<PAGE> 1
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, 2000
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 31, 2000: 7,970,238 shares.
<PAGE> 2
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>
<CAPTION>
Three Months Ended
November 30,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net revenues....................................................................... $ 36,683 $ 33,974
Cost of goods sold................................................................. 25,162 23,323
------------- -------------
Gross profit.................................................................. 11,521 10,651
Selling, general and administrative expenses....................................... 10,850 9,854
Unusual (income) expense........................................................... (1,054) 1,259
------------- -------------
Operating income (loss)....................................................... 1,725 (462)
Interest expense, net.............................................................. 1,072 1,576
Other expense, net................................................................. 104 88
------------- -------------
Income (loss) from continuing operations before income taxes.................. 549 (2,126)
Provision (benefit) for income taxes............................................... 203 (787)
------------- -------------
Net income (loss) from continuing operations.................................. 346 (1,339)
Loss from operations of discontinued segment, net of tax........................... - (247)
------------- -------------
Net income (loss)............................................................. $ 346 $ (1,586)
============= =============
Net income (loss) per common share, basic and diluted:
Continuing operations......................................................... $ 0.04 $ (0.17)
Discontinued segment.......................................................... - (0.03)
------------- -------------
Net income (loss)............................................................. $ 0.04 $ (0.20)
============= =============
Shares used in computing per share amounts:
Basic......................................................................... 7,999 7,922
Assumed exercise of stock options............................................. 2 2
------------- -------------
Diluted....................................................................... 8,001 7,924
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 3
Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
November 30,
2000 August 31,
(Unaudited) 2000
-------------------- ------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................................. $ 1,234 $ 1,424
Accounts receivable, net of allowance of
$2,795 and $2,561 respectively.......................... 33,406 28,246
Inventories................................................ 50,857 38,100
Deferred income taxes...................................... 6,079 6,079
Prepaid expenses........................................... 577 819
Net assets of discontinued segment......................... 1,817 2,624
-------------------- ------------------
Total current assets................................... 93,970 77,292
Property, plant and equipment................................. 7,746 8,873
Deferred income taxes......................................... 20,620 20,802
Other assets.................................................. 1,312 1,211
Net noncurrent assets of discontinued segment................. 475 547
-------------------- ------------------
Total assets........................................... $ 124,123 $ 108,725
==================== ==================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and
revolving credit agreement............................. $ 44,855 $ 37,178
Accounts payable........................................... 23,783 13,804
Accrued liabilities........................................ 10,600 10,729
-------------------- ------------------
Total current liabilities.............................. 79,238 61,711
Long-term debt, less current maturities....................... 6,261 8,404
Other long-term liabilities................................... 9,291 9,291
-------------------- ------------------
Total liabilities...................................... 94,790 79,406
-------------------- ------------------
Stockholders' equity:
Preferred stock, none issued............................... - -
Common stock, $0.01 par value, 50,000,000
shares authorized, 7,957,283 and 7,946,338
shares issued and outstanding, respectively............ 80 79
Additional paid-in capital................................. 30,862 30,798
Stock subscription receivable.............................. (1,421) (1,421)
Cumulative other comprehensive loss........................ (1,865) (1,468)
Retained earnings.......................................... 1,677 1,331
-------------------- ------------------
Stockholders' equity....................................... 29,333 29,319
-------------------- ------------------
Total liabilities and stockholders' equity............. $ 124,123 $ 108,725
==================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
3
<PAGE> 4
Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
---------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ 346 $ (1,586)
Add loss from discontinued segment.................................... - 247
----------------- ------------------
Income (loss) from continuing operations.............................. 346 (1,339)
Adjustments to reconcile income (loss) from continuing
operations to net cash used in continuing operations:.............
Depreciation and amortization..................................... 590 760
Gain on sale of Springfield distribution center................... (1,115) -
Deferred income taxes............................................. 182 (794)
Changes in operating assets and liabilities:
Accounts receivable............................................... (5,160) (9,506)
Inventories....................................................... (12,757) (9,865)
Prepaid expenses.................................................. 242 132
Other assets...................................................... (199) (261)
Accounts payable.................................................. 9,979 12,676
Accrued liabilities and other..................................... (928) 3,053
----------------- ------------------
Net cash used in continuing operations..................................... (8,820) (5,144)
Net cash provided by discontinued segment.................................. 897 2,078
----------------- ------------------
Net cash used in operating activities...................................... (7,923) (3,066)
----------------- ------------------
Cash flows from investing activities:
Capital expenditures of continuing operations......................... (224) (347)
Capital expenditures of discontinued segment.......................... (18) (32)
Proceeds from sale of Springfield distribution center................. 2,376 -
----------------- ------------------
Net cash provided by (used in) investing activities........................ 2,134 (379)
----------------- ------------------
Cash flows from financing activities:
Net increase in short-term borrowings................................. 7,677 5,700
Repayments of long-term debt.......................................... (2,143) (17)
Issuance of common stock.............................................. 65 79
----------------- ------------------
Net cash provided by financing activities.................................. 5,599 5,762
----------------- ------------------
Net increase (decrease) in cash and cash equivalents....................... (190) 2,317
Cash and cash equivalents, beginning of period............................. 1,424 904
----------------- ------------------
Cash and cash equivalents, end of period................................... $ 1,234 $ 3,221
================= ==================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
Rawlings Sporting Goods Company, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 10-K
for the year ended August 31, 2000 filed on December 12, 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, 2000 are not necessarily indicative of the results that may be
expected for a full fiscal year.
Note 2: Discontinued Segment
On June 26, 2000 the Company made a strategic decision to seek a buyer
for its Vic hockey business. Vic provides an extensive line of equipment for
hockey including hockey sticks, hockey protective equipment and goalie
protective equipment. While not complete as of November 30, 2000 the disposition
of the Vic hockey business is expected to be completed during fiscal 2001. Vic
hockey is accounted for as a discontinued segment, and accordingly, operating
results and net assets are segregated in the Company's financial statements.
The net current assets of this discontinued segment are primarily
accounts receivable, inventory, accounts payable and accrued expenses. Net
noncurrent assets are primarily property, plant and equipment.
Operating results for the hockey business are included in the
Consolidated Statements of Income as loss from discontinued segment through May
31, 2000. Operating results subsequent to May 31, 2000 have been included in the
provision for operating losses during the phaseout period that was recorded
during the third quarter of fiscal 2000. Results for the discontinued segment
are as follows (in thousands):
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<TABLE>
<CAPTION>
Quarter Ended
November 30,
---------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Net revenues.............................................................. $ 1,505 $ 2,020
=============== ==============
Loss from operations of discontinued segment before income taxes.......... $ (518) $ (392)
Benefit for income taxes.................................................. - (145)
--------------- --------------
Net loss from operations of discontinued segment.......................... $ (518) $ (247)
=============== ==============
</TABLE>
Note 3: Unusual (Income) Expense
In connection with the relocation of distribution facilities to a new
single location in Washington, Missouri, the Springfield, Missouri distribution
center was sold in September 2000. The Company is currently leasing the
Springfield distribution center from the buyer until the move to Washington can
be completed later in fiscal 2001. The gain on the sale of Springfield of
$1,115,000 offset by $61,000 of redundant costs incurred during the move to
Washington has been included as unusual income in the Consolidated Statement of
Income for the three months ended November 30, 2000.
Unusual expense in the three months ended November 30, 1999 include a
charge of $759,000 for an early retirement program and $500,000 of costs
associated with the Company's strategic review process.
Note 4: Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
------------ ------------
<S> <C> <C>
Raw materials............................. $ 9,809 $ 9,777
Work in process........................... 1,514 900
Finished goods............................ 39,534 27,423
------------ ------------
$ 50,857 $ 38,100
============ ============
</TABLE>
Note 5: Comprehensive Income
For the three months ended November 30, 2000 and 1999 comprehensive
loss was $51,000 and $1,501,000, respectively.
6
<PAGE> 7
Note 6: Operating Segments
Operating segments 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. Aggregation of similar operating segments into a single
reportable operating segment is permitted if the businesses are considered to
have similar long-term economic characteristics. The Company has four operating
segments based on its product categories, which in applying the aggregation
criteria 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 and
football. The licensing segment licenses the Rawlings brand name on products
sold by other companies, including 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 and therefore, separate presentation is not required.
7
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended
November 30,
2000 1999
------------------- --------------------
<S> <C> <C>
Net revenues
Sports equipment $ 35,718 $ 32,964
Licensing 965 1,010
------------------- --------------------
Consolidated net revenues $ 36,683 $ 33,974
=================== ====================
Operating income (loss)
Sports equipment $ 760 $ (1,472)
Licensing 965 1,010
------------------- --------------------
Consolidated operating income (loss) $ 1,725 $ (462)
=================== ====================
<CAPTION>
November 30, August 31,
2000 2000
------------------- --------------------
<S> <C> <C>
Total assets
Sports equipment $ 120,582 $ 104,643
Licensing 1,249 911
Net assets of discontinued segment 2,292 3,171
------------------- --------------------
Consolidated total assets $ 124,123 $ 108,725
=================== ====================
</TABLE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Statements made in this report 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"
under the Private Securities Litigation Reform Act of 1995, 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 forward-looking statements are not guarantees of
future performance, and the Company's 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 under the caption "Cautionary
Factors That May Affect Future Results or the Financial Condition of the
Business", as well as those discussed elsewhere in the Company's reports filed
with the Securities and Exchange
8
<PAGE> 9
Commission. The Company 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 over time.
Discontinued Segment
On June 26, 2000, the Company made a strategic decision to seek a buyer
for its Vic hockey business. Vic provides an extensive line of equipment for
hockey including hockey sticks, hockey protective equipment and goalie
protective equipment. The disposition of the Vic hockey business is expected to
be completed during fiscal 2001. Vic hockey is accounted for as a discontinued
segment, and accordingly, operating results and net assets are segregated in
the Company's financial statements.
RESULTS OF OPERATIONS
Quarter Ended November 30, 2000 Compared
with Quarter Ended November 30, 1999
Net revenues from continuing operations for the quarter ended November
30, 2000 were $36,683,000 or 8.0 percent higher than net revenues from
continuing operations of $33,974,000 for the same quarter last year. The
increase in net revenues from continuing operations was primarily the result of
increased sales of basketballs, baseball gloves and footballs. Increases in
basketballs and footballs were due to new items added to the lines in key
accounts and to the new items having higher price points. Increased sales of
baseball gloves was primarily a timing issue with sales in the quarter ended
November 30, 2000 benefiting from earlier shipments to avoid lost sales due to
late deliveries experienced in fiscal 2000 and to ensure that the product was
delivered prior to the holiday season.
The Company's gross profit was $11,521,000 or 8.2 percent greater than
the gross profit of $10,651,000 for the comparable prior year period. The
increase in gross profit was due to higher sales as the gross profit margin was
31.4 percent for both periods.
Selling, general and administrative (SG&A) expenses were $10,850,000 or
29.6 percent of net sales compared to $9,854,000 or 29.0 percent of sales in the
prior year. SG&A increases are in freight expense and marketing programs such as
royalties, coop advertising and promotion.
Unusual income for the three months ended November 30, 2000 was
comprised of the $1,115,000 gain on the sale of the Springfield distribution
center and $61,000 of redundant costs incurred during the move to Washington.
Unusual expenses in the November 1999 quarter include $759,000 for an early
retirement program and $500,000 of costs associated with the Company's strategic
review process.
9
<PAGE> 10
Interest expense for the quarter ended November 30, 2000 was $1,072,000
or 32.0 percent lower than the interest expense of $1,576,000 for the comparable
prior year quarter. Lower average borrowings by $9,800,000 and lower average
interest rates of 1.5 points accounted for the decrease in interest expense.
Net income from continuing operations for the quarter ended November
30, 2000 was $346,000 compared to a loss in the first quarter of fiscal 2000 of
$1,339,000. Increased net revenues, the gain on the sale of the distribution
center and the prior year unusual expenses were the primary reason for the
increase in net income.
Net revenues from the discontinued segment for the quarter ended
November 30, 2000 were $1,505,000 or 25.5 percent lower than net revenues from
the discontinued segment of $2,020,000 for the same quarter last year. The
decrease in net revenues was primarily the result of lower sales of hockey
gloves and protective equipment. Net loss from operations for the discontinued
segment for the quarter ended November 30, 2000 was $518,000 or $271,000 more
than the net loss from discontinued operations of $247,000 for the same quarter
last year. The increased loss from discontinued operations was primarily the
result of lower sales volume and a $145,000 tax benefit recorded in the November
1999 quarter.
Liquidity and Capital Resources
Working capital decreased by $849,000 during the three months ended
November 30, 2000 primarily as a result of a seasonal increase in accounts
receivable and inventories, which was more than offset by increases in accounts
payable and short-term borrowings and a decrease in net current assets of
discontinued segment.
Operating activities used cash of $7,923,000 for the quarter ended
November 30, 2000 compared to the $3,066,000 used in the comparable prior year
period. The increase in cash used in operating activities was due to increases
in other accrued liabilities and accounts payable during the November 30, 1999
quarter which did not occur in the November 30, 2000 quarter.
Capital expenditures were $242,000 for the quarter ended November 30,
2000 compared to $379,000 in the comparable prior year quarter. The Company
expects capital expenditures for fiscal 2001 to be approximately $1,800,000.
The Company had an increase in net borrowings, primarily related to
seasonal working capital needs, of $5,534,000 in the quarter ended November 30,
2000. This resulted in total debt as of November 30, 2000 of $51,116,000 or 10.1
percent lower than the total debt as of November 30, 1999. The decrease in total
debt is primarily the result of more efficient working capital management and
the repayment of debt resulting from
10
<PAGE> 11
the proceeds of the sale of the Springfield distribution center. Management
believes that the Company's current credit facility is sufficient to adequately
finance its existing and future operations.
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
January 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 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. The Company
has made a concerted effort to reduce these extended term sales and as a result
may have moved some sales to later months to avoid the extended term at the same
time preserving the early spring dating. In addition, 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. To offset these risks, the Company implemented in
1999 for the Spring 2000 season a Port of Entry (POE) program to encourage
retailers to place early orders, as well as other changes in credit terms to
reduce risk and debt levels. 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. 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.
11
<PAGE> 12
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 in this document as
well as those discussed elsewhere in other reports filed with the Securities and
Exchange Commission. The Company 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 certain market risk exposure related to interest rates.
The Company is exposed to market risks related to fluctuations in interest rates
for its variable rate borrowings of $51,000,000 as of November 30, 2000. A
change in interest rates of 1% on the balance outstanding at November 30, 2000
would cause a change in total annual earnings and cash flows of $510,000
assuming other factors are held constant.
Due to the relative size of the Company's foreign operations, the
Company believes it does not have any material exposure to foreign currency
fluctuations.
12
<PAGE> 13
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.
13
<PAGE> 14
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 15, 2001 /s/ STEPHEN M. O'HARA
-----------------------------------
Stephen M. O'Hara
Chairman of the Board and
Chief Executive Officer
Date: January 15, 2001 /s/ WILLIAM F. LACEY
--------------------------------------------
William F. Lacey
Vice President and Chief Financial Officer
(Principal Accounting Officer)
14
