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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 MARCH 31, 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
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(Exact name of registrant as specified in its charter)
DELAWARE 13-36-32297
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(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
----- -----
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
----- -----
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 MAY 11, 2001
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Common Stock, 6,500,549
$.01 par value
THE HOCKEY COMPANY
FORM 10-Q
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited and Audited Consolidated Balance Sheets
at March 31, 2001 and December 31, 2000 1
Unaudited Consolidated Statements of Operations for the
Three Months ended March 31, 2001 and for the
Three Months ended March 31, 2000 2
Unaudited Consolidated Statements of Comprehensive Loss
for the Three Months ended March 31, 2001 and
for the Three Months ended March 31, 2000 3
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and for the
Three Months ended March 31, 2000 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
THE HOCKEY COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
Unaudited Audited
--------- -------
Mar. 31, 2001 Dec. 31, 2000
------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 518 $ 2,423
Accounts receivable, net 29,261 39,376
Inventories (Note 2) 45,809 42,110
Prepaid expenses and other receivables 6,405 3,931
Income taxes receivable 1,857 4,043
-------- --------
Total current assets
83,850 91,883
Property, plant and equipment, net of accumulated depreciation and
amortization ($12,562 and $12,310, respectively) 19,562 21,142
Intangible and other assets, net of accumulated amortization (Note 3) 83,353 82,554
-------- --------
Total assets $186,765 $195,579
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings (Note 4) $ 22,259 $ 12,282
Accounts payable and accrued liabilities 18,083 23,673
Income taxes payable 2,384 3,322
Current portion of long term debt 241 264
Other current liabilities 698 698
-------- --------
Total current liabilities 43,665 40,239
Long-term debt (Note 4) 86,699 91,252
Deferred income taxes 469 495
-------- --------
Total liabilities 130,833 131,986
-------- --------
Contingencies (Note 7)
13% Pay-In-Kind preferred stock (Note 5) 11,392 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 March 31, 2001 and at
December 31, 2000 65 65
Re-organization warrants, 300,000 issued and 299,451 outstanding at March
31, 2001 and at December 31, 2000 - -
Common stock purchase warrants, 699,101 issued and outstanding at
March 31, 2001 and 159,127 outstanding at December 31, 2000 5,115 1,665
Additional paid-in capital 66,515 66,515
Retained earnings (19,637) (9,290)
Foreign currency translation adjustments (7,518) (6,695)
-------- --------
Total stockholders' equity 44,540 52,260
-------- --------
Total liabilities and stockholders' equity $ 186,765 $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 Three
Months ended Months ended
Mar. 31, 2001 Mar. 31, 2000
------------- -------------
Net sales $ 34,835 $34,406
Cost of goods sold 20,873 20,659
-------- -------
Gross profit $ 13,962 $13,747
Selling, general and administrative expenses 14,921 15,601
Amortization of excess reorganization value and goodwill 1,105 1,138
-------- -------
Operating loss $ (2,064) $(2,992)
Other expense, net 576 424
Interest expense 2,991 2,964
-------- -------
Loss before following items $ (5,631) $(6,380)
Restructuring charges 2,906 -
-------- -------
Loss before income taxes and extraordinary item $ (8,537) $(6,380)
Income taxes (benefit) 134 (1,185)
-------- -------
Loss before extraordinary item $ (8,671) $(5,195)
-------- -------
Extraordinary item
Loss on early extinguishment of debt (See Note 3) 1,091 -
-------- -------
Net loss $ (9,762) $(5,195)
======== =======
Preferred stock dividends 526 492
Accretion of 13% Pay-In-Kind preferred stock 59 63
-------- -------
Net loss attributable to common shareholders $(10,347) $(5,750)
======== =======
Basic loss before extraordinary item per share (See Note 6) $ (1.29) $ (0.86)
Diluted loss before extraordinary item per share (See Note 6) $ (1.29) $ (0.86)
Basic loss per share (See Note 6) $ (1.44) $ (0.86)
Diluted loss per share (See Note 6) $ (1.44) $ (0.86)
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 Three
Months ended Months ended
Mar. 31, 2001 Mar. 31, 2000
------------- -------------
Net loss $ (9,762) $(5,195)
Foreign currency translation adjustments (823) (513)
-------- -------
Net comprehensive loss $(10,585) $(5,708)
======== =======
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 Three For the Three
Months ended Months ended
Mar. 31, 2001 Mar. 31, 2000
------------- -------------
OPERATING ACTIVITIES:
Net loss before extraordinary item $(8,671) $(5,195)
Adjustments to reconcile net loss to net cash used
in operating activities:
Restructuring charges 2,906 -
Depreciation and amortization 3,290 2,778
Provisions for inventory, doubtful accounts
and other deductions 1,227 1,134
Deferred Income Taxes 121 (1,074)
Gain on disposal of fixed assets (6) -
Gain on foreign exchange (488) (103)
Change in operating assets and liabilities:
Accounts receivable 8,034 9,686
Inventories (5,866) (6,490)
Prepaid expenses and other assets (502) (900)
Accounts payable and accrued liabilities (9,058) (6,712)
Income taxes payable (935) (553)
------- -------
Net cash used in operating activities $(9,948) $(7,429)
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INVESTING ACTIVITIES:
Deferred expense 268 -
Purchases of fixed assets (543) (485)
Proceeds from sales of fixed assets 8 19
------- -------
Net cash used in investing activities $ (267) $ (466)
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FINANCING ACTIVITIES:
Net change in short-term borrowings 10,468 4,330
Deferred financing costs (5,937) -
Principal payments on debt (63) -
Issuance of warrants 3,450 -
------- -------
Net cash provided by financing activities $ 7,918 $ 4,330
------- -------
Effects of foreign exchange rate changes on cash 392 (62)
------- -------
Decrease in cash $(1,905) $(3,627)
Cash and cash equivalents at beginning of period 2,423 3,517
------- -------
Cash and cash equivalents at end of period $ 518 $ (110)
======= =======
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 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:
March 31, 2001 December 31, 2000
-------------- -----------------
Finished products $33,508 $29,745
Work in process 3,206 2,727
Raw materials and supplies 9,095 9,638
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$45,809 $42,110
======= =======
3. INTANGIBLE AND OTHER ASSETS
Net intangible and other assets consist of:
March 31, 2001 December 31, 2000
-------------- -----------------
Goodwill $44,632 $46,643
Excess Reorganization intangible 29,382 30,052
Deferred Financing Costs 5,881 2,084
Other 3,458 3,775
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$83,353 $82,554
======= =======
Amortization expense for intangible assets was $2,090 for the three months
ended March 31, 2001 and $6,569 for the twelve months ended December 31,
2000. A write-off of $1,091 of deferred financing costs was booked as an
extraordinary item as a result of the Company's substantive modifications of
the terms of its credit agreements. (See Note 4b).
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. GECC 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 GECC
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 GECC Credit Agreements
were amended to reflect the Amended and Restated Credit Agreement. 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 March 31, 2001 and December
31, 2000 were $18,258 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-
Borrowings under the U.S. Credit Agreements 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 50,000 ($6,000). 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 March 31, 2001 and December 31, 2000 were
SEK 7,338 ($707) 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 ($5,300). 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
March 31, 2001 and December 31, 2000 were nil, respectively.
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 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 $90,000, 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 4 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-
5. COMMON STOCK, WARRANTS AND PREFERRED STOCK
The Company has authorized 20,000,0000 shares of common stock of which of
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 are subject to certain adjustments as
provided in the Warrant Agreement and, pursuant to the Warrant Agreement, if
by May 14, 2001, a fully financed firm offer is received by the Company
which would be sufficient to repay Facility 2 and if Facility 2 is so repaid
in full as a result of such offer no later than June 13, 2001, warrants
issued which represent the right to 179,991 common shares shall be
cancelled. 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 December 31, 2001 unpaid dividends
totalled $3,676.
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.
-8-
6. EARNINGS PER SHARE
LOSS PER SHARE FOR THE THREE MONTH PERIODS ARE AS FOLLOWS:
For the Three Months ended For the Three Months ended
March 31, 2001 March 31, 2000
-------------------------- --------------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net loss before extraordinary item
attributable to common stockholders $ ( 9,256) $ ( 9,256) $ (5,750) $ (5,750)
Net loss attributable to common stockholders $ (10,347) $ (10,347) $ (5,750) $ (5,750)
---------- --------- --------- ----------
Weighted average common and common equivalent
shares outstanding:
Common stock 6,500,549 6,500,549 6,500,549 6,500,549
---------- --------- --------- ----------
Common equivalent shares (a) 698,289 698,289 158,977 193,741
---------- --------- --------- ----------
Total weighted average common and common
equivalent shares outstanding 7,198,838 7,198,838 6,659,526 6,694,290
---------- --------- --------- ----------
Net loss before extraordinary item
per common share (b) $ (1.29) $ (1.29) $ (0.86) $ (0.86)
Net loss per common share (b) $ (1.44) $ (1.44) $ (0.86) $ (0.86)
---------- --------- --------- ----------
(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.
7. CONTINGENCIES AND LITIGATION
A. ENVIRONMENTAL LITIGATION
In 1992, T. Copeland & Sons, Inc. (" Copeland "), the owner of a property
adjacent to Maska's former manufacturing facility in Bradford, Vermont (now
used as a US apparel distribution centre), 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, subject
to Bankruptcy Court approval, to settle this claim for $1 million in cash.
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
-9-
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.
8. 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
Equipment Apparel Segment Total
---------------------------- ----------------------------- ----------------------------
For the Three For the Three For the Three For the Three For the Three For the Three
Months ended Months ended Months ended Months ended Months ended Months ended
Mar. 31, 2001 Mar. 31, 2000 Mar. 31, 2001 Mar. 31, 2000 Mar. 31, 2000 Mar. 31, 2001
------------- -------------- ------------- ------------- ------------- -------------
Net sales to external customers $21,319 $24,653 $13,516 $ 9,753 $34,835 $34,406
Gross profit 7,895 9,817 6,067 3,930 13,962 13,747
Depreciation of property, plant
and equipment 743 709 155 139 898 848
Inventories 32,185 40,459 13,624 14,480 45,809 54,939
RECONCILIATION OF SEGMENT PROFIT OR LOSS
For the Three For the Three
Months ended Months ended
Mar. 31, 2001 Mar. 31, 2000
------------- -------------
Segment Gross Profit $13,962 $13,747
Unallocated amounts:
14,921 15,601
Selling general and administrative expenses
1,105 1,138
Amortization of excess reorganizational
value and goodwill 576 424
Other expense, net
Interest expense 2,991 2,964
------- -------
Loss before income taxes $(5,631) $(6,380)
------- -------
-10-
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 THREE MONTHS ENDED MARCH 31, 2001
2001 COMPARED TO 2000
Net sales increased 1.1% to $34.8 million in the three months ended March 31,
2001, as compared to $34.4 million in the three months ended March 31, 2000. The
increase was attributable to higher sales of apparel, as well as strong sales of
non-hockey products in Scandinavia, offset by slightly lower equipment sales.
Gross profit for the three months ended March 31, 2001 was $14.0 million
compared to $13.7 million in 2000, an increase of 1.6%, attributable to the
strong apparel sales in the period. Measured as a percentage of net sales, gross
profit margins remained steady at 40.0% versus the same period in 2000.
-11-
THE HOCKEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In the three months ended March 31, 2001, selling, general and administrative
expenses decreased as a percentage of sales to 42.8% from 45.3% in 2000. In
absolute dollar terms there was a 4.4% decrease to $14.9 million in the first
quarter of 2001 from $15.6 million in the same period of 2000. The decrease in
the selling, general and administrative expenses is a result of first quarter
restructuring activities, offset by increased NHL commitments.
The amortization of excess reorganization value and goodwill remained virtually
constant at $1.1 million. The operating loss for the three month period ended
March 31, 2001 was $2.1 million, compared to a $3.0 million loss for the three
month period ending March 31, 2000.
Other expense of $0.5 million 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 $0.4 million for the three
months ended March 31, 2001 compared to $(0.5 million) for the three months
ended March 31, 2000.
Interest expense of $3.0 million for the three months ended March 31, 2001 was
consistent with the same three months of 2000.
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). Accordingly, the
Company's net loss for the three months ended March 31, 2001 was $9.8 million
compared to a net loss of $5.2 million for the three months ended March 31,
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.
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 $18.3 million on
March 31, 2000 (excluding $5.9 million of letters of credit outstanding). Total
borrowing as at December 31, 2000 under the New 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 three months ended
March 31,
-12-
THE HOCKEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
2001, the Company's operations used $9.9 million of cash from its operations as
compared to $7.4 million of cash used in the same three months of 2000.
Cash used in investing activities during the three months ended March 31, 2001
and the three months ended March 31, 2000 were $0.3 million and $0.5 million,
respectively.
During the three month period ended March 31, 2001, financing activities
provided $7.9 million and $4.3 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 make 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.
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 capitalized as part of
the restructuring 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 $0.7
million has been spent.
An amount of $0.5 million has been accrued to cover the cost of facility
consolidations. To date no amount has yet been spent.
-13-
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:
On March 26, 2001 the Company filed a Current Report on Form
8-K with respect to the renewal of the credit loans to the
Company and Sport Maska furnished by the Caisse de depot et
placement du Quebec and General Electric Capital Corporation.
This report was filed in compliance with Item 5 of Form 8-K.
-14-
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/ MATTHEW H. O'TOOLE
----------------------------------------
Name: Matthew H. O'Toole
Title: President
(Principal Executive Officer)
Date: May 14, 2001