FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997.
Commission File Number: 0-24450
RAWLINGS SPORTING GOODS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1674348
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1859 Intertech Drive, Fenton, Missouri 63026
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(314) 349-3500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting Common Stock held
by nonaffiliates of the registrant as of September 4, 1997 was
$85,005,217.
The number of shares of the registrant's Common Stock, $.01
par value, outstanding as of October 15, 1997, was 7,727,747.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1997 Annual Report are
incorporated by reference into Item 1 of Part I and Items 5, 6, 7
and 8 of Part II of this report. Portions of the registrant's
proxy statement for the annual meeting are incorporated by
reference into Items 10, 11, 12 and 13 of Part III of this
report.
<PAGE>
TABLE OF CONTENTS
Page
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 1. Business. . . . . . . . . . . . . . . . . . . . .1
Item 2. Properties. . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings.. . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 16
Part II. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . 16
Item 6. Selected Financial Data . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 17
Item 8. Financial Statements and Supplementary Data . . 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 17
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . . . . . 17
Item 11. Executive Compensation. . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . 18
Item 13. Certain Relationships and Related Transactions. 18
Part IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . 18
<PAGE>
PART I
ITEM 1. BUSINESS.
General
Rawlings Sporting Goods Company, Inc., ("Rawlings" or the
"Company") is a leading supplier of team sports equipment in
North America and, through its licensee, of baseball equipment
and uniforms in Japan. Under the Rawlings (Registered Trademark)
brand name, the Company provides an extensive line of equipment
and team uniforms for the sports of baseball, basketball and
football. The Company's products are sold through a variety of
distribution channels, including mass merchandisers, sporting
goods retailers and institutional sporting goods dealers. The
Company has the exclusive right, for which it pays royalty fees,
to use the logos of certain sports organizations and events on
selected products, including the logos of the National and
American Leagues, All-Star Game and World Series games for
baseballs and the National Collegiate Athletic Association (the
"NCAA") for the sports of football and basketball. In addition,
Rawlings' products are endorsed by more than 56 college coaches,
more than 20 major sports organizations and numerous athletes,
including approximately 120 Major League Baseball players. These
persons or entities have entered into agreements with the Company
under which they are paid or provided products for endorsing
Rawlings' products or for permitting the Company to use their
names or logos.
Rawlings was founded in 1887 and since then, the Company has
established a long-standing tradition of innovation in team
sports equipment and uniforms, including the development and
introduction of the first football shoulder pads in 1902, the
original deep pocket baseball glove in 1920 and double knit nylon
and cotton uniforms for Major League Baseball in 1970. More
recently, the Company introduced a new power forged aluminum bat
and a speed sensing baseball in fiscal 1997 with delivery of
these new products expected to begin in the first half of fiscal
1998. Today, Rawlings manufactures and distributes a broad array
of team sports equipment and products, including baseball gloves,
baseballs, baseball bats, batter's helmets, catcher's and
umpire's protective gear, basketballs, footballs, volleyballs,
soccer balls, football shoulder pads and other protective gear,
hockey sticks, hockey gloves, hockey protective and goalie gear,
team uniforms and various team sports accessories. In addition,
licensees of the Company sell numerous products including
athletic shoes, retail active wear apparel, socks, golf equipment
and sport drinks, using the Rawlings brand name and logo.
Since 1977, the Company has been the exclusive supplier of
baseballs to the National and American Leagues, the All-Star Game
and the World Series games, with agreements expiring in 2000. In
1996, Rawlings agreed in principle to extend its exclusive rights
to the All-Star Game and World Series games through 2000. As
part of the extension of the licensing agreements for the
All-Star and World Series games from 1996 to 2000, Rawlings
received additional exclusive rights to the Divisional Playoffs
and League Championship Series and nonexclusive rights to vinyl
<PAGE>
baseballs with Club logos and for the above outlined events.
Since 1994, the Company has been the exclusive supplier of
baseballs to each of the 18 Minor Leagues with the agreement
expiring in 2000. The Company is the leading supplier of
baseball gloves to Major and Minor League players.
Since 1986, Rawlings has been the exclusive supplier of
basketballs for the NCAA Men's and Women's Division I, II and III
tournament championship games, including the Final Four with an
agreement expiring in 2002. Since 1987, Rawlings has been the
exclusive supplier of footballs for the NCAA Division IAA, II and
III championship games with a contract expiring in 1999.
In September 1997, the Company acquired the net assets of
the Victoriaville hockey business which includes the Vic,
Victoriaville and McMartin brands. Victoriaville has
approximately $14.0 million in annual revenues and National
Hockey League (NHL) on ice exposure including sticks and
protective gear with over 150 professional hockey players.
Products and Markets
The following is a summary of net revenues for the principal
product lines and licensing arrangements of Rawlings during the
three fiscal years ended August 31, 1997:
Net Revenues by Principal Product line
(amounts in millions)
(unaudited)
Years Ended August 31,
1997 1996 1995
Equipment
Baseball $80.8 $88.3 $86.9
Basketball, football and volleyball 28.7 24.2 23.3
Apparel 16.4 14.3 10.2
International 7.5 7.7 9.5
Licensing 6.5 6.9 6.2
Miscellaneous 7.7 8.3 8.0
Net revenues $147.6 $149.7 $144.1
<PAGE>
Equipment
Baseball. The Company is a leading supplier of baseball
equipment in North America and, through its licensee, in Japan.
The Company's products in this area include baseball gloves,
baseballs, batter's helmets, catcher's and umpire's protective
equipment, aluminum and wood baseball bats, batter's gloves and
miscellaneous accessories.
Rawlings believes it is the leading supplier and offers the
broadest selection of baseball gloves in North America. The
Company offers more than 125 styles, which are often customized
to meet customer preferences. Its gloves range in retail price
from $5.99 for beginners to more than $159.99 for the Heart of
the Hide (Registered Trademark) series, which are used by more
Major League Baseball players than any other brand. Rawlings
developed the original deep pocket glove in 1920. The Company
designed this glove in consultation with Bill Doak, a spitball
throwing southpaw with the St. Louis Cardinals, establishing the
Company's tradition of developing innovative products in
consultation with players and coaches. Rawlings has continued to
be a leader in baseball glove design and innovation and has
patented a number of designs, including the Trap-Eze (Registered
Trademark) pocket design featuring a modified web giving the
appearance of a six-finger glove, the Fastback (Registered
Trademark) closed back design, the Basket-Web (Registered
Trademark) pocket design which features interwoven strips forming
a natural break on the back to assist in closing the glove and
the Pad Lock design which uses an adjustable inner cushion pad
and velcro wrist strap to stabilize the hand inside the glove.
Rawlings believes it is the leading supplier of baseballs in
North America. It offers 14 types of baseballs, which differ by
their design and the materials used in their construction,
including different types of centers, winding materials and
covers which can be made of rubber, vinyl or different qualities
of leather. Rawlings' baseballs range from lower-priced rubber
balls to the professional baseballs that are sold to National and
American League teams. Rawlings' baseballs are systematically
weighed, measured, tested and inspected to ensure that they meet
Rawlings' quality standards. The National League, American
League, All-Star and World Series baseballs are covered with
alum-tanned leather produced at Rawlings' leather tannery in
Tullahoma, Tennessee and hand-sewn at Rawlings' manufacturing
facility in Turrialba, Costa Rica. The Company manufactures its
professional baseballs in strict accordance with the rigorous
specifications established by Major League Baseball to ensure
comparability of players' statistics over time.
Since 1977, Rawlings has sold the official baseballs used in
all National and American League games and has furnished the
official baseballs for the All-Star Game and the World Series
games on an exclusive basis. As the official baseball of the
Major Leagues, Rawlings' baseballs are in demand from consumers
in the collectors' and memorabilia market. The value of an
autographed baseball is enhanced if it is an official National or
American League baseball. Effective in 1994, Rawlings received
the exclusive right to sell the official baseball to all of the
Minor League teams. Rawlings also sells an official baseball, in
certain cases on an exclusive basis, to a number of leagues
including the National Junior College Athletic Association, the
<PAGE>
National Association of Intercollegiate Athletics, the Men's
Senior Baseball League, Little League Baseball and a number of
international baseball organizations.
Rawlings believes that it is the leading supplier of
baseball protective equipment in North America. In 1996, the
Company introduced the pony tail batter's helmet for women. In
1995, the Company introduced a one size fits all batter's helmet
that received the award for most innovative product design at the
1995 National Sporting Goods Association trade show.
Rawlings believes that it is the second leading supplier of
wood baseball bats sold in North America. The Company sells bats
to a number of Major League and Minor League teams. The
Rawlings' line of bats is manufactured at its Dolgeville, New
York facility under the Rawlings and Adirondack names. The
Company also introduced a line of power forged aluminum baseball
and softball bats in fiscal 1997 with delivery expected to
commence in the first half of 1998.
Basketball and Football
Rawlings sells 20 different types of basketballs, including
full-grain, composite and synthetic leather and rubber
basketballs for men and women in both the youth and adult
markets. Since 1986, Rawlings has been the exclusive supplier of
basketballs for the NCAA Men's and Women's Division I, II and III
championship games (including the Final Four). The basketball
contract with the NCAA expires in 2002. The Company is also the
official supplier of basketballs to the National Association of
Intercollegiate Athletics.
Rawlings sells 22 different types of footballs, including
full-grain and split leather, vinyl and rubber for both the youth
and adult markets. In addition, the Company sells professional
and college football shoulder pads, other protective gear (other
than football helmets) and accessories. Since 1987, Rawlings has
been the exclusive supplier of footballs to the NCAA Division
IAA, II and III championship games. The football contract with
the NCAA expires in 1999. Rawlings also supplies the official
football to the National Association of Intercollegiate
Athletics.
Hockey
In 1996, the Company developed a full line of protective
hockey equipment. The Company's hockey products are intended to
be marketed to consumers of ice, roller and street hockey
products.
In September 1997, the Company acquired the net assets of
the Victoriaville hockey business which includes the Vic,
Victoriaville and McMartin brands. Victoriaville has
approximately $14.0 million in annual revenues and major products
include hockey sticks, hockey protective equipment and goalie
protective equipment. The acquisition of the Victoriaville
business is expected to significantly increase the size of the
Company's hockey business.
<PAGE>
Apparel
Rawlings has been selling team uniforms for approximately
100 years. Several Major League Baseball teams and players
purchase their uniforms from the Company. Apparel comprised
11.1% of the net revenues of the Company in the year ended August
31, 1997. The Company believes it has significant growth
opportunities related to apparel. The Company believes it will
continue to increase sales to institutional customers,
particularly high school, collegiate and amateur sports
organizations. The Company believes that the reorganization of
its manufacturing capabilities underway at its apparel facility
in Licking, Missouri and the relocation of production of certain
stock products to Costa Rica will enable the Company to improve
its service and delivery, while reducing costs. In 1997, the
Company completed a 21,000 square foot expansion of its Costa
Rica facility in order to expand its stock clothing capacity.
This expansion is expected to result in further cost reduction
and margin improvement in stock apparel.
International
The Company's international net revenues (which excludes
licensing revenue and includes sales in Puerto Rico) constituted
approximately 5.1% of its total net revenues in the year ended
August 31, 1997. Rawlings currently distributes its products in
more than 36 countries primarily through independent
distributors. Of the Company's international net revenues in the
year ended August 31, 1997, approximately $4.4 million came from
direct sales in Canada.
The Company works closely with foreign sports organizations
to build participation levels in American team sports outside of
the U.S. The Company supplies baseball, basketball and football
equipment and team uniforms to international sports
organizations, and to leagues in a number of non U.S. countries
including those where Rawlings supplies baseballs (Argentina,
Spain and Puerto Rico), basketballs (Finland, Germany, Italy and
Puerto Rico). Rawlings also assists sports federations outside
the United States by advising them on growth strategies and, in
certain instances, participating on the boards of such
federations. Due to the growing international popularity of
American team sports, the Company believes that opportunities
exist to increase its international net revenues.
The September 1997 acquisition of the Victoriaville hockey
business will contribute to international growth. Historic
annual international revenues of the Victoriaville hockey
business are approximately $9 million and management believes
that opportunities exist for growth beyond this level.
Licensing
In the year ended August 31, 1997, the Company generated
$6.5 million of licensing revenues on approximately $160 million
of sales made by third parties in Japan and the United States of
products on which the Rawlings (Registered Trademark) brand name
appeared under licensing agreements with the Company. Rawlings
has licensed the use of its brand name since the mid-1970s when
it <PAGE> licensed a Japanese company to use the Rawlings (Registered
Trademark) brand name on clothing sold in Japan. Since then,
Rawlings has licensed its name to ASICS Corporation, a leading
Japanese sporting goods company, for use on all types of baseball
equipment, team uniforms and practice clothing sold in Japan.
The Company also licenses to another Japanese company the use of
the Rawlings (Registered Trademark) brand name on retail active
wear sold in Japan.
In the United States, Rawlings currently has licensing
agreements with 16 companies which are using the Rawlings
(Registered Trademark) brand name on various products including
sportswear, shoes, golf clubs, golf accessories, sports bags,
socks, beverages and infant and toddler games. The Company
retains the right under its licensing agreements to sample and
inspect all licensed products to ensure that products bearing the
Rawlings (Registered Trademark) brand name meet the Company's
quality standards. The Company intends to continue to license
the Rawlings (Registered Trademark) brand name to strategically
extend the name to other related quality products and to new
geographic areas. The Company believes that such strategic
licensing will enhance the Company's image, consumer recognition
and sales of all of its products.
Miscellaneous
Rawlings derives other net revenues from its four outlet
stores and from its leather tanning facility. The outlet stores
sell seconds, irregular quality and discontinued items.
Approximately 62% of the items sold at the Company's outlet
stores are Rawlings' products and the balance are sports-related
products purchased from third parties. Approximately 40% of the
leather tanned at Rawlings' tanning facility is sold to third
parties for use in a variety of products.
Sales, Marketing and Distribution
Rawlings' products are sold worldwide. In the United
States, Rawlings sells directly to approximately 4,100 customers
including local sporting goods stores, institutional dealers
(entities that service the sports equipment needs of high school,
collegiate and amateur sports organizations), regional sporting
goods chains (such as Dick's and Modell's), national sporting
goods chains (such as Champs), sporting goods megastores (such as
Sports Authority and Jumbo Sports) and mass merchandisers (such
as Wal-Mart and K-Mart). In recent years, sales to sporting
goods megastores and mass merchandisers have accounted for an
increasing amount of the net revenues of Rawlings. Sales to the
ten largest customers of Rawlings constituted approximately 30%
of the total net revenues of Rawlings in the year ended August
31, 1997 including one customer (Wal-Mart) which accounted for
approximately 12% of 1997 revenues.
The Company has 32 direct sales employees and 46
manufacturers' representatives who sell its products in the
United States and Canada. The Company has two separate sales
forces, one to serve national accounts and one to service
institutional dealers and local sporting goods stores. The
southeast region of the United States is handled by a
manufacturer's representatives organization. In addition, four
employees service professional and college teams, coaches and
athletes. The Company primarily utilizes distributors to sell
products overseas, except in Japan, <PAGE> which is covered by licensing
agreements. Rawlings' products are distributed from its
warehouse in Springfield, Missouri and public warehouses in
Southern California and Ontario, Canada.
The Victoriaville hockey business primarily uses
manufacturers representatives in the United States and Canada and
distributors in other countries. Subsequent to the September
1997 purchase of the Victoriaville hockey business by the Company
a combination of manufacturers representatives and members of
Rawlings sales force are being used to sell Victoriaville
products. The Victoriaville hockey business products are
distributed from the Company's warehouses in Dolgeville, New York
and Daveluyville, Quebec.
The Company utilizes a variety of promotional techniques to
build brand awareness. Since 1958, Rawlings has annually
presented the Rawlings Gold Glove Award (Registered Trademark) to
the best fielder at each position in each of the National and
American Leagues. The Rawlings Gold Glove Award (Registered
Trademark) is the most prestigious award a baseball player can
receive for his fielding abilities. In addition, Rawlings
promotes its products through the Rawlings Sports Caravan. The
Rawlings Sports Caravan is comprised of a tandem tractor trailer
containing exhibits on the evolution of baseball, basketball and
football equipment and uniforms, and a workshop in which
demonstrations on the manufacture and repair of baseball gloves,
balls and bats are performed. The Rawlings Sports Caravan is
available to the Company's retail customers for promotional
activities such as new store openings. In addition, the Caravan
appears at sports events such as spring training, opening day
games, the All-Star Game, the World Series games and the Baseball
Hall of Fame induction ceremony. The Company also promotes its
products through product endorsements by numerous professional
athletes, coaches and sports organizations. The Company makes
available to retailers various co-op advertising programs and
participates in selected joint marketing and advertising
programs.
In November 1997 the Company entered into a five year
strategic marketing alliance with Host Communication, Inc. (HCI),
a sports marketing company. Under this agreement, Rawlings and
HCI will jointly market and sell Rawlings' products primarily
through corporate promotions, grass roots events and
international programs.
Affiliations and Endorsements
Rawlings has the right to use the logos of several
professional and amateur sports organizations and events on
certain of its products. These arrangements include: The
National League of Professional Baseball Clubs (National League
games); The American League of Professional Baseball Clubs
(American League games); Major League Baseball Promotional
Corporation (All-Star, World Series, Divisional Playoffs and
League Championship Series games); the NCAA (basketball and
football championships and Final Four games); the 18 Minor
Leagues (Minor League games); the National Association of
Intercollegiate Athletics; the National Junior College Athletic
Association and the Men's Senior Baseball League.
<PAGE>
In addition, the Company's products are endorsed by numerous
athletes, including approximately 120 Major League Baseball
players such as Albert Belle, Ken Griffey, Jr., Randy Johnson and
Cal Ripken, Jr. The Company's products also carry endorsements
from approximately 56 college coaches including basketball's
Denny Crum, Lute Olson, Nolan Richardson and Marian Washington.
The Company's products are also endorsed by Brett Favre of the
Green Bay Packers and Steve Young of the San Francisco 49ers.
The products related to the Victoriaville hockey business are
endorsed by numerous professional hockey players.
The Company believes that endorsements by professional
athletes and college coaches and affiliations with sports
organizations enhance the Company's image and improve sales of
its products. The Company's strategy is to obtain a broad array
of endorsements and affiliations from national and regional
sports organizations, college coaches and professional athletes
in order to position its products to appeal to regional customer
preferences, as well as to achieve national recognition. The
Company believes this strategy is more effective than seeking
more expensive endorsements from fewer athletes and coaches.
The licensing agreements with Major League Baseball
Promotional Corporation and the 18 Minor Leagues, under which
Rawlings is licensed to produce the baseballs used in the
All-Star, World Series, Divisional Playoffs and League
Championship Series games, the official baseballs for the Minor
League games and the NCAA basketball and football contracts,
provide that the agreements will be subject to termination upon a
change of control of Rawlings, as defined in the agreements,
unless the change of control is approved by the Major League
Baseball Promotional Corporation, the Minor Leagues or the NCAA.
Manufacturing, Product Procurement and Raw Materials
Sales of Rawlings manufactured products constituted
approximately 25% of its net revenues in the year ended August
31, 1997 and the balance derived from the sale of product
manufactured by third parties in Asia, Mexico and from licensing
fees. The third party sourced products are manufactured
according to the Company's specifications by third-party
manufacturers located outside the United States, including the
Philippines, China, Thailand, Taiwan, Korea, Indonesia and
Mexico. Three suppliers Trion Corporation, Cortina
International, Inc., and Samyang Tongsang Company Limited each
account for more than 10% of the Company's raw material and
finished goods purchases. The Company does not maintain formal
supply contracts with these suppliers. The Company seeks to
establish and build close working relationships with its
third-party manufacturers that emphasize service, quality,
reliability, loyalty and commitment. The Company continually
monitors its sourced products to ensure they meet the Company's
quality standards. The Company's arrangements with its non U.S.
suppliers are subject to the risks of doing business abroad. The
Company believes that the loss of any one or more of its non U.S.
manufacturers would not have a long-term material adverse effect
on the Company's business and results of operations because other
manufacturers are available to fulfill the Company's
requirements.
<PAGE>
Rawlings operates five manufacturing facilities in the
United States and Costa Rica where it makes baseballs, apparel,
baseball gloves, footballs, injection molded accessories, tanned
leather and wood baseball bats. In 1994 the Company began
relocating production of stock apparel to its Costa Rica factory
to reduce operating costs. In 1997, the Company completed an
expansion of capacity of its Costa Rica facility for additional
stock apparel manufacturing. The increased off-shore production
will help the Company reduce costs over the next few years in the
apparel product category. The Victoriaville hockey business
acquired in September 1997 includes three manufacturing
facilities located in Canada.
Rawlings obtains its raw materials from various sources
which it considers to be adequate for fulfilling its
requirements. To assure access to the highest quality leather
for its baseballs, the Company acquired its Tennessee leather
tanning facility in 1985. The company depends upon a limited
number of vendors for leather for its Heart of the Hide
(Registered Trademark) baseball gloves and full-grain footballs.
If any of these sources of raw materials were unavailable to the
Company, the Company's operations could be adversely affected
until alternative sources were found in the necessary quantities.
Trademarks and Patents
The Rawlings (Registered Trademark) brand name and logo and
the red "R" (Registered Trademark) logo as well as a number of
product trademarks, including Finest in the Field (Registered
Trademark), Rawlings Gold Glove Award and The Mark of a Pro
(Registered Trademark), are considered material to Rawlings'
business. As of August 31, 1997, Rawlings held 29 U.S. and 10
non U.S. patents, and had 10 U.S. patent applications and one non
U.S. patent application pending. Although Rawlings believes that
collectively its patents are important to its business, the loss
of any one patent would not have a material adverse effect on the
Company's business and results of operations.
Competition
Rawlings competes with numerous national and international
companies which manufacture and distribute broad lines of
sporting goods and related equipment and sports clothing as well
as numerous manufacturers and suppliers of a limited variety of
such products. Certain of the Company's competitors offer sports
equipment not sold by the Company. Some of the Company's
competitors are larger, and have substantially greater financial
and other resources, than Rawlings. The Company's principal
competitors include Wilson Sporting Goods Company (a wholly owned
subsidiary of Amer Group Ltd.), Diamond Baseball Company, the
Spalding Division of Spalding & Evenflo Companies, Inc. and
Mizuno Company Limited in the baseball product line; Wilson
Sporting Goods Company, the Spalding Division of Spalding &
Evenflo Companies, Inc. and Riddell Sports Inc. in the basketball
and football lines; and Russell Corporation and Wilson Sporting
Goods Company in the apparel line. While Rawlings is one of the
leading manufacturers and distributors of team sports equipment
in North America, competition in the sporting goods industry is
intense and is based upon quality, price, product <PAGE> features and
brand recognition. In addition, the competitive barriers to
entry into the sporting goods industry in general are not
significant.
Seasonality
Information on seasonality is incorporated by reference from
the Management Discussion and Analysis Section on pages 13 and 14
of the Company's 1997 Annual Report to Stockholders.
Employees
As of August 31, 1997, Rawlings employed approximately 1,420
people on a full-time basis, of whom 731 were based in the United
States; 3 in Canada and 686 were based in Costa Rica. Of the
total number of employees, approximately 1,261 were engaged in
manufacturing, 118 were engaged in marketing and sales and 41
were engaged in administration. Approximately 377 of Rawlings'
domestic employees are represented by the Amalgamated Clothing &
Textile Workers Union AFL-CIO-CLC or the Local 682 of the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen
and Helpers of America, under collective bargaining agreements
which expire in November 1999 and February 2000, respectively.
Rawlings believes that relations with its employees are good and
that the collective bargaining agreements will be extended
without material changes from the current contract.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL
CONDITION OR BUSINESS
In order to take advantage of the safe harbor provisions for
forward-looking statements adopted by the Private Securities
Litigation Reform Act of 1995, the Company is hereby identifying
important risks, uncertainties and other factors that could
affect the Company's actual results of operations, financial
condition or business and could cause the Company's actual
results of operations, financial condition or business to differ
materially from its historical results of operations, financial
condition or business, or the results of operations, financial
condition or business contemplated by forward-looking statements
made herein or elsewhere orally or in writing, by, or on behalf
of, the Company. Except for the historical information contained
herein, the statements made in this Report on Form 10-K are
forward-looking statements that involve such risks, uncertainties
and other factors that could cause or contribute to such
differences including, but not limited to, those described below.
Dependency on Baseball. Sales of baseball-related products
constituted approximately 55% of the total net revenues of
Rawlings in the year ended August 31, 1997. Adverse publicity or
news coverage regarding professional or amateur baseball, strikes
or other stoppages in play by athletes or umpires could create
fan disaffection that could have a material adverse effect on the
Company's sales. Similarly, poor weather conditions during
baseball season could have a material adverse effect on the
Company's sales.
<PAGE>
Dependency on Foreign Manufacturing. The Company's
dependence on foreign manufacturing is described above under
"Manufacturing, Product Procurement and Raw Materials" which is
subject to the risks of doing business abroad, such as changes in
import duties, trade restrictions, work stoppages, labor laws,
political instability, foreign currency fluctuations and other
factors which could have a material adverse effect on the
Company's business and results of operations.
Acquisition of Net Assets of Victoriaville Hockey Business.
In September 1997, the Company acquired the Victoriaville hockey
business with historical net revenues of approximately $14.0
million. The Company is in the process of integrating certain
portions of the Victoriaville business into its existing
business. While the Company believes the opportunity exists for
increased hockey revenues and a smooth integration, a significant
loss of Victoriaville's historical revenues or unanticipated
integration issues could have a material adverse effect on the
Company's sales and earnings.
Seasonality. Customers generally place orders with the
Company for baseball-related products beginning in August for
shipment beginning in November (pre-season orders). Because the
Company's sales of baseball-related products exceed those of its
other products, Rawlings' business is seasonal, with its highest
net revenues and profitability recognized between November 1 and
April 30, which may shift in the future due to the trends
discussed in "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Seasonality."
Reliance on Certain Customers. Sales to the ten largest
customers of Rawlings constituted approximately 30% of the total
net revenues of Rawlings in the year ended August 31, 1997,
including one customer, Wal-Mart, which accounted for
approximately 12% of 1997 revenues. Although the Company has
long-established relationships with many of its customers, the
Company does not have long-term supply contracts with them. A
decrease in business from any of its major customers could have a
material adverse effect on the Company's results of operations
and financial condition.
Litigation. Like similar manufacturing companies, the
Company is subject to various federal, state and local
environmental laws relating to air emissions, water discharges
and the storage, handling, disposal and remediation of petroleum
and hazardous substances. In addition, the Company is
periodically subjected to product liability claims and
proceedings involving its patents and other legal proceedings
which have not historically had a material adverse effect on the
Company. See "Legal Proceedings."
Credit Agreement Restrictions. The Company's Credit
Agreement with its existing lenders contains certain restrictions
on the Company, including requirements as to the maintenance of
net worth and certain financial ratios, payment of cash
dividends, incurrence of additional indebtedness and the
limitation of capital expenditures and there can be no assurance
that the Company will be able to achieve and maintain compliance
with those restrictions or <PAGE> obtain waivers to any non-compliance.
See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital
Resources."
Additional Factors. Additional risks and uncertainties that
may affect future results of operations, financial condition or
business of the Company include, but are not limited to: (i)
interest in collectible sports memorabilia and the financial
condition of memorabilia resellers; (ii) demand for the Company's
products, (iii) the effect of economic and industry conditions on
prices for the Company's products and its cost structure; (iv)
negative reports by brokerage firms, industry and financial
analysts regarding the Company or its products which may have the
effect of reducing the reputation, goodwill or customer demand
for, or confidence in, the Company's products; and (v) the
ability to attract and retain capital for growth and operations
on competitive terms.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
Howard B. Keene 55 Chief Executive Officer and
President
Paul E. Martin 37 Chief Financial Officer
Randy D. Black 45 Vice President, Marketing
Ted C. Sizemore 52 Vice President, Baseball
Development and International
Sales
J. Michael Thompson 40 Vice President, Sales
Jonathan C. Hodgins 33 President, Hockey Division
In October 1997, the Board of Directors accepted the
resignation of Carl Shields, who had led the Company since
mid-1994. A search is now under way to select his successor.
Until then, board member Andrew Baur will serve as Rawlings'
Chairman, and Howard B. Keene has been named Chief Executive
Officer and President.
Howard B. Keene has served as Chief Executive Officer and
President since October 1997. From April 1995 to October 1997
Mr. Keene served as Chief Operating Officer. From November 1992
to March 1995, Mr. Keene served as Vice President, Foreign
Activity and Procurement of Rawlings. From February 1990 to
November 1992, Mr. Keene served as International Purchasing
Consultant for all divisions of Figgie International, Inc. He
was President of Rawlings from 1987 to February 1990. From 1973
to 1987, Mr. Keene held various positions at Rawlings, primarily
in product procurement.
Paul E. Martin has served as Chief Financial Officer of the
Company since June 1995. From February 1993 to May 1995, Mr.
Martin served as Director of External Reporting and Analysis for
Pet Incorporated, a public company that manufactured prepared
foods with $1.5 <PAGE> billion in revenues. From January 1992 to
January 1993, Mr. Martin served as Chief Financial Officer of
CPC-Rexcel, Inc., a public company that manufactured packaging
materials with $50 million in revenues. From 1982 to 1991, Mr.
Martin was employed in progressively responsible positions,
including Senior Audit Manager, by Arthur Andersen LLP.
Randy D. Black has served as Vice President, Marketing of
Rawlings since July 1994. From November 1993 to July 1994, Mr.
Black headed the sports apparel division for the Pro-Line Cap
Company, where he was responsible for establishing a new brand of
sportswear distributed through sporting goods dealers. From
December 1992 to November 1993, Mr. Black served as President of
Varsity Excellence, a division of Dougherty Manufacturing
Company, Inc. Prior to December 1992, Mr. Black held a variety
of marketing and management positions during his seventeen years
at Bike Athletic Company most recently as Vice President of Sales
and Marketing.
Ted C. Sizemore has served as Vice President, Baseball
Development and International Sales of Rawlings since 1984, with
primary responsibility for maintaining and strengthening the
Company's relationship with sports organizations, players and
coaches. Prior to 1984, Mr. Sizemore was a Major League Baseball
player who played second base for a number of teams, including
the Los Angeles Dodgers, the St. Louis Cardinals and the
Philadelphia Phillies. Mr. Sizemore received Rookie of the Year
honors with the Los Angeles Dodgers in 1969.
J. Michael Thompson has served as Vice President, Sales of
Rawlings since July 1994. Mr. Thompson joined Rawlings in 1984
as a sales representative and was promoted in 1989 to western
regional sales manager.
Jonathan C. Hodgins has served as President, Hockey Division
since September 1997. From September 1996 until joining the
Company, Mr. Hodgins served as President and Chief Executive
Officer of USA Skate, Inc., the previous owner of the
Victoriaville hockey business. From 1990 to 1996 Mr. Hodgins was
employed by CCM/Sports Maska, Inc. in various management and
executive capacities. From 1986 to 1990 Mr. Hodgins was employed
by Canstar Sports Group in product management.
ITEM 2. PROPERTIES.
The following table sets forth certain information as of
August 31, 1997 relating to Rawlings' principal properties:
<PAGE>
Approximate Owned or
Location Purpose/Products Size (sq. ft.) Leased
Ava, Missouri Manufacturing of 90,000 Leased
(two adjoining baseball 60,000 Leased
facilities) gloves, batter's
helmets, footballs
and injection molded
accessories
Dolgeville, New York Manufacturing of 80,500 Owned
(three properties) wood baseball bats
Fenton, Missouri Corporate 25,000 Leased
headquarters (for a
term
expiring
in 2001)
Licking, Missouri Manufacturing of 55,400 Owned
(two facilities) apparel 55,000 Leased
Springfield, Warehouse/ 83,500 Owned
Missouri distribution center
Tullahoma, Leather tanning 69,000 Owned
Tennessee
Turrialba, Manufacturing of 54,000 Owned
Costa Rica baseballs and apparel
*Daveluyville, Hockey sticks 74,000 Owned
Quebec
Canada
*Montreal, Hockey Protective 9,600 Leased
Quebec
Canada
*London, Goaltender 5,000 Leased
Ontario Equipment
Canada
*Acquired September 1997
In addition, Rawlings leases approximately 5,600 square feet
of office space in Fenton, Missouri for research and development
activities and an average of 5,000 square feet for each of its
four outlet stores. Rawlings also leases space for four regional
sales offices.
The Company believes that its facilities are suitable for
their present and intended purposes and adequate for the
Company's current and expected levels of operations.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Environmental Matters
Like similar manufacturing companies, the Company is subject
to various federal, state and local environmental laws, including
those relating to air emissions, water discharges, and the
storage, handling, disposal and remediation of petroleum and
hazardous substances.
Pursuant to a consent order with the New York State
Department of Environmental Conservation (the "NYSDEC"), several
years ago the Company completed a drum removal project in the
vicinity of the kiln operations at its Adirondack facility in
Dolgeville, New York (the "Adirondack Facility"). The presence
of the drums resulted in the listing of the Adirondack Facility
on the NYSDEC's registry of inactive hazardous waste disposal
sites. Upon completion of the drum removal project, the NYSDEC
declared the matter closed and reclassified the Adirondack
Facility as a site for which no further remedial action or
monitoring is required under the state Superfund law. Recently,
the Company filed a petition to delist the Adirondack Facility
entirely from the state Superfund list, and the NYSDEC has
informed the Company that the Adirondack Facility has been
removed from the list. Other than as set forth in this
paragraph, the Company has not been identified as a potentially
responsible party under the federal Superfund law or comparable
state laws at any of its properties or in connection with its
shipments of waste from any of its facilities to off-site
disposal locations.
In consultation with NYSDEC, the Company has addressed
certain issues relating to past petroleum and waste storage
practices at the Adirondack Facility. To date, activities have
included drum and underground storage tank removal projects and
the investigation of releases of wood pitch into the surrounding
soil and surface water from a retort facility that is no longer
operational. All underground storage tank removal activities
have been completed by the Company to the satisfaction of NYSDEC.
With regard to the former retort facility, which was operated by
a third party unrelated to Rawlings before Rawlings began its
operations at the Adirondack Facility, the Company plans to
conduct certain environmental remedial activities pursuant to a
Voluntary Agreement with the NYSDEC, and the Company is
conducting final negotiations with NYSDEC regarding the details
of the Voluntary Agreement.
While the Company's share of the cost of investigating and
remediating the contamination at the Adirondack Facility from the
former retort operation described above cannot be finally
determined until the contemplated remedial activities have been
completed, overall based on the Company's accrual of $0.9 million
as of August 31, 1997 it is unlikely that expenses beyond that
amount will be incurred in connection with environmental
investigation and remediation issues, including those regarding
the retort facility. Based upon work that has been completed,
the Company believes that the remaining investigatory,
remediation and monitoring costs will be incurred over the next
year. Under the relevant environmental laws, the Company is
potentially liable as an owner of the property for the entire
costs of investigating and remediating the environmental issues
at the Adirondack Facility. While the Company believes that
other parties, <PAGE> including insurers, may be liable for some or all
of the costs, there can be no assurance that such parties will
bear these costs and therefore the Company has not assumed any
recovery from such third parties in estimating its potential
liabilities.
Pursuant to an informal agreement with the NYSDEC, the
Company is in the process of removing an on-site accumulation of
wood shavings at the Adirondack Facility. The Company believes
that the agreed upon removal may obviate any potentially
applicable solid waste permit requirements.
Litigation and Other Liabilities
The nature of the Company's products has subjected it to
product liability claims from time to time which have not had a
material adverse effect on the Company. In addition, the Company
is from time to time subject to proceedings involving its patents
which have not had a material adverse effect on the Company. The
Company expects that it will be subject to product liability
claims and proceedings involving its patents in the future due to
the nature of its products. The Company did not assume any
litigation or product liability of the Rawlings' business
relating to incidents that occurred prior to July 8, 1994. A
possibility exists, however, that the Company could be liable for
liabilities of the Rawlings' business not assumed by the Company
in the July 8, 1994 net asset transfer under a theory of
successor liability. While the former parent has agreed to
indemnify the Company for such liabilities, as well as certain
other obligations that relate to the assets and liabilities of
the Rawlings' business, there can be no assurance that the former
parent will be able to fulfill these indemnification obligations
to the Company if required to do so.
The Company intends to vigorously defend all product
liability matters. The Company believes that these matters will
not have a material adverse effect on the Company's financial
condition, results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security
holders through the solicitation of proxies or otherwise during
the quarter ended August 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information regarding the market for the Company's
common stock, quarterly market price ranges, dividends declared
and shareholders of record is incorporated by reference from page
25 of the Company's 1997 Annual Report to Stockholders.
In November 1997 the Company sold warrants for 925,804
shares for approximately $3.07 per warrant. These warrants have
a four year term, and enable the holder to purchase <PAGE> approximately
925,804 shares of the Company's common stock, an exercise price
of $12.00 per share but are exercisable only if Rawlings' stock
closes at or above $16.50 for twenty consecutive trading days
during the four year term.
The information regarding dividend restrictions is
incorporated by reference from page 21 of the Company's 1997
Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is incorporated by
reference from the Selected Financial Data Section on page 21 of
the Company's 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by Item 7 is incorporated by
reference from the Management Discussion and Analysis Section on
pages 12 to 15 of the Company's 1997 Annual Report to
Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is incorporated by
reference from the "Consolidated Statements of Income,"
"Consolidated Balance Sheets," "Consolidated Statements of
Stockholders' Equity," "Consolidated Statements of Cash Flows,"
"Notes to Consolidated Financial Statements" and "Report of
Independent Public Accountants" on pages 16 to 24 of the
Company's 1997 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors
Information with respect to the members of the Board of
Directors is set forth under the caption "Election of Directors"
in the Company's proxy statement to be filed pursuant to
Regulation 14A, which information is incorporated herein by
reference.
<PAGE>
(b) Identification of Executive Officers
Information with respect to the executive officers of the
Company is set forth under the caption "Executive Officers of the
Registrant" contained in Part I, Item 1 of this report, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by Item 11 is set forth under the
captions "Compensation of Directors" and "Executive Compensation"
in the Company's proxy statement to be filed pursuant to
Regulation 14A, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information required by Item 12 is set forth under the
captions "Principal Stockholders" and "Stock Ownership of
Directors, the Nominees for Directors and Executive Officers" in
the Company's proxy statement to be filed pursuant to Regulation
14A, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item is set forth under the
caption "Certain Transactions" in the Company's proxy statement
to be filed pursuant to Regulation 14A, which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) (1) Financial Statements: The financial statements
filed as a part of this report are listed in
Part II, Item 8.
(a) (2) Financial Statement Schedules: None.
(a) (3) Exhibits
2.1 Asset Purchase Agreement, dated September 10, 1997
among Les Equipments Sportif Davtec, Inc. USA
Skate Corporation, California Pro Sports, Inc.,
Rawlings Canada, Inc. and the Company, included as
Exhibit 2.1 to the Company's Form 8-K filed on
October 21, 1997 is hereby incorporated herein by
reference.
<PAGE>
3.1 Certificate of Incorporation, included as Exhibit
3.1 to the Company's Registration Statement on
Form S-1 (File No. 33-77906), is hereby
incorporated herein by reference.
3.2 By-Laws, included as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No.
33-77906), is hereby incorporated herein by
reference.
3.3 By-Law amendment included as exhibit 3.3 to the
Company's Form 10-K for the fiscal year ended
August 31, 1996, is hereby incorporated herein by
reference.
4.1 Rights Agreement dated as of July 1, 1994 between
the Company and Boatmen's Trust Company as Rights
Agent, included as Exhibit 4.1 to the Company's
Form 10-Q for the quarter ended June 30, 1994, is
hereby incorporated herein by reference.
4.2 Amendment of Rights Agreement dated November 21,
1997 between the Company, Boatmen's Trust Company
and Chase Mellon Shareholder Services, Inc.,
included as Exhibit 4.2 to the Company's Form 8-K
dated November 21, 1997 is hereby incorporated
herein by reference.
4.3 Common Stock Purchase Warrant dated November 21,
1997 issued by the Company to Bull Run Corporation
included as Exhibit 4.1 to the Company's Form 8-K
dated November 21, 1997 is hereby incorporated
herein by reference.
10.1 Amended and Restated Credit Agreement dated as of
September 12, 1997 among the Company, The First
National Bank of Chicago, as agent, and certain
lenders named therein included as Exhibit 99.1 to
the Company's Form 8-K filed on October 21, 1997
is hereby incorporated herein by reference.
10.2 Assets Transfer Agreement dated as of July 8, 1994
by and among Figgie, Figgie Licensing Corporation,
Figgie International Real Estate, Inc., Figgie
Properties, Inc. and the Company, included as
Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended June 30, 1994, is hereby
incorporated herein by reference.
10.3 Transitional Services Agreement dated as of July
8, 1994 between Figgie and the Company, included
as Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended June 30, 1994, is hereby
incorporated herein by reference.
<PAGE>
10.4 Tax Sharing and Separation Agreement dated July 8,
1994 between the Company and Figgie, included as
Exhibit 10.3 to the Company's Form 10-Q for the
quarter ended June 30, 1994, is hereby
incorporated herein by reference.
*10.5 The Company's 1994 Long-Term Incentive Plan,
included as Exhibit A to the Company's proxy
statement dated December 9, 1994, is hereby
incorporated herein by reference.
*10.6 The Company's 1994 Non-Employee Directors'
Stock Plan, included as Exhibit B to the
Company's proxy statement dated December 9,
1994, is hereby incorporated herein by
reference.
10.7 Amendment Agreement between Rawlings Sporting
Goods Company and ASICS Corporation, dated January
21, 1991, included as Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File
No. 33-77906), is hereby incorporated herein by
reference.
*10.8 Form of Indemnity Agreement entered into with
Directors and executive officers, included as
Exhibit 10.7 to the Company's Form 10-K for
the fiscal year ended August 31, 1994, is
hereby incorporated herein by reference.
*10.9 Form of Severance Agreement entered into with
executive officers included as Exhibit 10.8
to the Company's Form 10-K for the year ended
August 31, 1995 is hereby incorporated herein
by reference.
10.10 Investment Purchase Agreement dated
November 21, 1997 between the Company and
Bull Run Corporation, included as
Exhibit 99.1 to the Company's Form 8-K dated
November 21, 1997 is hereby incorporated
herein by reference.
10.11 Standstill Agreement dated November 21, 1997
between the Company and Bull Run Corporation,
included as Exhibit 99.2 to the Company's
Form 8-K dated November 21, 1997 is hereby
incorporated herein by reference.
10.12 Registration Rights Agreement dated
November 21, 1997 between the Company and
Bull Run Corporation, included as
Exhibit 99.3 to the Company's Form 8-K dated
November 21, 1997 is hereby incorporated
herein by reference.
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to the Item
14(c) of this report.
<PAGE>
13. Annual Report to Stockholders for the Fiscal Year
Ended August 31, 1997.
21. Subsidiaries of the Company
23. Consent of Arthur Andersen LLP.
(b) Reports on Form 8-K
There are no reports filed on Form 8-K for the
quarter ended August 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
RAWLINGS SPORTING GOODS COMPANY,
INC.
Date: November 20, 1997 By: /s/ Paul E. Martin
Paul E. Martin
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Company and in the capacities and on the date
indicated.
SIGNATURE DATE
By: /s/ Howard B. Keene November 20, 1997
Howard B. Keene
Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ Paul E. Martin November 20, 1997
Paul E. Martin
Chief Financial Officer
(Principal Financial Officer
and Accounting Officer)
By: /s/ Andrew N. Baur November 20, 1997
Andrew N. Baur
Chairman of the Board and Director
By: /s/ Linda L. Griggs November 20, 1997
Linda L. Griggs
Director
By: /s/ Michael McDonnell November 20, 1997
Michael McDonnell
Director
<PAGE>
By: /s/ Michael J. Roarty November 20, 1997
Michael J. Roarty
Director
By: /s/ William C. Robinson November 20, 1997
William C. Robinson
Director
EXHIBIT 13.1
The following table sets forth selected historical consolidated
financial data for the business conducted by Rawlings Sporting
Goods Company, Inc. (Rawlings or the Company) for the years ended
August 31, 1997, 1996 and 1995, the eight months ended August 31,
1994 and each of the two years ended December 31, 1993.
Eight
Months
Ended Years Ended
(Amounts in Years Ended August 31, August 31, December 31,
thousands
except per 1997 1996 1995 1994 1993 1992
share date)
INCOME STATEMENT
DATE:/1/
Net revenues $147,600 $149,735 $144,141 $81,174 $139,615 $135,810
Operating income 11,880 11,666 11,598 2,935 7,138 12,400
Net income 5,470 5,272 4,584 1,335 3,922 7,112
Net income per
share 0.71 0.69 0.60 N/A N/A N/A
BALANCE SHEET DATA:
Total assets $101,264 $102,252 $97,783 $93,752 $67,616 $71,097
Long-term debt,
including current
maturities 32,673 38,700 43,900 39,480 1,262 1,762
(1) Net income per share has not been presented for each period because,
prior to July 8, 1994, the Company's predecessor was a division of
Figgie International, Inc. (the former parent) and had no separately
issued equity securities.
NET REVENUES BY PRINCIPAL PRODUCT LINE (UNAUDITED)
Eight
Months
Ended Years Ended
(Amounts in Years Ended August 31, August 31, December 31,
millions) 1997 1996 1995 1994 1993 1992
Equipment: $80.8 $88.3 $86.9 $44.3 $83.7 $83.5
Baseball 28.7 24.2 23.2 13.9 21.7 19.7
Basketball,
football and
volleyball 16.4 14.3 10.2 5.1 9.9 9.3
Apparel 7.5 7.7 9.5 7.6 9.5 9.2
International 6.5 6.9 6.2 5.6 4.5 4.3
Licensing 7.7 8.3 8.0 4.7 10.3 9.8
Net revenues 147.6 $149.7 $144.1 $81.2 $139.6 $135.8
<PAGE>
FINANCIAL CONTENTS
Financial Highlights Consolidated Statements of
Cash Flows
Management's Discussion and Notes to Consolidated
Analysis of Results of Operations Financial Statements
and Financial Condition
Consolidated Statements of Income Report of Independent Public
Accountants
Consolidated Balance Sheets Stockholders Information
Consolidated Statements of
Stockholders' Equity
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Cautionary Statements
Cautionary statements identifying important factors that
could cause the Company's future results to differ materially
from past results, or those contemplated by statements herein
regarding matters other than historical fact (i.e., forward-
looking statements), are described in, and incorporated by
reference from, the Company's 1997 Annual Report on Form 10-K.
YEAR ENDED AUGUST 31, 1997 COMPARED TO THE YEAR
ENDED AUGUST 31, 1996
Results of Operations
Net revenues for the year ended August 31, 1997 (1997) were
$147,600,000, or 1.4 percent below net revenues of $149,735,000
for the year ended August 31, 1996 (1996). Lower net revenues
from baseball-related products, partially offset by higher net
revenues from basketball, football and volleyball equipment and
apparel were primarily responsible for the decrease. Net
revenues of baseball-related products decreased 8.5 percent
resulting from a) lower sales of baseball gloves as a result of
significant reductions at two major warehouse club chains who
decided to stop selling baseball-related products and to a
reduction in net revenues at a third major account, which entered
the selling season with excess inventory and b) lower sales of
baseballs primarily as a result of reduced net revenues from
memorabilia baseballs. In early fiscal 1998, one of the
warehouse clubs decided to re-enter the baseball category and has
placed an order for shipment in the first quarter of fiscal 1998.
Net revenues for basketball, football and volleyball equipment
increased 18.6 percent as a result of higher net revenues related
to major <PAGE> corporate promotions and increased back-to-school
programs. Apparel net revenues increased 14.7 percent as a
result of increases in both the custom and stock uniform
business. The Company expects continued double digit growth in
the apparel category.
In September, 1997, the Company purchased the assets of the
Victoriaville hockey business which has approximately $14.0
million in annual revenues. The purchase of the Victoriaville
hockey business and continued improvement in the overall health
of the sport of baseball indicates that double digit growth in
net revenues is possible in 1998.
Gross margin in 1997 was 30.8 percent, down 0.2 of a point
from the 1996 gross margin of 31.0 percent. Increased net
revenues of lower margin products including basketball, football
and volleyball equipment and apparel were primarily responsible
for the decrease. The Company achieved continued improvement in
the gross margin on apparel products in 1997 and expects further
improvement in 1998.
Selling, general and administrative (SG&A) expenses for 1997
of $33,609,000 were $1,141,000, or 3.3 percent below SG&A expense
of $34,750,000 in 1996. As a percent of net revenues, the SG&A
expenses in 1997 were 22.8 percent compared to 23.2 percent in
1996. Lower royalties, commissions and advertising and promotion
costs were primarily responsible for the decrease.
Interest expense of $3,115,000 in 1997 decreased 14.8
percent from $3,656,000 in 1996 as a result of lower average
borrowings and average interest rates.
The effective tax rate of 37.0 percent in 1997 was 4.9
points higher than the effective tax rate of 32.1 percent in
1996. The increase in the effective tax rate is the result of
1996 including an adjustment for the lower foreign effective tax
rates on a portion of the Company's income generated and
indefinitely reinvested in Costa Rica. The Company expects the
1998 effective tax rate, based on its current mix of domestic and
foreign earnings, to be between 37.0 percent and 38.0 percent.
YEAR ENDED AUGUST 31, 1996 COMPARED TO THE YEAR
ENDED AUGUST 31, 1995
Results of Operations
Net revenues for 1996 were $149,735,000, or 3.9 percent
higher than net revenues of $144,141,000 for the year ended
August 31, 1995 (1995). Higher apparel, baseball, basketball and
football and licensing net revenues partially offset by lower
international net revenues were primarily responsible for the
increase. The 1.6 percent increase in baseball net revenues was
the result of an increase in sales of baseballs and protective
equipment offset by a decline in sales of baseball gloves. The
increase in sales of baseballs was primarily the result of
increased <PAGE> memorabilia sales including the Cal Ripken, Jr. and
Mickey Mantle commemorative baseballs. The decline in net
revenues from baseball gloves was primarily the result of poor
retail sell-through in 1995 that resulted in lower orders and
shipments of baseball gloves in 1996. Basketball and football
net revenues increased 3.9 percent primarily as a result of
expanded distribution and increased market share for basketballs.
Licensing net revenues increased 11.3 percent as a result of
increased sales by virtually every domestic and international
licensee. International net revenues declined as a result of a
32.3 percent decline in net revenues in Canada, partially offset
by a 26.5 percent increase in international net revenues in
countries other than Canada. The decrease in Canada was
primarily the result of lower baseball net revenues resulting
from reduced popularity of baseball in Canada. In addition,
overall retail sales in Canada were slow as a result of less
favorable economic conditions than the United States. The other
international growth was primarily concentrated in Latin America.
Gross margin in 1996 was 31.0 percent, down 0.2 points from
the 1995 gross margin of 31.2 percent. Increased net revenues of
lower margin products including apparel and basketball and
football, along with lower sales of baseball gloves, one of the
Company's higher margin products, were primarily responsible for
the decrease. The Company achieved improvement in the gross
margins on apparel products in 1996.
SG&A expenses for 1996 were $34,750,000 or $1,306,000, or
3.9 percent, higher than 1995 SG&A expenses of $33,444,000. As a
percent of net revenues, the SG&A expenses in 1996 and 1995 were
23.2 percent. Higher royalties and advertising and promotional
costs, partially offset by lower total salaries and wages and
professional fees, were primarily responsible for the increase in
SG&A expenses.
Interest expense of $3,656,000 decreased 3.1 percent as a
result of lower average interest rates and lower average
borrowings.
The effective tax rate of 32.1 percent in 1996 was 7.1
points lower than he effective tax rate of 39.2 percent in 1995.
The decrease in the effective tax rate is the result of lower
foreign effective tax rates on a portion of the Company's income,
generated and indefinitely reinvested in Costa Rica, which
reduced the income tax provision by $554,000.
Seasonality
Net revenues of baseball equipment and team uniforms are
highly seasonal. Customers generally place orders with the
Company for baseball-related products beginning in August for
shipment beginning in November (pre-season orders). These pre-
season orders from customers historically represented
approximately 65 percent to 75 percent of the customers'
anticipated needs for the entire baseball season. The amount of
these pre-season orders generally determine the Company's net
revenues and profitability between November 1 and March 31. The
Company then receives additional orders (fill-in orders) which
depend upon customers' actual sales of products during the
baseball season (sell-through). Fill-in orders are typically
received by the <PAGE> Company between February and May. These orders
generally represent approximately 25 to 35 percent of the
Company's sales of baseball-related products during a particular
season. Pre-season orders for certain baseball-related products
from certain customers are not required to be paid until early
spring. These extended terms increase the risk of collectibility
of accounts receivable. An increasing number of customers are on
automatic replenishment systems therefore more orders are
received on a ship-at-once basis. This change has resulted in
shipments to the customer closer to the time the products are
actually sold. This trend has and may continue to have the
effect of shifting the seasonality and quarterly results of the
Company with higher inventory and debt levels required to meet
orders for immediate delivery. The sell-through of baseball-
related products also affects the amount of inventory held by
customers at the and of the season which is carried over by the
customer for sale in the next baseball season. Customers
typically adjust their pre-season orders for the next baseball
season to account for the level of inventory carried over from
the preceding baseball season. Football equipment and team
uniforms are both shipped by the Company and sold by retailers
primarily in the period between March 1 and September 30. Hockey
equipment and uniforms are shipped by the Company primarily in
the period from May 1 to October 31. Basketballs and team
uniforms generally are shipped and sold throughout the year.
Because the Company's sales of baseball-related products exceed
those of its other products, Rawlings' business is seasonal, with
its highest net revenues and profitability recognized between
November 1 and April 30.
Interest Rate Management Activates
The Company has engaged in interest rate management
activities with the objective of limiting exposure to interest
rate increases related to the Company's long-term debt and
converting a portion of the Company's variable rate debt to a
fixed rate. The interest rate management activity objectives are
achieved through the use of interest rate swaps as described in
Note 8 to the financial statements.
Environmental Matters
The Company is subject to various federal, state and local
environmental laws relating to air emissions, water discharges,
and the storage, handling, disposal and remediation of petroleum
and hazardous substances. Pursuant to these laws, the Company is
conducting environmental investigation and remediation activities
at its Adirondack facility in Dolgevile, New York with respect to
the release of wood pitch into surrounding soil and surface
water. The final cost of investigating and remediating the
contamination at the Adirondack facility described above cannot
be determined until the remediation is complete. However, based
on current estimates the Company believes the $893,000 accrued at
August 31, 1997 is adequate. The Company further believes that
any additional expenses will not have a material adverse effect
on the Company's financial condition, results of operation or
cash flows. At this time, the Company does not anticipate
incurring additional costs related to other environmental matters
that will be material to its financial condition, results of
operations or cash flows.
<PAGE>
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash provided
by operating activities and the $90,000,000 amended and restated
credit agreement with a bank group more fully described in Note 9
to the financial statements. The Company's primary use of cash
is to fund its working capital needs, capital expenditures and
debt service requirements. The Company's working capital
requirements are seasonal with higher investments in working
capital generally required in the period that begins in August
and ends in April of the succeeding year. The change in the
timing of orders and shipments to retailers closer to when the
products are actually sold to the retailers' customers may
increase the amount of working capital required by the Company
and may increase required levels of long-term debt. Detailed
information on the Company's cash flows is presented in the
consolidated statements of cash flows.
Year Ended August 31, 1997
Operating cash flows of $8,551,000 were primarily the result
of net income adjusted for non cash charges and lower inventory
levels partially offset by lower accounts payable and higher
accounts receivable. Operating cash flows were $3,321,000 higher
than 1996 primarily as a result of lower inventory levels and a
smaller increase in accounts receivable partially offset by a
reduction in accounts payable in 1997 compared to an increased in
1996. Investing activities used cash of $2,844,000 primarily for
capital expenditures for normal property and plant improvements,
the upgrading of certain plants to improve production capacity
and efficiency and to upgrade the Company's systems. With the
ongoing upgrade of the Company's systems and other planned
expenditures for improved production efficiencies the Company
expects capital expenditures of $3,000,000 to $3,500,000 in 1998.
Financing activities used cash of $5,764,000 which includes a net
debt repayment of $6,027,000 partially offset by issuance of
common stock of $263,000.
The Company believes that cash flow from operations and
unused borrowing capacity under the credit agreement should be
sufficient to fund its anticipated working capital needs, capital
expenditures and debt service requirements for the foreseeable
future. However, because future cash flows and the availability
of financing depend on a number of factors, including prevailing
economic conditions and financial, business and other factors
beyond the Company's control, no assurances can be given in this
regard.
Year Ended August 31, 1996
Operating cash flows of $5,230,000 were primarily the result
of net income adjusted for non cash charges partially offset by
increased accounts receivable and inventories. Operating cash
flows were $1,369,000 higher than 1995 primary as a result of
higher net income and changes in various components of working
capital. Investment activities used cash of $1,193,000 for
capital expenditures for normal property and plant improvements
and the upgrading of certain plants to improve production
capacity and efficiency. Financing activities <PAGE> used cash of
$4,585,000 which included a net debt repayment of $5,200,000
partially offset by issuance of common stock of $340,000 and a
final purchase price settlement with the former parent of
$275,000.
Year Ended August 31, 1995
Operating cash flows of $3,861,000 were primarily the result
of net income adjusted for non cash charges partially offset by
increased inventories and changes in other components of working
capital. Investing activities used cash of $2,119,000 for
capital expenditures for normal property and plant improvements
and the upgrading of certain Company plants to improve production
capacity and efficiency. Financing activities used cash of
$1,954,000 which included a payment to the former parent of
$6,456,000 partially offset by $4,420,000 of net additional
borrowings under the credit agreement.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended August 31,
(Amounts in thousands,
except per share date) 1997 1996 1995
Net revenues $147,600 $149,735 $144,141
Cost of goods sold 102,111 103,319 99,099
Gross profit 45,489 46,416 45,042
Selling, general and
administrative
expenses 33,609 34,750 33,444
Operating income 11,880 11,666 11,598
Interest expense 3,115 3,656 3,773
Other expense, net 83 250 285
Income before income taxes 8,682 7,760 7,540
Provision for income taxes 3,212 2,488 2,956
Net income $ 5,470 $ 5,272 $ 4,584
Net income per share $ 0.71 $ 0.69 $ 0.60
Average number of common
shares outstanding 7,712 7,680 7,652
The accompanying notes are an integral part of these consolidated
statements.<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
August 31,
(Amounts in thousands,
excepts share and per
share data) 1997 1996
Assets
Current assets:
Cash and cash equivalents $ 732 $ 789
Accounts receivable,
net of allowance of $1,627
and $1,498 respectively 32,968 30,090
Inventories 29,781 32,415
Prepaid expenses 935 1,472
Deferred income taxes 4,083 3,162
Total current assets 68,499 69,928
Property, plant and equipment, net 9,802 7,860
Other assets 760 698
Deferred income taxes 22,203 25,766
Total assets $101,264 $102,252
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 59 $ ---
Accounts payable 7,856 9,119
Accrued liabilities 9,901 8,461
Total current liabilities 17,816 17,580
Long-term debt, less current maturities 32,614 38,700
Other long-term liabilities 10,637 11,508
Total liabilities 61,067 67,788
Stockholders' equity:
Preferred stock, $.01 par value
per share, 10,000,000 shares
authorized, no shares issued and
outstanding --- ---
Common stock, $.01 par value
per share, 50,000,000 shares
authorized, 7,725,814 and
7,697,527 shares issued and
outstanding, respectively 77 77
Additional paid-in capital 26,083 25,820
Retained earnings 14,037 8,567
Stockholders' equity 40,197 34,464
Total liabilities and
stockholders' equity $101,264 $102,252
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
(Amounts in
thousands, Additional Retained
except share Paid-in Earnings
data) Shares Amount Capital (Deficit) Total
Balance,
August 31, 1994 7,650,081 $77 $25,123 $(1,289) $23,911
Net income -- -- -- 4,584 4,584
Issuance of
common stock 6,827 -- 82 -- 82
Balance,
August 31, 1995 7,656,908 77 25,205 3,295 28,577
Net income -- -- -- 5,272 5,272
Issuance of
common stock 40,619 -- 340 -- 340
Final settlement
with former parent -- -- 275 -- 275
Balance,
August 31, 1996 7,697,527 77 25,820 8,567 34,464
Net income -- -- -- 5,470 5,470
Issuance of
common stock 28,287 -- 263 -- 263
BALANCE,
AUGUST 31, 1997 7,725,814 $77 $26,083 $14,037 $40,197
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended August 31,
(Amounts in thousands) 1997 1996 1995
Cash flows from operating activities:
Net income $5,470 $5,272 $4,584
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,220 1,123 1,008
Gain on sale of equipment (150) -- --
Deferred taxes 2,642 1,857 2,418
Changes in operating assets and
liabilities:
Accounts receivable, net (2,878) (5,927) (871)
Inventories 2,634 (1,069) (3,934)
Prepaid expenses 537 135 (397)
Other assets (242) 60 (348)
Accounts payable (1,263) 2,731 1,097
Accrued liabilities and
other 581 1,048 304
Net cash provided by operating
activities 8,551 5,230 3,861
Cash flows from investing activities:
Capital expenditures (2,994) (1,193) (2,119)
Proceeds from sale of equipment 150 -- --
Net cash used in investing
activities (2,844) (1,193) (2,119)
Cash flows from financing activities:
Net (repayments) borrowings of
long-term debt (6,027) (5,200) 4,420
Issuance of common stock 263 340 82
Payment from (to) former parent
related to purchase price
settlement -- 275 (6,456)
Net cash used in financing
activities (5,764) (4,585) (1,954)
Net decrease in cash and cash
equivalents (57) (584) (212)
Cash and cash equivalents,
beginning of year 789 1,337 1,549
Cash and cash equivalents,
end of year $ 732 $ 789 $ 1,337
Supplemental disclosures of cash
flow information:
Cash paid during the year for;
Interest $3,159 $3,548 $3,899
Income taxes 383 247 459
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the
accounts of Rawlings Sporting Goods Company, Inc. and all of its
subsidiaries (Rawlings or the Company). All significant
intercompany transactions have been eliminated.
Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid
investments with a maturity when purchased of three months or
less.
Inventories
Inventories are valued at the lower of cost or net
realizable value with cost principally determined on a first-in,
first-out method. Cost includes materials, labor and overhead.
Property, Plant and Equipment, Net
Property, plant and equipment is stated at cost and
depreciation is generally computed on a straight-line basis. The
principal rates of depreciation are as follows:
Buildings and improvements . . . . . . . . . . 20-30 years
Machinery and equipment . . . . . . . . . . . 5-12 years
Other . . . . . . . . . . . . . . . . . . . . 4-10 years
<PAGE>
Income Taxes
Deferred income taxes are recorded for temporary
differences in reporting income and expenses for tax and
financial statement purposes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS No. 109).
Financial Instruments
The fair value of the Company's financial instruments
approximate their carrying amounts. Fair value for all financial
instruments other than long-term debt, for which no quoted market
prices exist, were based on appropriate estimates. The value of
the Company's long-term debt is estimated based on market prices
for similar issues or on the current rates offered to the Company
for debt of the same remaining maturities.
Net Income Per Share
Net income per share is based on the weighted average
number of common shares outstanding during each year.
Segment Reporting
The Company is engaged principally in one line of
business, the manufacturing, procurement and sale of sporting
goods and related products.
Reclassification
Certain reclassifications have been made to the prior
year financial statements to conform with the current year
presentation.
Use of Estimates
These financial statements have been prepared on the
accrual basis of accounting, which require the use of certain
estimates by management, in determining the Company's assets,
liabilities, revenues and expenses. Resolution of certain
matters could differ significantly from the resolution that is
currently expected.
2. Inventories
Inventories consist of the following:
<PAGE>
August 31,
1997 1996
Raw materials $ 5,571 $ 5,624
Work in process 2,027 1,899
Finished goods 22,183 24,892
Inventories $29,781 $32,415
3. Property, Plant and Equipment, Net
Property, plant and equipment consists of the following:
August 31,
1997 1996
Buildings and improvements $ 5,926 $ 5,412
Machinery and equipment 14,350 12,709
Other 2,697 2,348
Total property, plant and equipment 22,973 20,469
Less - Accumulated depreciation (13,171) (12,609)
Property, plant and equipment, net $ 9,802 $ 7,860
4. Supplemental Income Statement Information
Set forth below is a comparative summary of certain net
revenue and expense items:
1997 1996 1995
Licensing revenues $6,531 $6,880 $6,169
Operating lease expenses 2,300 2,426 2,172
Royalty and licensing expenses 5,028 5,536 4,986
Research and development expenses 54 238 540
5. Foreign Currency Transactions
For 1997, 1996 and 1995, the foreign currency transaction
gains (losses) included in determining net income were $(25),
$(12) and $91, respectively.
<PAGE>
6. Income Taxes
The income tax provision (benefit) is as follows:
1997 1996 1995
Current:
Federal $ 472 $ 564 $ 557
State and other 98 67 (19)
Total current 570 631 538
Deferred:
Federal 2,464 1,658 2,082
State and other 178 199 336
Total deferred 2,642 1,857 2,418
Total income tax
provision $3,212 $2,488 $2,956
A reconciliation between the provision for income taxes
computed at the Federal statutory rate and the rate used for
financial reporting purposes is as follows:
1997 1996 1995
Amount % Amount % Amount %
Expected provisions $3,039 35.0 $2,716 35.0 $2,369 35.0
at the statutory rate
State and other taxes,
net of federal tax
benefit 365 4.2 326 4.2 317 4.2
Lower tax rates on
foreign income (118) (1.4) (554) (7.1) -- --
Other (74) (0.8) -- -- -- --
Total income tax
provision $3,212 37.0 $2,488 32.1 $2,956 39.2
The significant components of deferred taxes which are included in the
accompanying balance sheets are as follows:
<PAGE>
1997 1996
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Intangible assets $23,837 $---- $25,348 $----
Operating loss carryforwards 128 ---- 2,141 ----
Foreign tax credits 1,042 ---- 748 ----
Allowance for doubtful
accounts 647 ---- 596 ---
Environmental reserve 346 ---- 391 ---
Inventory 609 ---- 388 ---
Other accruals 904 ---- -- ---
Other -- ---- -- 684
Total $27,513 $1,227 $29,612 $ 684
The Company believes a valuation allowance against deferred
income tax assets as of August 31, 1997 is not necessary. The
company's net operating loss carryforwards expire in 2009 and
2010.
Income taxes have not been provided on the undistributed
income (approximately $1,700) of a foreign subsidiary which the
Company does not intend to be remitted to the U.S.
7. Accrued Liabilities
Accrued liabilities consist of the following:
August 31,
1997 1996
Salary, benefits and other taxes $2,976 $3,487
Royalties 2,187 441
Payable to former parent 1,346 1,342
Environmental and other 3,392 3,191
Accrued liabilities $9,901 $8,461
<PAGE>
8. Long-Term Debt
Long-term debt consists of the following:
August 31,
1997 1996
Credit agreement with banks
due 1999, average interest
rate of 6.78% and 6.86%, respectively $32,350 $38,700
Obligation under capital lease,
average interest rate of 4.90% 323 ---
Total debt 32,673 38,700
Less current maturities of long-term debt (59) ---
Total long-term debt $32,614 $38,700
In 1997, the Company maintained a $72,000 variable rate
unsecured credit agreement with a bank group. In September 1997,
the Company amended and restated the unsecured credit agreement
with a bank group which, among other matters, increased the
facility to $90,000 and extended the maturity date to September
1, 2002. The amended and restated credit agreement, among other
matters, requires the Company to meet certain financial covenants
including a minimum fixed charge coverage, a required ratio of
maximum total debt to total capitalization, a minimum net worth
and restrictions on the Company's ability to pay cash dividends
to 50% of the Company's net income for the preceding year. The
Company is in compliance with these covenants. The available
borrowings under the amended credit agreement decline $4,000,
$5,000, $6,000 and $7,000 on September 1, 1998, 1999, 2000 and
2001, respectively.
As of August 31, 1997 the Company had outstanding letters of
credit of $5,375 and available borrowing capacity of $34,275
under the credit agreement with banks.
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 and pays a fixed rate of 6.5%.
In October 1997, 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 October 1999 on $30,000 and pays a fixed rate of 6.75%.
These transactions effectively convert a portion of the Company's
debt from a floating rate to a fixed rate.
The Company uses interest rate swaps, with the objective of
reducing exposure to increases in short-term interest rates, by
fixing the interest rate on a portion of its debt for a period of
time. The interest differential, to be paid or received on an
interest rate swap, is recognized as an adjustment to interest
expense as the differential occurs.
<PAGE>
9. Other Long-Term Liabilities
In July 1994, Figgie International, Inc. (the former parent)
transferred the net assets of the Rawlings Business to the
Company. The assets and liabilities transferred to Rawlings were
recorded at the predecessor's cost for financial reporting
purposes. For tax purposes, the transaction results in a step-up
of the basis of the assets transferred determined by the fair
value paid by the Company for the Rawlings Business. Under the
terms of a tax sharing and separation agreement between the
Company and the former parent, the Company is required to pay the
former parent 43% of the tax benefits resulting from the step-up
in the tax basis of the assets as the benefit of the step-up is
realized. The obligation to pay the former parent not expected
to be paid in the next year is included in other long-term
liabilities.
10. Employee Benefits
Company-Sponsored Defined Contribution Plans
Beginning December 1, 1994, substantially all US salaried
employees and certain US hourly employees are covered by a
defined contribution (Section 401(k)) plan that provides funding
based on a percentage of compensation. The Company's
contributions to the plan were $242, $299 and $183 in 1997, 1996
and 1995, respectively.
Multi-Employer Pension Plans
Certain union employees participate in multi-employer
defined benefit pension plans. Contributions to the plans were
$1,017, $956 and $839 in 1997, 1996 and 1995, respectively.
11. Stock Options
The 1994 Rawlings Long-Term Incentive Plan (the 1994
Incentive Plan) provides for the issuance of up to 625,000 shares
of Rawlings common stock upon the exercise of stock options and
stock appreciation rights, and as restricted stock, deferred
stock, stock granted as a bonus or in lieu of other awards and
other equity-based awards. The 1994 Non-Employee Directors Stock
Plan (1994 Directors Stock Plan) provides for the issuance of up
to 50,000 shares of Rawlings common stock to non-employee
directors upon the exercise of stock options or in lieu of
director's fees.
Stock options granted under the 1994 Incentive plan and the
1994 Directors Stock Plan have exercise prices equal to the
market price on the date of grant, vest over three to four years
from the date of grant and, once vested, are generally
exercisable over ten years following the date of grant.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no <PAGE> compensation cost
has been recognized for the stock option plans. Had compensation
cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1997 and 1996
consistent with the provisions of this statement, the Company's
net income and net income per share would have been as follows
(in thousands, except net income per share):
1997 1996
Net income $4,910 $4,659
Net income per share $ 0.64 $ 0.61
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997
and 1996; dividend yield of 0%, expected volatility of 54.0%,
risk-free interest rate of 6.4% and 6.1% in 1997 and 1996,
respectively and expected life based on exercise periods of six
years.
Option activity is as follows:
1997 1996 1995
Outstanding at
beginning of period 483,185 346,610 313,266
Granted 160,378 192,125 84,886
Exercised (1,000) -- --
Cancelled (11,426) (55,550) (51,542)
Outstanding at end
of period 631,137 483,185 346,610
Shares exercisable 327,541 175,077 87,237
Price of stock options:
Granted $8.31-$12.13 $7.88-$9.94 $9.63-$13.88
Exercised $8.00 -- --
Cancelled $9.00-$9.75 $9.00-$13.88 $12.00
Outstanding $7.88-$13.88 $7.88-$13.88 $9.63-$13.88
At August 31, 1997, 42,863 shares of Rawlings common stock
were available for future awards under the plans.
12. Related Party Transactions
The Company leased office space, through December 1995, from
a partnership in which one of the Company's board of directors
had a 40% ownership interest. In December 1995, the <PAGE> director
sold his 40% ownership interest in the office space. Lease
payments made during the period the outside director maintained
an ownership interest in the building were $233 and $390 in 1996
and 1995, respectively.
13. Commitments and Contingencies
Future minimum payments under noncancelable leases, royalty
and licensing agreements as of August 31, 1997 are as follows:
Royalty and
Operating Licensing
Leases Agreements
Fiscal 1998 $1,368 $3,855
Fiscal 1999 878 2,979
Fiscal 2000 679 2,511
Fiscal 2001 251 2,482
Fiscal 2002 69 2,317
Thereafter -- 300
Total minimum lease
payments $3,245 $14,444
One customer's purchases are 12%, 11% and 10% of net
revenues of Rawlings for 1997, 1996 and 1995, respectively. No
other customers' purchases were greater than 10% of net revenues.
In the normal course of doing business, Rawlings is subject
to various federal, state and local environmental laws. Rawlings
currently is working with the New York State Department of
Environmental Conservation in addressing contamination relating
to past petroleum and waste storage practices at its facility in
Dolgeville, New York. Rawlings believes that the environmental
costs accrued as of August 31, 1997 will be incurred over the
next several years. Due to the uncertainty of recovery of costs
from insurance carriers and other potentially liable third
parties, Rawlings has not adjusted its accrual for environmental
costs to reflect potential recoveries from third parties.
Rawlings is periodically subjected to product liability
claims and proceedings involving its patents and other legal
proceedings; such proceedings have not had a material adverse
effect on Rawlings.
In the opinion of management, ultimate liabilities resulting
from pending environmental matters and other legal proceedings
will not have a material adverse effect on the financial
condition or results of operations of Rawlings.
<PAGE>
14. Subsequent Event
In September 1997, the Company acquired the net assets of
the Victoriaville hockey business for $14.5 million in cash and
the assumption of approximately $2.5 million in current
liabilities. The final purchase price is subject to a working
capital adjustment based on a formula outlined in the asset
purchase agreement. The acquisition will be accounted for under
the purchase method.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Rawlings Sporting Goods Company, Inc.:
We have audited the accompanying consolidated balance sheets
of Rawlings Sporting Goods Company, Inc. (a Delaware corporation)
and subsidiaries (the Company or Rawlings) as of August 31, 1997
and 1996 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years
in the period ended August 31, 1997. These financial statements
are the responsibility of Rawlings' management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Rawlings Sporting Goods Company, Inc. and subsidiaries as of
August 31, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended
August 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
October 6, 1997
EXHIBIT 21
RAWLINGS SPORTING GOODS COMPANY, INC.
Rawlings Sporting Goods Company, Inc., a Delaware corporation
(the "Company") is the parent. The subsidiaries of the Company,
each of which is wholly-owned by the Company, are as follows:
Jurisdiction of
Incorporation or
Name Organization
Rawlings de Costa Rica Costa Rica
Rawlings Sporting Goods Company of Missouri Missouri
Rawlings Canada, Inc. Nova Scotia
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form
10-K into the Company's previously filed Registration Statement
File No. 33-83958, dated September 14, 1994, and the Company's
previously filed Registration Statement No. 33-86354, dated
November 14, 1994
/s/ Arthur Andersen LLP
St. Louis, Missouri
November 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 732
<SECURITIES> 0
<RECEIVABLES> 34,595
<ALLOWANCES> 1,627
<INVENTORY> 29,781
<CURRENT-ASSETS> 68,499
<PP&E> 22,973
<DEPRECIATION> 13,171
<TOTAL-ASSETS> 101,264
<CURRENT-LIABILITIES> 17,816
<BONDS> 43,251
0
0
<COMMON> 77
<OTHER-SE> 40,120
<TOTAL-LIABILITY-AND-EQUITY> 101,264
<SALES> 147,600
<TOTAL-REVENUES> 147,600
<CGS> 102,111
<TOTAL-COSTS> 102,111
<OTHER-EXPENSES> 33,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,115
<INCOME-PRETAX> 8,682
<INCOME-TAX> 3,212
<INCOME-CONTINUING> 5,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,470
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
