1
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 December 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
incorporation or organization) No.)
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 December 30, 1995, there were outstanding 3,251,879 shares of the
Registrant's $.01 par value common stock.
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GANDER MOUNTAIN, INC.
FORM 10-Q
DECEMBER 30, 1995
REPORT INDEX
PAGE
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the Thirteen
Weeks Ended December 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Twenty-Six
Weeks Ended December 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheets at December 30, 1995
and July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Twenty-Six
Weeks Ended December 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended
---------------------------
December 30, December 31,
1995 1994
---------- ----------
Net sales $ 120,818 $ 114,566
Cost of goods sold 82,773 75,952
----------- ------------
Gross profit 38,045 38,614
Selling, general and administrative expenses 32,759 31,290
----------- ------------
Income from operations 5,286 7,324
----------- ------------
Other expense:
Net interest expense 1,747 912
Other - net 166 53
----------- ------------
1,913 965
----------- ------------
Income before income taxes 3,373 6,359
Provision for income taxes 1,300 2,607
----------- ------------
Net income $ 2,073 $ 3,752
=========== ============
Earnings per share: (See Note 3)
Primary $ 0.55 $ 1.02
========== ===========
Fully diluted $ 0.44 $ 0.77
========== ===========
The accompanying notes are an integral part of the financial statements.
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GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Twenty-Six Weeks Ended
----------------------------------
December 30, December 31,
1995 1994
---------- ----------
Net sales $ 217,097 $200,539
Cost of goods sold 150,178 133,916
----------- ------------
Gross profit 66,919 66,623
Selling, general and administrative expenses 61,545 55,424
----------- ------------
Income from operations 5,374 11,199
----------- ------------
Other expense:
Net interest expense 3,518 1,818
Other - net 267 160
----------- ------------
3,785 1,978
------------ ------------
Income before income taxes 1,589 9,221
Provision for income taxes 622 3,752
----------- ------------
Net income $ 967 $ 5,469
============ ============
Earnings per share: (See Note 3)
Primary $ 0.13 $ 1.47
============ ============
Fully diluted $ 0.13 $ 1.12
=========== ============
The accompanying notes are an integral part of the financial statements.
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GANDER MOUNTAIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
December 30, July 1,
1995 1995
--------------- ---------------
ASSETS
- ------
Current assets:
Cash $ 6,729 $ 2,818
Accounts receivable 10,313 7,802
Refundable income taxes 142 1,420
Inventories 83,208 100,639
Prepaid catalog expenses 4,516 13,242
Other assets 198 1,165
----------- ----------
105,106 127,086
----------- ----------
Property and equipment:
Projects in progress 2,684 790
Land and building 23,388 23,388
Furniture and equipment 27,237 27,240
----------- ----------
53,309 51,418
Less: Accumulated depreciation ( 18,470) ( 15,833)
----------- -----------
34,839 35,585
----------- -----------
Deferred Income Taxes - 154
-------------- ------------
Intangible assets - net 679 816
------------ ------------
$ 140,624 $ 163,641
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 31,048 $ 44,472
Notes payable to bank 45,600 9,500
Current portion of long-term obligations 20,000 1,400
Other current liabilities 13,079 8,877
----------- ----------
109,727 64,249
----------- ----------
Long-term obligations - 69,000
----------- ----------
Preferred Redeemable Stock 20,000 20,000
----------- ----------
Shareholders' equity:
Class B preferred stock - -
Common stock 32 32
Additional paid-in capital 12,655 12,564
Accumulated deficit ( 1,190) ( 1,604)
Less notes receivable from stockholders ( 600) ( 600)
----------- -----------
10,897 10,392
------------ -----------
$ 140,624 $ 163,641
============ ===========
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)
Twenty-Six Weeks Ended
-----------------------------
December 30, December 31,
1995 1994
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 967 $ 5,469
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,774 2,469
Deferred income taxes 154 1,717
Changes in operating assets and liabilities:
Accounts receivable ( 2,511) (14,807)
Refundable income taxes 1,278 1,325
Inventories 17,431 ( 3,510)
Prepaid catalog expenses 8,726 8,736
Accounts payable (13,424) 6,349
Other 4,616 4,057
---------- ---------
Cash provided by operating activities $ 20,011 $ 11,805
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment $ ( 1,891) $ ( 4,947)
---------- ---------
Cash used for investing activities $ ( 1,891) $ ( 4,947)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit agreements $ (13,900) $ ( 3,868)
Net repayments on long-term obligations ( 400) ( 400)
Cash dividends on preferred stock - ( 550)
Net proceeds from issuance of common stock 91 235
---------- ---------
Cash used for financing activities $ (14,209) $ ( 4,583)
----------- ---------
INCREASE IN CASH $ 3,911 $ 2,275
CASH BEGINNING OF PERIOD 2,818 2,337
---------- ---------
CASH END OF PERIOD $ 6,729 $ 4,612
========== =========
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 10-K.
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 10-K are consistent with those policies in existence
as of December 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 $56.0 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 future borrowings at
interest rates based on the prime rate. In accordance with an amendment dated
August 18, 1995, the revolving line matures on January 5, 1997. As of December
30, 1995, $45.6 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 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. As of December 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
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 for the first half ended December 30, 1995,
the Company did not meet the new monthly covenants related to profitability,
current ratio and tangible net worth. The Company and its lenders signed
successive amendments, the most recent dated January 23, 1996, pursuant to
which the banks waived these financial covenant defaults until February 14,
1996. The waiver agreement limits the revolving line of credit to a maximum of
$56.0 million and subjects the revolving line of credit to a borrowing base
formula which could reduce this maximum as inventory and accounts receivable
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. There can be no assurance that the waiver period will be
extended or that any sales 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 December 30, 1995, as there is no assurance that
the banks will extend the waiver period beyond one year or amend the agreement
to cure the previous financial covenant violations.
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 Twenty-Six Weeks Ended
---------------------------- -----------------------------
December 30, December 31, December 30, December 31,
1995 1994 1995 1994
------------ ----------- ---------- ----------
Net income as reported $ 2,073 $ 3,752 $ 967 $ 5,469
Preferred dividends ( 278) ( 275) ( 553) ( 553)
---------- --------- ----------- -----------
Primary income $ 1,795 $ 3,477 $ 414 $ 4,916
Assumed conversions:
Preferred dividends
eliminated 278 275 553 553
---------- --------- ----------- -----------
Fully diluted income $ 2,073 $ 3,752 $ 967 $ 5,469
=========== ========= =========== ===========
Average number of
common shares:
Primary 3,251 3,405 3,263 3,338
========== ========= =========== ===========
Fully diluted 4,708 4,860 4,717 4,865
========== ========= =========== ===========
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GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF SECOND QUARTER FISCAL 1996 TO SECOND QUARTER FISCAL 1995
Total Company net sales increased $6.3 million or 5.5 percent to $120.8 million
for the thirteen weeks ended December 30, 1995 from $114.6 million for the same
quarter in the prior year. Catalog net sales decreased 15.0 percent to $68.2
million compared to $80.2 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 53.1 percent to $52.6 million compared to $34.4
million reported in the second quarter of fiscal year 1995. The increase in
sales resulted partially from the addition of six new retail stores in
LaCrosse, Wisconsin, Grand Rapids, Saginaw, Taylor and Pontiac, Michigan and
Maple Grove, Minnesota. On a comparable basis, Gander Mountain's retail stores
in business more than one year had a sales decrease of 4.5 percent versus an
increase of 5.8 percent in the year-earlier quarter. Gander Mountain had 17
retail stores in operation at the end of the current quarter versus 11 at the
end of the year-ago quarter.
During the quarter, gross profit decreased $0.6 million or 1.5 percent from the
same period last year. Catalog gross profit decreased $5.4 million to $22.0
million while retail gross profit increased $4.8 million to $16.1 million. The
Company's gross profit margin for the thirteen weeks ended December 30, 1995
was 31.5 percent compared to 33.7 percent for the prior year quarter. Catalog
gross profit margins decreased to 32.2 percent of sales in the second quarter
of fiscal year 1996 from 34.1 percent in fiscal year 1995 while retail gross
profit margins decreased to 30.5 percent in the second quarter of fiscal year
1996 from 32.7 percent in fiscal year 1995. The decreases in gross margin rate
reflects increased promotional activity and, to a lesser extent, unfavorable
merchandise mix.
Operating expenses for the quarter were $32.8 million or 27.1 percent of sales
compared to $31.3 million or 27.3 percent of sales in the second quarter of
fiscal year 1995. Increases in operating expenses resulted principally from
increased labor and advertising expense associated with the six new retail
stores opened, offset slightly by reduced catalog expenses associated with
reduced circulation.
Other expense for the quarter was $1.9 million compared to $1.0 million in the
prior year. 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 and higher average inventory levels.
Net income for the thirteen weeks ended December 30, 1995 was $2.1 million
compared to $3.8 million reported in the second quarter of fiscal year 1995.
The fully diluted earnings per share was 44 cents per share compared to 77
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
RESULTS OF OPERATIONS
COMPARISON OF FIRST TWENTY-SIX WEEKS OF FISCAL 1996 TO FIRST TWENTY-SIX WEEKS
OF FISCAL 1995
Total Company net sales increased $16.6 million or 8.3 percent to
$217.1 million for the twenty-six weeks ended December 30, 1995 from $200.5
million for the same period in the prior year. Catalog net sales decreased
12.6 percent to $127.7 million compared to $146.1 million during the prior
year. The decrease is attributable to decreased catalog circulation,
elimination of selected promotions and lower than expected average order
values.
Retail net sales increased 64.2 percent to $89.4 million compared to $54.5
million reported in the first twenty-six weeks of fiscal year 1995. The
increase in sales resulted primarily from the addition of new retail stores in
LaCrosse, Wisconsin, Grand Rapids, Saginaw, Taylor and Pontiac, Michigan and
Maple Grove, Minnesota. Also, on a comparable basis, Gander Mountain's retail
stores in business more than one year had sales decreases of 3.1 percent versus
an increase of 7.5 percent in fiscal year 1995. The decrease is attributable
to an overall sluggish retail environment.
During the first twenty-six weeks of fiscal year 1996, gross profit increased
$0.3 million or 0.4 percent over the same period last year. The gross profit
increase is attributable to the higher sales volume, offset by a lower gross
margin rate. Catalog gross profit decreased $9.0 million to $40.1 million
while retail gross profit increased $9.3 million to $26.9 million. The
Company's gross profit margin for the twenty-six weeks ended December 30, 1995
decreased to 30.8 percent compared to 33.2 percent in the same period last
year. Catalog gross profit margins decreased to 31.4 percent for the first
half of fiscal year 1996 from 33.6 percent in the first half of fiscal year
1995 and retail gross profit decreased to 30.0 percent in the first half of
fiscal year 1996 from 32.3 percent in fiscal year 1995. The decrease in gross
margin rate reflects increased promotional activity and, to a lesser extent,
unfavorable merchandise mix.
Operating expenses for the first half of fiscal year 1996 were $61.5 million or
28.3 percent of sales compared to $55.4 million or 27.6 percent of sales in the
first half of fiscal year 1995. Increases in operating expenses resulted
principally from labor expenses associated with the higher retail sales volume
associated with six additional stores, offset by reduced catalog expenses
associated with the decrease in catalog circulation.
Other expense was $3.8 million compared to $2.0 million in the first half of
the prior year. 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 and higher average inventory levels.
Net income for the twenty-six weeks ended December 30, 1995 was $1.0 million
compared to $5.5 million reported in the first half of fiscal year 1995. The
fully diluted earnings per share was $0.13 per share compared to $1.12 per
share reported in the prior year period.
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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 5, 1997 and the Company is currently prohibited 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 for the first half ended December 30, 1995,
the Company did not meet the new monthly covenants related to profitability,
current ratio and tangible net worth. The Company and its lenders signed
successive amendments, the most recent dated January 23, 1996, pursuant to
which the banks waived these financial covenant defaults until February 14,
1996. The waiver agreement limits the revolving line of credit to a maximum of
$56.0 million and subjects the revolving line of credit to a borrowing base
formula which could reduce this maximum as inventory and accounts receivable
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. There can be no assurance that the waiver period will be
extended or that any sales 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 December 30, 1995, as there is no assurance that
the banks will extend the waiver period beyond one year or amend the agreement
to cure the previous financial covenant violations.
The Company's accounts receivable decreased from $21.9 million at December 31,
1994 to $10.3 million at December 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 and not offering the deferred payment plan
on some catalogs.
The Company's inventories rose from $72.5 million at December 31, 1994 to $83.2
million at December 30, 1995 due primarily to the stocking of six new stores.
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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 slightly from $29.6 million at
December 31, 1994 to $31.0 million at December 30, 1995 due primarily to the
increase in inventory levels.
Capital expenditures for the twenty-six weeks ended December 30, 1995 were $1.9
million compared with $5.0 million for the twenty-six weeks ended December 30,
1995. The decrease is a result of higher infrastructure expenditures in the
first half of fiscal year 1995. 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 twenty-six week period ending December 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 December 30, 1995
ITEM 2. CHANGES IN SECURITIES
Not applicable to the Company at December 30, 1995
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital resources," the
waiver of the financial covenant defaults under the credit facility expires on
February 14, 1996.
(b) As of December 15, 1995 (the last dividend payment date prior to the
date of this report) $818 thousand of accrued dividends on the Company's
Series A Redeemable Preferred Stock are unpaid. Dividends on such Preferred
Stock accrue at the rate of $275 thousand for each three month dividend period.
The terms of the credit facility prohibit the payment of dividends on such
Preferred Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable to the Company at December 30, 1995
ITEM 5. OTHER INFORMATION
Not applicable to the Company at December 30, 1995
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
- ------- -----------
10.10 Second Amendment to Third Amended and Restated Revolving Credit and
Term Loan Agreement
10.11 Third Amendment to Third Amended and Restated Revolving Credit and
Term Loan Agreement
10.12 Fourth Amendment to Third Amended and Restated Revolving Credit and
Term Loan Agreement
(b) Form 8-K
Not applicable to the Company at December 30, 1995
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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: February 13, 1996 By: /s/ Kenneth C. Bloom
----------------- ----------------------------
Executive Vice President
and Chief Financial Officer
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