<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 0-24534
MERIDIAN SPORTS INCORPORATED
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3776096
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CHEROKEE COVE DRIVE, VONORE, TENNESSEE 37885
(Address of principal executive offices) (Zip Code)
423-884-6776
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
- - --------------------------------------------------------------------------------
(Registrant's former address)
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
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of
the latest practicable date.
Class Outstanding at July 31, 1996
- - ----------------------- ----------------------------
Common Stock, $0.01 par 8,000,000
As of August 13, 1996, 5,200,000 shares of the Registrant's outstanding common
stock were held by an indirect wholly-owned subsidiary of Mafco Holdings Inc.
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Operations
Six and Three Months Ended June 30, 1996 and 1995...................3
Consolidated Condensed Balance Sheets
June 30, 1996 and December 31, 1995.................................4
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995.............................5
Notes to Consolidated Financial Statements..........................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........ ..................................8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................13
Exhibit Index.......................................................14
Signatures..........................................................15
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------ -----------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
Marine and Equipment $42,551 $47,783 $23,070 $23,188
Businesses sold 23,987 51,869 9,837 27,321
Personal watercraft 0 18,275 0 8,254
------------- ------------ ------------ ------------
66,538 117,927 32,907 58,763
------------- ------------ ------------ ------------
Costs and expenses:
Cost of sales:
Marine and Equipment 32,255 35,783 17,041 17,461
Businesses sold 17,998 39,011 6,888 20,436
Personal watercraft (1996 amounts reflect $12,400
and $9,900, respectively, related to restructuring) 12,400 15,635 9,900 7,428
------------- ------------ ------------ ------------
62,653 90,429 33,829 45,325
------------- ------------ ------------ ------------
Selling, general and administrative expenses:
Marine and Equipment 9,501 8,804 4,623 4,094
Businesses sold 5,309 8,405 1,698 4,288
Personal watercraft 1,100 2,457 600 1,284
Headquarters expenses (1996 amounts include $1,600
related to restructuring) 3,415 2,024 2,329 834
------------- ------------ ------------ ------------
19,325 21,690 9,250 10,500
------------- ------------ ------------ ------------
Interest and related amortization expense (1,164) (1,636) (383) (835)
Gain on sale of businesses and unusual item 16,850 4,900
------------- ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary charge 246 4,172 (5,655) 2,103
Provision for income taxes 6,958 1,380 2,091 662
------------- ------------ ------------ ------------
(Loss) income before extraordinary charge (6,712) 2,792 (7,746) 1,441
Extraordinary charge 1,332 619
============= ============ ============ ============
Net (loss) income $(8,044) $ 2,792 $(8,365) $ 1,441
============= ============ ============ ============
Earnings per common share:
(Loss) income before extraordinary charge $(0.84) $0.35 $(0.97) $0.18
Extraordinary charge (0.17) (0.08)
============= ============ ============ ============
Net (loss) income $(1.01) $0.35 $(1.05) $0.18
============= ============ ============ ============
Weighted average shares outstanding (000s) 8,000 8,000 8,000 8,000
============= ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
----------- -------------
Current assets:
Cash $ 345 $ 1,937
Accounts receivable, net of allowances 13,375 20,943
Inventories 13,448 27,533
Prepaid expenses and other 3,223 7,836
----------- -------------
Total current assets 30,391 58,249
Property, plant and equipment, net 13,362 29,797
Intangible and other assets, net 1,797 15,781
----------- -------------
$45,550 $103,827
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 42,400
Accounts payable $ 7,476 18,479
Accrued expenses and other current liabilities 29,675 25,594
----------- -------------
Total current liabilities 37,151 86,473
Other liabilities 2,271 3,096
Stockholders' equity:
Preferred stock, par value $0.01 per share
Common stock, par value $0.01 per share 80 80
Additional paid-in capital 131,951 131,951
Accumulated deficit (125,903) (117,859)
Cumulative translation adjustment 0 86
----------- -------------
Total stockholders' equity 6,128 14,258
----------- -------------
$45,550 $103,827
=========== =============
See Notes to Consolidated Financial Statements
4
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (8,044) $2,792
---------- ----------
Adjustments to reconcile net (loss) income to net cash flows
from operating activities:
Depreciation and amortization 2,056 2,525
Gain on sale of businesses, restructuring and other,
net of income taxes 5,440
Change in assets and liabilities:
Increase in receivables (3,582) (3,333)
Increase in inventories (874) (1,197)
(Decrease) increase in accounts payable and accrued
expenses (701) 489
Payment of restructuring liabilities (10,488)
Other, net 755 1,627
---------- ----------
(7,394) 111
---------- ----------
Net cash flows from operating activities (15,438) 2,903
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses, net of cash sold 58,961
Capital expenditures, net (1,752) (2,878)
Acquisition of businesses and payment of related obligations (20) (44)
---------- ----------
Net cash flows from investing activities 57,189 (2,922)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings, net of fees (43,343) (929)
---------- ----------
Net cash flows from financing activities (43,343) (929)
---------- ----------
Net decrease in cash (1,592) (948)
Cash at beginning of period 1,937 4,614
---------- ----------
Cash at end of period $ 345 $3,666
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all material intercompany
accounts and transactions. The consolidated financial statements are
unaudited. In management's opinion, all adjustments (consisting only of normal
recurring accruals and the restructuring charges (see Note 3)) considered
necessary for a fair presentation have been included. Operating results for
the first six months of 1996 are not necessarily indicative of the results
that may be expected for a full year. These interim financial statements
should be read in conjunction with the consolidated financial statements and
related notes thereto which are included on pages F-1 through F-22 of the
Company's annual report on Form 10-K for the year ended December 31, 1995. All
terms used but not defined elsewhere herein have the meanings ascribed to them
in the Company's Form 10-K. Certain reclassifications have been made to
conform to the current period's presentation. The Company is an
enthusiast-based sports and active recreation company.
2. DISPOSAL OF BUSINESSES, UNUSUAL ITEM AND EXTRAORDINARY ITEM
On January 31, 1996, the Company sold Skeeter to Yamaha for $37,500,
subject to an adjustment based on the final determination of the net assets
sold to Yamaha. In August 1996, the Company and Yamaha reached a final
agreement as to the amount of the purchase price. The final purchase price was
$33,900, resulting in a payment to Yamaha of $3,600, of which $2,700 had been
deposited into escrow by Yamaha at the closing of the sale. The Skeeter Sale
resulted in a pre-tax gain of $13,289, net of a goodwill writeoff of $10,094.
The proceeds of the Skeeter Sale were used to prepay indebtedness of the
Company under the Company Credit Agreement and the Subordinated Facility.
On May 31, 1996, the Company consummated a transaction with Brunswick
pursuant to which Brunswick purchased certain assets and assumed certain
liabilities of BW Sale Corp., formerly Boston Whaler, Inc. ("BW"), for
$26,705, subject to adjustment based on a determination of the net assets sold
to Brunswick. On August 2, 1996, Brunswick notified the Company of its
calculation of net assets sold pursuant to the BW Sale and its request,
according to such calculation, that the Company make a payment to Brunswick of
approximately $770 as an adjustment to the purchase price. The Company is in
the process of reviewing Brunswick's calculation. It is expected that such
adjustment will be in favor of Brunswick in an amount of at least $300. The
proceeds of the BW Sale were used to repay indebtedness of the Company under
the Company Credit Agreement and the Subordinated Facility. The results of
operations of Skeeter (through January 31, 1996) and Boston Whaler (through
May 31, 1996) are included in "Businesses Sold" in the accompanying
consolidated condensed statements of operations. The BW Sale resulted in a
pre-tax gain of $4,900. The Company also recorded a valuation adjustment of
$1,339 related to its Equipment business. Due to the permanent commitment
reduction under the Company Credit Agreement in connection with the Skeeter
Sale and BW Sale, the Company recorded an extraordinary charge of $1,332 for
the writeoff of deferred financing costs.
6
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. RESTRUCTURING CHARGES
In the period ended June 30, 1996, the Company revised its estimates
to execute the WetJet restructuring program to reflect increased warranty
costs and lower estimates of realizable value of inventories and accordingly
recorded charges in cost of sales of $12,400 and $9,900 for the six and three
month periods, respectively, ended June 30, 1996. Although the Company has
largely completed the WetJet recall program, there can be no assurance that
the restructuring programs will succeed as planned or that management's
estimates of the cost of the restructuring program will not be exceeded.
Headquarters expenses in the second quarter 1996 include a one-time
charge of $1,600 comprised primarily of severance costs related to the closure
of the New York office and the relocation of the headquarters function to
Vonore, Tennessee.
4. EARNINGS PER COMMON SHARE
Earnings per common share have been computed based upon 8,000,000
shares for the six and three months ended June 30, 1996 and 1995.
5. INVENTORIES
Inventories are valued at the lower of cost or market. Inventory
costs are determined principally by the last-in, first-out method ("Lifo").
Inventories consisted of the following:
June 30, December 31,
1996 1995
---------- ---------
Raw materials and supplies.................. $ 5,223 $10,564
Work-in-process............................. 1,617 2,374
Finished goods.............................. 7,275 15,447
----- ------
14,115 28,385
Less: Lifo allowance........................ (667) (852)
-------- --------
$13,448 $27,533
======== ========
6. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from
operating activities. For the six months ended June 30, 1996 and 1995,
interest paid was $1,409 and $1,630, respectively; income taxes paid were
$257 and $301, respectively.
7
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere
herein.
Results of Operations
The following table sets forth historical statements of operations
data for the six and three months ended June 30, 1996 and 1995. Marine
businesses includes MasterCraft; Equipment businesses include O'Brien and
Soniform; Businesses Sold includes Skeeter and Boston Whaler; Personal
watercraft includes WetJet.
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------------- ----------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ------------
(In millions, except percentages) (In millions, except percentages)
<S> <C> <C> <C> <C>
MARINE BUSINESSES:
Net sales $23.1 $26.9 $11.9 $12.6
Gross profit 4.5 6.1 2.6 2.5
Gross profit as a % of net sales 19.5% 22.5% 22.1% 19.5%
Selling, general and administrative expenses (a) 4.9 4.7 2.2 2.1
Operating unit contribution (b) (0.4) 1.4 0.4 0.4
EQUIPMENT BUSINESSES:
Net sales 19.5 20.9 11.2 10.6
Gross profit 5.8 5.9 3.4 3.0
Gross profit as a % of net sales 29.7% 28.5% 30.4% 28.5%
Selling, general and administrative expenses (a) 4.6 4.1 2.4 2.0
Operating unit contribution (b) 1.2 1.8 1.0 1.0
BUSINESSES SOLD:
Net sales 23.9 51.9 9.8 27.3
Gross profit 5.9 12.8 2.9 6.9
Gross profit as a % of net sales 24.6% 24.8% 29.0% 25.2%
Selling, general and administrative expenses (a) 5.3 8.4 1.7 4.3
Operating unit contribution (b) 0.6 4.4 1.2 2.6
PERSONAL WATERCRAFT:
Net sales 0.0 18.2 0.0 8.2
Gross profit (1996 amount reflects $12.4 million and
$9.9 million, respectively, related to restructuring) (12.4) 2.7 (9.9) 1.0
Selling, general and administrative expenses (a) 1.1 2.5 0.6 1.3
Operating unit contribution (b) (13.5) 0.2 (10.5) (0.3)
TOTAL:
Net sales 66.5 117.9 32.9 58.7
Gross profit (1996 amount reflects $12.4 million and
$9.9 million, respectively, related to restructuring) 3.8 27.5 (1.0) 13.4
Selling, general and administrative expenses (a) 15.9 19.7 6.9 9.7
Headquarters expenses (1996 amount reflects $1.6 million
related to restructuring) (c) (3.4) (2.0) (2.3) (0.8)
Interest and related amortization expense (1.2) (1.6) (0.4) (0.8)
Gain on sale of businesses and unusual item 16.9 0.0 4.9 0.0
--- --- --- ---
Income (loss) before income taxes and extraordinary charge 0.2 4.2 (5.7) 2.1
Provision for income taxes 7.0 1.4 2.1 0.7
--- --- --- ---
(Loss) income before extraordinary charge (6.8) 2.8 (7.8) 1.4
Extraordinary charge 1.3 0.0 0.6 0.0
--- --- --- ---
Net (loss) income $(8.1) $2.8 $(8.4) $1.4
====== ==== ====== ====
</TABLE>
(a) Selling, general and administrative expenses includes the provision for
doubtful accounts. See Note 3 to Consolidated Financial Statements for a
discussion of items included in restructuring.
(b) Represents gross profit less selling, general and administrative expenses,
including provision for doubtful accounts, attributable to the operating
businesses. See Note 3 to Consolidated Financial Statements for a
discussion of items included in restructuring.
(c) Represents fees to affiliates plus the portion of selling, general and
administrative expenses related to headquarters.
8
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's Form
10-K for the year ended December 31, 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
Net sales were $66.5 million and $117.9 million for the 1996 and
1995 periods, respectively, a decrease of $51.4 million. Marine sales
decreased 14% to $23.1 million primarily because MasterCraft deliberately
reduced production through April 1996 to balance field inventories at dealers.
Equipment sales decreased by $1.4 million, or 7%, to $19.5 million in 1996 due
to customers carrying lower levels of inventories. Sales of Businesses Sold
decreased from $51.9 million in 1995 to $23.9 million in 1996, reflecting the
effect of the Skeeter Sale on January 31, 1996 and the BW Sale on May 31,
1996. The personal watercraft business continued implementing the
restructuring program in the first half of 1996, focusing on repairing or
replacing previously manufactured inventory. No net sales were realized in the
1996 period, compared with net sales of $18.2 million in the 1995 period.
Gross profit was $3.8 million and $27.5 million for the 1996 and
1995 periods, respectively. Gross profit in 1996 is net of $12.4 million
related to the Company's restructuring of its personal watercraft business. In
1995, WetJet generated gross profit of $2.7. The restructuring charge reflects
a revision of management's estimate to repair previously manufactured
inventory reflecting the cost of additional warranty parts and labor and lower
estimates of realizable value of inventories. Although the WetJet
restructuring programs are largely behind the Company, there can be no
assurance that the restructuring programs will succeed as planned or that
management's estimates of the cost of the restructuring programs will not be
exceeded. Consequently, the Company may record additional restructuring
charges related to WetJet during 1996 as it periodically assesses the status
of the WetJet restructuring programs. The effect of the Skeeter Sale and the
BW Sale was to reduce gross profit of Businesses Sold by $6.9 million in 1996.
Marine and Equipment businesses together produced $1.7 million lower gross
profit in 1996, primarily due to volume declines.
SG&A expenses, excluding headquarters expenses, were $15.9
million and $19.7 million for the 1996 and 1995 periods, respectively, a
decrease of $3.8 million principally related to the Skeeter Sale, the BW Sale
and the reduction of WetJet SG&A expenses.
Headquarters expenses in 1996 included a one-time charge of $1.6
million related to the closure of the New York headquarters office and the
relocation of the headquarters function to Vonore, Tennessee. Headquarters
expenses of $1.8 million, excluding such one-time charge, decreased slightly
from the 1995 period due to lower compensation expense.
Interest and related amortization expense of $1.2 million in the
1996 period was approximately $0.4 below 1995 levels due to the effect of
lower outstanding borrowings.
The Skeeter Sale resulted in a pre-tax gain of $13.3 million, net
of a goodwill writeoff of $10.1 million. The BW Sale resulted in a pre-tax
gain of $4.9 million. The Company also recorded a valuation adjustment of $1.3
million related to its Equipment businesses.
In connection with the permanent reduction of outstanding
commitments under the Company Credit Agreement resulting from the Skeeter Sale
and the BW Sale, the Company recorded an extraordinary charge of $1.3 million
to writeoff deferred financing costs.
The Company recorded a pre-tax loss in the 1996 period. The
provision in 1996 principally includes the realization of a federal deferred
tax asset and a state provision related to the Skeeter Sale and
9
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BW Sale. The provision in 1996 does not include a benefit for the operating
losses of WetJet. Income before income taxes and extraordinary charge in 1996
is net of a non-deductible goodwill writeoff of $13.0 million in connection
with the Skeeter Sale and BW Sale. In 1995, the provision includes a federal
provision which reflects the utilization of net operating loss carryfowards
and state and local taxes.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED
JUNE 30, 1995
Net sales were $32.9 million and $58.7 million for the 1996 and
1995 periods, respectively, a decrease of $25.8 million. Marine sales
decreased 6% to $11.9 million primarily due to weak sales in June 1996 in
connection with the change in model year. Equipment sales increased by $0.6
million, or 6%, to $11.2 million in 1996 due to strong sales of towable water
products which more than offset lower sales of scuba products. Sales of
Businesses Sold decreased from $27.3 million in 1995 to $9.8 million in 1996,
reflecting the effect of the Skeeter Sale on January 31, 1996 and the BW Sale
on May 31, 1996. The personal watercraft business continued implementing the
restructuring program in the second quarter of 1996, focusing on repairing or
replacing previously manufactured inventory. No net sales were realized in the
1996 period, compared with sales of $8.2 million in the 1995 period.
Gross profit was a deficit of ($1.0) million and surplus of $13.4
million for the 1996 and 1995 periods, respectively. Gross profit in 1996 is
net of $9.9 million related to the Company's restructuring of its personal
watercraft business. In 1995, WetJet generated gross profit of $1.0. The
restructuring charge reflects a revision of management's estimate to repair
previously manufactured inventory reflecting the cost of additional warranty
parts and labor and lower estimates of realizable value of inventories.
Although the WetJet restructuring programs are largely behind the Company,
there can be no assurance that the restructuring programs will succeed as
planned or that management's estimates of the cost of the restructuring
programs will not be exceeded. Consequently, the Company may record additional
restructuring charges related to WetJet during 1996 as it periodically
assesses the status of the WetJet restructuring programs. The effect of the
Skeeter Sale and the BW Sale was to reduce gross profit of Businesses Sold by
$4.0 million in 1996. Marine and Equipment businesses together produced $0.5
million higher gross profit in 1996, primarily due to volume increases in
towable water products.
SG&A expenses, excluding headquarters expenses, were $6.9 million
and $9.7 million for the 1996 and 1995 periods, respectively, a decrease of
$2.8 million principally related to the Skeeter Sale, the BW Sale and the
reduction of WetJet SG&A expenses.
Headquarters expenses in 1996 included a one-time charge of $1.6
million related to the closure of the New York headquarters office and the
relocation of the headquarters function to Vonore, Tennessee. Headquarters
expenses of $0.7 million, excluding such one-time charge, decreased slightly
from the 1995 period due to lower compensation expense.
Interest and related amortization expense of $0.4 million in the
1996 period was approximately $0.4 million below 1995 levels due to the effect
of lower outstanding borrowings.
The BW Sale resulted in a pre-tax gain of $4.9 million. In
connection with the permanent reduction of outstanding commitments under the
Company Credit Agreement resulting from the BW Sale, the Company recorded an
extraordinary charge of $0.6 million to writeoff deferred financing costs.
The Company recorded a pre-tax loss in the 1996 period. The
provision in 1996 principally includes the realization of a federal deferred
tax asset and a state provision related to the BW Sale. The provision in 1996
does not include a benefit for the operating losses of the Company. In 1995,
the
10
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
provision includes a federal provision which reflects the utilization of net
operating loss carryfowards and state and local taxes.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1996 and 1995, cash (used in)
provided by operating activities was ($15.4) million and $2.9 million,
respectively. The Company's cash flows from operating activities in 1996
reflect the payment of WetJet restructuring liabilities in the amount of $10.5
million, operating losses and interest expense. The effect of the Skeeter Sale
and the BW Sale was to reduce cash provided by operating activities by $7.3
million compared to 1995.
The Company's net capital expenditures were $1.8 million and $2.9
million for the six months ended June 30, 1996 and 1995, respectively. The
decline reflected primarily the effect of the Skeeter Sale and lower capital
expenditures at MasterCraft and WetJet.
At June 30, 1996, all of the Company's outstanding debt, other
than capitalized leases, was repaid. The decrease of $42.4 million from
December 31, 1995 resulted from the repayment of debt with proceeds from the
Skeeter Sale and the BW Sale, net of payments of WetJet restructuring
liabilities, capital expenditures and increases in working capital. The
Company's working capital and other requirements are currently funded by
borrowings from affiliates.
The Company's liquidity needs are generally for seasonal working
capital needs and the funding of WetJet restructuring liabilities. The Company
has an outstanding letter of credit of approximately $1.4 million under the
Company Credit Agreement. Due to permanent commitment reductions due to the
Skeeter Sale and BW Sale, the Company no longer has a borrowing commitment
under the Company Credit Agreement. Extensions of credit under the Company
Credit Agreement are guaranteed by the subsidiaries of the Company. Extensions
of credit are secured by (a) a security interest in all the capital stock of
the Company's domestic operating subsidiaries and (b) a security interest in
all the material assets of the Company and its subsidiaries. At August 13,
1996, 5,200,000 shares of the Company's common stock owned by MacAndrews &
Forbes was pledged as collateral in support of obligations of an affiliate.
The Company Credit Agreement prohibits the payment of dividends.
In January 1996, the Company entered into the Subordinated
Facility to provide for additional liquidity. Currently the Company has an
outstanding commitment of approximately $6.8 million under the Subordinated
Facility. Loans under the Subordinated Facility bear interest at the prime
rate. At August 13, 1996, there was approximately $2.7 million of borrowings
outstanding under the Subordinated Facility.
The Company is assessing its current and longer-term liquidity
needs. The WetJet restructuring programs, after experiencing several
engineering related delays, are largely behind the Company. WetJet has advised
its dealers and consumers that until the individual personal watercraft is
repaired or upgraded, it should not be used or sold. At August 13, 1996,
substantially all of the WetJet recall repair kits have been shipped to local
dealers and management believes that the majority of them have been
successfully installed in watercraft. Nevertheless, there can be no assurance
that the restructuring programs will succeed as planned or that management's
estimates of the cost of the restructuring programs will not be exceeded.
Should the restructuring programs not succeed as planned, or cost in excess of
current estimates, the Company will require additional sources of liquidity
and may be required to record additional restructuring charges. The Company
has commenced efforts to obtain a new credit agreement. There can be no
assurance that the Company will be able to consummate such a credit agreement
or
11
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
obtain additional sources of liquidity on satisfactory terms. Although none of
the Company's affiliates are required to provide funding to the Company other
than pursuant to the Subordinated Facility, the Company anticipates that
liquidity needs, if any, in excess of the Subordinated Facility will be met by
loans from affiliates.
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. The forward-looking
statements contained in this Form 10-Q are subject to certain risks and
uncertainties. Actual results could differ materially from current
expectations. Among the factors which could affect the Company's actual
results and could cause results to differ from those contained in the
forward-looking statements contained herein are consumer's acceptance of the
Company's new model year products and the success of the WetJet restructuring
programs.
SEASONALITY
The marine and watersports industry is seasonal, with consumer
sales strongest in the summer months. As a result of this seasonality,
operating results obtained in the first half of the year are not necessarily
indicative of results that may be expected for the full year.
12
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
See exhibit index on page 14.
b. Reports on Form 8-K
Form 8-K as of May 31, 1996 related to the BW Sale.
13
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
27 Financial Data Schedule
14
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
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.
MERIDIAN SPORTS INCORPORATED
----------------------------
(Registrant)
August 13, 1996 By:/s/ Irwin Engelman
-------------------------
Irwin Engelman
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Meridian
Sports Incorporated Consolidated Balance Sheet and Statement of Operations and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000926474
<NAME> MERIDIAN SPORTS INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 345
<SECURITIES> 0
<RECEIVABLES> 13,375
<ALLOWANCES> 0
<INVENTORY> 13,448
<CURRENT-ASSETS> 30,391
<PP&E> 24,737
<DEPRECIATION> (11,375)
<TOTAL-ASSETS> 45,550
<CURRENT-LIABILITIES> 37,151
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 6,048
<TOTAL-LIABILITY-AND-EQUITY> 45,550
<SALES> 66,538
<TOTAL-REVENUES> 66,538
<CGS> 62,653
<TOTAL-COSTS> 62,653
<OTHER-EXPENSES> 19,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,164
<INCOME-PRETAX> 246
<INCOME-TAX> 6,958
<INCOME-CONTINUING> (6,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,332
<CHANGES> 0
<NET-INCOME> (8,044)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
