EXHIBIT 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF RAWLINGS SPORTING GOODS COMPANY, INC.:
We have audited the accompanying consolidated balance sheets of
Rawlings Sporting Goods Company, Inc. (a Delaware corporation)
and subsidiaries (the Company) as of August 31, 1999 and 1998 and
the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period
ended August 31, 1999. These financial statements are the
responsibility of Rawlings' management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Rawlings Sporting Goods Company, Inc. and subsidiaries as of
August 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended
August 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 14, 1999
(except with respect to the matter discussed in Note 2,
as to which the date is December 28, 1999)
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
Years Ended August 31,
1999 1998 1997
Net revenues $165,391 $170,604 $147,600
Cost of goods sold 117,720 119,151 102,111
Gross profit 47,671 51,453 45,489
Selling, general and
administrative expenses 46,890 39,989 33,609
Unusual charges (See Note 6) - 1,475 -
Operating income 781 9,989 11,880
Interest expense 4,699 4,218 3,115
Other expense, net 232 251 83
Income (loss) before
income taxes (4,150) 5,520 8,682
Provision (benefit) for
income taxes (789) 1,860 3,212
Net income (loss) $(3,361) $3,660 $5,470
Net income (loss) per common share:
Basic ($0.43) $0.47 $0.71
Diluted ($0.43) $0.47 $0.71
Shares used in computing per share amounts:
Basic 7,853 7,777 7,712
Assumed exercise of
stock options 21 41 6
Diluted 7,874 7,818 7,718
The accompanying notes are an integral part of these consolidated statements.
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
August 31,
1999 1998
Assets
Current assets:
Cash and cash equivalents $1,438 $862
Accounts receivable,
net of allowance of
$2,538 and $2,043,
respectively 32,048 40,352
Inventories 39,749 43,573
Prepaid expenses 928 673
Deferred income taxes 3,983 2,927
Total current assets 78,146 88,387
Property, plant and equipment, net 12,570 12,911
Deferred income taxes 21,460 22,340
Goodwill, net 8,112 8,326
Other assets 1,369 568
Total assets $121,657 $132,532
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $51,015 $61
Accounts payable 8,518 9,047
Accrued liabilities 11,059 12,547
Total current liabilities 70,592 21,655
Long-term debt, less current maturities 133 57,048
Other long-term liabilities 8,855 9,577
Total liabilities 79,580 88,280
Stockholders' equity:
Preferred stock, $.01 par
value per share, 10,000,000
shares authorized,
no shares issued and
outstanding - -
Common stock, $.01 par
value per share,
50,000,000 shares
authorized,
7,897,708 and
7,794,483 shares
issued and outstanding,
respectively 79 78
Additional paid-in capital 30,482 29,479
Stock subscription receivable (1,421) (1,421)
Cumulative other comprehensive income (1,399) (1,581)
Retained earnings 14,336 17,697
Stockholders' equity 42,077 44,252
Total liabilities and
stockholders' equity $121,657 $132,532
The accompanying notes are an integral part of these consolidated
balance sheets.
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
Cumula-
Stock tive
Subscrip Other Total
Additional -tion Compre Stock Compre
Common Stock Paid-in Receiv -hensive Retained -holder's -hensive
Shares Amount Capital -able Income Earnings Equity Income
Balance,
August 31,
1996 7,697,527 $77 $25,820 $ - $ - $ 8,567 $34,464
Net income - - - - - 5,470 5,470 $5,470
Issuance of
Common stock 28,287 - 263 - - - 263 -
Comprehensive
income $5,470
Balance,
August 31,
1997 7,725,814 77 26,083 - - 14,037 40,197
Net income - - - - - 3,660 3,660 $3,660
Issuance of
Common
stock 68,669 1 704 - - - 705 -
Issuance of
warrants - - 2,692 (1,421) - - 1,271 -
Translation
adjustments - - - - (1,581) - (1,581) (1,581)
Comprehensive
income $2,079
Balance,
August 31,
1998 7,794,483 78 29,479 (1,421) (1,581) 17,697 44,252
Net loss - - - - - (3,361) (3,361) $(3,361)
Issuance of
Common stock 103,225 1 1,003 - - - 1,004 -
Translation
adjustments - - - - 182 - 182 182
Comprehensive
income $(3,179)
Balance,
August 31,
1999 7,897,708 $79 $30,482 $(1,421) $(1,399) $14,336 $42,077
The accompanying notes are an integral part of these consolidated statements.
RAWLINGS SPORTING GOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years Ended August 31,
1999 1998 1997
Cash flows from operating activities:
Net (loss) income $(3,361) $3,660 $5,470
Adjustments to reconcile net
(loss) income to
net cash provided by
(used in) operating
activities :
Depreciation and amortization 2,576 1,781 1,220
Loss (gain) on disposal of
equipment - 101 (150)
Deferred income taxes (889) 1,019 2,642
Changes in operating assets and liabilities:
Accounts receivable, net 8,304 (3,742) (2,878)
Inventories 3,824 (10,608) 2,634
Prepaid expenses (255) 279 537
Other assets (926) 93 (242)
Accounts payable (529) 19 (1,263)
Accrued liabilities and other (1,279) (1,186) 581
Net cash provided by (used in)
operating activities 7,465 (8,584) 8,551
Cash flows from investing activities:
Capital expenditures (1,932) (3,600) (2,994)
Acquisition of a business - (14,098) -
Proceeds from sale of equipment - - 150
Net cash used in investing activities (1,932) (17,698) (2,844)
Cash flows from financing activities:
Borrowings of long-term debt 44,050 108,450 41,448
Repayments of long-term debt (50,011) (84,014) (47,475)
Issuance of common stock 1,004 705 263
Issuance of warrants - 1,271 -
Net cash (used in) provided by
financing activities (4,957) 26,412 (5,764)
Net increase (decrease) in cash and
cash equivalents 576 130 (57)
Cash and cash equivalents,
beginning of year 862 732 789
Cash and cash equivalents, end of year $1,438 $862 $732
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $4,564 $4,216 $3,159
Income taxes 300 631 383
The accompanying notes are an integral part of these consolidated
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Rawlings Sporting Goods Company, Inc. and all of its subsidiaries
(Rawlings or the Company). All significant intercompany
transactions have been eliminated.
BUSINESS
Rawlings manufactures and distributes sports equipment and
uniforms to team sports such as baseball, basketball, football,
and hockey predominately in the United States.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments
with a maturity when purchased of three months or less.
INVENTORIES
Inventories are valued at the lower of cost or net realizable
value with cost principally determined on a first-in, first-out
method. Cost includes materials, labor and overhead.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment is stated at cost and depreciation
is generally computed on a straight-line basis. The principal
rates of depreciation are as follows:
Buildings and improvements 20-30 years
Machinery and equipment 5-12 years
Other 4-10 years
INCOME TAXES
Deferred income taxes are recorded for temporary differences in
reporting income and expenses for tax and financial statement
purposes in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Incomes Taxes (SFAS No. 109).
TRANSLATION AND HEDGING OF FOREIGN CURRENCIES
The assets and liabilities of foreign branches and subsidiaries
are translated into U.S. dollars at current exchange rates and
profit and loss accounts are translated at average annual
exchange rates. Resulting translation gains and losses are
included as cumulative other comprehensive income, a separate
component in Stockholders' Equity. Foreign exchange transaction
losses of $10, $0 and $25 were included in the results of
operations for the fiscal years ended August 31, 1999, 1998 and
1997, respectively.
The Company has utilized forward foreign currency contracts to
minimize the impact of currency movements on anticipated royalty
payments denominated in Japanese yen. In June and September 1998,
the Company entered into forward contracts to sell Yen 75 million
and Yen 150 million with fixed exchange rates and maturity dates
which aligned with the royalty payments received in February and
August 1999, respectively. The Company has no forward foreign
currency contracts outstanding as of August 31, 1999.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement
requires that all items recognized under accounting standards as
components of comprehensive income be reported in the financial
statements. The Company has included these disclosures in the
accompanying Consolidated Statements of Stockholders' Equity.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments
approximates their carrying amounts. Fair value for all financial
instruments other than long-term debt, for which no quoted market
prices exist, was based on appropriate estimates. The value of
the Company's long-term debt is estimated based on market prices
for similar issues or on the current rates offered to the Company
for debt of the same remaining maturities.
RECLASSIFICATION
Certain reclassifications have been made to the prior year
financial statements to conform with the current year
presentation.
USE OF ESTIMATES
These financial statements have been prepared on the accrual
basis of accounting, which require the use of certain estimates
by management, in determining the Company's assets, liabilities,
revenues and expenses. Resolution of certain matters could differ
significantly from the resolution that is currently expected.
NOTE 2. DEBT REFINANCING
On December 28, 1999, the Company refinanced its long-term credit
facility by entering into a $75,000,000 credit agreement with a
new lender. Borrowings under the new credit facility will bear
interest, at the option of the borrower, at either LIBOR plus
applicable margin or the Index Rate (as defined therein) plus
applicable margin. The credit facility requires the Company to
meet certain financial covenants including a minimum fixed charge
coverage, minimum level of earnings before interest, taxes,
depreciation and amortization, and restricts the Company's
ability to make capital expenditures and to pay cash dividends.
The credit facility matures in five years, is asset based and is
supported by the Company's receivables, inventory and property,
plant and equipment. Additionally, the facility provides for an
incremental seasonal advance. The proceeds from this new
facility were used to pay-off the existing credit facility.
NOTE 3. ACQUISITION
On September 12, 1997 the Company acquired the net assets of the
Victoriaville hockey business. The acquisition was accounted for
under the purchase method and accordingly, the results of
operations were included in the Company's consolidated statements
of income from the date of acquisition. The purchase price, paid
in cash, has been allocated to the assets and liabilities and the
excess of cost over the fair value of net assets acquired is
being amortized over a forty year period on a straight-line basis
with accumulated amortization as of August 31, 1999 and 1998 of
$418 and $204, respectively. The purchase price allocation was as
follows:
Net assets $ 5,568
Goodwill 8,530
Total purchase price $14,098
NOTE 4. INVENTORIES
Inventories consist of the following:
August 31,
1999 1998
Raw materials $8,447 $9,552
Work in process 1,977 2,497
Finished goods 29,325 31,524
Total inventories $39,749 $43,573
NOTE 5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
August 31,
1999 1998
Buildings and improvements $6,198 $6,143
Machinery and equipment 19,111 17,598
Other 3,150 2,926
Total property, plant and
equipment 28,459 26,667
Less - Accumulated depreciation (15,889) (13,756)
Property, plant and equipment,
net $12,570 $12,911
NOTE 6. UNUSUAL CHARGES
ENVIRONMENTAL
The Company has been conducting environmental investigation and
remediation activities at its Dolgeville, New York facility (the
"Site") with respect to the release of wood pitch into
surrounding soil and surface water. In November 1997, the Company
entered into a Voluntary Agreement with the New York State
Department of Environmental Conservation (the "NYSDEC") to
conduct certain environmental remediation activities related to
the presence of wood pitch in the soils at the Site. The wood
pitch was generated as a result of the operation, before
Rawlings' ownership of the Site, of a retort facility by a third
party unrelated to Rawlings. In December 1997, an environmental
consulting firm retained by Rawlings initiated remediation
activities under the oversight of the NYSDEC. In conducting the
remediation activities under the Voluntary Agreement, it was
discovered that the actual volume of wood pitch substantially
exceeded the amount originally estimated by the environmental
consulting firm. Some of the unanticipated, additional wood pitch
has been remediated in accordance with the requirements of the
Voluntary Agreement. The Company believes that a portion of the
unanticipated, additional volume of wood pitch remaining at the
Site may be outside the scope of the current Voluntary Agreement.
Nevertheless, the Company expects to be required to address such
additional wood pitch through an amendment to the Voluntary
Agreement. In May 1998, the Company's environmental consultants
completed an investigation of the amount of the additional wood
pitch at the Site. Based upon the report received from the
environmental consultants and the Company's historical experience
with environmental matters at this Site, the Company recorded a
$975 charge to remediate the additional unanticipated wood pitch,
which is reflected in unusual charges in the accompanying
consolidated statement of income for 1998. In the year ended
December 31, 1993, the Company recorded a charge of $1,559 which
included the estimated clean up costs at this Site. The Company's
reserve for remediation costs as of August 31, 1999 was $987. In
management's estimation, this amount is adequate to cover the
expected remediation activities at the wood pitch Site.
In June 1998, the Company filed an action in the Northern
District of New York against Trident Rowan Group, Inc. (Trident
Rowan), which the Company believes is the successor to the
entity which owned the wood pitch Site during the period in
which the wood pitch contamination occurred. The Company believes
that the case against Trident Rowan is strong and all or a
portion of the clean up costs associated with the wood pitch at
the Site may be recoverable. However, due to the uncertainty
associated with this matter, no receivable associated with a
potential recovery has been recorded at this time and there can
be no assurance that any amount will be recovered.
CHANGE IN CHIEF EXECUTIVE OFFICER
In October 1997, the Company recorded a $500 charge for severance
and related benefits, legal costs and other costs associated with
changes in the Chief Executive Officer's position. This charge
has been included in unusual charges in the accompanying
consolidated statement of income. In November 1998, Stephen M.
O'Hara was named Chairman and Chief Executive Officer of
Rawlings.
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
August 31,
1999 1998
Salary, benefits and other taxes $ 4,489 $ 4,670
Royalties 990 1,975
Environmental 987 1,082
Payable to former parent - 1,346
Other 4,593 3,474
Accrued liabilities $11,059 $12,547
NOTE 8. INCOME TAXES
The income tax provision (benefit) is as follows:
1999 1998 1997
Current:
Federal $(200) $ 724 $ 472
State and other 300 117 98
Total current 100 841 570
Deferred:
Federal (1,389) 1,184 2,464
Foreign (250) (281) -
State and other (496) 116 178
Total deferred (2,135) 1,019 2,642
Valuation allowance 1,246 - -
Total income tax
(benefit)
provision $(789) $1,860 $3,212
A reconciliation between the provision for income taxes computed
at the Federal statutory rate and the rate used for financial
reporting purposes is as follows:
1999 1998 1997
Amount % Amount % Amount %
Expected provision
(benefit) at the
statutory rate $(1,453) (35.0) $1,932 35.0 $3,039 35.0
State & other taxes,
net of federal tax benefit (117) (2.8) 232 4.2 365 4.2
Lower tax rates on
foreign income (576) (13.9) (265) (4.8) (118) (1.4)
Valuation allowance 1,246 30.0 - - - -
Other 111 2.7 (39) (0.7) (74) (0.8)
Total income
tax provision (benefit) $(789) (19.0) $1,860 33.7 $3,212 37.0
The significant components of deferred taxes which are included
in the accompanying balance sheets are as follows:
1999 1998
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
Intangible assets $19,720 $ - $22,440 $ -
Operating loss carryforward 2,976 - 316 -
Foreign tax credits 1,458 - 851 -
Receivable reserve 512 - 157 -
Environmental reserve 363 - 410 -
Inventory 1,773 - 718 -
Other accruals 1,135 - 1,442 -
Other 390 1,638 433 1,500
Valuation allowance (1,246) - - -
Total $27,081 $1,638 $26,767 $1,500
In 1999 the Company recorded a valuation allowance of $1,246
against certain foreign tax credits set to expire in 2000 to
2003. The Company's net operating loss carryforward expires in
2019 and the foreign tax credits expire in 2000 to 2004.
Income taxes have not been provided on the undistributed income
(approximately $3,820) of a foreign subsidiary, which the Company
does not intend to be remitted to the U.S.
NOTE 9. DEBT AND CAPITAL LEASES
Debt consists of the following:
August 31,
1999 1998
Credit agreement with banks due
April 2000, average interest
rate of 9.50% and 6.65%,
respectively $50,950 $56,850
Obligation under capital
lease, interest rate of 4.90% 198 259
Total debt 51,148 57,109
Less current maturities (51,015) (61)
Total long-term debt $ 133 $57,048
In 1997, the Company maintained a $72,000 variable rate unsecured
credit agreement with a bank group. In September 1997, the
Company amended and restated the unsecured credit agreement with
a bank group which, among other matters, increased the facility
to $90,000 and extended the maturity date to September 1, 2002.
The amended and restated credit agreement, among other matters,
required the Company to meet certain financial covenants
including a minimum fixed charge coverage, a required ratio of
maximum total debt to total capitalization, a minimum net worth
and restricted the Company's ability to pay cash dividends. In
June 1998, the Company amended the credit agreement to, among
other matters, exclude the unusual charges from the minimum fixed
charge coverage covenant. In March 1999, the Company renegotiated
debt covenants by amending the existing credit agreement with an
increase in interest rates. In July 1999, the credit agreement
was amended to become an asset based borrowing vehicle. Available
credit under the amended agreement is based on a percentage of
net receivables, inventory and property, plant and equipment. In
September 1999, the agreement was amended to increase the
allowable borrowing base by $4,000 with an additional increase in
interest rates. In October 1999, the credit agreement was amended
increasing the allowable borrowing base to a percentage of assets
plus $10,000 with a maximum availability of $70,000. This last
amendment changed the maturity date of the agreement to April
2000, and as a result, the debt evidenced by such agreement has
been reclassified as current on the Company's balance sheet.
Additionally, the Company is currently not in compliance with
certain debt covenants under its amended and restated credit
agreement with its current bank group. The Company has obtained
a temporary waiver of these covenants through December 31, 1999.
Upon expiration of the waiver on December 31, 1999, the defaults
could be reinstated and the lenders would have all the rights and
remedies provided for in the amended and restated credit
agreement. In addition, the Company, in consideration for
waiving the defaults under the amended and restated credit
agreement, agreed to pay a supplemental commitment fee of
twenty-five basis points, payable on a gross percentage basis and
not a per annum basis, on the last day of each month, commencing
on December 31, 1999, on the full amount of the aggregate
revolving credit commitment then in effect. Based on the
aggregate revolving credit commitment in effect on the date
hereto, the supplemental commitment fee would be $175,000.
The Company is pursuing the refinancing of its debt to more
favorable terms and believes it can successfully conclude a
long-term debt refinancing. The Company has classified this debt
as current in the consolidated balance sheet. See Note 2 for a
discussion of the Company's debt refinancing.
As of August 31, 1999 the Company had outstanding letters of
credit of $816 under the credit agreement with banks.
In October 1995 the Company entered into a two-year interest rate
swap agreement with a commercial bank under which the Company
received a floating rate based on three month LIBOR through
September 1997 on $25,000 and paid a fixed rate of 6.50 percent.
In October 1997, the Company entered into a two-year interest
rate swap agreement with a commercial bank under which the
Company received a floating rate based on three month LIBOR
through October 1999 on $30,000 and paid a fixed rate of 7.00
percent. These transactions effectively converted a portion of
the Company's debt from a floating rate to a fixed rate.
The Company uses interest rate swaps, with the objective of
reducing exposure to increases in short-term interest rates, by
fixing the interest rate on a portion of its debt for a period of
time. The interest differential, to be paid or received on an
interest rate swap, is recognized as an adjustment to interest
expense as the differential occurs.
NOTE 10. OTHER LONG-TERM LIABILITIES
In July 1994, Figgie International, Inc. (the former parent)
transferred the net assets of the Rawlings business to the
Company. The assets and liabilities transferred to Rawlings were
recorded at the predecessor's cost for financial reporting
purposes. For tax purposes, the transaction resulted in a step-up
of the basis of the assets transferred determined by the fair
value paid by the Company for the Rawlings business. Under the
terms of a tax sharing and separation agreement between the
Company and the former parent, the Company is required to pay the
former parent 43 percent of the tax benefits resulting from the
step-up in the tax basis of the assets as the benefit of the
step-up is realized. The amount of the obligation to pay the
former parent that is not expected to be paid in the next year is
recorded as other long-term liabilities.
NOTE 11. EMPLOYEE BENEFITS
COMPANY-SPONSORED DEFINED CONTRIBUTION PLANS
Substantially all U.S. salaried employees and certain U.S. hourly
employees are covered by a defined contribution (Section 401(k))
plan that provides funding based on a percentage of compensation.
The Company's contributions to the plan were $323, $327 and $242
in 1999, 1998 and 1997, respectively.
MULTI-EMPLOYER PENSION PLANS
Certain union employees participate in multi-employer defined
benefit pension plans. Contributions to the plans were $171, $194
and $201 in 1999, 1998 and 1997, respectively.
NOTE 12. STOCK OPTIONS
The 1994 Rawlings Long-Term Incentive Plan, as amended (the 1994
Incentive Plan), provides for the issuance of up to 1,125,000
shares of Rawlings common stock upon the exercise of stock
options and stock appreciation rights, and as restricted stock,
deferred stock, stock granted as a bonus or in lieu of other
awards and other equity-based awards. The 1994 Non-Employee
Directors Stock Plan (1994 Directors Stock Plan) provides for the
issuance of up to 50,000 shares of Rawlings common stock to
non-employee directors upon the exercise of stock options or in
lieu of director's fees.
Stock options granted under the 1994 Incentive Plan and the 1994
Directors Stock Plan have exercise prices equal to the market
price on the date of grant, vest over three to four years from
the date of grant and, once vested, are generally exercisable
over ten years following the date of grant.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation
cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1999, 1998 and
1997 consistent with the provisions of this statement, the
Company's net income and net income per share would have been as
follows (in thousands, except net income per share):
1999 1998 1997
Net (loss) income $(4,542) $2,956 $4,910
Net (loss) income
per share $(0.58) $0.38 $0.64
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1999,
1998 and 1997: dividend yield of 0 percent, expected volatility
of 43.0 percent, 40.0 percent and 54.0 percent in 1999, 1998 and
1997, respectively, risk-free interest rate of 4.8 percent, 5.4
percent and 6.4 percent in 1999, 1998 and 1997, respectively and
expected life of six years. The weighted average grant date fair
value of options was $4.77, $6.59 and $5.82 for 1999, 1998 and
1997, respectively.
OPTION ACTIVITY IS AS FOLLOWS:
1999 1998 1997
Outstanding at beginning
of year 610,810 631,137 483,185
Granted 412,850 178,000 160,378
Exercised (70,376) (44,548) (1,000)
Cancelled (86,156) (153,779) (11,426)
Outstanding at end of year 867,128 610,810 631,137
Shares exercisable 392,337 313,899 327,541
Price of stock options:
Granted $8.88 - $14.00 $11.88 - $13.63 $8.31 - $12.13
Exercised $9.00 - $ 9.75 $ 9.00 - $ 9.75 $8.00
Cancelled $8.31 - $13.88 $ 9.00 - $13.63 $9.00 - $ 9.75
Outstanding $7.88 - $14.00 $ 7.88 - $13.88 $7.88 - $13.88
Exercisable $7.88 - $13.88 $ 7.88 - $13.88 $7.88 - $13.88
At August 31, 1999, 191,948 shares of Rawlings common stock were
available for future awards under the plans. As of August 31,
1999 the weighted average remaining contractual life on
outstanding options was 6.4 years.
NOTE 13. WARRANTS
In November 1997, the Company issued warrants to purchase 925,804
shares of common stock at $12.00 per share to Bull Run
Corporation for $3.07 per warrant. The warrants expire in
November 2001 and are exercisable only if the Company's common
stock closes above $16.50 for twenty consecutive trading days.
One half of the purchase price of the warrants was paid in cash
with the other half payable with interest at 7 percent at the
time of exercise or expiration of the warrants. The receivable
for the unpaid portion of the warrants is classified as a stock
subscription receivable in the accompanying balance sheet. These
warrants are not considered common stock equivalents until the
point in time that the warrants become exercisable.
NOTE 14. RELATED PARTY TRANSACTIONS
In 1999 the Company sold approximately $285 of product to a
professional baseball club in which one of the Company's board of
directors is the secretary and treasurer. The Company believes
that the terms and prices for the sale of these products are no
less favorable than those obtained from unaffiliated parties.
During the fiscal year ended August 31, 1999, the Company
purchased approximately $442 of catalogs and promotional items
from a company in which one of the Company's board of directors
is the president.
NOTE 15. COMMITMENTS AND CONTINGENCIES
The Company operates certain facilities and equipment under
operating lease agreements. The lease expense was $1,951,
$2,184, and $2,300 for years 1999, 1998 and 1997, respectively.
Future minimum payments under noncancelable leases, royalty and
licensing agreements as of August 31, 1999 are as follows:
Royalty and
Operating Licensing
Leases Agreements
Fiscal 2000 $1,398 $ 4,103
Fiscal 2001 481 3,428
Fiscal 2002 137 2,919
Fiscal 2003 - 545
Fiscal 2004 - 507
Thereafter - 225
Total minimum lease payments $2,016 $11,727
In the normal course of doing business, Rawlings is subject to
various federal, state and local environmental laws. Rawlings
currently is working with the New York State Department of
Environmental Conservation in addressing contamination relating
to wood pitch located at its facility in Dolgeville, New York.
(See Note 6 Unusual Charges for additional discussion of the
Dolgeville environmental matter.)
Rawlings is periodically subjected to product liability claims
and proceedings involving its patents and other legal
proceedings; such proceedings have not had a material adverse
effect on Rawlings.
Additionally, the Company is currently not in compliance with
certain debt covenants contained in its amended and restated
credit agreement with its current bank group. The Company has
obtained a waiver of these covenants through December 31, 1999.
The Company is pursuing the refinancing of its debt to more
favorable terms and believes it can successfully conclude a
long-term debt refinancing.
In December 1999, the Company received a commitment to refinance
its long-term credit facility. The credit facility will be
asset-based and supported by the Company's receivables, inventory
and property, plant and equipment. Additionally, the facility
provides for an incremental seasonal advance. The facility is
scheduled to close and be funded prior to December 31, 1999. The
proceeds from this new facility will be used to pay-off the
existing credit facility. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources."
In the opinion of management, ultimate liabilities resulting from
pending environmental matters and other legal proceedings will
not have a material adverse effect on the financial condition or
results of operations of Rawlings.
NOTE 16. OPERATING SEGMENTS
In 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of a Business
Enterprise and Related Information," which establishes standards
for reporting information about reportable operating segments.
Operating segments, as defined, are components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company has identified operating segments based on internal
management reports. This Statement allows aggregation of similar
operating segments into a single reportable operating segment if
the businesses are considered similar under the criteria of this
statement. The Company has five operating segments based on its
product categories, which in applying the aggregation criteria of
this Statement have been aggregated into two reportable segments:
Sports Equipment and Licensing.
The sports equipment segment manufactures and distributes sports
equipment and uniforms for team sports including baseball,
basketball, football, and hockey. The licensing segment licenses
the Rawlings brand name on products sold by other companies and
include products such as golf equipment, footwear, and
activewear. There are no determinable operating expenses for the
licensing segment. The accounting policies of the segments are
the same as those described in Note 1 for the Company. The
revenues generated and long-lived assets located outside the
United States are not significant for separate presentation. One
customer's purchases of products sold by Rawlings were 13
percent, 12 percent and 12 percent of net revenues of Rawlings
for 1999, 1998 and 1997, respectively.
1999 1998 1997
Net revenues
Sports equipment $159,422 $164,734 $141,069
Licensing 5,969 5,870 6,531
Consolidated net revenues $165,391 $170,604 $147,600
Operating income (loss)
Sports equipment $(5,188) $4,119 $5,349
Licensing 5,969 5,870 6,531
Consolidated operating income $781 $9,989 $11,880
Total assets
Sports equipment $120,428 $131,453 $100,414
Licensing 1,229 1,079 850
Consolidated total assets $121,657 $132,532 $101,264
NOTE 17. ALLOWANCE FOR DOUBTFUL ACCOUNTS
1999 1998 1997
Balance at beginning of year $2,043 $1,627 $1,498
Provision 1,110 827 760
Acquisition of Victoriaville
hockey business - 838 -
Charge-offs, net of recoveries (615) (1,249) (631)
Balance at end of year $2,538 $2,043 $1,627