UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended February 28, 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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1859 Intertech Drive, Fenton, Missouri 63026
(Address of Principal Executive Offices) (Zip Code)
(314) 349-3500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of the issuer's Common Stock,
par value $0.01 per share, as of March 10, 1997: 7,711,908
shares.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Statements of Income
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
Quarter Ended Six Months Ended
February 28, February 28,
1997 1996 1997 1996
<CAPTION>
<S> <C> <C> <C> <C>
Net revenues $52,859 $51,405 $81,118 $86,856
Cost of goods sold 35,803 35,452 55,244 59,980
Gross profit 17,056 15,953 25,874 26,876
Selling, general and
administrative expenses 9,258 9,103 17,400 17,559
Operating income 7,798 6,850 8,474 9,317
Interest expense, net 948 1,077 1,686 1,979
Other expense, net 68 59 98 161
Income before income
taxes 6,782 5,714 6,690 7,177
Provision for income taxes 2,543 2,240 2,509 2,813
Net income $ 4,239 $ 3,474 $ 4,181 $ 4,364
Average number of common
shares outstanding 7,708 7,678 7,704 7,670
Net income per common
share $ 0.55 $ 0.45 $ 0.54 $ 0.57
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share data)
(Unaudited)
February 28, August 31,
1997 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 882 $ 789
Accounts receivable,
net of allowance of $1,458
and $1,498 respectively 57,429 30,090
Inventories 36,517 32,415
Prepaid expenses 678 1,472
Deferred income taxes 3,161 3,162
Total current assets 98,667 67,928
Property, plant and equipment, net 8,681 7,860
Other assets 647 698
Deferred income taxes 23,493 25,766
Total assets $ 131,488 $ 102,252
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,741 $ 9,119
Accrued liabilities 9,560 8,461
Total current liabilities 19,301 17,580
Long-term debt 62,200 38,700
Other long-term liabilities 11,204 11,508
Total liabilities 92,705 67,788
Stockholders' equity:
Preferred stock, none issued - -
Common stock, 7,711,908 and
7,697,527 shares issued and
outstanding, respectively 77 77
Additional paid-in capital 25,958 25,820
Retained earnings 12,748 8,567
Stockholders' equity 38,783 34,464
Total liabilities and
stockholders' equity $ 131,488 $ 102,252
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
(Amounts in thousands)
(Unaudited)
Six Months Ended
February 28,
1997 1996
Cash flows from operating activities:
Net income $ 4,181 $ 4,364
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 606 556
Deferred income taxes 2,274 2,673
Changes in operating assets
and liabilities:
Accounts receivable, net (27,339) (31,128)
Inventories (4,102) (2,201)
Prepaid expenses 794 360
Other assets (42) (24)
Accounts payable 622 4,585
Accrued liabilities and other 795 2,073
Net cash used in operating activities (22,211) (18,742)
Cash flows from investing activities:
Capital expenditures (1,334) (639)
Cash flows from financing activities:
Net borrowings of long-term debt 23,500 19,800
Payment from former parent related to
purchase price settlement - 275
Issuance of common stock 138 204
Net cash provided by financing activities 23,638 20,279
Net increase in cash and cash equivalents 93 898
Cash and cash equivalents,
beginning of period 789 1,337
Cash and cash equivalents,
end of period $ 882 $ 2,235
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
Rawlings Sporting Goods Company, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies.
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission pertaining
to interim financial information and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. These
financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included
in the Company's Annual Report for the year ended August 31,
1996. In the opinion of management, all adjustments consisting
only of normal recurring adjustments considered necessary for a
fair presentation of financial position and results of operations
have been included therein. The results for the six months ended
February 28, 1997 are not necessarily indicative of the results
that may be expected for a full fiscal year.
Note 2: Inventories
Inventories consisted of the following (in thousands):
February 28, August 31,
1997 1996
Raw materials $ 5,616 $ 5,624
Work in process 2,038 1,899
Finished goods 28,863 24,892
$36,517 $32,415
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Quarter Ended February 28, 1997 Compared
with Quarter Ended February 29, 1996
Net revenues in the quarter ended February 28, 1997 were
$52,859,000, or 2.8 percent higher than net revenues of
$51,405,000 in the comparable quarter last year. Increased net
revenues from basketball and apparel products and improved
licensing revenues, partially offset by lower sales of baseball-
related products, primarily accounted for the increase. The
increase in net revenues from basketball products primarily
related to promotions with NCAA corporate sponsors and an NCAA
promotion with a large discount retailer. The increase in
licensing revenues primarily related to footwear and casual wear
products. The decline in net revenues from baseball-related
products was primarily confined to baseball gloves with most
other baseball product categories showing increases.
Gross margin in the quarter ended February 28, 1997 was 32.3
percent, 1.3 margin points higher than the comparable quarter
last year. Improved margins in basketball and apparel products
and higher licensing revenues resulted in the improved margin.
The gross margin on basketball products improved as a result of
the promotions with NCAA corporate sponsors which generally
result in above average margins. The apparel gross margins
continued to improve as a result of more production in the
Company's lower cost Costa Rica facility and improved volumes and
efficiency at the U.S. apparel facility.
Selling, general and administrative (SG&A) expenses were
$9,258,000 in the quarter ended February 28, 1997, or 1.7 percent
higher than SG&A expenses of $9,103,000 in the comparable prior
year quarter. As a percent of net revenues, SG&A expenses were
17.5 percent in the quarter ended February 28, 1997 compared with
17.7 percent in the prior year quarter.
<PAGE>
Interest expense was $948,000 in the quarter ended February
28, 1997, or 12.0 percent lower than interest expense of
$1,077,000 in the comparable prior year quarter. Lower average
debt outstanding was primarily responsible for the decrease.
Six Months Ended February 28, 1997 Compared
with the Six Months Ended February 29, 1996
Net revenues for the six months ended February 28, 1997 were
$81,118,000, 6.6 percent below net revenues of $86,856,000 in the
comparable six month period last year. Lower net revenues from
baseball-related products, primarily baseball gloves, partially
offset by higher net revenues from basketball and apparel
products were primarily responsible for the net revenue decline.
Lower net revenues from baseball gloves resulted from a continued
trend toward later shipments to retailers and a major warehouse
club exiting the baseball category. Most retailers continue to
be optimistic regarding the spring selling season for baseball-
related products. The Company continues to believe it is well
positioned to take advantage of an improved spring selling season
for baseball-related products.
Gross margin for the six months ended February 28, 1997 was
31.9 percent, 1.0 margin point higher than the comparable period
last year. Higher gross margins from apparel and basketball
products were primarily responsible for the improved margin.
SG&A expenses for the six months ended February 28, 1997
were $17,400,000, or 0.9 percent lower than SG&A expenses of
$17,559,000 in the comparable prior year period. As a percent of
net revenues, SG&A expenses were 21.5 percent in the six months
ended February 28, 1997 compared with 20.2 percent in the
comparable prior year six month period. The decline in net
revenues and a large amount of fixed SG&A expenses resulted in
the increase in SG&A as a percent of net revenues.
Interest expense for the six months ended February 28, 1997
was $1,686,000, or 14.8 percent lower than interest expense of
$1,979,000 in the comparable prior year six month period. The
decrease in interest expense is primarily the result of lower
average debt outstanding.
<PAGE>
SEASONALITY
Net revenues of baseball equipment and related team uniforms
are highly seasonal. Customers historically have placed orders
with the Company for baseball-related products beginning in July
for shipment beginning in October (pre-season orders). These pre-
season orders from customers historically represented
approximately 75 percent to 80 percent of the customers'
anticipated needs for the entire baseball season. The amount of
these pre-season orders historically determined the Company's net
revenues and profitability between October 1 and March 31. The
Company then receives additional orders (fill-in orders) which
depend upon customers' actual sales of products during the
baseball season (sell-through). Fill-in orders are typically
received by the Company between February and May. These orders
historically represented approximately 20 percent to 25 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 collectability related to accounts receivable. In fiscal 1996
and 1997, customers have begun placing their pre-season orders
later and a larger percentage of orders are fill-in orders. In
addition, with an increasing number of customers on automatic
replenishment systems more and 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 end of
the season which is carried over by the customer for sale in the
next baseball season. Customers typically adjust their pre-season
orders for the next baseball season to account for the level of
inventory carried over from the preceding baseball season.
Football equipment and related team uniforms are both shipped by
the Company and sold by retailers primarily in the period between
March 1 and September 30. Basketballs and related team uniforms
generally are shipped and sold throughout the year. Because the
Company's sales of baseball-related products exceed those of its
other products, Rawlings' business is seasonal, with its highest
net revenues and profitability recognized between November 1 and
April 30.
<PAGE>
Except for the historical information contained herein, the
matters outlined in the management's discussion and analysis are
forward looking statements that involve risks and uncertainties,
including quarterly fluctuation in results, retail sell rates for
the Company's products which may result in more or less orders
than those anticipated and the impact of competitive products and
pricing. In addition, other risks and uncertainties are detailed
from time to time in the Company's SEC reports, including the
report on Form 10-K for the year ended August 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $29,018,000 for the six months
ended February 28, 1997, primarily the result of the seasonal
increase in accounts receivable and inventories.
Cash flows used in operating activities for the six months
ended February 28, 1997 were $22,211,000, or 18.5 percent higher
than the $18,742,000 used in the comparable prior year period.
The increase is primarily the result of a larger build in
inventories and a smaller build in accounts payable and accrued
liabilities.
Capital expenditures were $1,334,000 for the six months
ended February 28, 1997 compared to $639,000 in the comparable
prior year period. With the planned expansion of the Costa Rica
facility and other equipment purchases, the Company expects
capital expenditures of approximately $2,500,000 in fiscal 1997.
The Company had net borrowings for seasonal working capital
needs of $23,500,000 in the six months ended February 28, 1997.
This resulted in total debt at February 28, 1997 of $62,200,000,
$1,500,000, or 2.4 percent, below total debt as of February 29,
1996.
<PAGE>
Part II.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual stockholders' meeting was held on January 16,
1997. At the meeting the following nominees were elected
pursuant to the following votes:
Nominee For Withheld
Michael McDonnell 6,336,115 29,561
Michael J. Roarty 6,334,285 31,391
The following directors' term of office continued after the
meeting:
Andrew N. Baur
Linda L. Griggs
William C. Robinson
Carl J. Shields
The approval of the Board of Directors' selection of Arthur
Andersen LLP as independent public accountants was approved
pursuant to the following vote:
For Against Abstain
6,335,263 16,835 13,578
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
RAWLINGS SPORTING GOODS COMPANY, INC.
Date: April 2, 1997 /s/ CARL J. SHIELDS
Carl J. Shields
Chairman, CEO and President
Date: April 2, 1997 /s/ PAUL E. MARTIN
Paul E. Martin
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 882
<SECURITIES> 0
<RECEIVABLES> 58,887
<ALLOWANCES> 1,458
<INVENTORY> 36,517
<CURRENT-ASSETS> 98,667
<PP&E> 21,622
<DEPRECIATION> 12,941
<TOTAL-ASSETS> 131,488
<CURRENT-LIABILITIES> 19,301
<BONDS> 73,404
0
0
<COMMON> 77
<OTHER-SE> 38,706
<TOTAL-LIABILITY-AND-EQUITY> 131,488
<SALES> 81,118
<TOTAL-REVENUES> 81,118
<CGS> 55,244
<TOTAL-COSTS> 55,244
<OTHER-EXPENSES> 17,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,686
<INCOME-PRETAX> 6,690
<INCOME-TAX> 2,509
<INCOME-CONTINUING> 4,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,181
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
