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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 1, 1995June 29, 1996 Commission file number 0-14579
Gander Mountain, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1742710
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 128, Highway W, Wilmot, Wisconsin 53192
(Address of principal executive offices)
Registrant's telephone number including area code: (414) 862-2331
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ----------------------------
NA N/A
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of August 25, 1995September 16, 1996 was approximately $34,830,871$2,038,000 (based
upon closing price of the Common Stock).
On September 29, 1995,16, 1996, there were outstanding 3,242,8513,261,453 shares of the
Registrant's $.01 par value common stock and 200,000 shares of the registrant's
$.10 par value Series A Redeemable Cumulative Convertible Exchangeable
Preferred Stock.
Exhibit Index appears on pages 33 through 35.
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PART I
Item 1. Business
Introduction
Gander Mountain, Inc. (the "Company" or "Gander Mountain") is a
specialty merchandiser of hunting, fishing, camping and hiking equipment sold
through mail order catalogs and a network of retail stores. The Company was
initially incorporated under the laws of the State of Delaware in 1984. In
November, 1992 the Company changed its state of incorporation to Wisconsin.
The Company operates under three entities; Gander Mountain, the parent
corporation, and two wholly-owned subsidiaries, GMO, Inc. and GRS, Inc. Gander
Mountain provides merchandising, fulfillment and general and administrative
services for GMO, Inc. and GRS, Inc. GMO, Inc. manages the catalog business
while GRS, Inc. manages the retail business. Gander Mountain has a corporate
office, phone center, distribution center and clearance store in Wilmot,
Wisconsin, a secondary phone center in Racine, Wisconsin and a seasonal
warehouse in Kenosha, Wisconsin. GMO, Inc. operates out of the Gander
Mountain, Inc. corporate offices. GRS, Inc. operated fifteen retail stores at
July 1, 1995, located in Wisconsin, Minnesota, Indiana and Michigan.
The Company plans on opening retail stores in Pontiac, MI and Maple
Grove, MN during fiscal 1996. Initially when a store opens, catalog sales are
negatively affected for the region surrounding the store. However, the
incremental increase in sales from the retail store largely exceeds the slight
decrease in catalog sales. As the retail store matures, catalog sales begin to
rebound to their original levels. During fiscal 1995, retail accounted for 32%
of the Company's consolidated sales.
Markets and Customers
The Company's marketing strategy has been to target certain specialty
markets for segmentation and product differentiation. Where an identified
specialty market is determined to be of sufficient size, either a specialty
catalog is created or a retail store is considered. To date this strategy has
resulted in the development of the Reloading, Archery and Camping catalogs and
stores in Wisconsin, Minnesota, Indiana and Michigan. While the vast majority
of its customer base is located in the United States, the Company does market
its products throughout the world. During the fiscal year ended July 1, 1995,
the Company mailed 24 different catalogs offering products consisting primarily
of hunting, fishing, camping and hiking equipment. Additionally, the Company
opened seven new stores in fiscal 1995 (five in Michigan, and one each in
Wisconsin and Indiana).
Product Selection and Customer Service
In selecting products, emphasis is placed on offering name-brand
products or equivalents at competitive prices. In addition, the Company
continues to increase its offering of proprietary "private label" products not
available from its competitors. Prices generally range from a few dollars to
several hundred dollars per item.
Catalogs usually contain more than one type of similar product to
afford customers a choice of quality, brands and price. The total number of
products presented varies depending upon the market addressed. The Company
generally adds new merchandise to each new catalog printed. Once presented,
products are measured as to response rate and profit contribution on a per
catalog basis. Products are constantly replaced by new items, continued or
expanded if they generate positive results.
The retail stores have a similar merchandise selection as the catalogs.
In addition, approximately 25% of the merchandise carried in the retail stores
is not available in the catalog. These are items appealing to local markets or
are more suited to retail presentation.
The Company places a great deal of emphasis on customer service,
including a return policy which guarantees customer satisfaction. Returned
merchandise is generally restocked, if unused, offered for sale at the
Company's clearance center, if used but saleable, or returned to the
manufacturer, if defective. Product inquiries are routed directly to customer
service personnel who are knowledgeable about the Company's products and are
able to make product suitability comparisons, offer product selection advice
and make necessary adjustments. The Company places a high priority on making
timely shipments, with orders being shipped within 24 to 48 hours of receipt.
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Order Processing and Retail Replenishment
Catalog orders are received and processed for shipment at the Company's
headquarters, with the majority of orders being shipped directly from that
location. In addition, phone orders are accepted at a secondary phone center
in Racine, Wisconsin. Except for larger, custom made or special order items
which are drop shipped directly from suppliers, the Company maintains an
inventory of all products carried in its catalogs.
Approximately 70% of the merchandise offered at our retail stores is
shipped from the Company's Wilmot distribution center with the remainder
shipped directly from the manufacturers.
The Company maintains approximately 66% of its inventory in the Wilmot
distribution center with the balance maintained at its retail locations. The
Company ships merchandise to both catalog customers and to its retail stores
via common carrier. The 1995 fiscal year end inventory turnover rates for the
retail stores and the Company's distribution center were 2.6 and 2.4,
respectively.
Suppliers
The Company purchases its merchandise from numerous domestic
manufacturers and some importers and foreign manufacturers. No single supplier
accounted for more than 5% of the Company's purchases during the fiscal year
ended July 1, 1995.
Purchase contracts with the Company's suppliers are generally for a
limited quantity of specified goods. While the Company emphasizes brand
identification of the products it sells, the Company continues to expand the
number of products offered under its own labels.
Competition
Gander Mountain competes with a variety of catalog and retail
companies. The Company's two largest and best known competitors in the catalog
business are Cabela's, Inc., headquartered in Sidney, Nebraska and Bass Pro
Shops, Inc., located in Springfield, Missouri. Both companies are privately
held. Cabela's and Bass Pro Shops were started as retailers of fishing
equipment, while Gander Mountain was founded as a hunting equipment retailer.
Although both competitors offer merchandise which is similar to Gander
Mountain's, each of the three companies is recognized for the strength of its
original product lines.
In addition to these direct competitors, several catalog companies
compete less directly with Gander Mountain. Sportsman's Guide, Dunn's and L.L.
Bean all offer certain product lines which overlap with those sold by Gander
Mountain.
Gander Mountain's retail stores compete with a variety of smaller
locally or regionally owned sporting goods stores. Mass merchants such as
Wal-Mart, Kmart, The Sports Authority and Sportmart also have some product
overlaps. Management believes none of the Company's retail competitors offer
the product selection, product knowledge and overall customer service that
Gander Mountain offers.
Gander Mountain's management believes that its success is attributable
to its broad merchandise selection, high quality, competitive pricing and
superior customer service. Management believes that the Company has grown by
capturing sales from retail sporting goods stores in a highly fragmented
market. Point of purchase retailers are unable to carry the depth and breadth
of inventory offered in Gander Mountain's specialty product line and do not
match the convenience of catalog service.
Trademarks
The Company believes that "Gander Mountain," its registered United
States trademark, is of significant value. If continuously used, United States
trademarks may be used exclusively by the owner and protected against
infringement for an indefinite period. The Company has used this trademark for
a number of years.
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Regulation
The Company is subject to federal, state and local laws and regulations
which affect its business. The Federal Trade Commission regulates advertising
and mail order business generally and has established guidelines for
advertising and labeling many of the products sold by the Company. Many states
in which the Company does business also regulate advertising, labeling and
pricing practices generally. The Company's retail stores are licensed to sell
firearms by the Bureau of Alcohol, Tobacco and Firearms, which imposes
substantial restrictions on the sale of firearms and ammunition and requires
the maintenance of detailed records of firearms transactions. The sale of
firearms is not permitted by mail and overall does not represent a material
portion of the Company's total sales. The Company believes it is in compliance
with all regulations applicable to its business.
The Company sells most of its products without any reference to a
manufacturer's written limited warranty. Accordingly, such sales may be
subject to implied warranties under various state laws, and the Company may be
responsible to buyers if such products fail to meet certain standards.
Regardless of a manufacturer's implied warranties, the Company offers a liberal
return policy to assure customer satisfaction. In addition to coverage which
is provided by its vendors, the Company maintains product liability coverage
for all its operations.
Employees
At July 1, 1995, the Company employed 2,141 full and part-time
employees of which 283 were salaried and 1,858 were hourly. The Company hires
additional employees to staff seasonal needs. The Company's employees are not
represented by collective bargaining units and the Company considers its
employee relations to be excellent.
Item 2. Properties
The Company operates principally from a headquarters in Wilmot,
Wisconsin which is situated on approximately 40 acres and consists principally
of a 430,000 square foot facility including a distribution center, office,
retail store and clearance store.
The buildings and property located in Wilmot, Wisconsin are owned by
the Company. Certain of the Wilmot, Wisconsin facilities are subject to a
mortgage and collateral assignment under an Industrial Revenue Bond.
Additionally, all remaining assets of the Company not covered under the
Industrial Revenue Bond are secured under the Company's $20 million term loan.
The Company also owns a vacant office/warehouse facility in Two Harbors,
Minnesota, which it is attempting to sell.
The Company leases certain properties for both its catalog and retail
operations. As of July 1, 1995, the Company's leased properties are as
follows:
Year of Approx.
Description Location Lease Expiration Square Feet
----------- -------- ---------------- -----------
Retail Store Brookfield, WI 1997 26,914
Retail Store Appleton, WI 2001 28,000
Retail Store Eau Claire, WI 2002 31,810
Retail Store Madison, WI 2002 31,810
Retail Store Duluth, MN 2003 36,416
Retail Store Wausau, WI 2003 33,032
Retail Store St. Cloud, MN 2004 33,000
Retail Store Flint, MI 2005 33,032
Retail Store Saginaw, MI 2005 36,416
Retail Store Merrillville, IN 2005 36,416
Retail Store Utica, MI 2010 36,416
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Year of Approx.
Description Location Lease Expiration Square Feet
----------- -------- ---------------- -----------
Retail Store LaCrosse, WI 2010 33,032
Retail Store Grand Rapids, MI 2010 33,032
Retail Store Taylor, MI 2010 40,938
Retail Store Pontiac, MI 2011 33,032
Retail Store Maple Grove, MN 2011 37,923
Warehouse Kenosha, WI 1996 100,000
Phone Center Racine, WI 1997 5,000
The Company believes that the current and planned facilities are
adequate for its present and future needs and that its properties are in good
condition, well maintained and suitable for their intended use.
Item 3. Legal Proceedings
As a result of an audit by the Internal Revenue Service (the "Service")
for fiscal years ended June 30, 1985 and 1986, the Company received two
adjustments having a potential tax exposure of $402,000 plus interest of
$301,000. At issue is the Company's method of allocating purchase price to
inventory and customer lists resulting from the acquisition of the Company as of
September 14, 1984. The Company continues to challenge the Service's position
and has paid the tax and interest while immediately filing a claim for refund in
the Court of Claims. Management believes that adequate reserves have been
established to cover the loss, if any, resulting from these assessments and that
the outcome of the case will not have a material effect on the Company's
financial statements.
In the first quarter of fiscal 1995, the Company was served with a
summons and complaint in a products liability matter. The plaintiff is seeking
$83 million in compensatory damages and $50 million in punitive damages. The
manufacturer has agreed to defend and indemnify the Company for all damages and
expenses related to their product. However, in addition to claims of a
defective product, the plaintiff alleges the Company was negligent in selling
and delivering the product to a minor, in contravention of New York state law.
Although management believes that the Company is not negligent in this matter,
it concludes it has adequate insurance to cover any compensatory damages that
might be awarded and believes punitive damages awarded, if any, would not have a
material effect on the Company's financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended July 1, 1995.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded on the NASDAQ National Market under
------
the ticker symbol GNDR.
FY 1995
------------------------------------------------------------------------
Market Price Per Share: 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
--------- --------- --------- ---------
High 12.750 19.250 18.250 10.750
Low 10.250 13.250 9.250 8.750
FY 1994
-----------------------------------------------------------------------
High 9.500 14.250 13.500 14.250
Low 7.750 8.875 12.750 12.250
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There were approximately 2,400 holders of Common Stock as of July 1,
1995. The Company has never paid cash dividends on its Common Stock. The
Company has no present plans to pay cash dividends and intends to continue to
reinvest earnings in the business.
Item 6. Selected Financial Data
The following sets forth selected financial data as of and for the
periods presented. This data should be read in conjunction with the
Consolidated Financial Statements of the Company and the accompanying notes.
YEARS ENDED JULY 1, 1995, JULY 2, 1994, JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
EARNINGS DATA
Net Sales
Catalog $ 202,270 $ 181,684 $ 130,771 $ 125,235 $ 102,996
Retail 95,514 64,370 43,393 27,060 19,931
--------- --------- --------- --------- ---------
Total $ 297,784 $ 246,054 $ 174,164 $ 152,295 $ 122,927
Income (loss) from
operations (11,022)(1) 5,945 1,302 5,133 3,653
Net income (loss) (10,784) 2,081(2) 63 2,440 1,676
Net income (loss) per
common share (3.69) 0.52(2) 0.02 0.79 0.55
BALANCE SHEET DATA
Inventories
Catalog $ 66,069 $ 51,142 $ 40,024 $ 29,167 $ 21,572
Retail 34,570 17,825 13,346 8,585 4,790
--------- ---------- ----------- ---------- ----------
Total $ 100,639 $ 68,967 $ 53,370 $ 37,752 $ 26,362
Working capital 62,837 29,292 12,318 5,985 8,968
Property & equipment (gross) 51,418 44,832 35,055 20,624 13,726
Total Assets 163,641 130,256 99,315 63,434 46,704
Long-term obligations 69,000 18,400 17,469 1,200 1,600
Total Liabilities 133,249 88,529 79,576 43,824 29,559
Redeemable preferred stock 20,000 20,000 - - -
Shareholders' equity 10,392 21,727 19,739 19,609 17,144
__________________
(1) Loss from operations includes $11.5 million special charge. (see note 2
of the Notes to Consolidated Financial Statements)
(2) Net income includes $120, or $0.04 per share cumulative effect for the
adoption of FAS 109.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements of the Company and the accompanying
notes.
OVERVIEW
The following table sets forth, for the periods indicated, the percentage
relationship between sales and major categories in the Consolidated
Statements of Operations.
Fiscal Year Ended
---------------------------------------------------------------
July 1, 1995 July 2, 1994 June 30, 1993
------------ ------------ -------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 67.8 67.5 65.5
------- ------ -------
Gross profit 32.2 32.5 34.5
Selling, general and administrative
expenses 32.0 30.1 33.7
Special charge 3.9 - -
------- ------ ------
Income (loss) from operations (3.7) 2.4 0.8
Interest expense 1.6 1.0 0.8
Other expense (income) - net 0.4 0.1 (0.1)
------ ------ ------
Income (loss) before income taxes (5.7) 1.3 0.1
Income taxes (2.1) 0.5* -
------ ------ ------
Net income (loss) (3.6)% 0.8% 0.1%
======= ====== ======
____________________
* Includes FAS 109 adoption
RESULTS OF OPERATIONS
FISCAL 1995 VS. FISCAL 1994
NET SALES: Net sales for fiscal 1995 were $297.8 million, an increase
of $51.7 million, or 21.0 percent over fiscal 1994. Catalog sales increased
11.3 percent, while retail store sales increased 48.4 percent, when compared to
fiscal 1994 results.
Catalog sales rose to $202.3 million, or 11.3 percent above last year,
due to an overall higher response rate, increased average order and additional
catalog pages offset by poor in-stock positions in the January Sale catalog and
reduced assortments in the Spring General catalog which affected the third and
fourth fiscal quarters. The Company continued several catalog promotions such
as free freight and deferred billing, which raised the average order size and
increased the number of orders. During fiscal 1995 and 1994, approximately 50
million catalogs were mailed.
Retail store sales in fiscal 1995 were $95.5 million, an increase of
$31.1 million, or 48.4 percent, over fiscal 1994 sales of $64.4 million. Of the
$31.1 million increase, $3.3 million was produced by comparable store sales
growth, $5.7 million produced by two stores opened in fiscal 1994 and $22.1
million produced by seven stores opened in fiscal 1995. The comparable store
sales increase of 5.4 percent over the prior year is attributed to improved
merchandising and marketing techniques and continued acceptance of the Gander
Mountain retail concept.
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GROSS PROFIT: Fiscal 1995 gross profit increased $16.1 million, or 20.1 percent
compared to fiscal 1994 results, reflecting the increased sales volume. Overall,
gross profit as a percentage of net sales declined to 32.2 percent from 32.5
percent in fiscal 1994. Most of the decline was a result of higher promotional
activities.
Gross profit on catalog sales increased $5.6 million, or 9.4 percent,
compared to fiscal 1994 results due to higher sales volume, partially offset by
a decline in gross profit as a percent of net sales to 32.3 percent in fiscal
1995 from 32.8 percent in fiscal 1994. The decline in gross profit as a
percent of sales was due primarily to lower merchandise margins due to
promotional activities particularly in the fourth fiscal quarter.
Gross profit on retail store sales in fiscal 1995 rose $10.5 million, or
51.8 percent, compared to fiscal 1994. As a percent of net sales, retail gross
profit increased to 32.1 percent in fiscal 1995 from 31.4 percent in fiscal
1994. The increase was due to an overall product mix shift to higher margin
apparel items combined with a greater volume of apparel and higher margin sales
in the new stores.
OPERATING EXPENSES: Operating expenses for fiscal 1995 rose $21.5
million, or 29.1 percent, over fiscal 1994 results. Operating expenses as a
percent of net sales increased to 32.0 percent in fiscal 1995 from 30.1 percent
in fiscal 1994. The increase in the expense-to-net sales ratio is a result of
paper and postage costs increasing 25% and 14%, respectively, and incremental
pre-opening costs which increased $1.9 million over fiscal 1994 reflecting seven
new stores in fiscal 1995 compared to two new stores in fiscal 1994. The
fourth fiscal quarter of 1995, in particular, included additional pre-opening
costs of $1.2 million over the same quarter of 1994 reflecting four new stores
compared to none in the respective periods.
SPECIAL CHARGE: The Company incurred a non-recurring special charge of
$11.5 million during the third quarter of fiscal 1995. As indicated in the
table below, the special charge is comprised of $5.0 million for the Company's
abandonment of certain internally developed software, $4.5 million for the
write-off of certain aged inventory and $2.0 million for other catalog charges.
Reserve at Reserve at
April 2, 1995 Utilized July 1, 1995
------------- -------- ------------
Abandonment of internally developed software $ 5.0 $(5.0) $ -
Aged inventory write-off 4.5 (2.1) 2.4
Other catalog charges:
Severance costs 1.0 (0.4) 0.6
EZ Pay program 0.5 - 0.5
Other 0.3 (0.2) 0.1
Joint Ventures 0.2 (0.2) -
------ ------ ----
Total $ 11.5 $(7.9) $3.6
====== ===== ====
OTHER INCOME AND EXPENSE: Fiscal 1995 other expense rose $3.2 million,
or 118.4 percent, compared to fiscal 1994. Financing costs, the largest
component of other expense, rose $2.6 million due to higher financing required
for the retail store expansion and higher average inventory levels.
PROVISION (BENEFIT) FOR INCOME TAXES: The Company's tax benefit as a
percentage of its loss before income taxes was 36.5 percent in fiscal 1995 while
its effective tax rate was 39.0 percent in fiscal 1994. The change is
principally due to the establishment of a valuation allowance for certain state
tax net operating loss carryforwards in fiscal 1995.
NET INCOME/(LOSS): As a result of the items above, the Company recorded a net
loss of $10.8 million or $3.69 per share for fiscal 1995 compared to net
income of $2.1 million or $0.52 per share for fiscal 1994.
FISCAL 1994 VS. FISCAL 1993
NET SALES: Net sales for fiscal 1994 were $246.1 million, an increase
of $71.9 million, or 41.3 percent over fiscal 1993. The increase in net sales
was a result of a strong performance from both the catalog and retail
subsidiaries. Catalog sales increased 38.9 percent, while retail store sales
increased 48.3 percent, when compared to fiscal 1993 results.
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Catalog sales for fiscal 1994 rose to $181.7 million, or 38.9 percent
above the fiscal 1993 results, due to an increase in catalogs circulated, a
higher overall response rate and average order value. During fiscal 1994,
approximately 50 million catalogs were mailed, an increase of 20.5 percent over
fiscal 1993. The increase in circulation was through both expansion of the
customer list and increased utilization of specialty catalogs.
Retail store sales in fiscal 1994 were $64.4 million, an increase of
$21.0 million, or 48.3 percent, over fiscal 1993 sales of $43.4 million. Of the
$21.0 million increase, $3.6 million was produced by comparable store sales
growth, $9.2 million was produced by the three stores opened in fiscal 1993 and
$8.2 million was produced by the two new stores in St. Cloud, Minnesota and
Wausau, Wisconsin, that opened in fiscal 1994. Comparable store sales increased
10% due to strong customer acceptance of the retail store concept.
GROSS PROFIT: Fiscal 1994 gross profit increased $19.8 million, or
33.0 percent compared to fiscal 1993 results, reflecting the increased sales
volume. Overall, gross profit as a percentage of net sales declined to 32.5
percent from 34.5 percent in fiscal 1993. Most of the decline was a result of
the Company's value pricing strategy which rolled back pricing from the fiscal
1993 levels and offered customers more value for their purchases. Also
contributing to the rate decline were higher promotional activities and a shift
in product mix.
Fiscal 1994 gross profit on catalog sales increased $13.6 million, or
29.3 percent, compared to fiscal 1993 results due to higher sales volume. The
gross profit increase due to sales volume was partially offset by a decline in
gross profit as a percent of net sales from 35.1 percent in fiscal 1993 to 32.8
percent in fiscal 1994. The decline in gross profit as a percent of sales was
due to lower merchandise margins from the value pricing strategy, promotional
activities and an overall product mix shift to lower margin products.
Gross profit on retail store sales in fiscal 1994 rose $6.0 million, or
42.7 percent, compared to fiscal 1993. As a percent of net sales, retail gross
profit decreased from 32.6 percent in fiscal 1993 to 31.4 percent in fiscal
1994. The decrease was due to the Company's value pricing strategy and an
overall product mix shift to lower margin products, offset by a greater volume
of higher margin apparel sales in the new stores.
OPERATING EXPENSES: Operating expenses for fiscal 1994 rose $15.2
million, or 25.8 percent over fiscal 1993 results. The increase was due
principally to the higher catalog mailings and increased labor expense
associated with the higher sales volume. Operating expenses as a percent of
net sales decreased from 33.7 percent in fiscal 1993 to 30.1 percent in fiscal
1994. The decrease in the expense-to-net sales ratio is a result of increased
response rates on catalogs mailed and improved leveraging of labor expense to
the sales volume increase, in both catalog and retail.
OTHER INCOME AND EXPENSE: Fiscal 1994 other expense rose 128.3 percent
or $1.5 million compared to fiscal 1993. Interest expense, the largest
component of other expense, rose $979,000 due to higher financing required for
the retail store expansion program and higher average inventory levels. In
addition to enhancing the product assortment, the higher inventory levels were
necessary to increase serviceability and lower backorder costs to catalog
customers and to provide sufficient inventory availability for the retail store
expansion.
PROVISIONS FOR INCOME TAXES: The Company's effective tax rate
decreased from 40.6 percent in fiscal 1993 to 39.0 percent in fiscal 1994. The
Company adopted FAS 109 during 1994 and recognized a gain of $120,000, which is
reported as the cumulative effect of a change in accounting principle in the
statement of operations.
NET INCOME: As a result of the aforementioned items, net income for
fiscal 1994 increased to $2.1 million, from $63,000 in fiscal 1993. Earnings
per share increased from $0.02 in fiscal 1993 to $0.52 in fiscal 1994.
SEASONALITY
The Company's business is highly seasonal. The six months ending
December 31 are regarded as the Company's primary selling season. During this
season, the Company's sales peak in late August to early September and between
the Thanksgiving and Christmas holidays. In the Company's third and fourth
fiscal quarters, spring/summer orders are fewer and the merchandise offered
generally has a lower selling price than during the primary selling season.
In addition, the Company begins building inventory levels in the fourth fiscal
quarter for the up-coming fall/winter season. These factors combine to cause
the Company to have relatively weak results in its third and fourth fiscal
quarters.
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LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL: The Company's primary on-going cash requirements are
for inventory purchases, catalog expenses and capital expenditures in
connection with the Company's opening of retail stores. The Company meets
these cash requirements through borrowings against a revolving line of credit
up to $80 million. In accordance with an amendment dated August 18, 1995, the
revolving line matures on January 1, 1997 with a required reduction to $50
million for thirty consecutive days for the period December 15, 1995 through
February 1, 1996. In addition, the Company is currently prohibited under the
amendment from paying any preferred or common dividends or exchanging the
Series A Redeemable Preferred Stock for subordinated notes. The Company also
has a term loan of $20 million and utilizes vendor financing through trade
payables to service ongoing financial obligations. Additionally, the Company
leases its retail facilities and certain other equipment. At July 1, 1995,
the Company had $5.4 million available on its line of credit facility and no
availability on the term loan.
The line of credit and term facility ("credit facility") is secured by
substantially all assets of the Company. All borrowings are subject to various
monthly covenants. On August 18, 1995, the Company signed an amendment to its
credit facility which contained updated financial covenants and waived
previous covenant violations. The most restrictive of the new monthly
covenants require minimum levels of tangible net worth and profitability and a
minimum current ratio and a maximum level of total liabilities to tangible net
worth as well as a monthly borrowing base formula to determine overall
borrowing availability. The Company is in compliance with all covenants as of
September 29, 1995. Due to recent softening business conditions primarily
resulting from unseasonably poor weather, an amendment to the current credit
facility will likely be necessary to avoid a violation of certain restrictive
covenants for the period ended September 30, 1995. Management believes,
based on discussions with the lenders, than any forseen covenant violations will
be satisfied by an amendment to the Company's credit facility. The Company has
engaged an outside financial advisor to assist in reviewing strategic and
financial alternatives for identifying additional sources of short and
long-term debt and equity capital, if needed.
The following table highlights the Company's working capital position at July
1, 1995 and July 2, 1994.
FISCAL YEAR ENDED
(Dollars in thousands) 1995 1994
---------------------- ------- ------
Current Assets $127,086 $96,048
Current Liabilities 64,249 66,756
Working Capital 62,837 29,292
Current Ratio 2.0:1 1.4:1
The increase in working capital and the current ratio is the result of reduced
short-term borrowings and higher inventory and accounts receivable levels,
partly offset by an increase in accounts payable.
ACCOUNTS RECEIVABLE: The Company's accounts receivable rose to $7.8
million at July 1, 1995 from $7.1 million at July 2, 1994 due primarily to
continued acceptance of deferred payment plans offered to the Company's
customers in fiscal 1995. The plans allow customers to purchase and to pay for
merchandise in equal installments over as much as 12 months, interest free.
INVENTORIES: The Company's inventories rose to $100.6 million at the
end of fiscal 1995 from $69.0 million at the end of fiscal 1994. The increase
is attributable to the seven retail stores added during fiscal 1995, preparation
for two new retail stores to be opened in the fall of 1995 and efforts to
improve customer serviceability and reduce stock-outs and backorders.
ACCOUNTS PAYABLE: The Company's accounts payable increased to $44.5 million at
July 1, 1995 from $23.2 million at July 2, 1994, due to the increased
inventory levels and increased vendor financing.
CAPITAL EXPENDITURES: The following table highlights the Company's capital
expenditures and depreciation for the years ended July 1, 1995, July 2, 1994,
and June 30, 1993.
FISCAL YEAR ENDED
(Dollars in thousands) 1995 1994 1993
---------------------- ---- ---- ----
Capital Expenditures $ 11,852 $ 9,778 $ 14,431
Depreciation $ 4,421 $ 3,272 $ 2,216
10
11
The major capital projects included fixtures and leasehold improvements for the
seven retail stores opened in fiscal 1995 and developing computer software and
hardware systems.
During the9, 1996, fiscal year, the Company plans to invest approximately
$6.8 million in capital projects. Major projects include the development of
computer software systems and acquisition of related computer hardware of $3.5
million and fixturing two new retail stores for approximately $2.1 million.
To finance these projects, the Company plans to continue to utilize the
existing bank facility.
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS: The Financial Accounting
Standards Board has approved new standards on the accounting for post-
retirement and post-employment benefits other than pensions, with adoption
required in fiscal 1994 and 1995, respectively. The Company does
not provide such benefits, therefore, these standards do not have an impact on
the Company's financial position or operating results.
INCOME TAXES: As a result of an audit by the Internal Revenue Service
(the "Service") for fiscal years ended June 30, 1985 and 1986, the Company
received two adjustments having a potential tax exposure of $402,000 plus
interest of $301,000. At issue is the Company's method of allocating purchase
price to inventory and customer lists resulting from the acquisition of the
Company as of September 14, 1984. The Company continues to challenge the
Service's position and paid the tax and interest while immediately filing a
claim for refund in the Court of Claims. Management believes that adequate
reserves have been established to cover the loss, if any, resulting from these
assessments and that the outcome of the case will not have a material effect on
the Company's financial statements.
OUTLOOK
In fiscal 1996, the Company will look to improve its business processes,
including catalog merchandising, store operations and inventory
control while exploring various other strategic alternatives. An outside
financial advisor has been retained to assist management in reviewing strategic
and financial alternatives including raising additional debt or equity financing
or selling of all or part of the Company which may significantly impact the
operation of the catalog or retail subsidiaries as described below.
The catalog subsidiary is continuously refining its catalog production
and mailing techniques and ultimately improving its marketing expertise. The
Company decided in fiscal 1995 to slow the growth in its catalog operations and
is currently exploring methods to improve the profitability of this catalog
business unit while simultaneously reducing its working capital requirements.
The Company is continuing to look for creative ways to present its product
assortment to the customers most inclined to purchase.
The Company's retail subsidiary continues to refine its store
operations for both new and existing stores. The current retailing market for
outdoor sporting goods for hunting, fishing, camping and hiking is fragmented
between small local or regional operations and the mass merchants, neither of
which offer the product selection, product knowledge and overall customer
service that is the foundation of the Gander Mountain retail stores.
Overall, the Company continues to strengthen its merchandise strategy of
"quality products at reasonable prices," by expanding the product
selections in the camping and hiking areas and improving the quality in the
apparel lines. While name brand product lines continue to be a strength in the
product assortment, the Company has expanded its private label Gander Mountain
product line and will continue to experiment with various products in the
future.
The Company could experience adverse impact from pending legislation in
Congress on sales and use tax. Congress is currently addressing a proposal
that would require mail order companies to collect and remit sales and use tax
in states where the Company does not have physical presence. If adopted, such
legislation is anticipated to be applied prospectively and not have a
materially adverse effect on financial results.
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
The Company is generally able to reflect increases and decreases in
costs as a result of inflation and foreign currency fluctuations through its
selling prices. In fiscal 1995 however, the extreme price increases
experienced in paper and postage costs of approximately 25 percent and 14
percent, respectively, were not fully reflected in selling prices.
Additionally, foreign purchases are predominately made in U.S. dollars.
Except for the items noted above, the results of operations for
the periods discussed have not been significantly affected by these factors.
11
12
Item 8. Financial Statements and Supplementary Data
Page in
Index to Audited Financial Statements 10-K
-------
Consolidated Balance Sheets at
July 1, 1995 and July 2, 1994 . . . . . . . . . . . . . . . 13
Consolidated Statements of Operations
for the years ended July 1, 1995,
July 2, 1994 and June 30, 1993 . . . . . . . . . . . . . . 14
Consolidated Statements of Shareholders'
Equity for the years ended July 1, 1995,
July 2, 1994, and June 30, 1993 . . . . . . . . . . . . . . 15
Consolidated Statements of Cash Flows for
the years ended July 1, 1995, July 2, 1994,
and June 30, 1993 . . . . . . . . . . . . . . . . . . . . 16
Notes to Consolidated Financial Statements . . . . . . . . . . . . 17-25
Report of Independent Accountants . . . . . . . . . . . . . . . . 26
12
13
CONSOLIDATED BALANCE SHEETS
AT JULY 1, 1995 AND JULY 2, 1994
(in thousands, except share data)
1995 1994
---- ----
ASSETS
CURRENT ASSETS
Cash $ 2,818 $ 2,337
Accounts receivable 7,802 7,091
Refundable income taxes 1,420 2,210
Inventories 100,639 68,967
Prepaid catalog expenses 13,242 14,526
Other current assets 1,165 917
--------- ---------
Total current assets 127,086 96,048
--------- ---------
PROPERTY AND EQUIPMENT - NET 35,585 33,373
--------- ---------
DEFERRED INCOME TAXES 154 -
--------- ---------
INTANGIBLE ASSETS - NET 816 835
--------- ---------
$163,641 $ 130,256
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 44,472 $ 23,218
Notes payable to bank 9,500 33,868
Current portion of long-term obligations 1,400 2,400
Deferred income taxes - 2,597
Other current liabilities 8,877 4,673
--------- ---------
Total current liabilities 64,249 66,756
--------- ---------
LONG-TERM OBLIGATIONS 69,000 18,400
--------- ---------
DEFERRED INCOME TAXES - 3,373
--------- ---------
SERIES A REDEEMABLE, CUMULATIVE, CONVERTIBLE,
EXCHANGEABLE PREFERRED STOCK
$0.10 par value; 200,000 shares authorized. 200,000
shares issued and outstanding at July 1, 1995 and July 2, 1994
(see note 7) 20,000 20,000
--------- ---------
SHAREHOLDERS' EQUITY
Class B preferred stock, 300,000 shares authorized.
None issued and outstanding at July 1, 1995 and July 2, 1994 - -
Common stock, $0.01 par value; 20,000,000 shares authorized.
3,240,081 shares issued and outstanding at July 1, 1995;
3,208,479 shares at July 2, 1994 32 32
Additional paid-in capital 12,564 12,653
Retained earnings (accumulated deficit) (1,604) 10,292
Less notes receivable from shareholders (600) ( 1,250)
--------- ---------
Total shareholders' equity 10,392 21,727
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $163,641 $ 130,256
========= =========
The accompanying notes are an integral part of the financial statements.
13
14
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 1, 1995, JULY 2, 1994 AND JUNE 30, 1993
(in thousands, except per share data)
1995 1994 1993
-------- -------- --------
Net sales $ 297,784 $ 246,054 $ 174,164
Cost of goods sold 201,843 166,198 114,107
--------- --------- ---------
Gross profit 95,941 79,856 60,057
Operating expenses 95,453 73,911 58,755
Special charge 11,510 - -
--------- --------- ---------
Income (loss) from operations (11,022) 5,945 1,302
--------- --------- ---------
Other (income) expense
Interest expense - net 4,635 2,362 1,378
Other - net 1,326 368 ( 182)
--------- --------- ---------
Total other expense 5,961 2,730 1,196
--------- --------- ---------
Income (loss) before income taxes (16,983) 3,215 106
Income tax provision (benefit) (6,199) 1,254 43
--------- --------- ---------
Income (loss) before cumulative effect of a
change in accounting principle (10,784) 1,961 63
Cumulative effect of change in
accounting principle - 120 -
--------- --------- ---------
Net income (loss) ($10,784) $ 2,081 $ 63
========= ========= =========
Primary and fully diluted income per share
Income (loss) per share before cumulative
effect of a change in accounting principle ($ 3.69) $ 0.48 $ 0.02
Per share cumulative effect of change in
accounting principle - 0.04 -
--------- --------- ---------
Net income (loss) per
common share ($ 3.69) $ 0.52 $ 0.02
========= ========= =========
The accompanying notes are an integral part of the financial statements.
14
15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 1, 1995, JULY 2, 1994, AND JUNE 30, 1993
(in thousands)
Retained Notes
Common Stock Earnings Receivable
--------------------- Additional (Accumulated from
Shares Amount Paid-in-capital Deficit) Shareholders Total
-------- ------ --------------- ----------------- ------------ -----
Balance at June 30, 1992 3,039 $ 30 $ 11,013 $ 8,566 $ - $ 19,609
Stock options exercised 8 - 67 - - 67
Net income - - - 63 - 63
----- ---- -------- ------- ------ --------
Balance at June 30, 1993 3,047 30 11,080 8,629 - 19,739
Series A redeemable
preferred dividends - - - (418) - (418)
Stock options exercised 31 1 274 - - 275
Executive stock
purchase plan 130 1 1,299 - (1,250) 50
Net income - - - 2,081 - 2,081
----- ---- --------- ------- ------ --------
Balance at July 2, 1994 3,208 32 12,653 10,292 (1,250) 21,727
Series A redeemable
preferred dividends - - - (1,112) - (1,112)
Stock options exercised 26 - 247 - - 247
Executive stock
purchase plan - - (394) - 650 256
Associate stock
purchase plan 6 - 58 - - 58
Net loss - - - (10,784) - (10,784)
----- ---- -------- ------ ------ --------
Balance at July 1, 1995 3,240 $ 32 $ 12,564 ($1,604) ($ 600) $ 10,392
===== ==== ======== ====== ====== ========
The accompanying notes are an integral part of the financial statements.
15
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 1, 1995, JULY 2, 1994 AND JUNE 30, 1993
(in thousands)
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 10,784) $ 2,081 $ 63
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Special charge 11,510 - -
Depreciation and amortization 4,827 3,592 2,308
Deferred income taxes (3,527) 1,358 1,577
Recognition of deferred gain on sale of
former subsidiary - - (194)
Cumulative effect of change in accounting
principle - (120) -
Changes in operating assets and liabilities:
Accounts receivable (1,211) (5,275) (624)
Refundable income taxes 790 (1,610) (218)
Inventories (36,172) (15,597) (15,618)
Prepaid catalog expenses 1,284 (25) (6,598)
Accounts payable 21,254 (9,255) 14,212
Deferred income taxes (2,645) 1,174 (894)
Other 2,064 (216) 1, 640
--------- -------- --------
Cash used for operating activities (12,610) (23,893) (4,346)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (11,852) (9,778) (14,431)
Proceeds from note receivable - - 800
--------- -------- --------
Cash used for investing activities (11,852) (9,778) (13,631)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 561 325 67
Net proceeds from line of credit agreements 25,632 11,810 2,896
Net proceeds from (repayments of)
long-term debt (400) 2,931 16,269
Proceeds from sale of preferred stock - 20,000 -
Cash dividends paid on preferred stock (850) (370) -
--------- -------- --------
Cash provided by financing activities 24,943 34,696 19,232
--------- -------- --------
INCREASE IN CASH 481 1,025 1,255
CASH BEGINNING OF YEAR 2,337 1,312 57
--------- -------- --------
CASH END OF YEAR $ 2,818 $ 2,337 $ 1,312
========= ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid (received) during the year for:
Interest $ 3,883 $ 2,274 $ 1,289
========= ======== ========
Income taxes ($ 784) $ 493 $ 100
========= ======== ========
The accompanying notes are an integral part of the financial statements.
16
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -
Gander Mountain, Inc., (the "Company"), is engaged principally in catalog and
retail store sales of functional outdoor products serving the lifestyle of the
hunting, fishing, camping and hiking enthusiasts.
YEAR-END -
In fiscal 1994, the Company adopted a fiscal year of 52-53 weeks ending
on the Saturday closest to June 30. Fiscal year 1995 ended July 1, 1995,
fiscal year 1994 ended July 2, 1994 and fiscal year 1993 ended June 30, 1993.
This change had no material effect on reported results.
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements of the Company include the accounts of
its respective subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION -
Revenue is recognized at time of shipment of merchandise and is reduced for
anticipated merchandise returns.
ACCOUNTS RECEIVABLE -
Accounts receivable consist primarily of amounts due from customers related to
the sale of the Company's products. The Company believes it has provided
adequate reserves for potentially uncollectible accounts. Allowances for
estimated uncollectible accounts were $896,000 and $285,000 as of July 1, 1995
and July 2, 1994, respectively.
INVENTORIES -
Inventories consist of purchased finished merchandise available for sale and
are stated at the lower of cost or market. The first-in, first-out (FIFO)
method is used to determine cost of inventories.
STORE PRE-OPENING COSTS -
In fiscal 1995, the Company changed the amortization period for store
pre-opening costs to be more consistent with industry practice. Costs
associated with the opening of a new store are capitalized and then fully
amortized during the first full month of operations. Prior to fiscal
1995, pre-opening costs were capitalized and amortized to expense based on a
benefit period which did not exceed twelve months. Pre-opening expense for
the years ended July 1, 1995, July 2, 1994 and June 30, 1993 was $2.3 million,
$0.4 million and $0.4 million, respectively. Changing the amortization period
impacted fiscal 1995 operating results by $1.3 million.
DEFERRED COSTS -
Catalog costs are capitalized and charged to expense based upon the projected
revenue stream which does not exceed twelve months. Certain costs to acquire
customer names are capitalized and amortized over a three year period.
PROPERTY EQUIPMENT -
Property and equipment are stated at cost less accumulated depreciation and
amortization and include external and incremental internal costs of developing
computer software. The Company follows the policy of capitalizing interest as
a component of the cost of property, plant and equipment constructed for its
own use. For the years ended, July 1, 1995, July 2, 1994 and June 30, 1993,
$246,000, $341,000 and $338,000 of interest was capitalized, respectively.
Depreciation of assets is computed using the straight-line method over the
estimated useful lives which range from 5 years for fixtures and equipment,
including capitalized software, to 30 years for buildings and improvements.
Leasehold improvements are amortized over the lesser of the term of the lease
or asset life.
17
18
EARNINGS PER SHARE -
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming exercise of dilutive stock options. Net income has been adjusted for
dividends on the Series A Redeemable Preferred Stock. The number of common and
common equivalent shares used in the computation were 3,224,000, 3,212,000 and
3,090,000 for the years ended July 1, 1995, July 2, 1994 and June 30, 1993,
respectively.
Fully diluted earnings per share amounts reflect the maximum dilution that
would result from conversion of the Series A Redeemable Preferred Stock and
exercise of stock options. The Series A Redeemable Preferred Stock, which was
issued during fiscal 1994, was anti-dilutive for all years presented.
NOTE 2 - SPECIAL CHARGE
During the third quarter of fiscal 1995, the Company incurred a
significantly larger than planned loss from its catalog operations, primarily
from the under performance of its Spring, 1995 catalogs. After identifying
the issues giving rise to this under performance, the Company has made several
changes, including personnel and process changes, within its catalog operations
to improve future profitability. Additionally, the Company has decided to slow
the growth in its catalog operations to allow it to better focus on improving
profitability within this unit, while at the same time allowing it to invest in
its retail operations. The implementation of these changes resulted in the
recording of an $11.5 million special charge. The special charge and related
fourth quarter activity is summarized as follows: (in millions)
Reserve at Reserve at
April 2, 1995 Utilized July 1, 1995
------------- -------- ------------
Abandonment of internally developed software $ 5.0 $(5.0) $ -
Aged inventory write-off 4.5 (2.1) 2.4
Other catalog charges:
Severance costs 1.0 (0.4) 0.6
EZ Pay program 0.5 - 0.5
Other 0.3 (0.2) 0.1
Joint Ventures 0.2 (0.2) -
----- ----- -----
TOTAL $11.5 $(7.9) $ 3.6
===== ===== =====
ABANDONMENT OF SOFTWARE -
During the past several years, the Company has been developing an
information system to be used principally in its catalog operations (Denali).
During final testing, the order management module of this system failed system
stress tests. In connection with the decision to slow the growth of its
catalog operations, the Company decided to discontinue the development of this
module rather than to invest additional funds to correct the identified
problems. The write-off of this module resulted in a $5.0 million non-cash
charge. The Company will continue to use its existing catalog order management
software which is now considered to be adequate given the slower growth
anticipated for the catalog operations.
AGED INVENTORY WRITE-OFF -
In connection with its new catalog strategies, the Company has
redefined the manner in which it determines aged inventory and adopted a more
aggressive approach to reducing inventory buildups. As a result, the Company
incurred a charge of $4.5 million relating primarily to apparel products
discontinued in the Company's regular catalog operations. This charge includes
$2.6 million representing those cash costs specifically related to the disposal
of the aged inventory including costs to produce special clearance catalogs,
catalog inserts and fulfillment costs.
18
19
OTHER CATALOG CHARGES -
The severance reserve represents cash payments resulting from the
termination of three catalog executives and seven information technology
associates and an agreement with the Acting Chief Executive Officer. The
severance cost charge includes an amount for fringe benefits.
The $0.5 million non-cash EZ pay program charge is to increase the company's
consumer financing program bad debt reserve in light of increasing
bad debt experience and related corporate strategic initiatives.
The Company entered into two catalog joint ventures during fiscal 1994.
Management has decided to terminate these ventures and has written-off
the costs (principally internally generated software costs incurred in fiscal
1994) associated with the joint ventures.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
July 1, July 2,
1995 1994
---------- ----------
Land and land improvements $ 886 $ 876
Building and leasehold improvements 22,501 17,610
Equipment 21,468 16,981
Furniture and fixtures 5,773 3,861
Construction in progress 790 5,504
-------- --------
$ 51,418 $ 44,832
Less: accumulated depreciation (15,833) (11,459)
-------- --------
Total $ 35,585 $ 33,373
======== ========
NOTE 4 - BORROWING ARRANGEMENTS
LINE OF CREDIT -
The Company maintains a revolving line of credit with a Bank Group (the
"Banks") whereby it may borrow up to $80 million subject to a borrowing base
formula. This credit facility is used for working capital needs and letters of
credit. The agreement provides for borrowings at interest rates based on the
prime rate or a LIBOR-based rate at the Company's option. In accordance with an
amendment dated August 18, 1995, the revolving line matures on January 5, 1997
with a required reduction to $50 million for thirty days for the period from
December 15, 1995 through February 1, 1996. As of July 1, 1995, $59.5 million
was outstanding at interest rates ranging from 7.44 percent to 9.00 percent and
the average outstanding in fiscal 1995 was $42.0 million. A commitment fee of
0.375 percent is payable quarterly on the revolving line.
LONG-TERM OBLIGATIONS -
In December 1992, the Company obtained a term loan for up to $20.0
million from the banks participating in the line of credit facility. In
accordance with the terms of the most recent amendment dated August 18, 1995,
the term loan matures on January 5, 1997 and has quarterly principal payments
of $0.5 million commencing on March 1, 1996. The agreement provides for
borrowings at interest rates based on the prime rate or a LIBOR-based rate at
the Company's option (7.685% at July 1, 1995). As of July 1, 1995, $20.0
million was outstanding against the term loan.
19
20
In December 1985, the Company obtained an industrial revenue bond of $3
million to finance facility expansion and equipment purchases. The bond
requires annual principal payments of $400,000 through December, 1995. Interest
at 88 percent of the bond purchasing bank's reference rate is payable quarterly
through December, 1995. This rate was 7.92 percent at July 1, 1995. The
interest rate is subject to modification upon any revision of the bondholder's
effective tax rate due to changes in the income tax law. The bonds are secured
by a mortgage and security interests on certain of the Company's real estate
and equipment. Outstanding borrowings under this arrangement totalled $400,000
at July 1, 1995.
The line of credit and term facility ("credit facility") is secured by
substantially all assets of the Company. All borrowings are also subject to
various monthly covenants. On August 18, 1995, the Company signed an amendment
to its credit facility which contained updated covenants, and waived previous
covenant violations. The most restrictive of the new covenants require minimum
levels of tangible net worth and profitability and a minimum current ratio and
a maximum level of total liabilities to tangible net worth.
The Company was in compliance with the new covenants at the latest measurement
date. Due to recent softening business conditions, an amendment to the current
credit facility will likely be necessary to avoid a violation of
certain restrictive covenants for the period ended September 30, 1995.
Management believes, based on discussions with the lenders, that any foreseen
covenant violations will be satisfied by an amendment to the Company's credit
facility and will not result in a demand for repayment as is allowed by the
credit agreement. The Company has retained an outside financial advisor to
assist management in reviewing strategic and financial alternatives including
raising additional debt or equity financing or selling of all or part of the
Company.
The classification of the Company's debt obligations as of July 1, 1995, is
based upon their scheduled maturities. Future annual maturities of debt as of
July 1, 1995 are as follows (in thousands):
FISCAL YEARS ENDING
-------------------
1996 $ 10,900
1997 69,000
-------
$ 79,900
=======
NOTE 5 - COMMITMENTS
LEASE COMMITMENTS - The Company leases retail stores and office equipment under
non-cancelable operating leases. Total rental expense under these leases was
$3,838,000, $2,283,000 and $1,237,000 for the years ended July 1, 1995, July 2,
1994 and June 30, 1993, respectively. Future minimum annual lease payments
under these leases at July 1, 1995 are as follows (in thousands):
FISCAL YEARS ENDING
-------------------
1996 $ 6,004
1997 5,787
1998 5,347
1999 4,524
2000 4,000
2001 and after 26,136
--------
Total $ 51,798
========
PURCHASE COMMITMENTS -
At July 1, 1995, the Company had $5.1 million outstanding for letters of credit
in connection with purchase commitments.
20
21
NOTE 6 - INCOME TAXES
Effective July 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". The Company reported the cumulative effect of that change in the
method of accounting for income taxes in the first quarter of fiscal 1994.
Under the asset and liability approach prescribed by SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The cumulative
effect of adopting the standard resulted in an increase in net income of
$120,000 or $0.04 per common share.
The Company's provision (benefit) for income taxes consisted of the following
(in thousands):
Fiscal Years Ended
---------------------------------------------------------------
July 1, July 2, June 30,
1995 1994 1993
------ ------ --------
Federal $( 104) $( 700) $ (3,171)
State 90 ( 325) ( 737)
Deferred (6,185) 2,279 3,951
----- ------ ------
$(6,199) $ 1,254 $ 43
===== ======= ========
The reconciliation between the statutory tax rate expressed as a percentage of
pre-tax income (loss) and the effective tax rate is as follows:
Fiscal Years Ended
---------------------------------------------------------------
July 1, July 2, June 30,
1995 1994 1993
------- ------- --------
Federal income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 5.6 3.7 5.7
Change in valuation allowance ( 1.5) - -
Other ( 1.6) 1.3 0.9
------ ----- ------
36.5% 39.0% 40.6%
====== ===== ======
The Company's temporary differences and carry-forwards that give rise to
deferred tax assets and deferred tax liabilities at July 1, 1995 and July 2,
1994 are as follows (in thousands):
July 1, 1995 July 2, 1994
------------------------------------- ------------------------------------
Current Long-Term Current Long-Term
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Asset(Liability) Asset(Liability) Asset(Liability) Asset(Liability)
---------------- ---------------- ---------------- ----------------
Amortization of catalogs $(5,193) $ - $(5,509) $ -
Depreciation - (2,420) - (1,353)
Inventory cost capitalization 1,777 - 1,152 -
Software development - (1,676) - (3,502)
Nondeductible accruals 2,384 61 709 51
Net operating loss carryforwards 1,309 4,202 1,139 1,487
Alternative minimum tax credit carryover 43 138 - -
Other ( 210) 47 ( 88) ( 56)
Valuation allowance ( 62) ( 198) - -
------- ------ ------- -------
$ 48 $ 154 $(2,597) $(3,373)
======= ======= ======= =======
21
22
At July 1, 1995, the Company had $13.1 million and $21.8 million of federal and
state net operating loss carryforwards; these carryforwards expire in 2008,
2009 and 2010. During fiscal 1995, the Company recorded a valuation allowance
of $260,000 to reflect the estimated amount of deferred tax assets which may
not be realized due to the expiration of state net operating loss
carryforwards.
NOTE 7 - SERIES A REDEEMABLE PREFERRED STOCK
SERIES A PREFERRED STOCK -
On December 23, 1993, the Company entered into a Preferred Stock
Purchase Agreement with GS Capital Partners, L.P., and certain other affiliates
of the Goldman Sachs Group, L.P. (the "GS Investors"). Pursuant to this
agreement, the Company issued and sold to GS Investors 100,000 shares of Series
A Redeemable, Cumulative, Convertible, Exchangeable Preferred Stock ("Series A
Redeemable Preferred Stock") at a purchase price of $100 per share. On April
5, 1994, the Company issued and sold 100,000 additional shares of Series A
Redeemable Preferred Stock to the GS Investors for $100 per share. The April
5th sale required shareholder approval, which was obtained at a special meeting
on March 28, 1994.
By its terms, the Series A Redeemable Preferred Stock accrues a 5 1/2 percent
annual dividend and is exchangeable at the Company's option for subordinated
notes. The Company is currently prohibited under the August 18, 1995 credit
facility amendment from paying any dividends or exchanging the Series A
Redeemable Preferred Stock for subordinated notes. If the Company fails to
make the required quarterly dividend payments on the Series A Redeemable
Preferred Stock for four consecutive quarters, GS Investors is entitled to
nominate a third director to the Company's board of directors. Either the
Series A Redeemable Preferred Stock or the subordinated notes may be converted
into common stock at an initial conversion price of $13.75 per share at the
option of the GS Investors. Both the Series A Redeemable Preferred Stock and
the subordinated notes carry voting rights on an as-converted basis with
outstanding common stock and have mandatory redemption in years 2004 and 2005.
DIVIDENDS -
For the years ended July 1, 1995 and July 2, 1994, dividends of
$850,000 and $369,000 were paid on the Series A Redeemable Preferred Stock,
respectively. Dividends of $311,000 and $49,000 were payable at July 1, 1995
and July 2, 1994, respectively, and are included in the balance sheet under the
caption, "Other Current Liabilities."
NOTE 8 - SHAREHOLDERS' EQUITY
CAPITAL STOCK -
The Company currently has authorized 20.0 million shares of $0.01 par
value common stock and 300,000 shares of $0.10 par value Class B Preferred
Stock. The Company's Board of Directors is authorized to fix the voting
powers, designation, dividend rate, conversion, redemption or liquidation
preferences or other special rights of the shares of any series of Class B
Preferred Stock. In conjunction with the Series A Redeemable Preferred Stock
sale, 200,000 shares of Class B Preferred Stock was redesignated. The Company
has no plans to issue any part of the remaining Class B Preferred Stock.
PREFERRED STOCK RIGHTS -
The Company has a Rights Agreement, as amended in December 1993, which
entitles the Company's common shareholders to one Right for each common share
held if certain events transpire. The Rights Agreement provides that under
certain circumstances, a Right may be exercised to purchase one one-hundredth
of a share of Class B Preferred Stock at an exercise price of $35.00. The
Rights become exercisable only if an entity has acquired 20 percent or more of
the Company's common stock or announces an offer to acquire 30 percent or more
of the Company's common stock. The exception to this provision is that GS
Investors may acquire through conversion of Series A Redeemable Preferred Stock
up to 35 percent of the Company's common stock before the Rights become
exercisable.
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NOTE 9 - STOCK INCENTIVE PLANS
STOCK PURCHASE PLANS - On October 20, 1993, the shareholders of the Company
approved an Executive Stock Purchase Plan. Under the provisions of the plan,
the officers, directors and key associates of the Company were given a one-time
opportunity to acquire shares of common stock of the Company. A total of
130,000 shares of common stock were offered to and purchased by participants at
a purchase price of $10 per share.
Participants had the option of paying for the shares in cash or by promissory
note held by the Company. Each promissory note is secured by a pledge of the
participants' common stock and bears an interest rate of 5.35 percent. The
notes are payable over seven years. The outstanding loans are reported as
"Notes Receivable from Shareholders" and shown as a reduction of shareholders'
equity on the balance sheet.
The Company offers all eligible associates of the Company two programs for
acquiring shares of the Company's common stock, a 401k Savings Plan and an
Associate Stock Purchase Plan (ASPP). The 401k Savings Plan allows associates
of the Company that have completed one year of service to have pre-tax dollars
withheld from their earnings to acquire the Company's common stock. The ASPP
allows associates to purchase shares of common stock through payroll
withholdings.
STOCK OPTION PLANS - The Company has stock option plans that provide for the
granting of incentive stock options or non-qualified options to directors,
officers and key associates. The plans provide that options become exercisable
ratably over a vesting period as determined by the Board of Directors and
expire over terms not exceeding ten years from the grant date or within certain
time periods specified by the plans in the event of termination of employment.
As of July 1, 1995, 726,000 shares are authorized under these plans.
These shares can be granted either as incentive stock options or non-qualified
stock options at a per share price not less than fair market value at the date
of grant. Additionally, the plans allow for the awarding of performance
shares, of which none have been awarded as of July 1, 1995.
The following table summarizes information relating to shares under option and
shares available for grant under the plans:
Weighted
Number of Average Option
Shares Price Per Share
------------ -----------------
Options outstanding at July 1, 1995 354,433 $ 10.98
Options exercised 68,262 7.31
Options available for grant at July 1, 1995 303,305
-------
Total 726,000
=======
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Activity involving the plans is summarized in the following table:
Number of Option Price
Shares Per Share
------------ -------------
Balance at June 30, 1992 186,730 $6.14 to $10.25
Granted 79,500 $8.00 to $11.50
Canceled (1,560) $9.00
Exercised (8,487) $6.14
---------
Balance at June 30, 1993 256,183 $6.14 to $11.50
Granted 363,000 $9.00 to $13.00
Canceled (39,525) $6.14 to $12.50
Exercised (31,288) $6.14 to $10.88
--------
Balance at July 2, 1994 548,370 $6.14 to $13.00
Granted 99,250 $8.75 to $17.25
Canceled (267,450) $6.14 to $12.75
Exercised (25,737) $6.14 to $ 9.00
--------
Balance at July 1, 1995 354,433 $6.14 to $17.25
========
Exercisable at July 1, 1995 108,591
========
NOTE 10 - CONTINGENCIES
Various states where the Company does not collect and remit sales or use taxes
have enacted laws requiring out-of-state catalog companies to collect taxes. In
May 1992, the U.S. Supreme Court confirmed that the Interstate Commerce
Clause of the U.S. Constitution prevents states from requiring the collection of
its use tax unless the Company has a physical presence in the state. The
Company believes the decision invalidates these state laws; however, the
decision provided that Congress may enact legislation which permits states to
require use tax collection by mail order companies.
As a result of an audit by the Internal Revenue Service, (the "Service") for
fiscal years ended June 30, 1985 and 1986, the Company received two adjustments
having a potential tax exposure of $402,000 plus interest of $301,000. At issue
is the Company's method of allocating purchase price to inventory and customer
lists resulting from the acquisition of the Company as of September 14, 1984.
The Company continues to challenge the Service's position and has paid the tax
and interest while immediately filing a claim for refund in the Court of Claims.
Management believes that adequate reserves have been established to cover the
loss, if any, resulting from these assessments and that the outcome of the case
will not have a material effect on the Company's financial statements.
During fiscal 1995, the Company was served with a summons and complaint in a
products liability matter. The plaintiff is seeking $83 million in compensatory
damages and $50 million in punitive damages. The manufacturer has agreed to
defend and indemnify the Company for all damages and expenses related to
their product. However, in addition to claims of a defective product, the
plaintiff alleges the Company was negligent in selling and delivering the
product to a minor, in contravention of New York state law. Although management
believes that the Company is not negligent in this matter, it believes it has
adequate insurance to cover any compensatory damages that might be awarded and
believes punitive damages awarded, if any, would not have a material effect on
the Company's financial statements.
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NOTE 11 - QUARTERLY RESULTS (UNAUDITED)
The following tables present selected quarterly data for fiscal 1995 and 1994
(in thousands, except per share data):
Fiscal 1995
------------------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
--------- --------- --------- ---------
Net sales $ 85,973 $114,566 $ 43,355 $ 53,890
Gross profit 28,008 38,614 12,757 16,562
Pre-tax income (loss) 2,862 6,359 (19,811) (6,393)(2)
Net income (loss) 1,717 3,752 (12,122) (4,131)(2)
Primary net income (loss)
per share 0.44 1.02 (3.82) (1.36)
Fully diluted net income
(loss) per share 0.36 0.77 (3.82) (1.36)
Fiscal 1994
-----------------------------------------------------------------
Net sales $ 70,868 $ 85,561 $ 40,534 $ 49,091
Gross profit 23,151 28,748 12,529 15,428
Pre-tax income (loss) 2,332 5,042 (2,220) (1,939)
Net income (loss) 1,519 (1) 3,032 (1,332) (1,138)
Primary and fully diluted
net income (loss) per share 0.50 (1) 0.94 (0.46) (0.44)
- ---------------
(1) Net income includes $120 or $.04 per share cumulative effect for the
adoption of FAS 109.
(2) The fourth quarter of 1995 includes an additional $1.2 million in pre-
opening costs over the same quarter of 1994 reflecting four new stores
compared to none in the respective periods.
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF GANDER MOUNTAIN, INC.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Gander
Mountain, Inc. and its subsidiaries at July 1, 1995 and July 2, 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended July 1, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Management is presently formulating plans to deal with the possibility that the
Company's performance in fiscal 1996 will not meet certain restrictive
covenants in its bank loan agreement. Such plans, which are more fully
described in Note 4, involve discussions with the Company's current lenders
and a financial advisor retained by the Company to explore alternative
sources of capital.
As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for income taxes in 1994.
Price Waterhouse LLP
Milwaukee, Wisconsin
August 4, 1995, except as to Notes 4 and 7,
which are as of August 18, 1995.
26
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
DAVID J. LUBAR DIRECTOR SINCE 1989
Chairman of the Board of the Company since April, 1995. Mr. Lubar is
President of Lubar & Co., Incorporated since 1991 and Principal of Lubar & Co.
since 1982 (private investment company). He serves on the Board of Directors of
Christiana Companies, Inc. (refrigerated warehousing and logistics) and various
other private companies. Mr. Lubar, age 40, also served as a Director of the
Company from 1984-1987.
RALPH L. FREITAG DIRECTOR SINCE 1984
Chief Executive Officer of the Company since April, 1995. Mr. Freitag,
age 55, served as Chairman and Chief Executive Officer of the Company from 1992
to 1994, and Chairman and President of the Company from September, 1984 to 1992.
RICHARD H. JACOBSOHN DIRECTOR SINCE 1986
President of American Slicing Machine Company and its divisions,
American Products and Simply The Best Sports companies since 1982 (direct mail
marketing/catalog). Mr. Jacobsohn is 51 years of age.
JAMES F. KOBS DIRECTOR SINCE 1990
Chairman of Kobs, Gregory and Passavant since 1989 (direct
marketing/consulting). Mr. Kobs, is 58 years of age.
STEPHEN R. LETT DIRECTOR SINCE 1990
President of Lett Direct, Inc. since 1995 (direct
marketing/consulting). Mr. Lett served as President, Chief Executive Officer
and director of The Rytex Company, a subsidiary of the C. R. Gibson Company,
from 1988 to 1994 (direct marketing/catalog). Mr. Lett is 47 year of age.
SANJEEV K. MEHRA DIRECTOR SINCE 1994
Vice President of Goldman, Sachs & Co. in the Principal Investment Area,
since 1990. Mr. Mehra, age 36, serves on the Board of Directors of other
private companies as a nominee of Goldman, Sachs & Co. As indicated below, Mr.
Mehra was nominated for election as a director by the holder of the Company's
Preferred Stock pursuant to the terms of an agreement between such holders and
the Company.
ALFRED G. GOLDSTEIN DIRECTOR SINCE 1994
President of A.G. Associates since 1993. Mr. Goldstein, age 63,
served as President of Sears Specialty Merchandising from 1987 to 1993 and was
nominated for election as a director by Goldman, Sachs & Co. pursuant to the
terms of an agreement between Goldman, Sachs & Co. and the Company as discussed
below.
WILLIAM T. END DIRECTOR SINCE 1995
Managing Partner of Cornerstone Group since 1995. Mr. End served as
President and Chief Executive Officer of Land's End, Inc., from 1992 to 1995,
and as Executive Vice President of Land's End, Inc., from 1991 to 1992. Mr.
End, age 48, served as an Executive Vice President at LL Bean, Inc., from 1975
to 1991 and is currently a Director of Hannaford Bros., Co., Ariel, Inc., and
the Cornerstone Group.
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EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
executive officer of the Company and its principal subsidiaries as of August 25,
1995. The term of office of the Chairman of the Board and Chief Executive
Officer is until the first meeting of the Board following the next annual
meeting of stockholders. The term of office of the other officers is at the
discretion of the Board.
NAME PRESENT POSITION AGE
---- ---------------- ---
David J. Lubar (1) Chairman of the Board 40
Ralph L. Freitag (1) Chief Executive Officer 55
Robert D. Cocks (2) President of GMO, Inc. 42
(Catalog Operations)
David W. Reirden (3) President of GRS, Inc. 56
(Retail Operations)
Kenneth C. Bloom (4) Executive Vice President, Chief Financial Officer, 35
Secretary and Treasurer
_______________
(1) See information set forth under "Nominees for Election as Directors" for a
description of business experience during the past five years.
(2) Mr. Cocks previously served as Vice President of Operations from 1990 to
1995. Prior to joining the Company in 1987, Mr. Cocks served in
various management capacities for McMaster-Carr Company from 1982 to 1986.
(3) Mr. Reirden previously served as Vice President of Retail from
December, 1991 to June, 1992 and was Vice President of Merchandising from
the time he joined the Company in October, 1989 to December, 1991. Mr.
Reirden is also President and Treasurer of GRS, Inc., a wholly owned
subsidiary of the Company incorporated in January, 1993. Prior to joining
the Company, Mr. Reirden served in various management capacities for
Montgomery Ward and Company from 1961 to 1989.
(4) Mr. Bloom has served as Executive Vice President and Chief Financial
Officer of the Company since January, 1995. Mr. Bloom joined the Company in
May of 1994 as Vice President and Chief Financial Officer. He was appointed
Secretary and Treasurer by the Board of Directors in June of 1994. Prior to
joining the Company, he was Director of Business Development for the
Specialty Retail Group at K-Mart Corporation. Prior to 1993, Mr. Bloom was
a manager at Deloitte and Touche, a management consulting firm.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and officers, and persons who own more
than ten percent of a registered class of the Company's equity securities
(collectively,"Section 16 reporting persons") to file with the Securities and
Exchange Commission ("SEC"), initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company. Section
16 reporting persons are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, and based on a review of the copies of such
reports furnished to the Company and on written representations that no other
reports were required, during the fiscal year ended July 1, 1995, the Section 16
reporting persons complied with Section 16(a) filing requirements applicable to
them, except that an initial report of ownership on Form 3 was filed late by
William T. End, a director, and Form 4 filings, reporting one grant of options
to purchase Common Stock were filed late by Alfred G. Goldstein, a director,
Kenneth C. Bloom and Robert D. Cocks, officers.
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29
Item 11. Executive Compensation
The following table sets forth summary information regarding all
compensation paid during each of the Company's last three fiscal years to or on
behalf of each individual who served as the Company's Chief Executive Officer
during any part of the fiscal year and each of the Company's (four) 4 other most
highly compensated executive officers who were serving as executive officers at
the end of the 1995 fiscal year and two additional individuals for whom
disclosures would otherwise have been provided but for the fact that they
resigned during the 1995 fiscal year (the "named executive officers"), including
stock options granted and accrued deferred compensation.
SUMMARY COMPENSATION TABLE
Long
Term Compensation
------------------------
Securities
Restricted Underlying
Other Annual Stock Options/ All Other
Fiscal Salary Bonus Compensation Awards SAR's Compensation
Name and Principal Position YEAR $ $ $ $ (#) (1) ($) (2)
- --------------------------- ------ ------ ------ ------------ ---------- ---------- ------------
Ralph L. Freitag 1995 245,000 - 18,852(3) - - 2,352
Chief Executive Officer 1994 245,000 - 17,214(3) - 60,000 2,916
1993 240,000 - 12,988(3) - - 2,331
Joseph C. Lawler (4) 1995 224,583 - 12,428(5) - - 55,417 (6)
Former President and Chief 1994 240,000 15,000(7) 28,541(8) - 65,000 747
Operating Officer 1993 215,625 10,000(7) 13,267(9) - 50,000
Kenneth C. Bloom 1995 167,917 - - - 10,000 2,095
Executive Vice President 1994 18,125 - - - 50,000 -
and Chief Financial Officer 1993 - - - - - -
David W. Reirden 1995 140,000 14,000 1,525(10) - - 2,108
President - GRS, Inc. 1994 135,000 10,000 - - 30,000 2,013
(Retail Subsidiary) 1993 125,000 - - - - 1,923
Robert D. Cocks (11) 1995 100,625 - - - 25,000 145,151 (12)
President - GMO, Inc. 1994 130,000 5,000 - - 20,000 -
(Catalog Subsidiary) 1993 125,000 - - - - -
Robert E. Hebeler 1995 100,629 9,900 - - - 1,609
Vice President of 1994 85,723 7,500 19,982(9) - 20,000 1,280
Retail Merchandising 1993 76,667 - - - 3,000 1,020
Patrick J. Kennedy (4) 1995 81,667 - - - - 107,993 (13)
Former Senior Vice President 1994 135,000 - - - 30,000 -
of Merchandising 1993 124,553 - 12,940(9) - - -
________________
(1) Option grants include incentive stock options and non-qualified stock
options.
(2) Except as otherwise indicated, comprised of Company's matching
contributions on behalf of each named executive under the Company's 401(k)
Associates' Savings Plan and Executive Deferred Compensation Plan.
(3) The stated amount for fiscal 1995 includes $12,000, for automobile
allowance and $6,852 for the portion of Mr. Freitag's life insurance premium
related to the death benefit payable to Mr. Freitags' beneficiaries. In
fiscal 1994, $11,400 and $5,814 were paid for automobile allowance and life
insurance, respectively. In fiscal 1993, $9,000 and $3,988 were paid for
automobile allowance and life insurance, respectively.
(4) Mr. Lawler resigned as President and Chief Operating Officer and Mr.
Kennedy resigned as Senior Vice President of Merchandising during fiscal
1995.
(5) The stated amount includes $11,000 for automobile allowance and
$1,428 for the value of Mr. Lawler's life insurance premium related to the
death benefit payable to Mr. Lawler's beneficiaries.
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30
(6) The stated amount includes $3,499 for items noted in footnote (2) and
$90,417 for severance pay.
(7) Mr. Lawler received a $25,000 sign-on bonus of which $10,000 was paid in
fiscal 1993 and the remaining $15,000 was paid in fiscal 1994.
(8) The stated amount includes $27,271 for reimbursed employment relocation
expenses and $1,270 for the value of Mr. Lawler's life insurance
premium related to the death benefit payable to Mr. Lawler's beneficiaries.
(9) Represents reimbursed employment relocation expenses.
(10)The stated amount includes $1,525 for the value of Mr. Reirden's
life insurance premium related to the death benefit payable to Mr. Reirden's
beneficiaries.
(11)Mr. Cock's resigned as Senior Vice President of Operations during
February 1995 and rejoined the Company as President of GMO, Inc. during May
1995.
(12)The stated amount of $145,151 represents severance pay.
(13)The stated amount includes $107,645 for severance pay and $348 for
items noted in footnote (2).
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth beneficial ownership of the Common Stock
and Preferred Stock of the Company as of August 25, 1995, by each director
and/or executive officer of the Company, all directors and executive officers as
a group, and each person known to the Company to beneficially own more than five
percent of Common Stock or Preferred Stock. Other than the addresses indicated,
the address of the listed individual is Highway W, P.O. Box 128, Wilmot,
Wisconsin 53192.
NAME AND ADDRESS OF SHARES OF STOCK
TITLE OF CLASS BENEFICIAL OWNER BENEFICIALLY OWNED (1)(2)(3)(4) PERCENT OF CLASS
- -------------- ---------------- ------------------------------- ----------------
DIRECTORS AND OFFICERS:
Common Stock David J. Lubar (5) 347,195 10.7%
Lubar & Co., Incorporated
777 E. Wisconsin Avenue
Milwaukee, WI 53202
Common Stock Ralph L. Freitag (6) 253,270 7.8%
Common Stock David W. Reirden (7) 50,625 1.6%
Common Stock Robert D. Cocks (8) 10,000 *
Common Stock Kenneth C. Bloom (9) 22,500 0.7%
Common Stock Robert E. Hebeler (10) 15,250 *
Common Stock James F. Kobs (11) 16,500 *
Kobs, Gregory & Passavant
225 North Michigan Avenue
Chicago, IL 60601
Common Stock Stephen R. Lett (12) 11,750 *
Lett Direct
12933 Brighton Court
Carmel, IN 46032
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Common Stock Richard H. Jacobsohn (13) 10,750 *
American Slicing Machine
Simply The Best Sports Division
5550 North Elston Avenue
Chicago, IL 60630
Common Stock Alfred G. Goldstein 12,500 *
1040 North Lake Shore Drive
Chicago, IL 60611
Common Stock William T. End 4,000 *
The Cornerstone Group
50 Rowes Wharf, Suite 420
Boston, MA 02110
Common Stock Hollybank Investments LP 182,000 5.6%
c/o Kelso Management Co.
One Financial Center Ste 1600
Boston, MA 02111
Common Stock All directors and executive 766,503 23.7%
officers as a group (13 people)
Series A Sanjeev K. Mehra (15) - -
Preferred Stock Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
OTHER 5% STOCKHOLDERS:
Series A Goldman Sachs Group, L.P. (14) 200,000 100.0%
Preferred Stock 85 Broad Street
New York, NY 10004
___________________________
* LESS THAN 1/2 PER CENT
(1) Information concerning persons known to the Company to be
beneficial owners of more than five percent of its Common Stock or Series
A Preferred Stock is based upon the most recently available information
furnished by such persons pursuant to Section 13(d) or 13(g) of the
Securities Exchange Act of 1934.
(2) Information concerning ownership of Common Stock by directors of
the Company and named executive officers individually and as a group are as
of August 25, 1995 except for shares held in the Company's 401(k) Savings
Plan which is as of June 30, 1995.
(3) Unless otherwise indicated, beneficial ownership is direct and the
person indicated has sole voting and investment power.
(4) Ownership of Common Stock by directors and executive officers
includes options to purchase Common Stock exercisable within 60 days of the
record date.
(5) Includes stock options which, upon exercise, entitle Mr. Lubar to
acquire 5,750 shares of Common Stock. Mr. Lubar holds a revocable power of
attorney to vote, dispose of and manage these shares. However, Mr. Lubar
disclaims beneficial ownership of all but 77,325 shares.
(6) Includes stock options which, upon exercise, entitle Mr. Freitag
to acquire 53,750 shares of Common Stock. An additional 4,948 shares are
held in the Company's 401(k) Savings Plan.
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32
(7) Includes stock options which, upon exercise, entitle Mr. Reirden to
acquire 34,025 shares of the Company's Common Stock. An additional
678 shares are held in the Company's 401(k) Savings Plan.
(8) Includes 33 shares of Common Stock held in the Company's 401(k) Savings
Plan.
(9) Includes stock options which, upon exercise, entitle Mr. Bloom to acquire
12,500 shares of Common Stock.
(10)Includes stock options which, upon exercise, entitle Mr. Hebeler to
acquire 10,250 shares of Common Stock.
(11)Includes stock options which, upon exercise, entitle Mr. Kobs to acquire
5,750 shares of Common Stock.
(12)Includes stock options which, upon exercise, entitle Mr. Lett to acquire
5,750 shares of Common Stock.
(13)Includes stock options which, upon exercise, entitle Mr. Jacobsohn to
acquire 4,750 shares of Common Stock. Mr. Jacobsohn has indirect
ownership of 5,000 shares in a revocable trust.
(14)The information contained in this note is based on information
contained in the Schedule 13D filed on January 3, 1994, and the amended
Schedule 13(d) filed on April 5, 1994, by The Goldman Sachs Group, L.P.
("GS Group"), Goldman, Sachs & Co. ("Goldman Sachs") and certain of their
affiliates (the "Filing Persons"). GS Group is a general partner of and owns
a 99% interest in Goldman Sachs, and its general partners consist of the
general partners of Goldman Sachs other than GS Group. The Preferred Stock
is directly owned by certain limited partnerships, including GS Capital
Partners, L.P., of which affiliates of GS Group and Goldman Sachs are the
general partner or the managing general partner. The Preferred Stock is
convertible into 1,454,545 shares of Common Stock (subject to certain
anti-dilution adjustments), votes on an as-converted basis together with the
Common Stock on all matters submitted to shareholders generally and
represents approximately 31.0% of the combined voting power of the
outstanding shares of Common Stock and Preferred Stock voting as a single
class. The Filing Persons share the power to vote or direct the vote and to
dispose or direct the disposition of these shares. GS Group disclaims
ownership of these shares to the extent of partnership interests in the
limited partnerships held by persons other than GS Group or its affiliates.
(15)See footnote 14 above. Mr. Mehra is a Vice President of Goldman,
Sachs & Co. Goldman, Sachs & Co. is the Investment Manager of GS Capital
Partners, L.P. Mr. Mehra disclaims the beneficial ownership of all the
shares of Goldman Sachs Group, L.P. except to the extent of his pecuniary
interest in such shares.
Item 13. Certain Relationships and Related Transactions
Sanjeev K. Mehra, one of the nominees for election as a director, is a
Vice President of Goldman, Sachs & Co., an affiliate of GS Investors, the entity
which owns all of the Company's outstanding Preferred Stock. The purchase
agreement pursuant to which GS Investors purchased the Preferred Stock gives GS
Investors the right to nominate two candidates for election to the Company's
Board, one of which may be an employee of Goldman, Sachs & Co. or its
affiliates, and one of which may not be so employed. In addition, if the
Company fails to make the required quarterly dividend payment on the Preferred
Stock for four consecutive quarters, GS Investors is entitled to nominate a
third director to the board.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements:
The financial statements listed in Item 8 are filed as part of
this report.
(2) Financial Statements Schedules:
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33
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
($ IN THOUSANDS)
For the Balance at Charged Balance at
Fiscal Year Beginning to Costs Charged to End of
ended Description of Period & Expenses Other Accounts Deductions Period
- ----------- ----------- --------- ---------- -------------- ---------- ----------
July 1, 1995 Allowance for estimated
uncollectible accounts $ 285 $ 1,591(a) $ 0 $ (980)(c) $ 896
Allowance for slow
moving inventory 350 4,650(b) 0 (2,054) 2,946
July 2, 1994 Allowance for estimated
uncollectible accounts 55 472 0 (242) (c) 285
Allowance for slow
moving inventory 125 286 0 (61) 350
June 30, 1993 Allowance for estimated
uncollectible accounts 55 109 0 (109) (c) 55
Allowance for slow
moving inventory 0 125 0 0 125
(a) Includes $500 provided in conjunction with the special provision.
(b) Includes $4,500 provided in conjunction with the special provision.
(c) Uncollectible accounts written off, net of recoveries
All other schedules are omitted because they are not applicable, or the required
information is shown in the financial statements or notes thereto.
(3) Exhibits:
2.1 Plan of Succession (incorporated by reference
to the Company's Form 8-K filed on December 30, 1992).
3.1 Articles of Incorporation and By-Laws
(incorporated by reference to the Company's Form 8-K
filed on December 30, 1992).
3.2 Articles of Correction to Articles of
Incorporation (incorporated by reference as Exhibit No.
4.1 to the Company's Form 8-K filed on January 26, 1994).
3.3 Articles of Amendment relating to Series A
Cumulative Convertible Exchangeable Preferred Stock
(incorporated by reference as Exhibit No. 4.3 to the
Company's Form 10-Q dated February 11, 1994).
3.4 Amendment to Article III, Section 3.01 of the
By-Laws (incorporated by reference as Exhibit No. 4.3 to
the Company's Form 10-Q dated February 11, 1994).
4.1 Preferred Stock Purchase Agreement
(incorporated by reference as Exhibit No. 4.4 to the
Company's Form 10-Q dated February 11, 1994).
4.2 Loan Agreement between the Town of Randall,
Wisconsin, and the Company (incorporated by reference to
the Company's Registration Statement filed on Form S-1,
Registration No. 33-3380, effective April 2, 1986).
33
34
4.3 Promissory Note of the Company, payable to
Town of Randall, Wisconsin (incorporated by reference to
the Company's Registration Statement filed on Form S-1,
Registration No. 33-3380, effective April 2, 1986).
4.4 Mortgage and Security Agreement between the
Company and Town of Randall, Wisconsin (incorporated by
reference to the Company's Registration Statement filed
on Form S-1, Registration No. 33-3380, effective April
2, 1986).
4.5 General Business Security Agreement between
the Company and Marine Trust Company, N.A., as trustee
for Town of Randall, Wisconsin (incorporated by
reference to the Company's Registration Statement filed
on Form S-1, Registration No. 33-3380, effective April
2, 1986).
4.6 Bond Purchase Agreement between Town of
Randall, Wisconsin, the Company and Marine Bank, N.A.
(incorporated by reference to the Company's Registration
Statement filed on Form S-1, Registration No. 33-3380,
effective April 2, 1986).
4.7 Industrial Revenue Bond Request and Direction
(incorporated by reference to the Company's Registration
Statement filed on Form S-1, Registration No. 33-3380,
effective April 2, 1986).
4.8 Amendment to Rights Agreement (incorporated by
reference to the Company's Form 8-A/A Amendment No. 1
filed January 24, 1994).
10.1 1987 Incentive Stock Option Plan (incorporated by
reference to the Registration Statement filed on Form
S-8, Registration No. 33-18326, effective November
21, 1987).
10.2 1991 Stock Incentive Plan, as amended (incorporated by
reference to the Company's Proxy Statement for 1993
Annual Meeting of Stockholders).
10.3 Executive Stock Purchase Plan (incorporated by
reference to the Company's Proxy Statement for 1993
Annual Meeting of Stockholders).
10.4 Employment Agreement of Ralph L. Freitag (incorporated
by reference to the Company's Registration Statement
filed on Form S-1, Registration No. 33-3380, effective
April 2, 1986).
10.5 Executive Deferred Compensation Plan dated September 1,
1991 (incorporated by reference to the Company's Form
10-K for the year ended June 30, 1993).
10.6 First Amendment to Executive Deferred Compensation Plan
effective January 1, 1992 (incorporated by reference to
the Company's Form 10-Q for the quarter ended April 2,
1994).
10.7 Company's 401(k) Associates Savings Plan and Trust
(incorporated by reference to the Company's Annual
Report filed on Form 10-K dated September 25, 1988).
10.8 Amended and Restated Revolving Credit and Term
Loan Agreement (incorporated by reference to the
Company's Form 10-Q for the quarter ended January 1,
1994).
10.9 First Amendment to Third Amended and Restated
Revolving Credit and Term Loan Agreement, dated August
18, 1995 (incorporated by reference to Company's Form 8-K
and 8-K/A dated August 24, 1995).
23 Consent of Independent Accountants.
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35
(b) Reports on Form 8-K:
On May 15, 1995, the Company filed a report on Form 8-K under
Item 53 reporting that it announcedthe Company and its third quarter earnings
resultstwo subsidiaries, GRS,
Inc. and certain other matters, includingGMO, Inc., filed petitions for relief under Chapter 11 of
the Bankruptcy Code. The petitions were filed in the United
States Bankruptcy Court for the Eastern
District of Wisconsin and each company is a one-time charge of
$11.5 million. A press release was incorporated by reference.
35
36debtor-in-possession
under the Bankruptcy Code.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, therewith duly authorized.
Gander Mountain, Inc.
/s/Kenneth C. Bloom
--------------------------------------------------------------
Kenneth C. Bloom, Executive Vice
President, Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/ David J. Lubar
--------------------------------------------------------------
David J. Lubar, Director,
Chairman of the Board
/s/ Ralph L. Freitag
--------------------------------------------------------------
Ralph L. Freitag, Director,
Chief Executive Officer
/s/ Stephen R. Lett
--------------------------------------------------------------
Stephen R. Lett, Director
/s/ Richard H. Jacobsohn
--------------------------------------------------------------
Richard H. Jacobsohn, Director
/s/ James F. Kobs
--------------------------------------------------------------
James F. Kobs, Director
/s/ Sanjeev K. Mehra
--------------------------------------------------------------
Sanjeev K. Mehra, Director
----------------------------------/s/ Alfred G. Goldstein
----------------------------
Alfred G. Goldstein, Director
----------------------------------/s/ William T. End
----------------------------
William T. End, Director
September 29, 1995
27, 1996
41