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 March 30, 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
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 March 30, 1996, there were outstanding 3,255,407 shares of the Registrant's
$.01 par value common stock.
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GANDER MOUNTAIN, INC.
FORM 10-Q
MARCH 30, 1996
REPORT INDEX
PAGE
PART I - FINANCIAL INFORMATION -----
Consolidated Statements of Operations for the Thirteen
Weeks Ended March 30, 1996 and April 1, 1995................... 3
Consolidated Statements of Operations for the Thirty-Nine
Weeks Ended March 30, 1996 and April 1, 1995................... 4
Consolidated Balance Sheets at March 30, 1996
and July 1, 1995............................................... 5
Consolidated Statements of Cash Flows for the Thirty-Nine
Weeks Ended March 30, 1996 and April 1, 1995................... 6
Notes to Unaudited Consolidated Financial Statements............ 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
PART II - OTHER INFORMATION..................................... 17
Signatures...................................................... 18
2
3
GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended
----------------------------------
March 30, April 1,
1996 1995
-------- --------
Net Sales $47,389 $43,355
Cost of goods sold 35,837 30,598
-------- --------
Gross profit 11,552 12,757
Selling, general and administrative expenses 19,613 19,605
Special charge 5,300 11,510
-------- --------
Loss from operations (13,361) (18,358)
-------- --------
Other expense:
Net interest expense 1,488 1,110
Other - net 139 343
-------- --------
1,627 1,453
-------- --------
Loss before income taxes (14,988) (19,811)
Income tax benefit (214) (7,689)
-------- --------
Net loss (14,774) (12,122)
Preferred redeemable stock dividends 278 278
-------- --------
Net loss to common shareholders ($15,052) ($12,400)
======== ========
Loss per share: (See Note 7)
Primary ($4.63) ($3.82)
======== ========
Fully diluted ($4.63) ($3.82)
======== ========
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)
Thirty-Nine Weeks Ended
----------------------------
March 30, April 1,
1996 1995
-------- --------
Net Sales $264,486 $243,895
Cost of goods sold 186,014 164,515
-------- --------
Gross profit 78,472 79,380
Selling, general and administrative expenses 81,159 75,029
Special charge 5,300 11,510
-------- --------
Loss from operations (7,987) (7,159)
-------- --------
Other expense:
Net interest expense 5,006 2,928
Other - net 406 503
-------- --------
5,412 3,431
-------- --------
Loss before income taxes (13,399) (10,590)
Income tax provision (benefit) 408 (3,936)
-------- --------
Net loss (13,807) (6,654)
Preferred redeemable stock dividends 832 831
-------- --------
Net loss to common shareholders ($14,639) ($7,485)
======== ========
Loss per share: (See Note 7)
Primary ($4.51) ($2.32)
======== ========
Fully diluted ($4.51) ($2.32)
======== ========
The accompanying notes are an integral part of the financial statements.
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5
GANDER MOUNTAIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
----------------------------
March 30, July 1,
1996 1995
--------- --------
ASSETS
Current assets:
Cash $5,278 $2,818
Accounts receivable 5,076 7,802
Refundable income taxes - 1,420
Inventories 69,828 100,639
Prepaid catalog expenses 3,723 13,242
Other assets 136 1,165
--------- --------
84,041 127,086
--------- --------
Property and equipment:
Projects in progress 2,882 790
Land and building 23,362 23,388
Furniture and equipment 27,205 27,240
--------- --------
53,449 51,418
Less: Accumulated depreciation (19,752) (15,833)
--------- --------
33,697 35,585
--------- --------
Deferred Income Taxes - 154
--------- --------
Intangible assets - net 610 816
--------- --------
$118,348 $163,641
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 25,021 44,472
Notes payable to bank 47,459 9,500
Current portion of long-term obligations 19,500 1,400
Other current liabilities 10,478 8,877
--------- --------
102,458 64,249
--------- --------
Long-term obligations - 69,000
--------- --------
Preferred Redeemable Stock 20,000 20,000
--------- --------
Shareholders' Equity (Deficit):
Class B Preferred Stock - -
Common stock 33 32
Additional paid-in capital 12,650 12,564
Accumulated deficit (16,243) (1,604)
Less notes receivable from stockholders (550) (600)
--------- --------
(4,110) 10,392
--------- --------
$118,348 $163,641
========= ========
The accompanying notes are an integral part of the financial statements.
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6
GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Thirty-Nine Weeks Ended
----------------------------------
March 30, April 1,
1996 1995
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($13,807) ($6,654)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 4,125 3,709
Deferred income taxes 154 (1,696)
Special Charge 5,300 11,510
Changes in operating assets and liabilities:
Accounts receivable 2,726 (2,284)
Refundable income taxes 1,420 1,089
Inventories 25,511 (21,399)
Prepaid catalog expenses 9,519 8,793
Accounts payable (19,451) (4,232)
Other 1,798 (959)
--------- --------
Cash provided by (used for) operating activities 17,295 (12,123)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,031) (7,475)
--------- --------
Cash used for investing activities (2,031) (7,475)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (net repayments on) line
of credit agreements (12,041) 20,882
Net repayments on long-term obligations (900) (400)
Net proceeds from issuance of common stock 137 278
Cash dividends on preferred stock - (825)
Notes receivable from stockholders - 250
--------- --------
Cash provided by (used for) financing activities (12,804) 20,185
--------- --------
INCREASE IN CASH 2,460 587
CASH BEGINNING OF PERIOD 2,818 2,337
--------- --------
CASH END OF PERIOD $5,278 $2,924
========= ========
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 March 30, 1996.
NOTE 2 - SUBSEQUENT EVENT
In April 1996, the Company signed a definitive agreement to sell selected
catalog assets including the customer list, certain other intangible assets and
selected inventory with a gross book value of approximately $27 million to
Cabela's, Inc. for $35 million in cash. The sale is scheduled to close in May,
1996, subject to certain closing conditions. As a result of the sale, the
Company is exiting the catalog business and winding-down its catalog operations
during the fourth quarter of fiscal 1996. No additional catalogs are planned
to be mailed and no new catalog inventory is being purchased. Catalog sales
orders continue to be filled from the remaining catalog inventory although on a
significantly reduced and declining basis from historical levels.
The catalog business exit strategy will include liquidation of the remaining
catalog inventory not sold above (primarily through the retail stores), selling
the fixed assets of the catalog business and selling the Company's combined
headquarters, distribution and retail store facility in Wilmot, WI with the
intent of leasing back the portion needed to operate the retail business. As a
result of the sale and exit strategy, the Company will recognize a net charge
in the fourth quarter of fiscal 1996 as the gain on sale described above will
be offset by wind-down and transaction expenses which will include severance
and other employee termination benefits, investment banking and legal fees,
inventory liquidation charges, assets held for sale write-downs for catalog
fixed assets and the Wilmot facility, and other related costs. As many of
these costs are not fixed and determinable, and are subject to negotiations not
yet complete, a quantified estimate is not reasonably available at this time.
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GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SPECIAL CHARGE
In an effort to generate additional funds from existing inventory stocks to
reduce bank debt levels and provide short term liquidity, the Company
developed a large scale inventory liquidation plan in the third quarter of
fiscal 1996. Inventory which was discontinued from the standard merchandise
mix and primarily out of season is progressively marked down and aggressively
promoted at each of the stores. In addition, discontinued slower moving and
aged inventory was transferred from the catalog division into the retail stores
and included in the special liquidation plan which is expected to be
substantially complete by June, 1996. Historically the majority of such
inventory would have been sold above cost in the normal course throughout the
year in the appropriate seasons.
As a result of the liquidation plan, the Company recorded a $5.3 million
special charge to reduce this inventory to the estimated lower of cost or
market value. The components of this special charge are as follows ($ in
millions):
Inventory Net
Value at Cost Charge Inventory
------------- ------- ---------
Retail Inventory $8.5 $3.7 $4.8
Catalog Inventory 3.8 1.6 2.2
------- ------- ------
Total at Plan Inception $12.3 $5.3 $7.0
Reduction thru 3/30/96 (6.7) (1.7) (5.0)
------- ------- ------
Balance at 3/30/96 $5.6 $3.6 $2.0
======= ======= ======
In fiscal 1995, the Company recorded an $11.5 million special charge comprised
of $5.0 million for the Company's abandonment of certain internally developed
software, $4.5 million for the write-down of certain aged inventory and $2.0
million for other catalog charges. At March 30, 1996, $1.4 million of this
charge remained, consisting of $0.6 million write-down of aged inventory and
$0.8 million for other catalog charges.
NOTE 4 - CASH
Included in cash at March 30, 1996 is a $1.6 million cash reserve held on
deposit by the Company's credit card transaction processing bank for potential
future credit card charge chargebacks. The Company believes that the amount of
future chargebacks will not be material and is fully reserved for in other
liabilities. Substantially all remaining cash, as such funds are collected and
available, is applied directly each day against the outstanding revolving line
of credit balance by the bank lenders as is their right under the current
credit agreement. All cash outflows are advances against the revolving line of
credit and subject to prior approval by the bank lenders.
8
9
GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BORROWING ARRANGEMENTS
The Company maintains a revolving line of credit with a Bank Group (the
"Banks") whereby it may borrow up to $56.0 million at March 30, 1996, subject
to a borrowing base formula as discussed below. In an amendment dated April
18, 1996, the $56.0 million was reduced to $47.0 million. This credit facility
is used for working capital needs and letters of credit and provides for
borrowings at the prime rate of interest. As of March 30, 1996, $47.5 million
was outstanding at an interest rate of 8.25 percent. A commitment fee of 0.375
percent is payable quarterly on the revolving line.
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. The term loan has
quarterly principal payments of $0.5 million commencing on March 1, 1996. The
term loan bears interest at the prime rate. As of March 30, 1996, $19.5
million was outstanding against the term loan.
The revolving line of credit and term loan are secured by substantially all
assets of the Company. In accordance with an amendment dated August 18, 1995,
the Company's revolving line of credit and $20 million term loan mature on
January 5, 1997. However, the Company is not in compliance with certain of the
financial covenants related to these borrowings. The Company and the lenders
have signed successive amendments waiving these defaults until the earlier of
May 25, 1996 or the closing of the pending sale of the selected catalog
division assets to Cabela's, Inc. as discussed in Note 2.
The current waiver agreement limits the revolving line of credit to a maximum
of $47.0 million (a reduction from the previous $56.0 million), of which not
more than $20.9 million can be post-April 15, 1996 borrowings. In addition to
complying with a borrowing base formula (which could reduce the amount
available as inventory and accounts receivable levels decline), additional
borrowings after April 15, 1996 may not exceed the Company's cumulative net
cash flows plus $1.0 million from that date. The waiver provides that proceeds
from the sale of assets to Cabela's, Inc. must be used to reduce obligations to
the lenders.
The Company is currently negotiating with the banks to extend the waiver period
beyond the closing of the sale of assets to Cabela's, Inc. and increase the
amount available for borrowing. Unless the waiver is further extended and the
amount available is increased, the Company does not expect to be able to meet
its current and projected cash needs over the near-term. There can be no
assurance that the amount available will be increased or that the waiver will
be extended. Accordingly, the revolving line of credit and term loan
borrowings have been classified as short-term in the accompanying balance sheet
at March 30, 1996.
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10
GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES
During the third quarter of fiscal 1996, the Company recorded a valuation
allowance of $5.6 million to write down deferred tax assets to zero due to the
level of uncertainty surrounding the Company's ability to generate sufficient
future taxable earnings in order to utilize tax benefits.
NOTE 7 - 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 Thirty-Nine Weeks Ended
---------------------- --------------------------
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
---------- ---------- ------------ ------------
Average number of
common shares:
Primary 3,252 3,243 3,247 3,229
========== ========== ============ ============
Fully diluted 3,252 3,243 3,247 3,229
========== ========== ============ ============
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11
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THIRD QUARTER FISCAL 1996 TO THIRD QUARTER FISCAL 1995
Total Company net sales increased $4.0 million or 9.3 percent to $47.4 million
for the thirteen weeks ended March 30, 1996 from $43.4 million for the same
quarter in the prior year.
Catalog net sales decreased 14.3 percent to $23.4 million compared to $27.3
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. As discussed in Note 2, the Company signed
a definitive agreement in April, 1996 to sell selected catalog assets including
the customer list, certain other intangible assets and selected inventory with
a gross book value of approximately $27 million to Cabela's, Inc., for $35
million in cash. The sale is scheduled to close in May, 1996, subject to
certain closing conditions. As a result of the sale, the Company is exiting
the catalog business and winding-down its catalog operations during the fourth
quarter of fiscal 1996. No additional catalogs are planned to be mailed and no
new catalog inventory is being purchased. Catalog sales orders continue to be
filled from the remaining catalog inventory although on a significantly reduced
and declining basis from historical levels.
Retail net sales increased 49.6 percent to $24.0 million compared to $16.0
million reported in the third quarter of fiscal year 1995. The increase in
sales resulted from the addition of six new retail stores in LaCrosse,
Wisconsin, Grand Rapids, Saginaw, Taylor and Pontiac, Michigan and Maple Grove,
Minnesota and a large scale inventory liquidation plan where inventory which
was discontinued from the standard merchandise mix and primarily out of season
is progressively marked down and aggressively promoted at each of the stores.
In addition, discontinued slower moving and aged inventory was transferred from
the catalog division into the retail stores and included in the special
liquidation plan which began in late February and is expected to be
substantially complete by June, 1996. On a comparable basis, Gander Mountain's
retail stores in business more than thirteen months had a sales increase of 0.2
percent versus an increase of 3.0 percent in the year-earlier quarter.
Excluding the sales impact of the special inventory liquidation plan noted
above, the Company believes comparable sales would have declined significantly.
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.
The Company believes its sales during the third quarter of fiscal 1996 were
adversely affected by the Company's inability to obtain inventory on open
account with many vendors and the cancellation of merchandise shipments by
several vendors for the spring season which began in late February. As
discussed more fully in the liquidity and capital resources section, these
conditions and the related adverse impact on sales have worsened in the fourth
quarter with comparable store sales running significantly below the prior year
levels.
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12
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THIRD QUARTER FISCAL 1996 TO THIRD QUARTER FISCAL 1995
During the quarter, gross profit decreased $1.2 million or 9.4 percent from the
same period last year. Catalog gross profit decreased $1.7 million to $6.3
million while retail gross profit increased $0.5 million to $5.3 million. The
Company's gross profit margin for the thirteen weeks ended March 30, 1996 was
24.4 percent compared to 29.4 percent for the prior year quarter. Catalog
gross profit margins decreased to 26.7 percent of sales in the third quarter of
fiscal year 1996 from 28.9 percent in fiscal year 1995 reflecting primarily
increased promotional activity. Retail gross profit margins decreased to 22.1
percent in the third quarter of fiscal year 1996 from 30.3 percent in fiscal
year 1995 primarily due to the effect of the special inventory liquidation plan
sales at cost and, to a lesser extent, increased promotional activity.
Selling, general and administrative expenses for the quarter were $19.6 million
or 41.4 percent of sales compared to $19.6 million or 45.2 percent of sales in
the third quarter 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.
The Company incurred special charges of $5.3 million and $11.5 million during
the third quarters of fiscal 1996 and fiscal 1995, respectively. The 1996
charge was recorded to reduce the inventory included in the liquidation plan
noted above to its estimated lower of cost or market value as discussed in Note
3. The fiscal 1995 charge is comprised of $5.0 million for the Company's
abandonment of certain internally developed software, $4.5 million for the
write-down of certain aged inventory and $2.0 million for other catalog
charges.
Other expense for the quarter was $1.6 million compared to $1.5 million in the
prior year. The increase is due to higher interest costs associated with the
higher average borrowings against the Company's revolving line of credit and
term loan and increased interest rates.
The income tax benefit of $0.2 million in the quarter decreased from $7.7
million in the prior year. The income tax benefit rate was significantly
reduced by a $5.6 million valuation allowance recorded to write down deferred
tax assets to zero due to the level of uncertainty surrounding the Company's
ability to generate sufficient future taxable earnings in order to utilize tax
benefits.
Net loss for the thirteen weeks ended March 30, 1996 was $14.8 million compared
to $12.1 million reported in the third quarter of fiscal year 1995. The fully
diluted loss per share was 4.63 cents per share compared to 3.82 cents per
share reported in the prior year quarter.
12
13
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF FIRST THIRTY-NINE WEEKS OF FISCAL 1996 TO FIRST THIRTY-NINE WEEKS
OF FISCAL 1995
Total Company net sales increased $20.6 million or 8.4 percent to $264.5
million for the thirty-nine weeks ended March 30, 1996 from $243.9 million for
the same period in the prior year.
Catalog net sales decreased 12.9 percent to $151.1 million compared to $173.4
million during the prior year. The decrease is attributable to decreased
catalog circulation, elimination of selected promotions and lower than expected
average order values. As discussed in Note 2 and the third quarter comparison,
the Company signed a definitive agreement in April, 1996 to sell selected
catalog assets to Cabela's, Inc. which is scheduled to close in May, 1996,
subject to certain closing conditions. As a result of the sale, the Company is
exiting the catalog business and winding-down its catalog operations during the
fourth quarter of fiscal 1996. No additional catalogs are planned to be mailed
and no new catalog inventory is being purchased. Catalog sales orders continue
to be filled from the remaining catalog inventory although on a significantly
reduced and declining basis from historical levels.
Retail net sales increased 60.9 percent to $113.4 million compared to $70.5
million reported in the first thirty-nine 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 and to a lesser extent a large scale inventory
liquidation plan which began in late February and is expected to be
substantially complete by June, 1996 as discussed above in the third quarter
comparison. On a comparable basis, Gander Mountain's retail stores in business
more than thirteen months had sales decreases of 2.3 percent versus an increase
of 6.5 percent in fiscal year 1995. Excluding the sales impact of the special
inventory liquidation plan noted above, the Company believes comparable sales
would have declined further. The decrease is attributable to an overall
sluggish retail environment and poor in-stock positions. See discussions on
page 11 regarding the Company's inability to obtain inventory on open account.
During the first thirty-nine weeks of fiscal year 1996, gross profit decreased
$0.9 million or 1.1 percent over the same period last year. Catalog gross
profit decreased $10.6 million to $46.3 million while retail gross profit
increased $9.7 million to $32.2 million. The Company's gross profit margin for
the thirty-nine weeks ended March 30, 1996 decreased to 29.7 percent compared
to 32.5 percent in the same period last year. Catalog gross profit margins
decreased to 30.7 percent for the first three quarters of fiscal year 1996 from
32.8 percent in the first three quarters of fiscal year 1995 reflecting
primarily increased promotional activity. Retail gross profit decreased to
28.4 percent in the first half of fiscal year 1996 from 31.8 percent in fiscal
year 1995 reflecting primarily increased promotional activity and, to a lesser
extent, due to the effect of the special inventory liquidation plan sales at
cost.
13
14
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF FIRST THIRTY-NINE WEEKS OF FISCAL 1996 TO FIRST THIRTY-NINE WEEKS
OF FISCAL 1995
Selling, general and administrative expenses for the first three quarters of
fiscal year 1996 were $81.2 million or 30.7 percent of sales compared to $75.0
million or 30.8 percent of sales in the first three quarters 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.
The Company incurred special charges of $5.3 million and $11.5 million during
the third quarters of fiscal 1996 and fiscal 1995, respectively. The 1996
charge was recorded to reduce the inventory included in the liquidation plan
noted above to its estimated lower of cost or market value as discussed in Note
3. The fiscal 1995 charge is comprised of $5.0 million for the Company's
abandonment of certain internally developed software, $4.5 million for the
write-down of certain aged inventory and $2.0 million for other catalog
charges.
Other expense was $5.4 million compared to $3.4 million in the first three
quarters of the prior year. The increase is due to higher costs associated
with the higher average borrowings against the Company's revolving line of
credit and term loan and increased interest rates.
The income tax provision of $0.4 million compares unfavorably to an income
benefit of $3.9 million in the prior year. The income tax benefit rate was
significantly reduced by a $5.6 million valuation allowance recorded to write
down deferred tax assets to zero due to the level of uncertainty surrounding
the Company's ability to generate sufficient future taxable earnings in order
to utilize tax benefits.
Net loss for the thirty-nine weeks ended March 30, 1996 was $13.8 million
compared to $6.7 million reported in the first thirty-nine weeks of fiscal year
1995. The fully diluted loss per share was $4.51 per share compared to $2.32
per share reported in the prior year period.
14
15
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
and capital expenditures which are funded through borrowings against a
revolving line of credit and $20 million term loan. Additionally, the Company
leases its retail facilities and certain other equipment.
The revolving line of credit and term loan are secured by substantially all
assets of the Company. In accordance with an amendment dated August 18, 1995,
the Company's revolving line of credit and $20 million term loan mature on
January 5, 1997. However, the Company is not in compliance with certain of the
financial covenants related to these borrowings. The Company and the lenders
have signed successive amendments waiving these defaults until the earlier of
May 25, 1996 or the closing of the pending sale of the selected catalog
division assets to Cabela's, Inc. as discussed in Note 2. The amendment dated
August 18, 1995 also prohibits paying any preferred or common dividends or
exchanging the Series A Redeemable Preferred Stock for subordinated notes.
The current waiver agreement limits the revolving line of credit to a maximum
of $47.0 million (a reduction from the previous $56.0 million), of which not
more than $20.9 million can be post-April 15, 1996 borrowings. In addition to
complying with a borrowing base formula (which could reduce the amount
available as inventory and accounts receivable levels decline), additional
borrowings after April 15, 1996 may not exceed the Company's cumulative net
cash flows plus $1.0 million from that date. The waiver provides that proceeds
from the sale of assets to Cabela's, Inc. must be used to reduce obligations to
the lenders. Substantially all cash, as such funds are collected and
available, is applied directly each day against the outstanding revolving line
of credit balance by the bank lenders as is their right under the current
credit agreement. All cash outflows are advances against the revolving line of
credit and subject to prior approval by the bank lenders.
The Company is currently negotiating with the banks to extend the waiver period
beyond the closing of the sale of assets to Cabela's, Inc. and increase the
amount available for borrowing. Unless the waiver is further extended and the
amount available is increased, the Company does not expect to be able to meet
its current and projected cash needs over the near-term. There can be no
assurance that the amount available will be increased or that the waiver will
be extended. Accordingly, the revolving line of credit and term loan
borrowings have been classified as short-term in the accompanying balance sheet
at March 30, 1996.
An increase in availability and an extension of the waiver period are only
interim solutions to the Company's cash needs. The Company requires additional
equity to establish a capital structure that will permit the Company to be
financially viable or, in the absence of such equity, will need to take other
action, which may include selling the assets of its remaining retail business.
There can be no assurance that any additional equity will be raised or that any
asset sales will occur.
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GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At March 30, 1996, the majority of the Company's $25.0 million of accounts
payable were overdue. As a result, the Company has not been able to purchase
inventory on open account and instead is generally purchasing inventory on a
payment-on-delivery basis from selected vendors. The Company's inability to
obtain trade credit has further constrained the Company's liquidity. The
Company does not anticipate being able to make payments on trade payables until
such time as proceeds from the sale of equity or additional assets are
received.
The Company's accounts receivable decreased from $8.9 million at April 1, 1995
to $5.1 million at March 30, 1996 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 discontinuing the deferred payment plan on most
catalogs.
The Company's inventories fell from $85.9 million at April 1, 1995 to $69.8
million at March 30, 1996 due primarily to the Company's diminished borrowing
availability, the inability to purchase on open account which increased as the
quarter progressed, the large scale inventory liquidation plan through the
retail stores and the cancellation of shipments for the spring season beginning
in late February as discussed above.
The Company's accounts payable increased from $19.0 million at April 1, 1995 to
$25.0 million at March 30, 1996 due primarily to the increased level of overdue
trade payables as discussed above.
Capital expenditures for the thirty-nine weeks ended March 30, 1996 were $2.0
million compared with $7.5 million for the thirty-nine weeks ended April 1,
1995. The decrease is a result of higher new store and infrastructure
expenditures in the first three quarters of fiscal year 1995 and limited
capital resources in fiscal 1996. 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 development of computer software
systems and acquisition of related computer hardware in the first half of the
year. Capital expenditures in the third quarter of fiscal 1996 were only $0.1
million reflecting the Company's limited capital resources. The Company's
capital expenditures will continue to be extremely limited until the liquidity
concerns discussed above are resolved.
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 thirty-nine week period ending March 30, 1996 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 March 30, 1996
ITEM 2. CHANGES IN SECURITIES
Not applicable to the Company at March 30, 1996
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 the
earlier of May 25, 1996 or the closing of the pending sale of
catalog division assets to Cabela's, Incorporated.
(b) As of March 15, 1996 (the last dividend payment date prior to
the date of this report), $1.1 million 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 March 30, 1996
ITEM 5. OTHER INFORMATION
Not applicable to the Company at March 30, 1996
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
10.13 Fifth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement
10.14 Sixth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement
10.15 Seventh Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement
10.16 Eighth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement
10.17 Ninth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement
10.18 Tenth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement
(b) Form 8-K
Not applicable to the Company at March 30, 1996
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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: By: /s/ Kenneth C. Bloom
---------------------------
Executive Vice President
and Chief Financial Officer
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