptcy Court.
Management expects to finance the Company's working capital and capital
expenditures requirements through cash generated by its operations and through
its new credit facilities established on November 19, 1998 (see Note 7).
At the Effective Date of the Reorganization Plan, the Company and two of its
U.S. subsidiaries, Maska U.S., Inc. and #1 Apparel, Inc., entered into a Credit
Agreement (the "Old U.S. Credit Agreement") with the lenders referred to therein
and The Chase Manhattan Bank, as Agent ("Chase"). Simultaneously, one of the
Company's Canadian subsidiaries, Sport Maska Inc., entered into a Credit
Agreement (the "Old Canadian Credit Agreement" and, together with the "Old U.S.
Credit Agreement", the "Old Credit Agreements") with The Chase Manhattan Bank of
Canada ("Chase Canada"). The maximum amount of loans and letters of credit that
could have been outstanding under the Old Credit Agreements was $74.0 million,
consisting of $35.0 million of revolving credit loans under the Old U.S. Credit
Agreement, $35.0 million of revolving credit loans under the Old Canadian Credit
Agreement and a $4.0 million Term Loan ("Term Loan") which was permanently
reduced by $2.1 million in June 1997 with the proceeds from the sale of one of
the Company's subsidiaries under the Old U.S. Credit Agreement. Borrowings under
the "Old Credit Agreements" were guaranteed by certain subsidiaries and were
secured by substantially all of the assets (including, without limitation,
accounts receivable, inventory and certain subsidiaries) of the Company.
Borrowings under the U.S. "Old Credit Agreement" beared interest at an alternate
base rate plus 1% per annum or at an interest rate based on LIBOR plus 2 3/4%
per annum. Borrowings under the "Old Canadian Credit Agreement" beared interest
at Chase Canada's prime rate or at an alternate base rate plus 1% per annum. In
addition, the Company was charged a quarterly commitment fee at an annual rate
of up to 3/8 of 1% on the unused portion of the revolving credit facilities
under the "Old Credit Agreements" and certain other fees.
The "Old Credit Agreements" included customary affirmative and negative
covenants, including those relating to capital expenditures, interest coverage
and the incurrence of additional indebtedness.
On April 11, 1997, the Company issued $29.5 million principal amount of 14%
Senior Secured Notes due April 1, 2004 (the "Senior Secured Notes"), pursuant to
an Indenture with The Bank of New York, as trustee. The Senior Secured Notes
were issued by the Company under the Reorganization Plan as partial satisfaction
of the Company's obligations to its former senior lenders under a Loan and
Security Agreement ("Bank Agreement") with a syndicate of banks led by Fleet
Credit Corporation. Under the Plan, the lenders under the Bank Agreement also
received (i) $44.2 million in cash; and (ii) 2,470,000 shares of New Common
Stock, representing approximately 38.0% of the outstanding New Common Stock. The
lenders sold such shares to W.S. Acquisition L.L.C. on the Effective Date.
Interest was payable on the Senior Secured Notes semi-annually at the rate of
14% per annum, with such interest rate being permanently reduced by up to 4% if
the Company met certain earnings tests. Further, of the initial 14% interest
rate, 10% was payable in cash and 4% was payable in cash or by the issuance of
additional Senior Secured Notes. The Senior Secured Notes had a term of seven
years with principal payments beginning in the fifth year. The Senior Secured
Notes were guaranteed by certain subsidiaries and were collateralized by
substantially all of the assets (including, without limitation, accounts
receivable, inventory and the stock of certain subsidiaries) of the Company, the
two U.S. Subsidiaries referred to above and the Company's other subsidiaries
which were guarantors. The lien of the trustee for the benefit of itself and the
Senior Secured Noteholders was junior to the
16
<PAGE>
liens of Chase and Chase Canada. The Indenture also included customary
affirmative and negative covenants. On March 16, 1998, the Company prepaid the
Senior Secured Notes in full.
During March 1998, the Company amended its Credit Agreements (the "Amended
Credit Agreements") to take advantage of its improved borrowing capacity. In
completing the amendments the Company redeemed, in full, its Senior Secured
Notes and all amounts outstanding under the Term Loan under its Old U.S. Credit
Agreement.
The redemptions were effected by the Amended Credit Agreements (additional
revolving credit loan borrowings under the Amended Credit Agreements and the
Amended Term Loan) and use of the Company's cash on hand. The maximum amount of
loans that may have been outstanding under the Amended Credit Agreements was
$60.0 million, consisting of $45.0 million revolving credit loans and a $15.0
million term loan (the "Amended Term Loan"). Borrowings under the Amended Credit
Agreements beared interest at an alternate base rate per annum or at an interest
rate based on LIBOR plus 1 3/4% per annum on Amended U.S. revolving credit
loans, at Chase Canada's prime rate or at an alternate base rate per annum on
Canadian revolving credit loans, and an alternate base rate plus 1/4% per annum
or at an interest rate based on LIBOR plus 2% per annum on the Amended Term
Loan. Interest and principal on the Amended Term Loan were payable in quarterly
installments ($0.6 million principal) through April 2000, beginning in April
1998.
During November 1998, the "Amended Credit Agreements" were replaced by new
credit agreements ("New Credit Agreements"). Effective November 19, 1998, two of
the Company's subsidiaries, Maska U.S. Inc. and SHC Hockey Inc. entered into a
credit agreement (the "New U.S. Credit Agreement") with the lenders referred to
therein and with General Electric Capital Corporation as Agent and Lender.
Simultaneously, two of the Company's Canadian subsidiaries, Sport Maska Inc. and
Tropsport Acquisitions Inc., entered into a credit agreement (the "New Canadian
Credit Agreement") with the lenders referred to therein and General Electric
Capital Canada Inc. as Agent and Lender. The maximum amount of loans and letters
of credit that may be outstanding under the two credit agreements (collectively,
the "New Credit Agreements") is U.S. $70.0 million. Each of the New Credit
Agreements is subject to a minimum excess requirement of $1.8 million. The New
Credit Agreements are collateralized by eligible accounts receivable and
inventories of the borrowers and are further collateralized by a guarantee of
the Company and its other subsidiaries.
Total borrowings outstanding under the New Credit Agreements at December 31,
1998 amounted to $8.6 million. The New Credit Agreements are for a period of two
years with a possible extension of one year by the Company.
Borrowings under the New U.S. Credit Agreement bear interest at rates between
U.S. prime plus 0.25% to 1.00% and LIBOR plus 1.50% to 2.50% depending on the
borrowers' Operating Cash Flow Ratio, as defined in the agreement. Borrowings
under the New Canadian Credit Agreement bear interest at rates between the
Canadian prime rate plus 0.75% to 2.00% and LIBOR plus 0.75% to 2.00% depending
on the borrowers' Operating Cash Flow Ratio, as defined in the agreement. In
addition, the borrowers are charged a GECC monthly commitment fee at an annual
rate of up to 3/8 of 1% on the unused portion of the revolving credit facilities
under the Credit Agreements and certain other fees.
The New Credit Agreements contain customary negative and affirmative covenants
including those relating to capital expenditures, total indebtedness to EBITDA,
minimum interest coverage and fixed charge coverage.
On November 19, 1998, in connection with its acquisition of Sports Holdings
Corp., the Company and Sport Maska Inc. entered into a credit agreement with the
Caisse de Depot et Placement du Quebec to borrow the Canadian dollar equivalent
of $87.5 million. The loan is for a period of two years, maturing November 19,
2000 and may be extended for an additional one year term at the Company's
request and upon payment of an extension fee. The loan bears interest at a rate
equal to the Canadian Bankers' Acceptance Rate plus 4% or the Canadian Prime
Rate plus 4.5%. At December 31, 1998, the interest rate was 11.25%.
17
<PAGE>
The loan is collateralized by all of the tangible and intangible assets of the
Company subject to the prior ranking claims on accounts receivable and
inventories by the lenders under the Company's revolving credit facilities. The
loan is guaranteed by the Company and all of its subsidiaries.
The loan contains customary negative and affirmative covenants including those
relating to capital expenditures, total indebtedness to EBITDA and minimum
interest coverage.
The Company's financing requirements for long-term growth, future capital
expenditures and debt service are expected to be met through cash generated from
its operations and borrowings under its New Credit Facilities. During the year
ended December 31, 1998, the Company's operations provided $19.1 million of cash
compared to $18.4 million in 1997. The Company generated income of $1.9 million
in 1998, compared to a loss of $6.8 million in 1997, exclusive of the
extraordinary gain on discharge of debt; however, the 1997 cash impact was
mitigated due to non-cash provisions for receivables, inventory and certain
restructuring charges. Earnings before interest, taxes, depreciation,
amortization, restructuring and unusual charges and Chapter 11 and debt related
fees (EBITDA) was $15.9 million for the year ended December 31, 1998 compared to
$13.9 million for the previous year. Included in EBITDA is non-cash revenue of
$1.4 million related to foreign exchange conversion in the year ended December
31, 1998 compared to a net non-cash charge of $0.9 million in 1997. EBITDA for
the year ended December 31, 1997 did not include the full effect of the cost
reductions from the Company's restructuring plan, as many of the cost reductions
only began in May 1997.
Cash used in investing activities during the year ended December 31, 1998 of
$66.3 million includes $62.9 million used for the acquisition of Sports Holdings
Corp. and $3.5 million of purchases of fixed assets. Cash provided by investing
activities during the year ended December 31, 1997 of $0.4 million included $1.8
million of net proceeds from the sale of one of the Company's subsidiaries,
offset, in part, by $2.0 million of purchases of fixed assets.
Net cash flow provided by financing activities during 1998 was approximately
$41.8 million resulting primarily from proceeds from long term debt ($102.5
million), issuance of preferred stock ($10.8 million) and common share purchase
warrants ($1.7 million) and proceeds from borrowings ($3.0 million) offset by
principal payments of debt ($70.9 million) and financing costs incurred towards
the acquisition of Sports Holdings Corp. ($5.3 million). Net cash flows used in
financing activities during 1997 was $46.0 million, resulting primarily from
payments to creditors on the Effective Date to satisfy claims ($36.1 million),
costs incurred to secure new debt facilities ($2.2 million), principal payments
on debt ($3.0 million) and repayments of borrowings under the Company's Credit
Agreements ($4.7 million) for its short term working capital requirements.
The Company follows the customary practice in the sporting goods industry of
offering extended payment terms to credit monthly customers on qualified orders.
The Company's working capital requirements generally peak in the third and
fourth quarters as it builds inventory and make shipments under these extended
payment terms.
Year 2000 Conversion
The inability of business processes to continue to function correctly in the
Year 2000 could have serious adverse effects on companies and entities
throughout the world. The Company has undertaken a global effort to identify and
mitigate Year 2000 issues in its information systems, products, facilities and
suppliers.
The Company recognizes the need to ensure that its systems, applications and
hardware will recognize and process transactions for the Year 2000 and beyond.
The Company, in its continuing efforts to increase efficiency and improve
operations, initiated information system modifications. The information system
modifications include, but are not limited to, Year 2000 compliance programs to
ensure that all systems and key processes will function
18
<PAGE>
properly with respect to dates related to the Year 2000 and beyond. The Company
also has initiated discussions with its significant suppliers, customers and
financial institutions to ensure that those parties have appropriate plans to
remediate Year 2000 issues when their systems interface with the Company's
systems or may otherwise impact operations. Based on the Company's evaluation to
date, management believes that alternative sources of supply are available or
could be developed within a reasonable amount of time should compliance become
on issue for individual suppliers to the Company.
The Company's information system modification objectives, which includes the
Year 2000 issues, are being managed by experienced internal professionals and
are expected to be achieved either by modifying present systems using existing
internal and external programming resources or by installing new systems and by
monitoring supplier and other third party interfaces. The Company believes that
it will be able to achieve Year 2000 compliance by the end of 1999. While the
Company believe its plans are adequate to address its Year 2000 concerns, many
factors could affect its ultimate success including, but not limited to, the
continued availability of outside resources and adequate financing. The Company
has not incurred significant separately identifiable costs related to Year 2000
issues through December 31, 1998 and does not expect to incur significant
additional costs in order to become Year 2000 compliant. The time and cost
estimates are based on currently available information. The results could differ
materially from those anticipated subject to uncertainties regarding the
availability of resources and the remediation success of the Company's suppliers
and customers among others.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the euro. The participating countries agreed to adopt the euro as their
common legal currency on that date. Fixed conversion rates between these
participating countries' existing currencies (the legacy currencies) and the
euro were established as of that date. The legacy currencies are scheduled to
remain legal tender as denominations of the euro until at least January 1, 2002
(but not later than July 1, 2002). During this transition period, parties may
settle transactions using either the euro or a participating country's legacy
currency. The Company is addressing the potential impact resulting from the euro
conversion, including competitive implications related to pricing and foreign
currency considerations.
Management currently believes that the introduction of the euro will not have a
material impact related to pricing or foreign currency exposures. Finland and
Sweden, which are the locations of the Company's overseas foreign subsidiaries,
are not member countries of the European Union, and as a result, did not adopt
the euro. The subsidiaries' transactions and debt are denominated in their local
currencies. However, uncertainty exists as to the effects the euro will have on
the marketplace.
19
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Item 8. Financial Statements and Supplementary Data
Index To Consolidated Financial Statements
Page
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Reports of Independent Accountants
Ernst & Young L.L.P. 21
PriceWaterhouseCoopers, LLP 22
KPMG Wideri Oy Ab 23
PriceWaterhouseCoopers, LLP 24
Raymond, Chabot, Martin, Pare 25 - 27
Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1998 and 1997 28
Consolidated Statements of Operations
for the year ended December 31, 1998, April 12 through
December 31, 1997, January 1 through April 11, 1997 and
the year ended December 31, 1996. 29
Consolidated Statements of Stockholders' Equity (Deficit) for the
year ended December 31, 1998, April 12 through
December 31, 1997, January 1 through April 11, 1997. 30
Statements of Comprehensive Income (Loss)
for the year ended December 31, 1998, April 12 through
December 31, 1997, January 1 through April 11, 1997
and the year ended December 31, 1996. 30
Consolidated Statements of Cash Flows
for the year ended December 31, 1998, April 12 through
December 31, 1997, January 1 through April 11, 1997
and the year ended December 31, 1996. 31 - 32
Notes to Consolidated Financial Statements 33 - 59
20
<PAGE>
Report Of Independent Accountants
The Board of Directors and Stockholders
The Hockey Company (formerly SLM International, Inc.)
We have audited the accompanying consolidated balance sheet of The Hockey
Company (formerly SLM International, Inc.) as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1998 and for the periods January 1,
1997 to April 11, 1997 and April 12, 1997 to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audit. We did not audit the balance sheet of KHF Sport Oy
or Jofa Holdings Group, wholly-owned subsidiaries acquired in 1998, which
statements reflects total assets and revenues of $31.2 million and $4.3 million
respectively, as of December 31, 1998. Those balance sheets were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the balance sheet data included for KHF Sports Oy and Jofa
Holdings Group, is based solely on the report of other auditors.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an 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 and the report of other auditors
provide a reasonable basis for our opinion.
On April 11, 1997, The Hockey Company (formerly SLM International, Inc.)
reorganized and emerged from bankruptcy. As discussed in Notes 1, 2 and 21 to
the consolidated financial statements, as a result of the reorganization, the
financial statements at December 31, 1997 reflect fresh-start reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7. The consolidated financial statements as of December 31, 1997
and for the post reorganization period from April 12, 1997 to December 31, 1997
are presented on the new basis, and accordingly, are not comparable to the
financial statements for the period January 1, 1997 to April 11, 1997, which
have been prepared on a pre-reorganization basis.
In our opinion, based on our audits and, as to the balance sheets at December
13, 1998 and 1997, and the report of other auditors, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of The Hockey Company (formerly SLM International, Inc.) as
of December 31, 1998 and 1997, and the consolidated results of their operations
and their cash flows for the year ended December 31, 1998, and the periods
January 1, 1997 to April 11, 1997 and April 12, 1997 to December 31, 1997, in
conformity with generally accepted accounting principles in the United States.
Montreal, Canada /s/ Ernst & Young
March 9, 1999. Chartered Accountants
21
<PAGE>
Report Of Independent Accountants
To The Board of Directors and Stockholders of Jofa Holdings Group.
We have audited the consolidated balance sheet of Jofa Holdings Group as
December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. 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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Jofa Holdings Group and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1998 and 1997 in conformity with United States generally
accepted accounting principles.
Borlange, Sweden
February 12, 1999
/s/ PRICEWATERHOUSECOOPERS, LLP
22
<PAGE>
Report Of Independent Accountants
To The Board of Directors of KHF Sports Oy
We have audited the balance sheet of KHF Sports Oy as of December 31, 1998 and
1997 and the related statements of income, for the years ended December 31, 1998
and 1997. 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 United States generally accepted
auditing standards. 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, 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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of KHF Sports
Oy and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997
in conformity with United States generally accepted accounting principles.
Helsinki, Finland
April 8, 1999
/s/ KPMG Wideri Oy Ab
23
<PAGE>
Report Of Independent Accountants
The Board of Directors and Stockholders
SLM International, Inc.
We have audited the consolidated statements of operations, stockholders'
(deficit) equity and cash flows of SLM International, Inc. and Subsidiaries for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audit. We did not audit the 1996 financial statements of certain companies,
whose financial statements total net sales of $67,182,000 for the years ended
December 31, 1996. Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the amounts
included for those companies, is based solely on the reports of the other
auditors.
We conducted our audit in accordance with generally accepted auditing standards.
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 also 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 audit and the reports of other auditors
provide a reasonable basis for our opinion.
As discussed in Note 1, SLM International, Inc. and certain of its subsidiaries
filed for relief under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court on October 24, 1995. On April 11, 1997, the First
Amended, as amended, Plan of Reorganization (the "Reorganization") was declared
to be effective by the Bankruptcy Court. The Reorganization significantly
altered, compromised or modified the Company's historical capital structure. The
Company will account for the Reorganization on April 11, 1997 and will, at that
date, adopt fresh-start reporting as described in Note 21.
In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated results of operations and cash flows of SLM International, Inc.
and Subsidiaries for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
Albany, New York
April 14, 1997
24
<PAGE>
Auditors' Report
To the Shareholder of
#1 Apparel Canada Inc.
We have audited the balance sheet of #1 Apparel Canada Inc. as at December 31,
1996 and the statements of earnings and deficit and changes in cash resources
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
As discussed in Note 3, the Company filed for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court on October
24, 1995. On April 11, 1997, the First Amended, as amended, Plan of
Reorganization (the "Reorganization") was declared to be effective for the
Company by the Bankruptcy Court. The Reorganization significantly altered,
compromised, or modified the Company's historical capital structure as reflected
in the accompanying balance sheet as of December 31, 1996.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1997
25
<PAGE>
Auditors' Report
To the Shareholder of
Sport Maska Inc.
We have audited the consolidated balance sheet of Sport Maska Inc. as at
December 31, 1996 and the consolidated statements of earnings and deficit and
changes in cash resources for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles
in Canada.
As discussed in Note 3, the Company filed for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court on October
24, 1995. On April 11, 1997, the First Amended, as amended, Plan of
Reorganization (the "Reorganization") was declared to be effective for the
Company by the Bankruptcy Court. The Reorganization significantly altered,
compromised, or modified the Company's historical capital structure as reflected
in the accompanying consolidated balance sheet as of December 31, 1996. The
Company will account for the Reorganization on April 11, 1997 and will, at that
date, adopt fresh-start reporting as described in Note 4. No effects of
accounting for the Reorganization are reflected in the accompanying consolidated
financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1997
26
<PAGE>
Auditors' Report
To the Shareholder of
St. Lawrence Manufacturing Canada Inc.
We have audited the balance sheet of St. Lawrence Manufacturing Canada Inc. as
at December 31, 1996 and the statements of earnings and deficit and changes in
cash resources for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles
in Canada.
As discussed in Note 3, the Company filed for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court on October
24, 1995. On April 11, 1997, the First Amended, as amended, Plan of
Reorganization (the "Reorganization") was declared to be effective for the
Company by the Bankruptcy Court. The Reorganization significantly altered,
compromised, or modified the Company's historical capital structure as reflected
in the accompanying balance sheet as of December 31, 1996.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1997
27
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (see Note 1 c) $ 2,593 $ 8,051
Accounts receivable, net (see Note 3) 36,790 22,759
Inventories (see Note 4) 42,244 28,475
Prepaid expenses 3,513 2,847
Income taxes receivable 971 298
Other receivables 3,358 1,660
-------------------------
Total current assets 89,469 64,090
Property, plant and equipment, net (see Note 5) 22,063 9,508
Intangible and other assets, net (see Note 6) 95,646 45,182
-------------------------
Total assets $ 207,178 $ 118,780
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term debt (see Note 7) $ 8,572 $ 415
Accounts payable 8,660 4,262
Accrued liabilities 9,890 8,059
Accrued professional fees 2,199 1,853
Accrued restructuring nets 5,180 --
Long-term debt, current portion (see Note 7) -- 1,421
Income taxes payable 2,689 1,214
Current portion of liabilities subject to compromise under
reorganization proceedings (see Note 2) 1,130 1,130
-------------------------
Total current liabilities 38,320 18,354
Long-term debt (see Note 7) 88,568 30,064
Deferred income taxes (see Note 15) 182 1,480
-------------------------
Total liabilities 127,070 49,898
Commitments and contingencies (see Note 18)
13% Pay-In-Kind preferred stock (see Note 9) 10,870 --
-------------------------
Stockholders' Equity
Common stock, par value $0.01 per share, 15,000,000 shares authorized, 6,500,507
shares issued and outstanding at December 31, 1998 and 6,500,000 shares
authorized and outstanding at December 31, 1997 65 65
Common stock purchase warrants, 159,127 issued and outstanding at December 31, 1998
(see Note 8 and 9) 1,665 --
Additional paid-in capital 66,515 66,507
Retained earnings 4,524 2,859
Foreign currency translation adjustments (3,531) (549)
-------------------------
Total stockholders' equity 69,238 68,882
-------------------------
Total liabilities and stockholders' equity $ 207,178 $ 118,780
=========================
</TABLE>
Due to the Reorganization Plan and implementation of fresh-start reporting,
financial statements after April 11, 1997 are not comparable to financial
statements prior to that date. See "Notes to Consolidated Financial Statements"
for more information on the Reorganization Plan and implementation of
fresh-start reporting.
The accompanying notes are an integral part of the consolidated
financial statements.
28
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
New THC Old THC
-----------------------------------------------------
1998(c) 1997(a) 1997(a) 1996
------- ------- ------- ----
April 12 January 1
through through
December 31 April 11
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 110,817 $ 98,215 $ 25,539 $ 140,321
Cost of goods sold 65,026 57,768 16,007 92,613
-----------------------------------------------------
Gross profit 45,791 40,447 9,532 47,708
Selling, general and administrative expenses 35,272 26,916 11,321 45,831
Amortization of excess reorganization value and goodwill 2,606 1,712 -- --
(see Notes 1 and 6 )
Restructuring and unusual charges (see Note 10) 1,900 -- 6,315 4,033
-----------------------------------------------------
Operating income (loss) 6,013 11,819 (8,104) (2,156)
Chapter 11 and debt related fees (see Note 11) -- -- 1,243 7,432
Other (income) expense, net (4,588) 519 193 27
Interest expense (see Note 7) 4,108 3,808 114 9,555
-----------------------------------------------------
Income (loss) before income taxes and extraordinary gain on
discharge of debt 6,493 7,492 (9,654) (19,170)
Income taxes 4,603 4,633 32 (448)
-----------------------------------------------------
Income (loss) before extraordinary gain on discharge of debt 1,890 2,859 (9,686) (18,722)
Extraordinary gain on discharge of debt -- -- 58,726 --
-----------------------------------------------------
Net income (loss) 1,890 2,859 49,040 (18,722)
Preferred stock dividends 190 -- -- --
Accretion of 13% Pay-in-Kind preferred stock 35 -- -- --
-----------------------------------------------------
Net income (loss) attributable to common stockholders $ 1,665 $ 2,859 $ 49,040 $ (18,722)
=====================================================
Net income per share (b)(see Note 16):
Basic net income per share (see Note 16) $ 0.26 $ 0.44
===========================
Diluted net income per share (see Note 16) $ 0.25 $ 0.41
=======================================================================================================================
</TABLE>
(a) Due to the Reorganization Plan and implementation of fresh-start
reporting, financial statements after April 11, 1997 are not comparable to
financial statements prior to that date. See "Notes to Consolidated
Financial Statements" for more information on the Reorganization Plan and
implementation of fresh-start reporting. (See "Management's Discussion and
Analysis" (page 11) for comparison purposes.)
(b) Common shares and per share data for periods prior to April 12, 1997 are
omitted because, due to the Reorganization Plan and implementation of
fresh-start reporting, they are not meaningful.
(c) Effective November 19, 1998, the Company acquired all of the issued and
outstanding share capital of Sports Holdings Corporation. The results of
operations related to this acquisition have been included in these
consolidated financial statements from the effective date of acquisition.
See Note 2 to the consolidated financial statements for more information.
The accompanying notes are an integral part of the consolidated
financial statements.
29
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Common
Stock Additional Retained Currency
Common Stock Purchase Paid-in Earnings Translation
# of Stock Amount Warrants Capital (Deficit) Adjustments Total
---------------------- --------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 18,860 189 -- 88,564 (182,291) (3,651) (97,189)
Net income -- -- -- -- 49,040 -- 49,040
Foreign currency translation
adjustments -- -- -- -- -- 85 85
Restructuring:
Cancellation of predecessor
Company's deficit (18,860) (189) -- (88,564) 133,251 3,566 48,064
Issuance of stock warrants -- -- -- 464 -- -- 464
Issuance of reorganized
Company stock 6,500 65 -- 66,043 -- -- 66,108
--------------------------------------------------------------------------------------------
Balance at April 11, 1997 6,500 65 -- 66,507 -- -- 66,572
Net income -- -- -- -- 2,859 -- 2,859
Foreign currency translation
adjustments -- -- -- -- -- (549) (549)
--------------------------------------------------------------------------------------------
Balance at December 31, 1997 6,500 $ 65 -- $ 66,507 $ 2,859 $ (549) $ 68,882
--------------------------------------------------------------------------------------------
Net income -- -- -- -- 1,890 -- --
Issuance of stock warrants 1 -- -- 8 -- -- --
Issuance of common stock
purchase warrants -- -- 1,665 -- -- -- --
Dividend on 13% Pay-in-Kind
preferred stock
(see note 9) -- -- -- -- (190) -- --
Accretion of 13% Pay-in-Kind
preferred stock -- -- -- -- (35) -- --
Foreign currency translation
adjustments -- -- -- -- -- (2982) --
--------------------------------------------------------------------------------------------
Balance at December 31, 1998 6,501 $ 65 $ 1,665 $ 66,515 $ 4,524 $ (3,531) $ 69,238
============================================================================================
</TABLE>
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
New THC Old THC
-----------------------------------------------------------------
1998 1997 1997 1996
---- ---- ---- ----
April 12 January 1
through through
December 31 April 11
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Comprehensive income (loss)
Net income (loss) attributable to common stockholders $ 1,665 $ 2,859 $ 49,040 $ (18,722)
Other-foreign currency translation adjustments (2,982) (549) 85 175
-----------------------------------------------------------------
Comprehensive income (loss) attributable to common
stockholders for the year (1,317) 2,310 49,125 (18,547)
-----------------------------------------------------------------
Accumulated comprehensive income (loss) attributable
to common stockholders
Balance at the beginning of year 2,310 -- (185,942) (167,395)
Comprehensive income (loss) attributable to common
stockholders for the year (1,317) 2,310 49,125 (18,547)
Re-organization adjustments (note 2) -- -- 136,817 --
-----------------------------------------------------------------
Balance at end of year 993 2,310 -- (185,942)
-----------------------------------------------------------------
Balance at end of year represented by:
Retained earnings (deficit) 4,524 2,859 (133,251) (182,291)
Foreign currency translation (3,531) (549) (3,566) (3,651)
Re-organization adjustment (note 2) -- -- 136,817 --
-----------------------------------------------------------------
$ 993 $ 2,310 $ -- $(185,942)
=================================================================
</TABLE>
Due to the Reorganization Plan and implementation of fresh-start
reporting, financial statements after April 11, 1997 are not comparable to
financial statements prior to that date. See "Notes to Consolidated
Financial Statements" for more information on the Reorganization Plan and
implementation of fresh-start reporting.
The accompanying notes are an integral part of the consolidated
financial statements.
30
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
New THC Old THC
-----------------------------------------------------------------
1998 1997 1997 1996
---- ---- ---- ----
April 12 January 1
through through
December 31 April 11
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,890 $ 2,859 $ 49,040 $(18,722)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary gain on discharge of debt -- -- (58,726) --
Loss on impairment of long-lived and intangible
assets -- -- -- 662
Restructuring charges 1,453 -- 6,315 --
Depreciation and amortization 7,145 3,807 807 2,565
Provisions for inventory, doubtful accounts and
other deductions 2,623 9,791 2,301 13,969
Deferred income taxes (258) 918 -- 66
Provision in lieu of taxes 3,418 2,985 -- --
(Gain) loss on sale and disposal of fixed assets (71) (160) 5 (45)
(Gain) loss on foreign exchange (1,373) 649 263 222
Change in operating assets and liabilities:
Accounts receivable 6,456 (15,697) 14,660 (1,552)
Inventories 1,448 12,176 (7,026) 9,303
Prepaid expenses (511) 371 596 (2,137)
Income taxes receivable (447) 80 44 (162)
Other receivables (1,755) (618) 176 256
Accounts payable and accrued liabilities (1,752) (7,941) (1,450) 5,002
Interest payable 117 1,145 -- 9,408
Income taxes payable 378 522 240 112
Other 357 28 -- 1
Net effect of discontinued operations -- -- 189 --
-----------------------------------------------------------------
Net cash provided by operating activities 19,118 10,915 7,434 18,948
=================================================================
</TABLE>
Due to the Reorganization Plan and implementation of fresh-start reporting,
financial statements after April 11, 1997 are not comparable to financial
statements prior to that date. See "Notes to Consolidated Financial Statements"
for more information on the Reorganization Plan and implementation of
fresh-start reporting.
The accompanying notes are an integral part of the consolidated
financial statements.
31
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
New THC Old THC
-------------------------------------------------------------------
1998 1997 1997 1996
---- ---- ---- ----
April 12 January 1
through through
December 31 April 11
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Acquisition of a subsidiary, net of cash acquired (62,933) -- -- --
Proceeds from sale of subsidiary, net -- 1,831 -- --
Purchases of fixed assets (3,480) (1,732) (285) (2,776)
Proceeds from sales of fixed assets 146 535 73 307
Proceeds from disposal of discontinued operations -- -- -- 5,947
-------------------------------------------------------------------
Net cash provided by (used in) investing activities (66,267) 634 (212) 3,478
-------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from (repayments of) borrowings 2,979 (4,685) -- 323
Proceeds from long term debt 102,500 -- -- --
Principal payments of debt (70,924) (2,929) (89) (5,737)
Exercise of warrants 8 -- -- --
Issuance of preferred stock 10,835 -- -- --
Issuance of common stock purchase warrants 1,665 -- -- --
Deferred financing costs (5,288) (63) (2,146) --
Liabilities subject to compromise -- -- (36,098) --
-------------------------------------------------------------------
Net cash provided by (used in) financing activities 41,775 (7677) (38,333) (5,414)
-------------------------------------------------------------------
Effects of foreign exchange rate changes on cash
and cash equivalents (84) (277) (22) (28)
-------------------------------------------------------------------
Increase (decrease) in cash (5,458) 3,595 (31,133) 16,984
Cash and cash equivalents at beginning of period 8,051 4,456 35,589 18,605
-------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,593 $ 8,051 $ 4,456 $ 35,589
===================================================================
</TABLE>
Due to the Reorganization Plan and implementation of fresh-start reporting,
financial statements after April 11, 1997 are not comparable to financial
statements prior to that date. See "Notes to Consolidated Financial Statements"
for more information on the Reorganization Plan and implementation of
fresh-start reporting.
The accompanying notes are an integral part of the consolidated
financial statements.
32
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. Description of Business and Summary of Significant Accounting Policies
A. Description of Business, Change of Corporate Name and Principles of
Consolidation:
The Hockey Company ("THC") was incorporated in September 1991 and reorganized in
April 1997.
On January 31, 1999, the Board of Directors of The Hockey Company (the
"Company") adopted an amendment to the Company's Certificate of Incorporation by
unanimous written consent to change the name of the Company from SLM
International, Inc. to The Hockey Company. The amendment was filed with the
Secretary of the State of the State of Delaware on February 9, 1999.
The consolidated financial statements include the accounts of THC and its
wholly-owned subsidiaries (collectively, the "Company"). The Company designs,
develops, manufactures and markets a broad range of sporting goods. The Company
manufactures hockey and hockey related products, including hockey uniforms,
hockey sticks, protective equipment, hockey, figure and inline skates as well as
street hockey products, marketed under the CCM(R) brandname as well as the
Koho(R), Jofa(R), Titan(R), Canadien(TM) and Heaton(R) brand names, and private
label brands and licensed sports apparel under the CCM(R) and #1 Apparel(TM)
brand names. The Company sells its products worldwide to a diverse customer base
consisting of mass merchandisers, retailers, wholesalers, sporting goods shops
and international distributors. The Company manufactures and distributes most of
its products at facilities in North America, Finland and Sweden and sources
products internationally.
All significant intercompany transactions and accounts are eliminated.
B. Basis of Presentation:
THC and six of its subsidiaries (collectively, "Old THC") filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code (the
"Filing") in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on October 24, 1995 (the "Petition Date"). On September
12, 1996, Old THC filed a Chapter 11 Plan of Reorganization and on November 13,
1996, Old THC filed a First Amended Chapter 11 Plan of Reorganization as amended
from time to time (the "Reorganization Plan") with the Bankruptcy Court. On
January 23, 1997, the Bankruptcy Court confirmed the Reorganization Plan which
became effective on April 11, 1997 (the "Effective Date") and Old THC emerged
from bankruptcy ("New THC") (see Notes 2 and 21).
The accompanying consolidated financial statements as at December 31, 1997 and
1996 and for each of the years then ended have been prepared in accordance with
generally accepted accounting principles applicable to a going concern which,
except as otherwise disclosed, assumes that assets will be realized and
liabilities will be discharged in the normal course of business. The financial
statements for periods preceeding the Effective Date do not include any
adjustments which resulted from the Reorganization Plan. The Reorganization Plan
had a significant impact on the financial statements of New THC and the Company
accounted for such Reorganization Plan using "fresh-start" reporting (see Note
21).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
33
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C. Cash and Cash Equivalents:
Cash and cash equivalents consist of cash and highly liquid short-term
investments with original maturities of three months or less. The Company
invests excess funds in bank term deposits, Canadian Government promissory notes
and in U.S. Treasury bills. At December 31, 1998, the Company had $80 invested
in bank term deposits and $325 in Quebec Government promissory notes secured by
a Canadian bank.
D. Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments and accounts
receivable. The Company restricts its cash investments to temporary investments
in institutions with high credit standing and to short-term securities backed by
the full faith and credit of the United States and Canadian and Quebec
Governments. The Company sells its products principally to retailers and
distributors and, in accordance with industry practice, grants extended payment
terms to qualified customers. Concentration of accounts receivable credit risk
is mitigated due to the performance of credit reviews which are considered in
determining credit policies and allowances for doubtful accounts. The Company
provides allowances for expected sales returns, net of related inventory cost
recoveries, discounts, rebates and cooperative advertising. The Company does not
collateralize its receivables, except with respect to its debt agreements as
described in Note 7 in the Notes to Consolidated Financial Statements.
E. Revenue Recognition:
Revenue is recognized when products are shipped to customers.
F. Inventories:
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. The Company provides allowances for excess,
obsolete and slow moving inventories.
G. Research & Development Expenses:
Costs for new product research and development as well as changes to existing
products are expensed as incurred and totaled $1,171, $1,096 and $1,410 for the
years ended December 31, 1998, 1997, and 1996, respectively. During the year
ended December 31, 1997, $611 of the expense was incurred from April 12 through
December 31, 1997.
H. Prepaid Expenses:
The Company expenses advertising and promotion costs as incurred. Royalty
payments are deferred to the extent that the related sales have not yet been
recorded. Such costs are included in prepaid expenses.
34
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
I. Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives using principally the
straight-line method of depreciation.
The estimated service lives of the respective assets are as follows:
Years
-----
Buildings and improvements 5 - 40
Machinery and equipment 3 - 10
Tools, dies and molds 3 - 5
Office furniture and equipment 3 - 10
Accelerated methods of depreciation are used where permitted for tax reporting
purposes. Significant additions or major improvements are capitalized, while
normal maintenance and repair costs are expensed. When assets are sold, retired
or otherwise disposed of, the applicable costs and accumulated depreciation are
removed from the accounts, and the resulting gain or loss is recognized.
The Company periodically reviews property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. When such circumstances occur, the Company estimates
future cash flows expected to result from the use and eventual disposition of
the assets. If the expected future cash flows are less than the carrying amount,
the Company recognizes an impairment loss (see Note 10).
J. Income Taxes:
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
consists of both the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
The Company does not provide for withholding income taxes on the undistributed
earnings of its non-U.S. subsidiaries, since such earnings are not expected to
be remitted to the Company in the foreseeable future. The company has provided,
in its U.S. tax provision, taxes on all of the unremitted earnings of its
non-U.S. subsidiaries to December 31, 1998.
Fresh-start reporting requires the Company to report a provision in lieu of
income taxes when there is a book taxable income and utilization of a
pre-reorganization net operating loss carryforward. This requirement applies
despite the fact that the Company's pre-reorganization net operating loss
carryforward and other deferred tax assets would eliminate the related federal
income tax payable. The current and future year tax benefit related to the carry
35
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
forward is recorded as a reduction of reorganizational value in excess of
amounts allocable to identifiable assets until exhausted and then as a direct
increase to paid in capital.
K. Foreign Currency Translation:
The balance sheets of the Company's non-U.S. subsidiaries are translated into
U.S. dollars at the exchange rates in effect at the end of each year. Revenues,
expenses and cash flows are translated at weighted average rates of exchange.
Gains or losses resulting from foreign currency transactions are included in
earnings, while those resulting from translation of financial statements are
shown as a separate component of stockholders' equity. The functional currencies
of the Company's non-U.S. subsidiaries, which are primarily located in Canada,
Finland and Sweden are the respective local currencies in each foreign country.
L. Intangible Assets:
Intangible assets are recorded at cost and are amortized on a straight-line
basis. These amounts include the excess purchase price over fair values assigned
("goodwill"), reorganizational value in excess of amounts allocable to
identifiable assets ("excess reorganizational value") (see Notes 2, 6 and 21)
and deferred financing costs (amortized over the life of the financing).
Goodwill is amortized on a straight-line basis over twenty-five years. Excess
reorganizational value is amortized on a straight-line basis over twenty years
and is being reduced by the realization of deferred tax assets.
The Company periodically reviews intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. When such circumstances occur, the Company estimates future cash
flows expected to result from the use and eventual disposition of the
intangibles. If the expected future cash flows are less than the carrying
amount, the Company recognizes an impairment loss.
M. Earnings Per Share:
Basic and diluted earnings per share of common stock are computed based on the
average number of shares of common stock assumed to be outstanding during each
year. Common stock equivalents are included when dilutive (see Notes 8, 9, 16
and 17).
2. Significant Activities
a) Business Acquisition - Sports Holdings Corporation
Effective November 19, 1998 ("Acquisition Date"), the Company acquired all of
the issued and outstanding capital stock of Sports Holdings Corporation, a
privately held manufacturer and distributor of hockey equipment sold under the
Canadien(TM), Heaton(R), Titan(R), Jofa(R) and Koho(R) brand names, with
operations in the Canada, the United States, Finland and Sweden. The operations
are carried out through Tropsport Acquisitions Inc. in Canada, SHC Hockey Inc.
(formerly Karhu U.S.A. Inc.) in the United States, KHF Sports Oy in Finland, and
JOFA Holding AB, JOFA AB, and JOFA Norge A/S in Sweden, all of which were
100%-owned by Sports Holdings Corp. at the Acquisition Date. The acquisition has
been accounted for using the purchase method and, accordingly, the purchase
price was allocated to the acquired assets and liabilities based on their
estimated fair value as at the
36
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Acquisition Date. The excess of the purchase price over the fair value of the
identifiable net assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over a period of 25 years.
The results of operations related to this acquisition have been included in
these consolidated financial statements from the effective date of acquisition.
Details of the acquired assets and liabilities at fair value are as follows:
$
- --------------------------------------------------------------------------------
Cash 2,727
Current assets net of current liabilities 22,427
Property, plant and equipment 12,244
Long-term debt (24,830)
- --------------------------------------------------------------------------------
Identifiable assets in excess of identifiable liabilities 12,568
Consideration paid
Cash consideration 63,553
Acquisition costs 2,107
Total consideration paid 65,660
Goodwill on acquisition 53,092
- --------------------------------------------------------------------------------
In connection with the above acquisition, Sports Holdings Corp. undertook a
rationalization program which included severance and related employee costs and
anticipated costs related to the modification or closure of certain facilities
in North America and Europe.
The restructuring and acquisition-related charges were determined based on
formal plans approved by the Company's management using the best information
available to it at the time. The amounts the Company may ultimately incur may
change as the balance of the Company's initiative to integrate the businesses
related to this acquisition is executed.
The related restructuring costs approximated $5,019 and have been included in
the above purchase price allocation. The disposition of these amounts to
December 31, 1998 can be summarized as follows:
- --------------------------------------------------------------------------------
Liability
Total restructuring costs capitalized in the
purchase price allocation at November 19, 1998 5,019
Translation adjustments (35)
Amount of restructuring costs paid for the
period November 19, to December 31, 1998 (1,191)
- --------------------------------------------------------------------------------
Remaining liability included on the
December 31, 1998 Consolidated Balance Sheet 3,793
- --------------------------------------------------------------------------------
37
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The following pro forma consolidated financial information reflects the
acquisition of Sports Holding Corp. by the Company using the purchase method of
accounting. This information has been prepared assuming that the acquisition had
taken place on January 1, 1998 and assumes that both the amortization of
goodwill referred to above and the debt facilities as set out in Notes 6 and 7
commenced at that time.
Year ended
December 31, 1998
$
- --------------------------------------------------------------------------------
[Pro forma - Unaudited]
Net revenues 183,157
Earnings before income taxes 842
Net loss (2,033)
Preferred stock dividends (1,625)
Accretion of 13% Pay-in-kind preferred stock (232)
- --------------------------------------------------------------------------------
Net loss attributable to common stockholders (3,890)
Pro forma basic net loss per common share (not in thousands) (.60)
- --------------------------------------------------------------------------------
b) Reorganization Case
On April 11, 1997 the Company emerged from bankruptcy.
Under the Reorganization Plan, among other things:
o Old THC's secured creditors received $44,213 in cash, $29,500 principal in
new senior notes (the "Senior Secured Notes") and 2,470,000 shares of new
common stock (the "New Common Stock") of New THC, in exchange for
approximately $108,000 of secured and unsecured indebtedness (which amount
includes the secured creditors' estimate of post-filing interest and
expenses). The 2,470,000 shares of New Common Stock represented (before
dilution) 38.0% of the ownership of New THC. The lenders sold such shares
to W.S. Acquisition L.L.C. on the Effective Date. The Senior Secured Notes
had a term of seven years with principal payments beginning in the fifth
year. On March 16, 1998, the Company prepaid the Senior Secured Notes in
full (see Note 7).
o Old THC's unsecured creditors received 4,030,000 shares of New Common
Stock representing, at the time of issuance, 62.0% of the ownership of New
THC, subject to dilution upon the exercise of warrants distributed to
equity security holders and stock options which have been or may be issued
to New THC's officers and key personnel (up to 15.0% of the New Common
Stock at varying exercise prices), in exchange for approximately $120,000
of unsecured indebtedness. For purposes of the Reorganization Plan, the
New Common Stock was valued at approximately $10.16 per share.
o Old THC's equity security holders (who held 18,859,679 shares of Common
Stock plus the 1,000,000 shares to have been issued pursuant to the
settlement of a securities litigation lawsuit) received a total of 300,000
5-year warrants to purchase an aggregate of 300,000 shares of New Common
Stock at an exercise price of $16.92 per share. In addition, the warrant
holders have the option to receive an aggregate payment
38
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
of $0.5 million upon cancellation of such warrants in connection with a
sale of the Reorganized Company for more than $140,000.
c) Liabilities Subject to Compromise Under Reorganization Proceedings
Substantially all the Company's liabilities as of the Petition Date were subject
to compromise under a plan of reorganization, except as otherwise provided by
order of the Bankruptcy Court. The Company was generally not permitted to make
payments with respect to its pre-Petition Date liabilities until a plan of
reorganization was confirmed by the Bankruptcy Court and consummated.
Liabilities subject to compromise under reorganization proceedings consist of
priority claims, the repayment of which the Company is required to prioritize
under bankruptcy law, which are comprised principally of income and property tax
claims. At December 31, 1998 and December 31, 1997, priority claims of $1,130,
remain subject to resolution with the Bankruptcy Court.
3. Accounts Receivable
Net accounts receivable include:
1998 1997
- --------------------------------------------------------------------------------
Allowance for doubtful accounts $2,444 $4,046
Allowance for returns, discounts, rebates and
cooperative advertising 5,384 5,886
- --------------------------------------------------------------------------------
$7,828 $9,932
================================================================================
Bad debt (recovery) expense for the years ended December 31, 1998, 1997, and
1996 was ($1,387), $716 and $621, respectively. Bad debt expense for the year
ended December 31, 1997 includes $468 incurred during April 12 through December
31, 1997.
4. Inventories
Net inventories consist of:
1998 1997
- --------------------------------------------------------------------------------
Finished products $31,659 $20,894
Work in process 2,145 1,561
Raw materials and supplies 8,440 6,020
- --------------------------------------------------------------------------------
$42,244 $28,475
================================================================================
Allowances for excess, obsolete and slow moving inventories were $3,150 and
$3,418 at December 31, 1998 and 1997, respectively.
39
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
5. Property, Plant and Equipment
Property, plant and equipment consist of:
1998 1997
- --------------------------------------------------------------------------------
Land and improvements $ 236 $ 79
Buildings and improvements 6,307 2,873
Machinery and equipment 13,354 4,856
Tools, dies and molds 1,718 749
Office furniture and equipment 4,053 2,417
25,668 10,974
- --------------------------------------------------------------------------------
Less accumulated depreciation and amortization 3,605 1,466
- --------------------------------------------------------------------------------
$ 22,063 $ 9,508
================================================================================
In applying fresh-start reporting, as of April 11, 1997, property, plant and
equipment was stated at fair value.
No Property, plant or equipment were under capital leases, at December 31, 1998.
At December 31, 1997, the fixed assets under capital leases included above
totaled $543 and accumulated amortization was $81.
Depreciation and amortization expense for the years ended December 31, 1998,
1997, and 1996 was $2,585, $2,371 and $2,524, respectively. Depreciation and
amortization expense for the year ended December 31, 1997 includes $1,571 for
April 12 through December 31, 1997.
6. Intangible and other assets
Net intangible and other assets consist of:
1998 1997
- --------------------------------------------------------------------------------
Goodwill $ 52,913 $ --
Excess Reorganization intangible 37,485 43,499
Deferred Financing Costs 5,248 1,667
Other 370 16
- --------------------------------------------------------------------------------
$ 95,646 $ 45,182
================================================================================
Amortization expense for intangible assets was $ 4,560, $2,236 and $61 at
December 31, 1998, 1997 and 1996 respectively.
Excess reorganizational value was reduced by $ 3,418 for the year ended December
31, 1998 by the realization of deferred tax assets (reduced by $2,985 from April
12 through December 31, 1997).
40
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
7. Revolving Credit Facilities and Long-Term Debt
a) Revolving credit facilities
Revolving credit facilities consist of the following:
1998 1997
Revolving credit facilities with General
Electric Capital Inc. $ 8,572 $ --
Revolving credit facilities with Chase
Manhattan Bank -- 415
- --------------------------------------------------------------------------------
$ 8,572 $ 415
================================================================================
i) Effective November 19, 1998, two of the Company's U.S. subsidiaries, Maska
U.S. Inc. and SHC Hockey Inc. entered into a credit agreement (the "New
U.S. Credit Agreement") with the lenders referred to therein and with
General Electric Capital Corporation as Agent and Lender. Simultaneously,
two of the Company's Canadian subsidiaries, Sport Maska Inc. and Tropsport
Acquisitions Inc. entered into a credit agreement (the "New Canadian
Credit Agreement") with the lenders referred to therein and General
Electric Capital Canada Inc. as Agent and Lender. The maximum amount of
loans and letters of credit that may be outstanding under the two credit
agreements (collectively, the "New Credit Agreements") is U.S. $70,000,
$35,000 for each of the New Credit Agreements (or its Canadian dollar
equivalent in the case of the Canadian Credit Agreement). Each of the New
Credit Agreements is subject to a minimum excess requirement of $1,750.
The New Credit Agreements are collateralized by eligible accounts
receivable and inventories of the borrowers and are further collateralized
by a guarantee of the Company and its other North American subsidiaries.
Total borrowings outstanding under the New Credit Agreements at December
31, 1998 amounted to $8,572. The New Credit Agreements are for a period of
two years with a possible extension of one year by the Company.
Borrowings under the New U.S. Credit Agreements bear interest at rates
between U.S. prime plus 0.25%-1.00% and LIBOR plus 1.50%-2.50% depending
on the borrowers' Operating Cash Flow Ratio, as defined in the agreement
(8.25% and none at December 31, 1998, respectively). Borrowings under the
New Canadian Credit Agreement bear interest at rates between the Canadian
prime rate and 0.75%-2.00% and LIBOR plus 0.75%-2.00% depending on the
borrowers' Operating Cash Flow Ratio, as defined in the agreement (6.50%
and none in 1998 at December 31, 1998, respectively). In addition, the
borrowers are charged a monthly commitment fee at an annual rate of up to
3/8 of 1% on the unused portion of the revolving credit facilities under
the New Credit Agreements and certain other fees.
The New Credit Agreements contain customary negative and affirmative
covenants including those relating to capital expenditures, total
indebtedness to EBITDA, minimum interest coverage and fixed charges
coverage ratio.
ii) On the effective date of the Reorganization Plan, THC and two of its U.S.
subsidiaries, Maska U.S., Inc. and #1 Apparel, Inc. (the "U.S.
Subsidiaries"), entered into a Credit Agreement (the "Old U.S. Credit
Agreement") with the lenders referred to therein (the "Lenders") and The
Chase Manhattan Bank, as Agent ("Chase"). Simultaneously, one of the
Company's Canadian subsidiaries, Sport Maska Inc., entered into
41
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
a Credit Agreement (the "Old Canadian Credit Agreement" and, together with
the Old U.S. Credit Agreement, the "Old Credit Agreements") with The Chase
Manhattan Bank of Canada ("Chase Canada").
The maximum amount of loans that could have been outstanding under the Old
Credit Agreements was $74,000, consisting of $35,000 revolving credit
loans under the Old U.S. Credit Agreement, $35,000 of revolving credit
loans under the Old Canadian Credit Agreement and a $4,000 Term Loan
(which was permanently reduced by $2,125 in June 1997 with the proceeds
from the sale of one of the Company's subsidiaries) under the Old U.S.
Credit Agreement. Borrowings under the Old Credit Agreements were
guaranteed by certain subsidiaries and were collateralized by
substantially all of the assets (including, without limitation, accounts
receivable, inventory and the stock of certain subsidiaries) of the
Company, the two U.S. Subsidiaries referred to above and the Company's
other subsidiaries which were guarantors. The Old Canadian Credit
Agreement was further collateralized by a letter of credit amounting to
$35,000 at December 31, 1997. Total amounts outstanding under the Credit
Agreements was $1,790 at December 31, 1997.
Borrowings under the Old U.S. Credit Agreement had an interest rate at an
alternate base rate plus 1% per annum or at an interest rate based on
LIBOR plus 2 3/4% per annum (9.5% and 8.5% at December 31, 1997,
respectively). Borrowings under the Old Canadian Credit Agreement had an
interest rate at Chase Canada's prime rate or at an alternate base rate
plus 1% per annum (6.0% and 5.6% at December 31, 1997, respectively). In
addition, the Company was charged a quarterly commitment fee at an annual
rate of up to 3/8 of 1% on the unused portion of the revolving credit
facilities under the Old Credit Agreements and certain other fees.
The Old Credit Agreements included customary affirmative and negative
covenants, including those relating to capital expenditures, interest
coverage and the incurrence of additional indebtedness.
During March 1998, the Company amended its Old Credit Agreements (the
"Amended Credit Agreements") to take advantage of its improved borrowing
capacity. In completing the amendments the Company redeemed, in full, its
Senior Secured Notes and all amounts outstanding under the $4,000 Term
Loan under its Old U.S. Credit Agreement. The redemptions were effected by
the Amended Credit Agreements (additional revolving credit loan borrowings
under the Amended Credit Agreements and the Amended Term Loan) and use of
the Company's cash on hand. The maximum amount of loans that may have been
outstanding under the Amended Credit Agreements was $60.0 million,
consisting of $45.0 million revolving credit loans and a $15.0 million
term loan (the "Amended Term Loan"). Borrowings under the Amended Credit
Agreements beared interest at an alternate base rate per annum or at an
interest rate based on LIBOR plus 1 3/4% per annum on Amended U.S.
revolving credit loans, at Chase Canada's prime rate or at an alternate
base rate per annum on Canadian revolving credit loans, and an alternate
base rate plus 1/4 per annum or at an interest rate based on LIBOR plus 2%
per annum on the Amended Term Loan. Interest and principal on the Amended
Term Loan were payable in quarterly installments ($0.6 million principal)
through April 2000, beginning in April 1998.
The Old Credit Agreements were fully repaid and the Amended Credit
Agreements were cancelled when the company entered into the New Credit
Agreements with General Electric Capital Inc.
The weighted average interest rate on short term debt outstanding at
December 31, 1998 and 1997 was 8.1% and 8.2%, respectively.
42
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
b) Long-term debt
The Company's long-term debt at December 31 was as follows:
1998 1997
Secured loans from Caisse de Depot et
Placement du Quebec (Canadian $135,800) $ 88,182 $ --
Secured Senior Notes -- 29,500
Revolving credit facilities with
Chase Manhattan (note 7a) -- 1,375
Capital Leases 165
Other long-term debt 386 445
- --------------------------------------------------------------------------------
88,568 31,485
Less: amounts contractually due within
one year -- (1,421)
- --------------------------------------------------------------------------------
Total long-term debt, excluding
current portion $ 88,568 $ 30,064
================================================================================
Secured Loans
On November 19,1998, in connection with its acquisition of Sports Holdings
Corp., the Company and Sport Maska Inc. entered into a Secured Loan Agreement
with the Caisse de Depot et Placement du Quebec to borrow a total of Canadian
$135,800. The loan is for a period of two years, maturing November 19, 2000 and
may be extended for an additional one year term at the Company's request and
upon payment of an extension fee. The loan bears interest at a rate equal to the
Canadian Bankers' Acceptance Rate plus 4% or the Canadian Prime Rate plus 4.5%.
At December 31, 1998 the interest rate was 11.25%.
The loan is collateralized by all of the tangible and intangible assets of the
Company subject to the prior ranking claims on accounts receivable and
inventories by the lenders under the Company's revolving credit facilities (see
Note 7a). The loan is guaranteed by the Company and all of its subsidiaries in
Canada and the U.S.
The loan contains customary negative and affirmative covenants including those
relating to capital expenditures, total indebtedness to EBITDA, minimum total
EBITDA and minimum interest coverage.
Senior Secured Notes
On April 11, 1997 the Company issued $29,500 principal amount of 14% Senior
Secured Notes due April 1, 2004 (the "Senior Secured Notes"), pursuant to an
Indenture with The Bank of New York, as trustee. The Senior Secured Notes were
issued by the Company under the Reorganization Plan as partial satisfaction of
the Company's obligations to its former secured lenders under the Loan and
Security Agreement referred to below.
Interest was payable on the Senior Secured Notes semi-annually at the rate of
14% per annum, with such interest rate being permanently reduced by up to 4% if
the Company met certain earnings tests. Further, of the initial 14%
43
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
interest rate, 10% was payable in cash and 4% was payable in cash or by the
issuance of additional Senior Secured Notes. On October 1, 1997, the Company
elected to make the entire first interest payment in cash.
The Senior Secured Notes were guaranteed by certain subsidiaries and were
collateralized by substantially all of the assets of the Company (including,
without limitation, accounts receivable, inventory and the stock of certain
subsidiaries). The lien of the trustee for the benefit of itself and the Senior
Secured Noteholders was junior to the liens of Chase and Chase Canada. The
Indenture also included customary affirmative and negative covenants.
In March 1998, the Company redeemed, in full, the Senior Secured Notes with the
proceeds of additional borrowings under its Amended Credit Agreements and with
the proceeds from the Amended Term Loan in the principal amount of $15,000
bearing interest at an alternate base rate plus 0.25% per annum or at an
interest rate based on LIBOR plus 2.00% per annum. Interest and principal on the
Amended Term Loan was payable in quarterly installments ($625 principal) through
April 2000, beginning in April 1998. The Amended Term Loan was repaid in full
when the Company entered into its Secured Loan Agreement on November 19, 1998.
At December 31, 1998, future maturities of long-term debt based upon original
terms were:
-------------------------------------------------------------
1999 --
2000 $88,182
2001 --
2002 --
2003 --
Thereafter $ 385
-------------------------------------------------------------
Cash payments of interest were $4,000 and $2,531 for the year ended December 31,
1998 and for April 12 through December 31, 1997 respectively.
Based on the borrowing rates currently available to the Company for bank loans
and other financing with similar terms, the Company estimated that the fair
value of its short-term debt and long-term debt at December 31, 1998 and 1997
equivalent to the carrying values in the financial statements. These values
represent a general approximation of possible value and may never be realized.
8. Equity Transactions
As of the Effective Date, New THC had 15,000,000 shares of New Common Stock
authorized. In addition, in April 1997, New THC issued 300,000 5-year warrants
to Old THC's shareholders to purchase an aggregate of 300,000 shares of New
Common Stock at an exercise price of $16.92 per share. During the year ended
December 31, 1998, New THC issued 507 shares of New Common Stock with respect to
the exercise of warrants. At December 31, 1998, 6,500,507 shares of New Common
Stock were issued and outstanding. The Company also has 1,000,000 shares of
preferred stock authorized at December 31, 1998.
On November 19, 1998, the Company issued (to the preferred shareholders)
warrants to purchase 159,127 shares of New Common Stock of the Company at a
purchase price of $.01 per share for a cash consideration of $1,665.
44
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
9. Preferred Stock
On November 19, 1998, the Company issued 100,000 shares of 13% Pay-In-Kind
redeemable, $0.01 par value per share, cumulative preferred stock together with
warrants to purchase 159,127 common shares of the Company at a purchase price of
$0.01 per share, for cash consideration of $12,500 (par value).
The fair value of the warrants was determined to be $1,665 and has been recorded
in Stockholder's Equity as common stock purchase warrants. The balance of the
proceeds, $10,835, has been recorded as 13% Pay-In-Kind preferred stock. The
difference between the redemption value of the preferred stock and the recorded
amount is being accreted on a straight-line basis over the seven-year period
ending November 19, 2005, by a charge to retained earnings.
Dividends, which are payable semi-annually from November 19, 1998, may be paid
in cash or in shares of the 13% Pay-In-Kind preferred stock, at the Company's
option. The preferred stock is non-voting. If the Company fails to redeem the
preferred stock on or before November 19, 2005 and for a sixty day period or
more after being notified of its failure to redeem the preferred stock, then the
preferred stockholders, as a class of stockholders, have the option to elect one
director to the Company's Board of Directors with the provision that the
preferred stockholders are to elect 28% of the Company's directors. At December
31, 1998 unpaid dividends of $190 have been accrued on the preferred stock and
are included in accrued liabilities.
The preferred stock is redeemable, at any time after November 19, 2000, in whole
or in part, at the option of the Company, at a redemption price (together with
all accumulated and unpaid dividends) as follows:
Year Percentage of par value
2000 106.500%
2001 104.333%
2002 102.166%
2003 and thereafter 100.000%
The preferred stock must be redeemed by the Company upon a change of control or
by November 19, 2005.
10. Restructuring and unusual charges
During 1998, as a result of the acquisition of Sports Holdings Corp., the
Company recorded significant restructuring charges totaling $1,453 ($1,352 still
unpaid at December 31, 1998) to reflect the impact of reorganizing its
operations with those of the acquired company. The costs consist primarily of
employee and related severance costs that have been accounted for as an unusual
item.
Also during 1998, some unrecoverable costs totaling $447 resulting from a severe
ice storm that struck the north eastern parts of North America were accounted
for as an unusual item.
During 1997, prior to its emergence from bankruptcy, the Company recorded
significant restructuring charges totaling $6,315 to reflect the impact of
reorganizing operations strategically to position itself to sustain ongoing
45
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
profitability. These costs consist primarily of lease cancellation costs
($2,257) at its Peterborough, N.H. and Beauport, Quebec facilities, impairment
of fixed assets ($1,659), principally leasehold improvements at its
Peterborough, N.H. facility, and severance and employee costs associated with
the shutdown of three of the Company's manufacturing facilities.
11. Chapter 11 and Debt Related Fees
As a result of the Company's Filing, Old THC's continuing operations incurred
significant legal and professional fees totaling $1,243 for January 1 through
April 11, 1997. These fees include the cost of the Company's legal counselors,
financial advisors and consultants, as well as those of its bankers, senior
noteholders and creditors. The Chapter 11 and debt related fees for January 1
through April 11, 1997 are net of $500 of interest earned on accumulated cash
resulting from the Filing. These costs are included as Chapter 11 and debt
related fees in the Consolidated Statements of Operations.
12. Related Party Transactions
In 1998, the Company paid its controlling shareholder, Wellspring Capital
Management LLC a fee of $975 for investment banking services provided in
connection with the acquisition of Sports Holdings Corp. and related acquisition
financing. During 1998, the Company issued 100,000 shares of 13% Pay-in-Kind
preferred shares to Phoenix Home Life Mutual Insurance Company, a common
shareholder (see Note 9).
Old THC (including discontinued operations) leased property from companies
controlled by certain former officers and directors of Old THC. Related party
rent expense for January 1 through April 11, 1997 and the year ended December
31, 1996 was $617 and $2,160, respectively.
13. Leases
Certain of the Company's subsidiaries lease office and warehouse facilities and
equipment are under operating lease agreements. Some lease agreements provide
for annual rent increases based upon certain factors including the Consumer
Price Index.
The following is a schedule of future minimum lease payments under non
cancelable operating leases with initial terms in excess of one year at December
31, 1998:
Operating Leases $
------------------------------------------------------
1999 2,899
2000 2,230
2001 2,102
2002 1,896
2003 1,725
Thereafter 2,627
------------------------------------------------------
$13,479
======================================================
46
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Rental expense, including those to related parties, for the years ended December
31, 1998, 1997 and 1996 was approximately $2,724, $3,022 and $4,188,
respectively. Rental expense for the year ended December 31, 1997 includes
$1,938 for April 12 through December 31, 1997.
14. Royalties
Certain of the Company's subsidiaries have entered into agreements which call
for royalty payments generally based on net sales of certain products and
product lines. Certain agreements require guaranteed minimum payments over the
royalty term. Future minimum payments under the agreements, for the years ended
December 31, are as follows:
Royalties $
-----------------------------------------
1999 4,511
2000 4,250
2001 4,750
2002 5,125
2003 5,375
Thereafter 8,750
-----------------------------------------
$ 32,761
=========================================
Royalty expense for the years ended December 31, 1998, 1997 and 1996, including
guaranteed minimum payments, was approximately $ 2,594, $3,401 and $3,716,
respectively. Royalty expense for the year ended December 31, 1997 includes
$2,261 for April 12 through December 31, 1997.
47
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
15. Income Taxes
The components of income taxes are:
<TABLE>
<CAPTION>
New THC Old THC
------- -------
1998 1997 1997 1996
---- ---- ---- ----
April 12 January 1
through through
December 31 April 11
-------------------------------------
<S> <C> <C> <C> <C>
Current: U.S. $ 140 $ 165 $ 18 $ 151
Non-U.S. 1,303 565 14 (665)
- ------------------------------------------------------------------------------------------
1,443 730 32 (514)
- ------------------------------------------------------------------------------------------
Deferred: U.S. -- -- -- --
Non-U.S. (258) 918 -- 66
- ------------------------------------------------------------------------------------------
(258) 918 -- 66
Provision in Lieu of Taxes: U.S. 2,400 1,150 -- --
Non-U.S. 1,018 1,835 -- --
- ------------------------------------------------------------------------------------------
3,418 2,985 -- --
- ------------------------------------------------------------------------------------------
$ 4,603 $ 4,633 $ 32 $ (448)
==========================================================================================
</TABLE>
The Company's effective income tax rate from continuing operations differed from
the federal statutory rate as follows:
<TABLE>
<CAPTION>
New THC Old THC
------- -------
1998 1997 1997 1996
---- ---- ---- ----
April 12 January 1
through through
December 31 April 11
--------------------------------------------------
<S> <C> <C> <C> <C>
Income taxes based on U.S. federal
tax rate 34% 34% (34%) 34%
Non-U.S. and state tax rates 1% 3% (1%) (1%)
Valuation allowance (15%) 13% 35% (29%)
Goodwill amortization 14% --% --% --%
Deemed dividend under Subpart F 26% --% --% --%
Other, net 11% 12% --% (2%)
- ------------------------------------------------------------------------------------------
Effective income tax rate 71% 62% --% 2%
==========================================================================================
</TABLE>
48
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
New THC Old THC
------- -------
1998 1997
---- ----
U.S. Non-U.S. U.S. Non-U.S.
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable, principally due to allowance
for doubtful accounts $ 1,500 $ -- $ 980 $ --
Inventories, principally due to additional
costs inventoried for tax purposes 630 -- 1,600 --
Other, net 430 -- 320 --
- -----------------------------------------------------------------------------------------------------------
2,560 -- 2,900 --
Valuation allowance (2,560) -- (2,900) --
- -----------------------------------------------------------------------------------------------------------
Total current deferred tax assets (liabilities) $ -- $ -- $ -- $ --
===========================================================================================================
Net operating loss carryforwards 23,300 463 17,750 819
Plant, equipment and depreciation (8) (1,686) (150) (538)
Restructuring accruals -- $1,581 -- --
Other, net 730 (540) 1,000 (942)
- -----------------------------------------------------------------------------------------------------------
24,022 (182) 18,600 (661)
Valuation allowance (24,022) -- (18,600) (819)
- -----------------------------------------------------------------------------------------------------------
Total non-current deferred tax assets (liabilities) $ -- $ (182) $ -- $ (1,480)
===========================================================================================================
</TABLE>
Fresh-start reporting requires the Company to report a provision in lieu of
income taxes when there is a book taxable income and utilization of a
pre-reorganization net operating loss carryforward. This requirement applies
despite the fact that the Company's pre-reorganization net operating loss
carryforward and other deferred tax assets would eliminate the related federal
income tax payable. The current and future year tax benefit related to the
carryforward is recorded as a reduction of reorganizational value in excess of
amounts allocable to identifiable assets until exhausted and then as a direct
increase to paid in capital. The amount of income tax provision which has been
used to reduce the reorganizational value in excess of amounts allocable to
identifiable assets has been reflected as a provision in lieu of income taxes in
the Company's Consolidated Statements of Operations.
At December 31, 1998, the Company has pre-reorganization net operating loss
carryforwards related to U.S. operations for income tax purposes of
approximately $46,000 ($52,000 in 1997). In 1997, the Company also had a
pre-reorganization net operating loss carryforwards related to foreign
operations for income tax purposes of approximately $2,000 (none in 1998). The
remaining carryforward balances begin to expire in 2001 and have been fully
reserved by a valuation allowance. The Company's ability to use remaining
carryforwards is limited in use on an annual basis as a result of a change in
control of the Company on April 11, 1997 in connection with the Reorganization
Plan.
In addition, the Company has post-reorganization foreign tax credit carryovers
in the amount of $2,000, $300 of which will expire December 31, 2002, and the
balance of which will expire December 31, 2003.
Undistributed earnings from continuing operations of subsidiaries outside the
U.S., for which no provision for U.S. taxes has been made, amounted to
approximately $4,700 at December 31, 1998 and $7,000 at December 31, 1997. In
the event earnings of these subsidiaries are remitted, foreign tax credits may
be available to offset U.S. taxes.
49
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Net cash payments (refunds) for income taxes for the years ended December 31,
1998, 1997 and 1996 were $100, $108, and $389, respectively. Net cash payments
for income taxes for the year ended December 31, 1997 includes $130 for April 12
through December 31, 1997.
16. Earnings Per Share
Net income per share for the year ended December 31, 1998 and April 12 through
December 31, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
New '97 THC New '97 THC
April 12, April 12,
Through Through
1998 1998 December 31 December 31
- -----------------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Net income attributable to common stockholders $ 1,665 $ 1,665 $ 2,859 $ 2,859
Weighted average common and common equivalent
shares outstanding:
Common stock 6,500,507 6,500,507 6,500,000 6,500,000
Common equivalent shares (a) 186,558 -- 457,017
Total weighted average common and common
equivalent shares outstanding 6,500,507 6,687,065 6,500,000 6,957,017
Net income per common share $ 0.26 $ 0.25 $ 0.44 $ 0.41
===========================================================================================================
</TABLE>
(a) Common equivalent shares include warrants and stock options. The Company
used the average book value of its common stock in calculating the common
equivalent shares as required by Statement of Financial Accounting
Standards No. 128 due to the fact that the Company's stock had extremely
limited trading volume during the period.
17. Stock Option Plan
During 1998, the Company did not grant additional stock options. During 1997 and
1996, the Company granted stock options to purchase 952,222 shares of New Common
Stock in the Company at a weighted average exercise price of $11.21 to certain
key employees. The exercise prices of the stock options are not less than the
estimated fair market value of the shares at the time the options were granted.
Generally, these stock options become exercisable over a five-year vesting
period and expire 10 years from the date of the grant.
Options granted for the New Common Stock are as follows:
Shares Exercise Price
- --------------------------------------------------------------------------------
December 31, 1996 840,000 10.00 - 16.00
Options Granted 112,222 10.00 - 16.00
Options Canceled -- --
Options Exercised -- --
- --------------------------------------------------------------------------------
December 31, 1997 and 1998 952,222 $ 10.00 - 16.00
================================================================================
No options were granted, canceled or exercised during 1998.
50
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The following table summarizes information about stock options outstanding at
December 31, 1998.
<TABLE>
<CAPTION>
Outstanding Exercisable
- ------------------------------------------------------------------------------------------------------
Exercise Price Shares Average Life(a) Average Shares Average
Range Exercise Price Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.00-11.99 627,224 7.84 $10.00 235,667 $10.00
12.00-14.99 238,332 7.71 13.00 91,000 13.00
15.00-16.00 86,666 7.71 15.08 31,778 15.05
- ------------------------------------------------------------------------------------------------------
Total 952,222 7.80 $11.21 358,444 $11.21
======================================================================================================
</TABLE>
(a) Average contractual life remaining in years.
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 for
options granted in 1997 and 1996: dividend yields of 0%, weighted average
expected volatility of 40% and 61.4%, respectively, weighted average risk-free
interest rate of 8.5% and 6.7%, respectively, and weighted average expected
lives of 5.5 years and 3.5 years, respectively.
Stock options outstanding at December 31, 1998 were 952,222 shares with
weighted-average exercise price of $11.20 ($10.00 - $16.00 range of exercise
prices), weighted average remaining contractual life of 7.8 years and 358,444
exercisable at December 31, 1998. Stock options outstanding at December 31, 1997
were 952,222 shares with weighted average exercise price of $11.21 ($10.00 -
$16.00 range of exercise prices), weighted average remaining contractual life of
8.8 years and 154,444 exercisable at December 31, 1997; stock options
outstanding at December 31, 1996 were 840,000 shares with weighted average price
of $11.55 ($10.00 - $16.00 range of exercise prices), weighted average remaining
contractual life of 9.8 years and none exercisable at December 31, 1996.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for stock options. Accordingly, no compensation cost has been recognized. Had
compensation cost for the stock options been determined based on the fair value
at the grant dates for awards, consistent with the alternative method set forth
under Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, the Company's net income and net income
per share would have been reduced. The impact of SFAS 123 may not be
representative of the effect on income in the future years because options vest
over several years and additional option grants may be made each year.
51
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The pro forma amounts for the year ended December 31, 1998 and for April 12
through December 31, 1997 are:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------
As Reported Pro Forma Pro Forma As Reported
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income attributable to
common shares $ 1,665 $ 765 $ 2,859 $ 2,249
- ------------------------------------------------------------------------------------------
Net income per share:
Basic net income per share $ .26 $ .12 $ .44 $ .35
- ------------------------------------------------------------------------------------------
Diluted net income per share $ .25 $ .11 $ .41 $ .32
- ------------------------------------------------------------------------------------------
</TABLE>
The Pro Forma net income amounts of Old THC for January 1 through April 11, 1997
was $48,829.
18. Contingencies and Litigation
A. Environmental Litigation:
In April 1996, Maska U.S., Inc. ("Maska"), a wholly-owned subsidiary of the
Company, and the State of Vermont entered into a consent decree ("Consent
Decree") setting forth the terms under which Maska has agreed to remediate
specified hazardous materials if, and to the extent, found on its Bradford,
Vermont property or caused by Maska. The Consent Decree was approved by the
Bankruptcy Court on May 14, 1996 and approved and entered in Vermont Superior
Court on June 20, 1996. The Consent Decree is subject to several conditions,
including ongoing payment by the Company of certain State of Vermont oversight
fees up to a maximum of $60 per year. In addition, the Company paid to Vermont a
civil penalty of $250. Maska undertook an investigation required by the Consent
Decree to determine the extent of contamination, the rate of movement and the
concentration of the contaminants and developed a Corrective Action Plan ("CAP")
which was approved by the Vermont Department of Environmental Conservation in
July 1998. The remediation of the property has begun. The estimated cost of
remediating the property, as detailed in the CAP, is approximately $2,550. These
amounts have and will be paid out over the term of the remediation currently
estimated to be 30 years. The Company believes it has accrued sufficient amounts
for this matter.
In 1992, T. Copeland & Sons, Inc. ("Copeland"), the owner of a property adjacent
to Maska's manufacturing facility in Bradford, Vermont, filed an action in
Vermont Superior Court alleging that its property had been contaminated as a
result of the Company's manufacturing activities and seeking compensatory and
punitive damages under the Vermont Groundwater Protection Law and various common
law theories. In June 1995, Maska settled this action for $1,000 cash, paid in
July 1995, and a $6,000 promissory note. Under the Reorganization Plan, Copeland
received a distribution of shares of New THC's New Common Stock to satisfy the
note. Copeland asserted the right to recover from the Company the difference
between the aggregate value of the New Common Stock and the amount of the
promissory note. In October 1998, the Bankruptcy Court disallowed Copeland's
claim to recover this difference. Copeland filed an appeal of this decision
which is pending.
Maska commenced an action in the United States District Court for the District
of Vermont (the "Vermont District Court") entitled Maska U.S. Inc. v. Kansa, et
al., Doc. No. 1:93-CV-309 against its liability insurers seeking coverage for
environmental cleanup costs arising out of claims brought by the State of
Vermont and Copeland for their failure to defend or to indemnify Maska with
respect to these claims. Maska reached settlements with three
52
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
of the liability insurers prior to trial. In September 1998, the Company
received $4,950 from these liability insurers and included this income, net of
$829 of related professional fees, as other income in the Consolidated
Statements of Operations. The trial against three remaining liability insurers
resulted in a jury verdict, in July 1998, in Maska's favor in the amount of
$9,151. The jury verdict compensated Maska for its costs to defend itself
against the claims and to clean up the soil and groundwater around its property.
In October 1998, appeals were filed by two of the remaining liability insurers
in the United States Court of Appeals for the Second Circuit. Those appeals are
pending. The Company will continue to account for the verdict and settlements in
its financial statements when realized.
B. Product Liability Litigation:
The Company is unaware of any personal injury claims for which there is
inadequate insurance coverage.
American Home Assurance Company ("American Home") commenced, in 1991, a
declaratory judgment action against the Company in the U.S. District Court for
the District of Massachusetts ("Massachusetts District Court") in respect of its
duty to defend and to indemnify the Company in an action in Quebec Superior
Court in Montreal, Canada to recover defense costs related to a personal injury
claim filed in 1989. The Company filed a response to the declaratory judgment
action and a counter-claim in Quebec Superior Court alleging American Home
failed to fulfill its duty to defend the Company. American Home has alleged that
it is entitled to payment in full for any amounts it recovers against the
Company. These actions have been settled, providing for a net final payment of
$25 to American Home and the execution of mutual releases by all involved
parties.
C. Other Litigation:
On October 16, 1997, ZMD Sports Investments Inc. and 2938201 Canada Inc.,
landlords of the Company's properties located in St. Jean, Quebec and St.
Hyacinthe, Quebec, brought motions against the Company requiring the Company to
undertake certain repairs to the properties for an estimated amount of $630. The
Company believes these motions to be without merit.
In October 1997, the Company (SHC) sold the assets of its ski and snowboard
division to Trak Inc. and 3410137 Inc. (collectively, "Trak"). In July 1998,
Trak filed a claim against the Company (SHC, SHC Hockey Inc. and Tropsport
Acquisitions Inc.) alleging certain incorrect representations and warranties in
the context of this sale. They are claiming an amount in excess of $350. The
Company believes that this claim is without merit.
Other than certain legal proceedings arising from the ordinary course of
business, which the Company believes will not have a material adverse effect on
the financial position, results of operations, or cash flows, there is no other
litigation pending or threatened against the Company.
19. Segment Information
Reportable Segments
The Company has two reportable segments: Hard Goods and Soft Goods. The Hard
Goods segment derives its revenue from the sale of skates, including ice hockey,
roller hockey and figure skates, as well as protective hockey
53
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
equipment and sticks for both players and goaltenders. The Soft Goods segment
derives its revenue from the sale of hockey apparel, such as authentic and
replica hockey jerseys, as well as a high quality line of baseball style caps,
jackets and other casual apparel using its own designs and graphics.
Measurement of Segment Profit or Loss and Segment Assets
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Segment assets only include
inventory.
Information about Segment Profit or Loss and Segment Assets
For the year ended and as at December 31, 1998
Hard Soft Segment
Goods Goods Totals
- --------------------------------------------------------------------------------
Net sales 73,983 36,834 110,817
Gross profit 29,848 15,943 45,791
Depreciation of property, plant
and equipment 861 379 1,240
Segment assets 31,019 11,225 42,244
- --------------------------------------------------------------------------------
For the year ended and as at December 31, 1997
- --------------------------------------------------------------------------------
Net sales 82,626 41,128 123,754
Gross profit 32,913 17,066 49,979
Depreciation of property, plant
and equipment 892 412 1,304
Segment assets 18,186 10,289 28,475
- --------------------------------------------------------------------------------
For the year ended and as at December 31, 1996
- --------------------------------------------------------------------------------
Net sales 92,573 47,748 140,321
Gross profit 32,292 15,416 47,708
Depreciation of property, plant
and equipment 770 589 1,359
- --------------------------------------------------------------------------------
54
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Reconciliations of Segment Profit or Loss and Segment Assets
================================================================================
1998 1997 1996
-----------------------------
Segment profit or loss Years Ended December 31
Gross Profit 45,791 49,979 47,708
Unallocated amounts:
Selling general and administrative
expenses 35,272 38,237 45,831
Amortization of excess reorganizational
value and goodwill 2,606 1,712
Restructuring and unusual charges 1,900 6,315 4,033
Chapter 11 and debt related fees -- 1,243 7,432
Other (income) expense, net (4,588) 712 27
Interest expense 4,108 3,922 9,555
Income (loss) before income taxes,
and extraordinary gain on
discharge of debt 6,493 (2,162) (19,170)
- --------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------
Segment assets
Total assets for reportable segments 42,244 28,475
Unallocated amounts
Cash 2,593 8,051
Accounts receivable 36,790 22,759
Prepaid expenses 3,513 2,847
Income taxes receivable 971 298
Other receivables 3,358 1,660
Unallocated property, plant and
equipment, net 22,063 9,508
Intangible and other assets, net 95,646 45,182
- ---------------------------------------------------------------------
Total assets 207,178 118,780
- ---------------------------------------------------------------------
Geographic Information
Net Sales 1998 1997 1996
- --------------------------------------------------------------------------------
United States 53,101 58,889 70,269
Canada 53,392 64,865 70,052
Europe and United Kingdom 4,324
- --------------------------------------------------------------------------------
110,817 123,754 140,321
- --------------------------------------------------------------------------------
The segmentation of sales was based on location of the subsidiaries from which
originated the sales.
Property, plant and equipment & goodwill 1998 1997
- ---------------------------------------------------------------------
Canada 77,150 46,174
USA 15,360 6,833
Europe 19,951
- ---------------------------------------------------------------------
112,461 53,007
- ---------------------------------------------------------------------
55
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
20. New Accounting Pronouncements
Effective June 15, 1999, the Company will be required to implement Statement of
Financial Accounting 133 ("SFAS 133"), Accounting for Derivative Instruments and
Hedging Activities. The Company has not yet completed its evaluation of the
impact of SFAS 133 on the financial statements however the Company does not
include significant use of derivative instruments or hedging activities in its
business operations.
Effective January 1, 1999, the Company will be required to implement AICPA
Statement of Position 98-1 ("SOP 98-1") Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This standard is not expected
to have any significant effect on the Company's financial position or result of
operations.
Effective January 1, 1999 the Company will be required to implement AICPA
Statement of Position 98-5 ("SOP 98-5") Reporting on the Costs of Start-Up
Activities. This standard is not expected to have any significant effect on the
Company's financial position or results of operators.
21. Fresh-Start Accounting
In connection with the emergence from bankruptcy, the Company adopted
fresh-start reporting, as of April 11, 1997, in accordance with the requirements
of Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code ("SOP 90-7").
In applying fresh-start reporting, the value of New THC was allocated to the
Company's net assets in conformity with the procedures specified by Accounting
Principles Board Opinion No. 16 Business Combinations. SOP 90-7 required a
determination of the Company's reorganizational value, representing the fair
value of all of the Company's assets and liabilities, and an allocation of such
values to the assets and liabilities (excluding deferred taxes) based on their
relative fair values with the excess in reorganizational value over market
values recorded as an intangible asset. As a result, the carrying values of the
Company's assets and liabilities were adjusted to fair value as of April 11,
1997. Reorganizational value in excess of amounts allocable to identifiable
assets of approximately $48.0 million is being amortized on a straight line
basis over twenty years. The application of SOP 90-7 resulted in the creation of
a new reporting entity having no retained earnings or accumulated deficit.
For the purpose of the Reorganization Plan, the reorganizational equity value
was estimated to be $66.6 million based in part on management's estimates of
future operating results. Reorganizational value necessarily assumes that New
THC will achieve its estimated future operating results in all material
respects. If such results are not achieved, the value of New THC that is
ultimately realized could be materially different.
The Reorganization Plan had a significant impact on the financial statements of
New THC, including the creation of a new reporting entity upon emergence from
bankruptcy through the application of fresh-start reporting pursuant to SOP
90-7. Accordingly, the Company's post-reorganization balance sheets, statements
of operations and statements of cash flows, which reflect the application of
fresh-start reporting, have not been prepared on a consistent basis with the
pre-reorganization financial statements and are not comparable in all respects
to the financial statements prior to the reorganization. For accounting
purposes, the inception date of New THC is deemed to be April 12, 1997.
56
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The effects of the Reorganization Plan and fresh-start reporting on the
Company's balance sheet at April 11, 1997 are as follows:
CONDENSED CONSOLIDATED BALANCE SHEET
April 11, 1997
<TABLE>
<CAPTION>
ASSETS OLD THC ADJUSTMENTS NEW THC
<S> <C> <C> <C>
Cash $ 40,554 $ (36,098) a $ 4,456
Other current assets 64,878 (189) b 64,689
---------------------------------------
Total current assets 105,432 (36,287) 69,145
Property, plant and equipment 10,382 -- 10,382
Intangible and other assets, net 1,494 48,979 c 50,473
---------------------------------------
Total assets $ 117,308 $ 12,692 $ 130,000
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Short-term debt $ -- $ 5,100 d $ 5,100
Accounts payable and accrued liabilities 18,029 3,162 e 21,191
Long term debt, current portion 280 1,202 f 1,482
Current portion of liabilities subject to
compromise under reorganization
proceedings 45,035 (42,905) g 2,130
---------------------------------------
Total current liabilities 63,344 (33,441) 29,903
Long-term debt -- 32,935 f 32,935
Other liabilities 590 -- 590
Liabilities subject to compromise under
reorganization proceedings 160,164 (160,164) g --
---------------------------------------
Total liabilities 224,098 (160,670) 63,428
Stockholders' equity (deficit) (106,790) 173,362 h 66,572
---------------------------------------
Total liabilities and stockholders'
equity $ 117,308 $ 12,692 $ 130,000
=======================================
</TABLE>
The following is a brief description of the adjustments made in preparing the
above Condensed Consolidated Balance Sheet.
a. To reflect $45,198 paid out in accordance with the Reorganization Plan,
net of $9,100 borrowed under new credit facilities.
b. To reflect the distribution of net assets of discontinued operations
pursuant to the Reorganization Plan.
c. To record excess of identifiable asset value as a result of fresh-start
reporting, including principally a valuation associated with New THC's
trademarks and costs associated with obtaining new credit facilities.
d. To record borrowings under new credit facilities.
e. To record accounts payable and accrued liabilities incurred pursuant to
the Reorganization Plan.
57
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
f. To record long-term debt under new credit facilities, Senior Secured Notes
and other long-term debt incurred pursuant to the Reorganization Plan.
g. To eliminate liabilities in accordance with the Reorganization Plan. The
Reorganization Plan resulted in an extraordinary gain on debt forgiveness
of approximately $58,726.
h. To reflect fresh-start reporting and the new equity structure of New THC
pursuant to the Reorganization Plan.
The following Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1997 has been prepared giving effect to the consummation
of the Reorganization Plan, including the implementation of fresh-start
reporting, as if consummation had occurred on January 1, 1997. Due to the
Reorganization Plan and implementation of fresh-start reporting, financial
statements effective April 12, 1997 for New THC are not comparable to financial
statements prior to that date for Old THC. However, for presentation of this
statement, total results for 1997 are shown under the caption "Total Before
Adjustments". The adjustments which give effect to the events that are directly
attributable and expected to have a continuing impact on New THC and which are
set forth under the caption "Adjustments" reflect the implementation of the
Reorganization Plan and the adoption of fresh-start reporting as if they had
occurred on January 1, 1997.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1997
(Unaudited) (in thousands)
TOTAL BEFORE
ADJUSTMENTS ADJUSTMENTS PRO FORMA
-----------------------------------------
Net sales $ 123,754 $ -- $ 123,754
-----------------------------------------
Operating income 3,715 5,608 a 9,323
Debt related fees 1,243 (1,243) b --
Other expense, net 712 210 c 922
Interest expense 3,922 1,464 d 5,386
-----------------------------------------
Income (loss) from continuing
operations before income taxes and
extraordinary gain on discharge
of debt (2,162) 5,177 3,015
Income taxes 4,665 1,856 e 6,521
-----------------------------------------
Net income (loss) from continuing
operations before extraordinary
gain on discharge of debt (6,827) 3,321 (3,506)
Extraordinary gain on discharge
of debt 58,726 (58,726) f --
-----------------------------------------
Net income (loss) $ 51,899 $ (55,405) $ (3,506)
========================================
The following is a brief description of the adjustments made in preparing the
Pro Forma Condensed Consolidated Statement of Operations (unaudited).
58
<PAGE>
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
a. To reflect adjustments of $6,315 for restructuring charges, net of $707
for amortization of the intangible associated with fresh-start reporting.
b. To reflect adjustments for costs incurred by Old THC outside of its
continuing operations.
c. To reflect amortization of the deferred financing costs associated with
New THC's new credit facilities.
d. To reflect incremental interest expense associated with New THC's new
credit facilities and Senior Secured Notes.
e. To reflect income taxes associated with adjustments.
f. To reflect adjustments for extraordinary gain on discharge of debt.
59
<PAGE>
Schedule II
THE HOCKEY COMPANY
(Formerly SLM International, Inc.)
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended December 31, 1998, 1997, and 1996
(In thousands)
<TABLE>
<CAPTION>
Additions
---------------------------------
Balance at Charged to Balance at
December 31, costs and Translation December 31,
Description 1997 expenses Acquisition adjustments Deductions 1998
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $4,046 (2,109) 455 (75) (127) $2,444
(A)
Allowance for returns, discounts, $5,886 3,388 837 (130) 4,597 $5,384
rebates and cooperative advertising (B)
Allowance for excess, obsolete and $3,418 1,344 441 (111) 1,942 $3,150
slow moving inventories
<CAPTION>
Additions
---------------------------------
Charged to Charged to Balance at
Balance at April costs and other Translation December 31,
Description 11, 1997 expenses accounts adjustments Deductions 1997
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $3,489 468 0 (50) (139) $ 4,046
(A)
Allowance for returns, discounts, $4,231 7,883 0 (57) 6,171 $ 5,886
rebates and cooperative (B)
advertising
Allowance for excess, obsolete and $3,891 1,440 0 (70) 1,843 $ 3,418
slow moving inventories
<CAPTION>
Additions
---------------------------------
Balance at Charged to Charged to Balance at
December 31, costs and other Translation April 11,
Description 1996 expenses accounts adjustments Deductions 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $3,596 248 0 (27) 328 $ 3,489
(A)
Allowance for returns, discounts, $5,112 2,002 0 (28) 2,855 $ 4,231
rebates and cooperative (B)
advertising
Allowance for excess, obsolete and $4,791 51 0 (26) 925 $ 3,891
slow moving inventories
<CAPTION>
Additions
---------------------------------
Balance at Charged to Charged to Balance at
December 31, costs and other Translation December 31,
Description 1995 expenses accounts adjustments Deductions 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $5,337 621 0 (6) 2,356 $ 3,596
(A)
Allowance for returns, discounts, $7,301 8,968 0 (7) 11,150 $ 5,112
rebates and cooperative (B)
advertising
Allowance for excess, obsolete and $6,536 4,380 0 (11) 6,114 $ 4,791
slow moving inventories
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Accounts written off as uncollectible, net of recoveries
(B) Deductions taken by customers.
60
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
(i) The Company's former accountants, Cooper & Lybrand L.L.P., were
dismissed on May 7, 1997.
(ii) Coopers & Lybrand L.L.P.'s report on the Company's financial
statements for the fiscal year ended December 31, 1995 was qualified
by a paragraph reading as follows: "The accompanying financial
statements have been prepared assuming that the Company will
continue as a going concern. As described in Note 1 to the financial
statements, the Company has incurred significant losses from
operations and negative cash flows for the year ended December 31,
1995. In addition, Buddy L Inc., a subsidiary, filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court on March 2, 1995, and six
other subsidiaries filed for relief under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court on
October 24, 1995. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans
in regards to these matters are described in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of these uncertainties". The report of Coopers & Lybrand
L.L.P. for the fiscal year ended December 31, 1996 did not contain
an adverse opinion or a disclaimer of opinion or any qualification
or modification as to uncertainty, audit scope or accounting
principles.
(iii) The Company's change of accountants was approved by the Company's
Board of Directors on April 30, 1997.
(iv) During the fiscal years ended December 31, 1995 and 1996, and all
subsequent interim periods through May 7, 1997 (i.e. the date of
dismissal), there were no disagreements with the Company's former
accountants on any matter of accounting principles or practices,
financial statement disclosure or accounting scope or procedure.
(v) None of the events set forth below have occurred during the fiscal
years ended December 31, 1995 or 1996:
(A) The Company's former accountants having advised the Company
that the internal controls necessary for the Company to
develop reliable financial statements do not exist;
(B) The Company's former accountants having advised the Company
that information has come to their attention that has led it
to no longer be able to rely on management's representations,
or that has made it unwilling to be associated with the
financial statements prepared by management;
(C) (1) The Company's former accountants having advised the
Company of the need to expand significantly the scope of its
audit, or that information has come to their attention during
the fiscal years ended December 31, 1995 and December 31,
1996, that if further investigated may: (i) materially impact
the fairness or reliability of either: a previously issued
audit report of the underlying financial statements; or the
financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including
information that may prevent it from rendering an unqualified
audit report on those financial statements), or (ii) cause it
to be unwilling to rely on management's representations or be
associated with the Company's financial statements, and (2)
Due to the Company's former accountants dismissal, or for any
other reason, the accountants did not so expand the scope of
its audit or conduct such further investigation; or
(D) (1) The Company's former accountants having advised the
Company that information has come to their attention
that it has concluded materially impacts
61
<PAGE>
the fairness or reliability of either: (i) a previously
issued audit report or the underlying financial
statements, or (ii) the financial statements issued or
to be issued covering the fiscal period(s) subsequent to
the date of the most recent financial statements covered
by an audit report (including information that, unless
resolved to their satisfaction, would prevent it from
rendering an unqualified audit report on those financial
statements), and
(2) Due to the Company's former accountants dismissal, or
for any other reason, the issue has not been resolved to
the accountants' satisfaction prior to its dismissal.
(vi) During the most recent two fiscal years and subsequent interim
period preceding the appointment of Ernst & Young as the Company's
auditors, on April 25, 1997, Ernst & Young had not been consulted
regarding: (A) the application of accounting principles to a
specified transaction, either completed or proposed; (B) the type of
opinion that might be rendered on the Company's financial statement;
or (C) any matter that was either the subject of a disagreement or a
reportable event.
PART III
Item 10. Directors and Executive Officers of the Registrant
Name Age Position With Company
- ---- --- ---------------------
Gerald B. Wasserman 62 Chief Executive Officer, President,
Chairman of the Board and Director
Paul M. Chute 44 Director
Martin S. Davis 72 Director
Greg S. Feldman 42 Director
Jason B. Fortin 28 Director
James C. Pendergast 42 Director
Russell J. David 40 Senior Vice-President, Finance &
Administration
Gordon T. Halliday 46 Senior Vice-President, Operations
Lawrence Davenport 52 Vice-President, Sales, U.S.
David Terreri 45 Vice-President, Distribution &
Customer Service
Gerald B. Wasserman became the Chairman of the Board and a Director of the
Company in April 1997. He has served as Chief Executive Officer and President of
the Company since September 1996 and currently serves as Chief Executive Officer
of each of the Company's subsidiaries. From 1994 until September 1996, Mr.
Wasserman was a consultant and from 1993 to 1994 he served as Chief Executive
Officer of Weider Health and Fitness, a fitness and publishing company. Mr.
Wasserman was Chief Executive Officer of Canstar Inc. (c/k/a Bauer Inc.), a
manufacturer and distributor of hockey related products, from 1985 through 1993.
Paul M. Chute became a Director of the Company in April 1997. Since January
1995, Mr. Chute has served as a Managing Director of Phoenix Duff & Phelps
Corp., an investment advisor to its affiliate Phoenix Home Life Mutual Insurance
Company. He was a Managing Director of Phoenix Home Life Mutual Insurance
Company from January 1992 to December 1994.
Martin S. Davis became a Director of the Company in April 1997. Since January
1998, Mr. Davis has served as a Managing Partner of Wellspring Capital
Management L.L.C., a private equity investment partnership, and since January
1995,has served as a Managing Partner of Wellspring Associates L.L.C. He was the
Chief Executive Officer of Paramount Communications, Inc. (f/k/a Gulf + Western
Industries, Inc.) from 1983 to 1994. In addition, Mr. Davis serves as a director
of Lionel L.L.C., a manufacturer and marketer of toy trains, National
Amusements, Inc. and Discovery Zone, Inc. an operator of children's indoor
entertainment centers.
62
<PAGE>
Greg S. Feldman became a director of the Company in July 1998. Mr. Feldman is a
co-founder and a managing partner of Wellspring Associates L.L.C. and Wellspring
Capital Management L.L.C. For four years prior to joining Wellspring, he was
vice president in charge of acquisitions at EXOR America Inc. (formerly IFINT
USA, Inc.), the U.S. investment arm of the Agnelli Group. For two years before
joining EXOR, Mr. Feldman was vice president and co-founder of Clegg Industries,
Inc., an investment firm backed by Drexel Burnham Lambert Incorporated to invest
in leveraged acquisitions of middle market manufacturing companies.
Jason B. Fortin became a director of the Company in December 1998. Mr. Fortin is
a Vice President of Wellspring Associates L.L.C. since March 1995. From 1992
until 1995, Mr. Fortin was in the corporate finance department of Donaldson,
Lufkin & Jenrette Securities Corporation.
James C. Pendergast became a Director of the Company in April 1997. Since July
1993, Mr. Pendergast has been a Managing Director of Alliance Corporate Finance
Group Inc., an investment advisor to its affiliate The Equitable Life Assurance
Society of the United States ("Equitable"). From July 1986 until July 1993, he
was employed by Eequitable Capital Management Corp., a subsidiary of Equitable.
Russell J. David, Senior Vice President, Finance & Administration, became Senior
Vice-President, Finance of the Company in September 1997 having previously
served as Vice-President, Finance since November 1996. From July 1994 through
November 1996, he was Senior Vice-President and Chief Financial Officer of
Peerless Carpet Corporation, an international carpet and floorcovering
manufacturer and distributor. From June 1992 through July 1994, he was Executive
Vice-President and Chief Operating Officer of Perrette Inc., a convenience store
chain.
Gordon T. Halliday became Senior Vice-President, Operations of the Company in
February 1997. Mr. Halliday was Vice-President, Corporate and Systems
Development of Canstar Inc. (c/k/a Bauer Inc.) from 1988 to February 1997.
Lawrence Davenport became Vice-President, Sales, U.S. of the Company in February
1997. From January 1996 until February 1997, he was Vice-President, Sales (U.S.
division) of Tournament Sports, a figure skate manufacturer. He served as
Vice-President, Sales (U.S. division) of Igloo Vikski, a hockey equipment
manufacturer, from 1993 until January 1996.
David Terreri became Vice-President, Distribution & Customer Service of the
Company in January 1997. Mr. Terreri was Vice-President, Distribution &
Logistics of Canstar Inc. (c/k/a Bauer Inc.) from January 1992 to January 1997.
Board of Directors
The Board of Directors has responsibility for establishing broad corporate
policies and for overseeing the performance of the Company, although it is not
involved in day-to-day operations. Members of the Board are kept informed of the
Company's business by various reports and documents sent to them in anticipation
of Board meetings as well as by operating and financial reports presented at
Board and various Committee meetings. The Board of Directors held 3 meetings
during 1998 with 100% attendance by the directors.
The Board does not have audit, nominating or other corporation committees, but
acts, as a whole, in performing the functions of such committees.
Directors do not receive any compensation for services rendered in their
capacity as Directors; however, they do receive reimbursement of reasonable
out-of-pocket expenses in respect of attendance at meetings.
63
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors, executive officers and holders of more than 10% of the Common Stock
are required to report their initial ownership of the Company's equity
securities and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established,
and the Company is required to disclose any failure to file by these dates with
respect to 1998. Based on representations of its directors and executive
officers and copies of reports they have filed with the Securities and Exchange
Commission, there were no late reports filed for 1998.
Item 11. Executive Compensation
Summary Compensation Table
The following Summary Compensation Table sets forth certain information for the
years ended December 31, 1998 and 1997 concerning the cash and non-cash
compensation earned by or awarded to the Chief Executive Officer of the Company
and the four other most highly compensated executive officers of the Company as
at December 31, 1998 and as at the date hereof:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Fiscal Other Annual Stock All Other
Name and Principal Position Year Salary Bonus Compensation (1) Options (2) Compensation
<S> <C> <C> <C> <C> <C> <C>
Gerald B. Wasserman 1998 $350,000 -0- -0- -0-
Chief Executive Officer and 1997 $350,000 $100,000 -0- 72,222 -0-
President
Russell J. David 1998 $138,300 $ 25,000 -0- -0- -0-
Senior Vice President, Finance 1997 $144,780 $ 29,000 -0- -0- -0-
and Administration
Gordon T. Halliday 1998 $138,300 $ 25,000 -0- -0- -0-
Senior Vice President, 1997 $132,700 $ 29,000 -0- -0- -0-
Operations(3)
Lawrence Davenport 1998 $153,000 -0- -0- -0- -0-
Vice-President, Sales, U.S.(4) 1997 $128,288 $ 30,000 -0- 25,000 -0-
David Terreri 1998 $178,500 -0- -0- -0- -0-
Vice-President, Distribution & 1997 $174,311 $ 35,000 -0- -0- -0-
Customer Service(5)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes other annual compensation nor properly categorized as salary or
bonus. In addition, certain perquisites which do not exceed the lesser of
$50,000 or 10% of the named individual's salary and bonus are excluded.
(2) Includes options to purchase shares of the Company's Common Stock, par
value $0.01 per share (the "New Common Stock"), with respect to the stated
number of shares. The shares of New Common Stock were first issued by the
Company on the Effective Date of the Reorganization Plan.
(3) Gordon T. Halliday joined the Company as Senior Vice-President, Operations
in January 1997 at an annualized salary of Canadian $200,000.
(4) Lawrence Davenport joined the Company as Vice-President, Sales, U.S. in
February 1997 at an annualized salary of $150,000.
(5) David Terreri joined the Company as Vice-President, Distribution &
Customer Service in January 1997 at an annualized salary of $175,000.
64
<PAGE>
Stock Options and Stock Appreciation Rights
The following tables set forth certain information concerning the granting of
options to purchase shares of the Company's New Common Stock to each of the
executive officers of the Company named in the Summary Compensation Table above,
as well as certain information concerning the exercise and value of such stock
options for each of the individuals. Options generally become exercisable over
periods of five years and subject to certain exceptions, expire no later than
ten years from the date of grant.
STOCK OPTIONS GRANTED IN 1998
None.
OPTIONS EXERCISED IN 1998 AND
VALUE OF OPTIONS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Unexercised In-the-Money
Shares Options Held At Year End Options At Year End (1)
Acquired on Value ------------------------ ------------------------
Name Exercise Received Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald B. Wasserman -0- -0- 288,888 433,334 N/A N/A
Russell J. David -0- -0- 10,000 15,000 N/A N/A
Gordon T. Halliday -0- -0- 13,000 52,000 N/A N/A
Lawrence Davenport -0- -0- 5,000 20,000 N/A N/A
David Terreri -0- -0- 10,000 40,000 N/A N/A
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's New Common Stock was not issued until April 11, 1997, the
Effective Date of the Reorganization Plan. The value of unexercised in-the-money
options at year end has not been determined due to the extremely limited amount
of trading activity if the Company's New Common Stock.
Employment Agreements
Effective September 1, 1996, the Company entered into a five-year employment
agreement with Gerald B. Wasserman employing him as President and Chief
Executive Officer of the Company. The employment agreement will be renewed
automatically for successive one-year periods unless either party provides
timely notice. As compensation for his services during the term of his
employment agreement, Mr. Wasserman is entitled to receive a basic salary at a
rate of $350,00 per year, which base salary may be increased by the Board of
Directors on an annual basis. In addition, Mr. Wasserman was granted options to
purchase an aggregate of 722,222 shares of the Company's New Common Stock (of
such options, options to purchase 650,000 shares were granted in 1996). An
option (the "First Option") with respect to 361,111 of such shares was granted
at an exercise price of $10.00 per share, and an option (the "Second Option",
and together with the First Option, the "Options") with respect to 361,111 such
shares was granted at an exercise prices ranging from $12.00 per share through
$16.00 per share. Subject to the provisions of the employment agreement related
to early termination, the Options have a term of ten years from the date of
grant and vest in five equal annual installments on September 1 of each year,
commencing on September 1, 1997.
In the event the Company terminates Mr. Wasserman's employment without "cause",
as defined, the Company will be obligated to make severance payments to Mr.
Wasserman in an aggregate amount equal to six months of then-current base salary
for each completed year of service up to an aggregate amount equal to one-year's
then-current base salary. In addition, all granted out unvested First Options
will vest immediately and Mr. Wasserman will be entitled to any options which
have vested as of the date of such termination. In the event the Company
terminates the employment agreement for "cause" as defined, all of the Company's
obligations under the employment agreement will terminate as of the date of such
termination, except that Mr. Wasserman will be entitled to any Options which
have vested as of such date. If Mr. Wasserman resigns by reason of a Downgrading
Event following a Change of Control (both as defined therein), the Company will
be obligated to pay him an aggregate of twelve months of then-current base
salary. Upon a Change of Control, all Options will vest immediately.
Effective September 1, 1997, Russell J. David was elected Senior Vice-President,
Finance. Mr. David joined the Company on November 11, 1996 as Vice-President,
Finance. Mr. David receives an annual salary of Canadian $200,000, subject to
annual review, and is eligible to participate in the Company's bonus plan up to
a maximum of 40% of then-current salary pursuant to such plan, with a guaranteed
bonus of 20% of his salary for the first year of his employment. Mr. David also
has been granted stock options to purchase 25,000 shares of the Company's New
Common Stock at an exercise price of $10.00 per share. The options have a term
of ten years, vest ratably over five years and vest immediately upon a
termination of employment of Mr. David without "cause". Upon three months'
notice of termination of employment by the Company, Mr. David will be entitled
to receive as severance one year's salary in the first year of service with the
Company and up to a maximum of fifteen months thereafter.
Effective January 27, 1997, Gordon T. Halliday was elected Senior
Vice-President, Operations of the Company. Mr. Halliday receives annual
compensation of Canadian $200,000, subject to review annually, and is eligible
to participate in the Company's bonus plan up to a maximum of 40% of
then-current salary with a bonus of 20% of Mr. Halliday's salary guaranteed in
the first year of his employment. Mr. Halliday has also been granted stock
options to purchase 65,000 shares of the Company's New Common Stock at an
exercise price of $10.00 per share. These options have a term of ten years and
vest ratably over five years, with all options fully vested upon a termination
of Mr. Halliday's employment without "cause". Upon three months' notice of
termination of employment by the Company, Mr. Halliday will be entitled to
receive as severance six months' salary per year of service with the Company up
to a maximum of fifteen months thereafter.
Effective February 1997, Lawrence Davenport was elected Vice-President, Sales,
U.S. of the Company. Mr. Davenport receives an annual salary of $150,000,
subject to annual review, and is eligible to participate in the Company's bonus
plan. Mr. Davenport has also been granted stock options to purchase 25,000
shares of the Company's New Common Stock at an exercise price of $10.00 per
share. These options have a term of ten years, vest ratably over five years and
vest immediately upon a termination of Mr. Davenport's employment without
"cause". Upon three months' notice by the Company, Mr. Davenport's employment
may be terminated and he will be entitled to receive as severance three months'
then current base salary for each year of service with the Company up to a
maximum of fifteen months.
65
<PAGE>
Effective January 9, 1997, David Terreri was elected Vice-President,
Distribution & Customer Service of the Company at a base salary of $175,000 per
year, subject to annual review. Mr. Terreri is also eligible to participate in
the Company's bonus plan up to a maximum of 40% of the then-current salary with
a bonus of 20% of Mr. Terreri's salary guaranteed in the fist year of his
employment. Mr. Terreri has been granted stock options to purchase 50,000 shares
of the Company's New Common Stock at an exercise price of $10.00 per share.
These options have a term of ten years, vest ratably over five years and vest
immediately upon a termination of Mr. Terreri's employment without "cause". Upon
three months' notice of termination of employment by the Company, Mr. Terreri
will be entitled to receive as severance six months' salary per year of service
in the first year of service and twelve months' salary per year of service with
the Company thereafter up to a maximum of fifteen months.
Retirement and Long-term Incentive Plan
During 1998 the Company introduced a contributory defined contribution plan (the
"Pension Plan"). The named executive officers of the Company, Russell J. David,
Senior Vice President, Finance & Adminstration, Gordon T. Halliday, Senior Vice
President, Operations, Lawrence Davenport, Vice President, Sales, U.S., and
David Terreri, Vice President, Distribution & Customer Service, entered into
supplementary executive retirement agreements ("SERP"). The SERP benefit equals
2% of base earning at retirement times years of service minius the pension
provided by the Company's pension plan. These SERPS are unfunded. The Company
also maintains a 401(k) defined contribution plan for its U.S. employees, under
which the Company makes a matching contribution of up to 50% of eligible
employee contributions. During the year ended December 31, 1998, matching
contributions totaling $19,700 were made by the Company on behalf of these
executive officers.
Performance Graph
Normally, the Company would present a graph comparing the cumulative total
stockholder return on the Company's Common STock with that of the NASDAQ
Composite Index for U.S. companies and the Dow Jones Recreation Products Group
which is comprised of toy, entertainment, sporting goods, recreation and leisure
product companies. However, on April 11, 1997, as a result of the Company's
reorganization, all outstanding shares of the Company's Old Common Stock were
converted into warrants to purchase shares of the Company's New Common Stock. In
addition, since April 11, 1997 there has been extremely limited trading volume
of the Company's new Common Stock. Therefore, a performance graph is not
presented as it would not be meaningful.
66
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's New Common Stock as of March 26, 1999 (except where
otherwise noted) with respect to (a) each person known to be the beneficial
owner of more than 5% of the outstanding shares of New Common Stock, (b) each
Director of the Company, (c) the Company's executive officers and (d) all
officers and directors of the Company as a group (except as indicated in the
footnotes to the table, all such shares of New Common Stock are owned with sole
voting and investment power):
<TABLE>
<CAPTION>
Of Total Number Of Shares
Beneficially Owned, Shares
Beneficial Ownership(1) Which May Be Acquired
Name Of Beneficial Owner No. Of Shares % of Class Within 60 Days
- ------------------------ ------------- ---------- --------------
<S> <C> <C> <C>
WS Acquisition L.L.C.(2) 3,286,845 53.6% -0-
The Equitable Life Assurance
Society of the United States(3) 1,253,684 20.5% -0-
The Northwestern Mutual Life
Insurance Company(4) 394,015 6.4% -0-
Phoenix Home Life Mutual
Insurance Company(5) 358,195 5.8% -0-
Gerald B. Wasserman (6)(7) 288,888 4.7% 2,888,888
Paul M. Chute(5) -0- -0- -0-
Martin S. Davis(2) 3,286,845 53.6% -0-
Greg S. Feldman(2) -0- -0- -0-
Jason B. Fortin)(2) -0- -0- -0-
James C. Pendergast(3) -0- -0- -0-
Russell J. David(6)(7) 10,000 0.2% 10,000
Gordon T. Halliday(6)(7) 13,000 0.2% 13,000
Lawrence Davenport (6)(7) 5,000 0.1% 5,000
David Terreri(6)(7) 10,000 0.2% 10,000
All Officers and Directors
as a Group (9 persons)(2)(3)(5) 3,613,733 58.9% 326,888
</TABLE>
(1) Beneficial ownership excludes 549,479 shares of the Company's New Common
Stock which have not yet been allocated pursuant to the Company's
Reorganization Plan. Such shares will either be issued to the holders of
certain unsecured claims or issued to certain holders of the Company's
outstanding shares of New Common Stock. Such holders of unsecured claims
may elect to sell such shares to WS Acquisition L.L.C. pursuant to a cash
option agreement between the Company and Wellspring Associates L.L.C., an
affiliate of WS Acquisition L.L.C. All percentages are calculated based on
5,951,021 shares of New Common Stock outstanding (which excludes such
549,479 shares of New Common Stock) plus 177,444 shares of New Common
Stock which may be acquired within 60 days.
(2) The address for such owner is WS Acquisition L.L.C., 620 Fifth Avenue, New
York, New York 10020. Martin S. Davis' beneficial ownership includes
3,286,845 shares owned by WS Acquisition L.L.C. Mr. Davis is a Managing
Partner of Wellspring Associates L.L.C. and affiliate of WS Acquisition
L.L.C. Greg S. Feldman's beneficial ownership excludes 3,286,845 shares
owned by WS Acquisition L.L.C. Mr. Feldman is a Managing Partner of
Wellspring Associates L.L.C., an affiliate of WS Acquisition L.L.C. Jason
B. Fortin's beneficial ownership excludes 3,286,845 shares owned by WS
Acquisition L.L.C. Mr. Fortin is a Vice President of Wellspring Associates
L.L.C., an affiliate of WS Acquisition L.L.C.
(3) The address for such owner is 1290 Avenue of the Americas, New York, New
York 10104. James C. Pendergast's beneficial ownership excludes 1,253,684
shares owned by The Equitable Life Assurance Society of the United States.
Mr. Pendergast is a Managing Director of Alliance Corporate Finance Group
Inc., an affiliate of The Equitable Life Assurance Life Assurance Society
of the United States.
(4) The address for such owner is 720 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202.
(5) The address for such owner is 1 American Row, Hartford, Connecticut 06115.
Paul M. Chute's beneficial ownership excludes 358,195 shares owned by
Phoenix Home Life Mutual Insurance Company. Mr. Chute is a Managing
Director of Phoenix Duff & Phelps Corp., an affiliate of Phoenix Home Life
Mutual Insurance Company.
(6) The Address for such owners is c/o Masks U.S., Inc., 139 Harvest Lane,
Willision, Vermont 05495-8919.
(7) Does not include stock options which have been granted that have not
vested as of March 26, 1998 (see Item 11).
67
<PAGE>
Item 13. Certain Relationships and Related Transactions
In 1998 the Company paid its controlling shareholder, Wellspring Capital
Management L.L.C., a fee of $975,000 for investment banking services provided in
connection with the acquisition of Sports Holding Corp. and related acquisition
financing.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements required by Item 14 are included and indexed in Part
II, Item 8.
(a)(2) The financial statement schedules filed as part of this report include
the following:
Schedule Page
-------- ----
II Valuation and Qualifying Accounts and Reserves 60
(a)(3) The following is a list of all Exhibits filed as part of this Report:
Exhibit No. Description
- ----------- -----------
2.1 First Amended Joint Chapter 11 Plan (as modified), dated November
12, 1996, filed with the United States Bankruptcy Court for the
District of Delaware. Filed as Exhibit 1 to the Company's Current
Report on Form 8-K dated December 6, 1996, incorporated herein by
reference.
2.2 First Modification, dated January 15, 1997, to First Amended Joint
Chapter 11 Plan. Filed as Exhibit 2.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
2.3 Second Modification, dated January 23, 1997, to First Amended
Joint Chapter 11 Plan (as modified), dated November 12, 1996.
Filed as Exhibit 2.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
2.4 Third Modification, dated March 14, 1997, to First Amended Joint
Chapter 11 Plan (as modified), dated November 12, 1996. Filed as
Exhibit 2.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
2.5 Agreement and Plan or Reorganization, dated as of October 6, 1998,
among SLM International, Inc., Sports Maska Inc., SLM Acquisition
Corp. and Sports Holding Corp. Filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated November 19, 1998 and
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of the Company
dated March 31, 1997. Filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.1 Cash Option Agreement, dated January 6, 1997 between the Company
and Wellspring Associates L.L.C. Filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 and incorporated herein by reference.
10.2 Amendment to Cash Option Agreement, dated April 8, 1997, between
the Company and Wellspring Associates L.L.C. Filed as Exhibit 10.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
68
<PAGE>
10.3 Stockholders Agreement, dated as of April 11, 1997, between the
Company and the persons set forth on Schedule A thereto. Filed as
Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
10.4 Warrant Agreement, dated as of April 11, 1997, between the Company
and American Stock Transfer & Trust Company, as Warrant Agent.
Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
10.5 Form of Credit Agreement, dated as of April 1, 1997, among the
Company, Maska U.S., Inc., #1 Apparel, Inc., the Lenders referred
to therein and The Chase Manhattan Bank, as Agent. Filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1996 and incorporated herein by reference.
10.6 Credit Agreement, dated April 1, 1997, between Sport Maska Inc.
and The Chase Manhattan Bank of Canada. Filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.7 Form of Security Agreement, dated as of April 1, 1997, among the
Company, certain subsidiaries of the Company and The Chase
Manhattan Bank, as Agent. Filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
and incorporated herein by reference.
10.8 Form of Security Agreement and Mortgage - Trademarks and Patents,
dated as of April 1, 1997, among the Company, certain subsidiaries
of the Company and The Chase Manhattan Bank, as Agent. Filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
10.9 Security Agreement (Intellectual Property), dated as of April 1,
1997, between Sport Maska Inc. and The Chase Manhattan Bank, as
Agent. Filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.10 Form of Pledge Agreement and Irrevocable Proxy, dated as of April
1, 1997, among the Company, certain subsidiaries of the Company
and The Chase Manhattan Bank, as Agent. Filed as Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.11 Form of Charge Over Shares and Irrevocable Proxy, dated as of
April 1, 1997, among the Company and The Chase Manhattan Bank, as
Agent. Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference.
10.12 Quebec Pledge Agreement, dated April 1, 1997, between SLM
Trademark Acquisition Canada Corporation and The Chase Manhattan
Bank. Filed as Exhibit 10.12 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
69
<PAGE>
10.13 Form of U.S. Guaranty, dated as of April 1, 1997, from SLM
Trademark Acquisition Corp. Filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 and incorporated herein by reference.
10.14 Form of Canadian Guarantee, dated April 1, 1997, from each
Canadian and U.S. subsidiary of the Company. Filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996 and incorporated herein by reference.
10.15 Form of Debenture, dated April 1, 1997, between each of the
Company, Maska U.S., Inc., #1 Apparel, Inc., SLM Trademark
Acquisition Corp. Filed as Exhibit 10.15 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996 and
incorporated herein by reference.
10.16 Form of Deed of Hypothec, bearing formal date as of April 1, 1997,
between each of the Company, Maska U.S., Inc., #1 Apparel, Inc.,
SLM Trademark Acquisition Corp., Sport Maska Inc., #1 Apparel
Canada Inc., and SLM Trademark Acquisition Canada Corporation and
The Chase Manhattan Bank. Filed as Exhibit 10.16 to the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996
and incorporated herein by reference.
10.17 Form of Debenture, dated as of April 1, 1997, between each of
Sport Maska Inc., #1 Apparel Canada Inc. and SLM Trademark
Acquisition Canada Corporation and The Chase Manhattan Bank of
Canada. Filed as Exhibit 10.17 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.18 Form of Deed of Hypothec, bearing formal date as of April 1, 1997,
between each of Sport Maska Inc., #1 Apparel Canada Inc. and SLM
Trademark Acquisition Canada Corporation and The Chase Manhattan
Bank of Canada. Filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996 and
incorporated herein by reference.
10.19 Form of Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of April 1, 1997, from Maska U.S., Inc. to The
Chase Manhattan Bank, as Agent. Filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference.
10.20 Amendment to Credit Agreement, dated as of May 28, 1997, among the
Company, #1 Apparel, Inc., Maska U.S., Inc., the Lenders named
therein and The Chase Manhattan Bank, as agent. Filed as Exhibit 1
to the Company's Current Report on Form 8-K dated May 29, 1997 and
incorporated herein by reference.
10.21 Amendment No. 2 to Credit Agreement, dated as of January 30, 1997,
among the Company, #1 Apparel, Inc., Maska U.S., Inc., the Lenders
named therein and The Chase Manhattan Bank, as agent. Filed as
Exhibit 2 to the Company's Current Report on Form 8-K dated May
29, 1997 and incorporated herein by reference.
10.22 Waiver and Amendment No. 3 to Credit Agreement, dated as of
September 30, 1997, among the Company, #1 Apparel, Inc., Maska
U.S., Inc., the Lenders named therein and The Chase Manhattan
Bank, as agent. Filed as Exhibit 2 to the Company's Current Report
on Form 8-K dated March 6, 1998 and incorporated herein by
reference.
70
<PAGE>
10.23 Waiver and Amendment No. 4 to Credit Agreement, dated as of March
6, 1998, among the Company, #1 Apparel, Inc., Maska U.S., Inc.,
the Lenders named therein and The Chase Manhattan Bank, as agent.
Filed as Exhibit 1 to the Company's Current Report on Form 8-K
dated March 16 , 1998 and incorporated herein by reference.
10.24 Amending Agreement No. 2, dated March 10, 1998 among Sport Maska
Inc., SLM Trademark Acquisition Canada Corporation and The Chase
Manhattan Bank of Canada. Filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated March 16, 1998 and incorporated
herein by reference.
10.25 Retail License Agreement, dated March 8, 1995, between Maska U.S.,
Inc. and NHL Enterprises Inc. Filed as Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
10.26 Retail License Agreement, dated March 8, 1995, between Sport Maska
Inc. and NHL Enterprises Canada Inc. Filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
10.27 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Maska U.S., Inc. Filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.28 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Sport Maska Inc. Filed as Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.29 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.38 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.30 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.40 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.31 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.41 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.32 Deed of Lease, dated April 11, 1997, between 2938201 Canada Inc.
and Sport Maska Inc. Filed as Exhibit 10.42 to the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996
and incorporated herein by reference.
10.33 Settlement Agreement, dated November 21, 1995, among the Company,
certain subsidiaries, the Buddy L Creditors Committee and certain
Lenders. Filed as Exhibit 10.40 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference.
71
<PAGE>
10.34 Form of U.S. Debenture Delivery Agreement, dated as of April 1,
1997. Filed as Exhibit 10.44 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.35 Form of Security Agreement (Intellectual Property), dated as of
April 1, 1997, from each Canadian Subsidiary to The Chase
Manhattan Bank and The Chase Manhattan Bank of Canada. Filed as
Exhibit 10.45 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1996 and incorporated herein by
reference.
10.36 Security, dated as of April 1, 1997, from Sport Maska Inc. to The
Chase Manhattan Bank of Canada. Filed as Exhibit 10.46 to the
Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 and incorporated herein by reference.
10.37 Form of Canadian Debenture Delivery Agreement, dated April 1,
1997. Filed as Exhibit 10.47 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.38 Charge/Mortgage of Land by #1 Apparel Canada Inc. in favor of The
Chase Manhattan Bank. Filed as Exhibit 10.48 to the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996
and incorporated herein by reference.
10.39 Charge/Mortgage of Land Delivery Agreement dated as of April 1,
1997 in favor of The Chase Manhattan Bank. Filed as Exhibit 10.49
to the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.40 Charge/Mortgage of Land by #1 Apparel Canada Inc. in favor of The
Bank of New York. Filed as Exhibit 10.50 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996 and
incorporated herein by reference.
10.41 Charge/Mortgage of Land Delivery Agreement, dated as of April 1,
1997 in favor of The Bank of New York. Filed as Exhibit 10.51 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.42 Form of Voting Agreement and Irrevocable Proxy, dated as of
October ___, 1998, among SLM International, Inc., SLM Acquisition
Corp. and the Stockholder whose signature appears on the signature
page thereto. Filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated November 19, 1998 (and filed on
February 9, 1999) and incorporated herein by reference.
10.43 Preferred Stock and Warrant Purchase Agreement, dated as of
November 19, 1998, by and between Phoenix Home Life Mutual
Insurance Company and SLM International, Inc. Filed as Exhibit
10.2 to the Company's Current Report on Form 8-K dated November
19, 1998 (and filed on February 9, 1999) and incorporated herein
by reference.
10.44 Credit Agreement, dated November 19, 1998, among SLM
International, Inc. and Sports Maska Inc. (as Borrowers) and
Caisse de Depot et Placement du Quebec (as Agent and Lender).
Filed as Exhibit 10.3 to the Company's Current Report on Form 8-K
dated November 19, 1998 (and filed on February 9, 1999) and
incorporated herein by reference.
10.45 Credit Agreement, dated as of November 19, 1998, between Maska
U.S., Inc., SHC Hockey Inc., the other Credit Parties signatory
thereto, General Electric Capital Corporation and the other
Lenders signatory thereto from time to time. Filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated November
19, 1998 (and filed on March 9, 1999) and incorporated herein by
reference.
10.46 Credit Agreement, dated as of November 19, 1998, between Sport
Maska Inc., Tropsport Acquisitions Inc., the Company, the other
Credit Parties signatory thereto, the Lenders signatory thereto
from time to time and General Electric Capital Canada Inc. Filed
as Exhibit 10.2 to the Company's Current Report on Form 8-K dated
November 19, 1998 (and filed on March 9, 1999) and incorporated
herein by reference.
10.47 Intercreditor Agreement, dated as of November 19, 1998, among
General Electric Capital Corporation, General Electric Capital
Canada Inc., Caisse de Depot et Placement du Quebec, the Company
and certain affiliates of the Company signatory thereto. Filed as
Exhibit 10.3 to the Company's Current Report on Form 8-K dated
November 19, 1998 (and filed on March 9, 1999) and incorporated
herein by reference.
21 Subsidiaries of the Company (filed herewith).
23.1 Consent of Independent Accountants (filed herewith).
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
On July 31, 1998, the Company filed a Current Report on Form 8-K announcing that
Maska U.S., its wholly-owned subsidiary, obtained a favorable jury verdict in a
suit Maska U.S. brought against several insurance companies to recover
environmental expenses and damages with respect to its Bradford, Vermont
facility. This report was filed in compliance with Item 5 of Form S-8.
On October 13, 1998, the Company filed a Current Report on Form 8-K announcing
that it had entered into an agreement to acquire all of the outstanding stock of
Sports Holding Corp. and its subsidiaries. This report was filed in compliance
with Item 5 of Form 8-K.
72
<PAGE>
On February 9, 1999, the Company filed a Current Report on Form 8-K with respect
to the filing of an amendment to the Company's Amended and Restated Certificate
of Incorporation pursuant to which the Company changed its name to "The Hockey
Company." This report was filed in compliance with Item 5 of Form 8-K.
On February 9, 1999, the Company filed a Current Report on Form 8-K with respect
to the completion of the acquisition of Sports Holding Corp. This report was
filed in compliance with Item 2 of Form 8-K.
On March 9, 1999, the Company filed a Current Report on Form 8-K with respect to
the extension to subsidiaries of the Company of revolving credit loans furnished
by General Electric Capital Corporation and General Electric Capital Canada Inc.
This report was filed in compliance with Item 5 of Form 8-K.
73
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Form 10-K/A to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Williston, State
of Vermont, on the 29th day of April, 1999.
THE HOCKEY COMPANY
By: /s/ Russell J. David
-----------------------------------
Name: Russell J. David
Title: Senior Vice President, Finance
& Administration
Pursuant to the requirements of the Securities Act of 1934, this Form 10-K/A has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
* Chairman of the Board, April 29, 1999
- ----------------------------- President and Chief
Gerald B. Wasserman Executive Officer
/s/ Russell J. David Senior Vice President, April 29, 1999
- ----------------------------- Finance & Administration
Russell J. David
* Director April 29, 1999
- -----------------------------
Paul M. Chute
* Director April 29, 1999
- -----------------------------
Martin S. Davis
* Director April 29, 1999
- -----------------------------
Greg S. Feldman
* Director April 29, 1999
- -----------------------------
Jason B. Fortin
* Director April 29, 1999
- -----------------------------
James C. Pendergast
* By /s/ Russell J. David
---------------------------
Russell J. David
Attorney-in-fact
74
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
2.1 First Amended Joint Chapter 11 Plan (as modified), dated November
12, 1996, filed with the United States Bankruptcy Court for the
District of Delaware. Filed as Exhibit 1 to the Company's Current
Report on Form 8-K dated December 6, 1996, incorporated herein by
reference.
2.2 First Modification, dated January 15, 1997, to First Amended Joint
Chapter 11 Plan. Filed as Exhibit 2.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
2.3 Second Modification, dated January 23, 1997, to First Amended
Joint Chapter 11 Plan (as modified), dated November 12, 1996.
Filed as Exhibit 2.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
2.4 Third Modification, dated March 14, 1997, to First Amended Joint
Chapter 11 Plan (as modified), dated November 12, 1996. Filed as
Exhibit 2.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
2.5 Agreement and Plan or Reorganization, dated as of October 6, 1998,
among SLM International, Inc., Sports Masks Inc., SLM Acquisition
Corp. and Sports Holding Corp. Filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated November 19, 1998 and
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of the Company
dated March 31, 1997. Filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.1 Cash Option Agreement, dated January 6, 1997 between the Company
and Wellspring Associates L.L.C. Filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 and incorporated herein by reference.
10.2 Amendment to Cash Option Agreement, dated April 8, 1997, between
the Company and Wellspring Associates L.L.C. Filed as Exhibit 10.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
75
<PAGE>
10.3 Stockholders Agreement, dated as of April 11, 1997, between the
Company and the persons set forth on Schedule A thereto. Filed as
Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
10.4 Warrant Agreement, dated as of April 11, 1997, between the Company
and American Stock Transfer & Trust Company, as Warrant Agent.
Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
10.5 Form of Credit Agreement, dated as of April 1, 1997, among the
Company, Maska U.S., Inc., #1 Apparel, Inc., the Lenders referred
to therein and The Chase Manhattan Bank, as Agent. Filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1996 and incorporated herein by reference.
10.6 Credit Agreement, dated April 1, 1997, between Sport Maska Inc.
and The Chase Manhattan Bank of Canada. Filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.7 Form of Security Agreement, dated as of April 1, 1997, among the
Company, certain subsidiaries of the Company and The Chase
Manhattan Bank, as Agent. Filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
and incorporated herein by reference.
10.8 Form of Security Agreement and Mortgage - Trademarks and Patents,
dated as of April 1, 1997, among the Company, certain subsidiaries
of the Company and The Chase Manhattan Bank, as Agent. Filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
10.9 Security Agreement (Intellectual Property), dated as of April 1,
1997, between Sport Maska Inc. and The Chase Manhattan Bank, as
Agent. Filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.10 Form of Pledge Agreement and Irrevocable Proxy, dated as of April
1, 1997, among the Company, certain subsidiaries of the Company
and The Chase Manhattan Bank, as Agent. Filed as Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10.11 Form of Charge Over Shares and Irrevocable Proxy, dated as of
April 1, 1997, among the Company and The Chase Manhattan Bank, as
Agent. Filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference.
10.12 Quebec Pledge Agreement, dated April 1, 1997, between SLM
Trademark Acquisition Canada Corporation and The Chase Manhattan
Bank. Filed as Exhibit 10.12 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
76
<PAGE>
10.13 Form of U.S. Guaranty, dated as of April 1, 1997, from SLM
Trademark Acquisition Corp. Filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 and incorporated herein by reference.
10.14 Form of Canadian Guarantee, dated April 1, 1997, from each
Canadian and U.S. subsidiary of the Company. Filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996 and incorporated herein by reference.
10.15 Form of Debenture, dated April 1, 1997, between each of the
Company, Maska U.S., Inc., #1 Apparel, Inc., SLM Trademark
Acquisition Corp. Filed as Exhibit 10.15 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996 and
incorporated herein by reference.
10.16 Form of Deed of Hypothec, bearing formal date as of April 1, 1997,
between each of the Company, Maska U.S., Inc., #1 Apparel, Inc.,
SLM Trademark Acquisition Corp., Sport Maska Inc., #1 Apparel
Canada Inc., and SLM Trademark Acquisition Canada Corporation and
The Chase Manhattan Bank. Filed as Exhibit 10.16 to the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996
and incorporated herein by reference.
10.17 Form of Debenture, dated as of April 1, 1997, between each of
Sport Maska Inc., #1 Apparel Canada Inc. and SLM Trademark
Acquisition Canada Corporation and The Chase Manhattan Bank of
Canada. Filed as Exhibit 10.17 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.18 Form of Deed of Hypothec, bearing formal date as of April 1, 1997,
between each of Sport Maska Inc., #1 Apparel Canada Inc. and SLM
Trademark Acquisition Canada Corporation and The Chase Manhattan
Bank of Canada. Filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996 and
incorporated herein by reference.
10.19 Form of Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of April 1, 1997, from Maska U.S., Inc. to The
Chase Manhattan Bank, as Agent. Filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference.
10.20 Amendment to Credit Agreement, dated as of May 28, 1997, among the
Company, #1 Apparel, Inc., Maska U.S., Inc., the Lenders named
therein and The Chase Manhattan Bank, as agent. Filed as Exhibit 1
to the Company's Current Report on Form 8-K dated May 29, 1997 and
incorporated herein by reference.
10.21 Amendment No. 2 to Credit Agreement, dated as of January 30, 1997,
among the Company, #1 Apparel, Inc., Maska U.S., Inc., the Lenders
named therein and The Chase Manhattan Bank, as agent. Filed as
Exhibit 2 to the Company's Current Report on Form 8-K dated May
29, 1997 and incorporated herein by reference.
10.22 Waiver and Amendment No. 3 to Credit Agreement, dated as of
September 30, 1997, among the Company, #1 Apparel, Inc., Maska
U.S., Inc., the Lenders named therein and The Chase Manhattan
Bank, as agent. Filed as Exhibit 2 to the Company's Current Report
on Form 8-K dated March 6, 1998 and incorporated herein by
reference.
77
<PAGE>
10.23 Waiver and Amendment No. 4 to Credit Agreement, dated as of March
6, 1998, among the Company, #1 Apparel, Inc., Maska U.S., Inc.,
the Lenders named therein and The Chase Manhattan Bank, as agent.
Filed as Exhibit 1 to the Company's Current Report on Form 8-K
dated March 16 , 1998 and incorporated herein by reference.
10.24 Amending Agreement No. 2, dated March 10, 1998 among Sport Maska
Inc., SLM Trademark Acquisition Canada Corporation and The Chase
Manhattan Bank of Canada. Filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated March 16, 1998 and incorporated
herein by reference.
10.25 Retail License Agreement, dated March 8, 1995, between Maska U.S.,
Inc. and NHL Enterprises Inc. Filed as Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
10.26 Retail License Agreement, dated March 8, 1995, between Sport Maska
Inc. and NHL Enterprises Canada Inc. Filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
10.27 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Maska U.S., Inc. Filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.28 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Sport Maska Inc. Filed as Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.29 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.38 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.30 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.40 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.31 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.41 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.32 Deed of Lease, dated April 11, 1997, between 2938201 Canada Inc.
and Sport Maska Inc. Filed as Exhibit 10.42 to the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996
and incorporated herein by reference.
10.33 Settlement Agreement, dated November 21, 1995, among the Company,
certain subsidiaries, the Buddy L Creditors Committee and certain
Lenders. Filed as Exhibit 10.40 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference.
78
<PAGE>
10.34 Form of U.S. Debenture Delivery Agreement, dated as of April 1,
1997. Filed as Exhibit 10.44 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.35 Form of Security Agreement (Intellectual Property), dated as of
April 1, 1997, from each Canadian Subsidiary to The Chase
Manhattan Bank and The Chase Manhattan Bank of Canada. Filed as
Exhibit 10.45 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1996 and incorporated herein by
reference.
10.36 Security, dated as of April 1, 1997, from Sport Maska Inc. to The
Chase Manhattan Bank of Canada. Filed as Exhibit 10.46 to the
Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 and incorporated herein by reference.
10.37 Form of Canadian Debenture Delivery Agreement, dated April 1,
1997. Filed as Exhibit 10.47 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1996 and incorporated
herein by reference.
10.38 Charge/Mortgage of Land by #1 Apparel Canada Inc. in favor of The
Chase Manhattan Bank. Filed as Exhibit 10.48 to the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996
and incorporated herein by reference.
10.39 Charge/Mortgage of Land Delivery Agreement dated as of April 1,
1997 in favor of The Chase Manhattan Bank. Filed as Exhibit 10.49
to the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.40 Charge/Mortgage of Land by #1 Apparel Canada Inc. in favor of The
Bank of New York. Filed as Exhibit 10.50 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996 and
incorporated herein by reference.
10.41 Charge/Mortgage of Land Delivery Agreement, dated as of April 1,
1997 in favor of The Bank of New York. Filed as Exhibit 10.51 to
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated herein by reference.
10.42 Form of Voting Agreement and Irrevocable Proxy, dated as of
October ___, 1998, among SLM International, Inc., SLM Acquisition
Corp. and the Stockholder whose signature appears on the signature
page thereto. Filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated November 19, 1998 (and filed on
February 9, 1999) and incorporated herein by reference.
10.43 Preferred Stock and Warrant Purchase Agreement, dated as of
November 19, 1998, by and between Phoenix Home Life Mutual
Insurance Company and SLM International, Inc. Filed as Exhibit
10.2 to the Company's Current Report on Form 8-K dated November
19, 1998 (and filed on February 9, 1999) and incorporated herein
by reference.
10.44 Credit Agreement, dated November 19, 1998, among SLM
International, Inc. and Sports Maska Inc. (as Borrowers) and
Caisse de Depot et Placement du Quebec (as Agent and Lender).
Filed as Exhibit 10.3 to the Company's Current Report on Form 8-K
dated November 19, 1998 (and filed on February 9, 1999) and
incorporated herein by reference.
10.45 Credit Agreement, dated as of November 19, 1998, between Maska
U.S., Inc., SHC Hockey Inc., the other Credit Parties signatory
thereto, General Electric Capital Corporation and the other
Lenders signatory thereto from time to time. Filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated November
19, 1998 (and filed on March 9, 1999) and incorporated herein by
reference.
10.46 Credit Agreement, dated as of November 19, 1998, between Sport
Maska Inc., Tropsport Acquisitions Inc., the Company, the other
Credit Parties signatory thereto, the Lenders signatory thereto
from time to time and General Electric Capital Canada Inc. Filed
as Exhibit 10.2 to the Company's Current Report on Form 8-K dated
November 19, 1998 (and filed on March 9, 1999) and incorporated
herein by reference.
10.47 Intercreditor Agreement, dated as of November 19, 1998, among
General Electric Capital Corporation, General Electric Capital
Canada Inc., Caisse de Depot et Placement du Quebec, the Company
and certain affiliates of the Company signatory thereto. Filed as
Exhibit 10.3 to the Company's Current Report on Form 8-K dated
November 19, 1998 (and filed on March 9, 1999) and incorporated
herein by reference.
21 Subsidiaries of the Company (filed herewith).
23.1 Consent of Independent Accountants (filed herewith).
27.1 Financial Data Schedule (filed herewith).
79
EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
Maska U.S., Inc.
SLM Trademark Acquisition Corp.
Sport Maska Inc.
SLM Trademark Acquisition Canada Corporation
Sport Maska Europe S.A.R.L.
Maska H.K. Limited
#1 Apparel Canada Inc.
Sports Holdings Corp.
Tropsport Acquisitions Inc.
SHC Hockey Inc.
KHF Sports OY
WAP Holding Inc.
JOFA Holding AB
JOFA AB
JOFA Norge A/S
J.W.
SOLTE
2867923 Canada Inc.
KARHU Canada Inc.
80
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
We consent to the use of our report dated March 9, 1999, with respect to the
consolidated financial statements of The Hockey Company (formerly SLM
International, Inc.) as at December 31, 1998 and 1997, and for the year ended
December 31, 1998 and for the periods January 1, 1997 to April 11, 1997 and
April 12, 1997 to December 31, 1997 included in this report on Form 10-K/A of
The Hockey Company (formerly SLM International, Inc.) to be filed to the
Securities and Exchange Commission dated April 30, 1999.
/s/ Ernst & Young LLP
Montreal, Canada
April 30, 1999
- ---------------------------- [LOGO] ERNST & YOUNG ----------------------------
81
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1998 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS CONTAINED THEREIN.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,593
<SECURITIES> 0
<RECEIVABLES> 44,618
<ALLOWANCES> (7,828)
<INVENTORY> 42,244
<CURRENT-ASSETS> 89,469
<PP&E> 25,668
<DEPRECIATION> (3,605)
<TOTAL-ASSETS> 206,996
<CURRENT-LIABILITIES> 38,320
<BONDS> 0
10,870
0
<COMMON> 65
<OTHER-SE> 69,173
<TOTAL-LIABILITY-AND-EQUITY> 206,996
<SALES> 110,817
<TOTAL-REVENUES> 110,817
<CGS> 65,026
<TOTAL-COSTS> 65,026
<OTHER-EXPENSES> 35,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,108
<INCOME-PRETAX> 6,493
<INCOME-TAX> 4,603
<INCOME-CONTINUING> 1,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,890
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
</TABLE>
