<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, 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
- -------------------------------------------------------------------------------
(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 August 13, 1998
- ----------------------- ------------------------------
Common Stock, $0.01 par 8,000,000
As of August 13, 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
Six and Three Months Ended June 30, 1998 and 1997................ 3
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997.............................. 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 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 1. Legal Proceedings............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders............. 11
Item 6. Exhibits and Reports on Form 8-K ............................... 11
Exhibit Index................................................... 12
Signatures...................................................... 13
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales:
Ongoing operations $31,621 $24,009 $16,559 $11,179
Former operations - 19,719 $ - $10,527
------- ------- ------- -------
31,621 43,728 16,559 21,706
------- ------- ------- -------
Cost of sales:
Ongoing operations 24,669 18,980 12,871 8,827
Former operations - 13,792 - 7,239
------- ------- ------- -------
24,669 32,772 12,871 16,066
------- ------- ------- -------
Selling, general and administrative expenses:
Ongoing operations 6,260 5,142 3,005 2,393
Former operations (17) 5,083 (4) 2,716
------- ------- ------- -------
6,243 10,225 3,001 5,109
------- ------- ------- -------
Operating income (loss):
Ongoing operations 692 (113) 683 (41)
Former operations 17 844 4 572
------- ------- ------- -------
709 731 687 531
------- ------- ------- -------
Interest and related amortization expense (707) (970) (322) (504)
------- ------- ------- -------
Income (loss) before income taxes 2 (239) 365 27
(Provision) benefit for income taxes - - - -
======= ======= ======= =======
Net income (loss) $2 ($239) $365 $27
======= ======= ======= =======
Basic and diluted income (loss) per common share:
Net income (loss) $0.00 ($0.03) $0.05 $0.00
======= ======= ======= =======
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 BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
-------- ------------
<S> <C> <C>
Current assets:
Cash $190 $1,123
Accounts receivable, net of allowances 3,390 3,681
Inventories 6,979 8,040
Prepaid expenses and other 927 3,974
------- -------
Total current assets 11,486 16,818
Property, plant and equipment, net 6,373 6,716
Other assets 310 350
------- -------
$18,169 $23,884
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable 4,096 2,103
Accrued expenses and other current liabilities 6,637 8,122
------- -------
Total current liabilities 10,733 10,225
Long-term debt 11,257 17,515
Other liabilities 5,650 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 (141,502) (141,504)
------- -------
Total stockholders' deficit (9,471) (9,473)
------- -------
$18,169 $23,884
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1998 1997
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $2 ($239)
------ ------
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization 650 1,126
Change in assets and liabilities:
Decrease (increase) in receivables 579 (6,446)
Decrease in inventories 905 1,301
Increase (decrease) in accounts payable and
accrued expenses 1,403 (3,149)
Payment of restructuring liabilities (1,028) (3,290)
Other, net 1,839 1,526
------ ------
4,348 (8,932)
------ ------
Net cash flows from operating activities 4,350 (9,171)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Release of escrow funds from the sale of a former operation 1,282 -
Capital expenditures, net (307) (608)
------ ------
Net cash flows from investing activities 975 (608)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings, net of fees - 4,272
Net (decrease) increase in borrowings from affiliates (6,258) 4,235
------ ------
Net cash flows from financing activities (6,258) 8,507
------ ------
Net decrease in cash (933) (1,272)
Cash at beginning of period 1,123 1,968
------ ------
Cash at end of period $190 $696
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER 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 six 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 consolidated
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 six and three months ended June 30, 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:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials and supplies............. $2,979 $3,394
Work-in-process........................ 982 753
Finished goods......................... 3,906 4,781
------- -------
7,867 8,928
Less: LIFO allowance................... (888) (888)
------- -------
$ 6,979 $ 8,040
======= =======
</TABLE>
6
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from
operating activities. For the six months ended June 30, 1998 and 1997, interest
paid was $707 and $970, respectively; income taxes paid were $21 and $435,
respectively.
7
<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, 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.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Net sales from ongoing operations increased 32% to $31.6 million in
1998 versus $24.0 million in 1997 primarily because of new models introduced in
mid-1997, improved inventory levels and financing availability for the
Company's dealers. Consolidated net sales of $43.7 million in 1997 included
$19.7 million of sales of former operations.
Gross profit from ongoing operations increased to $7.0 million in 1998
versus $5.0 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 $11.0 million in 1997
included $6.0 million of gross profit from former operations.
SG&A expenses of ongoing operations increased to $6.3 million in 1998
versus $5.1 million in 1997. The planned increase is primarily due to
additional sales and marketing spending during the boat show season in 1998 to
drive early season sales. Consolidated SG&A expenses in 1997 included $5.1
million of charges related to former operations.
Interest and related amortization expense of $0.7 million in 1998 was
$0.3 million lower than 1997 levels due to the effect of lower average
outstanding borrowings in 1998.
The Company recorded a small profit in 1998 and a pre-tax loss in
1997. During 1998, the company did not record a tax provision due to the
utilization of net operating loss carryforwards. 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.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Net sales from ongoing operations increased 48% to $16.6 million in
1998 versus $11.2 million in 1997 primarily because of the success of the new
models introduced in mid-1997, reduced inventory levels and financing
availability for the Company's dealers, and increased sell through at retail.
Consolidated net sales of $21.7 million in 1997 included $10.5 million of sales
of former operations.
Gross profit from ongoing operations increased to $3.7 million in 1998
versus $2.4 million in 1997. The improved performance arose from the higher
sales, as well as higher margins on sales due to higher volume, reduced
discounts due to demand and improved manufacturing cost controls. Consolidated
gross profit of $5.7 million in 1997 included $3.3 million of gross profit from
former operations.
SG&A expenses for ongoing operations increased to $3.0 million in 1998
versus $2.4 million in 1997. The planned increase is primarily due to
additional sales and marketing spending to promote additional incremental
sales. Consolidated SG&A expenses in 1997 included $2.7 million of charges
related to former operations.
8
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest and related amortization expense of $0.3 million in 1998 was
$0.2 million lower than 1997 levels due to the effect of lower average
outstanding borrowings in 1998.
During 1998, the Company recorded a pre-tax profit for the second
quarter. During 1998, the company did not record a tax provision due to the
utilization of net operating loss carryforwards. The Company recorded a pre-tax
loss in 1997. 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.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1998 and 1997, cash flows from
operating activities were $4.4 million and ($9.2) million, respectively. The
Company's cash flows from operating activities in 1998 and 1997 reflect the
payment of restructuring liabilities of $1.0 million and $3.3 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 $0.3 million and $0.6
million for the six months ended June 30, 1998 and 1997, respectively.
The Company is in the process of replacing all computer software that
is 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. In addition, the Company is in the process
of surveying its significant customers and vendors to assess their year 2000
readiness. We expect to complete the survey by the end of 1998. The Company
believes that with conversions to new software and the completion of our
customer and vendor survey, the year 2000 issue will not pose significant
operations problems.
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 June 30, 1998 the Company had outstanding debt of $11.3 million
under the M&F Facility. The decrease of $6.3 million from December 31, 1997
resulted from the return of cash used to secure financing for the Company's
dealers, the release of escrow funds from the sale of a former operation, and a
reduction in working capital. At August 6, 1998, the company had aggregate
borrowings of $14.5 million under the M&F Facility.
9
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 six months of the year are not necessarily indicative of results
that may be expected for the full year.
10
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the quarter, the action known as Shelton Smith, on behalf of
himself and others similarly situated v. Sunchaser Marine, MasterCraft Boat
Company, Inc., WetJet, A Division of MasterCraft and Meridian Sports
Incorporated as disclosed in the Company's 1997 Form 10-K was settled.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 annual meeting of shareholders was held on May 14, 1998.
Directors elected at the meeting were Ronald O. Perelman, J. Eric Hanson, Bruce
Slovin, Jerry W. Levin, John P. Murray, and Martin D. Payson, constituting the
entire board of directors. All of the directors were elected without
opposition. There were no broker nonvotes. Other matters voted on were a
proposal to ratify the appointment of Ernst & Young LLP as the independent
certified public accountants for the Company for 1998.
The tabulation of votes for each matter is as follows:
1. Election of Directors
Nominees
For
Directors For Withheld Abstained
--------- --- -------- ---------
Ronald O. Perelman 7,684,834 38,030 - -
J. Eric Hanson 7,685,834 37,030 - -
Bruce Slovin 7,685,834 37,030 - -
Jerry W. Levin 7,685,834 37,030 - -
John P. Murray 7,685,834 37,030 - -
Martin D. Payson 7,685,834 37,030 - -
2. Ratification of Independent Certified Public Accountants
7,692,434 17,950 12,480
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
See exhibit index on page 12.
b. Reports on Form 8-K
None.
11
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27* Financial Data Schedule.
* filed herewith
12
<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, 1998 By: /s/ James A. Valkenaar
--------------------------
James A. Valkenaar
Vice President
(Principal Accounting Officer)
13
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<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.
<CIK>
<NAME> Meridian Sports Incorporated
<MULTIPLIER> 1,000
<CURRENCY> USD
<FISCAL-YEAR-END> Dec-31-98
<PERIOD-START> Jan-01-98
<PERIOD-END> Jun-30-98
<PERIOD-TYPE> 6 MOS
<CASH> 190
<SECURITIES> 0
<RECEIVABLES> 3,806
<ALLOWANCES> (416)
<INVENTORY> 6,979
<CURRENT-ASSETS> 11,486
<PP&E> 10,652
<DEPRECIATION> (4,279)
<TOTAL-ASSETS> 18,169
<CURRENT-LIABILITIES> 10,733
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> (9,551)
<TOTAL-LIABILITY-AND-EQUITY> 18,169
<SALES> 31,621
<TOTAL-REVENUES> 31,621
<CGS> 24,669
<TOTAL-COSTS> 24,669
<OTHER-EXPENSES> 6,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 707
<INCOME-PRETAX> 2
<INCOME-TAX> 0
<INCOME-CONTINUING> 2
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
