UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended May 31, 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 June 6, 1997: 7,718,826 shares.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Statements of Income
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Quarter Ended Nine Months Ended
May 31, May 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues $39,859 $39,107 $120,977 $125,963
Cost of goods sold 27,274 26,552 82,518 86,532
Gross profit 12,585 12,555 38,459 39,431
Selling, general and
administrative expenses 8,462 8,715 25,862 26,274
Operating income 4,123 3,840 12,597 13,157
Interest expense, net 864 984 2,550 2,963
Other expense, net 53 50 151 211
Income before income taxes 3,206 2,806 9,896 9,983
Provision for income taxes 1,202 1,100 3,711 3,913
Net income $ 2,004 $ 1,706 $ 6,185 $ 6,070
Average number of common
shares outstanding 7,715 7,686 7,708 7,676
Net income per common
share $ 0.26 $ 0.22 $ 0.80 $ 0.79
</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)
May 31, August 31,
1997 1996
Assets
Current Assets:
Cash and cash equivalents $ 1,216 $ 789
Accounts receivable, net of
allowance of $1,414 and $1,498
respectively 35,527 30,090
Inventories 31,332 32,415
Prepaid expenses 432 1,472
Deferred income taxes 3,161 3,162
Total current assets 71,668 67,928
Property, plant and equipment, net 8,817 7,860
Other assets 576 698
Deferred income taxes 22,280 25,766
Total assets $ 103,341 $ 102,252
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,511 $ 9,119
Accrued liabilities 9,777 8,461
Total current liabilities 16,288 17,580
Long-term debt 35,000 38,700
Other long-term liabilities 11,204 11,508
Total liabilities 62,492 67,788
Stockholders' equity:
Preferred stock, none issued - -
Common stock, 7,718,826 and 7,697,527
shares issued and outstanding,
respectively 77 77
Additional paid-in capital 26,020 25,820
Retained earnings 14,752 8,567
Stockholders' equity 40,849 34,464
Total liabilities and
stockholders' equity $ 103,341 $ 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)
Nine Months Ended
May 31,
1997 1996
Cash flows from operating activities:
Net income $6,185 $ 6,070
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 912 837
Deferred income taxes 3,487 3,737
Changes in operating assets
and liabilities:
Accounts receivable, net (5,437) (12,768)
Inventories 1,083 (2,327)
Prepaid expenses 1,040 413
Other assets (18) 71
Accounts payable (2,608) 1,479
Accrued liabilities and other 1,024 2,609
Net cash provided by operating
activities 5,668 121
Cash flows from investing
activities:
Capital expenditures (1,741) (973)
Cash flows from financing activities:
Net repayments of long-term debt (3,700) (400)
Payment from former parent related to
purchase price settlement - 275
Issuance of common stock 200 263
Net cash (used in) provided by
financing activities (3,500) 138
Net increase (decrease) in cash
and cash equivalents 427 (714)
Cash and cash equivalents,
beginning of period 789 1,337
Cash and cash equivalents,
end of period $1,216 $ 623
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 nine months
ended May 31, 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):
May 31, August 31,
1997 1996
Raw materials $ 5,656 $ 5,624
Work in process 2,052 1,899
Finished goods 23,624 24,892
$31,332 $32,415
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Quarter Ended May 31, 1997 Compared
with Quarter Ended May 31, 1996
Net revenues in the quarter ended May 31, 1997 were
$39,859,000, or 1.9 percent higher than net revenues of
$39,107,000 in the comparable quarter last year. Improved net
revenues from inflatables (basketballs, footballs and
volleyballs) and apparel partially offset by lower net revenues
from baseball-related products and licensing were primarily
responsible for the increase. The increase in inflatables net
revenues was primarily the result of a new volleyball product
sold to a corporate customer for a promotion. Apparel net
revenues improved during the quarter as revenues for both special
order and stock apparel products improved. The decline in net
revenues from baseball-related products was primarily confined to
baseballs with most other baseball product categories showing
increases.
Gross margin in the quarter ended May 31, 1997 was 31.6
percent, .5 margin points lower than the gross margin of 32.1
percent in the comparable quarter last year. The lower gross
margin was primarily the result of lower licensing revenues
related to a domestic licensee. This licensee has indicated that
it expects its results related to Rawlings' licensed products to
improve in the fiscal fourth quarter.
Selling, general and administrative (SG&A) expenses were
$8,462,000 in the quarter ended May 31, 1997, or 2.9 percent
lower than SG&A expenses of $8,715,000 in the comparable prior
year quarter. As a percent of net revenues, SG&A expenses were
21.2 percent in the quarter ended May 31, 1997 compared with 22.3
percent in the comparable prior year quarter.
Interest expense was $864,000 in the quarter ended May 31,
1997, or 12.2 percent lower than interest expense of $984,000 in
the comparable prior year quarter. Lower average debt
outstanding was primarily responsible for the decrease.
<PAGE>
Nine Months Ended May 31, 1997 Compared
with the Nine Months Ended May 31, 1996
Net revenues for the nine months ended May 31, 1997 were
$120,977,000, or 4.0 percent below net revenues of $125,963,000
in the comparable nine month period last year. Lower net
revenues from baseball-related products, partially offset by
higher net revenues from inflatables and apparel, were primarily
responsible for the net revenues decline. Lower net revenues
from baseball gloves primarily resulted from two major warehouse
clubs exiting the baseball category and a decline at a major mass
merchandiser who entered the 1997 selling season with excess
inventory. Preliminary indications from this mass merchandiser
indicate that baseball glove purchases will be increased for the
1998 season.
Gross margin for the nine months ended May 31, 1997 was 31.8
percent, .5 margin points higher than the comparable period last
year. Higher margins from apparel and basketball products were
primarily responsible for the improved margin.
SG&A expenses for the nine months ended May 31, 1997 were
$25,862,000, or 1.6 percent lower than SG&A expenses of
$26,274,000 in the comparable prior year period. As a percent of
net revenues, SG&A expenses were 21.4 percent in the nine months
ended May 31, 1997, compared with 20.9 percent in the comparable
prior year nine month period. The decline in net revenues and a
large amount of fixed expenses resulted in the modest increase in
SG&A as a percent of net revenues.
Interest expense for the nine months ended May 31, 1997 was
$2,550,000, or 13.9 percent lower than interest expense of
$2,963,000 in the comparable nine month period last year. The
decrease is primarily the result of lower average borrowings.
The effective tax rate of 37.5 percent for the nine months
ended May 31, 1997 was 1.7 points lower than the effective tax
rate of 39.2 percent in the comparable prior year nine month
period. 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. The
Company expects its fiscal 1997 effective tax rate, based on its
current mix of domestic and foreign earnings, to be approximately
37 to 38 percent.
<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 $5,032,000 for the nine months
ended May 31, 1997, primarily the result of the seasonal increase
in accounts receivable.
Cash flows provided by operating activities for the nine
months ended May 31, 1997 were $5,668,000, or $5,547,000 higher
than the $121,000 provided in the comparable prior year period.
The increase is primarily the result of a smaller build in
accounts receivable.
Capital expenditures were $1,741,000 for the nine months
ended May 31, 1997 compared to $973,000 in the comparable prior
year period. With additional planned equipment purchases, the
Company expects capital expenditures of approximately $2,700,000
in fiscal 1997.
The Company had net repayment of debt of $3,700,000 in the
nine months ended May 31, 1997. This resulted in total debt at
May 31, 1997 of $35,000,000, $8,500,000, or 19.5 percent, below
total debt as of May 31, 1996.
<PAGE>
Part II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Company previously reported that on November 22, 1995 a
class action complaint was filed in the United States District
Court for the Eastern Division of the Eastern District of
Missouri by Henry G. Jakobe, Jr., against the Company, Mr. Carl
J. Shields, Chairman, CEO and President of the Company, and
Howard B. Keene, Chief Operating Officer of the Company. The
complaint alleged, among other things, that the defendants
violated the federal securities laws by making false and
misleading statements regarding the impact of the Major League
Baseball strike on the Company's business.
The Company and the individual defendants denied, and
continue to deny, all allegations in the litigation. On
September 23, 1996, the District Court granted in part and denied
in part the defendants' Motion to Dismiss. The dismissal order
limited plaintiffs class claims to open market purchasers of the
Company's common stock between March 17, 1995 and June 30, 1995.
Subsequent to the dismissal order, the parties agreed to settle
the litigation to avoid potentially protracted and costly
litigation, and entered into a Settlement Agreement on January
13, 1997.
By order dated February 13, 1997, the District Court
approved a settlement class on behalf of open market purchasers
of the Company's common stock during the period of March 17, 1995
through June 30, 1995 inclusive. Following a class settlement
hearing on May 16, 1997, the District Court entered its Final
Judgment and Order with Respect to Settlement Approval on May 23,
1997, effectively terminating the litigation. The Company's
consideration for the settlement was not material and a
substantial portion of the settlement consideration was paid by
the Company's insurance company.
Item 2. Material Modification of Rights of Registrant's
Securities
None.
Item 3. Defaults on Senior Securities
None.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment No. 4 dated May 30, 1997 to the Credit
Agreement by and among Rawlings Sporting Goods
Company, Inc., The First National Bank of Chicago,
as agents and certain lenders named therein.
(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: July 8, 1997 /s/ CARL J. SHIELDS
Carl J. Shields
Chairman, CEO and President
Date: July 8, 1997 /s/ PAUL E. MARTIN
Paul E. Martin
Chief Financial Officer
(Principal Accounting Officer)
AMENDMENT NO. 4 TO CREDIT AGREEMENT
This Amendment No. 4 to Credit Agreement (this "Amendment
Agreement") is entered into as of May 30, 1997 by and among
Rawlings Sporting Goods Company, Inc. (the "Borrower"), the
undersigned lenders (the "Lenders") and The First National Bank of
Chicago, as agent (the "Agent").
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Agent entered into
that certain Credit Agreement dated as of July 8, 1994 and amended
as of March 24, 1995, August 31, 1995 and September 23, 1996 (the
"Credit Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent have agreed
to further amend the Credit Agreement on the terms and conditions
herein set forth.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings attributed to such
terms in the Credit Agreement, as amended hereby.
2. Amendment to Credit Agreement. Section 6.28.3 is hereby
amended by deleting the table set forth therein in its entirety and
replacing it with the following:
Measurement Date Minimum Ratio
5/31/97 1.75:1
8/31/97 1.75:1
11/30/97 and the last 2.00:1
day of each Fiscal Quarter
thereafter
3. Representations and Warranties of the Borrower.
3.1 The Borrower represents and warrants that the execution,
delivery and performance by the Borrower of this Amendment
Agreement have been duly authorized by all necessary corporate
action and that this Amendment Agreement is a legal, valid and
binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as the enforcement
thereof may be subject to (a) the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally and (b) general principles of
equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).
<PAGE>
3.2 The Borrower hereby certifies that each of the
representations and warranties contained in the Credit Agreement is
true and correct in all material respects on and as of the date
hereof as if made on the date hereof, except to the extent that any
such representation or warranty is stated to relate solely to an
earlier date, in which case such representation or warranty shall
be true and correct on and as of such earlier date.
4. Reference to and Effect on the Credit Agreement.
4.1 Upon the effectiveness of this Amendment Agreement, each
reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import and each reference to
the Credit Agreement in each Loan Document shall mean and be a
reference to the Credit Agreement as amended hereby.
4.2 Except as specifically amended above, all of the terms,
conditions and covenants of the Credit Agreement and the other Loan
Documents shall remain unaltered and in full force and effect and
shall be binding upon the Borrower in all respects and are hereby
ratified and confirmed.
4.3 The execution, delivery and effectiveness of this
Amendment Agreement shall not operate as a waiver of (a) any right,
power or remedy of any Lender or the Agent under the Credit
Agreement or any of the Loan Documents, or (b) any Default or
Unmatured Default under the Credit Agreement.
5. Costs and Expenses. The Borrower agrees to pay on demand all
reasonable fees and out-of-pocket expenses of counsel for the Agent
in connection with the preparation, execution and delivery of this
Amendment Agreement.
6. CHOICE OF LAW. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF
THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE
TO NATIONAL BANKS.
7. Execution in Counterparts. This Amendment Agreement may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. This Amendment
Agreement shall become effective as of the date first above
written; provided, that the Agent has received counterparts of this
Amendment Agreement duly executed by the Borrower and each Lender.
8. Headings. Section headings in this Amendment Agreement are
included herein for convenience of reference only and shall not
constitute a part of this Amendment Agreement for any other
purposes.
[signature pages to follow]
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders
have executed this Amendment Agreement as of the date first above
written.
RAWLINGS SPORTING GOODS
COMPANY, INC.
By:___________________________
Title:________________________
THE FIRST NATIONAL BANK OF
CHICAGO, Individually and as
Agent
By:___________________________
Title:________________________
THE BANK OF NEW YORK
By:___________________________
Title:________________________
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By:___________________________
Title:________________________
COMERICA BANK
By:___________________________
Title:________________________
Keybank National Association
By:___________________________
Title:________________________
<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 MAY 31,1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 1,216
<SECURITIES> 0
<RECEIVABLES> 36,941
<ALLOWANCES> 1,414
<INVENTORY> 31,332
<CURRENT-ASSETS> 71,668
<PP&E> 22,017
<DEPRECIATION> 13,200
<TOTAL-ASSETS> 103,341
<CURRENT-LIABILITIES> 16,288
<BONDS> 46,204
0
0
<COMMON> 77
<OTHER-SE> 40,772
<TOTAL-LIABILITY-AND-EQUITY> 103,341
<SALES> 120,977
<TOTAL-REVENUES> 120,977
<CGS> 82,518
<TOTAL-COSTS> 82,518
<OTHER-EXPENSES> 25,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,550
<INCOME-PRETAX> 9,896
<INCOME-TAX> 3,711
<INCOME-CONTINUING> 6,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,185
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
