Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 55 318K
3: EX-10.15 Franklin Park Il - Lease Amendment 1/30/97 1 8K
4: EX-10.16 Ft. Erie on - Lease Amendment 2/6/97 1 5K
5: EX-10.20 Macgregor License - Memo of Understanding 7/29/96 2 13K
2: EX-10.8 Elk Grove Vil. Il - Lease Amendment 9/19/96 1 7K
6: EX-11 Computation of Earnings Per Share 2± 8K
7: EX-27 Edgar Financial Data Schedule 1 8K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19298
RIDDELL SPORTS INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2890400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Third Avenue, 27th Floor, New York, New York 10022
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (212) 826-4300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
none none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
The Registrant hereby incorporates by reference, in response to Part III, its
Proxy Statement for its 1997 Annual Meeting of Stockholders to be filed on or
before April 30, 1997 (except to the limited extent the rules and regulations
of the Commission authorize certain sections of such Proxy Statement not to be
incorporated herein by reference, as specifically indicated in such Proxy
Statement).
The aggregate market value of the 4,561,235 shares of outstanding voting stock
held by non-affiliates of the Registrant, computed by reference to the last
sale price of the Registrant's Common Stock on March 26, 1997, is $18,244,940.
As of March 15, 1997, the Registrant had 8,067,985 shares of Common Stock,
$.01 par value per share, outstanding.
PART I
ITEM 1. BUSINESS
General
Riddell Sports Inc. (the "Company") is engaged in the businesses of
manufacturing and selling athletic products, principally through its direct
sales force to schools and other institutions. The Company is the world's
leading manufacturer of football helmets, which it sells under the Riddell (R)
brand name. The Company is also the world's leading reconditioner of football
helmets, shoulder pads and other sports protective equipment. Additionally,
the Company markets full size and miniature collectible helmets and other
collectible products, which it sells to retail stores under the Riddell brand
name. Furthermore, the Company licenses its Riddell (R) and MacGregor (R)
trademarks to other companies primarily for use on athletic footwear and
apparel.
Historically, the Company has been known principally for its protective
football equipment. Recently, the Company began to expand the categories of
athletic products sold to institutions by its direct sales force to include
baseball items and, beginning in the 1997 season, a full line of practicewear
for team sports. In addition, the Company continues to focus on expanding
its marketing of collectible products to the retail channels. In 1996 the
Company introduced several new collectible products including miniature hockey
goalie masks displaying National Hockey League team logos, and in 1997 the
Company introduced miniature baseball helmets of Major League baseball teams.
Also in 1997, the Company plans to begin shipping its new line of Star Wars
(R) collectible products.
The Company was organized in April 1988 to acquire substantially all of
the assets and businesses of two former second-tier subsidiaries of MacGregor
Sporting Goods, Inc. The businesses of the two subsidiaries consisted of
manufacturing and selling Riddell football helmets and other protective
products and the licensing of the MacGregor trademark. In September 1991, the
Company acquired certain assets and liabilities of the protective equipment
operations (the "Protective Equipment Division") of BSN Corp., now known as
Aurora Electronics Inc. The Protective Equipment Division consisted of BSN's
reconditioner of protective sports equipment and certain other businesses.
The Company is a holding company that operates through various
subsidiaries. The Company's subsidiary, Riddell, Inc., manufactures or sources
new sports products for both institutional and retail customers. All American
Sports Corporation maintains an institutional sales force that sells
reconditioning services and new athletic products directly to schools and
other institutions. RHC Licensing Corporation and Ridmark Corporation license
the Riddell trademark. Equilink Licensing Corp. licenses the MacGregor
trademark. Proacq Corp. licenses the Company's Maxpro (R) trademark.
Unless the context otherwise requires, references in this Report to the
Company include the Company and its subsidiaries.
Recent Developments
In November 1996, the Company completed the private placement of a new
4.10% Convertible Subordinated Note due November 1, 2004 (the "Note") in the
principal amount of $7,500,000 pursuant to an exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended. The Note was
purchased by Silver Oak Capital L.L.C., an affiliate of Angelo, Gordon & Co. A
portion of the proceeds from the sale of the Note was used to repay the
remaining $870,834 balance of a subordinated term note due to a stockholder in
accordance with its terms. Contemporaneously with the issuance of the Note the
Company amended its loan agreement with its senior lender, NBD Bank, to, among
other things, extend the term of its revolving line of credit from April 1997
to April 1998, and to defer a $1,000,000 principal payment due on the term
loan from December 1996 to December 1998.
The Note is convertible at $6.00 a share (representing a 21.5% premium to
the closing price of the Company's Common Stock on October 31, 1996) into
1,250,000 shares of the Company's Common Stock (subject to an antidilution
adjustment), constituting 13.4% of the outstanding shares of the Company's
Common Stock outstanding on March 15, 1997 after giving effect to conversion
of the Note but without regard to the exercise of any outstanding options or
warrants to buy the Company's Common Stock. The terms of the Note, including
provisions regarding redemption
-2-
at the Company's option, redemption at the holder's option upon a Change of
Control, mandatory redemptions, subsidiary guarantees and subordination, are
more fully described in Note 5 to the Notes to Consolidated Financial
Statements.
Industry Segments
The Company operates primarily in two segments of the sporting goods
industry: sports products and services (including sales of athletic products,
reconditioning of athletic equipment and sales of sports collectible products)
and trademark licensing. See Note 13 of Notes to Consolidated Financial
Statements for net revenues, income or loss from operations and identifiable
assets attributable to the Company's industry segments for the last three
years.
Sports Products And Services
Athletic Products and Reconditioning
Original Line of Athletic Products: The Company is the world's leading
manufacturer of football helmets, which it sells under the Riddell brand. For
the years ended December 31, 1994, 1995, and 1996 sales of football helmets
for competitive use constituted approximately 25%, 20% and 21% respectively,
of the Company's consolidated revenues.
Riddell football helmets are worn by the majority of football players
throughout the world, including players on all National Football League
("NFL") teams and certain other professional leagues and on most of the teams
in the NCAA. High school teams, however, have historically been the largest
market segment for Riddell football helmets. Riddell helmets are known for
their quality and performance and meet the standards of the National Operating
Committee on Standards for Athletic Equipment ("NOCSAE"), which sets the
standards for the industry.
The Company's several types of varsity and youth helmets offer different
configurations and types of padding and other protective features. The
Company's youth helmets incorporate technology and design features similar to
those used in its varsity helmets.
The Company believes it also maintains a leadership share of the shoulder
pad market. The Company sells a professional and collegiate line of shoulder
pads under the Power (R) name and several other lines of shoulder pads used
mostly by high school and college players. Football shoulder pad sales for
the years ended December 31, 1994, 1995 and 1996 constituted approximately
11%, 9% and 9% respectively, of the Company's consolidated revenues. The
Company also sells accessory pads, including thigh, hip, rib and knee pads.
Expanded Line of Athletic Products: The Company recently began
increasing the categories of athletic products it sells to institutions. In
1996 the Company introduced a line of baseball and softball athletic products
designed for high school and college players, marketed under the ProEDGE (R)
brand This new line includes baseballs and softballs, protective baseball
equipment such as chest protectors, leg guards and catchers' masks and certain
other products including bases, bags and field equipment. In late 1995, the
Company introduced a newly redesigned line of professional and youth batting
helmets, including the first batting helmet designed specifically for women's
softball. The new baseball product line includes professional quality models
that are similar to the best quality products available from the Company's
competitors. The Company's helmets meet the standards set by NOCSAE.
Late in 1996 the Company further expanded its line of institutional
products to include practicewear such as t-shirts, shorts, fleece warm-ups
and other basic athletic clothing. Practicewear is the first broad line of
products sold by the Company to the institutional market that are used by both
male and female athletes. The Company offers customized silkscreen printing as
an option for its practicewear line. The Company believes its practicewear is
comparable to the highest quality products available from its competitors.
-3-
Reconditioning: The Company, through its All American Sports
Corporation subsidiary, is the leading reconditioner of football helmets,
shoulder pads and related equipment. Reconditioning typically involves the
cleaning, sanitizing, buffing or painting, and recertifying of helmets as con-
forming to NOCSAE standards. The Company may also replace face guards,
interior pads and chin straps. The Company also reconditions shoulder pads, as
well as equipment for other sports, including baseball and lacrosse helmets,
catchers' masks and baseball gloves. The Company's reconditioning customers
are primarily high schools, colleges and youth recreational groups.
Reconditioning constituted 34%, 31% and 30% of the Company's consolidated
revenues in the years ended December 31, 1994, 1995 and 1996, respectively.
Sports Collectible Products
The Company's sports collectible products are sold to consumers through
the retail market channel. Sales of these products have been the strongest
area of growth for the Company in recent periods, and the Company intends to
continue its heightened focus on the sale of these and other retail products
in the future. For the years ended December 31, 1994, 1995 and 1996 sales of
sports collectible products have constituted approximately 16%, 26% and 29% of
the Company's consolidated revenues.
The sports collectible product line consists primarily of authentic and
replica football helmets of professional and college teams. These helmets are
offered in various miniature and full size models bearing the colors and logos
of NFL and other professional or collegiate teams. The Company's full size
authentic football helmets are the same helmets used by players on these
teams. Nonauthentic helmets are not constructed with the same material as
authentic helmets, and are therefore less expensive. The Company recently
expanded its line of collectible items to include a new line of smaller, less
expensive miniature football helmets tailored for the mass market, miniature
hockey goalie masks bearing National Hockey League ("NHL") team logos and
miniature baseball batters helmets bearing Major League Baseball ("MLB")
logos, among other products.
In connection with the sale of the Company's collectible helmets, NFL
Properties has granted the Company a license to use the names, symbols,
emblems, designs and colors of the member clubs of the NFL and the "League
Marks" (i.e., "National Football League," "NFL," "NFC," "AFC," "Super Bowl,"
"Pro Bowl," the "NFL Shield" design and other insignia adopted by the NFL) on
authentic and replica football helmets sold for display purposes. The term of
the license is concurrent with the term of the NFL Agreement, described
below in "Marketing and Promotion". The NFL Agreement has a term expiring
April 1999 and automatically extending for unlimited successive five-year
periods thereafter unless, in general, Riddell helmets fail to continue to
meet certain quality standards.
In addition, the Company has license agreements for other collectible
products from organizations such as the National Hockey League ("NHL"), Major
League Baseball ("MLB") and Lucasfilm, Ltd. which, late in 1996 granted the
Company a license through December 1998 to sell half-scale Star Wars (R)
miniature collectibles in the United States. The Company plans to introduce
at least four Star Wars miniature collectible products in 1997 based upon the
Darth Vader, C3PO and other characters. The Company has completed the design
of, and has commenced marketing, these products, which in March, 1997 were in
the pilot production stage. The Company expects to begin shipping its new
Star Wars collectible products in the second quarter of 1997.
The Company's goal is to continue to develop new collectible products
for sale to appropriate retail channels in the United States and certain
international markets, and, when appropriate, to seek licenses allowing the
Company to display well-known logos on these products. As noted above, in
1997 the Company introduced miniature baseball helmets and plans to introduce
its line of Star Wars collectibles as well as additional football collectible
products. There can be no assurances that the Company will successfully
develop and market any new products.
-4-
Trademark Licensing
General
The Company licenses its Riddell and MacGregor trademarks in various
categories, primarily including athletic products, clothing and footwear. For
the years ended 1994, 1995 and 1996, the Company's royalty income from
licensing of its trademarks constituted approximately 7%, 5% and 3% of
consolidated revenues, respectively. The Company's principal license
agreements and its licensing program are discussed below.
MacGregor Licensing
General: The Company has certain rights in the "MacGregor" trademark
more fully discussed under "Trademarks and License Agreement"s, as well in
Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations. The Company's two principal licensees of the
MacGregor trademark rights in 1996 were Kmart and Thom McAn.
Kmart: The Company has granted Kmart a license which expires June 30,
1998 to use the MacGregor trademarks exclusively on certain athletic apparel
(e.g., jogging suits and sweat separates), athletic bags and knapsacks and
non-exclusively on other products such as athletic socks. Commencing January
1, 1997, Kmart's right to use the mark on athletic footwear (excluding golf
shoes) became an exclusive right.
Meldisco, now a division of Footstar, Inc., has historically sold
MacGregor footwear under the Kmart license in Kmart stores. The Company and
Meldisco recently reached an agreement in principal, subject to negotiation
and execution of final documentation, that Meldisco will continue to sell
athletic footwear bearing the MacGregor trademark at Kmart stores pursuant to
a license replacing the Kmart license when it expires in 1998. The Company is
exploring additional opportunities for licensing the MacGregor trademark, and
in this connection has retained an independent Licensing Agent. See Marketing
and Promotion - Licensing, below. The Company plans to establish a new
license for the apparel category effective when the Kmart license expires in
1998. The Company believes there are long-term benefits to broadening the
distribution of MacGregor apparel. However, there can be no assurances that
the Company will be successful in its efforts to establish a new apparel
license. Royalties from sales of athletic clothing bearing the MacGregor
trademark at Kmart stores constituted 1% of the Company's total revenues and
29% of total royalty income in 1996. No decision has been made with respect
to licensing the use of the MacGregor trademark after June 1998 on socks,
athletic bags or knapsacks currently marketed by Kmart.
Thom McAn: The Company granted Thom McAn a license to use the MacGregor
trademark in the United States co-exclusively with Kmart on certain athletic
footwear. The license expired December 31, 1996. The Company received the
minimum royalty under the license in 1996.
Riddell Licensing.
General: The Company owns all domestic rights to the "Riddell"
trademarks. The Company currently licenses the Riddell trademarks for
athletic footwear and for certain limited categories of athletic clothing.
Footwear: Late in 1995 the Company's licensee for the Riddell trademark
on footwear filed for protection under Chapter 11 of the U.S. Bankruptcy Code
in Delaware. By order dated February 12, 1996, the licensee assumed the
license agreement in the bankruptcy proceeding and must comply with its
terms, including full and timely payment of royalties. The Company is
conducting an audit of the licensee's books and records and has notified the
bankruptcy court that, based upon the preliminary results of the audit, it
believes the licensee may be in violation of material provisions of the
license, and that it wishes to reserve its rights with respect to any such
violations. Royalty payments are guaranteed by the licensee's principal
lender, which has the right subject to certain conditions to assume the
license upon material breach by licensee. This licensee is not affiliated
with the Company other than through its licensing arrangement. Royalties
received under the license in 1996 were reduced by an agreed-upon offset. The
licensee's largest creditor and lender, which is also engaged in the shoe
business, may continue to oppose the licensee's right to maintain the license
and/or may seek to assume the license by foreclosing on its rights under a
pledge agreement.
-5-
Athletic Apparel: In 1992 the Company granted a license to Signal
Apparel Company to use the Riddell trademark on certain athletic apparel. In
May 1996, in connection with Signal's restructuring of certain of its product
lines, the Company replaced the original license with a short term license
agreement granting Signal the rights to use the Riddell trademark on certain
types of athletic clothing which also bear the mark of the NFL Properties,
Inc. or one of its member teams. The license is renewable at the option of the
Company and requires a lower minimum royalty than the original license entered
into in 1992.
Licensing Agent
See Marketing and Promotion--Licensing below for a discussion of the
Company's recent engagement of an independent licensing agent to assist the
Company to identify suitable new licenses and to administer its trademark
programs.
Marketing and Promotion
General
Since April 1989, the Company has had a promotional rights agreement (the
"NFL Agreement") with National Football League Properties, Inc., the licensing
arm of the NFL. The NFL Agreement requires the Riddell name to appear on the
front immediately above the center front forehead and on the chin straps of
each Riddell helmet used in NFL play and, further, requires all teams in the
NFL to cover any indicia of brand identification of other manufacturers which
might otherwise appear on helmets, face masks or chin straps not manufactured
by the Company used during league play.
The NFL Agreement has a term expiring in April 1999 and automatically
extends for unlimited successive five-year periods thereafter unless, in
general, Riddell helmets fail to continue to meet certain quality standards.
The Company agrees to supply specified quantities of Riddell helmets,
shoulder pads and related equipment, either at no cost or at reduced cost to
each NFL team with a requisite percentage of its roster using the Riddell
helmet. For the 1996/97 professional football season, the Company believes
that more than 80% of NFL players used Riddell helmets. The Company also has
supply agreements with certain other professional leagues.
The Company utilizes a variety of promotional techniques to build brand
awareness. The NFL Agreement provides the Company with a unique marketing and
promotional tool. The recognition resulting from the frequent appearance of
the Riddell name on helmets in televised football games as well as in
photographs in newspapers and magazines such as Sports Illustrated is viewed
by management as important to its overall sales, marketing and licensing
efforts. The Company believes that this arrangement increases sales of
products by the Company and its Riddell brand licensees through enhanced
visibility of the Riddell name and improves licensing opportunities.
Sports Products and Services.
Athletic Products and Reconditioning: The Company's athletic products and
equipment reconditioning services are sold directly to schools and other
institutions through a direct sales force of approximately 110 salesmen.
Prior to October 1994, sales of protective athletic equipment destined for
consumption by these institutional customers had historically been made to
independent team sports dealers who in turn sold to schools and other
institutions. The Company now markets products to these institutional
customers on a factory-direct basis utilizing its sales force in its All
American Sports Corporation subsidiary, which previously sold only the
Company's reconditioning services.
The Company's youth football products are sold through retail stores,
independent team sports dealers and other distributors.
To further reinforce and support Riddell's brand recognition, the
Company conducts a variety of marketing and promotional events in support of
its line of athletic products. The Company participates in coaches' clinics
and
-6-
equipment shows throughout the year. At these events, the Company's entire
athletic products line is displayed and promoted along with the Company's
reconditioning services.
Sports Collectible Products: The Company's replica and collectible
products are sold primarily to retail and specialty sporting goods stores
through approximately 40 independent sales representatives who are paid
commissions. The Company has in recent years hired additional retail staff to
develop and market retail products. The Company strategically targets
channels of trade that it determines to be most appropriate for the type and
price of each retail product. The Company believes sales of retail products
will increase along with new product introductions and heightened marketing,
but cannot assure it will attain any such increase.
In support of its sports collectible products, the Company has initiated
various advertising and public relations efforts. The Company is a sponsor
of the "NFL" Experience", which is conducted each year during the week of the
Super Bowl. This event reaches a significant number of consumers. The retail
collectible line has appeared on QVC and the Home Shopping Network, generating
national awareness. The Company advertises in publications targeted toward
the sports collectible industry as well as other licensed products retailers.
The Company also provides incentives to retail outlets to advertise and
display Riddell products during promotional periods, and participates in
various national sporting goods shows, where it promotes these products.
Licensing
Through its licensing subsidiaries, the Company has granted certain third
parties the right to use the Riddell and MacGregor trademarks in connection
with the sale of athletic shoes, clothing and other products (see Trademark
Licensing above). The Company is seeking to further capitalize upon the
television and press exposure of the Riddell name on helmets worn during NFL
games. In 1996, the Company hired an independent licensing agent to help
expand its licensing program for both the Riddell and MacGregor marks and to
administer the Company's trademark programs. Also, the Company is actively
considering proposals for new license agreements for certain categories of the
MacGregor and Riddell trademarks. There can be no assurances that any new
licenses will be entered into or, if executed, any such agreements will be
successful.
Production
Sports Products and Services.
Protective Helmets: The Company engineers, manufactures and packages all
of its protective football and baseball helmets at its plant in Chicago,
Illinois. Helmet shells are manufactured entirely by the Company using a
custom grade of plastic resin and precision injection molding techniques.
Shoulder Pads: Production of Power (R) By Riddell shoulder pads has
recently been shifted to a single source in Canada. The Company has a
facility in Pennsylvania which customizes shoulder pads upon request. All of
the Company's other shoulder pads are imported as finished products from
sources in the Far East.
Other Athletic Products: The Company purchases its baseball products
from suppliers in the Far East. The Company sources its practicewear from four
domestic suppliers. The Company believes alternative sources for these
products are readily available. The Company's Elk Grove, Illinois facility has
a screen printing operation which can customize the practicewear to bear
almost any logo, team name or other design that the customer requests.
Reconditioning: The Company's reconditioning services include the
sanitizing, buffing or painting, replacing certain parts and recertifying of
athletic equipment as conforming to NOCSAE standards. These services are
performed at the Company's reconditioning facilities strategically located
throughout the United States and Canada. In late 1994, in response to the
Company's move to direct sales, the Company's primary competitor in new
football equipment, Schutt Sports Group, manufacturer of the "AIR" helmet,
canceled the Company's reconditioning subsidiary's designation as an
authorized reconditioner of AIR (R) helmets and refused to sell parts for
their helmets to this entity. This move has had no measurable impact on the
Company's ability to recondition AIR helmets and no significant volume has
been lost in 1996. The Company will source parts from outside suppliers and
will recertify all AIR helmets
-7-
to NOCSAE standards as it had before. It is possible that Schutt's action
could have some limited impact on the Company's reconditioning volume in
future years.
Collectible Products: The Company engineers, manufactures and packages
its full size collectible helmets at its plant in Chicago, Illinois in a
process similar to that used for protective helmets. The Company purchases
its miniature helmets and other collectible products from two sources in the
Far East. The Company believes that alternative sources for these products
are readily available.
Quality Testing.
All protective products manufactured by the Company are subjected to at
least four separate quality-control procedures. Quality-control inspections
for helmets are conducted when the product is molded, when liners are
inserted, when face guards are attached and when the product is finished.
Samples of all models produced are tested in accordance with NOCSAE standards.
The Company continually monitors its sourced products to check that they meet
the Company's quality standards.
Warranty.
All varsity protective football helmet shells are covered by a five-year
warranty. Youth football helmet shells are covered by a three-year warranty.
Helmet liners, protective padding and shoulder pads are covered by a one-year
warranty. The rate of product returns for warranty claims has averaged
approximately 0.2% annually over the last 3 years.
Raw Materials.
The Company is not experiencing and does not anticipate shortages in raw
materials for its products.
Product Design and Engineering
The activities of the Company's engineering staff relate principally to
the design, development and improvement of its helmets and padding and to the
testing of raw materials which are used in, or could be used to improve,
Riddell products and, to a lesser extent, to the development of new products.
The Company has seven employees devoted principally to design, development and
quality, including an individual hired in 1996 to manage product design and
engineering. The Company has several patents and patents pending that are
applicable to its protective padding products. See Patents and Trade
Secrets, below. The Company has retained a design company to assist it in
developing new retail collectible products on terms that the Company believes
are customary in the industry, and from time to time works with other design
companies.
Seasonality and Backlog
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its sales and profitability. The move to
direct institutional sales has shifted peak sales of the Company's competitive
products to a later point in the year than that experienced prior to going
direct.
Orders for competitive football products and reconditioning services are
solicited over a sales cycle that begins in the fall of each year and
continues until the start of football play at the end of the following summer.
Delivery of competitive football products and performance of reconditioning
services reach a low point during the football playing season. These
activities contribute most to profitability in the first through third
quarters of each calendar year.
The Company's sports collectible products are sold to retailers
throughout the year. However, sales are at their peak during the third and
fourth quarters as retailers build inventory in anticipation of both the
football and the holiday
-8-
shopping seasons. Volume shipment of newly introduced products in the early
part of both 1995 and 1996 moderated this seasonality. However, shipment of
new products planned for 1997 introduction are anticipated to impact later
points of the year with a resulting shift in revenues and profitability
towards the second half of 1997.
Due in large part to the lull in sales of competitive football products
and services during the football season, the Company has normally experienced
operating losses during the fourth quarter of recent years. While the growth
of the collectible business and other products has softened this seasonality
and should continue to do so, the Company anticipates that the overall
pattern of lower fourth quarter profitability will continue due to the
significance of the Company's sales of football products and services.
Backlog for all the Company's products and services at March 15, 1997 was
approximately $17,000,000, a 20% decrease from March 15, 1996 backlog of
approximately $21,000,000. The decrease is principally due to changes in the
Company's procedures and policies for solicitation and acceptance of certain
classes of orders for sports collectible products. In early 1996 certain
retailers placed large orders for sports collectible products which they later
reduced by a material amount. These orders were for collectible products
which, at the time, had recently been introduced by the Company and were new
to these retailers.
The Company sells much of its competitive football products and
reconditioning services on dated payment terms with payments from customers
generally due the following July or August. Accordingly, trade receivables
increase throughout the year as sales are made on these dated payment terms.
The increase in trade receivables continues throughout an annual cycle until
reduced at the end of the cycle the following July or August as the dated
receivables become due. In order to finance the resulting large receivable
levels, the Company requires a revolving line of credit. The outstanding
balance on the revolving line of credit generally follows the receivable cycle
described above, increasing as the level of receivables increases until the
late summer or early fall of each year when collections of the dated
receivables are used to reduce the outstanding balance on the line.
Competition
Sports Products and Services.
Athletic Products: The Company's principal competitor in the football
helmet market is Schutt Sports Group, manufacturer of the "Air" helmet. The
Company competes principally with Bike Athletic Co., Inc., Douglas, Inc. and
Gear 2000, Inc., Rawlings Sporting Goods Company, Inc. in the football
shoulder pad business. The Company competes with Diamond Sports Co.,
Rawlings, Wilson Sporting Goods Company and other companies for baseball and
softball products. The Company competes with Champion Products, Inc. Russell
Athletic, Inc., and other companies for practicewear.
The Company believes it competes in the football market on the basis of
quality, price, reliability, service, comfort and ease of maintenance. With
respect to football and other athletic products, the Company believes that its
direct sales force provides a competitive advantage in terms of its ability to
provide superior products and customer services and a significant price
advantage due to the elimination of middlemen. Some of the Company's
competitors in the athletic products business are substantially larger and
have greater financial and other resources than the Company.
Reconditioning: The protective-equipment reconditioning industry is
highly fragmented. The Company believes that it serves approximately 50% of
the reconditioning market and that it has approximately 30 regional
competitors. The Company is the only national supplier of reconditioning
services. Reconditioners compete on the basis of quality, pricing, repu-
tation, convenience and customer loyalty.
Collectible Products: The Company believes that its sales of sports
collectible products compete with a large number and wide array of
manufacturers and sellers of sports and other collectible and memorabilia
products, some of which have greater resources than the Company. Among its
competitors in this large marketplace are sellers of
-9-
products such as autographed photographs and uniforms and other memorabilia
and manufacturers of clothing, such as caps and jackets.
Licensing.
Competition in the licensing of sports equipment, apparel and footwear is
very substantial. The Riddell and MacGregor brands compete with numerous
companies having significant brand recognition, many of which have greater
financial, distribution, marketing and other resources than the Company.
Competing brands include renowned names such as Adidas (R),Champion
(R),Converse (R),Nike (R), Rawlings (R),Reebok (R) ,Russell (R) and Wilson
(R). Brand recognition and reputation for quality are important competitive
factors in the Company's licensing business.
Patents and Trade Secrets
Certain of the Company's football helmet liner systems are protected by
patents and trade secrets, including a patent on its inflatable liner expiring
2010. Other patents on these liners expire 1998 and 2008. The Company also
has patents expiring in 2006, 2007 and 2008 on various components of its
shoulder pads which increase the impact area of contact and permit better
absorption of the related shock.
While management believes certain of these patents are material to the
success of the Company's products, based on currently competing technology, it
also believes that experience, reputation, brand recognition and its
distribution network are more significant to its business.
Trademarks and License Agreements
General
The Company considers the MacGregor (R), Riddell (R), ProEdge (R) and
Power (R) trademarks to be material to its business. All of the Company's
football helmets are marketed under the Riddell name. The Company's football
shoulder pads are sold under the Riddell and Power trademarks. The Company
markets footballs and certain baseball equipment, other than helmets, under
the ProEdge trademark. The Company's reconditioning services are conducted
under the name "Riddell/All American".
As discussed above under Trademark Licensing, the Company licenses the
Riddell trademark for certain types of athletic clothing and for athletic
footwear. It licenses the MacGregor trademark primarily for sales of
athletic footwear and certain clothing.
Riddell Trademark
The Company owns all domestic rights to the Riddell trademark. The
Riddell trademark is registered in the United States Patent and Trademark
Office and with the trademark registration offices in certain foreign
countries, and registration is being sought in other major foreign markets.
Trademark registrations generally have terms of 10 years, renewable for
successive ten year periods.
MacGregor Trademark
The Company owns 50% of the stock of MacMark Corporation which owns the
MacGregor trademark for sports apparel, footwear and equipment. The
MacGregor trademark is registered in the United States Patent and Trademark
Office, and registration is being sought in major foreign markets. The
remaining 50% of the stock of MacMark is owned by Hutch Sports USA, Inc.
("Hutch"), a subsidiary of RDM Sports Group, Inc.
The Company has a perpetual, exclusive, royalty-free license from
MacMark to use (and to sublicense others to use) the MacGregor trademark in
connection with the manufacture and sale of certain products. The MacMark
-10-
license allows the Company to use (and sublicense others to use) the MacGregor
trademark for all products other than products which MacMark has licensed to
Hutch and SSG, as discussed below.
Hutch has, subject to certain conditions, a perpetual, exclusive and
royalty-free license from MacMark to use (and, with the consent of MacMark and
the Company, to sublicense others to use) the MacGregor trademark principally
for sports equipment products used in certain major classes of sports, such as
baseball, soccer and basketball, for sale to retail stores only. MacMark has
also granted to Sports Supply Group, Inc. ("SSG") a license to use the
MacGregor trademark for sales of the same classes of goods as it licenses to
Hutch, but restricts SSG to selling these goods only to the institutional team
sports market.
MacMark and its licensees (including the Company) are bound by a
settlement agreement entered into in 1981 with a company that owns trademark
rights in the similar trademark, "McGregor." Under this agreement, the
parties have agreed on certain restrictions in the use of their respective
trademarks. Additionally, under a separate agreement the Company is precluded
from using the MacGregor trademark in connection with the sale of products
used in the sport of golf. Accordingly, the Company's use of the MacGregor
trademark generally is limited to sporting goods, certain apparel and
athletic footwear, but specifically excluding any of these products that
MacMark has licensed to Hutch and products used in connection with the sport
of golf.
The Company has in turn entered into sublicense agreements for the
MacGregor trademark discussed above in Trademark Licensing with Kmart for
products including shoes, athletic socks and athletic apparel.
Governmental Regulation
The Company's products and accessories are subject to the Federal
Consumer Product Safety Act, which empowers the Consumer Product Safety
Commission (the "CPSC") to protect consumers from hazardous sporting goods and
other articles. The CPSC has the authority to exclude from the market certain
articles which are found to be hazardous and can require a manufacturer to
repurchase such goods. The CPSC's determination is subject to court review.
Similar laws exist in some states and cities in the United States, Canada and
Europe. The Company maintains a quality control program for its protective
equipment operations and retail products that is designed to ensure compliance
with applicable laws. To date, none of these products has been deemed to be
hazardous by any governmental agency.
The Company's operations at all of its facilities are subject to
regulation by the Occupational Safety and Health Agency and various other
regulatory agencies.
The Company's operations are also subject to environmental regulations
and controls. While some of the raw materials used by the Company may be
potentially hazardous, it has not received any material environmental
citations or violations and has not been required to spend significant amounts
to comply with applicable law.
Employees
At March 1, 1997, the Company had 613 employees. The employees are
engaged as follows: 7 in product design, engineering and testing, 99 in
manufacturing, 315 in reconditioning, 148 in sales and marketing and 44 in
administration. Approximately 40 of the Company's employees are represented
by the Chicago and Central States Joint Board, Amalgamated Clothing and
Textile Workers Union, under a collective bargaining agreement which will
expire in January 1999. Approximately 33 of the Company's employees are
represented by the Local #500A United Food and Commercial Workers Union (AFL-
CIO) under a collective bargaining agreement that expires in January 2000.
The Company believes that relations with its employees are good.
-11-
Product Liability Proceedings and Product Liability Insurance
As part of its ongoing business, the Company is routinely a defendant in
various product liability suits relating to personal injuries allegedly
related to the use of Riddell helmets.
The Company maintains product liability insurance under a policy bound in
December 1994. In October 1996 the policy term was extended until December
2001 and certain coverage limits were increased. The policy is an
occurrence-based policy generally covering claims relating to injuries
occurring prior to December 2001 even if such claims are filed after the end
of the policy period. The insurance program provides certain basic and excess
coverage on product liability claims.
The basic insurance coverage under the policy ("Basic Coverage") provides
coverage against claims currently pending against the Company and future
claims relating to any injuries occurring prior to December 13, 2001. There
is an aggregate coverage limit of $7,500,000 for the Basic Coverage, and the
policy is also subject to certain annual aggregate sub-limits. The Basic
Coverage covers up to $2,250,000 per claim in excess of an uninsured retention
(deductible) of $750,000 per occurrence. Until such time as the premiums for
the entire policy have been paid, the Basic Coverage is also limited to 110%
of the premiums paid or which have been guaranteed by a letter of credit.
The insurance program also provides for additional coverage ("Excess
Coverage") of up to $20,000,000 per occurrence, in excess of the first
$3,000,000 of each claim. The Basic Coverage, to the extent available, covers
the initial $3,000,000 layer. The Excess Coverage applies to 10 of the 11
claims pending against the Company at December 31, 1996 and will apply to any
future claims which relate to injuries occurring prior to December 13, 2001.
Claims covered by the Excess Coverage are subject to one of two separate
$20,000,000 aggregate policy limits, depending on the date of the related
injury and the date the claim is filed against the Company. The first
$20,000,000 aggregate limit applies to claims filed before October 4, 1996 for
injuries occurring after January 1, 1985 and prior to December 13, 1994
together with any future claims for injuries occurring before October 4, 1996.
The second separate $20,000,000 aggregate limit applies to claims filed before
October 4, 1996 for injuries occurring after December 13, 1994 together with
any future claims for injuries occurring after October 4, 1996 and before
December 13, 2001. The Excess Coverage is also limited to certain ratios of
paid premiums until such time as the premiums due under the policy for the
entire policy period have been paid. However, this latter limitation can be
eliminated at any time by prepaying the future premiums due during the
remainder of the policy, or by guaranteeing the future premiums with a letter
of credit.
The amount of insurance available under the Excess Coverage discussed
above includes an expansion of coverage obtained in October 1996. Prior to
October 1996, the per case limits and two separate aggregate limits under the
Excess Coverage were each $10,000,000 as opposed to the $20,000,000 amounts
discussed above. The maximum possible payout under the entire policy,
combining the aggregate limit for the Basic Coverage and the two separate
aggregate limits under the Excess Coverage, is currently $47,500,000 whereas
prior to the policy expansion this amount would have been $27,500,000. The
increase in cost for this expansion of coverage was offset by the benefit of
spreading Basic Coverage policy premiums over two additional years, on a
prospective basis, with the extension of the original policy period from five
to seven years. This has resulted in a net decrease in the annual cost of the
policy for the remaining five years of the policy period.
The Company's product liability insurance carrier is a division of
American International Group, Inc. which has been rated A +15 by A.M. Best
Property and Casualty Insurance Ratings Company. There is no certainty that
coverage will remain available to the Company after 2001, that the Company's
insurer will remain viable, or that the insured amounts will be sufficient to
cover all future claims in excess of the Company's uninsured retention.
Furthermore, future rate increases might make such insurance uneconomical for
the Company to maintain after 2001.
As of March 15, 1997, the Company had 11 product liability lawsuits
against it for personal injuries allegedly related to the use of Riddell
helmets. The ultimate overall impact and outcome of these claims, or
potential future claims, cannot presently be determined. The Company has
established reserves for product liability claims and determines its reserves
based on estimates of losses and defense and settlement costs which it
anticipates would result from such claims based on information available at
the time the financial statements are issued. Due to the uncertainty
-12-
involved with estimates, actual results have at times varied substantially
from the estimated liability, and could do so in the future. Accordingly,
there can be no assurance that the ultimate costs of such claims will fall
within the estimated reserves.
In September 1991 the Company acquired the assets of subsidiaries of BSN
Corp. (known now as Aurora Electronics, Inc.), and Aurora has indemnified the
Company for any losses it may incur in connection with any product liability
claims asserted prior to September 23, 1994. Upon completing the 1991
acquisition, the Company immediately discontinued the Maxpro football helmet
business formerly conducted by Aurora. As of March 15, 1997 there are no such
cases pending against the Company. Some states impose liability for product
liability claims on successors that continue the business of manufacturing or
distributing the same products. The laws of successor liability, which vary
from state to state, may result in the Company being found liable on some or
all of these claims.
ITEM 2. PROPERTIES
The Company has fourteen locations, ten of which are used in the
Company's reconditioning operations. The Company owns its principal football
helmet manufacturing facility located in Chicago, Illinois. The Company
believes its properties, machinery and equipment are adequate for its current
requirements. In 1995 the Company closed a facility that manufactured
certain sports collectible products. In February 1994, the Company sold its
foam product manufacturing plant in Wauseon, Ohio. Set forth below is certain
information regarding the Company's principal properties.
Square Lease
Location Principal Use Footage Expiration Date
----------------------- ------------------------ ------- ---------------
New York, New York Corporate headquarters 4,000 September 1999
Chicago, Illinois Headquarters of
Riddell, Inc.; Helmet
manufacturing 95,000 Owned
Elk Grove Village, Warehouse and 83,000 March 2000
Illinois distribution center
Elyria, Ohio Headquarters for All 33,000 May 2000
American Sports Corp.;
reconditioning operations
and customer service
San Antonio, Texas(1) Reconditioning 27,000 October 1998
Stroudsburg, Pennsylvania Reconditioning and 44,000 October 1998
shoulder pad customizing
Belton, Missouri Reconditioning 6,600 January 1999
Buffalo, New York (2) Warehouse 6,000 Month-to-Month
Burgettestown, Pennsylvania Reconditioning 17,000 September 2013
Franklin Park, Illinois Reconditioning 16,000 June 2000
Fort Valley, Georgia Reconditioning 15,000 October 1997
Ft. Erie, Ontario, Canada Reconditioning 5,000 September 1997
New Rochelle, New York Reconditioning 23,000 January 2000
Union City, California (3) Reconditioning 23,000 March 1997
______________________
(1) Subject to renewal by the Company for three years.
(2) The Company is currently negotiating a long-term lease for this
property.
(3) The Company is currently negotiating a renewal of this lease and is
concurrently reviewing other options available to it.
-13-
ITEM 3. LEGAL PROCEEDINGS
Product Liability And Other Litigation Incidental To Business
The Company and its subsidiaries from time to time become involved in
various claims and lawsuits incidental to their businesses including without
limitation, employment related and product liability litigation. See Item 1;
Business - Product Liability Proceedings and Product Liability Insurance.
Mac I Fraudulent Transfer Action and State Law Debtor and Creditor Claim
MacGregor Sporting Goods, Inc. ("Mac"I) filed for bankruptcy protection
in March 1989 in the United States Bankruptcy Court in New Jersey. Mac I, its
Creditors' Committee and the bankruptcy trustee of MGS Acquisition, Inc.
("MGS") jointly brought an action against the Company, its principal lender,
NBD Bank and others in the New Jersey Bankruptcy Court (OFFICIAL UNSECURED
CREDITORS' COMMITTEE OF MACGREGOR SPORTING GOODS, INC. V. RIDDELL SPORTS INC.,
No. 93-2214 (RG) (Bankr. D.N.J.)). By order dated November 3, 1994 the court
dismissed this complaint as time-barred. The court also appointed a trustee
in the bankruptcy of Mac I, but did not decide whether the trustee would be
time-barred if it decided to bring a similar action against the Company and
its lender. Plaintiffs in the action had sought monetary damages and/or the
rescission of the Company's acquisitions (the "Acquisitions") in 1988 and 1989
of substantially all the assets and businesses of two former, second-tier
subsidiaries of Mac I, including among other things the football protective
division, the MacGregor licensing business and the nonfootball uses of the
Riddell trademark for, among other things, alleged failure to pay fair
consideration at a time when Mac I was insolvent or as a result of which Mac I
became insolvent or undercapitalized. The monetary damages alleged in
connection with the Acquisitions exceeded $28.5 million. In addition to
seeking monetary damages and/or rescission from the Company, the complaint
sought to void the liens of NBD Bank in the property at issue.
After the above action was dismissed, the trustees (the "Trustees") in
the Mac I and MGS bankruptcy proceedings commenced a substantially similar
action against the Company in March of 1995 entitled, BRUCE LEVITT, BANKRUPTCY
TRUSTEE FOR MACGREGOR SPORTING GOODS, INC., NOW KNOWN AS M. HOLDINGS, INC.,
PAUL SWANSON, BANKRUPTCY TRUSTEE FOR MGS ACQUISITION, INC. V. RIDDELL SPORTS
INC., et al, No. 95-2261 (RG) (Bankr. D.N.J.) in the Chapter 11 bankruptcy
case of Mac I (the "Levitt Action"). The complaint seeks monetary damages in
an unspecified amount plus interest and/or rescission in connection with the
Company's Acquisitions on the grounds, among others, that the Company
allegedly failed to pay fair consideration at a time when Mac I was insolvent
and/or undercapitalized. In addition to seeking monetary damages and/or
rescission from the Company, the complaint seeks to void the liens of NBD Bank
in the property at issue. The complaint also seeks damages against the Board
of Directors of Mac I including Frederic H. Brooks ("Brooks"), a former
President of the Company, for breaches of fiduciary duties to Mac I for
failing to obtain fair consideration in connection with these transactions.
Additionally, Innovative Promotions, Inc. and certain other purported
unsecured creditors of Mac I initiated a state law debtor and creditor action
against the Company based on substantially the same claims as were made in the
Trustees' actions in the New Jersey Bankruptcy Court. The Innovative Action is
now pending in the New Jersey Bankruptcy Court (INNOVATIVE PROMOTIONS, INC. ET
AL. V. RIDDELL SPORTS INC. ET AL. (IN RE MACGREGOR SPORTING GOODS, INC.), Adv.
Proc. No. 94-2656(RG) (the "Innovative Action"). The plaintiffs in the
Innovative Action seek rescission of, and/or monetary damages in excess of $22
million exclusive of interest relating to the Company's Acquisitions for
alleged failure to pay fair consideration at a time when Mac I was insolvent,
or as a result of which Mac I became insolvent or undercapitalized.
Plaintiffs also seek judgments voiding the liens of NBD Bank with respect to
the assets. In June 1995, the Trustees in the Levitt Action (the "Trustees")
intervened as plaintiffs in the Innovative Action purportedly to preserve
their rights in the event they lost the Levitt Action.
In April 1996 the Company entered into a settlement agreement with the
Trustees in which the Company agreed to pay an aggregate of $1.4 million and
releasing the Company and other defendants from all claims and liabilities in
the litigations. The settlement was subject to, among other things, approval
of two bankruptcy courts. On June 24, 1996 the Trustees withdrew their motion
to approve the settlement agreement in light of a Plan of
-14-
Reorganization of Mac I submitted by the Mac I Creditors' Committee in
opposition to the settlement agreement. The Company notified the Trustees
that their actions breached, and caused termination of, the proposed
settlement agreement. The Creditors' Committee's Plan of Reorganization is
subject to acceptance by the creditors and court approval. The Company has
objected to the Committee's Plan.
The Company has answered the complaints in both the Levitt Action and the
Innovative Action. The Company remains confident that the fraudulent transfer
cases are without merit and intends to vigorously defend against them,
including without limitation by asserting the cases are time- barred. The
Levitt Action is currently in the discovery phase, and is tentatively
scheduled for trial at the end of 1997.
On October 31, 1996 in the Levitt Action, Frederic Brooks (the Company's
former President) filed an answer and counterclaim against the estate of Mac I
and a cross-claim against the other defendants in the Levitt Action, including
the Company and several of its subsidiaries. The cross-claim against the
Company and such subsidiaries seeks indemnification and contribution under
state law, the Company's Bylaws and Brooks' employment agreements with the
Company in an indeterminate amount. The Company believes these cross-claims
are without merit and intends to vigorously defend against them.
Employee Litigation
From time to time the Company is party to employee litigation claims. In
June 1995, a subsidiary of the Company was served with a complaint entitled,
BEVERLY A. EICHLER V. RIDDELL, Inc. (D. Ct, N.D. III., E. Div.), No. 95-C-
3782. The complaint, brought by a former employee of one of the Company's
subsidiaries who was terminated in December 1993, alleged sex and age
discrimination and sought past and future wages and punitive damages in an
undisclosed amount. In early 1997 a jury awarded Ms. Eichler damages in the
amount of $59,000 and the court assessed front-pay damages of $420,000. The
Company has filed a motion asking the judge to order reinstatement in lieu of
front pay damages. Plaintiff has filed a motion for her attorneys fees. Both
motions are pending.
In connection with the Company's suit against its former President,
Brooks, for alleged breaches of his consulting agreement and certain other
matters, Brooks filed counterclaims against the Company and two of its
officers and directors. The action is captioned, RIDDELL SPORTS INC. V.
FREDERIC H. BROOKS, (D.C., SDNY), 92 Civ. 7851 (JGK). Brooks generally
alleges the Company breached its indemnification obligations to him as a
former officer and director of the Company and seeks damages in excess of $3.3
million, plus future attorneys fees and interest. Brooks also seeks
compensatory and punitive damages combined of at least $15 million against the
Company, two of its officers and directors and an entity controlled by them.
Brooks' counterclaims originally alleged claims for breach of contract,
declaratory relief, tortious interference with contract and prospective
advantage (including in connection with the Company's "Riddell" footwear
licensee), injurious falsehood, prima facie tort and abuse of process. On
January 5, 1995, the Court dismissed Brooks' claims for injurious falsehood
and abuse of process with prejudice and dismissed Brooks' tortious
interference with prospective advantage and prima facie tort claims without
prejudice. On February 3, 1995, Brooks amended his counterclaims to reassert
claims for tortious interference with prospective advantage and prima facie
tort. In connection with a settlement of certain actions between the Company
and its "Riddell" footwear licensee, the Company agreed to indemnify the
licensee and certain of its affiliates in the event they are impleaded by
Brooks into the Company's suit against Brooks for breach of his consulting
agreement; Brooks has impleaded the Company's "Riddell" footwear licensee and
other affiliates of the footwear licensee for indemnification for all damages
that may be assessed against him in the Company's suit against Brooks for
certain alleged breaches of his consulting agreement relating to among other
things alleged attempts to disparage and take control of the Company and to
Brooks' alleged cooperation with the Unsecured Creditors' Committee of
MacGregor. Mr. Brooks' claims against the footwear licensee (but not its
affiliates) was stayed as a result of its filing a bankruptcy petition.
In March 1996, Brooks filed a motion for summary judgment dismissing the
claims against him and requesting consulting fees of $587,000 under his
consulting agreement (which the Company has previously paid into an escrow
account), and the Company filed a motion for partial summary judgment
dismissing certain of Brooks'
-15-
claims against it and its affiliates. Late in 1996 Brooks clarified that the
relief he was seeking in his motion for summary judgement included, among
other things, consulting fees pursuant to Brooks' consulting agreement with
the Company's "Riddell" footwear licensee in an amount exceeding $850,000,
attorney's fees and expenses of approximately $1,500,000 incurred through
April 30, 1996 in connection with Brooks' counterclaims, plus interest on all
such amounts.
On March 22, 1996, all of the parties filed motions for summary judgment
in RIDDELL V. BROOKS. On January 7, 1997 a United States Magistrate Judge
issued a Report and Recommendation, and on March 25, 1997, a United States
District Judge issued an Opinion and Order, regarding the summary judgment
motions. The District Court essentially denied Riddell's motion for summary
judgment dismissing Mr. Brooks' counterclaims, although it held that any
recovery by Mr. Brooks for legal fees must be offset by $326,000 which Mr.
Brooks received from Riddell's directors' and officers' insurance carrier. The
Court also denied Mr. Brooks' motion for summary judgment seeking the
dismissal of Riddell's claims against Mr. Brooks for breach of a consulting
agreement and for breach of fiduciary duty. The Court also dismissed Mr.
Brooks' claims for contribution against certain parties affiliated with
Pursuit Athletic Footwear, Inc. ("Pursuit"). However, Mr. Brooks' claims
against Pursuit were not ruled upon because of the automatic stay of
litigation against Pursuit resulting from Pursuit's filing of a bankruptcy
petition.
The Company believes Brooks' remaining claims against the Company for
breach of contract, tortious interference with contract, tortious interference
with prospective advantage and prima facie tort are without merit and intends
to vigorously defend against them.
Wrongful Death Action
In January 1995 the Company was served with a complaint entitled,
KATHLEEN PREVOST, ADMINISTRATRIX OF THE ESTATE OF KEVIN W. PREVOST, DECEASED,
V. WEST PENN POWER COMPANY ET AL., Crt of Common Pleas, Washington County,
Penn., Civ. Division No. 94-4753. The complaint names the Company and its
subsidiary, All American Sports Corporation, and other defendants in
connection with the death by electrocution of a minor at a facility leased by
All American Sports Corporation in Burgettstown, Pennsylvania. The complaint
alleges wrongful death, failure to warn, negligence and other things, and
seeks damages of an unspecified amount for loss of earnings, services,
medical expenses and other things. The Company believes it has meritorious
defenses to this action and intends to vigorously defend against it. The
defense has been assumed by its insurance carrier, subject to a reservation of
rights and certain policy limits and deductibles.
Other Litigation
The Company recently reached an agreement in principle, subject to final
documentation, to settle for a de minimis amount and without admitting
liability an action commenced against certain subsidiaries of the Company in
October 1993 entitled, JOSEPH WEST V. ALL AMERICAN SPORTS ET AL. filed in the
District Court of the District of New Jersey (Case No. 93-4471). The action
alleged violation of privacy, misappropriation of trade secrets, unjust
enrichment, unfair competition, breach of contract and certain other claims in
connection with the Company's sale of umpire vests, and sought compensatory
and punitive damages exceeding $10,000,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-16-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED
STOCKHOLDER MATTERS
The Common Stock is quoted on the NASDAQ-NNM under the symbol RIDL. As of
December 31, 1996, there were approximately 909 holders of record of the
Company's Common Stock. The following table sets forth the high and low last
sale prices for the Common Stock, as reported by the NASDAQ-NMS, for the
periods indicated.
High Low
------ ------
Year Ended December 31, 1995:
First quarter . . . . . . . . . . . . 2 5/8 1 3/4
Second quarter . . . . . . . . . . . . 2 5/8 1 3/4
Third quarter . . . . . . . . . . . . 3 3/4 1 3/4
Fourth quarter . . . . . . . . . . . . 3 5/8 3
Year Ended December, 1996:
First quarter . . . . . . . . . . . . . 5 7/8 2 7/8
Second quarter . . . . . . . . . . . . . 6 1/8 4 1/16
Third quarter . . . . . . . . . . . . 5 1/2 4 1/4
Fourth quarter . . . . . . . . . . . . . 5 1/2 4 1/4
The last sale price of the Common Stock on December 31, 1996 was $ 4 5/8.
Dividend Policy
Since its inception, the Company has not declared or paid, and does not
currently intend to declare or pay, cash dividends on shares of its Common
Stock, but intends to retain future earnings for reinvestment in its business.
Any future determination to pay cash dividends will be in the discretion of
the Board of Directors and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors. The Company is permitted to
distribute dividends not exceeding 60% of its consolidated net income for the
immediately prior fiscal year, provided there is no event of default under its
financing arrangements with NBD Bank.
-17-
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and related notes
included elsewhere in this report.
(In thousands, except per share information)
[Enlarge/Download Table]
<CAPTIONS>
Operating Data Year Ended December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- -------- -------- --------
Net revenues:
Net sales . . . . . . . . . . . . . . . . . . $ 69,888 $ 63,603 $ 51,567 $ 45,202 $ 52,978
Royalty Income . . . . . . . . . . . . . . . 2,494 3,440 3,845 3,551 3,425
--------- ---------- -------- -------- --------
72,382 67,043 55,412 48,753 56,403
Cost of sales . . . . . . . . . . . . . . . . . . 38,813 35,794 29,792 28,885 31,575
--------- ---------- -------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . 33,569 31,249 25,620 19,868 24,828
Selling, general and administrative expenses . . 25,369 23,332 21,087 20,436 19,215
Product liability expenses . . . . . . . . . . . 2,484 2,651 2,927 2,959 2,473
Product liability litigation loss . . . . . . . . - - 4,600 - -
Other charges . . . . . . . . . . . . . . . . . . - - 1,188 2,170 -
--------- ---------- -------- -------- --------
Income (loss) from operations . . . . . . . . . . 5,716 5,266 (4,182) (5,697) 3,140
Interest expense . . . . . . . . . . . . . . . . 2,763 2,795 2,001 2,029 1,902
--------- ---------- -------- -------- --------
Income (loss) before taxes, extraordinary
item and cumulative effect of changes
in accounting principles . . . . . . . . . . . 2,953 2,471 (6,183) (7,726) 1,238
Income taxes (credits) . . . . . . . . . . . . . 110 100 (1,250) (2,245) 591
--------- ---------- -------- -------- --------
Income (loss) before extraordinary item
and cumulative effect of changes in
accounting principles (1) . . . . . . . . . . . $ 2,843 $ 2,371 $(4,933) $(5,481) $ 647
========= ========== ======== ========= ========
Earnings (loss) per share before extraordinary
item and cumulative effect of changes
in accounting principles . . . . . . . . . . $ 0.34 $ 0.29 $ (0.62) $ (0.69) $ 0.08
Weighted average number of common and
common equivalent shares outstanding . . . . 8,427,633 8,067,985 7,973,982 7,890,207 7,890,207
<CAPTIONS>
Balance Sheet Data (2) December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
------------ --------- --------- ---------- --------
Working capital . . . . . . . . . . . . . . . . . $ 25,957 $ 19,286 $ 11,036 $ 13,231 $ 18,221
Total assets . . . . . . . . . . . . . . . . . . 76,361 74,124 72,252 60,656 69,982
Long-term debt, less current portion . . . . . . 29,984 23,600 20,168 17,442 17,332
Shareholders' equity . . . . . . . . . . . . . . 27,745 24,902 24,431 29,459 34,306
----------------------
<FN>
(1) In 1993 a charge was recorded for the cumulative effect on prior years of
a change in accounting principles for income taxes of $51,000 ($0.01 per
share) and a change in accounting principles for contingent product
liability of $214,948 ($0.03 per share). An extraordinary item in 1995
consisted of a $1,900,000 ($0.23 per share) provision for costs relating
to fraudulent transfer litigation.
(2) See Note 8 to the Company's consolidated financial statements relating to
contingent liabilities.
</FN>
-18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to The Year Ended December 31, 1995
Overview: Operations for the year ended December 31, 1996, resulted in a
20% increase in net income to $2,843,176, or $0.34 per share, in comparison to
1995 earnings of $2,370,534, or $0.29 per share, before an extraordinary item.
Tax expense for both 1996 and 1995 was reduced by the benefit of net operating
loss carryforwards recognized during the years. The recognition of these tax
benefits had the effect of decreasing tax expense by approximately $1,200,000,
or $0.14 per share, in 1996 and approximately $900,000, or $0.11 per share, in
1995. The Company anticipates that any remaining unrecognized net operating
loss benefit for financial reporting purposes would be phased out upon the
generation of approximately $2 million in future income before tax.
An extraordinary item in 1995 consisted of a $1,900,000 charge to
establish a provision for costs related to certain fraudulent transfer
litigation. At the time the provision was established, a settlement had been
agreed to between the parties. However, as described elsewhere in this
report, the proposed settlement never materialized and the litigation remains
ongoing.
In 1996 the Company benefitted from increased sales volume over most of
its product lines which, combined with a favorable sales mix, improved the
Company's gross margins from sales of sports products and services. These
gains were offset by a decrease in royalties from trademark licensing. The
impact of the volume and margin gains were also offset in part by increased
selling costs resulting from increased promotional expenses and higher
commissions.
These factors are further described in the following discussion of
operating results by line item, together with other matters having a
significant effect on the Company's results of operations.
Net Sales: Net sales of the Company's sports products and services
segment increased by 10% in 1996 to $69,888,094 from $63,603,210 during 1995.
The Company experienced sales gains in most of its product lines, including
overall increases in sales of athletic products, sports collectible products
and reconditioning services.
Sales of competitive athletic products increased approximately $2.0
million, or 8%, in comparison to 1995 levels. Sales of these products,
principally football helmets and shoulder pads sold to schools and other
institutions, reflects increased volume and selected price increases to offset
rising costs. Unit volume increases have occurred as the Company gains
experience in direct distribution of institutional products, a change that has
been implemented over the past two years. The Company is also benefitting
from other actions taken in recent periods to increase institutional sales.
These actions, discussed in prior reports, include increases in the number of
salesmen calling on schools, more intensive sales training, incremental field
sales managers, new sales incentive programs, and the introduction of
additional athletic products. The Company also benefitted from an increase
in the volume of competitive youth products which continue to be sold by
independent dealers and distributors. The Company experienced an anticipated
decline in sales of these products in 1995 as many dealers stopped purchasing
Riddell youth products when they were no longer offered the Company's
institutional product lines. Sales of youth products have increased as the
Company has expanded its distribution through new dealers and distributors.
The Company believes that it will be able to further increase sales of
athletic products sold to institutions as it continues to gain experience in
direct sales of its traditional product lines as well as newer lines of
products such as baseball equipment. The Company also anticipates it can
expand sales in this area through the introduction of additional products such
as its new line of athletic practice clothing introduced late in 1996 for the
1997 season. However, there can be no assurance that such sales increases
will materialize.
Sales of reconditioning services increased 3%, or approximately $700,000
over comparable 1995 levels. This improvement was principally due to moderate
price increases.
-19-
Sales of sports collectible products increased approximately 20%, or $3.5
million over 1995 levels. This improvement was due to increased volume in
sales of the Company's line of miniature helmets, including miniature hockey
goalie masks, which the Company started shipping in late 1995. Sales of
consumer products have been the strongest area of growth for the Company in
recent periods. The Company is continuing to place a high level of marketing
emphasis on the retail collectible business and has recently introduced two
new product lines which will begin shipping in 1997. These include miniature
baseball helmets and miniature collectibles based on the Star Wars Trilogy,
the Company's first line of retail collectible products not associated with
sports.
Royalty Income and Related Gross Profit: Royalty income decreased by 27%
to $2,494,266 from $3,439,828 in 1995. MacGregor licensing royalties
decreased 20%, or approximately $550,000 in comparison to 1995 due a to
decline in royalties from Kmart and the inclusion in 1995 of certain non-
recurring royalties. Royalties from other MacGregor licensees remained stable
at minimum contractual levels. Royalty income for 1996 included approximately
$300,000 in royalties from licenses which expired at the end of 1996. The
larger of these two licenses was with Thom McAn which had licensed the
MacGregor trademark for athletic shoes but has withdrawn from the athletic
shoe market in recent years. See further discussion under "MacGregor
Trademark" below.
Royalties from the licensing of the Riddell trademark decreased from
approximately $775,000 in 1995 to approximately $375,000 in 1996. The decline
was principally due to two previously announced events which took place near
the end of 1995. First, the Company terminated a license for certain athletic
equipment due to the licensee's failure to pay royalties. Secondly, the
Company revised the terms of a license for Riddell branded leisure apparel in
conjunction with the related licensee's restructuring of its product lines.
The revised leisure apparel license called for a lower level of minimum
royalties than those paid in 1995. The Company also saw a decrease in
royalties received from its Riddell athletic footwear licensee as the licensee
offset certain amounts against royalties due the Company in 1996. While the
Riddell footwear licensee has resumed payment of royalties to the Company, the
licensee remains in bankruptcy proceedings as discussed elsewhere in this
report. Although this licensee must continue to comply with the terms of the
license, including payment of royalties, in view of the contested bankruptcy
discussed in Item 1, Business, Trademark Licensing, there can be no assurance
that royalties will be received in the long term from this licensee.
While trademark licensing does have certain costs including selling,
general and administrative expenses, there are no costs which are deducted in
arriving at gross profit. Accordingly, each incremental dollar of royalty
income results in a dollar increase in gross profit.
Gross profit: Gross profit attributable to the sports products and
services segment increased $3,265,446, or 12%, to $31,075,032 for the year
ended December 31, 1996 from $27,809,586 for the year ended December 31,
1995. Gross profit margin rates for the segment increased to 44.5% of sales
in 1996 from 43.7% of sales for 1995. The increase in gross profit is
principally due to sales increases discussed above. Other factors
contributing to the improvement in gross margins were changes to the sales
mix, efficiencies due to higher volumes and selective price increases taken to
offset rising costs.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $2,037,120 or 9% over 1995 levels. These
increases are attributable to higher levels of selling, marketing and
promotional expenses relating to the Company's sales of competitive athletic
products sold to schools and other institutions. These selling expense
increases were incurred in taking certain actions to increase sales of
competitive athletic products as discussed above under Net Sales. These
increases in selling expenses were offset in part by a modest decline in
administrative expenses with the end result that overall selling, general and
administrative expenses remained relatively stable as a percentage of
revenues, increasing to 35.0% of revenues in 1996 from 34.8% of revenues in
1995.
Product Liability Expenses: Product liability expenses showed a moderate
decrease in 1996. Product liability matters are further discussed under
Product Liability, below.
-20-
Interest Expense: Interest expense was relatively stable between the two
years with an overall decrease of approximately 1%. An overall decrease in
average interest rates was offset, in part, by increases in average
indebtedness relating to increased levels of overall business volume. A
substantial portion of the Company's borrowings are based on its bank's prime
rate, which averaged 8.27% in 1996, a 6% decrease from an average rate of
8.83% in 1995. Average interest rates also decreased as a result of the
Company's issuance of a $7,500,000, 4.1% convertible subordinated note in
November 1996. The majority of the proceeds of this note were used to repay
indebtedness which carried higher interest rates, as discussed elsewhere in
this report.
Year Ended December 31, 1995 Compared to The Year Ended December 31, 1994
Overview: Operations for the year ended December 31, 1995, resulted in a
significant improvement over 1994 operating results. Earnings before an
extraordinary item, for the year were $2,370,534, or $0.29 per share. This
compares to a loss of $4,932,947, or $0.62 per share, for calendar 1994. The
1994 operations generated net losses due, in large part, to $6,463,066 of pre
tax charges including: (1) a $4,600,000 charge for a product liability verdict
(subsequently settled); and (2) $1,863,066 of non-recurring costs relating to
the Company's transition to direct sales of athletic equipment used by schools
and other institutions, including a special transitional sales return program
for discontinued dealers. The 1995 income reflects lower than normal tax
expense due to the benefit of a net operating loss carry forward which was
recognized during the year. The recognition of this tax benefit had the
effect of decreasing tax expense by approximately $900,000, or $0.11 per
share, for 1995.
An extraordinary item in 1995 consisted of a $1,900,000 charge to
establish a provision for costs related to certain fraudulent transfer
litigation. This provision had been recorded in light of a settlement which
had been proposed at the time, but which subsequently failed to materialize,
as discussed elsewhere in this report.
Excluding the effect of the $6,463,066 in pre tax charges for 1994
discussed above, operating income before interest and taxes for 1995 increased
by $2,984,817 to $5,265,595 in comparison to $2,280,778 in 1994.
Operations for the 1995 and 1994 periods must be viewed in the context of
changes that were occurring at the time in the Company's method of
distributing competitive athletic equipment used by schools and other
institutions and by the Company's increased emphasis on the marketing of
sports collectible products. As discussed elsewhere in this report, in
October 1994 the Company announced a significant change in its method of
distributing institutional products. Sales of these products, principally
football helmets, shoulder pads and related accessories, had historically been
made to independent team sports dealers for resale to schools and other
institutions. At the end of 1994 the Company started marketing these products
to schools and other institutions on a factory direct basis. While the unit
volume of certain products declined in 1995, as was anticipated given the
magnitude of this difficult change, overall margins on competitive products
increased.
The Company benefitted from substantial increases in sales of collectible
sports products which continue to be the strongest area of growth for the
Company. Profits from these sales were the leading contributor to the
increase in operating profitability. The Company also benefitted from certain
managed expense reductions.
The effects of these factors are described in the following discussion of
operating results by line item, together with other matters having a
significant effect on the Company's results of operations.
Net Sales: Net sales of the Company's sports products and services
segment increased by 23% in 1995 to $63,603,210 from $51,567,065 during 1994.
Sales of competitive athletic products were stable in comparison to 1994
levels with an increase of less than 1% after adjusting to eliminate the
effect of a special transitional return program for discontinued dealers,
which had decreased 1994 sales by $1.4 million. As a result of the change to
direct sales, theselling prices of these products increased due to the
Company's ability to capture a portion of the former dealers' markup to
institutional customers. The increases were offset by a decline in the unit
volume of these competitive
-21-
athletic products. The Company anticipated the potential of a decline in new
equipment volume due to the complexity of converting its institutional sales
organization to a factory direct basis.
Sales of sports collectible products nearly doubled in 1995 increasing
approximately 94%, or $8.4 million. Sales of these consumer products, which
had also increased more than 80% between 1993 and 1994, have been the
strongest area of growth for the Company in recent periods due to an overall
increase in marketing focus, including the introduction of a new line of
miniature football helmets in 1994.
Sales of reconditioning services increased 12%, or approximately $2.2
million, over comparable 1994 levels. The year-to-date increase in
reconditioning sales was principally due to increased volume from the
Company's acquisition of Raleigh Athletic Equipment Corporation in January
1995.
Royalty Income and Related Gross Profit: Royalty income decreased by 11%
to $3,439,828 from $3,845,044 in 1994. MacGregor licensing royalties
increased 4%, or approximately $100,000 in comparison to 1994 due to increased
royalties from Kmart and certain non-recurring royalties. Royalties from
other MacGregor licensees remained stable at minimum contractual levels
(licensees generally pay the Company the higher of royalties based on a
percentage of their related business volume or an annual minimum guaranteed
royalty).
The increase in MacGregor royalties was offset by a decline in royalties
from the licensing of the Riddell trademark. Riddell royalties decreased from
$1.3 million in 1994 to approximately $775,000 in 1995. As discussed in prior
reports, in addition to current royalties, Riddell licensing income for 1994
had included approximately $460,000 received from the Company's "Riddell"
athletic footwear licensee at the time certain litigation between the licensee
and the Company was settled. Royalties from the Riddell athletic footwear
licensee were approximately $320,000 for 1995.
While trademark licensing does have certain costs including selling,
general and administrative expenses, there are no costs which are deducted in
arriving at gross profit. Accordingly, each incremental dollar of royalty
income results in a dollar increase in gross profit.
Gross profit: Gross profit attributable to the sports products and
services segment increased $6,034,468, or 28%, to $27,809,586 for the year
ended December 31, 1995 from $21,775,118 for the year ended December 31,
1994. Gross profit margin rates for the segment increased to 43.7% of sales
in 1995 from 42.2% of sales for 1994. The increase in gross margin rates
reflects a number of factors. First, the Company experienced increased
margins on competitive protective athletic products sold to schools and other
institutions due to the Company's ability to capture a portion of the former
dealers' markup to institutional customers as a result of the change to direct
sales. However, this increase was offset somewhat by the effect of the unit
volume decreases of these products discussed above. These volume decreases
resulted in higher unit costs since fixed manufacturing and distribution
overhead costs do not vary with lower volume. Margin rates were also
favorably impacted by increases in sales of sports collectible products, as
the increases were in product lines which carry margins higher than the
average for other products.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $2,245,147 or 11% over 1994 levels. These
increases are attributable to increased selling and marketing expenses
relating to both the Company's change to direct sales for competitive products
sold to schools and other institutions and the Company's increased efforts in
the marketing and sales of sports collectible products. These increases also
include related costs associated with operations acquired during the past
year. The increased selling and marketing expenses were offset by managed
reductions in administrative expenses of approximately $500,000. As a result
of these reductions and sales volume increases, overall selling, general and
administrative expenses decreased as a percentage of revenues from 38.1% of
revenues in 1994 to 34.8% of revenues in 1995, despite the increased marketing
efforts. Legal expenses relating to non-operating litigation matters
remained relatively constant in relation to 1994 levels.
Product Liability Expenses: Product liability expenses showed a decrease
in 1995 as 1994 expense included the effects of a $1.5 million adjustment to
product liability reserves taken in the fourth quarter, and the effects of a
$4.6 million charge (reported as a separate item in the Statement of
Operations for 1994). Product liability expense for 1995
-22-
was impacted by the cost of a new insurance program, which exceeds that
experienced in recent years by approximately $1 million annually. These
matters are further discussed under Product Liability, below.
Interest Expense: Interest expense increased by 40%, or approximately
$800,000, over 1994 levels. The increase was due to an increases in average
interest rates and average indebtedness during the year. A substantial
portion of the Company's borrowings are based on its bank's prime rate. The
average prime rate for 1995 was 8.83%, a 24% increase over the average prime
rate of 7.14% in 1994. The prime rate was 8.5% at December 31, 1995. Average
indebtedness increased due to increased capital demands as discussed below
under Liquidity and Capital Resources.
PRODUCT LIABILITY
A subsidiary of the Company is a defendant in various product liability
suits relating to personal injuries allegedly related to the use of Riddell
football helmets. These claims, and related issues, have had a material
impact on the Company's operating results and financial position. As of March
15, 1997, the Company was a defendant in 11 such suits. As further described
in Note 8 of Notes to Consolidated Financial Statements, the Company has
recorded a liability for certain estimated costs relating to these claims and
incurred but not reported claims. However, the ultimate outcome of these
claims and potential future claims cannot presently be determined. Due to the
uncertainty involved with estimates, as demonstrated by the events discussed
below, actual results have at times varied substantially from earlier
estimates and could do so in the future. Accordingly, there can be no
assurance that the ultimate costs of these claims or potential future claims
will fall within the established reserves.
In 1994, a jury returned a verdict against the Company for damages
amounting to approximately $8 million in one of these suits. Although the
Company believes that it was not responsible in the case, and had been in the
process of appealing the verdict, the Company settled with the plaintiff in
late 1995 for an amount that was less than what was previously awarded. The
Company had taken a charge of $4,600,000 before taxes in 1994 to establish a
reserve for the full uninsured portion of the initial award, as well as
current and future premiums then due under a $5,000,000 product liability
insurance policy (which had a term running through June 1997) which would be
exhausted by payment of the verdict. As the amount of the settlement was less
than the initial award, the settlement had no effect on 1995 income. In 1995,
the excess of the reserve over amounts due under the settlement was added to
general reserves established for other product liability claims as described
in Note 8 of Notes to Consolidated Financial Statements. The Consolidated
Balance Sheets reflect certain liabilities relating to this, and other product
liability matters, as well as receivables for insured portions of certain
losses, as further described in Note 8 of Notes to Consolidated Financial
Statements.
The Company maintains product liability coverage under a policy bound in
December, 1994. This policy replaced and expanded on coverage that had been
available under a pre-existing policy which was exhausted by the settlement
described above. The settlement does not affect coverage available under this
new policy. In 1996 the new policy was modified to extend its term and
substantially increase certain coverage limits. Coverage under the policy,
which now runs through December 2001, is described elsewhere in this Report.
The annual cost of this product liability insurance coverage for 1995 and 1996
exceeded the cost of insurance incurred in years prior to 1995 by
approximately $1 million. Additional cost related to the 1996 expansion of
coverage was offset by the benefit of spreading overall policy premiums over
two additional years, on a prospective basis, with the extension of the policy
period from five to seven years. This will result in a net decrease in the
annual cost of the policy for the remaining five years of the policy period.
The Company believes that the new, additional, product liability coverage
provides a substantial increase in coverage against future claims.
At the time the new policy was bound there were several preexisting
claims pending against the Company. The policy provides only limited coverage
for these preexisting claims (only one of which was still pending at March 15,
1997). Accordingly, in 1994 the Company entered into an effort to settle
several claims that it believed, considering the substantially reduced level
of available insurance, represented the greatest potential risk to the
Company. The Company was successful in carrying out this settlement effort,
and in early 1995 settled certain claims
-23-
for an aggregate amount of $2,100,000. However, because of the risks
associated with these claims, and given the reduced level of available
insurance, the amount of these settlements was substantially above historical
levels for settlements of similar claims. Accordingly, these settlements,
together with revaluations of reserves for remaining claims, resulted in an
increase in product liability expense for the year ended December 31, 1994 of
approximately $1,500,000.
MACGREGOR TRADEMARK
The Company derives significant revenues from the licensing of the
MacGregor trademark rights. In 1996, these revenues comprised approximately
3% of the Company's consolidated revenues. Royalties paid to the Company by
Kmart for the use of the MacGregor trademark constituted approximately 82% of
the Company's licensing revenues from the MacGregor trademark rights for 1996.
As discussed elsewhere in this report, the license with Kmart expires in June
1998. Meldisco, now a division of Footstar, Inc., has historically sold
MacGregor footwear under the Kmart license in Kmart stores. The Company and
Meldisco recently reached an agreement in principal, subject to negotiation
and execution of final documentation, that Meldisco will continue to sell
athletic footwear bearing the MacGregor trademark at Kmart stores pursuant to
a license replacing the Kmart license when it expires in 1998. The Company is
exploring additional opportunities for licensing the MacGregor trademark, and
in this connection has retained an independent licensing agent. See Item 1,
Business - Marketing and Promotion - Licensing. The Company plans to
establish a new license for the apparel category effective when the Kmart
license expires in 1998. The Company believes there are long-term benefits to
broadening the distribution of MacGregor apparel. However, there can be no
assurances that the Company will be successful in its efforts to establish a
new apparel license. Royalties from sales of athletic clothing bearing the
MacGregor trademark at Kmart stores constituted 1% of the Company's total
revenues and 29% of the Company's total royalty income in 1996. No decision
has been made with respect to licensing the use of the MacGregor trademark
after June 1998 on socks, athletic bags or knapsacks currently marketed by
Kmart.
The Company acquired the MacGregor trademark rights and related license
agreements as part of an acquisition in 1988 at an allocated cost of
$20,070,000. The Company is amortizing the trademark rights over a period of
forty years, and the license agreements over their terms. The unamortized
cost of these assets included in intangible assets at December 31, 1996 was
approximately $14,360,000. See Note 4 of "Notes to Consolidated Financial
Statements." The Company considers licensing revenues derived from the
MacGregor trademark rights to be a material part of its business. A material
decline in the royalties from the MacGregor trademark rights could have a
material adverse affect on the Company's results of operations. Furthermore,
if there were a material decline in the revenues from the MacGregor trademark,
then the carrying amount of the MacGregor trademark rights could be deemed to
have been impaired. A write-down for such impairment could have a material
adverse affect on the Company's financial position and results of operations.
As indicated in the discussion above and elsewhere in this report the Company
is in discussions relating to the renewal or replacement of portions of the
MacGregor trademark license with Kmart which expires in 1998. While the
Company believes it will be successful in renewing or replacing the license in
a manner which will continue to generate revenues sufficient to support the
carrying value of the trademark rights, there can be no assurance that it will
be successful in doing so.
LIQUIDITY AND CAPITAL RESOURCES
The Company sells a portion of its competitive football products and
reconditioning services on dated payment terms with payments from customers
(primarily high schools and colleges in these cases) generally due the
following July to October period. Accordingly, trade receivables increase
throughout the year as sales are made on these dated payment terms. The
increase in trade receivables continues throughout an annual cycle until
reduced at the end of the cycle as the dated receivables become due. In order
to finance the resulting large receivable levels, the Company maintains a
revolving line of credit. The outstanding balance on the revolving line of
credit generally follows the seasonal receivable cycle described above,
increasing as the level of receivables increase until the fall of each year
when collections of the dated receivables are used to reduce the outstanding
balance on the line. The Company's current borrowing limits under the line of
credit discussed above fluctuate throughout the year from a low of $20,000,000
to
-24-
a high of $31,750,000 at predetermined points in time. The liability under
the line is reflected on the Consolidated Balance Sheets as part of long-term
debt.
Operations during recent years have resulted in periods of increased
working capital demands due to volume growth in certain product lines and
other changes in the Company's business. In November 1996, the Company
completed certain financing matters which will provide increased capital to
finance the Company's working capital requirements anticipated over the next
year. The financing matters completed included (1) a one year extension of
the maturity date of the Company's revolving line of credit from April 1997 to
April 1998; (2) a deferral of a $1,000,000 principal payment on term notes
from December 1996 to December 1998; and (3) the sale of a new $7,500,000
principal amount 4.10% Convertible Subordinated Note, convertible into 1.25
million shares of the Company's common stock. The terms of the Note are more
fully described in Note 5 of Notes to Consolidated Financial Statements. A
portion of the proceeds of the Convertible Subordinated Note were used to
redeem the $870,834 remaining unpaid balance of a promissory note payable to
MLC, a shareholder and affiliate of the Company's Chairman and certain other
directors and another officer, in accordance with its terms. The remaining
proceeds were used to reduce the outstanding balance of the revolving line of
credit with a resulting increase in amounts available for working capital
needs and general corporate purposes. The Company remains in discussion with
its senior lender regarding additional changes to its loan agreement,
including a long term extension of its revolving line of credit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) in Part IV and page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The Registrant hereby incorporates by reference in response to Part
III, its Proxy Statement for its 1997 Annual Meeting of Stockholders to be
filed on or before April 30, 1997 (except to the limited extent the rules and
regulations of the Commission authorize certain sections of such Proxy
Statement not to be incorporated herein by reference, as specifically
indicated in such Proxy Statement).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) Financial Statements and Schedules to Financial
Statements.
The financial statements, notes thereto, financial statement
schedules and accountants' report listed in the "Index to
Financial Statements" on page F-1 of this Report are filed as
part of this Report.
(a)(3) Exhibits
The exhibits listed in the "Exhibit Index" attached to this
Report are filed as part of this report.
(b) Reports on Form 8-K.
None
-25-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RIDDELL SPORTS INC.
Dated: March 27, 1997 By: DAVID MAUER
-----------------
David Mauer
Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
DAVID MAUER Chief Executive Officer and Director March 27, 1997
-------------------
David Mauer (Principal Executive Officer)
ROBERT NEDERLANDER Chairman of the Board March 27, 1997
-------------------
Robert Nederlander
LEONARD TOBOROFF Vice President and Director March 27, 1997
-------------------
Leonard Toboroff
DAVID GROELINGER Executive Vice President and March 27, 1997
-------------------
David Groelinger Chief Financial Officer
(Principal Financial Officer)
LAWRENCE SIMON Senior Vice President March 27, 1997
-------------------
Lawrence Simon (Principal Accounting Officer)
DON KORNSTEIN Director March 27, 1997
-------------------
Don Kornstein
JOHN MCCONNAUGHY Director March 27, 1997
-------------------
John McConnaughy
GLENN E. SCHEMBECHLER Director March 27, 1997
-------------------
Glenn E. Schembechler
-26-
E-1
PART IV
Item 14(c)
EXHIBIT INDEX
Exhibit Nos. Description of Exhibit
------------ -------------------------------------------------
2.1 Asset Purchase Agreement, dated as of April 11, 1988, among
Riddellink Holding Corporation, EN&T Associates, Inc., Netlink
Inc., Riddell, Inc. (predecessor corporation), Equilink
Licensing Corp., MacGregor Sporting Goods, Inc., as amended on
April 18, 1988 (the formal trademark assignments and license
agreements implementing this agreement are omitted) (2) and
Amendment thereto, dated March 1992. (4)
3.1 Amended and Restated Articles of Incorporation.(30)
3.2 First Amended and Restated Bylaws.(28)
9.1 Voting Trust Agreement dated May 1991.(2)
10.1 Settlement Agreement, dated April 9, 1981, among MacGregor-
Doniger Inc., Brunswick Corporation and The Equilink
Corporation.(2)
10.2 Exclusive License Agreement, dated as of January 27, 1986,
between Athletic Safety Products, Inc. and Riddell, Inc.(2)
10.3 Trademark License Agreement, made July 1, 1987, between
Equilink Licensing Corp. and Thom McAn Shoe Company, a division
of Melville Corporation, as renewed by letter dated December
21, 1990.(2)
10.4 Revolving Credit and Loan Agreement, dated December 30, 1991,
between NBD Bank, N.A., Riddell, Inc., Equilink Licensing
Corp., RHC Licensing Corp., Riddell Sports Inc., Ridmark
Corporation, All American Sports Corporation and Ohio Cellular
Products Corporation, along with Amended and Restated Term
Notes of Equilink Licensing Corp., Riddell, Inc. and RHC
Licensing Corp., each dated December 30, 1991(4); first
Amendment dated November 12, 1992(9); second Amendment dated
February 11, 1993(28); third Amendment dated as of June 24,
1993(11); fourth Amendment dated as of January 26, 1994(12);
fifth Amendment dated as of March 26, 1994(15); sixth
Amendment dated April 30, 1994(18); seventh Amendment dated
July 31, 1994(19); eighth Amendment dated September 15,
1994(21); ninth Amendment dated December 12, 1994(22); tenth
Amendment dated as of November 1,1995(26); eleventh Amendment
dated as of November 15, 1995(27); twelfth Amendment dated as
of December 6, 1995(27); thirteenth Amendment dated as of March
25, 1996;(28) fourteenth Amendment dated as of November 8,
1996.(30)
10.5 License Agreement, dated as of April 18, 1988, among MacMark
Corporation, Netlink, Inc. and MacGregor Sporting Goods,
Inc.(2) as amended July 30, 1992(24) and November __,
1992(24).
10.6 Subordination Agreement, dated September 29, 1988, between
M.L.C. Partners Limited Partnership and Riddellink Holding
Corporation.(2)
10.7 Agreement, made January 23, 1989, between Equilink Licensing
Corp. and Kmart Corporation, with supplemental agreements dated
November 16, 1989 August 30, 1990(2); and June 30, 1994.(19)
E-1
E-2
10.8 Lease, dated November 12, 1993, between the International
Brotherhood of Painters and Allied Trade Union and Industry
Pension Fund and Riddell, Inc., of the premises at 2050 Lively
Blvd., Elk Grove Village, Illinois(24); and amendment dated
March 20, 1995.(24): and Amendment dated September 19, 1996.
(1)
10.9 Lease Agreement, dated November 2, 1984 by and between ADI
Real Estate Joint Venture No.2 (predecessor to The School
Employees Retirement Board of Ohio and Alamo Athletics Inc.
(predecessor to All American Sports Corporation, and Amendments
thereto, dated January 30, 1986, May 11, 1989, August 18,
1989, December 14, 1989, January 10, 1990 of the premises at
6846 Alamo Downs Parkway, San Antonio, Texas.(4)
10.10 Lease Agreement, dated as of September 1, 1988 by and between
Exeter Management Corporation and All American of the premises
at Langeloth, Pennsylvania (Burgettestown property).(4)
10.11 Lease Agreement, dated April 1991, by and between Stroudsburg
Park Associates and All American Corp. of the premises at 140
Second Street, Stroudsburg, Pennsylvania; (4) as amended March
31, 1995.(28)
10.12 Lease, dated as of September 1, 1968, by and between Munro M.
Grant and the All American Company and Extension and Amendment
of Lease, dated July 11, 1989, of premises at 1320 Taylor
Street, Elyria, Ohio.(4)
10.13 Industrial Real Estate Lease, dated March 4, 1989, between
Riverview Industrial Buildings and All American Corp. and
Addendum to the Lease, dated July 3, 1989, of premises at 1920
Riverview Drive, San Bernadino, California.(4)
10.14 Lease dated December 12, 1991, between O'Shanter Resources Inc.
and All American Sports, Inc., of premises at 1270 Niagra
Street, Buffalo, New York.(4)
10.15 Lease, dated May 5, 1986, by and between Paul Goldstein, Nathan
Hoffenberg, All American and Medalist Industries, of premises
at 3305 and 3307 Scott Street and 9900 Franklin Avenue,
Franklin Park, Illinois.(4); amendment dated January 30,
1997.(1)
10.16 Lease, dated October 28, 1987, as amended and extended by
letter dated October 31, 1991, by and between GABT Developments
Ltd. and Marcan Ltd. (a division of All American), of premises
at 600 Industrial Drive, Fort Erie, Ontario.(4), amendment
dated February 6, 1997.(1)
10.17 Consulting Agreement, dated February 16, 1990, between Frederic
Brooks and Woodco Sports, Inc.(2) as amended on February 15,
1994.(15)
10.18 NFL Promotional Rights Agreement, dated June 1, 1990, and
General Retail Licensing agreement, dated March 15, 1990 and
referred to in the NFL Promotional Rights Agreement, each
between Riddell Inc. and National Football League Properties,
Inc.;(2) as supplemented January 20, 1994. (15)
10.19 1991 Stock Option Plan(2) as amended by amendments described in
the Registrant's proxy materials for its annual stockholders
meetings held on August 20, 1992, September 30, 1993, and June
27, 1996.
10.20 License Agreement dated May 9, 1991 between MacMark Corporation
and MacGregor Sports Products, Inc.;(2) amendment dated
February __, 1992(4) amendment dated July 30, 1992, amendment
dated November 1, 1992(9) and Memorandum of Understanding dated
July 29, 1996.(1)
E-2
E-3
10.21 Perpetual License and Trademark Maintenance Agreements among
MacMark Corporation, Equilink Licensing Corporation and BSN
Corp. each dated February 19, 1992(4) and amendment dated
November 1, 1992.(9)
10.22 Master Agreement by and among MacGregor Sports Products, Inc.,
BSN Corp. and MacMark Corporation dated February 19, 1992;(4)
amendment No. 1 dated November 1, 1992.(24)
10.23 License Agreement between Equilink Licensing Corporation and
MacGregor Sports Products, Inc. dated May 9, 1991; Amendment
thereto dated December 3, 1991(4) and Amendment dated July 30,
1992.(7); Memorandum of Understanding dated July 29, 1996.(1)
10.24 Agreement dated April 1, 1995 between Riddell Inc. and the
Amalgamated Clothing Textile Workers Union AFL-CIO.(28)
10.25 Consulting Agreement dated April 15, 1992 between the Company
and Frederic M. Brooks.(5)
10.26 Employment Agreement dated June 1, 1992 between the Company and
Lawrence F. Simon.(5)
10.27 Employment Agreement dated June 22, 1992 between the Company
and Robert F. Nederlander;(7) amended July 27, 1994.(19)
10.28 Employment Agreement dated June 22, 1992 between the Company
and Leonard Toboroff;(7) amended July 21, 1994.(19)
10.29 Consulting Agreement dated July 29, 1992 between the Company
and Donald Engel.(8)
10.30 Lease dated September 10, 1992 and Amendment dated October 22,
1992 and Amendment dated October 22, 1992 between All American
Sports Corporation and Ronald K. Howell d/b/a/ Lakewood Land
and Cattle Company of Premises at 2831 Faber Street, Union
City, California 94587.(8)
10.31 Lease Addendum letter dated February 13, 1992 between All
American Sports Corporation and Paul Goldstein and Nathan
Hoffenberg extending lease of premises at Franklin Park,
Illinois.(8)
10.32 License Agreement dated October 1, 1992 between All American
Sports Corporation and NOCSAE.(9)
10.33 Agreement dated October 6, 1992 between Riddell, Inc. and Snell
Memorial Foundation.(9)
10.34 Employment Agreement dated March 19, 1993 commencing March 25,
1993 between David Mauer and Riddell Sports Inc,(9) as amended
January 17, 1994;(15) November 1, 1994;(21) November 28,
1994.(24)
10.35 Warrant to purchase 150,000 shares of Registrant's Common Stock
in favor of M.L.C. Partners Limited Partnership dated January
26, 1994.(12)
10.36 License Agreement dated as of February 15, 1994 among RHC
Licensing Corporation, Pursuit Athletic Footwear, Inc., Silver
Eagle Holdings, Ltd., Save Power Limited, Extravest Holdings
Limited, Riddell Athletic Footwear, Inc. and Ridmark
Corporation (confidential treatment ).(16)
E-3
E-4
10.37 Assignment of Certain Rights Under License Agreement dated as
of February 15, 1994 among Heller Financial, Inc., Pursuit
Athletic Footwear, Inc. and RHC Licensing Corporation (as
consenting party).(16)
10.38 Agreement and Plan of Merger among Riddell Sports Inc.
(Seller), Ohio Cellular Products Corporation (Target) and
Nelson Acquisition, Inc. (Buyer) dated February 18, 1994.(14)
10.39 Settlement agreement dated February 15, 1994 among Riddell,
Inc., Riddell Sports Inc., RHC Licensing Corporation, Ridmark
Corporation, Pursuit Athletic Footwear, Inc., Riddell Athletic
Footwear, Inc., Ernie Wood, Harry Wood, Silver Eagle Holdings,
Ltd., Save Power, Limited, Extravest Holdings Limited, Frederic
Brooks, Donald Engel, Alan Tessler, Alan Hirschfield, Jeffrey
Steiner, Robert Nederlander, Leonard Toboroff, Jeffrey Epstein,
John McConnaughy, Connecticut Economics Corporation, Stephen
Tannen, Woodco Sports, Inc., Arthur Tse, Silver Top Limited,
Billion Nominees, Limited, Weston Holdings Limited.(15)
10.40 Employment Agreement dated as of February 1, 1994 between
Riddell, Inc., and Dan Cougill,(17) as amended February 1,
1995.(25)
10.41 Agreement dated as of September 30, 1994 by and among Riddell
Sports Inc., National Union Fire Insurance Company of
Pittsburgh, PA and Robert E. Nederlander, Leonard Toboroff,
Stephen D. Tannen and David Mauer.(20)
10.42 Stipulation of Settlement, David Halperin v. Riddell Sports
Inc. dated October 28, 1994.(20)
10.43 Warrant to Purchase Common Stock in favor of NBD Bank N.A.
dated February 10, 1995.(22)
10.44 Agreement dated March 14, 1995 between Riddell, Inc and J.C.
Wingo.(24)
10.45 Letter Agreement dated October 24, 1995 between the Company and
John McConnaughy.(28)
10.46 Employment Agreement dated as of March 7, 1996 between the
Company and David Groelinger.(29)
10.47 Note Purchase Agreement dated October 30, 1996 between Riddell
Sports Inc. and Silver Oak Capital, L.L.C.(30)
10.48 Subordinated Guaranty dated November 8, 1996 among Riddell,
Inc., Equilink Licensing Corporation, and RHC Corporation, All
American Sports Corporation, Ridmark Corporation, Proacq Corp.
and SharCo Corporation.(30)
10.49 Registration Rights Agreement dated November 8, between Riddell
Sports Inc. and Silver Oak Capital L.L.C.(30)
11 Computation of earnings per share. (1)
21 List of subsidiaries.(24)
27 Financial data schedule (submitted in electronic form to SEC
only).(1)
E-4
E-5
---------------------------
(1) Filed herewith.
(2) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Commission File No. 33-40488) effective June 27, 1991
(including all pre-effective amendments to the Registration
Statement).
(3) Incorporated by reference to the Registrant's Form 8-K report
(Commission File No. 0-19298) filed on September 23, 1991.
(4) Incorporated by reference to the Registrant's Form 10-K report
(Commission file No. 0-19298) for the year ended December 31, 1991.
(5) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Commission file No. 33-40488) effective June 17, 1992
(including all pre-effective amendments to the Registration
Statement).
(6) Incorporated by reference to the Registrant's form 10-Q report
(Commission file No. 0-19298) for the quarter ended March 31, 1992.
(7) Incorporated by reference to the Registrant's from 10-Q report
(Commission file No. 0-19298) for the quarter ended June 30, 1992.
(8) Incorporated by reference to the Registrant's form 10-Q report
(Commission file No. 0-19298) for the quarter ended September 30,
1992.
(9) Incorporated by reference to Registrant's Form 10-K report
(Commission file No. 0-19298) filed on March 30, 1993.
(10) Incorporated by reference to the Registrant's Form 10-Q report
(Commission File No. 0-19298) for the quarter ended March 31, 1993.
(11) Incorporated by reference to the Registrant's Form 10-Q report
(Commission File No. 0-19298) for the quarter ended September 30,
1993.
(12) Incorporated by reference to the Registrant's Post Effective
Amendment No. 2 to Form S-1 Registration Statement (File No. 33-
47884) filed on January 28, 1994.
(13) Incorporated by reference to the Registrant's Post Effective
Amendment No. 3 to Form S-1 Registration Statement (File No. 33-
47884) filed on February 11, 1994.
(14) Incorporated by reference to the Registrant's Form 8-K Report filed
March 4, 1994 (Commission File No. 0-19298).
(15) Incorporated by reference to Registrant's Form 10-K for the year
ended December 31, 1993.
(16) Incorporated by reference to Registrant's Form 10-K/A constituting
Amendment No. 1 to Form 10-K for the year ended December 31, 1993,
filed June 21, 1994.
(17) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended March 31, 1994.
(18) Incorporated by reference to Registrant's Post-Effective Amendment
No. 5 to Form S-1 Registration Statement (Registration No. 33-47887)
filed June 10, 1994.
(19) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended June 30, 1994.
E-5
E-6
(20) Incorporated by reference to Registrant's Form 8-K filed July 3,
1994.
(21) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended September 30, 1994.
(22) Incorporated by reference to Registrant's Form 8-K filed January 11,
1995.
(23) Incorporated by reference to Registrant's Registration Statement on
Form S-3 (Commission File No. 33-88512) effective February 14, 1995,
(including all pre-effective amendments to the Registration
Statement).
(24) Incorporated by reference to Registrant's Form 10-K for the year
ended December 31, 1994.
(25) Incorporated by reference to the Company's Form 8-K dated June 23,
1995.
(26) Incorporated by reference to the Company's Form 8-K dated September
30, 1995.
(27) Incorporated by reference to the Company's Form 8-K dated December 8,
1995.
(28) Incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1995 dated November 11, 1996.
(29) Incorporated by reference to the Company's Form 10-Q dated May 14,
1996.
(30) Incorporated by reference to the Company's Form 10-Q dated November
11, 1996.
E-6
F-1
INDEX TO FINANCIAL STATEMENTS
Page
-----
Report of Independent Certified Public Accountants . . . . . . . F-2
Consolidated Balance Sheets at December 31, 1996 and 1995 . . . F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . F-7
Financial Statement Schedules
Report of Independent Certified Public Accountants on Schedule S-1
Schedule II - Valuation and Qualifying Accounts . . . . . . . S-2
All other financial statement schedules are omitted as the
required information is presented in the financial statements
or the notes thereto or is not necessary.
F-1
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Riddell Sports Inc.
We have audited the accompanying consolidated balance sheets of Riddell
Sports Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statement of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the management
of Riddell Sports Inc. 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 consolidated financial position of
Riddell Sports Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
March 14, 1997
F-2
F-3
[Enlarge/Download Table]
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTIONS>
December 31,
------------------------------
1996 1995
------------- -------------
ASSETS (Note 5)
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 356,670 $ 615,081
Accounts receivable, trade, less allowance for doubtful
accounts ($513,000 and $620,000 respectively) . . . . . . . . . . . 15,144,943 14,099,028
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 16,406,168 14,425,882
Prepaid expenses (Note 9) . . . . . . . . . . . . . . . . . . . . . . 6,654,962 6,815,009
Other receivables (Note 8) . . . . . . . . . . . . . . . . . . . . . . 159,747 358,769
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 38,722,490 36,313,769
Property and equipment, less accumulated depreciation (Note 3) . . . . . 3,506,853 2,966,494
Intangible assets and deferred charges, less accumulated
amortization (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . 34,066,528 34,741,533
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,158 102,893
------------- -------------
$ 76,361,029 $ 74,124,689
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5) . . . . . . . . . . . . . . $ 1,158,198 $ 1,141,572
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,866,962 6,304,289
Accrued liabilities (Notes 8 and 10) . . . . . . . . . . . . . . . . . 6,739,980 9,581,548
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . 12,765,140 17,027,409
Long-term debt, less current portion (Note 5):
Shareholders and related parties . . . . . . . . . . . . . . . . . . . 439,000 1,309,834
Banks and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,544,892 22,290,398
------------- -------------
29,983,892 23,600,232
Deferred taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . 1,820,000 1,990,000
Other liabilities (Notes 8 and 10) . . . . . . . . . . . . . . . . . . . 4,046,979 6,605,206
Commitments and contingent liabilities (Notes 7 and 8) - -
Shareholders' equity (Note 6):
Preferred stock, $.01 par; authorized 5,000,000 shares; none issued - -
Common stock, $.01 par; authorized 40,000,000 shares; issued
and outstanding 8,067,985 shares . . . . . . . . . . . . . . . . . 80,680 80,680
Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . 31,456,912 31,456,912
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (3,792,574) (6,635,750)
------------- -------------
27,745,018 24,901,842
------------- -------------
$ 76,361,029 $ 74,124,689
============= =============
See notes to consolidated financial statements
F-3
F-4
[Enlarge/Download Table]
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTIONS>
Years ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ -----------
Net revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $69,888,094 $63,603,210 $51,567,065
Royalty income . . . . . . . . . . . . . . . . . . . . . . 2,494,266 3,439,828 3,845,044
------------ ------------ ------------
72,382,360 67,043,038 55,412,109
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 38,813,062 35,793,624 29,791,947
------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 33,569,298 31,249,414 25,620,162
Selling, general and administrative expenses . . . . . . . . 25,369,690 23,332,570 21,087,423
Product liability expense . . . . . . . . . . . . . . . . . . 2,483,906 2,651,249 2,926,961
Product liability litigation loss . . . . . . . . . . . . . . - - 4,600,000
Other charges . . . . . . . . . . . . . . . . . . . . . . . - - 1,188,066
------------ ------------ ------------
Income (loss) from operations . . . . . . . . . . . . . . . . 5,715,702 5,265,595 (4,182,288)
Interest expense . . . . . . . . . . . . . . . . . . . . . . 2,762,526 2,795,061 2,000,659
------------ ------------ ------------
Income (loss) before taxes and extraordinary item . . . . . . 2,953,176 2,470,534 (6,182,947)
Income taxes (credits) . . . . . . . . . . . . . . . . . . . 110,000 100,000 (1,250,000)
------------ ------------ ------------
Income (loss) before extraordinary item . . . . . . . . . . . 2,843,176 2,370,534 (4,932,947)
Extraordinary item, provision for costs relating to
fraudulent transfer litigation . . . . . . . . . . . . . . - (1,900,000) -
------------ ------------ ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ 2,843,176 $ 470,534 $ (4,932,947)
============ ============ ============
Earnings (loss) per share:
Income (loss) before extraordinary item . . . . . . . . . $ 0.34 $ 0.29 $ (0.62)
Extraordinary item, provision for costs relating to
fraudulent transfer litigation . . . . . . . . . . . . . - (0.23) -
------------ ------------ ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 0.34 $ 0.06 $ (0.62)
============ ============ ============
Weighted average number of common and
common equivalent shares outstanding . . . . . . . . . . 8,427,633 8,067,985 7,973,982
============ ============ ============
See notes to consolidated financial statements
F-4
F-5
[Enlarge/Download Table]
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTIONS>
Retained
Common Stock Capital earnings Total
---------------------- in excess (Accumulated Shareholders'
Shares Amount of par deficit) equity
----------- --------- ----------- -------------- ------------
Balance, January 1, 1994 . . . . . 7,890,207 $ 78,902 $31,553,690 $ (2,173,337) $29,459,255
Issuance of common stock in
connection with an acquisition 149,535 1,495 398,505 - 400,000
Net loss for the year . . . . . - - - (4,932,947) (4,932,947)
Other Adjustments . . . . . . . - - (495,000) - (495,000)
----------- --------- ----------- -------------- ------------
Balance, December 31, 1994 . . . . 8,039,742 80,397 31,457,195 (7,106,284) 24,431,308
Issuance of common stock in
connection with an acquisition 28,243 283 (283) - -
Net income for the year . . . . - - - 470,534 470,534
----------- --------- ----------- -------------- ------------
Balance, December 31, 1995 . . . . 8,067,985 80,680 31,456,912 (6,635,750) 24,901,842
Net income for the year . . . . - - - 2,843,176 2,843,176
----------- --------- ----------- -------------- ------------
Balance, December 31, 1996 . . . . 8,067,985 $ 80,680 $ 31,456,912 $ (3,792,574) $27,745,018
=========== ========= =========== ============== ============
See notes to consolidated financial statements
F-5
F-6
[Enlarge/Download Table]
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ -----------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 2,843,176 $ 470,534 $(4,932,947)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . 2,208,613 2,167,495 1,882,608
Provision for losses on accounts receivable . . . . . . 436,130 392,956 898,792
Deferred taxes . . . . . . . . . . . . . . . . . . . . . - - (1,250,000)
Changes in assets and liabilities (net of
effects from acquisitions):
(Increase) decrease in:
Accounts receivable, trade . . . . . . . . . . . . (1,482,045) (3,759,050) (2,233,810)
Inventories . . . . . . . . . . . . . . . . . . . . (1,980,286) (2,262,551) (1,605,521)
Prepaid expenses . . . . . . . . . . . . . . . . . (9,953) (717,050) (1,356,298)
Other receivables . . . . . . . . . . . . . . . . . 199,022 5,464,234 (5,426,913)
Other assets . . . . . . . . . . . . . . . . . . . 37,735 5,631 21,277
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . (1,437,327) (409,940) 2,720,149
Accrued liabilities . . . . . . . . . . . . . . . . (2,841,568) (6,467,387) 10,548,903
Other liabilities . . . . . . . . . . . . . . . . . (2,558,227) 2,912,064 934,276
------------ ------------ -----------
Net cash provided by (used in) operating activities (4,584,730) (2,203,064) 200,516
------------ ------------ -----------
Cash flows from investment activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . (1,138,786) (750,188) (662,395)
Sale of assets (foam molding operations) . . . . . . . . . - - 1,000,000
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . - (641,669) (750,440)
Contingent "earn-out" payments on prior acquisitions . . . (174,377) -
------------ ------------ -----------
Net cash used in investing activities . . . . . . (1,313,163) (1,391,857) (412,835)
------------ ------------ -----------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement . . . . . . (87,307) 602,937 2,521,511
Proceeds from issuance of long-term debt . . . . . . . . . 7,500,000 5,000,000 -
Debt issue costs . . . . . . . . . . . . . . . . . . . . . (760,804) - -
Principal payments on long-term debt:
Shareholders . . . . . . . . . . . . . . . . . . . . . . (870,834) (1,029,166) (100,000)
Banks and other . . . . . . . . . . . . . . . . . . . . (141,573) (554,094) (2,400,000)
------------ ------------ -----------
Net cash provided by financing activities . . . . 5,639,482 4,019,677 21,511
------------ ------------ -----------
Net increase (decrease) in cash . . . . . . . . . . . . . . . (258,411) 424,756 (190,808)
Cash, beginning . . . . . . . . . . . . . . . . . . . . . . . 615,081 190,325 381,133
------------ ------------ -----------
Cash, ending . . . . . . . . . . . . . . . . . . . . . . . . $356,670 $ 615,081 $ 190,325
============ ============ ============
See notes to consolidated financial statements
F-6
F-7
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Principles of consolidation: The consolidated financial statements include
the accounts of Riddell Sports Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
Inventories: Inventories are stated at the lower of cost (determined in a
first-in, first-out basis) or market, and include material, labor and factory
overhead.
Property and equipment: Property and equipment are stated at cost.
Depreciation is being computed using the straight-line method over the
estimated useful lives (principally 30 years for buildings and improvements
and 3 to 7 years for machinery and equipment) of the related assets.
Intangible assets and deferred charges: Amortization of the cost of
license agreements acquired is based on the estimated future revenues over the
terms of those agreements. Debt issue costs are amortized to interest expense
over the term of the related debt. Other intangibles and deferred charges are
being amortized by the straight-line method over their respective estimated
lives.
On an ongoing basis, management reviews the valuation of goodwill and other
intangible assets to determine if there has been impairment by comparing the
related assets' carrying value to the undiscounted estimated future cash flows
and/or operating income from related operations.
Income taxes: Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities (excluding non-deductible goodwill) using
enacted tax rates in effect for the years in which the differences are
expected to become recoverable or payable.
Revenues: Sales are generally recorded by the Company when products are
shipped. Royalty income is generally recorded by the Company when earned
based upon contracts with licensees. These contracts provide for royalties
based upon the licensee's sales or purchases of covered products, subject to
minimum amounts of royalties, for a given time period.
Estimates: In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates. Estimates relating to contingent
liabilities are further discussed in Note 8.
Concentration of credit risk: In 1996, the Company earned approximately 60%
of its revenues from sales directly to schools and other institutions. The
Company maintains reserves for potential losses on receivables from these
institutions, as well as receivables from other customers, and such losses
have not exceeded managements expectations.
Earnings (loss) per share: In 1996, earnings per share were based on the
weighted average number of common shares outstanding and common equivalent
shares based on the assumed exercise of dilutive common stock options and
warrants less the number of treasury shares assumed to be purchased from the
proceeds of the assumed exercise. For purposes of computing primary earnings
per share, the number of treasury shares assumed to be purchased from the
proceeds is based on the average market price of the Company's common stock
for the period. For purposes of computing fully diluted earnings per share,
the number of treasury shares assumed to be purchased from
F-7
F-8
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the proceeds is based on the higher of end of period market price or the
average market price of the Company's common stock for the period. Earnings
per share for 1996 were not adjusted for the effect of common equivalent
shares related to the Convertible Subordinated Note issued in November 1996,
as the effect of an assumed conversion of this note would not have been
dilutive for the period. Fully diluted earnings per share for 1996 have not
been presented as the results are approximately the same as primary earnings
per share after rounding to the nearest cent.
For 1995 and 1994 earnings per share were based on the weighted average
number of common shares outstanding. No effect was given to common stock
options or warrants as no material dilutive effect would have resulted from
the exercise of these items in these periods.
Other charges: Other charges included in operating results for the year
ended December 31, 1994, consist of certain transitional costs relating to the
Company's change in its method of distributing protective athletic equipment
sold to schools and other institutions. In October 1994, the Company
announced that it would begin selling such goods on a factory direct basis
using its existing sales force, which, before the change, was utilized
principally for selling reconditioning services. Sales of these goods,
principally football helmets, shoulder pads and related accessories, destined
for consumption by institutional sports teams, had historically been made to
independent dealers who in turn sold the products to schools and other
institutions. The costs relating to the transition, which have been
segregated as "other charges", consist primarily of costs to settle certain
obligations that related to the former method of distribution, related legal
expenses and estimated costs relating to the collection of receivables from
certain discontinued team dealers. Additional costs relating to goods
returned by discontinued dealers, under a special transition program, are
included as a reduction of sales and gross margins for 1994. The costs of
these returns included a reduction of sales of approximately $1,400,000 with a
related reduction in gross margins of approximately $675,000. Other
transitional costs of a recurring nature, such as marketing expenses, have not
been segregated.
Extraordinary item: For the year ended December 31, 1995 the Company
recorded a charge to establish a provision for costs related to certain
fraudulent transfer litigation as further described in Note 8. This charge
has been classified as an extraordinary item due to the unusual and infrequent
nature of the related litigation claim.
2. Inventories:
Inventories consist of the following:
December 31,
-----------------------
1996 1995
----------- -----------
Finished goods $6,712,249 $4,904,058
Work-in-process 4,345,056 4,043,217
Raw materials 5,348,863 5,478,607
----------- -----------
$16,406,168 $14,425,882
=========== ===========
F-8
F-9
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Property and equipment:
Property and equipment consist of the following:
December 31,
------------------------
1996 1995
---------- ----------
Land $ 207,000 $ 207,000
Building and improvements 1,102,241 1,038,699
Machinery and equipment 6,016,955 4,999,602
---------- ----------
7,326,196 6,245,301
Less accumulated depreciation 3,819,343 3,278,807
---------- ----------
$3,506,853 $2,966,494
========== ==========
Depreciation expense relating to all property and equipment amounted to
$598,427, $596,307, and $580,639 for the years ended December 31, 1996, 1995
and 1994, respectively.
4. Intangible assets and deferred charges:
Intangible assets and deferred charges consist of the following:
Estimated December 31,
Lives ---------------------------
in years 1996 1995
----------- ------------ ------------
MacGregor trademark rights 40 $18,040,000 $18,040,000
MacGregor license agreements 8 2,030,000 2,030,000
Trademarks 40 3,250,116 3,250,116
Goodwill 40 16,371,125 16,196,748
Debt issue costs 8 760,804 -
Other 7 to 10 3,773,154 3,773,154
------------ ------------
44,225,199 43,290,018
Less accumulated amortization 10,158,671 8,548,485
------------ ------------
$ 34,066,528 $ 34,741,533
============ ============
F-9
F-10
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long Term Debt:
December 31,
---------------------------
1996 1995
------------ -----------
Revolving line of credit, bank, at the bank's
prime rate, the prime rate was 8.25% at
December 31, 1996. The available line of
credit fluctuates throughout each year from a
low of $20,000,000 from November 1 to
December 31, to $25,000,000 from January 1 to
March 31, to $31,500,000 from April 1 to
October 31. The outstanding balance, if any,
matures on April 30, 1998. Collateralized by
a first lien on substantially all assets of
the Company. The loan agreement contains
covenants that require the Company to
maintain specified levels of working capital
and net worth and restricts the payment of
dividends to the Company's shareholders to
60% of net income $17,890,000 $17,977,307
Term loans payable, bank, interest at 1/2%
over prime, cross collateralized with, and
governed by the same loan agreement as, the
revolving line of credit discussed above.
Interest payable quarterly, principal of
$1,000,000 due in December 1997 with the
remaining balance due in December 1998 5,000,000 5,000,000
Convertible subordinated note payable,
interest at 4.1%. 25% and 33% of the then
outstanding principal is due on November 1,
2002 and 2003, respectively, with the
remaining balance due November 1, 2004.
Interest is payable semi annually. The note
is convertible at $6.00 a share into
1,250,000 shares of the Company's Common
Stock, subject to antidilution adjustments.
The note is subordinated in right to prior
payment in full of Senior Indebtedness, which
is generally defined in the governing
agreements to include debt under the
revolving line of credit and term loans
payable to a bank, described above, and any
refinancing, renewal or replacement thereof
as well as certain other debt. 7,500,000 -
Subordinated term note, shareholder, interest
at 10% per annum. Repaid, according to terms,
in November 1996, out of a portion of the
proceeds from the issuance of the $7,500,000
convertible subordinated note described
above. - 870,834
Subordinated note payable, shareholders,
interest at 8% per annum, interest not
payable until maturity, due April 18, 1998 439,000 439,000
Notes payable, discounted at 6.5% per annum,
remaining payments, which include imputed
interest, of $178,605 in January 1997 and
$164,961 at maturity in January 1998 313,090 454,663
------------ ----------
31,142,090 24,741,804
Less current portion 1,158,198 1,141,572
------------ ----------
$29,983,892 $23,600,232
============ ==========
F-10
F-11
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In February 1996, certain shareholders of the Company provided the
Company's bank with limited guaranties, aggregating $2,000,000, of the term
loan and revolving line of credit. This group of shareholders, all of whom
were directors of the Company, included the Company's Chairman, CEO and a
Vice President. These guarantees were provided in conjunction with certain
modifications of the loans obtained in December 1995. The guarantees were
released by the bank, and terminated, in November 1996.
The aggregate maturities of long-term debt for the periods after December 31,
1996, are as follows:
Years ending December 31,
1997 $ 1,158,198
1998 22,483,892
2002 1,875,000
2003 1,875,000
2004 3,750,000
-----------
$31,142,090
===========
6. Shareholders' equity and stock option plans:
During 1994, an adjustment was recorded reducing capital in excess of par
and intangible assets by $495,000. This adjustment reduces the value
ascribed to 120,000 shares of the Company's common stock issued in October
1993 at the time certain purchase price adjustments relating to a 1991
acquisition were resolved. The transaction was initially recorded during the
fourth quarter of 1993 based on the market value of the shares at the time of
the acquisition in 1991 ($7.50 per share). The adjustment reduces this
valuation to an amount based on the market value of the shares at the time of
issuance in 1993 ($3.375 per share).
Warrants: In 1994, in consideration of an extension of the maturity date
of its the revolving line of credit and other financing matters, the Company
issued warrants to its lender to purchase 172,152 shares of common stock of
the Company exercisable through October 1999 at an exercise price that is
currently $3.37 per share and that increases 5% annually. Warrants to
purchase 119,895 shares, previously issued to this lender, expired in 1994.
In January 1994, in consideration of an extension of the maturity date of a
$2,000,000 note due to a shareholder negotiated in 1993, the Company issued
warrants to the shareholder to purchase 150,000 shares of common stock
exercisable through 1998 at an exercise price that is currently $2.69 per
share and that increases 5% annually.
Stock option plans: The 1991 Stock Option Plan, as amended in 1996,
provides for the granting of options to key employees, directors, advisors
and independent consultants to the Company for the purchase of up to
1,415,500 shares of the Company's common stock. Options may be granted at an
option price of no less than 85% of the market price of the Company's common
stock on the date of grant and may be exercisable between one and ten years
from the date of grant. Options granted through December 31, 1996 generally
have been designated as non-qualified stock options, have had option prices
equal to market values on the date of grant, have had terms of five or ten
years, and have had vesting periods of one or four years. Information
relating to stock option transactions over the past three years is summarized
as follows:
F-11
F-12
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
[Download Table]
<CAPTIONS>
Options Outstanding Options Exercisable
----------------------------- ------------------------
Weighted Weighted
Average Average
Number Price Per Number Price per
Outstanding Share Exercisable Share
------------- --------- ----------- ---------
Balance, December 31, 1993 840,300 $5.28 259,500 $8.70
Granted 265,000 $2.70
Canceled (69,750) $6.33
-------------
Balance, December 31, 1994 1,035,550 $4.36 321,638 $7.12
Granted 177,000 $2.20
Canceled (180,500) $4.22
-------------
Balance, December 31, 1995 1,032,050 $4.02 485,775 $5.21
Granted 239,500 $4.57
Canceled (85,500) $7.67
-------------
Balance, December 31, 1996 1,186,050 $3.87 712,913 $3.79
=============
Further information about stock options outstanding at December 31, 1996 is
summarized as follows:
[Enlarge/Download Table]
<CAPTIONS>
Options Outstanding Options Exercisable
-------------------------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Price Per Number Price Per
Exercise Prices Outstanding Contractual Life Share Exercisable Share
----------------- ----------- ----------------- ---------- ----------- ---------
$1.80 - $2.49 271,550 2.7 years $2.21 232,413 $2.18
$2.50 - $3.99 370,000 3.5 years $3.00 259,375 $2.92
$4.00 - $5.38 462,500 7.5 years $4.30 139,125 $4.03
$10.75 - $10.75 82,000 0.4 years $10.75 82,000 $10.75
At December 31, 1996 there were 229,450 shares available for future option
grants.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the
Company has elected to continue to account for stock-based compensation under
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Under APB 25, generally, no cost is recorded for stock options
issued to employees unless the option price is below market at the time
options are granted. The following pro forma net income and earnings per
share are presented for informational purposes and have been computed using
the fair value method of accounting for stock-based compensation as set forth
in SFAS 123:
1996 1995
---------- ----------
Pro forma net income $2,668,624 $407,567
Pro forma earnings per share $0.32 $0.05
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1995. The pro forma results include expense related to
the fair value of stock options estimated at the date of grant using the
Black-Scholes option pricing model and the following weighted average
assumptions for the years ended December 31, 1996 and 1995, respectively:
risk-free interest rates of 6.6% and 6.1%; expected volatility of 38.4% and
38.1%; expected option life of 6.9 years and 4.5 years, and no dividend
payments. The weighted average estimated fair value of options granted
during 1996 and 1995 was $2.40 and $0.93 per share, respectively.
F-12
F-13
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Commitments:
Leases: The Company leases various facilities and equipment under
operating leases. Rent expense amounted to approximately $1,451,000,
$1,331,000 and $998,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Future minimum rental payments for all non-cancelable lease agreements for
periods after December 31, 1996 are as follows:
Years ending December 31,
1997 $1,331,000
1998 1,136,000
1999 827,000
2000 242,000
2001 2,000
Later years 12,000
-----------
Total minimum payments required $3,550,000
===========
Employee benefits: The Company has two noncontributory defined benefit
pension plans that cover, or have covered, certain employee groups. These
plans consist of a "Union Plan" covering certain unionized employees and a
"Non-Union Plan" that covered other employees of certain subsidiaries. The
Non-Union Plan was amended in 1994 to provide that no benefits would accrue
under the plan on or after December 31, 1994. The Company funds pension
costs based on minimum amounts required by the plans. Expense relating to
the Non-Union Plan was $50,000 (net of a curtailment gain of $47,000) for the
year ended December 31, 1994. Pension expense for the Union Plan has been
less than $30,000 during each of the years ended December 31, 1996, 1995 and
1994.
Effective August 1, 1994, the Company established a defined contribution
plan covering substantially all of its employees, other than those covered by
the Union Plan. Company contributions to this plan are based on a percentage
of employee contributions and are funded and charged to expense as incurred.
Expense related to the plan amounted to $307,000, $220,000 and $103,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
F-13
F-14
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Litigation matters and contingencies:
Recorded assets and liabilities: In regards to the product liability and
other litigation matters and contingencies discussed below, the Company has
recorded certain liabilities and, in some cases, receivables for insurance
recoveries. While these amounts are discussed in the remaining sections of
this note, a summary of these amounts together with other items comprising
the applicable balance sheet line items is as follows:
[Enlarge/Download Table]
<CAPTIONS>
Other Accrued liabilities Other liabilities
Receivables (Current) (Non-Current)
------------- ----------------- -----------------
December 31, 1996:
Product liability matters:
Future payments on settled cases $ - $ 1,750,000 $ -
Reserves for pending and other contingencies - 500,000 3,500,000
------------- --------------- ---------------
Totals for product liability matters 2,250,000 3,500,000
Provision for proposed settlement and other costs
relating to fraudulent transfer litigation - 1,400,000
Other litigation contingency reserves - 400,000 -
Other (not related to litigation or contingencies) 159,747 2,689,980 546,979
------------- --------------- ---------------
$ 159,747 $ 6,739,980 $ 4,046,979
============= =============== ===============
December 31, 1995:
Product liability matters:
Future payments on settled cases $ - $ 1,200,000 $ 1,750,000
Insurance recoveries and liabilities related to above 250,000 600,000 -
Reserves for pending and other contingencies - 900,000 4,200,000
------------- --------------- ---------------
Totals for product liability matters 250,000 2,700,000 5,950,000
Provision for proposed settlement and other costs
relating to fraudulent transfer litigation 1,900,000
Other litigation contingency reserves - 100,000 -
Other (not related to litigation or contingencies) 108,769 4,881,548 655,206
------------- --------------- ---------------
$ 358,769 $ 9,581,548 $ 6,605,206
============= =============== ===============
Product liability litigation matters and contingencies:
At December 31, 1996, the Company was a defendant in 11 product liability
suits relating to personal injuries allegedly related to the use of Riddell
helmets. The ultimate outcome of these claims, or potential future claims,
cannot presently be determined. The Company estimates that the uninsured
portion of future costs and expenses related to these claims, and incurred
but not reported claims, will amount to at least $4,000,000 and, accordingly,
a reserve in this amount is included in the Consolidated Balance Sheet at
December 31, 1996 as part of accrued liabilities and other liabilities.
These reserves are based on estimates of losses and defense costs anticipated
to result from such claims based on available information, including an
analysis of historical data such as the rate of occurrence and the settlement
amounts of past cases. However, due to the uncertainty involved with
estimates, as demonstrated by the matter described below, actual results
have at times varied substantially from earlier estimates and could do so in
the future. Accordingly there can be no assurance that the ultimate costs of
such claims will fall within the established reserves.
F-14
F-15
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1994, a jury returned a verdict against the Company for damages
amounting to approximately $8,000,000 in one of these suits. Although the
Company believes that it was not responsible in the case, and had been in the
process of appealing the verdict, the Company settled with the plaintiff in
late 1995 for an amount that was less than what was previously awarded. The
Company had taken a charge of $4,600,000 before taxes in 1994 to establish a
reserve for the full uninsured portion of the initial award, as well as
current and future premiums then due under a $5,000,000 product liability
insurance policy (which had a term running through June 1997) which would be
exhausted by payment of the verdict. As the amount of the settlement was
less than the initial award, the settlement had no effect on 1995 income.
The excess of the reserve over amounts due under the settlement was added to
general reserves for other product liability claims (discussed in the
preceding paragraph), during 1995, to provide increased reserves against
these other claims. The December 31, 1996 and 1995 Consolidated Balance
Sheets include certain liabilities related to this matter, as well as related
insurance receivables at December 31, 1995, as shown in the preceding table.
The Company maintains additional product liability coverage under a policy
bound in December 1994 (the "1994 Policy"). The 1994 Policy replaced and
expanded on coverage that had been available under a pre-existing policy
which was exhausted by the 1995 settlement described above. The settlement
did not affect coverage available under the 1994 Policy. In late 1996 the
Company extended the term of the 1994 Policy through December 2001 and
certain coverage limits were increased. The 1994 Policy is an occurrence-
based policy which covers injuries occurring prior to December 2001. The
policy also covers other claims which were pending against the Company at the
time the policy was bound in December 1994 as well as potential claims for
injuries which had occurred prior to the policy date, but had not yet been
reported. This additional coverage contains two components: "basic" and
"excess" coverage. The basic coverage insures all covered claims up to
$2,250,000 in excess of an uninsured retention (deductible) of $750,000 per
occurrence. The basic coverage is subject to an aggregate policy limit of
$7,500,000 and certain annual aggregate sub-limits. However, until the
premiums for the entire policy period have been paid, the basic coverage is
also limited to 110% of premiums paid. The excess coverage provides for
insurance of up to $20,000,000 per occurrence, in excess of the first
$3,000,000 of each claim. (The first $3,000,000 of each claim would fall
under the basic coverage, to the extent available, and the uninsured
retention.) Claims covered by the excess coverage are subject to one of two
separate $20,000,000 aggregate policy limits, depending on the date of the
related injury and the date the claim is filed against the Company. The
first $20,000,000 aggregate limit applies to claims filed before October 4,
1996 for injuries occurring after January 1, 1985 and prior to December 13,
1994 together with any future claims for injuries occurring before October 4,
1996. The second $20,000,000 aggregate limit applies to claims filed before
October 4, 1996 for injuries occurring after December 13, 1994 together with
any future claims for injuries occurring between October 4, 1996 and December
2001. The excess coverage is also limited to certain ratios of paid premiums
until all premiums due for the entire policy period have been paid. However,
this latter limitation can be eliminated at any time by prepaying the future
premiums due during the remainder of the policy. The Company believes that
this new insurance program provides a substantial increase in coverage, and
protection, against future claims that may be asserted against the Company -
especially considering the coverage provided under the excess component of
the policy. The excess policy does not cover any claims that were asserted
prior to the inception of the policy, one of which was still pending at
December 31, 1996.
At the time the additional product liability coverage was bound, in
December 1994, the Company had several claims pending against it. As
discussed above, the new policy provides only the limited coverage under its
basic component for these preexisting claims. Accordingly, the Company
entered into an effort to settle several claims that it believed, considering
the substantially reduced level of available insurance, presented the
greatest potential risk to the Company. The Company was successful in
carrying out this settlement effort, and in early 1995 settled certain claims
for an aggregate amount of $2,100,000. However, because of the risks
associated with these claims, given the reduced level of available insurance,
the amount of these settlements was substantially above historical levels for
settlements of similar claims and exceeded reserves applicable to the claims.
Accordingly, these settlements, together with
F-15
F-16
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
revaluations of reserves for remaining claims, resulted in an increase in
product liability expense for the year ended December 31, 1994 of
approximately $1,500,000.
MacGregor fraudulent transfer litigation:
MacGregor Sporting Goods, Inc. (now known as M. Holdings, Inc.) ("Mac I")
filed for bankruptcy in March 1989. In 1993, Mac I's Creditors' Committee
and the bankruptcy trustee of MGS Acquisition Inc. ("MGS") filed a complaint
against the Company seeking rescission of, and/or monetary damages in excess
of $28.5 million plus interest relating to, the Company's acquisitions in
1988 and 1989 of substantially all the assets of two of Mac I's former
second-tier subsidiaries (including the football helmet division, MacGregor
trademark licensing business, and the non-football uses of the Riddell
trademark) (the "Acquisition") for alleged failure to pay fair consideration
at a time when Mac I was insolvent or as a result of which Mac I became
insolvent or undercapitalized.
By order in November, 1994, the complaint was dismissed as time-barred.
The court ordered the appointment of a trustee in Mac I's bankruptcy, but did
not decide whether the trustee would be time-barred if it decided to take a
similar complaint against the Company. In March 1995, the newly appointed
trustee in Mac I's bankruptcy, together with the bankruptcy trustee of MGS
(collectively the "Trustees") filed a similar complaint against the Company.
Additionally, Innovative Promotions, Inc. and certain other purported
unsecured creditors of Mac I filed a complaint under state debtor and
creditor law against the Company making similar allegations and claims as the
actions described above, seeking rescission and/or damages in excess of $22
million. The Trustees intervened in the Innovative action as plaintiffs,
purportedly to preserve their rights in the event they lost their separate
action.
In April, 1996 the Company signed an agreement with the Trustees to settle
the "fraudulent transfer" litigations described above. The proposed
settlement was subject to, among other things, approval by two bankruptcy
courts. The proposed settlement had provided for a payment of approximately
$1.4 million by the Company. However, in June 1996, in view of opposition
from the Creditors' Committee of Mac I, the Trustees withdrew a motion they
had filed to approve the proposed settlement of the actions against the
Company, and the proposed settlement agreement terminated. In October 1996 a
former employee of the Company filed a counterclaim against the Company and
several subsidiaries in the Mac I bankruptcy, seeking indemnity and
contribution in an indeterminate amount from the Company in connection with a
suit by the Mac I trustee against such former employee.
The Company had previously recorded a $1.9 million provision, as of
December 31, 1995, for the proposed settlement as well as anticipated costs
relating to the litigation. The Company has charged certain litigation costs
against the liability reserve reducing the balance to $1,400,000 at December
31, 1996. The Company has not otherwise adjusted the liability reserve for
these actions as a result of the termination of the settlement agreement, as
the balance remains within the potential range of costs of resolving the
litigation. However, as discussed above, the plaintiffs in the actions are
seeking damages far in excess of this amount and, accordingly, there can be
no assurances that the matter will ultimately be resolved at an amount within
the reserve. The reserve is reflected in the Consolidated Balance Sheets as
part of accrued liabilities at December 31, 1996 and 1995. The Company
remains confident that the fraudulent transfer cases are without merit, and
intends to vigorously defend against them.
Other contingencies and litigation matters:
In connection with the Company's suit against its former President,
Frederic Brooks, for alleged breaches of his consulting agreement and certain
other matters, Mr. Brooks filed counterclaims against the Company. Mr.
Brooks alleges the Company breached its indemnification obligations to him as
a former officer and director of the Company
F-16
F-17
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in connection with the Company's action against Mr. Brooks, a purported class
action (now settled), an action (now settled) against Mr. Brooks brought by
certain stockholders of the Company, and the action brought by the Mac I
trustee, and seeks damages in excess of $3.3 million plus future attorneys'
fees and interest. Mr. Brooks also seeks compensatory and punitive damages
combined of at least $15 million against the Company, two of its officers and
directors and an entity controlled by them for tortious interference with
contract and prospective advantage and prima facie tort. Mr. Brooks has
impleaded the Company's "Riddell" footwear licensee for contribution for all
damages that may be assessed against him in the Company's suit against Mr.
Brooks for certain alleged breaches of his consulting agreement relating to,
among other things, alleged attempts to disparage and take control of the
Company. In connection with a settlement of certain actions between the
Company and its "Riddell" footwear licensee in early 1994, the Company agreed
to indemnify the licensee and certain of its affiliates in the event they
were so impleaded by Mr. Brooks into the Company's suit against Mr. Brooks
for breach of his consulting agreement. Mr. Brooks' claims against the
Company also seek consulting fees of $580,000 plus interest under his
consulting agreement (which the Company has previously deposited in an escrow
type account), consulting fees with the Company's "Riddell" footwear licensee
exceeding $850,000 and attorney's fees exceeding $1.5 million through April
1996, plus interest. The Company believes Mr. Brooks' claims against the
Company are without merit and intends to vigorously defend against them.
In January 1995, the Company was named as a co-defendant in a complaint
which alleges wrongful death, failure to warn and other things surrounding
the death of a minor at one of the Company's facilities. The minor was
involved in a fatal accident as he trespassed on the roof of the facility
after hours. The complaint seeks unspecified monetary damages. The Company
believes that it has meritorious defenses to this action and intends to
vigorously defend against it. The defense of the matter has been assumed by
the Company's general liability insurance carrier, subject to a reservation
of rights and certain policy limits and deductibles.
Additionally, the Company has certain other claims or potential claims
against it that may arise in the normal course of business, including claims
relating to employee terminations. The Company has recorded provisions for
certain of these claims and certain of the "other" litigation matters
discussed above. Reserves for such claims amounted to $400,000 at December
31, 1996 and $100,000 at December 31, 1995. While these amounts, together
with the remaining $1,400,000 provision relating to the MacGregor fraudulent
transfer litigation discussed above, represents an estimate of certain
minimum costs likely to result from these litigation matters, other than
product liability claims, the Company cannot estimate the full extent of a
potential range of loss related to such litigation matters as their ultimate
outcome cannot be presently determined. Accordingly, there can be no
assurance that such claims will be resolved within such reserves.
F-17
F-18
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Income taxes:
Income taxes (credits) on income (loss), before extraordinary items, for
the years ended December 31, 1996, 1995 and 1994 is summarized below:
Years ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- -------------
Current tax expense (credit):
Federal $ 50,000 $ 40,000 $ -
State 60,000 60,000 -
---------- ---------- -------------
110,000 100,000 -
---------- ---------- -------------
Deferred tax expense (credit):
Federal - - (1,010,000)
State - - (240,000)
---------- ---------- -------------
- - (1,250,000)
---------- ---------- -------------
$ 110.000 $ 100,000 $ (1,250,000)
========== ========== =============
For the years ended December 31, 1996 and 1995, tax expense was reduced by
offsetting tax benefits of approximately $1,200,000 and $900,000,
respectively, of net operating loss carryforwards which were not recognized
in prior years.
Significant components of deferred income tax assets and liabilities at
December 31, 1996, 1995 and 1994 are as follows:
December 31,
----------------------------------------
1996 1995 1994
---------- ---------- -------------
Deferred income tax assets:
Accrued expenses and reserves $3,509,000 $5,029,000 $2,527,000
Inventory 492,000 711,000 971,000
Intangible assets 26,000 28,000 25,000
Net operating loss, and
credit, carryforwards 3,689,000 2,904,000 5,659,000
Other 36,000 35,000 27,000
---------- ---------- -------------
7,752,000 8,707,000 9,209,000
Valuation allowances (1,386,000) (2,539,000) (3,452,000)
---------- ---------- -------------
Total deferred
income tax assets 6,366,000 6,168,000 5,757,000
---------- ---------- -------------
Deferred income tax liabilities:
Intangible assets and
deductible goodwill 6,014,000 5,770,000 5,503,000
Prepaid expenses 266,000 350,000 189,000
Other 86,000 48,000 65,000
---------- ---------- -------------
Total deferred
income tax liabilities 6,366,000 6,168,000 5,757,000
---------- ---------- -------------
Total net deferred
income tax liability $ - 0 - $ - 0 - $ - 0 -
========== ========== =============
The valuation allowance has been established based on the assumption that the
net deferred income tax asset will not be realized.
F-18
F-19
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net current and non-current components of the deferred income taxes were
recognized in the balance sheet at December 31, 1996, 1995 and 1994 as
follows:
Years ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- -------------
Net current assets, included
with prepaid expenses $1,820,000 $1,990,000 $1,408,000
Net non-current deferred
tax liabilities 1,820,000 1,990,000 1,408,000
---------- ---------- -------------
$ - 0 - $ - 0 - $ - 0 -
========== ========== =============
A reconciliation of effective tax rates to federal statutory tax rates is as
follows:
Years ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- -------------
Statutory Federal tax rate 34.0% 34.0% (34.0%)
Differences resulting from:
Effective state tax rate,
net of federal tax benefit 3.1 1.6 (3.3 )
Amortization not deductible
for tax purposes 5.8 6.7 1.2
Losses with no current benefit - - 15.2
Benefit of prior periods net
operating losses not
previously recognized (40.2) (38.1 ) -
Other differences 1.0 ( 0.2 ) 0.7
---------- ---------- -------------
3.7% 4.0% (20.2%)
========== ========== =============
During 1994, the Company entered into a settlement agreement with the
Internal Revenue Service relating to an examination of the Company's federal
income tax returns for the years 1988 to 1990. The service had proposed
certain adjustments relating to the allocation, for tax purposes, of an
acquisition in 1988 and the deductibility of amortization relating to certain
intangible assets acquired in that acquisition. The effect of the settlement
was to reduce net operating loss carryforwards available to the Company for
tax purposes, and to adjust future tax amortization deductions available to
the Company, by an aggregate of approximately $3.2 million. The Company has
recorded the effect of the settlement, in 1994, by an adjustment increasing
its liability for deferred income taxes by $1,250,000 with a corresponding
increase in goodwill. The effect of the settlement on taxes currently
payable is not material.
At December 31, 1996 the Company had estimated net operating loss
carryforwards for federal income tax purposes of approximately $8,900,000
expiring in the years 2008 to 2011.
10. Related party transactions:
Interest expense includes interest on debt due shareholders and related
parties of $111,420, $197,526 and $229,107 for the years ended December 31,
1996, 1995 and 1994, respectively. In 1996 the Company paid consulting fees
of $75,000 to one director and paid another director $20,000 for services in
connection with a series of promotional football clinics sponsored by the
Company. Accrued liabilities include accrued interest due a shareholder of
$7,368 at December 31, 1995. Other liabilities (non-current), include
accrued interest due to shareholders of $310,129 and $274,423 at December
31, 1996 and 1995, respectively. In 1995, $1,029,166 of principal payments
were made in advance of their maturity on long-term debt due to a
shareholder.
F-19
F-20
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Supplemental cash flow information:
Cash payments for interest were $2,661,710, $2,741,654, and $2,002,172,
for the years ended December 31, 1996, 1995 and 1994, respectively. Income
tax payments, or refunds, were not significant for 1996, 1995 or 1994.
In 1994, the value ascribed to certain stock issued the prior year, in
connection with an earlier acquisition, was adjusted from $900,000 to
$405,000.
In July 1994, in connection with an acquisition, the Company incurred
liabilities of $1,450,000 and issued common stock valued at $400,000.
In January 1995, in connection with an acquisition, the Company incurred
liabilities of $765,000.
12. Acquisition and divestiture:
In January 1995, the Company acquired the business and operating assets of
Raleigh Athletic Equipment Corporation, a reconditioner of athletic
equipment, for a purchase price, including costs of the transaction and
liabilities assumed, of approximately $1,400,000. The transaction was
accounted for as a purchase, and, accordingly, the results of Raleigh
Athletic Equipment Corporation are included in the consolidated financial
statements from the date of acquisition and the net assets acquired have been
recorded at their fair values. The results of Raleigh Athletic Equipment
Corporation prior to the date of the acquisition are not material to the
Company's consolidated financial statements.
In July 1994, the Company acquired SharCo Corporation, a manufacturer of
sports collectible products, for a purchase price, including costs of the
transaction, of approximately $2,600,000. The transaction was accounted for
as a purchase, and, accordingly, the results of SharCo Corporation are
included in the consolidated financial statements from the date of
acquisition and the net assets acquired have been recorded at their fair
values. The results of SharCo Corporation prior to the date of the
acquisition are not material to the Company's consolidated financial
statements.
In February 1994, the Company sold certain foam molding operations
operated by the Company's Ohio Cellular Products Corporation subsidiary
("OCP") in a stock sale for a gross sales price of $1,000,000 cash and
certain contingent consideration. The Company had announced its intention to
sell the operation in 1993, and operating results for the year ended December
31, 1993 were charged with a provision to provide for a loss on disposition,
including operating losses for the period subsequent to December 31, 1993 and
through the date of the sale. Accordingly, the effect of the sale and
related 1994 operations through the date of sale, were not material to 1994
operating results.
F-20
F-21
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Segment information:
The Company operates in two segments of the sporting goods industry:
sports products and services (which includes the manufacture, sale and
reconditioning of football helmets, other athletic products and sports
collectible products) and trademark licensing of the Riddell and MacGregor
trademarks for use on other products including athletic footwear, apparel and
sports equipment.
Years ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ -------------
Net Revenues:
Sports products and services $69,888,094 $63,603,210 $51,567,065
Trademark licensing 2,494,266 3,439,828 3,845,044
------------ ------------ -------------
$72,382,360 $67,043,038 $55,412,109
============ ============ =============
Income (loss) from Operations:
Sports products and services $7,929,943 $7,184,487 $(2,694,568)
Trademark licensing 1,536,204 2,263,497 2,823,336
Corporate and unallocated (3,750,445) (4,182,389) (4,311,056)
------------ ------------ -------------
$5,715,702 $5,265,595 $(4,182,288)
============ ============ =============
Depreciation and Amortization:
Sports products and services $1,483,601 $1,459,142 $1,180,804
Trademark licensing 702,095 700,895 694,346
Corporate and unallocated 22,917 7,458 7,458
------------ ------------ -------------
$2,208,613 $2,167,495 $1,882,608
============ ============ =============
Capital Expenditures:
Sports products and services $1,138,786 $750,188 $ 662,395
============ ============ =============
Identifiable assets:
Sports products and services $54,374,016 $51,478,083 $49,378,285
Trademark licensing 18,983,249 19,760,209 20,230,728
Corporate and unallocated 3,003,764 2,886,397 2,643,301
------------ ------------ -------------
$76,361,029 $74,124,689 $72,252,314
============ ============ =============
F-21
S-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors
Riddell Sports Inc.
In connection with our audit of the consolidated financial statements of
Riddell Sports Inc. and Subsidiaries referred to in our report dated March 14
, 1997, which is included on page F-2 of this Form 10-K, we have also audited
Schedule II for each of the three years in the period ended December 31,
1996. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Chicago, Illinois
March 14, 1997
S-1
S-2
SCHEDULE II
RIDDELL SPORTS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
Additions
-------------------
(2)
(1) Charged
Charged to Other
Balance at to Costs Accounts Balance at
Beginning and - End of
Description of Period Expenses Describe Deductions Period
---------------------- --------- --------- --------- ---------- -----------
Year ended
December 31, 1994:
Allowance for $1,183,400 $896,240 - $109,640 $1,970,000
doubtful accounts (a)
Year ended
December 31, 1995:
Allowance for $1,970,000 $392,956 - $1,742,956 $620,000
doubtful accounts (a)
Year ended
December 31, 1996:
Allowance for $620,000 $436,130 - $543,130 $513,000
doubtful accounts (a)
____________________________________________
Note: (a) Accounts written off net of recoveries
S-2
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000874786-97-000003 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Thu., Apr. 25, 11:18:39.2pm ET