SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
COMMISSION FILE NO. 1-12888
SPORT-HALEY, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1111669
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 E. 48TH AVENUE, DENVER, COLORADO 80216
(Address of principal executive offices)
(303) 320-8800
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
--- ---
State the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 5, 2002
COMMON STOCK, NO PAR VALUE 2,755,985
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
TABLE OF CONTENTS
PAGE
PART 1 - CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
SPORT-HALEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES OF STOCK)
DECEMBER 31, JUNE 30,
2001 2001
------------------------ -----------
(UNAUDITED) (***)
ASSETS
Current assets:
Cash and cash equivalents $ 5,546 $ 4,413
Marketable securities 4,907 3,898
Accounts receivable, net of allowances of
$151 and $174, respectively 3,105 5,208
Inventories 7,905 9,164
Other current assets 487 445
Taxes receivable 246 388
Deferred taxes 143 162
------------- -------------
Total current assets 22,339 23,678
Property and equipment, net 1,182 1,519
Deferred taxes 204 160
Other assets 23 26
------------- -------------
Total Assets $ 23,748 $ 25,383
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 368 $ 454
Accrued commissions and other expenses 519 643
------------- -------------
Total current liabilities 887 1,097
------------- -------------
Commitments and Contingencies (Note 4)
Shareholders' equity:
Preferred stock, no par value; 1,500,000 shares
authorized; none issued and outstanding - -
Common stock, no par value; 15,000,000 shares
authorized; 2,828,985 and 3,272,985 shares
issued and outstanding, respectively 11,320 12,521
Additional paid-in capital 1,248 1,248
Retained earnings 10,293 10,517
------------- -------------
Total shareholders' equity 22,861 24,286
------------- -------------
Total Liabilities and Shareholders' Equity $ 23,748 $ 25,383
============= =============
*** Taken from the audited balance sheet at that date.
See accompanying notes to consolidated financial statements.
3
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
--------------- --------------- --------------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 3,569 $ 4,963 $ 7,544 $ 10,826
Cost of goods sold 2,158 3,234 4,888 7,279
------------- ------------- ------------- ------------
Gross profit 1,411 1,729 2,656 3,547
Selling, general and
administrative expense 1,655 1,922 3,172 3,866
------------- ------------- ------------- ------------
Loss from operations (244) (193) (516) (319)
Other income, net 116 159 218 372
------------- ------------- ------------- ------------
Income (loss) before provision
for income taxes (128) (34) (298) 53
(Provision) benefit for income taxes 47 11 74 (23)
------------- ------------- ------------- ------------
Net income (loss) $ (81) $ (23) $ (224) $ 30
============= ============ ============= ============
Basic and diluted earnings
(loss) per common share $ (0.03) $ (0.01) $ (0.07) $ 0.01
============= ============ ============= ============
See accompanying notes to consolidated financial statements.
4
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
------------------------------------
2001 2000
---------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (224) $ 30
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 274 386
Deferred taxes and other (38) 25
Allowance for doubtful accounts 72 97
Stock option compensation - 10
Cash provided (used) due to changes in assets and liabilities:
Accounts receivable 2,031 468
Inventory 1,259 (1,865)
Other assets 58 (327)
Accounts payable (86) (108)
Accrued commissions and other expenses (124) -
------------- -------------
NET CASH PROVIDED BY (USED IN) BY OPERATING ACTIVITIES 3,222 (1,284)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of held-to-maturity investments 1,000 2,000
Purchases of held-to-maturity investments (1,950) -
Sales of fixed assets 89 -
Purchase of fixed assets (27) (67)
------------- -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (888) 1,933
------------- -------------
See accompanying notes to consolidated financial statements.
5
SPORT-HALEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
------------------------------------
2001 2000
----------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock $ - $ -
Repurchase of common stock (1,201) -
------------- -------------
NET CASH USED BY FINANCING ACTIVITIES (1,201) -
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,133 649
CASH AND CASH EQUIVALENTS, BEGINNING 4,413 6,676
------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 5,546 $ 7,325
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 145 $ 248
============= =============
Interest $ 29 $ -
============= =============
Cash received during the period for:
Income taxes $ 323 $ -
============= =============
See accompanying notes to consolidated financial statements.
6
SPORT-HALEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by Sport-Haley, Inc. (the "Company") without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted as allowed by such
rules and regulations. The Company believes that the disclosures
are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with
the Company's annual audited consolidated financial statements
dated June 30, 2001, included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission.
The results for interim periods are not necessarily indicative
of results that may be expected for any other interim period or
for the full year.
The management of the Company believes that the accompanying
unaudited condensed consolidated financial statements prepared
in conformity with generally accepted accounting principles,
which require the use of management estimates, contain all
adjustments (including normal recurring adjustments) necessary
to present fairly the operations and cash flows for the periods
presented.
The consolidated financial statements include the accounts of
Sport-Haley, Inc., and its subsidiary, B&L Sportswear, Inc.
(collectively referred to as the Company). All significant
inter-company accounts and transactions have been eliminated.
In August 2001, the Company closed the manufacturing plant
operated by the Subsidiary. Since that time, the Subsidiary
ceased all business operations and has no employees.
NOTE 2 REPURCHASE OF COMMON STOCK
In October 2001, the Company's Board of Directors authorized an
increase of 300,000 shares available in the Company's stock
repurchase program. In December 2001, the Company's Board of
Directors authorized an additional increase of 400,000 shares.
The Board of Directors previously had authorized the repurchase
of up to 1,820,000 shares of the Company's issued and
outstanding common stock. The shares may be repurchased from
time to time in open market transactions at prevailing market
prices or in privately negotiated transactions. The Company has
no commitment or obligation to repurchase all or any portion of
the shares authorized for repurchase. All shares repurchased by
the Company are canceled and returned to the status of
authorized but unissued common stock.
Through December 31, 2001, the Company had repurchased a total
of 2,128,400 shares of its common stock at a cumulative cost of
approximately $12.0 million.
From January 1, 2002 through February 5, 2002, the Company
repurchased an additional 73,000 shares of its common stock at a
cost of approximately $286,000.
7
NOTE 3 COMMON STOCK OPTIONS
As of December 31, 2001, the remaining number of shares of
common stock available for award grants (including incentive
stock options) under the Company's common stock option plan was
537,665.
At December 31, 2001, there were outstanding options to purchase
780,881 shares of the Company's common stock at prices ranging
from $2.50 to $10.63, with expiration dates between March 15,
2002, and July 2, 2011.
NOTE 4 COMMITMENTS AND CONTINGENCIES
At December 31, 2001, the Company had approximately $1.5 million
in outstanding letters of credit that were issued to foreign
suppliers in accordance with finished goods inventory purchase
commitments.
NOTE 5 EARNINGS PER SHARE
The Company previously adopted the provisions of Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE,
(SFAS No. 128) effective with the year ended June 30, 1998.
SFAS No. 128 requires the presentation of basic and diluted
earnings (loss) per common share. The following table provides
a reconciliation of the numerator and denominator of basic and
diluted earnings (loss) per common share:
THREE MONTHS ENDED DECEMBER 31, 2001
Weighted
Loss Average Shares Per Share
----- -------------- ---------
LOSS PER COMMON SHARE
Basic loss per share $ (81,000) 2,973,357 $ (0.03)
Effect of dilutive securities
options - - -
------------ ----------- ----------
Diluted loss per share $ (81,000) 2,973,357 $ (0.03)
============ ========= ==========
8
SIX MONTHS ENDED DECEMBER 31, 2001
-----------------------------------
Net Weighted
Income Average Shares Per Share
------ -------------- ----------
LOSS PER COMMON SHARE
Basic loss per share $ (224,000) 3,123,171 $ (0.07)
Effect of dilutive securities
options - - -
------------ ----------- ----------
Diluted loss per share $ (224,000) 3,123,171 $ (0.07)
============ =========== ==========
THREE MONTHS ENDED DECEMBER 31, 2000
------------------------------------
Net Weighted
Income Average Shares Per Share
------ -------------- ----------
LOSS PER COMMON SHARE
Basic loss per share $ (23,000) 3,460,385 $ (0.01)
Effect of dilutive securities
options and warrants - - -
------------ ----------- ----------
Diluted loss per share $ (23,000) 3,460,385 $ (0.01)
============ ========= ==========
SIX MONTHS ENDED DECEMBER 31, 2000
----------------------------------
Net Weighted
Income Average Shares Per Share
------ -------------- ----------
EARNINGS PER COMMON SHARE
Basic earnings per share $ 30,000 3,460,385 $ 0.01
Effect of dilutive securities
options and warrants - 44,112 -
------------ ----------- ----------
Diluted earnings per share $ 30,000 3,504,497 $ 0.01
============ =========== ==========
9
SPORT-HALEY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Report on Form 10-Q contains certain forward-looking statements. When used
in this report, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend," "believe" and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
regarding events, conditions and financial trends including, without limitation,
business conditions and growth in the fashion golf apparel market and the
general economy, competitive factors, and price pressures in the high-end
golf-apparel market; inventory risks due to shifts in market and/or price
erosion of purchased apparel, raw fabric and trim; cost controls; changes in
product mix; and other risks or uncertainties detailed in other Securities and
Exchange Commission filings made by Sport-Haley. Such statements are based on
management's current expectations and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual plan of operations,
business strategy, operating results and financial position of Sport-Haley could
differ materially from those expressed in, or implied by, such forward-looking
statements.
FINANCIAL CONDITION
The Company intends to rely on cash generated from operations and available cash
on hand to finance its working capital requirements for at least the next 12
months. To the extent such amounts are insufficient to finance the Company's
working capital requirements, the Company may also make periodic borrowings
under its revolving line of credit. Working capital at December 31, 2001 was
approximately $21.4 million and was approximately $22.6 million at June 30,
2001.
Cash and cash equivalents plus marketable securities increased since June 30,
2001 by approximately $2.1 million, to $10.4 million from $8.3 million. During
the same six-month period, the Company expended approximately $1.2 million for
the repurchase of 444,000 shares of its issued and outstanding common stock, in
accordance with the Company's repurchase program.
Accounts receivable decreased by approximately $2.1 million, to a net of $3.1
million from $5.2 million. The decrease in accounts receivable is consistent
with the corresponding decrease in net sales during the same six-month period.
Due to the decrease in accounts receivable, the decrease in inventories
discussed below and other factors, during the six months ended December 31,
2001, operating activities provided cash of approximately $3.2 million.
Since June 30, 2001, inventories decreased by approximately $1.3 million to $7.9
million from $9.2 million. The decrease in inventories is consistent with
management's efforts to reduce closeout inventories and to improve scheduling
for foreign production of current season's inventories. The Company's reliance
on foreign suppliers sustains the risk that the Company's revenues could be
adversely affected if a foreign shipment or shipments were received late or
lost. The Company maintains insurance for risk of loss relating to goods shipped
from its foreign and domestic suppliers. However, the Company's significant
reliance on foreign suppliers sustains the risk that the Company may be left
with inadequate or unsatisfactory recourse should the goods received from the
foreign suppliers be nonconforming.
10
Taxes receivable decreased by approximately $142,000 since June 30, 2001 to
$246,000 from $388,000. The decrease includes approximately $323,000 in federal
and state income tax refunds received and approximately $145,000 in federal
income taxes paid during the six months ended December 31, 2001.
For the six months ended December 31, 2001, the Company expended approximately
$27,000 for the purchase of property and equipment, and approximately $274,000
in depreciation and amortization was charged to current operations. In September
2001, substantially all of the property and equipment owned by the Subsidiary
was sold at auction for approximately $89,000. During the six-month period,
investing activities used cash of approximately $888,000, primarily due to the
purchases and redemptions of held-to-maturity federally insured marketable
securities.
Accounts payable and accrued expenses decreased by approximately $210,000 since
June 30, 2001, to $887,000 from $1.1 million. The decrease was primarily due to
reductions in trade accounts and accrued sales commissions payable.
Total shareholders' equity decreased by approximately $1.4 million for the
six-month period. The decrease was attributable to repurchases of common stock
combined with the loss for the same period. Book value per share at December 31,
2001 was approximately $8.08 per share, an increase of $0.66 per share as
compared with $7.42 at June 30, 2001.
RECENT DEVELOPMENTS
A former shareholder of the Company commenced a putative class action lawsuit
against Sport-Haley, Inc. and three of its officers and directors. The action
was filed in the United States District Court for the District of Colorado
(the "Court") on October 15, 2001 by J. Roger Craig on behalf of a putative
class consisting of all persons who acquired the Company's common stock
during the period from September 4, 1996 through October 16, 2000 and alleges
claims against Sport-Haley, Inc., Robert G. Tomlinson, Kevin M. Tomlinson and
Robert W. Haley (the "Defendants"). The action, which seeks unspecified
damages, alleges that the Defendants violated Section 10(b) of the Security
Exchange Act (the "Exchange Act"), and Rule 10b-5 promulgated thereunder, by
knowingly overstating the Company's financial results, thereby causing the
Company's stock price to be artificially inflated. The complaint further
alleges that the individual Defendants are liable by virtue of being
controlling persons of Sport-Haley, Inc., pursuant to Section 20(a) of the
Exchange Act. The allegations arise out of the Company's restatements of its
financial statements for the fiscal years ended June 30, 1999 and 1998, which
the Company previously reported. The Court appointed a group of investors,
including Mr. Gregg, to act as lead plaintiff in the action. The Defendants
intend to vigorously defend this action. In December 2001, the Defendants
filed a motion to dismiss the action. The Defendants' motion is pending.
11
As previously reported, in November 2000, the United States Securities and
Exchange Commission (the "Commission") commenced an investigation related to
the Company's restatements of its financial statements for fiscal years 1999
and 1998. Sport-Haley, Inc. previously reported the restatements in its Form
10-K for the year ended June 30, 2000. On December 20, 2001, the staff of the
Commission advised the Company and its Chairman and Chief Executive Officer,
Robert G. Tomlinson, that the staff plans to recommend that the Commission
bring an enforcement action against the Company and Mr. Tomlinson to obtain
an injunction prohibiting future violations of certain provisions of the
securities laws, and possibly other relief. The staff's recommended action
primarily relates to errors reported in the Company's restatements for fiscal
years 1998 and 1999 for work in process inventory, prepaid assets and the
loss on the disposal of headwear equipment, as well as alleged errors in the
Company's quarterly reports for fiscal 2000 in these accounts. The staff
invited the Company and Mr. Tomlinson to make written submissions setting
forth legal and factual reasons why such an action should not be brought. The
Company and Mr. Tomlinson made such submissions. The Company and Mr.
Tomlinson do not know what action, if any, the staff will ultimately
recommend to the Commission. If the staff recommends that the Commission
initiate an enforcement action, it is not known whether the Commission will
accept the staff's recommendation. Should the Commission bring such an
action, the Company and Mr. Tomlinson intend to vigorously contest it. Based
upon information that is currently available, management does not believe
that the impact, if any, of such an enforcement action would have a material
adverse effect upon the Company's financial position.
As previously reported, the Company retained legal counsel to possibly pursue
claims against its former auditors in connection with damages suffered as a
result of the restatements of its financial statements for the fiscal years
ended June 30, 1999 and 1998 and the corrections of material financial
information for the quarterly periods of the fiscal year ended June 30, 2000.
Further, counsel to the former auditors has advised the Company that the former
auditor may bring certain claims against Sport-Haley, Inc. Each party denies any
liability to the other party. No legal action has been filed by the Company or
its former auditors that asserts any of these claims. To date, the Company has
incurred approximately $490,000 in expenses related to the restatements of its
financial statements and material quarterly information noted above.
RESULTS OF OPERATIONS
The Company's business is seasonal in nature, and therefore the results for any
one or more quarters are not necessarily indicative of the annual results or
continuing trends.
12
Net sales for the fiscal quarter and six months ended December 31, 2001, were
approximately $3.6 million and $7.5 million, respectively, decreases of
approximately $1.4 million or 28%, and $3.3 million or 30%, from net sales of
approximately $5.0 million and $10.8 million for the same periods in the prior
fiscal year. The decrease in net sales was primarily attributable to the general
downturn in the USA economy combined with the negative economic impact caused by
the events of September 11, 2001. Trends in the golf apparel business closely
follow trends in the travel and leisure sector of the economy. The historic
events of September 11 exacerbated the already depressed travel and leisure
sector of the economy. The economic downturn that occurred throughout calendar
2001 had already dramatically impacted travel and leisure activities during the
Company's first fiscal quarter. The Company was not immune to those factors and
experienced a significant increase in canceled orders as well as a substantial
decrease in the number of orders written during the second fiscal quarter as
compared with the same period in prior fiscal years. While the Company continues
to concentrate its efforts on increasing sales and creating new markets for its
products, management does not expect the Company's sales trend to improve
dramatically within the current fiscal year.
The Company's gross profit, as a percentage of net sales, was approximately 40%
and 35% for the quarter and six months ended December 31, 2001, respectively,
and 35% and 33% for the same periods in the prior fiscal year. The increases in
gross profit percentages are attributable to management's successful efforts to
purchase current seasons' inventories from foreign suppliers at lower per unit
costs combined with reduced quantities of prior seasons' inventories. In the
comparative six-month period, the sales of prior seasons' inventories at reduced
selling prices had been a contributing factor to a decrease in gross profit
percentage for that six-month comparative period.
Selling, general and administrative expenses for the quarter and six months
ended December 31, 2001 decreased by approximately $267,000 and $694,000, or 14%
and 18%, respectively, to approximately $1.7 million and $3.2 million from $1.9
million and $3.9 million for the same periods in the prior fiscal year. The
decreases are primarily attributable to commissions paid to independent sales
representatives on lower sales volume and management's continued efforts to
control operating costs. The Company is continually refining its business
operations in an effort to operate as efficiently as possible in an ever
increasingly difficult economic climate. Selling, general and administrative
expenditures were approximately 46% and 42% of net sales for the quarter and six
months ended December 31, 2001, as compared with 39% and 36% for the same
periods in the prior fiscal year.
Other income, net, decreased by approximately $43,000 and $154,000, or 27% and
41%, respectively, to $116,000 and $218,000 for the quarter and six months ended
December 31, 2001, from $159,000 and $372,000 for the same period in the prior
fiscal year. The decreases were primarily attributable to differences between
the periods in the respective rates of interest earned on cash, cash equivalents
and federally insured marketable securities.
Income (loss) before provision for income taxes decreased by approximately
$94,000, or 276%, to approximately ($128,000) for the fiscal quarter ended
December 31, 2001, from ($34,000) for the same quarter in the prior fiscal year.
Income (loss) before provision for income taxes decreased by approximately
$351,000, or 662%, to approximately ($298,000) for the six months ended December
31, 2001, from $53,000 for the same period in the prior fiscal year.
13
The Company's effective tax rates for the six months ended December 31, 2001 and
2000 were 25% and 43%, respectively. The effective tax rate in any fiscal period
can vary significantly from the effective tax rate in another period due to
differences between the recording of certain transactions for financial versus
tax purposes. Certain deductions recognized for tax purposes may not be expensed
for financial statement purposes, and certain expenses recorded for financial
statement purposes may not be deductible for tax purposes.
For the fiscal quarter ended December 31, 2001, net loss was greater by
approximately $58,000 or 252% when compared to the same three-month period in
the prior fiscal year. For the six months ended December 31, 2001, net income
decreased by approximately $254,000, or 847%, when compared with the same
six-month period in the prior fiscal year. The differences were primarily the
result decreases in net sales combined with lower interest income earned on
cash, cash equivalents and federally insured marketable securities.
Both the basic and diluted losses per share were ($0.03) and ($0.07) for the
fiscal quarter and six months ended December 31, 2001, respectively. This
compares to basic and diluted earnings (loss) per share of ($0.01) and $0.01 for
the same periods in prior fiscal year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS,
("SFAS 141") and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for under the purchase method. For all business combinations, the date
of acquisition for which is after June 30, 2001, SFAS 141 also establishes
specific criteria for the recognition of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off
immediately as an extraordinary gain, rather than deferred and amortized. SFAS
142 changes the accounting for goodwill and other intangible assets after an
acquisition. The most significant changes made by SFAS 142 are: 1) goodwill and
intangible assets with indefinite lives will no longer be amortized; 2) goodwill
and intangible assets with indefinite lives must be tested for impairment at
least annually; and, 3) the amortization period for intangible assets with
finite lives will no longer be limited to forty years. The adoption of SFAS 141
and SFAS 142 did not have a material effect on the Company's financial position,
results of operations, or cash flows for the fiscal quarter or six months ended
December 31, 2001.
14
In June 2001, the FASB approved for issuance SFAS 143, ASSET RETIREMENT
OBLIGATIONS. SFAS 143 establishes accounting requirements for retirement
obligations associated with tangible long-lived assets, including: 1) the timing
of the liability recognition; 2) initial measurement of the liability; 3)
allocation of asset retirement cost to expense; 4) subsequent measurement of the
liability; and, 5) financial statement disclosures. SFAS 143 requires that an
asset retirement cost should be capitalized as part of the cost of the related
long-lived asset and subsequently allocated to expense using a systematic and
rational method. The Company will adopt the statement effective no later than
January 1, 2003, as required. The transition adjustment resulting from the
adoption of SFAS 143, if any, will be reported as a cumulative effect of a
change in accounting principle. At this time, the Company cannot reasonably
estimate the effect of the adoption of SFAS 143 on its financial position,
results of operations, or cash flows.
In October 2001, the FASB approved SFAS 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS. SFAS 144 replaces SFAS 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The
new accounting model for long-lived assets to be disposed of by sale applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, REPORTING RESULTS OF OPERATIONS-REPORTING THE
EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, for the disposal of segments of
a business. SFAS 144 requires that those long-lived assets be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. Therefore, discontinued
operations will no longer be measured at net realizable value or include amounts
for operating losses that have not yet occurred. Statement 144 also broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of SFAS 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and, generally, are to
be applied prospectively. At this time, the Company cannot estimate the effect
of SFAS 144 on its financial position, results of operations, or cash flows.
15
SPORT-HALEY, INC.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS - SEE "RECENT DEVELOPMENTS"IN PART 1, ITEM 2
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - NONE
(B) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K, dated December 18,
2001, reporting that the Board of Directors had authorized
the officers of the Company to repurchase an additional
400,000 shares of the Company's issued and outstanding
common stock in accordance with the Company's previously
announced stock repurchase program.
16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SPORT-HALEY, INC.
(Registrant)
Date: February 13, 2002 /s/ Robert G. Tomlinson
----------------- -----------------------
Robert G. Tomlinson
Chief Executive Officer
Date: February 13, 2002 /s/ Patrick W. Hurley
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Patrick W. Hurley
Chief Financial Officer
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