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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995 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
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
-- -- -----
On September 30, 1995, there were outstanding 3,248,058 shares of the
Registrant's $.01 par value common stock.
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GANDER MOUNTAIN, INC.
FORM 10-Q
SEPTEMBER 30, 1995
REPORT INDEX
PAGE
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PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the Thirteen
Weeks Ended September 30, 1995 and October 1, 1994 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets at September 30, 1995
and July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended September 30, 1995 and October 1, 1994 . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended
--------------------------------
September 30, October 1,
1995 1994
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Net sales $ 96,279 $ 85,973
Cost of goods sold 67,405 57,965
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Gross profit 28,874 28,008
Selling, general and administrative expenses 28,786 24,134
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Income from operations 88 3,874
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Other expense:
Net interest expense 1,771 905
Other - net 101 107
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1,872 1,012
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Income (loss) before income taxes (1,784) 2,862
Provision for income taxes ( 678) 1,145
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Net income (loss) $ (1,106) $ 1,717
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Earnings (loss) per share: (See Note 3)
Primary $ ( 0.43) $ 0.44
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Fully diluted $ ( 0.43) $ 0.36
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The accompanying notes are an integral part of the financial statements.
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GANDER MOUNTAIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
September 30, 1995 July 1, 1995
------------------ ------------
ASSETS
- ------
Current assets:
Cash $ 6,235 $ 2,818
Accounts receivable 12,868 7,802
Refundable income taxes 142 1,420
Inventories 109,234 100,639
Prepaid catalog expenses 14,045 13,242
Other assets 197 1,165
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142,721 127,086
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Property and equipment:
Projects in progress 2,124 790
Land and building 23,388 23,388
Furniture and equipment 27,237 27,240
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52,749 51,418
Less: Accumulated depreciation ( 17,144) ( 15,833)
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35,605 35,585
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Deferred Income Taxes 931 154
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Intangible assets - net 747 816
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$ 180,004 $ 163,641
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 52,509 $ 44,472
Notes payable to bank 68,550 9,500
Current portion of long-term obligations 20,400 1,400
Other current liabilities 9,468 8,877
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150,927 64,249
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Long-term obligations - 69,000
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Preferred Redeemable Stock 20,000 20,000
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Shareholders' equity:
Class B preferred stock - -
Common stock 32 32
Additional paid-in capital 12,630 12,564
Accumulated deficit ( 2,985) ( 1,604)
Less notes receivable from stockholders ( 600) ( 600)
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9,077 10,392
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$180,004 $ 163,641
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The accompanying notes are an integral part of the financial statements.
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GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Thirteen Weeks Ended
----------------------------------
September 30, October 1,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ ( 1,106) $ 1,717
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,380 1,361
Deferred income taxes ( 777) 468
Changes in operating assets and liabilities:
Accounts receivable ( 5,066) ( 6,892)
Refundable income taxes 1,278 455
Inventories ( 8,595) (14,502)
Prepaid catalog expenses (803) ( 2,729)
Accounts payable 8,037 21,442
Other 1,284 1,914
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Cash provided by (used for) operating activities $ ( 4,368) $ 3,234
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $ ( 1,331) $( 1,487)
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Cash used for investing activities $ ( 1,331) $( 1,487)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments and proceeds from line of credit agreements $ 9,050 $ 1,135
Cash dividends on preferred stock - ( 275)
Net proceeds from issuance of common stock 66 15
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Cash provided by financing activities $ 9,116 $ 875
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INCREASE IN CASH $ 3,417 $ 2,622
CASH BEGINNING OF PERIOD 2,818 2,337
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CASH END OF PERIOD $ 6,235 $ 4,959
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The accompanying notes are an integral part of the financial statements.
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GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the interim periods are unaudited.
However, these consolidated financial statements reflect all adjustments,
consisting of only normal recurring accruals and disclosures which, in the
opinion of management, are necessary for a fair presentation. Changing
economic conditions and seasonality of the business may have a significant
impact on the operating results. As a consequence, the statements of
operations for any interim period are not necessarily indicative of the results
that can be expected for the entire year.
Certain reclassifications may have been made to the fiscal 1995 consolidated
financial statements presented herein to conform to the presentation for fiscal
1996. For more complete financial information, these consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the applicable notes that appear in the Company's 1995 Annual
Report on Form 10K.
Certain of these notes are presented below to provide more current financial
information.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies as previously presented in the Company's
1995 Annual Report on Form 10K are consistent with those policies in existence
as of September 30, 1995.
NOTE 2 - 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 $71.1 million subject to a borrowing base
formula as discussed below. 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 and, prior to October 30, 1995, included a
LIBOR-based rate 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 September 30, 1995, $68.6 million was outstanding at
interest rates ranging from 7.05 percent to 8.75 percent. A commitment fee of
0.375 percent is payable quarterly on the revolving line.
TERM LOAN -
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 and, prior to October 30, 1995, included a
LIBOR-based rate option (7.295 percent at September 30, 1995). As of September
30, 1995, $20.0 million was outstanding against the term loan.
See the discussion of financial covenant violations and waiver agreement below
for the current status of the line of credit and term loan.
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GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 7.7 percent at September 30, 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 September 30, 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.
Due to the lower operating profit and net loss for the first quarter ended
September 30, 1995, the Company did not meet the new monthly covenants related
to profitability and tangible net worth. The Company and its lenders signed a
waiver agreement pursuant to which the banks waived these financial covenant
defaults until November 17, 1995. The waiver agreement limits the revolving
line of credit to a maximum of $71.1 million and subjects the revolving line of
credit to an inventory borrowing base formula which could reduce this maximum
as inventory levels decline.
The Company is currently negotiating with the banks to extend the
waiver period while the Company continues to pursue strategic and financial
alternatives for securing additional sources of debt or equity financing or
selling all or part of the Company. The Company has retained an outside
financial advisor to assist management in the above process. While management
believes that the waiver period will be extended to permit the Company to
pursue these alternatives, and management has been contacted by several
potential purchasers and/or investor candidates, there can be no assurance
that the waiver period will extended or that any sale or financing will be
consummated. The line of credit and term loan borrowings have been classified
as short-term in the accompanying balance sheet at September 30, 1995 as there
is no assurance that the banks will extend the waiver period or amend the
agreement to cure the previous financial covenant violations.
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GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted average
number of shares 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. 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.
Thirteen Weeks Ended
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September 30, October 1,
1995 1994
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Net income (loss) as reported $ (1,106) $ 1,717
Preferred dividends ( 275) ( 278)
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Primary income (loss) $ (1,381) $ 1,439
Assumed conversions:
Preferred dividends eliminated 275 278
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Fully diluted income (loss) $ (1,106) $ 1,717
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Average number of common shares:
Primary 3,241 3,279
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Fully diluted 3,241 4,752
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GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total Company net sales increased $10.3 million or 12.0 percent to $96.3
million for the thirteen weeks ended September 30, 1995 from $86.0 million for
the thirteen weeks ended October 1, 1994. Catalog net sales decreased 9.7
percent to $59.5 million compared to $65.9 million during the prior year
quarter. The decrease is attributable to decreased catalog circulation,
elimination of selected promotions and lower than expected average order
values.
Retail net sales increased 83.2 percent to $36.8 million compared to $20.1
million reported in the first quarter of fiscal year 1995. The increase in
sales resulted partially from the addition of new retail stores in Flint,
Grand Rapids, Saginaw, Taylor, Pontiac and Utica, Michigan, Merrillville,
Indiana and LaCrosse, Wisconsin. On a comparable basis, Gander Mountain's
retail stores in business more than one year had sales decreases of 1.2
percent. The decrease is attributable to the unseasonably warm weather in our
major customer area, the Midwest.
During the quarter, gross profit increased $0.9 million or 3.1 percent over the
same period last year. The gross margin increase is attributable to the higher
sales volume, offset by lower gross margins. Catalog gross margin decreased
$3.6 million to $18.1 million while retail's gross margin increased $4.5
million to $10.8 million. The Company's gross profit margin as a percent of
sales for the first quarter of 1995 was 30.0 percent compared to 32.6 percent
for the same period last year. Catalog gross profit margins decreased from
32.9 percent of sales in the first quarter of fiscal year 1995 to 30.4 percent
in fiscal year 1996 and retail gross profit margins decreased from 31.6 percent
in the first quarter of fiscal year 1995 to 29.3 percent in fiscal year 1996.
The decline in gross profit margins is attributable to a greater percentage of
lower margined hardline products in the sales mix as apparel sales slowed due
to the unseasonably warm weather and increased promotional activity.
Operating expenses for the quarter were $28.8 million or 19.3 percent greater
than in the first quarter of fiscal year 1995. As a percentage of net sales,
operating costs increased from 28.1 percent to 29.9 percent reflecting lower
than planned catalog sales and higher paper prices and postal rates.
Other expense for the quarter was $1.9 million or 85.0 percent above prior year
results. The increase is due to higher interest costs associated with the
increased borrowings against the Company's short term line of credit and term
loan. The increase in borrowings is due to higher financing required for the
retail store expansion program and higher average inventory levels.
Net loss for the thirteen weeks ended September 30, 1995 was $1.1 million
compared to net income of $1.7 million reported in the first quarter of fiscal
year 1995. The fully diluted loss per share of 43 cents per share compares to
income of 36 cents per share reported in the prior year quarter.
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GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary on-going cash requirements are for inventory purchases,
catalog expenses and capital expenditures. The Company meets these cash
requirements through borrowings against a revolving line of credit. 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.
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.
Due to the lower operating profit and net loss for the first quarter ended
September 30, 1995, the Company did not meet the new monthly covenants related
to profitability and tangible net worth. The Company and its lenders signed a
waiver agreement pursuant to which the banks waived these financial covenant
defaults until November 17, 1995. The waiver agreement limits the revolving
line of credit to a maximum of $71.1 million and subjects the revolving line of
credit to an inventory borrowing base formula which could reduce this maximum
as inventory levels decline.
The Company is currently negotiating with the banks to extend the
waiver period while the Company continues to pursue strategic and financial
alternatives for securing additional sources of debt or equity financing or
selling all or part of the Company. The Company has retained an outside
financial advisor to assist management in the above process. While management
believes that the waiver period will be extended to permit the Company to
pursue these alternatives,and management has been contacted by several
potential purchasers and/or investor candidates, there can be no assurance
that the waiver period will extended or that any sale or financing will be
consummated. The line of credit and term loan borrowings have been classified
as short-term in the accompanying balance sheet at September 30, 1995 as there
is no assurance that the banks will extend the waiver period or amend the
agreement to cure the previous financial covenant violations.
The Company's accounts receivable fell from $14.0 million at October 1, 1994 to
$12.9 million at September 30, 1995 due to a reduction in the receivable
balance associated with the Company's deferred payment plan as a result of a
decrease in catalog's sales volume.
The Company's inventories rose from $83.5 million at October 1, 1994 to $109.2
million at September 30, 1995 due to the increased sales volume, the stocking
of nine new stores and Company efforts to improve serviceability.
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GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's accounts payable increased from $44.7 million to $52.5 million
due to the increase in inventory levels and increased vendor financing.
Capital expenditures for the thirteen weeks ended September 30, 1995 were $1.3
million compared with $1.5 million for the thirteen weeks ended October 1,
1994. The decrease is a result of higher infrastructure expenditures in the
prior year quarter. The current year expenditures are primarily the result of
leasehold improvements associated with the openings of two retail stores in the
Company's first quarter and on-going development of computer software systems
and acquisition of related computer hardware.
SEASONALITY
The Company's business is seasonal with greater revenues historically being
generated during the first half of the fiscal year. As a result, revenues for
the three month period ending September 30, 1995 should not be considered to be
indicative of results to be reported for the balance of the fiscal year.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable to the Company at September 30, 1995
ITEM 2. CHANGES IN SECURITIES
Not applicable to the Company at September 30, 1995
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable to the Company at September 30, 1995
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable to the Company at September 30, 1995
ITEM 5. OTHER INFORMATION
Not applicable to the Company at September 30, 1995
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Not applicable to the Company at September 30, 1995
(b) Form 8-K
On August 24, 1995, the Company filed a report on Form 8-K under Item 5,
reporting that it had entered into an amendment of its credit facility.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gander Mountain, Inc.
Date: November 14, 1995 By: /s/ Kenneth C. Bloom
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Executive Vice President
and Chief Financial Officer
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