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, 1999
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)
(636) 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 22, 1999: 7,906,603
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,
1999 1998
Net revenues . . . . . . . . . . . . . . . . . . . $35,994 $34,123
Cost of goods sold . . . . . . . . . . . . . . . . 24,994 22,710
Gross profit . . . . . . . . . . . . . . . . . . 11,000 11,413
Selling, general and administrative
expenses.. . . . . . . . . . . . . . . . . . . . 10,588 10,681
Unusual charges. . . . . . . . . . . . . . . . . . 1,259 -
Operating (loss) income. . . . . . . . . . . . . (847) 732
Interest expense, net. . . . . . . . . . . . . . . 1,576 1,047
Other expense, net . . . . . . . . . . . . . . . . 95 37
Loss before income taxes . . . . . . . . . . . . (2,518) (352)
Benefit for income taxes . . . . . . . . . . . . . (932) (130)
Net loss . . . . . . . . . . . . . . . . . . . . $(1,586) $(222)
Net loss per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . $(0.20) $(0.03)
Diluted. . . . . . . . . . . . . . . . . . . . . $(0.20) $(0.03)
Shares used in computing per share amounts:
Basic. . . . . . . . . . . . . . . . . . . . . . 7,922 7,809
Assumed exercise of stock options. . . . . . . . 2 12
Diluted. . . . . . . . . . . . . . . . . . . . . 7,924 7,821
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,
1999 1999
Assets
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . $3,411 $1,438
Accounts receivable, net of allowance
of $2,798 and $2,538
respectively . . . . . . . . . . . . . . . . . 40,116 32,048
Inventories. . . . . . . . . . . . . . . . . . . 49,284 39,749
Deferred income taxes. . . . . . . . . . . . . . 3,983 3,983
Prepaid expenses . . . . . . . . . . . . . . . . 765 928
Total current assets . . . . . . . . . . . . . 97,559 78,146
Property, plant and equipment, net . . . . . . . . 12,252 12,570
Deferred income taxes. . . . . . . . . . . . . . . 22,260 21,460
Goodwill, net. . . . . . . . . . . . . . . . . . . 8,059 8,112
Other assets . . . . . . . . . . . . . . . . . . . 1,512 1,369
Total assets . . . . . . . . . . . . . . . . . . $141,642 $121,657
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt. . . . . . . . $56,715 $51,015
Accounts payable . . . . . . . . . . . . . . . . 21,323 8,518
Accrued liabilities. . . . . . . . . . . . . . . 13,978 11,059
Total current liabilities. . . . . . . . . . . 92,016 70,592
Long-term debt, less current maturities. . . . . . 116 133
Other long-term liabilities. . . . . . . . . . . . 8,855 8,855
Total liabilities. . . . . . . . . . . . . . . 100,987 79,580
Stockholders' equity:
Preferred stock, none issued . . . . . . . . . . - -
Common stock, 7,906,603 and 7,897,708
shares issued and outstanding,
respectively. . . . . . . . . . . . . . . . . . 79 79
Additional paid-in capital . . . . . . . . . . . 30,561 30,482
Stock subscription receivable. . . . . . . . . . (1,421) (1,421)
Cumulative other comprehensive income. . . . . . (1,314) (1,399)
Retained earnings. . . . . . . . . . . . . . . . 12,750 14,336
Stockholders' equity . . . . . . . . . . . . . . 40,655 42,077
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . . . . .$141,642 $121,657
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)
THREE MONTHS ENDED
NOVEMBER 30,
1999 1998
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . $(1,586) $(222)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization. . . . . . . . . 852 610
Deferred income taxes. . . . . . . . . . . . . (800) 924
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . (8,068) (3,064)
Inventories. . . . . . . . . . . . . . . . . . (9,535) (8,467)
Prepaid expenses . . . . . . . . . . . . . . . 163 (113)
Other assets . . . . . . . . . . . . . . . . . (263) (2)
Accounts payable . . . . . . . . . . . . . . . 12,805 1,224
Accrued liabilities and other. . . . . . . . . 3,022 (800)
Net cash used in operating activities. . . . . . . (3,410) (9,910)
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . (379) (583)
Net cash used in investing activities. . . . . . . (379) (583)
Cash flows from financing activities:
Borrowings of short-term debt. . . . . . . . . . 5,700 -
Borrowings of long-term debt . . . . . . . . . . - 16,534
Repayments of long-term debt . . . . . . . . . . (17) (6,300)
Issuance of common stock . . . . . . . . . . . . 79 83
Net cash provided by financing activities. . . . . 5,762 10,317
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . 1,973 (176)
Cash and cash equivalents, beginning of
period.. . . . . . . . . . . . . . . . . . . . . 1,438 862
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . . . . . . . . $3,411 $686
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 Form 8-K filed on January 3, 2000. 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, 1999 are not necessarily indicative of the results
that may be expected for a full fiscal year.
Note 2: New Credit Facility
On December 28, 1999, the Company refinanced its credit
facility by entering into a $75,000,000 five-year term credit
agreement with a new lender. Actual availability is based on the
Company's outstanding receivables and inventories. The facility
also allows for a $15,000,000 seasonal advance from November
through April. Borrowings under the agreement are based on an
interest rate of LIBOR plus 2.25%. A commitment fee of .50% is
charged on any unused portion of the facility.
The new credit facility among other restrictions requires
the Company to achieve certain EBITDA levels as defined in the
agreement, maintain a fixed charge ratio of 1 to 1 and limits
capital expenditures and the payment of dividends.
Note 3: Inventories
Inventories consisted of the following (in thousands):
November 30, August 31,
1999 1999
Raw materials. . . . . . . . . . . . . . . 7,927 $8,447
Work in process. . . . . . . . . . . . . . 2,178 1,977
Finished goods . . . . . . . . . . . . . . 39,179 29,325
$49,284 $39,749
<PAGE>
Note 4: Comprehensive Income
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and disclosure of
comprehensive income and its components. Effective September 1,
1998, the Company adopted SFAS No. 130. For the three months
ended November 30, 1999 and 1998, comprehensive income (loss) was
($1,501,000) and ($92,000), respectively.
Note 5: Operating Segments
In 1999, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of a
Business Enterprise and Related Information," which establishes
standards for reporting information about reportable operating
segments. Operating segments, as defined, are components of an
enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance. The Company has identified operating
segments based on internal management reports. This Statement
allows aggregation of similar operating segments into a single
reportable operating segment if the businesses are considered
similar under the criteria of this statement. The Company has
five operating segments based on its product categories, which in
applying the aggregation criteria of this Statement have been
aggregated into two reportable segments: Sports Equipment and
Licensing.
The sports equipment segment manufactures and distributes
sports equipment and uniforms for team sports including baseball,
basketball, football, and hockey. The licensing segment licenses
the Rawlings brand name on products sold by other companies and
include products such as golf equipment, footwear, and
activewear. There are no determinable operating expenses for the
licensing segment. The accounting policies of the segments are
the same as those for the Company. The revenues generated and
long-lived assets located outside the United States are not
significant for separate presentation.
<PAGE>
Three Months Ended
November 30,
1999 1998
Net revenues
Sports equipment $34,984 $32,971
Licensing 1,010 1,152
Consolidated net revenues $35,994 $34,123
Operating income (loss)
Sports equipment $(1,857) (420)
Licensing 1,010 1,152
Consolidated operating income $(847) $732
November 30, August 31,
1999 1999
Total assets
Sports equipment $140,329 $120,428
Licensing 1,313 1,229
Consolidated total assets $141,642 $121,657
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Quarter Ended November 30, 1999 Compared
with Quarter Ended November 30, 1998
Net revenues for the quarter ended November 30, 1999 were
$35,994,000 or 5.5 percent higher than net revenues of
$34,123,000 for the same quarter last year. The increase in net
revenues from the prior year was primarily the result of higher
sales of baseballs (with the exception of radar balls), gloves,
batter's helmets and apparel partially offset by lower sales of
wood bats, radar balls, basketballs and footballs. The increase
in glove net revenues was primarily due to strong sell through at
the retail level supported by the All-Star Series promotion
$10,000,000 sweepstakes. The increase in net revenues of
batter's helmets was primarily due to our early delivery
incentive program designed to level load factory production. The
increase in apparel net revenues was primarily the result of
increased stock volume. Sales of wood bats, while strong, are
lower by comparison because of unusually strong sales in the
prior year driven by the 1998 home run chase. Radar
speed-sensing baseball net revenues were off significantly after
an initial introduction of the product in late 1998. Football
net revenues were down as a result of the decision not to renew
the NCAA contract.
<PAGE>
The Company's gross profit was $11,000,000 or 3.6 percent
lower than the gross profit of $11,413,000 for the comparable
prior year period. The gross profit margin for the quarter was
30.6 percent, 2.8 margin points lower than the comparable prior
year quarter. The erosion of profit margin was primarily related
to lower sales of high margin wood bats and radar speed-sensing
baseballs.
The Company is continuing to look for further production
efficiencies in apparel and significant cost reductions in other
areas including the potential sale of under-performing assets,
consolidation of certain production facilities, consolidation of
multiple distribution facilities into one location, various
process redesigns in customer service and distribution, and a 15
percent reduction in headquarters' staff. The headquarters'
staff reduction was completed during the first quarter through an
early retirement program which resulted in a first quarter charge
of $759,000. An additional charge is expected to write-off
goodwill and other assets as part of the plan to sell
under-performing assets.
Selling, general and administrative (SG&A) expenses of
$10,588,000 were 0.9 percent below SG&A expenses of $10,681,000
in the comparable prior year quarter. SG&A expenses were 29.4
percent of net revenues or 1.9 points lower than the comparable
prior year quarter.
Unusual charges included a charge of $759,000 for the
previously discussed early retirement program and $500,000 of
costs associated with the Company's strategic review process.
Interest expense was $1,576,000 or 50.5 percent higher than
interest expense of $1,047,000 in the comparable prior year
quarter. Lower average borrowings were more than offset by
higher rates associated with the Company's credit agreement as
amended in September, 1999. On December 28, 1999, the Company
refinanced its credit facility by entering into a $75,000,000
five-year term credit agreement with a new lender. Borrowings
under the new agreement are based on an interest rate of LIBOR
plus 2.25 percent.
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 generally represent
approximately 50 percent to 65 percent of the customers'
anticipated needs for the entire baseball season. The amount of
these pre-season orders generally determines 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 Company between February and May. These orders
generally represent<PAGE> approximately 35 percent to 50 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.
Year 2000 Issues
In 1998 the Company initiated a comprehensive program to
replace its computer systems and applications with a Year 2000
compliant enterprise-wide system. The Company completed the
installation of its main J.D. Edwards operating system in fiscal
1999. The remaining systems to be replaced relate to the outlet
store operations, the Costa Rican facility and Vic operations and
primarily consist of replacing personal computer hardware. The
Company has incurred capital expenditures, including hardware,
software, outside consultants and other expenses, of
approximately $2.9 million on its new enterprise-wide system and
expects that full implementation of the system will not require
significant additional costs. The Company incurred approximately
$300,000 in software selection and training costs that have been
expensed since the beginning of fiscal 1997.
The Company has formally communicated with its major vendors
and suppliers to determine the extent to which the Company may be
vulnerable to those third parties' failure to remediate their own
Year 2000 issues. This included sending Year 2000 surveys and
questionnaires to customers and vendors. Based on the responses
received to date, the Company does not foresee any impact of
non-compliance on the part of its major vendors. Management is
currently developing contingency plans which include, but are not
limited to, evaluating alternative vendors who are Year 2000
compliant and<PAGE> evaluating inventory management plans. As of
the date of this filing, January 13, 2000, the Company has not
encountered any significant business disruptions as a result of
internal or external Year 2000 issues. However, while no such
occurrence has developed, Year 2000 issues may arise that may not
become immediately apparent. Therefore, the Company will
continue to monitor and work to remediate any issues that may
arise. Although the Company expects not to be materially
impacted, such future events cannot be known with certainty.
Liquidity and Capital Resources
Operating activities used cash of $3,410,000 for the quarter
ended November 30, 1999 or 65.6 percent lower than the $9,910,000
used in the comparable prior year period. The improvement is
primarily the result of converting foreign vendors from letter of
credit to open account payment terms partially offset by
increases in accounts receivable and inventories during the
quarter.
Capital expenditures were $379,000 for the quarter ended
November 30, 1999 compared to $583,000 in the comparable prior
year quarter. The Company expects capital expenditures for
fiscal 2000 to be approximately $2,100,000.
The Company had net borrowings, primarily related to
seasonal working capital needs, of $5,683,000 in the quarter
ended November 30, 1999. This resulted in total debt as of
November 30, 1999 of $56,831,000, or 15.6 percent lower than the
total debt as of November 30, 1998. The decrease in total debt is
primarily the result of more efficient working capital
management.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL
CONDITION OR BUSINESS
Statements made in this report, other reports and proxy
statements filed with the Securities and Exchange Commission,
communications to stockholders, press releases and oral
statements made by representatives of the Company that are not
historical in nature, or that state the Company's or management's
intentions, hopes, beliefs, expectations, or predictions of the
future, are "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended,
and involve risks and uncertainties. The words "should," "will
be," "intended," "continue," "believe," "may," "expect," "hope,"
"anticipate," "goal," "forecast" and similar expressions are
intended to identify such forward-looking statements. It is
important to note that any such performance, and actual results,
financial condition or business could differ materially from
those expressed in such forward-looking statements. Factors that
could cause or contribute to such differences include, but are
not limited to, those discussed below as well as those discussed
elsewhere in reports filed with the Securities and Exchange
Commission. The Company<PAGE> undertakes no obligation to update
or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in
future operating results, financial condition or business over
time.
Item 3. Quantitative and Qualitative Disclosure about Market
Risk
The Company has no material sensitivity to changes in
foreign currency exchange rates on its net exposed derivative
financial instrument position.
<PAGE>
Part II.
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2 Changes in Securities and Use of Proceeds
None.
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
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: January 13, 2000 /s/ STEPHEN M. O'HARA
Stephen M. O'Hara
Chairman of the Board and
Chief Executive Officer
Date: January 13, 2000 /s/ MICHAEL L. LUETKEMEYER
Michael L. Luetkemeyer
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 3,411
<SECURITIES> 0
<RECEIVABLES> 42,914
<ALLOWANCES> 2,798
<INVENTORY> 49,284
<CURRENT-ASSETS> 97,559
<PP&E> 28,770
<DEPRECIATION> 16,518
<TOTAL-ASSETS> 141,642
<CURRENT-LIABILITIES> 92,016
<BONDS> 8,971
0
0
<COMMON> 79
<OTHER-SE> 40,576
<TOTAL-LIABILITY-AND-EQUITY> 141,642
<SALES> 35,994
<TOTAL-REVENUES> 35,994
<CGS> 24,994
<TOTAL-COSTS> 24,994
<OTHER-EXPENSES> 11,847
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<INTEREST-EXPENSE> 1,576
<INCOME-PRETAX> (2,518)
<INCOME-TAX> (932)
<INCOME-CONTINUING> (1,586)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,586)
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