UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended May 31, 1996
Commission file number 0-24450
RAWLINGS SPORTING GOODS COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 43-1674348
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1859 INTERTECH DRIVE, FENTON, MISSOURI 63026
(Address of Principal Executive Offices) (Zip Code)
(314) 349-3500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares outstanding of the issuer's Common Stock,
par value $0.01 per share, as of June 15, 1996: 7,693,361
shares.
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Quarter Ended Nine Months Ended
May 31, May 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues $ 39,107 $34,685 $ 125,963 $ 122,432
Cost of goods sold 26,552 23,319 86,532 82,696
Gross profit 12,555 11,366 39,431 39,736
Selling, general and
administrative
expenses 8,715 8,973 26,274 25,375
Operating income 3,840 2,393 13,157 14,361
Interest expense, net 984 1,049 2,963 2,985
Other expense, net 50 10 211 150
Income before income
taxes 2,806 1,334 9,983 11,226
Provision for income
taxes 1,100 533 3,913 4,490
Net income $ 1,706 $ 801 $ 6,070 $ 6,736
Average number of
common shares
outstanding 7,686 7,651 7,676 7,651
Net income per
common share $0.22 $0.10 $0.79 $0.88
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<CAPTION>
May 31, August 31,
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 623 $ 1,337
Accounts receivable, net of
allowance of $1,149 and
$1,459 respectively 36,931 24,163
Inventories 33,673 31,346
Prepaid expenses 1,194 1,607
Deferred income taxes 3,369 3,369
Total current assets 75,790 61,822
Property, plant and equipment,
net 7,880 7,601
Other assets 733 944
Deferred income taxes 23,679 27,416
Total assets $108,082 $97,783
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,867 $ 6,388
Accrued liabilities 10,411 7,399
Total current liabilities 18,278 13,787
Long-term debt 43,500 43,900
Other long-term liabilities 11,119 11,519
Total liabilities 72,897 69,206
Stockholders' equity:
Preferred stock, none issued - -
Common stock, 7,689,264 and
7,656,908 shares issued and
outstanding, respectively 77 77
Additional paid-in capital 25,743 25,205
Retained earnings 9,365 3,295
Stockholders' equity 35,185 28,577
Total liabilities and
stockholders' equity $108,082 $97,783
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Nine Months Ended May 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,070 $ 6,736
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 837 746
Deferred income taxes 3,737 3,506
Changes in operating assets and
liabilities:
Accounts receivable, net (12,768) (6,359)
Inventories (2,327) (5,582)
Prepaid expenses 413 615
Other assets 71 (303)
Accounts payable 1,479 2,206
Accrued liabilities and other 2,609 2,039
Net cash provided by operating
activities 121 3,604
Cash flows from investing activities:
Capital expenditures (973) (1,818)
Cash flows from financing activities:
Net (repayments) borrowings of
long-term debt (400) 5,420
Payment from (to) former parent
related to purchase price settlement 275 (6,456)
Issuance of common stock 263 21
Net cash provided by (used in)
financing activities 138 (1,015)
Net (decrease) increase in cash and
cash equivalents (714) 771
Cash and cash equivalents, beginning
of period 1,337 1,549
Cash and cash equivalents, end of
period $ 623 $ 2,320
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission pertaining
to interim financial information and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. These
financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included
in the Company's Annual Report for the year ended August 31,
1995. In the opinion of management, all adjustments consisting
only of normal recurring adjustments considered necessary for a
fair presentation of financial position and results of operations
have been included therein. The results for the nine months
ended May 31, 1996 are not necessarily indicative of the results
that may be expected for a full fiscal year.
NOTE 2: INVENTORIES
<TABLE>
Inventories consisted of the following (in thousands):
<CAPTION>
May 31, August 31,
1996 1995
<S> <C> <C>
Raw materials $ 5,439 $ 5,498
Work in process 2,046 1,940
Finished goods 26,188 23,908
$33,673 $31,346
</TABLE>
NOTE 3: TRANSACTIONS WITH FORMER PARENT.
In July 1994, the former parent transferred the net assets
of the Rawlings Business to the Company in exchange for
$35,000,000 in cash and the $42,000,000 of net cash proceeds
generated from the initial public offering of the Company's
stock. The purchase price was subject to a post-closing
adjustment based on the investment by the former parent in the
Rawlings Business as of June 30, 1994 as defined in the asset
transfer agreement. In fiscal 1995, the Company paid the former
parent $6,456,000 as a preliminary settlement of the post-closing
adjustment. In September 1995, a final settlement was reached
with the former parent paying the Company $275,000.
<PAGE>
NOTE 4: LONG-TERM DEBT.
In October 1995, the Company entered into a two-year
interest rate swap agreement, with a commercial bank under which
the Company receives a floating rate based on three-month LIBOR
through September 1997 on $25,000,000 and pays a fixed rate of
6.75%. This transaction effectively changes a portion of the
Company's debt from a floating rate to a fixed rate.
In October 1995, the Company repaid the remaining balance of
$900,000 related to the 8.75% Industrial Revenue Bonds (IRB) due
in 2000. The repayment of the IRB's was financed under the
credit agreement with banks.
NOTE 5: COMMITMENTS AND CONTINGENCIES.
On November 22, 1995, a class action complaint was filed in
the United States District Court for the Eastern Division of the
Eastern District of Missouri by Henry G. Jakobe, Jr. against the
Company. The complaint also names as defendants Mr. Carl J.
Shields, Chairman, CEO and President of the Company, and Howard
B. Keene, Chief Operating Officer of the Company. The complaint
alleges, among other things, that the defendants violated the
federal securities laws by making false and misleading statements
regarding the impact of the Major League Baseball strike on the
Company's business. The plaintiff seeks an unspecified amount of
damages, reimbursement of costs and expenses of the litigation,
including attorney fees, and other unspecified relief.
The Company intends to vigorously defend this action. The
Company further believes that this matter will not have a
material adverse effect on the Company's financial condition,
results of operations or cash flow.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED MAY 31, 1996 COMPARED
WITH QUARTER ENDED MAY 31, 1995
Net revenues in the quarter ended May 31, 1996 were
$39,107,000, or 12.7 percent above net revenues of $34,685,000 in
the comparable quarter last year. Higher net revenues from
baseball-related products, including baseballs and protective
equipment, apparel and football products were primarily
responsible for the increase. Partially offsetting were lower
net revenues from baseball gloves in the U.S. and Canada.
The Company's gross profit for the quarter ended May 31,
1996 was $12,555,000, or 10.5 percent above the comparable
quarter last year. The gross profit margin was 32.1 percent, .7
of a margin point lower than the comparable quarter last year.
Increased net revenues of lower margin products, including
apparel and football products, along with lower sales on baseball
gloves, one of the Company's higher margin items, were primarily
responsible for the decrease.
Selling, general and administrative (SG&A) expenses were
$8,715,000, or 2.9 percent lower than SG&A expenses of $8,973,000
in the comparable quarter last year. Lower salaries, fringes and
advertising and promotion expenditures were primarily responsible
for the decrease. As a percent of net revenues, SG&A expenses
were 22.3 percent in the quarter ended May 31, 1996, down 3.6
points from the comparable quarter last year.
During the quarter, the Company entered into a letter of
intent with the NCAA which extends the Company's contract as the
Official Basketball Supplier for NCAA Championships through the
year 2002. This agreement provides the Company exclusive
worldwide rights for retail sale of NCAA licensed basketballs and
certain accessory products.
NINE MONTHS ENDED MAY 31, 1996 COMPARED
WITH THE NINE MONTHS ENDED MAY 31, 1995
Net revenues in the nine month period ended May 31, 1996
were $125,963,000, or 2.9 percent above net revenues of
$122,432,000 in the comparable nine month period last year.
Higher net revenues from apparel, basketball products and
international, excluding Canada, partially offset by lower net
revenues from baseball-related products in the U.S. and Canada
were primarily responsible for the increase.
The Company's gross profit of $39,431,000 for the nine month
period ended May 31, 1996 was $305,000, or .8 percent, below the
comparable nine month period last year. The gross profit margin
for the nine month period ended May 31, 1996 was 31.3 percent,
1.2 margin points lower than the comparable nine month period
last year. An increase in net revenues of lower <PAGE> margin products,
including apparel and rubber basketballs, along with lower sales
of baseball gloves, one of the Company's higher margin items,
were primarily responsible for the decrease.
SG&A expenses for the nine month period ended May 31, 1996
were $26,274,000, or 3.5 percent higher than SG&A expenses of
$25,375,000 in the comparable nine month period last year. As a
percent of net revenues, SG&A expenses were 20.9 percent, up .2
of a point from 20.7 percent in the comparable nine month period
last year. The increase was primarily the result of higher
royalty expenses under contractually scheduled escalations and
royalties associated with the Cal Ripken, Jr. commemorative
baseball, partially offset by lower salaries, fringes and
commissions.
SEASONALITY
Sales of baseball equipment and related team uniforms are
highly seasonal. Customers typically begin placing orders with
the Company for baseball-related products beginning in July for
shipment beginning in October ("pre-season orders"). These pre-
season orders from customers typically represent approximately
70% to 80% of the customers' anticipated needs for the entire
baseball season. The amount of these pre-season orders largely
determines the Company's net revenues and profitability between
October 1 and March 31. The Company then receives additional
orders ("fill-in orders") which depend upon customers' actual
sales of products during the baseball season ("sell-through").
Fill-in orders are typically received by the Company between
February and May. These orders generally represent approximately
20% to 30% of the Company's sales of baseball-related products
during a particular season. The sell-through of baseball-related
products also affects the amount of inventory held by customers
at the end of the season which is carried over by the customer
for sale in the next baseball season. Customers typically adjust
their pre-season orders for the next baseball season to account
for the level of inventory carried over from the preceding
baseball season. Football equipment and related team uniforms
are both shipped by the Company and sold by retailers primarily
in the period between March 1 and September 30. Basketballs and
related team uniforms generally are shipped and sold throughout
the year. Because the Company's sales of baseball-related
products exceed those of its other products, Rawlings' business
is seasonal, with its highest net revenues and profitability
recognized between October 1 and March 31.
Feedback from our customers indicates that retail sales of
baseball-related products improved over the strike impacted 1995
selling season. The improved retail sales are expected to result
in lower inventory levels at the retail level going into the 1997
selling season. This improvement in retail sales of baseball-
related products leaves us cautiously optimistic that further net
revenues and improved operating results over prior year levels
will be achieved in the fourth quarter of fiscal 1996 and in
fiscal 1997.
Consistent with prior years, the operating results for the
fourth quarter of fiscal 1996 are expected to generate a net
loss. The period from June to August is the seasonally slowest
period for baseball-related products. However, improved margins
and lower SG&A expenses are expected to reduce the net loss from
the results generated in the fourth quarter of fiscal 1995.
Except for the historical information contained herein, the
matters outlined in the management's discussion and analysis are
forward looking statements that involve risks and uncertainties,
including quarterly fluctuation in results, retail sell rates for
the Company's products which may result in more or less orders
than those anticipated and the impact of competitive products and
pricing. In addition, other risks and uncertainties are detailed
from time to time in <PAGE> the Company's SEC reports, including the
report on Form 10-K for the year ended August 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $9,477,000, for the nine month
period ended May 31, 1996, primarily the result of the seasonal
increase in accounts receivable and inventory.
Cash flows provided by operating activities for the nine
month period ended May 31, 1996 were $121,000, or $3,483,000
lower than the comparable nine month period in fiscal 1995. The
lower operating cash flows are primarily the result of a larger
increase in receivables resulting from customers' shipments
occurring later in the nine month period than the prior year and
earlier shipment of fall product than the prior year.
Capital expenditures were $973,000 for the nine month period
ended May 31, 1996 compared to $1,818,000 in the comparable prior
year period. The Company expects to spend $300,000 to $700,000
for capital expenditures during the last three months of fiscal
1996.
The Company repaid long-term debt of $400,000 in the nine
month period ended May 31, 1996. This resulted in total debt at
May 31, 1996 of $43,500,000, a decrease of $1,400,000, or 3.1
percent, from total debt as of May 31, 1995.
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 22, 1995, a class action complaint was filed in
the United States District Court for the Eastern Division of the
Eastern District of Missouri by Henry G. Jakobe, Jr. against the
Company. The complaint also names as defendants Mr. Carl J.
Shields, Chairman, CEO and President of the Company, and Howard
B. Keene, Chief Operating Officer of the Company. The complaint
alleges, among other things, that the defendants violated the
federal securities laws by making false and misleading statements
regarding the impact of the Major League Baseball strike on the
Company's business. The plaintiff seeks an unspecified amount of
damages, reimbursement of costs and expenses of the litigation,
including attorney fees, and other unspecified relief.
The Company intends to vigorously defend this action. The
Company further believes that this matter will not have a
material adverse effect on the Company's financial condition,
results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
RAWLINGS SPORTING GOODS COMPANY, INC.
Date: June 28, 1996 /s/ CARL J. SHIELDS
Carl J. Shields
Chairman, CEO and President
Date: June 28, 1996 /s/ PAUL E. MARTIN
Paul E. Martin
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RAWLINGS SPORTING GOODS COMPANY, INC. CONTAINED IN ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 623
<SECURITIES> 0
<RECEIVABLES> 38,080
<ALLOWANCES> 1,149
<INVENTORY> 33,673
<CURRENT-ASSETS> 75,790
<PP&E> 20,310
<DEPRECIATION> 12,430
<TOTAL-ASSETS> 108,082
<CURRENT-LIABILITIES> 18,278
<BONDS> 54,619
0
0
<COMMON> 77
<OTHER-SE> 35,108
<TOTAL-LIABILITY-AND-EQUITY> 108,082
<SALES> 125,963
<TOTAL-REVENUES> 125,963
<CGS> 86,532
<TOTAL-COSTS> 86,532
<OTHER-EXPENSES> 26,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,963
<INCOME-PRETAX> 9,983
<INCOME-TAX> 3,913
<INCOME-CONTINUING> 6,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,070
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
</TABLE>
