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 November 30, 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 December 31, 1997: 7,776,017
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)
Three Months Ended
November 30,
1997 1996
Net revenues $32,103 $28,259
Cost of goods sold 22,739 19,441
Gross profit 9,364 8,818
Selling, general and administrative
expenses 9,504 8,142
Operating income (loss) (140) 676
Interest expense, net 880 738
Other expense, net 41 30
Loss before income taxes (1,061) (92)
Benefit for income taxes (398) (34)
Net loss $ (663) $ (58)
Average number of common shares
outstanding 7,739 7,701
Net loss per common share $ (0.09) $ (0.01)
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)
November 30, August 31,
1997 1997
Assets
Current Assets:
Cash and cash equivalents $ 849 $ 732
Accounts receivable,
net of allowance of
$2,054 and $1,627
respectively 40,243 32,968
Inventories 42,841 29,781
Prepaid expenses 1,033 935
Deferred income taxes 4,083 4,083
Total current assets 89,049 68,499
Property, plant and equipment, net 11,853 9,802
Other assets 874 760
Deferred income taxes 22,647 22,203
Goodwill, net 8,486 -
Total assets $ 132,909 $ 101,264
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of
long-term debt $ 59 $ 59
Accounts payable 11,279 7,856
Accrued liabilities 11,119 9,901
Total current liabilities 22,457 17,816
Long-term debt, less current maturities 58,944 32,614
Other long-term liabilities 10,373 10,637
Total liabilities 91,774 61,067
Stockholders' equity:
Preferred stock, none issued - -
Common stock, 7,774,281 and 7,725,814
shares issued and outstanding,
respectively 78 77
Additional paid-in capital 29,228 26,083
Stock subscription receivable (1,421) -
Cummulative translation adjustment (124) -
Retained earnings 13,374 14,037
Stockholders' equity 41,135 40,197
Total liabilities and stockholders'
equity $ 132,909 $ 101,264
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)
Three Months Ended
November 30,
1997 1996
Cash flows from operating activities:
Net loss $ (663) $ (58)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 390 303
Deferred income taxes (444) (171)
Changes in operating assets and liabilities:
Accounts receivable, net (2,978) (3,911)
Inventories (9,876) (4,703)
Prepaid expenses (81) 674
Other assets (138) (9)
Accounts payable 2,289 (2,130)
Accrued liabilities and other (1,218) 1,129
Net cash used in operating activities (12,719) (8,876)
Cash flows from investing activities:
Capital expenditures (726) (144)
Acquisition of business (14,493) -
Net cash used in investing activities (15,219) (144)
Cash flows from financing activities:
Net borrowings of long-term debt 26,330 9,100
Issuance of warrants 1,271 -
Issuance of common stock 454 57
Net cash provided by financing
activities 28,055 9,157
Net increase in cash and cash
equivalents 117 137
Cash and cash equivalents,
beginning of period 732 789
Cash and cash equivalents,
end of period $ 849 $ 926
The accompanying notes are an integral part of these consolidated
balance sheets.
<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,
1997. 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 three months
ended November 30, 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):
November 30, August 31,
1997 1997
Raw materials $ 6,851 $ 5,571
Work in process 2,670 2,027
Finished goods 33,320 22,183
$ 42,841 $ 29,781
<PAGE>
Note 3: Warrants
In November 1997, the Company issued warrants to purchase 925,804
shares of common stock at $12.00 to Bull Run Corporation for
$3.07 per warrant. The warrants expire in November 2001 and are
exercised only if the Company's common stock closes above $16.50
for twenty consecutive trading days. One half of the purchase
price of the warrants was paid in cash with the other half
payable with interest at 7% at the time of exercise or expiration
of the warrants. The receivable for the unpaid portion of the
warrants is classified as a stock subscription receivable in the
accompanying balance sheet. These warrants are not considered
common stock equivalents until the point in time that the
warrants vest.
Note 4: Acquisition
On September 12, 1997 the Company acquired the net assets of the
Victoriaville hockey business. The acquisition was accounted for
under the purchase method and accordingly, the results of
operations were included in the Company's consolidated statement
of income from the date of acquisition. The purchase price has
been allocated to the assets and liabilities on a preliminary
basis and the excess of cost over the fair value of net assets
acquired is being amortized over a forty year period on a
straight-line basis. The preliminary purchase price allocation
is as follows:
Net Assets $ 5,963
Goodwill 8,530
Total Purchase Price $14,493
The final purchase price is subject to a working capital
adjustment based on a formula outlined in the asset purchase
agreement.
Note 5: Long-Term Debt
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 2002. The amended and restated credit agreement,
<PAGE>
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 available borowings under the amended credit
agreement decline $4,000, $5,000, $6,000 and $7,000 on
September 1, 1998, 1999, 2000 and 2001, respectively.
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% to
7.00%. The transaction effectively converts a portion of the
Company's debt from a floating rate to a fixed rate.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Quarter Ended November 30, 1997 Compared
with Quarter Ended November 30, 1996
Net revenues in the quarter ended November 30, 1997 were
$32,103,000 or 13.6 percent higher than net revenues of
$28,259,000 in the comparable quarter last year. Increased net
revenues from basketball, football and volleyball equipment and
additional net revenues generated by the Vic hockey acquisition
partially offset by lower revenues from baseball-related products
were primarily responsible for the increase. The net revenues
from basketball, football and volleyball equipment increased
primarily as a result of additional back-to-school and fall
programs with several key mass merchandisers. The net revenues
from baseball-related products declined primarily as a result of
lower net revenues from memorabilia baseballs partially offset by
initial shipments of the new power forged aluminum bats. Overall
net revenues excluding the impact of the Vic hockey business
increased 6.2 percent.
The Company's gross profit in the quarter ended November 30, 1997
was $9,364,000, or 6.2 percent above gross profit of $8,818,000
in the comparable prior year quarter. The gross margin was 29.2
<PAGE>
percent, 2.0 margin points lower than the comparable quarter last
year. Gross margin declined as a result of continued reduced net
revenues from higher margin memorabilia products, increased net
revenues from lower margin rubber basketballs and close out
inventory related to the Vic hockey acquisition.
Selling, general and administrative (SG&A) expenses were
$9,504,000 or 16.7 percent higher than SG&A expenses of
$8,142,000 in the comparable prior year quarter. SG&A expenses
included approximately $500,000 associated with changes in the
Chief Executive Officer's position. SG&A expenses also included
expenses related to the Vic hockey business since its acquisition
date in September 1997. SG&A expenses excluding the one-time
charge associated with changes in the Chief Executive Officer's
position were 28.0 percent of net revenues, down 0.8 of a point
from the comparable prior year quarter. Excluding the expenses
associated with the change in the Chief Executive Officer
position and the Vic hockey business SG&A expenses increased 3.4
percent.
Interest expense for the quarter ended November 30, 1997 was
$880,000, or 19.2 percent higher than interest of $738,000 in the
comparable quarter last year. Higher average borrowings,
primarily as a result of the acquisition of the Vic hockey
business, was primarily responsible for the increase.
The results for the first quarter of fiscal 1998 started slower
than expected. However early signs from retailers continue to
indicate that the 1998 baseball selling season should be improved
compared to 1997. Key new baseball-related products, including
new aluminum bats and a speed-sensing baseball are progressing
and are expected to contribute to results for the remainder of
the fiscal year. At this time, the Company believes that double
digit increases in net revenues and earnings could be achieved in
fiscal 1998.
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
<PAGE>
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 Company
between February and May. These orders generally represent
approximately 25 percent 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 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 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.
Liquidity and Capital Resources
Working capital increased $15,909,000 for the three months ended
November 30, 1997 primarily the result of the seasonal increase
in accounts receivable and inventories and the working capital
acquired in connection with the Vic hockey acquisition.
Cash flows used in operating activities for the quarter ended
November 30, 1997 were $12,719,000 , or 43.3 percent higher than
the $8,876,000 used in the comparable prior year period. The
increase is primarily the result of a larger build in inventories
partially offset by an increase in accounts payable.
<PAGE>
Capital expenditures were $726,000 for the quarter ended November
30, 1997 compared to $144,000 in the comparable prior year
period. The Company expects capital expenditures for fiscal 1998
to be approximately $3,500,000.
Investing activities included $14,493,00 use of cash related to
the acquisition of a business.
The Company had net borrowings of $26,330,000 in the quarter
ended November 30, 1997. This resulted from $14,493,000 of
borrowings related to the acquisition of the Vic hockey business,
borrowings for seasonal working capital offset by proceeds from
the issuance of warrants and common stock of $1,725,000. Total
debt as of November 30, 1997 was $59,003,000, $11,203,000 or 23.4
percent higher than total debt as of November 30, 1996. The
increase is primarily the result of the Vic hockey acquisition
and higher working capital levels, partially offset by operating
cash flows.
Cautionary Factors That May Affect Future Results or the
Financial Condition of the Business.
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, 1997.
<PAGE>
Part II.
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
In connection with Investment Purchase Agreement, dated
November 21, 1997, between the Company and Bull Run
Corporation, Boatmen's Trust Company and ChaseMellon
Shareholder Services, Inc. entered into an Amendment to
Rights Agreement which increased the percentage
ownership, which if exceeded would result in a person
being deemed an "Acquiring Person" (as defined in the
Rights Agreement dated July 1, 1994, between the
Company and Boatmen's Trust Company), from 20 percent
to 23.1 percent. Such Amendment also caused the
appointment of ChaseMellon Shareholder Services, Inc.
as successor Rights Agent under such Rights Agreement.
Item 3. Defaults on Senior Securities
None.
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
Amendment of Rights Agreement, dated November 21, 1997,
among the Company, Boatmen's Trust Company and
ChaseMellon Shareholder Services, Inc., included as
Exhibit 4.2 to the Company's Form 8-K filed on November
26, 1997, is hereby incorporated herein by reference.
<PAGE>
(b) Reports on Form 8-K
Form 8-K Filed on October 21, 1997
Form 8-K Filed on October 24, 1997
Form 8-K Filed on November 26, 1997
<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: January 12, 1998 /s/ HOWARD B. KEENE
Howard B. Keene
Chief Executive Officer and President
Date: January 12, 1998 /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 NOVEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 849
<SECURITIES> 0
<RECEIVABLES> 42,297
<ALLOWANCES> 2,054
<INVENTORY> 42,841
<CURRENT-ASSETS> 89,049
<PP&E> 25,346
<DEPRECIATION> 13,493
<TOTAL-ASSETS> 132,909
<CURRENT-LIABILITIES> 22,457
<BONDS> 69,317
0
0
<COMMON> 78
<OTHER-SE> 41,057
<TOTAL-LIABILITY-AND-EQUITY> 132,909
<SALES> 32,103
<TOTAL-REVENUES> 32,103
<CGS> 22,739
<TOTAL-COSTS> 22,739
<OTHER-EXPENSES> 9,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 880
<INCOME-PRETAX> (1,061)
<INCOME-TAX> (398)
<INCOME-CONTINUING> (663)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (663)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
