<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 September 30, 1997
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)
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 November 13, 1997
- ------------------------------- --------------------------------
Common Stock, $0.01 par 8,000,000
As of November 13, 1997, 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
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE Page
----
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 30, 1997 and 1996........................3
Consolidated Condensed Balance Sheets
September 30, 1997 and December 31, 1996.......................................4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996..................................5
Notes to Consolidated Financial Statements.....................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................15
Item 6. Exhibits and Reports on Form 8-K ..............................................15
Exhibit Index..................................................................16
Signatures.....................................................................17
</TABLE>
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales:
Ongoing operations $13,198 $13,044 $37,207 $36,081
Former operations 3,044 4,706 22,763 48,207
------------ ------------ ------------- ------------
16,242 17,750 59,970 84,288
------------ ------------ ------------- ------------
Costs and expenses:
Cost of sales 13,432 14,500 46,204 77,153
Selling, general and administrative expenses 3,532 4,157 13,535 23,482
------------ ------------ ------------- ------------
Operating income (loss)--Ongoing operations 206 287 93 (3,472)
Operating (loss) income--Former operations (928) (1,194) 138 (12,875)
(Loss) gain on sale of businesses and unusual item (650) 0 (650) 16,850
Interest and related amortization expense (565) (64) (1,757) (1,228)
------------ ------------ ------------- ------------
Loss before income taxes and extraordinary charge (1,937) (971) (2,176) (725)
Provision for income taxes 0 0 0 (6,958)
------------ ------------ ------------- ------------
Loss before extraordinary charge (1,937) (971) (2,176) (7,683)
Extraordinary charge (408) 0 (408) (1,332)
------------ ------------ ------------- ------------
Net loss ($2,345) ($971) ($2,584) ($9,015)
============ ============ ============= ============
Earnings per common share:
Loss before extraordinary charge ($0.24) ($0.12) ($0.27) ($0.96)
Extraordinary charge (0.05) 0.00 (0.05) (0.17)
------------ ------------ ------------- ------------
Net loss ($0.29) ($0.12) ($0.32) ($1.13)
============ ============ ============= ============
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)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash $325 $1,968
Accounts receivable, net 6,904 8,467
Inventories 11,429 15,537
Prepaid expenses and other 2,322 3,152
--------------- ---------------
Total current assets 20,980 29,124
Property, plant and equipment, net 8,337 13,243
Other assets 1,908 1,858
--------------- ---------------
$31,225 $44,225
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $0 $13
Accounts payable 2,735 6,487
Accrued expenses and other current liabilities 16,402 23,139
--------------- ---------------
Total current liabilities 19,137 29,639
Long-term debt 19,275 19,282
Other liabilities 2,351 2,258
Commitments and contingencies
Stockholders' deficit:
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 (141,569) (138,985)
--------------- ---------------
Total stockholders' deficit (9,538) (6,954)
--------------- ---------------
$31,225 $44,225
=============== ===============
</TABLE>
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>
Nine Months Ended
September 30,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,584) ($9,015)
-------------- --------------
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization 1,532 2,633
Loss (gain) on sale of businesses, personal watercraft
charges and other, net of income taxes 1,058 5,440
Change in assets and liabilities:
Decrease in receivables 1,563 2,821
Decrease (increase) in inventories 1,539 (2,191)
Decrease in accounts payable and accrued expenses (4,031) (7,145)
Payment of restructuring liabilities (4,691) (17,330)
Other, net 508 2,368
-------------- --------------
(2,522) (13,404)
-------------- --------------
Net cash flows from operating activities (5,106) (22,419)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses, net of cash sold 4,640 58,961
Capital expenditures, net (822) (2,105)
Other, net (20)
-------------- --------------
Net cash flows from investing activities 3,818 56,836
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings, net of fees (385) (35,835)
Net increase in borrowings from affiliates 30
-------------- --------------
Net cash flows from financing activities (355) (35,835)
-------------- --------------
Net decrease in cash (1,643) (1,418)
Cash at beginning of period 1,968 1,937
-------------- --------------
Cash at end of period $325 $519
============== ==============
</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) considered necessary for a fair presentation have been
included. Operating results for the first nine months of 1997 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, 1996. 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. In 1996, the Company sold its Skeeter and Boston Whaler ("BW")
businesses to third parties. On July 31, 1997, the Company sold its O'Brien
towable watersports business ("O'Brien"). (See Note 2.) On October 8, 1997,
the Company sold its scuba equipment business ("Soniform") (the "Soniform
Sale"). The results of operations of Skeeter, BW, O'Brien and Soniform
("former operations") are included in the consolidated results of operations
of the Company through their respective dates of sale. The results of the
Company's MasterCraft business and headquarters function are presented in
"ongoing operations" in the statements of operations. The Company manufactures
and markets specialized ski boats targeted principally at enthusiasts.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
accruals established for the WetJet recall and repair programs are based on
management's estimates of the costs of such programs. The programs are
currently being executed. Should these programs not proceed as expected, the
actual costs may exceed the current estimates. No charges related to the
WetJet programs were recorded in the 1997 periods. In the third quarter 1997,
the Company recorded accruals to write down the value of Soniform to its
estimated net realizable value based on management's estimates of the loss on
the sale of Soniform. Such valuation adjustments may differ from these
estimates.
2. SALE OF O'BRIEN BUSINESS
On July 31, 1997, the Company entered into and consummated an
agreement with Earth and Ocean Sports, Inc. ("EOS") pursuant to which EOS
purchased certain assets and assumed certain liabilities of the Company's
O'Brien towable watersports business, for approximately $4,900, subject to
adjustment based on a determination of the net assets sold (the "O'Brien
Sale"). The sale resulted in a gain of approximately $100. The proceeds of the
O'Brien Sale were used to permanently repay indebtedness of the Company under
the O'Brien Credit Agreement and to repay other indebtedness under the M&F
Facility. In connection with the permanent repayment of the O'Brien Credit
Agreement, the Company recorded an extraordinary charge of approximately $400.
Accounts receivable of O'Brien were not purchased by EOS in the
O'Brien Sale. At October 31, such accounts receivable aggregated approximately
$700. As the accounts receivable are collected, the proceeds are expected to
be used to further repay debt of the Company.
6
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
The unaudited pro forma condensed statement of operations gives effect to the
O'Brien Sale and the Soniform Sale as if they had occurred as of the beginning
of the period presented. The unaudited pro forma condensed balance sheet gives
effect to: (i) the collection as of September 30, 1997 of accounts receivable
of O'Brien and Soniform not sold in the O'Brien Sale and the Soniform Sale;
and (ii) the Soniform Sale as if had occurred on September 30, 1997. The pro
forma adjustments are based on assumptions that the management of the Company
believes are reasonable under the circumstances. O'Brien and Soniform are
highly seasonal businesses with the majority of their combined profits
normally realized in the first half of each year. As such, results obtained in
the first nine months of 1997 are not necessarily indicative of the results
that may be expected for the full year. These pro forma financial data do not
purport to represent what the results of operations or financial position
would have been had the O'Brien Sale and the Soniform Sale occurred at the
beginning of the period or as of the date indicated, or to project the
Company's results of operations or financial position at any future date or
future period.
Unaudited Pro Forma Condensed Statement of Operations
For the nine months ended September 30, 1997 (unaudited):
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $59,970 ($22,763)a $37,207
Cost of sales 46,204 (16,645)a 29,559
---------------- ---------------- ----------------
Gross profit 13,766 (6,118)a 7,648
Selling, general and administrative expenses 13,535 (5,980)a 7,555
Loss on sale of businesses 650 (650)b 0
Interest and related amortization expense 1,757 (1,046)c 711
---------------- ---------------- ----------------
Loss before income taxes (2,176) 1,558 (618)
Provision for income taxes 0 0
---------------- ---------------- ----------------
Loss before extraordinary charge ($2,176) $1,558 ($618)(d)
================ ================ ================
Pro forma loss per common share ($0.08)
================
Weighted average shares outstanding (000s) 8,000
================
</TABLE>
Notes to pro forma statement of operations:
(a) Reflects the results of O'Brien and Soniform for the nine months ended
September 30, 1997.
(b) Reflects the elimination of the net loss arising from the O'Brien Sale
and Soniform Sale.
(c) Reflects the elimination of interest and related amortization expense
on the average investment in O'Brien and Soniform.
(d) Does not reflect: (1) the estimated gain arising from the O'Brien Sale;
(2) the estimated loss arising from the Soniform Sale; and (3) an
extraordinary charge of approximately $400 for the writeoff of deferred
financing costs due to a permanent commitment reduction under the
O'Brien Credit Agreement in connection with the O'Brien Sale.
7
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
As of September 30, 1997 (Unaudited):
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------------- ---------------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $325 $1,662 a $325
(1,412)b
(250)c
Accounts receivable, net 6,904 (2,350)d,e 4,554
Inventories 11,429 (1,239)d 10,190
Prepaid expenses and other 2,322 (16)d 2,306
---------------- ---------------- ----------------
Total current assets 20,980 (3,605) 17,375
Property, plant and equipment, net 8,337 (1,120)d 7,217
Other assets 1,908 (21)d 1,887
---------------- ---------------- ----------------
$31,225 ($4,746) $26,479
================ ================ ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $2,735 ($118)d $2,617
Accrued expenses and other current liabilities 16,402 (866)d 15,536
---------------- ---------------- ----------------
Total current liabilities 19,137 (984) 18,153
Long-term debt 19,275 (3,762)b 15,513
Other liabilities 2,351 2,351
Commitments and contingencies
Stockholders' deficit:
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 (141,569) (141,569)
---------------- ---------------- ----------------
Total stockholders' deficit (9,538) 0 (9,538)
---------------- ---------------- ----------------
$31,225 ($4,746) $26,479
================ ================ ================
</TABLE>
Notes to pro forma balance sheet:
(a) Represents the proceeds at September 30, 1997 from the Soniform Sale.
(b) Represents the use of cash proceeds, net of estimated fees and
expenses, from the Soniform Sale to repay indebtedness of the Company.
(c) Represents the payment of estimated fees and expenses related to the
Soniform Sale
(d) Represents the elimination of assets and liabilities as of September 30,
1997 in connection with the Soniform Sale.
(e) Includes the elimination of accounts receivable of O'Brien as of
September 30, 1997.
8
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. EARNINGS PER COMMON SHARE
Earnings per common share have been computed based upon 8,000,000
shares for the three and nine months ended September 30, 1997 and 1996.
4. 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:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Raw materials and supplies..................................... $6,382 $6,372
Work-in-process................................................ 1,234 1,378
Finished goods................................................. 4,717 8,896
--------- ---------
12,333 16,646
Less: Lifo allowance........................................... (904) (1,109)
---------- ---------
$ 11,429 $ 15,537
======== ========
</TABLE>
5. CREDIT AGREEMENTS
In March 1997, the Company entered into a credit agreement with an
affiliate (the "M&F Facility") to refinance existing borrowings from
affiliates and to finance the operations, including seasonal working capital
needs and restructuring liabilities, of the Company. The M&F Facility, as
amended in October 1997, matures at December 1, 1998. Loans under the M&F
Facility bear interest at the prime rate, as defined, plus 1% and are
guaranteed by the subsidiaries of the Company and a pledge of Cherokee Cove.
Borrowings outstanding under the M&F Facility are required to be prepaid with
the net cash proceeds of the sales of assets (other than assets of O'Brien)
outside the ordinary course of business or the capital stock of any
subsidiaries of the Company. The commitment under the M&F Facility shall be
reduced by such required prepayments. As a result of the sales of O'Brien and
Soniform, the M&F Facility was amended to adjust the net worth requirement and
to reduce the commitment under the M&F Facility to $20,000. The M&F Facility
contains a minimum net worth covenant. The M&F Facility contains typical
events of default including change of control, material adverse change and
non-payment of obligations.
In March 1997, the Company entered into a credit agreement with a
bank (the "O'Brien Credit Agreement"). The O'Brien Credit Agreement provided a
borrowing facility of up to $14,000, including letters of credit, on a
revolving basis, based upon the amount of eligible inventory and eligible
accounts receivable, as such are defined in the O'Brien Credit Agreement.
Loans under the O'Brien Credit Agreement bore interest at either of the
following rates, as selected by O'Brien from time to time: (i) the lender's
base rate (8.5% at June 30, 1997) plus 75 basis points or (ii) the London
Interbank Offered Rate (5.6875% at June 30, 1997) plus 275 basis points. The
O'Brien Credit Agreement was permanently repaid in full with the proceeds of
the O'Brien Sale.
9
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
6. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from
operating activities. For the nine months ended September 30, 1997 and 1996,
interest paid was $1,704 and $1,474, respectively; income taxes paid were $435
and $257, respectively.
7. SUBSEQUENT EVENT
On October 8, 1997, the Company entered into and consummated an
agreement with Johnson Worldwide Associates, Inc. ("JWA") pursuant to which
JWA purchased certain assets and assumed certain liabilities of the Company's
Soniform scuba equipment business. The purchase price was approximately $600
less than the net book value of the assets sold, net of the liabilities
assumed. The final purchase price will be based on a determination of the net
assets sold. The proceeds of the Soniform Sale were used to repay indebtedness
of the Company under the M&F Facility.
Accounts receivable of Soniform were not purchased by JWA in the
Soniform Sale. At October 31, such accounts receivable aggregated
approximately $500. As the accounts receivable are collected, the proceeds are
expected to be used to further repay debt of the Company. In connection with
the Soniform Sale, the Company entered into a lease with JWA, pursuant to
which it will lease the Soniform manufacturing facility to JWA for a minimum
one year period for $80.
<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, 1996. The results of operations of MasterCraft and
the headquarters function are presented as ongoing operations; the results of
operations of O'Brien and Soniform and, in 1996, BW and Skeeter are presented
as former operations.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996
Sales from ongoing operations increased 3% to $37.2 million in 1997
versus $36.1 million in 1996 primarily because of new model introductions in
1997, improved inventory levels and financing availability for the Company's
dealers. Consolidated net sales in 1997 and 1996 included $22.8 million and
$48.2 million, respectively, of sales of former operations.
Gross profit from ongoing operations increased to $7.6 million in
1997 versus $7.0 million in 1996. The improved performance arose from the
higher sales, as well as higher margins on sales due to higher volume, lower
warranty spending and enhanced manufacturing cost controls. Consolidated gross
profit in 1997 and 1996 included $6.2 million and $0.1 million, respectively,
of gross profit from former operations which, in 1996, was net of charges of
$12.4 million related to the personal watercraft business. No charges related
to the WetJet programs were recorded in the 1997 period. Charges in 1996
related to WetJet reflect 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 recall and repair programs are largely behind the Company,
there can be no assurance that such programs will proceed as planned or that
management's estimates of the cost of the programs will not be exceeded.
SG&A expenses of ongoing operations decreased to $7.5 million in 1997
versus $10.5 million in 1996. SG&A expenses in 1996 included a one-time charge
of $1.6 million related to the restructuring of the headquarters office. As a
percentage of the related net sales, SG&A expenses decreased by approximately
1.1 percentage points in the 1997 period due to lower compensation expense and
reduced charges due to improved spending controls. Consolidated SG&A expenses
in 1997 and 1996 included $6.0 million and $13.0 million, respectively, of
charges related to former operations.
Interest and related amortization expense of $1.8 million in 1997 was
$0.6 million above 1996 levels due to the effect of higher average outstanding
borrowings in the third quarter of 1997 over the comparable 1996 period. In
1996, the Company's debt was substantially reduced due to the sale of BW on
May 31, 1996 and the seasonal reduction in working capital needs, primarily of
O'Brien.
The O'Brien Sale in 1997 resulted in a pre-tax gain of approximately
$0.1 million. In connection with the sale of Soniform in October 1997, the
Company recorded a valuation adjustment of approximately $0.8 million in the
period ended September 30, 1997. The Skeeter Sale in 1996 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. Also, in 1996, the
Company recorded a valuation adjustment of $1.3 million related to O'Brien.
11
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In connection with the permanent reductions of outstanding
commitments under the O'Brien Credit Agreement in 1997 and the Company Credit
Agreement in 1996 resulting from the sales of businesses, the Company recorded
extraordinary charges of $0.4 million in 1997 and $1.3 million in 1996 to
writeoff deferred financing costs relating to the related credit agreements.
The Company recorded a pre-tax loss in 1997 and 1996. During 1997,
the Company did not provide a tax benefit for losses generated as it is
uncertain whether benefit for such losses will be realized in the future. The
income tax provision in 1996 primarily relates to federal, state and local
taxes relating to the Skeeter 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.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
Sales from ongoing operations were $13.2 million in 1997 versus $13.0
million in 1996. Consolidated net sales in 1997 and 1996 included $3.1 million
and $4.7 million, respectively, of sales of former operations. The Company
introduced seven new boat models in the 1997 quarter. The updated product line
has been well received, though shipments of certain new models have been
delayed due to the late delivery of molds.
Gross profit from ongoing operations was $2.6 million in 1997 versus
$2.5 million in 1996. Consolidated gross profit in 1997 and 1996 included $0.3
million and $0.8 million, respectively, of gross profit from former
operations.
SG&A expenses of ongoing operations increased slightly to $2.4
million in 1997 versus $2.2 million in 1996 due to the timing of headquarters
expenditures. Consolidated SG&A expenses in 1997 and 1996 included $1.1
million and $2.0 million, respectively, of charges related to former
operations.
Interest and related amortization expense was $0.6 million in 1997.
The increase was due to the effect of higher average outstanding borrowings in
the third quarter of 1997 over the comparable 1996 period. In 1996, the
Company's debt was substantially reduced due to the sale of BW on May 31, 1996
and the seasonal reduction in working capital needs, primarily of O'Brien.
The O'Brien Sale in 1997 resulted in a pre-tax gain of approximately
$0.1 million. In connection with the sale of Soniform in October 1997, the
Company recorded a valuation adjustment of approximately $0.8 million in the
period ended September 30, 1997.
In connection with the permanent reduction of outstanding commitments
under the O'Brien Credit Agreement in 1997 resulting from the O'Brien Sale,
the Company recorded an extraordinary charge of $0.4 million in 1997 to
writeoff related deferred financing costs.
The Company recorded a pre-tax loss in 1997 and 1996. The Company did
not provide a tax benefit in 1997 or 1996 for losses generated as it is
uncertain whether benefit for such losses will be realized in the future.
12
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997 and 1996, cash used in
operating activities was $5.1 million and $22.4 million, respectively. The
Company's cash flows from operating activities in 1997 and 1996 reflect the
payment of restructuring liabilities in the amounts of $4.7 million and $17.3
million, respectively.
The Company's net capital expenditures were $0.8 million and $2.1
million for the nine months ended September 30, 1997 and 1996, respectively.
The decline resulted from the elimination of capital expenditures of former
operations and proceeds from fixed asset sales of the personal watercraft
business, partially offset by a modest increase in tooling expenditures for
new boat models in 1997.
The Company's liquidity needs are generally for seasonal working
capital needs and the funding of restructuring liabilities. In March 1997,
the Company entered into the M&F Facility to refinance existing
borrowings from affiliates and to finance, on a revolving basis, the
operations, including seasonal working capital needs and restructuring
liabilities, of the Company. The M&F Facility, as amended, matures at December
1, 1998. Loans under the M&F Facility bear interest at the prime rate, as
defined, plus 1% and are guaranteed by the subsidiaries of the Company and a
pledge of Cherokee Cove. Borrowings outstanding under the M&F Facility are
required to be repaid with the net cash proceeds of the sales of assets or the
capital stock of any subsidiaries of the Company. The commitment under the M&F
Facility shall be reduced by certain required prepayments. As a result of the
sales of O'Brien and Soniform, the M&F Facility was amended to adjust the net
worth requirement and to reduce the commitment under the M&F Facility to $20.0
million. The M&F Facility contains typical events of default including change
of control, material adverse change and non-payment of obligations.
In March 1997, the Company entered into the O'Brien Credit Agreement.
The O'Brien Credit Agreement provided a borrowing facility of up to $14.0
million, including letters of credit, on a revolving basis, based upon the
amount of eligible inventory and eligible accounts receivable, as such are
defined in the O'Brien Credit Agreement. The O'Brien Credit Agreement was
permanently repaid in full with the proceeds of the O'Brien Sale.
At September 30, 1997, the Company had outstanding debt of $19.3
million under the M&F Facility. The increase of $8.8 million from December 31,
1996 resulted from seasonal increases in working capital, payments of
restructuring liabilities and capital expenditures. At October 31, 1997, the
Company had aggregate outstanding borrowings of $16.9 million under the M&F
Facility. Accounts receivable of O'Brien were not purchased by EOS in the
O'Brien Sale. Accounts receivable of Soniform were not purchased by JWA in the
Soniform Sale. At October 31, such accounts receivable aggregated
approximately $1.2 million. As the accounts receivable are collected, the
proceeds are expected to be used to further repay debt of the Company.
13
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 products and the success of the WetJet recall and repair
programs.
SEASONALITY
The marine industry is seasonal, with consumer sales strongest in
the summer months. As a result of this seasonality, operating results obtained
in the first nine months of the year are not necessarily indicative of results
that may be expected for the full year.
14
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
See exhibit index on page 16.
b. Reports on Form 8-K
-------------------
None.
15
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule.
16
<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)
November 13, 1997 By: /s/ Irwin Engelman
-----------------------------------
Irwin Engelman
Chief Financial Officer
(Principal Accounting Officer)
17
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<PAGE>
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<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>
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<NAME> MERIDIAN SPORTS INCORPORATED
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 325
<SECURITIES> 0
<RECEIVABLES> 8,617
<ALLOWANCES> (1,713)
<INVENTORY> 11,429
<CURRENT-ASSETS> 20,980
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