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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0 - 19596
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THE HOCKEY COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-36-32297
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
c/o Maska U.S., Inc., 929 Harvest Lane, P.O. Box 1200, Williston, VT 05495
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (802) 872-4226
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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 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under the plan
confirmed by the court:
YES X NO
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 6, 2001
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Common Stock, 6,500,549
$.01 par value
THE HOCKEY COMPANY
FORM 10-Q
INDEX
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited and Audited Consolidated Balance Sheets at June 30, 2001 and December 31, 2000 1
Unaudited Consolidated Statements of Operations for the Three and Six Months ended June
30, 2001 and for the Three and Six Months ended June 30, 2000 2
Unaudited Consolidated Statements of Comprehensive Loss for the Three
and Six Months ended June 30, 2001 and for the Three and Six Months
ended June 30, 2000 3
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001
and for the Six Months ended June 30, 2000 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
THE HOCKEY COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
Unaudited Audited
------------- -------------
June 30, 2001 Dec. 31, 2000
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ASSETS
Current assets
Cash and cash equivalents $ 381 $ 2,423
Accounts receivable, net 46,341 39,376
Inventories (Note 2) 51,804 42,110
Prepaid expenses and other receivables 5,491 3,931
Income taxes receivable 2,013 4,043
-------- --------
Total current assets 106,030 91,883
Property, plant and equipment, net of accumulated depreciation and
amortization ($13,378 and $12,310, respectively) 18,621 21,142
Intangible and other assets, net of accumulated amortization (Note 3) 81,957 82,554
-------- --------
Total assets $206,608 $195,579
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings (Note 4) $ 41,946 $ 12,282
Accounts payable and accrued liabilities 17,841 23,673
Income taxes payable 2,497 3,322
Long term debt, current portion 230 264
Other current liabilities 698 698
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Total current liabilities 63,212 40,239
Long-term debt (Note 4) 90,191 91,252
Deferred income taxes 460 495
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Total liabilities 153,863 131,986
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Contingencies (Note 8)
13% Pay-In-Kind preferred stock (Note 5) 11,452 11,333
Stockholders' equity
Common stock, par value $0.01 per share, 20,000,000 shares authorized,
6,500,549 shares issued and outstanding at June 30, 2001 and at
December 31, 2000 65 65
Re-organization warrants, 300,000 issued and 299,451 outstanding at June
30, 2001 and at December 31, 2000 - -
Common stock purchase warrants, 699,101 issued and outstanding at
June 30, 2001 and 159,127 outstanding at December 31, 2000 5,115 1,665
Additional paid-in capital 66,515 66,515
Deficit (21,918) (9,290)
Foreign currency translation adjustments (8,484) (6,695)
-------- --------
Total stockholders' equity 41,293 52,260
-------- --------
Total liabilities and stockholders' equity $206,608 $195,579
======== ========
The accompanying notes are an integral part of
the unaudited consolidated financial statements.
- 1 -
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
For the Three For the Six For the Three For the Six
Months ended Months ended Months ended Months ended
June 30, 2001 June 30, 2001 June 30, 2000 June 30, 2000
------------- ------------- ------------- -------------
Net sales $42,252 $ 77,087 $44,614 $79,020
Cost of goods sold before restructuring charges 24,579 45,452 25,646 46,305
Restructuring charges (Note 6) - 901 - -
------- -------- ------- -------
Gross profit 17,673 30,734 18,968 32,715
Selling, general and administrative expenses before
restructuring charges 13,927 28,848 15,352 30,953
Restructuring charges (Note 6) - 2,005 - -
Amortization of excess reorganization value and goodwill 1,100 2,205 1,124 2,262
------- -------- ------- -------
Operating income (loss) 2,646 (2,324) 2,492 (500)
Other (income) expense, net 528 1,104 (62) 362
Interest expense 3,722 6,713 3,184 6,148
------- -------- ------- -------
Loss before income taxes and extraordinary item (1,604) (10,141) (630) (7,010)
Income taxes (benefit) 92 226 694 (491)
------- -------- ------- -------
Net loss before extraordinary item (1,696) (10,367) (1,324) (6,519)
Extraordinary item
Loss on early extinguishing of debt (Note 3) - 1,091 - -
Net loss (1,696) $(11,458) $(1,324) $(6,519)
------- -------- ------- -------
Preferred stock dividends 525 1,051 456 948
Accretion of 13% Pay-In-Kind preferred stock 60 119 58 121
------- -------- ------- -------
Net loss attributable to common shareholders $(2,281) $(12,628) $(1,838) $(7,588)
======= ======== ======= =======
Basic loss before extraordinary item per share (See Note 7) $ (0.32) $ (1.60) $ (0.28) $ (1.14)
Diluted loss before extraordinary item per share (See Note 7) $ (0.32) $ (1.60) $ (0.28) $ (1.14)
Basic loss per share (See Note 7) $ (0.32) $ (1.75) $ (0.28) $ (1.14)
Diluted loss per share (See Note 7) $ (0.32) $ (1.75) $ (0.28) $ (1.14)
The accompanying notes are an integral part of
the unaudited consolidated financial statements.
- 2 -
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
For the Three For the Six For the Three For the Six
Months ended Months ended Months ended Months ended
June 30, 2001 June 30, 2001 June 30, 2000 June 30, 2000
------------- ------------- ------------- -------------
Net loss $(1,696) $(11,458) $(1,324) $(6,519)
Foreign currency translation adjustments (966) (1,789) (112) (625)
------- -------- ------- -------
Net comprehensive loss $(2,662) $(13,247) $(1,436) $(7,144)
======= ======== ======= =======
The accompanying notes are an integral part of
the unaudited consolidated financial statements.
- 3 -
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six For the Six
Months ended Months ended
June 30, 2001 June 30, 2000
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OPERATING ACTIVITIES:
Net loss before extraordinary items $(10,367) $ (6,519)
Adjustments to reconcile net loss to net cash used in operating
activities:
Restructuring charges 2,906 -
Depreciation and amortization 6,008 5,507
Provisions for inventory, doubtful accounts and other deductions 3,436 2,418
Deferred income taxes 43 (640)
Gain on sales of fixed assets (8) (17)
Gain on foreign exchange (407) (227)
Change in operating assets and liabilities:
Accounts receivable (10,161) (11,064)
Inventories (11,774) (13,455)
Prepaid expenses and other assets 530 1,371
Accounts payable and accrued liabilities (9,263) (5,833)
Income taxes (999) (806)
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Net cash used in operating activities (30,056) (29,265)
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INVESTING ACTIVITIES:
Purchases of fixed assets (709) (1,482)
Proceeds from sales of fixed assets 332 29
Deferred expenses 539 (1,315)
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Net cash provided by (used in) investing activities 162 (2,768)
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FINANCING ACTIVITIES:
Net change in short-term borrowings 29,969 28,047
Proceeds from long-term debt 191 1,139
Principal payments on debt (123) -
Issuance of warrants 3,450 -
Deferred financing costs (5,482) -
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Net cash provided by financing activities 28,005 29,186
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Effects of foreign exchange rate changes on cash (153) (96)
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Decrease in cash (2,042) (2,943)
Cash and cash equivalents at beginning of period 2,423 3,519
-------- --------
Cash and cash equivalents at end of period $ 381 $ 576
======== ========
The accompanying notes are an integral part of
the unaudited consolidated financial statements.
- 4 -
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS, CHANGE OF CORPORATE NAME AND PRINCIPLES OF
CONSOLIDATION
The Hockey Company ("THC" or the "Company") was incorporated in September
1991 and reorganized in April 1997.
On January 31, 1999, the Board of Directors and stockholders of THC adopted
an amendment to the Company's Certificate of Incorporation to change the
name of THC from SLM International, Inc. to The Hockey Company.
The consolidated financial statements include the accounts of THC and its
wholly-owned subsidiaries. The Company designs, develops, manufactures and
markets a broad range of sporting goods. The Company manufactures hockey
and hockey related products, including hockey uniforms, hockey sticks,
goaltender equipment, protective equipment, hockey, figure and inline
skates as well as street hockey products. These are marketed under the
CCM(R), Jofa (R), Koho (R), Heaton (R), Titan(R) and Canadien tm brand
names, and private label brands and licensed sports apparel under the
CCM(R) and #1 Apparel TM brand names. THC sells its products world-wide to
a diverse customer base consisting of mass merchandisers, retailers,
wholesalers, sporting goods shops and international distributors. THC
manufactures and distributes most of its products at facilities in North
America, Finland and Sweden and sources products internationally.
B. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
appearing in this quarterly report have been prepared on a basis consistent
with the annual financial statements of THC and its subsidiaries.
In the opinion of management, all normal recurring adjustments necessary
for a fair presentation of the Company's Unaudited Consolidated Balance
Sheets, Statements of Operations, Statements of Comprehensive Loss and
Statements of Cash Flows for the 2001 and 2000 periods, have been included.
These unaudited interim consolidated financial statements do not include
all of the information and footnotes required by generally accepted
accounting principles to be included in a full set of financial statements.
Results for the interim periods are not necessarily a basis from which to
project results for the full year due to the seasonality of the Company's
business. These unaudited consolidated financial statements should be read
in conjunction with the Company's annual report on Form 10-K, filed with
the Securities and Exchange Commission for the year ended December 31,
2000. Certain prior period amounts have been reclassified to conform to the
current period presentation.
C. ACCOUNTING PRONOUNCEMENTS
The Company has adopted SFAS 133 as of January 2001, and no significant
transition adjustment resulted from its adoption.
- 5 -
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
2. INVENTORIES
Net inventories consist of:
June 30, 2001 December 31, 2000
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Finished products $39,453 $29,745
Work in process 3,142 2,727
Raw materials and supplies 9,209 9,638
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$51,804 $42,110
======= =======
3. INTANGIBLE AND OTHER ASSETS
Net intangible and other assets consist of:
June 30, 2001 December 31, 2000
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Goodwill $44,836 $46,643
Excess Reorganization intangible 28,982 30,052
Deferred Financing Costs 4,918 2,084
Other 3,221 3,775
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$81,957 $82,554
======= =======
Amortization expense for intangible assets was $1,650 and $3,740 for the
three and six months ended June 30, 2001 respectively and $6,569 for the twelve
months ended December 31, 2000. A write-off of $1,091 of deferred financing
costs was recorded as an extraordinary item as a result of the substantive
modifications of the terms of the Company's Credit agreement. - (see Note 4 b).
4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
A) SHORT-TERM BORROWINGS
i) Effective November 19, 1998, two of the Company's U.S. subsidiaries,
Maska U.S., Inc. and SHC Hockey Inc., entered into a credit agreement
(the "U.S. Credit Agreement") with the lenders referred to therein and
with General Electric Capital Corporation, as Agent and Lender.
Simultaneously, two of the Company's Canadian subsidiaries, Sport
Maska Inc. and Tropsport Acquisitions Inc., entered into a credit
agreement (the "Canadian Credit Agreement") with the lenders referred
to therein and General Electric Capital Canada Inc., as Agent and
Lender. The Credit Agreements are collateralized by eligible accounts
receivable and inventories of the borrowers and are further
collateralized by a guarantee of the Company and its other North
American subsidiaries.
On March 14, 2001, (i) the Second Amendment to the U.S. Credit
Agreement was entered into by Maska U.S., as borrower, the Credit
Parties, the U.S. Lenders and General Electric Capital Corporation, as
Agent and Lender, and (ii) the Second Amendment to the Canadian Credit
Agreement was entered into by Sport Maska, as borrower, the Credit
Parties, the Canadian Lenders and General Electric Capital Canada
Inc., as Agent and Lender. On terms and subject to the conditions of
each of the Second Amendments, the Credit Agreements were amended to
reflect the Amended and Restated Credit Agreement (as hereinafter
defined). The maximum amount of loans and letters of credit that may
be outstanding under the two credit agreements is $60,000. Total
borrowings outstanding under the Credit Agreements at June 30, 2001
and December 31, 2000 were $36,487 and $12,282, respectively
(excluding outstanding letters of credit). The Credit Agreements were
for a period of two years with a possible extension of one year by the
Company.
- 6 -
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Borrowings under the U.S. Credit Agreement bear interest at rates of
either U.S. prime rate plus 0.50%-1.25% or LIBOR plus 1.75%-2.75%
depending on the borrower's Operating Cash Flow Ratio, as defined in
the agreement. Borrowings under the Canadian Credit Agreement bear
interest at rates of either the Canadian prime rate plus 0.75%-1.50%
or LIBOR plus 1.75%-2.75% depending on the borrower's Operating Cash
Flow Ratio, as defined in the agreement. In addition, the borrowers
are charged a monthly commitment fee at an annual rate of up to 3/8 of
1% on the unused portion of the revolving credit facilities under the
credit agreements and certain other fees.
The Credit Agreements contain customary negative and affirmative
covenants including those relating to capital expenditures, total
indebtedness to EBITDA, minimum interest coverage and fixed charges
coverage ratio.
ii) Effective March 18, 1999, Jofa AB ("Jofa"), a Swedish subsidiary of
the Company, entered into a credit agreement with MeritaNordbanken in
Sweden. The maximum amount of loans and letters of credit that may be
outstanding under the agreement is SEK 65,000 ($5,989). The facility
is collateralized by the assets of Jofa, excluding intellectual
property, bears interest at a rate of STIBOR plus 0.65% and is
renewable annually. Total borrowings at June 30, 2001 and December 31,
2000 were SEK 54,217 ($4,988) and nil, respectively.
Effective July 14, 1999, KHF Sports Oy ("KHF"), a Finnish subsidiary
of the Company, entered into a credit agreement with MeritaNordbanken
in Finland. The maximum amount of loans and letters of credit that may
be outstanding under the agreement is FIM 30,000 ($4,275). The
facility is collateralized by the assets of KHF, bears interest at a
rate of EURIBOR plus 2.0% and is renewable annually. Total borrowings
as at June 30, 2001 and December 31, 2000 were nil.
B) LONG-TERM DEBT
SECURED LOANS
On November 19,1998, in connection with its acquisition of Sports Holdings
Corp., the Company and Sport Maska Inc. entered into a Secured Loan Agreement
with the Caisse de depot et placement du Quebec ("Caisse") to borrow a total of
Canadian $135,800. The loan was for a period of two years, renewable on November
19, 2000 at the Company's option.
On March 14, 2001, an Amended and Restated Credit Agreement was entered into by
the Company and Sport Maska, as borrowers, Caisse, as Agent and Lender, and
Montreal Trust Company, as Paying Agent (the "Amended and Restated Credit
Agreement"). On the terms and subject to the conditions of the Amended and
Restated Credit Agreement, Facility 1 of the Caisse Loan, which is a facility in
the maximum amount of Canadian $90,000, was extended to June 30, 2004, and
Facility 2 of the Caisse Loan, which is a facility in the maximum amount of
Canadian $45,800, was extended to October 31, 2002. A repayment of Facility 1 in
the minimum amount of Canadian $5,000 is due on January 31, 2004. Facility 1 and
Facility 2 have been fully utilized and no new advances are expected to be made
under the Amended and Restated Credit Agreement. Each facility bears interest
equal to the Canadian Banker's Acceptance Rate plus 6%, and Facility 2 bears
additional interest of 3.5% which is to be capitalized and repaid on Facility 2
maturity.
The loan is collateralized by all of the tangible and intangible assets of the
Company subject to the prior ranking claims on accounts receivable and
inventories by the lenders under the Company's revolving credit facilities.
The loan contains customary negative and affirmative covenants including those
relating to capital expenditures, total indebtedness to EBITDA and minimum
interest coverage.
In May 2000, Jofa AB, a subsidiary of the Company, entered into a loan agreement
with MeritaNordBanken Sweden to borrow SEK 10,000 ($1,100). The loan is for four
years with annual principal repayments of SEK 2,500 ($275). The loan is secured
by a chattel mortgage on the assets of the subsidiary and bears an interest rate
of STIBOR plus 1.25%.
- 7 -
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
5. COMMON STOCK, WARRANTS AND PREFERRED STOCK
The Company has authorized 20,000,000 shares of common stock, of which
6,500,549 are issued and outstanding.
Pursuant to the Warrant Agreement, dated as of March 14, 2001, between the
Company and Caisse, the Company issued a warrant to Caisse to purchase 539,974
shares of common stock, par value $.01 per share, of the Company, representing
approximately 7.5% of the outstanding common stock, on a fully diluted basis, at
an exercise price of $.01 per share. The number of shares issuable upon exercise
of the warrants is subject to certain adjustments as provided in the Warrant
Agreement. The fair value of the warrants was determined to be $3,450 and has
been recorded in shareholders' equity as stock purchase warrants. In addition,
the Company also issued warrants to Caisse to acquire 993,408 shares of common
stock, par value $.01 per share, which are only exercisable by Caisse if a
minimum EBITDA required is not met and if Facility 2 is not repaid in cash on or
prior to certain dates.
On November 19, 1998, the Company issued 100,000 shares of 13% Pay-In-Kind
redeemable, $0.01 par value per share, cumulative preferred stock together with
warrants to purchase 159,127 common shares of the Company at a purchase price of
$0.01 per share, for cash consideration of $12,500 (par value).
The fair value of the warrants was determined to be $1,665 and has been recorded
in Stockholder's Equity as common stock purchase warrants. The balance of the
proceeds, $10,835, has been recorded as 13% Pay-In-Kind preferred stock. The
difference between the redemption value of the preferred stock and the recorded
amount is being accreted on a straight-line basis over the seven-year period
ending November 19, 2005, by a charge to retained earnings.
Dividends, which are payable semi-annually from November 19, 1998, may be paid
in cash or in shares of the 13% Pay-In-Kind preferred stock, at the Company's
option. The preferred stock is non-voting. If the Company fails to redeem the
preferred stock on or before November 19, 2005 and for a sixty day period or
more after being notified of its failure to redeem the preferred stock, then the
preferred stockholders, as a class of stockholders, have the option to elect one
director to the Company's Board of Directors with the provision that the
preferred stockholders are to elect 28% of the Company's directors. At June 30,
2001 unpaid dividends totalled $4,727.
The preferred stock is redeemable, at any time after November 19, 2000, in whole
or in part, at the option of the Company, at a redemption price (together with
all accumulated and unpaid dividends) as follows:
Year Percentage of par value
2001 104.333%
2002 102.166%
2003 and thereafter 100.000%
The preferred stock must be redeemed by the Company at the earlier of a change
of control or by November 19, 2005.
6. RESTRUCTURING CHARGES
Effective January 24, 2001, the Company embarked on a plan to rationalize its
operations. This rationalization involved the elimination of certain
redundancies, both in terms of personnel and operations as well as the
consolidation of facilities including the closure of its Mount Forest, Ontario
plant. Accordingly, the Company has set up a reserve of $2,900.
The Company has estimated that the restructuring charges would total $2,900 as
follows:
An amount of $2,400 has been accrued for severance packages in Canada and the
U.S., including the closure of the Mount Forest, Ontario plant. To date $1,600
has been spent.
An amount of $500 has been accrued to cover the cost of facility consolidations.
To date $400 has been spent.
- 8 -
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
7. EARNINGS PER SHARE
Losses per share for the three and six months periods are as follows:
For the Three Months For the Six Months For the Three Months For the Six Months
ended June 30, 2001 ended June 30, 2001 ended June 30, 2000 ended June 30, 2000
---------------------------------------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
-------------------------- ------------ ------------ ------------ ------------- ----------- ------------ ------------ ------------
Net loss before
extraordinary item
attributable to common
stockholders $ (2,281) $ (2,281) $ (11,537) $ (11,537) $(1,838) $(1,838) $ (7,588) $ (7,588)
-------------------------- ------------ ------------ ------------ ------------- ----------- ------------ ------------ ------------
Net loss attributable to
common stockholders
$ (2,281) $ (2,281) $ (12,628) $ (12,628) $(1,838) $(1,838) $ (7,588) $ (7,588)
----------------------------------------------------------------------------------------------------------------------------------
Weighted average common and common equivalent shares outstanding:
----------------------------------------------------------------------------------------------------------------------------------
Common stock 6,500,549 6,500,549 6,500,549 6,500,549 6,500,549 6,500,549 6,500,549 6,500,549
-------------------------- ------------ ------------ ------------ ------------- ----------- ------------ ------------ ------------
Common equiv. Shares (a) 698,000 698,000 698,000 698,000 158,977 193,741 158,977 193,741
-------------------------- ------------ ------------ ------------ ------------- ----------- ------------ ------------ ------------
Total weighted average
common and common
equivalent shares
outstanding 7,198,549 7,198,549 7,198,549 7,198,549 6,659,526 6,694,290 6,659,526 6,694,290
-------------------------- ------------ ------------ ------------ ------------- ----------- ------------ ------------ ------------
Net loss before
extraordinary item per
common share (b) $ (0.32) $ (0.32) $ (1.60) $ (1.60) $ (0.28) $ (0.28) $ (1.14) $ (1.14)
-------------------------- ------------ ------------ ------------ ------------- ----------- ------------ ------------ ------------
Net loss per common
share (b) $ (0.32) $ (0.32) $ (1.75) $ (1.75) $ (0.28) $ (0.28) $ (1.14) $ (1.14)
-------------------------- ------------ ------------ ------------ ------------- ----------- ------------ ------------ ------------
(a) Common equivalent shares include warrants and stock options. The
Company used the average book value of its common stock in calculating
the common equivalent shares as required by Statement of Financial
Accounting Standards No. 128 due to the fact that the Company's stock
had extremely limited trading volume during the period.
(b) Common equivalent shares include warrants and stock options when
dilutive. The Company used the average book value of its common stock
in calculating the common equivalent shares as required by statement
of Financial Accounting Standards no. 128 due to the fact that
Company's stock had extremely limited trading volume during the
period.
8. CONTINGENCIES AND LITIGATION
A. ENVIRONMENTAL LITIGATION
In 1992, T. Copeland & Sons, Inc. (" Copeland "), the owner of a property
adjacent to Maska's former manufacturing and distribution facility in
Bradford, Vermont, filed an action in Vermont Superior Court alleging that
its property had been contaminated as a result of the Company's
manufacturing activities and seeking compensatory and punitive damages
under the Vermont Groundwater Protection Law and various common law
theories. In June 1995, Maska settled this action for $1,000 cash, paid in
July 1995, and a $6,000 promissory note. Subsequently, Copeland received a
distribution of shares of THC's Common Stock to satisfy the note. Copeland
asserted the right to recover from the Company as a secured claim, the
difference between the aggregate value of the Common Stock and the amount
of the promissory note. In October 1998, Copeland's claim in the Bankruptcy
Court to recover this difference was disallowed without an evidentiary
hearing. Copeland filed an appeal of this decision. On May 1, 2000, the
District Court overruled the Bankruptcy Court's decision and remanded the
claim to the Bankruptcy Court for an evidentiary hearing. In February 2001,
the Company reached an agreement with Copeland and settled this claim for
$1,000 in cash.
- 9 -
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
B. PRODUCT LIABILITY LITIGATION
The Company is unaware of any personal injury claims for which there is
inadequate insurance coverage.
C. OTHER LITIGATION
On October 16, 1997, ZMD Sports Investments Inc. and 2938201 Canada Inc.,
landlords of the Company's properties located in St. Jean, Quebec and St.
Hyacinthe, Quebec, brought motions against the Company which would require
the Company to undertake certain repairs to the properties for an estimated
$630. The Company believes these motions to be without merit.
Other than certain legal proceedings arising from the ordinary course of
business, which we believe will not have a material adverse effect, either
individually or collectively, on the financial position, results of
operations or cash flows, there is no other litigation pending or
threatened against us.
9. SEGMENT INFORMATION
REPORTABLE SEGMENTS
The Company has two reportable segments: Equipment and Apparel. The Equipment
segment derives its revenue from the sale of skates, including ice hockey,
roller hockey and figure skates, as well as protective hockey equipment and
sticks for both players and goaltenders. The Apparel segment derives its revenue
from the sale of hockey apparel, such as authentic and replica hockey jerseys,
as well as a high quality line of baseball style caps, jackets and other casual
apparel using its own designs and graphics.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
Segment assets only include inventory.
INFORMATION ABOUT SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
2001 Equipment Apparel Segment Total
----------------------------- ------------------------------ ------------------------------
For the Three For the Six For the Three For the Six For the Three For the Six
Months ended Months ended Months ended Months ended Months ended Months ended
June 30 June 30 June 30 June 30 June 30 June 30
------------- ------------ ------------- ------------ ------------- ------------
Net sales to external customers $34,372 $55,691 $ 7,880 $21,396 $42,252 $77,087
Gross profit 14,348 22,243 3,325 8,491 17,673 30,734
Depreciation of property, plant
and equipment 608 1,351 96 251 704 1,602
Inventories 33,984 33,984 17,820 17,820 51,804 51,804
- 10 -
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
2000 Equipment Apparel Segment Total
----------------------------- ------------------------------ ------------------------------
For the Three For the Six For the Three For the Six For the Three For the Six
Months ended Months ended Months ended Months ended Months ended Months ended
June 30 June 30 June 30 June 30 June 30 June 30
------------- ------------ ------------- ------------ ------------- ------------
Net sales to external customers $37,351 $62,004 $7,263 $17,016 $44,614 $79,020
Gross profit 16,477 26,294 2,491 6,421 18,968 32,715
Depreciation of property, plant
and equipment 688 1,397 136 275 824 1,672
Inventories 43,520 43,520 17,492 17,492 61,012 61,012
RECONCILIATION OF SEGMENT PROFIT OR LOSS
For the Three For the Six For the Three For the Six
Months ended Months ended Months ended Months ended
June 30, 2001 June 30, 2001 June 30, 2000 June 30, 2000
------------- ------------- ------------- -------------
Segment Gross Profit $17,673 $ 30,734 $18,968 $32,715
Unallocated amounts:
Selling general and administrative expenses 13,927 28,848 15,352 30,953
Restructuring charges - 2,005 - -
Amortization of excess reorganizational value
and goodwill 1,100 2,205 1,124 2,262
Other (income) expense, net 528 1,104 (62) 362
Interest expense 3,722 6,713 3,184 6,148
------- -------- ------- ------
Loss before income taxes and extraordinary item (1,604) (10,141) (630) (7,010)
------- -------- ------- ------
- 11 -
THE HOCKEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2.
INTRODUCTION
The Hockey Company ("THC" or the "Company") was incorporated in September
1991 and reorganized in April 1997.
On January 31, 1999, the Board of Directors and stockholders of The Hockey
Company adopted an amendment to THC's Certificate of Incorporation to change the
name of THC from SLM International, Inc. to The Hockey Company. The amendment
was filed with the Secretary of State of the State of Delaware on February 9,
1999.
The operations of The Hockey Company and its subsidiaries include the
design, development, manufacturing and marketing of hockey and hockey related
products, including hockey uniforms, hockey sticks, protective equipment,
hockey, figure and inline skates and street hockey products, marketed under the
CCM(R), Jofa (R), Koho (R), Heaton (R), Titan(R) and Canadien TM brand names,
and private label brands and licensed hockey apparel under the CCM(R), and #1
Apparel TM names. The Company sells its products worldwide to a diverse customer
base consisting of mass merchandisers, sporting goods chains, independent
retailers and international distributors. The Company manufactures and
distributes most of its products at facilities in North America, Finland and
Sweden and sources products internationally.
The Company's business is seasonal. The seasonality of the Company's
business affects net sales and borrowings under the Company's credit agreements.
Traditional quarterly fluctuations in the Company's business may vary in the
future depending upon, among other things, changes in order cycles and product
mix.
SELECTED FINANCIAL DATA
The following discussion provides an assessment of the Company's results of
continuing operations, financial condition and liquidity and capital resources,
and should be read in conjunction with the Unaudited Consolidated Financial
Statements of the Company and Notes thereto included elsewhere herein. (All
references to "Note(s)" refer to the Notes to Unaudited Consolidated Financial
Statements.)
EBITDA is a measure of the cash generated from operations and has been
included in the selected income statement highlights because management believes
that it would be a useful indicator for readers. EBITDA is defined as the
earnings (net income) before interest, income and capital taxes, depreciation
and amortization, and unusual items. EBITDA is not a measure of performance or
financial condition under generally accepted accounting principles, but is
presented because it is a widely accepted indicator of a company's ability to
source and incur debt. EBITDA should not be considered as an alternative to net
income as an indicator of the company's operating performance or as an
alternative to cash flows as a measure of liquidity.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001
2001 COMPARED TO 2000
Apparel net sales increased 25.7% to $21.4 million in the six months ended
June 30, 2001, as compared to $17.0 million in the six months ended June 30,
2000. For the three months ended June 30, 2001, apparel net sales were $7.9
million, representing an 8.5% increase compared to net sales in the three months
ended June 30, 2000 of $7.3 million. The increase was attributable primarily to
stronger demand resulting from the Company's exclusive status under its license
agreement with NHL Enterprises, LP, the marketing affiliate of the NHL.
Equipment net sales decreased 10.2% to $55.7 million in the six months
ended June 30, 2001, as compared to $62.0 million in the six months ended June
30, 2000. For the three months ended June 30, 2001, equipment net sales were
$34.4 million, representing an 8.0% decrease compared to net sales in the three
months ended June 30, 2000 of $37.4 million. The decrease was attributable
primarily to much weaker sales of ice skates, protective equipment and sticks.
- 12 -
THE HOCKEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Gross profit on apparel sales before restructuring charges for the six
months ended June 30, 2001 was $9.4 million compared to $6.4 million in 2000, an
increase of 46.3%. Gross profit on apparel sales for the three months ended June
30, 2001 was $3.3 million compared to $2.5 million in 2000, an increase of
33.5%. Measured as a percentage of apparel net sales, gross profit margins
before restructuring charges increased to 43.9% in the first half of 2001 from
37.7% in the same period in 2000.
Gross profit on equipment sales for the six months ended June 30, 2001 was
$22.2 million compared to $26.3 million in 2000, a decrease of 15.4%. Gross
profit on equipment sales for the three months ended June 30, 2001 was $14.3
million compared to $16.5 million in 2000, a decrease of 12.9%. Measured as a
percentage of equipment net sales, gross profit margins decreased to 39.9% in
the first half of 2001 from 42.4% in the same period in 2000.
For the six months ended June 30, 2001, selling, general and administrative
expenses before restructuring charges decreased 6.8% to $28.8 million compared
to $31.0 million in the first half of 2000. In the three months ended June 30,
2001, these expenses decreased 9.3% to $13.9 million from $15.4 million in 2000.
Measured as a percentage of net sales, in the first six months of the year the
ratio also decreased to 37.4% in 2001 from 39.2% in 2000. The decrease in the
selling, general and administrative expenses is a result of first quarter
restructuring activities (see Restructuring reserves), offset by increased NHL
commitments.
The amortization of excess reorganization value and goodwill decreased
slightly from $2.3 million in the first half of 2000 to $2.2 million in the
first half of 2001. The operating income before restructuring charges for the
six months period ended June 30, 2001 was $0.6 million, compared to an operating
loss of $0.5 million for the six months period ending June 30, 2000.
Other expense consists primarily of amortization of deferred financing
costs.
Earnings before interest, taxes, depreciation and amortization (EBITDA),
which is a measure of cash generated from operations, was $5.8 million for the
six months ($5.4 million for the three months) ended June 30, 2001 compared to
$4.9 million for the six months ($5.3 million for the three months) ended June
30, 2000.
Interest expense of $6.7 million for the six months ended June 30, 2001
increased by $0.6 million from the same period for the prior year ($6.1
million). The increase is mainly attributable to extension fees on short-term
borrowings, the Company incurred in the first quarter of the year. For the three
months ended June 30, 2001 interest expense increased to $3.7 million compared
to $3.2 million for the same period of the prior year.
As a result of a business restructuring at the beginning of the year, the
Company incurred costs related to severance and facility closures (restructuring
charges). - see Restructuring reserves.
The Company's net loss for the six months ended June 30, 2001 was $11.5
million compared to $6.5 million for the six months ended June 30, 2000. For the
three months ended June 30, 2001, the Company had a net loss of $1.7 million
compared to $1.3 for the three months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Management expects to finance the Company's working capital and capital
expenditures requirements through cash generated by its operations and through
its new credit facilities established on November 19, 1998 and amended and
restated on March 14, 2001.
Effective November 19, 1998, two of the Company's subsidiaries, Maska U.S,
Inc. and SHC Hockey Inc. entered into a credit agreement (the "U.S. Credit
Agreement") with the lenders referred to therein and with General Electric
Capital Corporation, as Agent and Lender. Simultaneously, two of the Company's
Canadian subsidiaries, Sport Maska Inc. and Tropsport Acquisitions Inc., entered
into a credit agreement (the " Canadian Credit Agreement") with the lenders
referred to therein and General Electric Capital Canada Inc. as Agent and
Lender. The maximum amount of loans and letters of credit that may be
outstanding under the two credit agreements (collectively, the "Credit
Agreements") is $60.0 million.
- 13 -
THE HOCKEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Credit Agreements were for a period of two years with a possible
extension of one year by the Company, and were amended and restated on March 14,
2001. Total borrowings outstanding under the Credit Agreements were $36.5
million on June 30, 2001 (excluding $6.4 million of letters of credit
outstanding). Total borrowings as at December 31, 2000 under the Credit
Agreements were $12.3 million (excluding $0.9 million of letters of credit
outstanding).
In addition, on March 14, 2001, an Amended and Restated Credit Agreement
was entered into by the Company and Sport Maska, as borrowers, Caisse de depot
et placement du Quebec ("Caisse"), as Agent and Lender, and Montreal Trust
Company, as Paying Agent (the "Amended and Restated Credit Agreement "). On the
terms and subject to the conditions of the Amended and Restated Credit
Agreement, Facility 1 of the Caisse Loan, which is a facility in the maximum
amount of Canadian $90 million, was extended to June 30, 2004, and Facility 2 of
the Caisse Loan, which is a facility in the maximum amount of Canadian $45.8
million, was extended to October 31, 2002. A repayment of Facility 1 in the
minimum amount of Canadian $5 million is due on January 31, 2004. Facility 1 and
Facility 2 have been fully utilized and no new advances are expected to be made
under the Amended and Restated Credit Agreement.
The Company's financing requirements for long-term growth, future capital
expenditures and debt service are expected to be met through its operations as
well as cash borrowed under its Credit Agreements. During the six months ended
June 30, 2001, the Company's operations used $30.1 million of cash from its
operations as compared to $29.3 million of cash used in the same six months of
2000.
Cash used in investing activities during the six months ended June 30, 2001
and the six months ended June 30, 2000 included $0.7 million and $1.5 million,
respectively, of purchases of fixed assets.
During the six months period ended June 30, 2001, financing activities
provided $30.0 million from borrowings under the Company's New Credit Agreements
and provided $28.0 million for the same period last year.
The Company follows the customary practice in the sporting goods industry
of offering extended payment terms to credit-worthy customers on qualified
orders. The Company's working capital requirements generally peak in the third
and fourth quarters as it builds inventory and makes shipments under these
extended payment terms.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the Euro. The participating countries agreed to adopt the Euro as their
common legal currency on that date. Fixed conversion rates between these
participating countries' existing currencies (the legacy currencies) and the
Euro were established as of that date. The legacy currencies are scheduled to
remain legal tender as denominations of the Euro until at least January 1, 2002
(but not later than July 1, 2002.) During this transition period, parties may
settle transactions using either the Euro or a participating country's legacy
currency.
Management currently believes that the introduction of the Euro will not have a
material impact related to pricing or foreign currency exposures. Finland is one
of the countries adopting the Euro, however Sweden has not yet chosen to adopt
the new currency. The Finnish subsidiaries' base currency is now the Euro,
Sweden has yet to decide on adopting the new currency. The Company foresees no
adverse impact resulting from the Euro conversion, including competitive
implications related to pricing and foreign currency considerations. However,
uncertainty exists as to the effects the Euro will have on the marketplace.
- 14 -
THE HOCKEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESTRUCTURING RESERVES
Effective January 24, 2001, the Company embarked on a plan to rationalize its
operations. This rationalization involved the elimination of certain
redundancies, both in terms of personnel and operations as well as the
consolidation of facilities including the closure of its Mount Forest, Ontario
plant. Accordingly, the Company has set up a reserve of 2.9 million.
The Company has estimated that the restructuring charges would total $2.9
million as follows:
An amount of $2.4 million has been accrued for severance packages in Canada and
the U.S., including the closure of the Mount Forest, Ontario plant. To date $1.6
million has been spent.
An amount of $0.5 million has been accrued to cover the cost of facility
consolidations. To date $0.4 million has been spent.
- 15 -
THE HOCKEY COMPANY
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 7 of the Notes to Unaudited Consolidated Financial
Statements included in Part I of this report.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
Reports dated May 9 and May 24, 2001 were filed on Form
8-K during the three months ended June 30, 2001.
- 16 -
THE HOCKEY COMPANY
SIGNATURES
Pursuant to 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.
THE HOCKEY COMPANY
(Registrant)
By: /s/ Robert A. Desrosiers
----------------------------------------------------
Name: Robert A. Desrosiers
Title: Vice President, Finance and Administration
(Principal Financial and Accounting Officer)
Date: July 20, 2001