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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 February 28, 2001
------------------
Commission file number 0-24450
RAWLINGS SPORTING GOODS COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 43-1674348
(State or Other Jurisdiction (I.R.S. Employer
Of Incorporation or Organization) Identification No.)
1859 Intertech Drive, Fenton, Missouri 63026
(Address of Principal Executive Offices) (Zip Code)
(636) 349-3500
(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
--- ---
Number of shares outstanding of the issuer's Common Stock, par value
$0.01 per share, as of March 31, 2001: 7,989,715 shares.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Statements of Income
(Amounts in thousands, except per share data)
(Unaudited)
Quarter Ended Six Months Ended
February 28, February 28,
------------------------------------------------------
2001 2000 2001 2000
------------------------------------------------------
Net revenues........................................................ $65,799 $63,728 $102,482 $97,702
Cost of goods sold.................................................. 44,317 42,923 69,479 66,246
------------------------------------------------------
Gross profit................................................... 21,482 20,805 33,003 31,456
Selling, general and administrative expenses........................ 11,956 11,732 22,806 21,586
Unusual (income) expense............................................ 82 238 (972) 1,497
------------------------------------------------------
Operating income............................................... 9,444 8,835 11,169 8,373
Interest expense, net............................................... 1,308 1,651 2,380 3,227
Other expense, net.................................................. 69 63 173 151
------------------------------------------------------
Income from continuing operations before income taxes.......... 8,067 7,121 8,616 4,995
Provision for income taxes.......................................... 2,868 2,635 3,071 1,848
------------------------------------------------------
Income from continuing operations before extraordinary item.... 5,199 4,486 5,545 3,147
Loss from operations of discontinued segment, net of tax............ - (609) - (856)
------------------------------------------------------
Income before extraordinary item............................ 5,199 3,877 5,545 2,291
Extraordinary item, net of tax...................................... - (646) - (646)
------------------------------------------------------
Net income.......................................................... $ 5,199 $ 3,231 $ 5,545 $ 1,645
======================================================
Net income (loss) per common share, basic and diluted:
Continuing operations.......................................... $ 0.65 $ 0.57 $ 0.69 $ 0.40
Discontinued segment........................................... - (0.08) - (0.11)
Extraordinary item............................................. - (0.08) - (0.08)
------------------------------------------------------
Net income .................................................... $ 0.65 $ 0.41 $ 0.69 $ 0.21
======================================================
Shares used in computing per share amounts:
Basic.......................................................... 8,013 7,934 8,006 7,928
Assumed exercise of stock options.............................. - 2 1 2
------------------------------------------------------
Diluted........................................................ 8,013 7,936 8,007 7,930
======================================================
The accompanying notes are an integral part of these consolidated statements.
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Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share data)
February 28,
2001 August 31,
(Unaudited) 2000
-------------------- ------------------
Assets
- ------
Current Assets:
Cash and cash equivalents ............................... $ 791 $ 1,424
Accounts receivable, net of allowance of
$2,634 and $2,561 respectively ....................... 65,383 28,246
Inventories ............................................. 44,959 38,100
Deferred income taxes ................................... 6,079 6,079
Prepaid expenses ........................................ 826 819
Net assets of discontinued segment ...................... 904 2,624
--------- ---------
Total current assets ................................ 118,942 77,292
Property, plant and equipment .............................. 7,490 8,873
Deferred income taxes ...................................... 17,842 20,802
Other assets ............................................... 1,254 1,211
Net noncurrent assets of discontinued segment .............. 477 547
--------- ---------
Total assets ........................................ $ 146,005 $ 108,725
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt and
revolving credit agreement .......................... $ 63,542 $ 37,178
Accounts payable ........................................ 20,996 13,804
Accrued liabilities ..................................... 11,640 10,729
--------- ---------
Total current liabilities ........................... 96,178 61,711
Long-term debt, less current maturities .................... 5,875 8,404
Other long-term liabilities ................................ 9,291 9,291
--------- ---------
Total liabilities ................................... 111,344 79,406
--------- ---------
Stockholders' equity:
Preferred stock, none issued ............................ - -
Common stock, $0.01 par value, 50,000,000
shares authorized, 7,984,893 and 7,946,338
shares issued and outstanding, respectively ......... 80 79
Additional paid-in capital .............................. 31,023 30,798
Stock subscription receivable ........................... (1,421) (1,421)
Cumulative other comprehensive loss ..................... (1,897) (1,468)
Retained earnings ....................................... 6,876 1,331
--------- ---------
Stockholders' equity .................................... 34,661 29,319
--------- ---------
Total liabilities and stockholders' equity .......... $ 146,005 $ 108,725
========= =========
The accompanying notes are an integral part of these consolidated balance
sheets.
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Rawlings Sporting Goods Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
(Amounts in thousands)
(Unaudited)
Six Months Ended
February 28,
---------------------------------------
2001 2000
----------------- ------------------
Cash flows from operating activities:
Net income ............................................................. $ 5,545 $ 1,645
Add loss from discontinued segment ..................................... - 856
Add extraordinary item ................................................ - 646
-------- --------
Income from continuing operations ...................................... 5,545 3,147
Adjustments to reconcile income from continuing
operations to net cash used in continuing operations:
Depreciation and amortization ...................................... 1,163 1,528
Gain on sale of Springfield distribution center .................... (1,115) -
Changes in operating assets and liabilities:
Accounts receivable ................................................ (37,137) (37,847)
Inventories ........................................................ (6,859) (8,149)
Accounts payable ................................................... 7,192 16,905
Other .............................................................. 2,847 4,546
-------- --------
Net cash used in continuing operations ...................................... (28,364) (19,870)
Net cash provided by discontinued segment ................................... 1,814 3,795
-------- --------
Net cash used in operating activities ....................................... (26,550) (16,075)
-------- --------
Cash flows from investing activities:
Capital expenditures of continuing operations .......................... (496) (538)
Capital expenditures of discontinued segment ........................... (24) (61)
Proceeds from sale of Springfield distribution center .................. 2,376 -
-------- --------
Net cash provided by (used in) investing activities ......................... 1,856 (599)
-------- --------
Cash flows from financing activities:
Net increase in short-term borrowings .................................. 26,364 17,989
Repayments of long-term debt ........................................... (2,529) (34)
Issuance of common stock ............................................... 226 178
-------- --------
Net cash provided by financing activities ................................... 24,061 18,133
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ (633) 1,459
Cash and cash equivalents, beginning of period .............................. 1,424 904
-------- --------
Cash and cash equivalents, end of period .................................... $ 791 $ 2,363
======== ========
The accompanying notes are an integral part of these consolidated statements.
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Rawlings Sporting Goods Company, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies.
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission pertaining to interim financial information
and do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company's Form 10-K
for the year ended August 31, 2000 filed on December 12, 2000. In the opinion of
management, all adjustments consisting only of normal recurring adjustments
considered necessary for a fair presentation of financial position and results
of operations have been included therein. The results for the six months ended
February 28, 2001 are not necessarily indicative of the results that may be
expected for a full fiscal year.
Note 2: Discontinued Segment
On June 26, 2000 the Company made a strategic decision to seek a buyer
for its Vic hockey business. Vic provides an extensive line of equipment for
hockey including hockey sticks, hockey protective equipment and goalie
protective equipment. While not complete as of February 28, 2001 the disposition
of the Vic hockey business is expected to be completed during fiscal 2001. Vic
hockey is accounted for as a discontinued segment, and accordingly, operating
results and net assets are segregated in the Company's financial statements.
The net current assets of this discontinued segment are primarily
accounts receivable, inventory, accounts payable and accrued expenses. Net
noncurrent assets are primarily property, plant and equipment.
Operating results for the hockey business are included in the
Consolidated Statements of Income as loss from discontinued segment through May
31, 2000. Operating results subsequent to May 31, 2000 have been included in the
provision for operating losses during the phaseout period that was recorded
during the third quarter of fiscal 2000. Results for the discontinued segment
are as follows (in thousands):
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Quarter Ended Six Months Ended
February 28, February 28,
---------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------
Net revenues ......................................................... $ 704 $ 1,624 $ 2,209 $ 3,644
=========================================================
Loss from operations of discontinued segment before income taxes ..... $ (952) $ (967) $(1,470) $(1,359)
Benefit for income taxes ............................................. -- (358) -- (503)
---------------------------------------------------------
Net loss from operations of discontinued segment ..................... $ (952) $ (609) $(1,470) $ (856)
=========================================================
Note 3: Unusual (Income) Expense
In connection with the relocation of distribution facilities to a new
single location in Washington, Missouri, the Springfield, Missouri distribution
center was sold in September 2000. The Company is currently leasing the
Springfield distribution center from the buyer until the move to Washington can
be completed in fiscal 2001. The gain on the sale of Springfield of $1,115,000
offset by $143,000 of redundant costs incurred during the move to Washington has
been included as unusual income in the Consolidated Statement of Income for the
six months ended February 28, 2001. Redundant costs of $82,000 incurred during
the move to Washington has been included as unusual expense for the three months
ended February 28, 2001.
Unusual expenses in the six months ended February 29, 2000 included
$759,000 for an early retirement program and $738,000 of costs associated with
the Company's strategic review process. Unusual expense in the three months
ended February 29, 2000 consisted of $238,000 of costs associated with the
Company's strategic review process.
Note 4: Inventories
Inventories consisted of the following (in thousands):
February 28, August 31,
2001 2000
---------------------- -----------------------
Raw materials ...................................... $11,161 $ 9,777
Work in process .................................... 1,141 900
Finished goods ..................................... 32,657 27,423
------- -------
$44,959 $38,100
======= =======
Note 5: Comprehensive Income
For the three months ended February 28, 2001 comprehensive income was
$5,167,000 compared with comprehensive income of $3,321,000 for the comparable
prior year period. For the six months ended February 28, 2001 comprehensive
income was $5,116,000 compared with comprehensive income of $1,820,000 for the
six months ended February 29, 2000.
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Note 6: Operating Segments
Operating segments 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. Aggregation of similar operating segments into a single
reportable operating segment is permitted if the businesses are considered to
have similar long-term economic characteristics. The Company has four operating
segments based on its product categories, which in applying the aggregation
criteria 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 and
football. The licensing segment licenses the Rawlings brand name on products
sold by other companies, including 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 for the
Company. The revenues generated and long-lived assets located outside the United
States are not significant and therefore, separate presentation is not required.
Quarter Ended Six Months Ended
February 28, February 28,
--------------------------------------------------------------------------------
2001 2000 2001 2000
--------------------------------------------------------------------------------
Net revenues
Sports equipment $64,338 $62,195 $100,056 $95,159
Licensing 1,461 1,533 2,426 2,543
--------------------------------------------------------------------------------
Consolidated net revenues $65,799 $63,728 $102,482 $97,702
================================================================================
Operating income
Sports equipment $ 7,983 $ 7,302 $ 8,743 $ 5,830
Licensing 1,461 1,533 2,426 2,543
--------------------------------------------------------------------------------
Consolidated operating income $ 9,444 $ 8,835 $ 11,169 $ 8,373
================================================================================
February 28, August 31,
2001 2000
---------------------------------------
Total assets
Sports equipment $143,699 $104,643
Licensing 925 911
Net assets of discontinued segment 1,381 3,171
---------------------------------------
Consolidated total assets $146,005 $108,725
=======================================
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Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Discontinued Segment
On June 26, 2000, the Company made a strategic decision to seek a buyer
for its Vic hockey business. Vic provides an extensive line of equipment for
hockey including hockey sticks, hockey protective equipment and goalie
protective equipment. The disposition of the Vic hockey business is expected to
be completed during fiscal 2001. Vic hockey is accounted for as a discontinued
segment, and accordingly, operating results and net assets are segregated in the
Company's financial statements.
RESULTS OF OPERATIONS
Quarter Ended February 28, 2001 Compared
with Quarter Ended February 29, 2000
Net revenues for the quarter ended February 28, 2001 were $65,799,000
or 3.2% higher than net revenues of $63,728,000 for the February 29, 2000
quarter. The increase in net revenues was primarily the result of increased
sales of baseball-related products, up $1,201,000, and increased apparel sales,
up $1,224,000, over last year.
The Company's gross profit for the February 2001 quarter was
$21,482,000 or 3.3% higher than the gross profit of $20,805,000 for the same
period last year. The gross profit margin for both years was 32.6%.
Selling, general and administrative (SG&A) expenses of $11,956,000 were
18.2% of net revenues which was .2 percentage points lower than the comparable
prior year period.
Unusual expense in the February 28, 2001 quarter represented redundant
costs associated with the previously announced facilities consolidation. Unusual
expense in the February 29, 2000 quarter consisted of costs associated with the
Company's strategic review.
Interest expense for the three months ended February 8, 2001 was
$1,308,000 or 20.8% lower than interest expense of $1,651,000 last year. Lower
average borrowings by $2,300,000 and lower average interest rates of 1.5
percentage points accounted for the decrease in interest expense.
The $646,000 extraordinary charge in the February 29, 2000 quarter was
due to the write-off of deferred financing costs associated with the early
extinguishment of the previous credit facility.
Net income from continuing operations for the quarter ended February
28, 2001 was $5,199,000 compared to $4,486,000 in the second quarter of fiscal
2000. Increased net revenues and lower interest expense were the primary reasons
for the increase.
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Net revenues from the discontinued segment for the three months ended
February 28, 2001 were $704,000 or 56.7% lower than net revenues from the
discontinued segment of $1,624,000 from the same quarter last year. Net loss
from operations for the discontinued segment for the February 2001 quarter was
$952,000 compared to a net loss of $609,000 for the February 2000 quarter. The
increased loss from discontinued operations was primarily due to a $358,000 tax
benefit recorded in the February 2000 quarter. Net loss before income taxes did
not increase as a result of lower sales due to lower margin closeout sales in
the February 2000 quarter.
Six Months Ended February 28, 2001
Compared with the Six Months Ended February 29, 2000
Net revenues for the six months ended February 28, 2001 were
$102,482,000 or 4.9% higher than the net revenues of $97,702,000 in the
comparable six month period last year. The increase in net revenues was
primarily the result of strong demand for baseball-related products where sales
were up 3.6% over last year. Net revenues from basketballs were up $1,008,000,
footballs were up $698,000 and apparel was up $674,000.
The Company's gross profit for the six months ended February 28, 2001
was $33,003,000 or 4.9% higher than the gross profit of $31,456,000 for the
comparable prior year period. The gross profit margin for both periods was
32.2%.
SG&A expenses for the six months ended February 28, 2001 were
$22,806,000 compared to $21,586,000 in the comparable prior year period. SG&A
expenses were 22.3% of net revenues or .2 percentage points higher than the
first six months of the prior year.
The unusual income of $972,000 in the six months ended February 28,
2001 consisted of the $1,115,000 gain on the sale of the Springfield
distribution center and $143,000 of redundant costs incurred during the
previously announced facilities consolidation. Unusual expenses in the six
months ended February 29, 2000 included $759,000 for an early retirement program
and $738,000 of costs associated with the Company's strategic review process.
Interest expense for the six months ended February 28, 2001 was
$2,380,000 or 26.2% lower than the interest expense of $3,227,000 in the
comparable prior year period. Lower average borrowings by $6,100,000 and lower
average interest rates of 1.5 percentage points accounted for the decrease in
interest expense.
The $646,000 extraordinary charge in the six months ended February 29,
2000 was due to the write-off of deferred financing costs associated with the
early extinguishment of the previous credit facility.
Net income from continuing operations for the six months ended February
28, 2001 was $5,545,000 compared to $3,147,000 for the six months ended February
29, 2000. Increased net
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revenues, the gain on the sale of the distribution center and prior year unusual
expenses were the reasons for the increase.
Net revenues from the discontinued segment for the six months ended
February 28, 2001 were $2,209,000 compared to $3,644,000 for the same period
last year. Net loss from operations of the discontinued segment totaled
$1,470,000 compared to a net loss of $856,000 in the prior year. Lower net
revenues and a $503,000 tax benefit recorded in fiscal 2000 were the reasons for
the increased net loss.
Liquidity and Capital Resources
Working capital increased $7,183,000 during the six months ended
February 28, 2001 primarily as a result of a seasonal increase in accounts
receivable and inventories, offset by increases in short term borrowings under
the revolving credit agreement and in accounts payable.
Net cash used in operating activities for the six months ended February
28, 2001 was $26,550,000 or 65.2% higher than the $16,075,000 used in operating
activities for the six months ended February 29, 2000. The increase was due to a
lower increase in accounts payable this year compared to last year.
Capital expenditures were $520,000 for the six months ended February
28, 2001. The Company expects capital expenditures for fiscal 2001 to be
approximately $1,800,000.
The Company had net borrowings, primarily related to seasonal working
capital needs, of $23,835,000 in the six months ended February 28, 2001. This
resulted in total debt of $69,417,000 as of February 28, 2001 or $314,000 higher
than total debt of $69,103,000 as of February 29, 2000. Management believes that
the Company's current credit facility is sufficient to adequately finance its
existing and future operations.
Seasonality
Net revenues of baseball equipment and team uniforms are highly
seasonal. Customers generally place orders with the Company for baseball-related
products beginning in August for shipment beginning in November (pre-season
orders). These pre-season orders from customers generally represent
approximately 50 percent to 65 percent of the customers' anticipated needs for
the entire baseball season. The amount of these pre-season orders generally
determines the Company's net revenues and profitability between November 1 and
January 31. The Company then receives additional orders (fill-in orders) which
depend upon customers' actual sales of products during the baseball season
(sell-through). Fill-in orders are typically received by the Company between
February and May. These orders generally represent approximately 35 percent to
50 percent of the Company's sales of baseball-related products during a
particular season. Pre-season orders for certain baseball-related products from
certain customers are not required to be paid until early spring. These extended
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terms increase the risk of collectibility of accounts receivable. The Company
has made a concerted effort to reduce these extended term sales and as a result
may have moved some sales to later months to avoid the extended term at the same
time preserving the early spring dating. In addition, an increasing number of
customers are on automatic replenishment systems; therefore, more orders are
received on a ship-at-once basis. This change has resulted in shipments to the
customer closer to the time the products are actually sold. This trend has and
may continue to have the effect of shifting the seasonality and quarterly
results of the Company with higher inventory and debt levels required to meet
orders for immediate delivery. To offset these risks, the Company implemented in
1999 for the Spring 2000 season a Port of Entry (POE) program to encourage
retailers to place early orders, as well as other changes in credit terms to
reduce risk and debt levels. The sell-through of baseball-related products also
affects the amount of inventory held by customers at the end of the season which
is carried over by the customer for sale in the next baseball season. Customers
typically adjust their pre-season orders for the next baseball season to account
for the level of inventory carried over from the preceding baseball season.
Football equipment and team uniforms are both shipped by the Company and sold by
retailers primarily in the period between March 1 and September 30. Basketballs
and team uniforms generally are shipped and sold throughout the year. Because
the Company's sales of baseball-related products exceed those of its other
products, Rawlings' business is seasonal, with its highest net revenues and
profitability recognized between November 1 and April 30.
Cautionary Factors That May Affect Future Results, Financial Condition or
Business
Statements made in this report, other reports and proxy statements
filed with the Securities and Exchange Commission, communications to
stockholders, press releases and oral statements made by representatives of the
Company that are not historical in nature, or that state the Company's or
management's intentions, hopes, beliefs, expectations, or predictions of the
future, are "forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and involve risks and
uncertainties. The words "should," "will be," "intended," "continue," "believe,"
"may," "expect," "hope," "anticipate," "goal," "forecast" and similar
expressions are intended to identify such forward-looking statements. It is
important to note that any such performance, and actual results, financial
condition or business could differ materially from those expressed in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this document as
well as those discussed elsewhere in other reports filed with the Securities and
Exchange Commission. The Company undertakes no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes in future operating results, financial condition
or business over time.
The price of leather, which is a component of baseball-related
products, has increased recently due to supply shortages caused by the hoof and
mouth disease among cattle. If this problem continues, the Company and others in
the industry will be forced to increase prices or recognize lower margins.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company has certain market risk exposure related to interest rates.
The Company is exposed to market risks related to fluctuations in interest rates
for its variable rate borrowings of
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$69,317,000 as of February 28, 2001. A change in interest rates of 1% on the
balance outstanding at February 28, 2001 would cause a change in total annual
earnings and cash flows of $693,000 assuming other factors are held constant.
Due to the relative size of the Company's foreign operations, the
Company believes it does not have any material exposure to foreign currency
fluctuations.
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Part II.
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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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.
RAWLINGS SPORTING GOODS COMPANY, INC.
Date: April 12, 2001 /s/ STEPHEN M. O'HARA
----------------------------------
Stephen M. O'Hara
Chairman of the Board and
Chief Executive Officer
Date: April 12, 2001 /s/ WILLIAM F. LACEY
------------------------------------------
William F. Lacey
Vice President and Chief Financial Officer
(Principal Accounting Officer)
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