<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 March 31, 1998
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CHEROKEE COVE DRIVE, VONORE, TENNESSEE 37885
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(Address of principal executive offices) (Zip Code)
423-884-6776
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(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 May 11, 1998
- ---------------------------- ---------------------------
Common Stock, $0.01 par 8,000,000
As of May 11, 1998, 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 Statements of Operations
Three Months Ended March 31, 1998 and 1997..........................3
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997................................4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997..........................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 4. Submission of Matters to a Vote of Security Holders.................10
Item 6. Exhibits and Reports on Form 8-K ...................................10
Exhibit Index.......................................................11
Signatures..........................................................12
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales:
Ongoing operations $ 15,062 $ 12,830
Former operations -- 9,192
-------- --------
15,062 22,022
-------- --------
Cost of sales:
Ongoing operations 11,798 10,153
Former operations -- 6,553
-------- --------
11,798 16,706
-------- --------
Selling, general and administrative expenses:
Ongoing operations 3,247 2,749
Former operations -- 2,335
-------- --------
3,247 5,084
-------- --------
Operating income (loss):
Ongoing operations 17 (72)
Former operations -- 304
-------- --------
17 232
-------- --------
Interest and related amortization expense (385) (498)
-------- --------
Loss before income taxes (368) (266)
Provision for income taxes 0 0
======== ========
Net loss ($368) ($266)
======== ========
Basic and diluted loss per common share:
Net loss ($0.05) ($0.03)
======== ========
Weighted average shares outstanding (000s) 8,000 8,000
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 464 $ 1,123
Accounts receivable, net of allowances 5,837 3,681
Inventories 7,214 8,040
Prepaid expenses and other 2,032 3,974
--------- ---------
Total current assets 15,547 16,818
Property, plant and equipment, net 6,535 6,716
Other assets 344 350
--------- ---------
$ 22,426 $ 23,884
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,934 $ 2,103
Accrued expenses and other current liabilities 7,494 8,122
--------- ---------
Total current liabilities 10,428 10,225
Long-term debt 16,208 17,515
Other liabilities 5,631 5,617
Commitments and contingencies
Stockholders' deficit:
Preferred stock, par value $0.01 per share; 10,000,000
shares authorized; no shares issued and outstanding
Common stock, par value $0.01 per share; 50,000,000 shares
authorized; 8,000,000 shares issued and outstanding 80 80
Additional paid-in capital 131,951 131,951
Accumulated deficit (141,872) (141,504)
--------- ---------
Total stockholders' deficit (9,841) (9,473)
--------- ---------
$ 22,426 $ 23,884
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($368) ($266)
------- -------
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization 325 507
Change in assets and liabilities:
Increase in receivables (2,156) (7,018)
Decrease in inventories 826 611
Increase (decrease) in accounts payable and accrued expenses 354 (495)
Payment of restructuring liabilities (152) (1,850)
Other, net 1,963 1,131
------- -------
1,160 (7,114)
------- -------
Net cash flows from operating activities 792 (7,380)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (144) (159)
------- -------
Net cash flows from investing activities (144) (159)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings, net of fees -- 5,432
Net (decrease) increase in borrowings from affiliates (1,307) 675
------- -------
Net cash flows from financing activities (1,307) 6,107
------- -------
Net decrease in cash (659) (1,432)
Cash at beginning of period 1,123 1,968
------- -------
Cash at end of period $ 464 $ 536
======= =======
</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 three months of 1998 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-21 of the Company's annual report on Form 10-K for the year ended
December 31, 1997. 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 a holding company which operates through its
wholly-owned subsidiary MasterCraft Boat Company ("MasterCraft"). MasterCraft
is a designer, manufacturer and marketer of specialized ski boats targeted
principally at boating and water-skiing enthusiasts. On July 31, 1997, the
Company sold its O'Brien towable watersports business ("O'Brien"). On October
8, 1997, the Company sold its scuba equipment business ("Soniform"). The
results of operations of 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 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
substantially complete. There can be no assurance that the programs will be
completed within the reserves established.
2. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share have been computed based
upon 8,000,000 shares for the three months ended March 31, 1998 and 1997.
3. 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:
March 31, December 31,
1998 1997
--------- ------------
Raw materials and supplies.................... $2,913 $3,394
Work-in-process............................... 906 753
Finished goods................................ 4,283 4,781
------ ------
8,102 8,928
Less: LIFO allowance.......................... (888) (888)
------ ------
$7,214 $8,040
====== ======
6
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
4. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from
operating activities. For the three months ended March 31, 1998 and 1997,
interest paid was $385 and $487, respectively; income taxes paid were $3 and
$23, respectively.
7
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
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, 1997. The results of operations of
MasterCraft and the headquarters function are presented as ongoing operations;
the results of operations of O'Brien and Soniform are presented as former
operations.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
Net sales from ongoing operations increased 18% to $15.1 million in
1998 versus $12.8 million in 1997 primarily because of new model introductions
in mid-1997, improved inventory levels and financing availability for the
Company's dealers. Consolidated net sales of $22.0 million in 1997 included
$9.2 million of sales of former operations.
Gross profit from ongoing operations increased to $3.3 million in 1998
versus $2.7 million in 1997. The improved performance arose from the higher
sales, as well as higher margins on sales due to higher volume and enhanced
manufacturing cost controls. Consolidated gross profit of $5.3 million in 1997
included $2.6 million of gross profit from former operations.
SG&A expenses of ongoing operations increased to $3.2 million in 1998
versus $2.7 million in 1997. The planned increase is primarily due to
additional sales and marketing spending during the boat show season during 1998
to drive early season sales. Consolidated SG&A expenses in 1997 included $2.3
million of charges related to former operations.
Interest and related amortization expense of $0.4 million in 1998 was
$0.1 million lower than 1997 levels due to the effect of lower average
outstanding borrowings in 1998.
The Company recorded a pre-tax loss in 1998 and 1997. During 1998 and
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.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998 and 1997, cash flows from
operating activities was $0.8 million and ($7.4) million, respectively. The
Company's cash flows from operating activities in 1998 and 1997 reflect the
payment of restructuring liabilities of $0.2 million and $1.9 million,
respectively. In 1997, the Company's cash flows from operating activities
reflected the seasonal working capital requirements of former operations,
primarily accounts receivable.
The Company's net capital expenditures were $0.1 million and $0.2
million for the three months ended March 31, 1998 and 1997, respectively.
The Company is in the process of replacing all computer software which
are not year 2000 compliant as part of an overall systems upgrading, the
estimated cost of which is approximately $0.5 million. Upon completion of the
systems upgrading, its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The project is estimated to be
substantially completed during 1998. The Company believes that with conversions
to new software, the year 2000 issue will not pose significant operations
problems.
8
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
The Company's liquidity needs are generally for seasonal working
capital needs and capital expenditures. 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, provides for borrowings on a revolving basis of up to $20.0 million
and matures at December 1, 1999. 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. The
M&F Facility contains typical events of default including change of control,
material adverse change and non-payment of obligations.
At March 31, 1998 the Company had outstanding debt of $16.2 million
under the M&F Facility. The decrease of $1.3 million from December 31, 1997
resulted primarily from the return of cash used to secure outside financing. At
May 6, 1998, the company had aggregate borrowings of $14.1 million under the
M&F Facility.
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 three months of the year are not necessarily indicative of results
that may be expected for the full year.
9
<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 11.
b. Reports on Form 8-K
None.
10
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27* Financial Data Schedule.
* filed herewith
11
<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)
May 11, 1998 By: /s/ James A. Valkenaar
--------------------------------
James A. Valkenaar
Vice President
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary 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
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 464
<SECURITIES> 0
<RECEIVABLES> 6,293
<ALLOWANCES> (456)
<INVENTORY> 7,214
<CURRENT-ASSETS> 15,547
<PP&E> 10,489
<DEPRECIATION> (3,954)
<TOTAL-ASSETS> 22,426
<CURRENT-LIABILITIES> 10,428
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> (9,921)
<TOTAL-LIABILITY-AND-EQUITY> 22,426
<SALES> 15,062
<TOTAL-REVENUES> 15,062
<CGS> 11,798
<TOTAL-COSTS> 11,798
<OTHER-EXPENSES> 3,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 385
<INCOME-PRETAX> (368)
<INCOME-TAX> 0
<INCOME-CONTINUING> (368)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (368)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
