1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 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
--- ---
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 September 16, 1996 was approximately $2,038,000 (based
upon closing price of the Common Stock).
On September 16, 1996, there were outstanding 3,261,453 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.
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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 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, GRS, Inc. ("GRS") and GMO, Inc. ("GMO"). Gander Mountain provides
merchandising, fulfillment and general and administrative services for GRS and
GMO. GRS manages the retail store operations. GMO managed the catalog
business which has been terminated (see discussion below). Gander Mountain
currently operates a corporate office and distribution center on leased
premises in Wilmot, Wisconsin. GRS currently operates twelve leased retail
stores located in Wisconsin, Indiana and Michigan after having sold three
stores located in Minnesota and two stores in western Wisconsin in July, 1996
(see discussion below). The Company opened retail stores in Pontiac, MI and
Maple Grove, MN (subsequently sold) during fiscal 1996. GMO operated out of
the Gander Mountain, Inc. corporate offices which included a phone center which
ceased operation in June, 1996.
Significant Asset Sales and Bankruptcy Reorganization
The Company entered the fall of fiscal 1996 highly leveraged due primarily to an
aggressive growth plan which resulted in significant capital expenditures for
its corporate facility, fourteen new retail stores, internally developed
computer systems as well as significant increases in its investment in working
capital over the previous three fiscal years. Due to an $11.5 million special
charge recorded in the third quarter of fiscal 1995, the Company breached
several financial covenants in its revolving line of credit and term loan
agreement. These defaults were cured in August, 1995, with the signing of an
amended credit facility containing more restrictive monthly financial
covenants. Due to lower than planned operating profit and a higher net loss
for the first quarter ended September 30, 1995, the Company did not meet the
new monthly covenants related to profitability and net worth. Subsequently, the
Company negotiated successive waiver agreements with its lenders subject to
generally declining borrowing limits and financial flexibility, the last of
which extended the waiver of defaults until August 16, 1996.
In September 1995, the Company retained an outside financial advisor and began
to actively pursue strategic and financial alternatives for securing additional
sources of debt or equity financing or selling all or part of the Company.
This process resulted in three significant transactions including the sale of
selected catalog business assets on May 17, 1996 for $35.0 million in cash, the
sale of five retail stores on July 25, 1996 for $16.2 million in cash and the
sale of the corporate facility on July 31, 1996 for $6.6 million in cash.
Substantially all of the proceeds were used to pay down the revolving line of
credit and term loan borrowings. As a result of the catalog assets sale, the
Company exited from the catalog business which accounted for 53 percent of
total fiscal 1996 sales.
During most of the second half of fiscal 1996, the Company was unable to
purchase inventory on open account, being generally limited to
payment-on-delivery terms with selected vendors, which resulted in increasing
out-of-stock conditions and deteriorating comparable store sales. With very
limited availability under its credit facility after the completion of asset
sales noted above and needing additional financing to meet ongoing operating
expenses, the Company and its GRS and GMO subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Eastern
District of Wisconsin (the "Bankruptcy Court") on August 9, 1996. The
Company's management has continued to manage the operations and affairs of the
Company as debtor-in-possession, subject to the jurisdiction of the Bankruptcy
Court. Consequently, certain actions of the Company during the pendency of the
bankruptcy proceedings including, without limitation, transactions outside the
normal course of business, are subject to the approval of the Bankruptcy Court.
The Company has obtained a debtor-in-possession revolving line of credit of up
to $25.0 million to finance operations during the bankruptcy reorganization.
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3
Markets and Customers
The Company's marketing strategy has been to target certain specialty markets
determined to be of sufficient size where there is a concentration of hunting,
fishing and camping enthusiasts. The Company currently operates twelve retail
stores located in Michigan (6), Wisconsin (5) and Indiana (1) after the sale of
five stores located in Minnesota (3) and western Wisconsin (2) in July, 1996.
Merchandising, Customer Service and Distribution
In selecting products, emphasis is placed on offering customers a choice of
name-brand products or equivalents at competitive prices. In addition, the
Company offers proprietary "private label" products not available from its
competitors. Product selection for individual stores is based on the varying
needs of the local markets. Prices generally range from a few dollars to
several hundred dollars per item.
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, or returned to the manufacturer, if defective.
Store associates are knowledgeable about the Company's products and are able to
make product suitability comparisons, offer product selection advice and make
necessary adjustments.
Approximately 70 percent of the merchandise offered at Gander Mountain's retail
stores is shipped from the Company's Wilmot distribution center with the
remainder shipped directly from the manufacturers. The Company currently
maintains approximately 15 percent of its inventory in its distribution center.
The Company ships merchandise to its retail stores via common carrier. The
1996 fiscal year end inventory turnover rates for the retail stores and the
Company's distribution center were 3.0 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 percent of the Company's purchases during the fiscal year ended
June 29, 1996. 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 also offers products under
its own labels.
Competition
Gander Mountain competes with a variety of retail companies and, to a lesser
extent, mail order companies. 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. The two largest mail order companies
offering similar products in many categories are Cabela's and Bass Pro Shops
while other catalog companies compete much less directly with Gander Mountain.
Gander Mountain's management believes that its retail stores are distinguished
by their broad merchandise selection, high quality, competitive pricing and
superior customer service. Management believes that the Company has grown by
capturing sales from other retail sporting goods stores which do not carry the
depth and breadth of inventory in a highly fragmented market.
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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4
Regulation
The Company is subject to federal, state and local laws and regulations which
affect its business. The Federal Trade Commission regulates advertising 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. Firearms sales represented less than 11 percent of the Company's
retail store sales in fiscal 1996. 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 June 29, 1996, the Company employed 1,329 full and part-time employees of
which 302 were salaried and 1,027 were hourly. 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 leased headquarters, distribution
center and retail store complex in Wilmot, Wisconsin which is situated on
approximately 45 acres and consists principally of a 430,000 square foot
facility, of which the Company currently utilizes approximately 231,140 square
feet. The buildings and property located in Wilmot, Wisconsin were sold by the
Company in July, 1996 and are subject to a lease under which the Company will
vacate the facility by June 1, 1997, except for its retail store and attached
support area for which it has five one-year lease renewal options.
Approximately 169,000 square feet of the distribution center is occupied by a
non-affiliated company under a sublease agreement through February 28, 1997 and
cannot be utilized by the Company after that date. The Company also operated a
catalog clearance center included in the Wilmot complex which was closed in
October, 1996. The Company has not yet selected a new location for its offices
or distribution center.
As of September 16, 1996, the Company's leased properties are as follows:
Year of Approx.
Description Location Lease Expiration Square Feet
----------- -------- ---------------- -----------
Office/Dist. Wilmot, WI 1997 197,000
Retail Store Wilmot, WI 1997 34,140
Retail Store Brookfield, WI 1997 26,914
Retail Store Appleton, WI 2001 28,000
Retail Store Madison, WI 2002 31,810
Retail Store Wausau, WI 2003 33,032
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
Retail Store Grand Rapids, MI 2010 33,032
Retail Store Taylor, MI 2010 40,938
Retail Store Pontiac, MI 2011 33,032
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5
The Company believes that the current facilities are adequate for its present
and future needs, with the exception of its office and distribution center for
which future site(s) have not been selected. The Company believes its
properties are in good condition, well maintained and suitable for their
intended use.
Item 3. Legal Proceedings
Automatic Stay of Litigation Due to Bankruptcy
On August 9, 1996, the Company and its GRS and GMO subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code. Upon the
filing of the Company's bankruptcy petitions, the provisions of the Bankruptcy
Code operated as a stay to all entities of, among other things, the
commencement or continuation of judicial, administrative, or other actions or
proceedings against the Company that were or could have been commenced before
the bankruptcy petition was filed. This stay is subject to certain exceptions.
The Bankruptcy Court also has discretion to terminate, annul, modify or
condition the stay.
Description of 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 has challenged the Service's position and has paid the
tax and interest while immediately filing a claim for refund in the Court of
Claims. An agreement with the Service, subject to final approval by the Office
of Review of the U. S. Department of Justice, has been reached which would
result in a refund to the Company of approximately $375,000 plus interest of
approximately $125,000 as of June 29, 1996. Should approval not be reached,
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 fourth quarter of fiscal 1996, the Company has been sued by several
creditors seeking overdue trade payable amounts which are generally recorded in
the Company's financial statements and the Company was served with a summons and
complaint in a breach of contract matter relating to a catalog paper order in
the amount of $4.6 million. The plaintiff is seeking $4.6 million in damages.
Management believes that the outcome of these matters 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 product 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
None
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6
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is currently traded on the Over The Counter (OTC)
Bulletin Board under the symbol GNDR unless this symbol is requested for a
security listed on the Nasdaq Stock Market. The OTC Bulletin Board does not
constitute an established public trading market. Prior to July 1996, the
Company's Common Stock was listed on the Nasdaq National Market.
FY 1996 Prior to
-----------------------------------------------------------
Market Price Per Share: 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-------- --------- --------- ---------
High 11.750 8.500 6.500 4.500
Low 8.375 4.000 4.000 1.750
FY 1995
-----------------------------------------------------------
High 12.750 19.250 18.250 10.750
Low 10.250 13.250 9.250 8.750
There were approximately 800 holders of Common Stock as of June 29, 1996. The
Company has never paid cash dividends to common shareholders and is currently
prohibited from doing so under the terms of its debtor-in-possession credit
agreement.
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Item 6. Selected Financial Data
The following sets forth selected unaudited financial data as
of and for the periods presented. This unaudited data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
accompanying unaudited notes.
YEARS ENDED JUNE 29, 1996, JULY 1, 1995, JULY 2, 1994, JUNE 30, 1993, AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
EARNINGS DATA
Net Sales
Catalog $ 154,861 $ 202,270 $ 181,684 $ 130,771 $ 125,235
Retail 137,074 95,514 64,370 43,393 27,060
--------- --------- --------- --------- ---------
Total $ 291,935 $ 297,784 $ 246,054 $ 174,164 $ 152,295
Income (loss) from
operations ( 27,094)(1) ( 11,022)(2) 5,945 1,302 5,133
Net income (loss) ( 33,781) ( 10,784) 2,081(3) 63 2,440
Net income (loss) per
common share ( 10.74) ( 3.69) 0.52(3) 0.02 0.79
BALANCE SHEET DATA
Inventories
Catalog $ 557 $ 66,069 $ 51,142 $ 40,024 $ 29,167
Retail 36,795 34,570 17,825 13,346 8,585
---------- -------- -------- -------- --------
Total $ 37,352 $ 100,639 $ 68,967 $ 53,370 $ 37,752
Working capital ( 18,184) 62,837 29,292 12,318 5,985
Property & equipment (gross) 27,068 51,418 44,832 35,055 20,624
Total Assets 64,515 163,641 130,256 99,315 63,434
Long-term obligations - 69,000 18,400 17,469 1,200
Total Liabilities 68,865 133,249 88,529 79,576 43,824
Redeemable preferred stock 20,000 20,000 20,000 - -
Shareholders' equity (deficit) ( 24,350) 10,392 21,727 19,739 19,609
_________________________________________________________________
(1) Loss from operations includes $3.6 million special charge and $13.3
million for the exit of the catalog business, (see notes 3 and 5 of the
Notes to Consolidated Financial Statements)
(2) Loss from operations includes $11.5 million special charge. (see note 5
of the Notes to Consolidated Financial Statements)
(3) 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
Unaudited Consolidated Financial Statements of the Company and the accompanying
unaudited notes. The Company will amend this filing with final audited
financial statements and notes once the audit is completed, having been
delayed due to the timing of the bankruptcy filing and the associated reporting
requirements. The discussion below may change as a result of audit
adjustments, if any, and the availability of new information on subsequent
events which may become available.
GENERAL
The Company entered the fall of fiscal 1996 highly leveraged due primarily to an
aggressive growth plan which resulted in significant capital expenditures for
its corporate facility, fourteen new retail stores, internally developed
computer systems as well as significant increases in its investment in working
capital over the previous three fiscal years. Due to a $11.5 million special
charge recorded in the third quarter of fiscal 1995, the Company breached
several financial covenants in its revolving line of credit and term loan
agreement. These defaults were cured in August, 1995, with signing of an
amended credit facility containing more restrictive monthly financial
covenants. Due to lower than planned operating profit and a higher net loss
for the first quarter ended September 30, 1995, the Company did not meet the
new monthly covenants related to profitability and net worth. Subsequently,
the Company negotiated successive waiver agreements with its lenders subject
to generally declining borrowing limits and financial flexibility, the last of
which extended the waiver of defaults until August 16, 1996.
In September 1995, the Company retained an outside financial advisor and began
to actively pursue strategic and financial alternatives for securing additional
sources of debt or equity financing or selling all or part of the Company.
This process resulted in three significant transactions including the sale of
selected catalog business assets on May 17, 1996 for $35.0 million in cash, the
sale of five retail stores on July 25, 1996 for $16.2 million in cash and the
sale of the corporate facility on July 31, 1996 for $6.6 million in cash.
Substantially all of the proceeds were used to pay down the revolving line of
credit and term loan balance. As a result of the catalog assets sale, the
Company exited from the catalog business which accounted for 53 percent of
total fiscal 1996 sales.
During most of the second half of fiscal 1996, the Company was unable to
purchase inventory on open account, being generally limited to
payment-on-delivery terms with selected vendors, which resulted in increasing
out-of-stock conditions and deteriorating comparable store sales. With very
limited availability under its credit facility after the completion of asset
sales noted above and needing additional financing to meet ongoing operating
expenses, the Company and its GRS and GMO subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Eastern
District of Wisconsin (the "Bankruptcy Court") on August 9, 1996. The
Company's management has continued to manage the operations and affairs of the
Company as debtor-in-possession, subject to the jurisdiction of the Bankruptcy
Court. Consequently, certain actions of the Company during the pendency of the
bankruptcy proceedings including, without limitation, transactions outside the
normal course of business, are subject to the approval of the Bankruptcy Court.
The Company has obtained a debtor-in-possession revolving line of credit of up
to $25.0 million to finance operations during the bankruptcy reorganization as
discussed below.
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RESULTS OF OPERATIONS
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
-----------------------------------------------------------------
June 29, 1996 July 1, 1995 July 2, 1994
----------------- ------------------ -----------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 70.9 67.8 67.5
------ ------ ------
Gross Profit 29.1 32.2 32.5
Selling, general and administrative
expenses 32.6 32.0 30.1
Special charge 1.2 3.9 -
Loss on exit from catalog business 4.6 - -
------ ------ ------
Income (loss) from operations ( 9.3) ( 3.7) 2.4
Interest expense 2.0 1.6 1.0
Other expense (income) - net 0.2 0.4 0.1
------ ------ ------
Income (loss) before income taxes ( 11.5) ( 5.7) 1.3
Income taxes ( 0.1) ( 2.1) 0.5*
------ ------ ------
Net income (loss) ( 11.6)% ( 3.6)% 0.8%
====== ====== ======
________________
* Includes FAS 109 adoption
FISCAL 1996 VS. FISCAL 1995
NET SALES: Net sales for fiscal 1996 were $291.9 million, a decrease of $5.8
million, or 2.0 percent from fiscal 1995. Catalog and retail store sales were
53.0 percent and 47.0 percent of total net sales, respectively.
Catalog net sales decreased 23.4 percent to $154.8 million compared to $202.3
million reported in fiscal 1995. The decrease is attributable to the
termination of the catalog business in the fourth quarter, decreased catalog
circulation, elimination of selected promotions and lower than expected average
order values. As discussed below, the Company sold selected catalog assets
to Cabela's, Inc. in May, 1996. As a result of the sale, the Company exited
the catalog business during the fourth quarter of fiscal 1996, filling a very
limited number of catalog orders in the quarter compared to the prior year.
Retail store sales in fiscal 1996 were $137.1 million, an increase of $41.6
million, or 43.5 percent, over fiscal 1995 sales of $95.5 million. Of the
increase, $12.1 million was produced by two stores opened in fiscal 1996 and
$36.0 million was produced by seven stores opened in fiscal 1995 offset by a
$6.5 million decrease in comparable store sales. The increase in overall sales
included a large scale inventory liquidation plan where inventory which was
discontinued from the standard merchandise mix and primarily out of season was
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 was substantially complete by
year end. Comparable store sales decreased 7.6 percent over the prior year and
excluding the sales impact of the special inventory liquidation plan noted
above, the Company believes comparable sales would have declined further. The
decrease is mostly attributable to poor in-stock positions which resulted in
both decreased customer transactions and average ticket purchases.
The Company believes its sales during the third and fourth quarters of fiscal
1996 were adversely affected by the Company's inability to obtain inventory on
open account with many vendors, being generally limited to payment-on-delivery
terms with selected vendors, and the cancellation of merchandise shipments by
several vendors for the spring season which began in late February. This
resulted in increasing out-of-stock conditions and declining average
transaction values throughout the last half of fiscal 1996.
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GROSS PROFIT: Fiscal 1996 gross profit decreased $11.0 million, or 11.4
percent compared to fiscal 1995 results, reflecting the lower gross margin
rates and decreased sales volume. Overall, gross profit as a percentage of net
sales declined to 29.1 percent from 32.2 percent in fiscal 1995. Most of the
decline was a result of higher promotional activities.
Gross profit on catalog sales decreased $18.6 million, or 28.5 percent,
compared to fiscal 1995 results due to substantially lower sales volume and a
decline in gross profit as a percent of net sales to 30.1 percent in fiscal
1996 from 32.3 percent in fiscal 1995. The decline in gross profit as a
percent of sales was due primarily to lower merchandise margins as a result of
increased price promotion and clearance activities.
Gross profit on retail store sales in fiscal 1996 rose $7.6 million, or 24.8
percent, compared to fiscal 1995. As a percent of net sales, retail gross
profit decreased to 27.9 percent in fiscal 1996 from 32.1 percent in fiscal
1995. The decline in gross profit as a percent of sales was due primarily to
increased promotional activity, a sales mix weighted towards lower-margined
consumable products due to out-of-stock conditions on many products and, to a
lesser extent, the effect of the special inventory liquidation plan sales at
cost (see special charge below).
OPERATING EXPENSES: Operating expenses for fiscal 1996 decreased $0.3 million,
or 0.3 percent, over fiscal 1995 results. Operating expenses as a percent of
net sales increased to 32.6 percent in fiscal 1996 from 32.1 percent in fiscal
1995. Increases in operating expenses resulted principally from labor expenses
associated with the higher retail sales volume associated with new stores,
offset by reduced catalog expenses associated with the decrease in catalog
circulation.
SPECIAL CHARGE: The Company incurred special charges of $3.6 million and $11.5
million in 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. The 1996 charge was initially
estimated at $5.3 million, but was reduced by $1.7 million to $3.6 million in
the fourth quarter reflecting better than expected cost recovery margins on the
liquidated inventory. The fiscal 1995 charge, incurred in the third quarter, 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. The tables below summarize the
activity associated with these charges:
Inventory Value Net
1996 Special Charge (as adjusted): at Cost Charge Inventory
- ---------------------------------- ------------------- ------ ---------
Retail Inventory $ 8.5 $ 2.5 $ 6.0
Catalog Inventory 3.8 1.1 2.7
------- ------- ------
Total 12.3 3.6 8.7
Reduction thru June 29, 1996 11.5 ( 3.1) ( 8.4)
------- ------- ------
Balance at June 29, 1996 $ 0.8 $ 0.5 $ 0.3
======== ======= ======
Reserve at Reserve at
1995 Special Charge: July 1, 1995 Utilized June 29, 1996
- -------------------- ------------ -------- -------------
Aged inventory write-off $ 2.4 $( 2.4) $ -
Other catalog charges:
Severance costs 0.6 - 0.6
EZ Pay program 0.5 (0.2) 0.3
Other 0.1 - 0.1
------- ------- ------
Total $ 3.6 $( 2.6) $ 1.0
======== ======= ======
LOSS ON EXIT FROM CATALOG BUSINESS: In May 1996, the Company sold selected
catalog assets including the customer list, certain other intangible assets and
selected inventory with a gross book value of $26.5 million to Cabela's, Inc.
for $35.0 million in cash. As a result of the sale, the Company exited the
catalog business during the fourth quarter of fiscal 1996. The catalog business
exit strategy included liquidation of the remaining catalog inventory not sold
above through the retail stores (see special charge), 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 recognized a net charge of $13.3 million in
the fourth quarter of fiscal 1996 as the gain on sale of assets described above
was offset by $12.2 million for the writedown of the Wilmot facility and
catalog fixed assets to net realizable value as assets held for sale, $3.1
million for the remaining lease payments on equipment primarily used in the
catalog operation, $1.5 million for employee severance and termination
benefits, $1.5 million for the write-off of unamortized prepaid catalog
expenses, $1.4 million of direct transaction costs, $1.7 million in reserves
for estimated costs of contract related litigation and contingent claims (see
Note 3) and $0.4 million for the write-off of deferred organization and
financing costs.
OTHER INCOME AND EXPENSE: Other expense was $6.6 million in fiscal 1996
compared to $6.0 million in fiscal 1995. The increase is due to higher
interest and financing costs associated with the higher average borrowings
against the Company's revolving line of credit and term loan and increased
interest rates.
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PROVISION (BENEFIT) FOR INCOME TAXES: The income tax provision of $0.1 million
compares unfavorably to an income benefit of $6.2 million in the prior year.
The income tax benefit resulting from fiscal 1996 losses was offset by a $13.7
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: As a result of the items above, the Company recorded a net loss of
$33.8 million or $10.74 per share for fiscal 1996 compared to a net loss of
$10.8 million or $3.69 per share for fiscal 1995.
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.
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.
11
12
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.
SEASONALITY
The Company's ongoing retail business is seasonal with sales increasing
relatively significantly between the Thanksgiving and Christmas holidays and
decreasing in January and February. These factors combine to
cause the Company to have relatively weak results in its third fiscal quarter.
Due to the difficulty in obtaining inventory on open account and the abnormally
high out-of stock levels going into fiscal 1997, the Company's sales in the
first quarter of fiscal 1997 are expected to be significantly lower than
experienced in fiscal 1996.
12
13
LIQUIDITY AND CAPITAL RESOURCES
As noted above (see "General"), the Company is currently operating as
debtor-in-possession under the supervision of the Bankruptcy Court.
The Company's primary on-going cash requirements are for operating expenses,
inventory purchases and capital expenditures associated with operating its
retail stores. Additionally, the Company leases its retail facilities and
certain other equipment. The Company currently meets these cash requirements
through cash flows generated from operations and borrowings against a
debtor-in-possession revolving line of credit of up to $25.0 million.
On August 12, 1996, the Company entered into a Debtor-In-Possession Revolving
Credit Agreement, as amended, with CIT Group/Business Credit, Inc. (the
"Lender") which was approved by the Bankruptcy Court on September 6, 1996.
Proceeds from the Debtor-In-Possession Revolving Credit Agreement were used to
pay-off the previous Revolving Line of Credit and Term Loan (described below).
The Debtor-In-Possession Revolving Credit Agreement provides for extensions of
revolving credit loans and letters of credit, limited to a percentage of
eligible inventory and receivables less certain reserves for gift certificates
and other fees, up to a maximum of $25.0 million through the earlier of the
effective date of a confirmed plan of reorganization or the August 8, 1999
termination date. The Debtor-In-Possession Revolving Credit Agreement provides
for a security interest in substantially all of the Company's assets and is
guaranteed by GRS and GMO. The Debtor-In-Possession Revolving Credit Agreement
provides certain restrictive covenants for which management believes that it has
adequate flexibility and that such covenants should not impose undue
restrictions on the operations of the Company during its Chapter 11 proceedings.
The Company is currently in compliance with the terms of the
Debtor-In-Possession Revolving Credit Agreement.
The previous Revolving Line of Credit and Term Loan entered into on November
22, 1994, as amended, with various bank lenders was secured by substantially
all assets of the Company. Due to a $11.5 million special charge recorded in
the third quarter of fiscal 1995, the Company breached several financial
covenants in its Revolving Line of Credit and Term Loan agreement. These
defaults were cured on August 18, 1995, with the signing of an amended credit
facility containing more restrictive monthly financial covenants. Due to lower
than planned operating profit and a higher net loss for the first quarter ended
September 30, 1995, the Company did not meet the new monthly covenants related
to profitability and net worth. Subsequently, the Company negotiated
successive waiver agreements with its lenders subject to generally declining
borrowing limits and financial flexibility, the last of which extended the
waiver of defaults until August 16, 1996 and limited total borrowings to $11.0
million. The waiver agreement in effect at June 29, 1996 limited total
borrowings to a maximum of $32.8 million and expired as of July 20, 1996.
Substantially all cash, as such funds were collected and available, was applied
directly each day against the outstanding revolving line of credit balance.
All cash outflows were advances against the revolving line of credit and
subject to prior approval by the bank lenders. At June 29, 1996, the Company
had $2.9 million available under the Revolving Line of Credit and Term Loan.
Due to the Bankruptcy Proceedings, substantially all claims against the
Company, prior to August 9, 1996, are subject to the automatic stay provisions
under the Bankruptcy Code while the Company continues business operations as a
debtor-in-possession. Pre-petition claims may arise from the determination by
the Bankruptcy Court of allowed claims for contingencies and other disputed
amounts.
At the Company's request, the Bankruptcy Court established a bar date of
October 25, 1996 for pre-petition claims against the Company. A bar date is
the date by which claims against the Company must be filed if the claimants
wish to receive any distribution in the Bankruptcy Proceedings. The Company
has given notice to all known actual or potential claimants subject to the bar
date of their need to file a proof of claim with the Bankruptcy Court. The
Company will reconcile claims that differ from the Company's records, and any
differences that cannot be resolved by negotiated agreement between the Company
and the claimant will be resolved by the Bankruptcy Court. Accordingly,
allowed claims may arise which are not currently reflected in the Company's
financial statements and recorded claims are subject to change. The ultimate
amount of and settlement terms for such liabilities are subject to a plan of
reorganization which is subject to approval by the Bankruptcy Court and,
accordingly, are not presently determinable.
13
14
During fiscal 1996, the Company's operating activities provided $18.6 million
of cash primarily the result of the reduction of inventory levels and prepaid
catalog expenses, offset by a decrease in accounts payable. During fiscal
1995, the Company's operating activities used $12.6 million of cash primarily
from the increase in working capital. The following table highlights the
Company's working capital position at June 29, 1996 and July 1, 1995.
FISCAL YEAR ENDED
-------------------------
(Dollars in thousands) 1996 1995
---------------------- ------- -----------
Current Assets $ 50,681 $127,086
Current Liabilities 68,865 64,249
Working Capital (18,184) 62,837
Current Ratio 0.7:1 2.0:1
The decrease in working capital and the current ratio is primarily the result
of increased short-term borrowings, as all bank borrowings were classified as
current at June 29, 1996, lower inventory, prepaid expense and accounts
receivable levels, partly offset by lower accounts payable and an increase in
assets held for sale.
The accounts receivable balance decreased by $6.2 million in fiscal 1996 due
primarily to the discontinuance of the deferred payment plans offered by the
catalog business. The inventory balance decreased by $63.3 million in fiscal
1996 reflecting primarily the exit from the catalog business and, to a lesser
extent, the limited retail inventory purchases over the second half of fiscal
1996 as discussed above. The prepaid catalog expenses balance decreased by
$13.2 million in fiscal 1996 reflecting the exit from the catalog business. The
increase in assets held for sale of $7.2 million reflects primarily the net
realizable value of the Company's Wilmot, Wisconsin facility.
The accounts payable balance decreased in fiscal 1996 by $20.2 million
reflecting reduced inventory purchases for the terminated catalog business and
reduced inventory purchases on terms over the second half of fiscal 1996 offset
by the fact that the majority of accounts payable were overdue and remained
unpaid as of June 29, 1996.
During fiscal 1996, the Company's investing activities provided $32.3 million
of cash primarily the result of the Company selling selected catalog assets
including the customer list, certain other intangible assets and selected
inventory for $33.6 million in cash, net of direct transaction costs. During
fiscal 1995, the Company's investing activities used $11.9 million of cash due
to capital expenditures as described below. The following table highlights the
Company's capital expenditures and depreciation for the years ended June 29,
1996, July 1, 1995, and July 2, 1994.
Fiscal Year Ended
-------------------------------------------
(Dollars in thousands) 1996 1995 1994
---------------------- -------- ---------- ---------
Capital Expenditures $ 1,628 $ 11,852 $ 9,778
Depreciation $ 3,879 $ 4,421 $ 3,272
In fiscal 1996, capital expenditures were primarily related to the addition of
two new retail stores and, to a lesser extent, the development of computer
systems. In fiscal 1995 and fiscal 1994, the major capital projects included
fixtures and leasehold improvements for seven and two new retail stores,
respectively, and developing computer software and hardware systems in both
years. Capital expenditures for fiscal 1997 are limited to $1.0 million by the
Debtor-In-Possession Revolving Credit Agreement. The Company currently has no
significant planned capital expenditures or new store openings in fiscal 1997.
During fiscal 1996, the Company's financing activities used $50.4 million of
cash primarily the result of repayments of long and short term borrowings as
required under the successive waiver agreements. During fiscal 1995, the
Company's financing activities provided $24.9 million of cash primarily the
result of the increase in line of credit borrowings.
14
15
While the Company believes it has adequate financing to operate in bankruptcy
for a reasonable period of time, its ability to successfully continue
operations is dependent upon, among other things, confirmation of a plan of
reorganization that will enable the Company to emerge from bankruptcy
proceedings, obtaining adequate post-confirmation financing to fund working
capital requirements, including the ability to purchase inventory on open
account, and generating sufficient cash from operations and financing sources
to meet obligations. The Company has resumed purchasing inventory on open
account with reasonable terms with a number of key suppliers and is attempting
to return to normal purchase terms with all of its suppliers over the next
several months. There can be no guarantee that any or all of the above noted
actions will be accomplished.
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
The Company is generally able to reflect increases and decreases in costs as a
result of inflation 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. Foreign exchange has little effect on the Company as foreign
purchases are predominately made in U.S. dollars and there are no plans
currently to expand internationally. Except for the items noted above, the
results of operations for the periods discussed have not been significantly
affected by these factors.
Item 8. Financial Statements and Supplementary Data
The Company will amend this filing with final audited financial statements
and notes once the audit is completed, having been delayed due to the timing of
the bankruptcy filing and the associated reporting requirements. The financial
statements and notes which follow may change as a result of audit adjustments,
if any, and the availability of new information on subsequent events which may
become available.
Page in
Index to Unaudited Financial Statements 10-K
-------
Consolidated Balance Sheets at
June 29, 1996 and July 1, 1995 . . . . . . . . . . . . . . 16
Consolidated Statements of Operations
for the years ended June 29, 1996,
July 1, 1995 and July 2, 1994 . . . . . . . . . . . . . . 17
Consolidated Statements of Shareholders'
Equity for the years ended June 29, 1996,
July 1, 1995, and July 2, 1994 . . . . . . . . . . . . . . 18
Consolidated Statements of Cash Flows for
the years ended June 29, 1996, July 1, 1995,
and July 2, 1994 . . . . . . . . . . . . . . . . . . . . . 19
Notes to Consolidated Financial Statements . . . . . . . . . . . . 20-30
15
16
CONSOLIDATED BALANCE SHEETS
At June 29, 1996 and July 1, 1995
(in thousands, except share data)
Unaudited
------------------------------
1996 1995
-------- ---------
ASSETS
CURRENT ASSETS
Cash $ 3,287 $ 2,818
Accounts receivable 1,623 7,802
Refundable income taxes 500 1,420
Inventories 37,352 100,639
Prepaid catalog expenses - 13,242
Other current assets 584 1,065
Assets held for sale 7,335 100
-------- ---------
Total current assets 50,681 127,086
-------- ---------
PROPERTY AND EQUIPMENT - net 13,834 35,585
-------- ---------
DEFERRED INCOME TAXES - 154
-------- ---------
INTANGIBLE ASSETS - net - 816
-------- ---------
$64,515 $163,641
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $24,282 $ 44,472
Notes payable to bank 29,376 9,500
Current portion of long-term obligations - 1,400
Other current liabilities 15,207 8,877
-------- ---------
Total current liabilities 68,865 64,249
-------- ---------
LONG-TERM OBLIGATIONS - 69,000
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 13) -------- ---------
SERIES A REDEEMABLE, CUMULATIVE, CONVERTIBLE,
EXCHANGEABLE PREFERRED STOCK
$0.10 par value; 200,000 shares authorized. 200,000 shares
issued and outstanding at June 29, 1996 and July 1, 1995
(see note 10) 20,000 20,000
-------- ---------
SHAREHOLDERS' EQUITY
Class B preferred stock $0.10 par value; 300,000 shares
authorized. None issued and outstanding at June 29, 1996
and July 1, 1995 - -
Common stock, $0.01 par value; 20,000,000 shares
authorized. 3,261,453 and 3,240,081 shares issued and
outstanding at June 29, 1996 and July 1, 1995, respectively. 33 32
Additional paid-in capital 12,662 12,564
Accumulated deficit (36,495) (1,604)
Less notes receivable from shareholders (550) (600)
-------- ---------
Total shareholders' equity (deficit) (24,350) 10,392
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $64,515 $163,641
======== =========
The accompanying notes are an integral part of the financial statements.
16
17
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 29, 1996, July 1, 1995 and July 2, 1994
(in thousands, except per share data)
Unaudited
----------------------------------------
1996 1995 1994
--------- -------- --------
Net sales $291,935 $297,784 $246,054
Cost of goods sold 206,978 201,843 166,198
--------- -------- --------
Gross profit 84,957 95,941 79,856
Operating expenses 95,144 95,453 73,911
Special charge 3,599 11,510 -
Loss on exit from catalog business 13,308 - -
--------- -------- --------
Income (loss) from operations (27,094) (11,022) 5,945
--------- -------- --------
Other expense
Interest expense - net 5,955 4,635 2,362
Other - net 623 1,326 368
--------- -------- --------
Total other expense 6,578 5,961 2,730
--------- -------- --------
Income (loss) before income taxes (33,672) (16,983) 3,215
Income tax provision (benefit) 109 (6,199) 1,254
--------- -------- --------
Income (loss) before cumulative effect of
a change in accounting principle (33,781) (10,784) 1,961
Cumulative effect of change in accounting
principle - - 120
--------- -------- --------
Net income (loss) ($33,781) ($10,784) $2,081
Preferred redeemable stock dividends 1,110 1,112 418
--------- -------- --------
Net income (loss) to common shareholders ($34,891) ($11,896) $1,663
========= ======== ========
Primary and fully diluted income per share:
Income (loss) per share before cumulative
effect of a change in accounting principle ($10.74) ($3.69) $0.48
Per share cumulative effect of change in
accounting principle - - 0.04
--------- -------- --------
Net income (loss) per common share ($10.74) ($3.69) $0.52
========= ======== ========
The accompanying notes are an integral part of the financial statements.
17
18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 29, 1996, July 1, 1995 and July 2, 1994
(in thousands)
Unaudited
------------------------------------------------------------------------------------
Retained Notes
Common Stock Earnings Receivable
--------------------- Additional (Accumulated from
Shares Amount Paid-in-Capital Deficit) Shareholders Total
-------- ----------- --------------- -------------- ----------------- --------
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
Series A redeemable preferred dividends - - - (1,110) - (1,110)
Stock options exercised 4 - 37 - - 37
Executive stock purchase plan - - (26) - 50 24
Associate stock purchase plan 17 1 87 - - 88
Net loss - - - (33,781) - (33,781)
------ ------ ------- ------- ------- --------
Balance at June 29, 1996 3,261 $33 $12,662 ($36,495) ($550) ($24,350)
====== ===== ======= ======== ======= ========
The accompanying notes are an integral part of the financial statements.
18
19
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended June 29, 1996, July 1, 1995 and July 2, 1994
(in thousands)
Unaudited
--------------------------------------------------
1996 1995 1994
----------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($33,781) ($10,784) $2,081
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Net loss on exit from catalog business 13,308 - -
Special charge 3,599 11,510 -
Depreciation and amortization 4,108 4,827 3,592
Deferred income taxes 154 (3,527) 1,358
Cumulative effect of change in accounting
principle - - (120)
Changes in operating assets and liabilities
net of effect of exit from catalog business:
Accounts receivable 6,179 (1,211) (5,275)
Refundable income taxes 920 790 (1,610)
Inventories 33,373 (36,172) (15,597)
Prepaid catalog expenses 11,516 1,284 (25)
Accounts payable (20,190) 21,254 (9,255)
Deferred income taxes 48 (2,645) 1,174
Other (665) 2,064 (216)
------- ------ -------
Cash provided by (used for) operating activities 18,569 (12,610) (23,893)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of catalog assets 33,571 - -
Acquisition of property, plant and equipment (1,628) (11,852) (9,778)
Disposal of property, plant and equipment 332 - -
------- ------- -------
Cash provided by (used for) investing activities 32,275 (11,852) (9,778)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issurance of common stock 149 561 325
Net proceeds from (repayments of) line of credit agreements (30,124) 25,632 11,810
Net proceeds from (repayments of) long-term debt (20,400) (400) 2,931
Proceeds from sale of preferred stock - - 20,000
Cash dividends paid on preferred stock - (850) (370)
------- ------- -------
Cash provided by (used for) financing activities (50,375) 24,943 34,696
------- ------- -------
INCREASE IN CASH 469 481 1,025
CASH BEGINNING OF YEAR 2,818 2,337 1,312
------- ------- -------
CASH END OF YEAR $3,287 $2,818 $2,337
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid (received) during the year for:
Interest $6,975 $3,883 $2,274
======= ====== =======
Income taxes ($1,347) ($784) $493
======= ======= =======
The accompanying notes are an integral part of the financial statements.
19
20
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PETITION FOR REORGANIZATION UNDER CHAPTER 11 AND BASIS OF PRESENTATION
On August 9, 1996, the Company and its two wholly-owned subsidiaries, GRS, Inc.
("GRS") and GMO, Inc. ("GMO") filed voluntary petitions for reorganization under
Chapter 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the Eastern District of Wisconsin (the "Bankruptcy
Court"). Since August 9, 1996 the Company has been operating as a
debtor-in-possession.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Accordingly, the consolidated financial
statements do not purport to show (a) the realizable value of assets on a
liquidation basis or their availability to satisfy liabilities; (b)
pre-petition liability amounts that may be allowed for claim or contingencies
or the status and priority thereof ; (c) the effect of any changes that may be
made to the capitalization of the Company; or (d) the effect of any changes
that may be made in the Company's business operations. The outcome of these
matters is not presently determinable. The Company has recently experienced
recurring losses from operations; has an accumulated deficit at June 29, 1996;
had difficulty in meeting its amended Revolving Line of Credit and Term Loan
Agreement covenants and cannot presently determine with certainty the ultimate
liability which may result from the filing of claims in connection with the
Bankruptcy Proceedings. These conditions raise doubt as to the Company's
ability to continue as a going concern.
Due to the Bankruptcy Proceedings, substantially all claims against the
Company, prior to August 9, 1996, are subject to the automatic stay provisions
under the Bankruptcy Code while the Company continues business operations as a
debtor-in-possession. Pre-petition claims may arise from the determination by
the Bankruptcy Court of allowed claims for contingencies and other disputed
amounts.
Liabilities recorded by the Company as of June 29, 1996 that would be subject
to compromise under any plan of reorganization consisted of the following
(in thousands):
Amount
--------
Accounts payable $ 24,282
Accrued liabilities 4,755
-------
Total $ 29,037
=======
At the Company's request, the Bankruptcy Court established a bar date of
October 25, 1996 for pre-petition claims against the Company. A bar date is
the date by which claims against the Company must be filed if the claimants
wish to receive any distribution in the Bankruptcy Proceedings. The Company
has given notice to all known actual or potential claimants subject to the bar
date of their need to file a proof of claim with the Bankruptcy Court. The
Company will reconcile claims that differ from the Company's records, and any
differences that cannot be resolved by negotiated agreement between the Company
and the claimant will be resolved by the Bankruptcy Court. Accordingly,
allowed claims may arise which are not currently reflected in the Company's
financial statements and recorded claims are subject to change. The ultimate
amount of and settlement terms for such liabilities are subject to a plan of
reorganization which is subject to approval by the Bankruptcy Court and,
accordingly, are not presently determinable.
20
21
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -
Gander Mountain, Inc., (the "Company"), has principally been engaged in catalog
and retail store sales of functional outdoor products serving the lifestyle of
the hunting, fishing, camping and hiking enthusiasts. In the fourth quarter of
1996, the Company exited the catalog business (see note 3).
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.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION -
Revenue is recognized at time of sale and is reduced for anticipated merchandise
returns.
CASH -
Included in cash at June 29, 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 credits and chargebacks. The Company believes that the
amount of future credits and chargebacks will not be material and is fully
reserved for in other liabilities. The cash reserve was reduced to $0.9
million in August, 1996.
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 $575,000 and $896,000 as of June 29, 1996
and July 1, 1995, 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 June 29, 1996, July 1, 1995 and July 2, 1994 was $0.9 million, $2.3
million and $0.4 million, respectively. Changing the amortization period
impacted fiscal 1995 operating results by $1.3 million.
DEFERRED COSTS -
Catalog costs were capitalized and charged to expense based upon the projected
revenue stream which did not exceed twelve months. Certain costs to acquire
customer names were capitalized and amortized over a three year period. At June
29, 1996, there were no deferred costs recorded due to the Company's exit from
this business during the fourth quarter of 1996.
ADVERTISING -
Advertising costs are expensed in the period in which the advertising occurs.
For the years ended June 29, 1996, July 1, 1995 and July 2, 1994, advertising
expense of $2.9 million, $2.1 million and $1.3 million was recorded,
respectively.
21
22
PROPERTY AND 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, June 29, 1996, July 1, 1995 and July 2, 1994,
$0, $246,000 and $341,000 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.
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 3,249,000, 3,224,000 and
3,212,000 for the years ended June 29, 1996, July 1, 1995 and July 2, 1994,
respectively.
NOTE 3 - LOSS ON EXIT FROM CATALOG BUSINESS
On May 17, 1996, the Company sold selected catalog assets including the
customer list, certain other intangible assets and selected inventory with a
gross book value of $26.5 million to Cabela's, Inc. for $35.0 million in cash.
As a result of the sale, the Company exited the catalog business during the
fourth quarter of fiscal 1996. The catalog business exit strategy included
liquidation of the remaining catalog inventory not sold above through the
retail stores (see Note 5), 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 recognized a net charge of $13.3 million in the fourth quarter of
fiscal 1996 as summarized below (in millions):
Amount
------
Gross proceeds $ 35.0
Less: Direct transaction costs 1.4
-----
Net proceeds 33.6
Less: Book value of assets sold 26.5
Writedown assets held for sale to net realizable value 12.2
Accrual of remaining lease payments on equipment primarily
used in the catalog operation 3.1
Employee severance and termination benefits 1.5
Write-off unamortized prepaid catalog expenses 1.5
Estimated cost of contract related litigation and claims 1.7
Write-off of deferred organization and financing costs 0.4
-----
Loss on exit from catalog business $ 13.3
====
Included in the impaired fixed assets above are the office equipment and
furniture used in the catalog operation and phone center as well as warehouse
equipment and racking utilized in catalog order fulfillment. The fair value of
these assets was determined based on estimates provided by resellers of such
equipment. The fair value of the Wilmot complex was based on the negotiated
sale price as discussed in Note 4. The carrying value of these assets is
included in a separate caption in the accompanying balance sheet.
22
23
The liabilities recorded above are included in "Other Current Liabilities" on
the balance sheet. The following table summarizes the activity and remaining
balance of these liabilities (in millions):
Initial Balance
Balance Utilized June 29, 1996
------- -------- -------------
Accrual of remaining lease payments on equipment
primarily used in the catalog operation $ 3.1 $ 0.1 $ 3.0
Employee severance and termination benefits 1.5 0.9 0.6
Estimated cost of contract related litigation and
contingent claims 1.7 - 1.7
---- ------ ----
$ 6.3 $ 1.0 $ 5.3
==== ==== ====
Included in the consolidated statements of operations are the following amounts
for the catalog business (in thousands):
Fiscal Years Ended
----------------------------------------------------------------
June 29, July 1, July 2,
1996 1995 1994
-------- -------- --------
Net sales $154,861 $202,270 $181,684
Cost of goods sold 108,186 136,992 122,032
-------- -------- --------
Gross profit $ 46,675 $ 65,278 $ 59,652
======== ======== ========
Direct catalog expenses included $ 45,220 $ 51,926 $ 34,688
in operating expenses ======== ======== ========
In addition the level of inventories (in thousands) associated with the catalog
business as of the end of the 1996, 1995 and 1994 fiscal years was $557,
$66,069 and $51,142, respectively.
NOTE 4 - SUBSEQUENT EVENTS
On July 31, 1996, the Company sold its combined headquarters, distribution and
retail store facility in Wilmot, Wisconsin to Pleasant Company for cash proceeds
net of transaction costs, tax prorations and escrowed funds of $6.6 million
which was used to reduce debt. The Company may continue to occupy the facility
subject to a lease under which the Company must vacate the facility by June 1,
1997, except for its retail store and attached support area for which it has
five one-year lease renewal options. As the facility had previously been
written down to net realizable value as an asset held for sale as part of the
exit from catalog costs, no gain or loss will be recorded on this sale.
On July 25, 1996, the Company sold the assets of its three Minnesota stores
(Duluth, Maple Grove and St. Cloud) and two stores in western Wisconsin (Eau
Claire and LaCrosse) to Holiday Stationstores, Inc. ("Holiday") for cash
proceeds net of transaction costs of $16.0 million which was used to reduce
debt. The sale included the purchase of inventory, store fixtures and leasehold
improvements, along with the assumption of certain existing leases for the
facilities and other liabilities. The net book value of assets sold net of
liabilities assumed was $12.2 million resulting in a pre-tax gain of $3.8
million. In addition, Holiday offered employment to all of the Company's
existing employees in the above stores. Holiday will continue to have the right
to operate under the Gander Mountain name until January 31, 1997. Also included
in the above transaction was a $0.5 million long term loan to the Company from
Holiday due on July 25, 2000 at 6.0 percent interest due at loan maturity.
23
24
Included in the consolidated statements of operations are the following amounts
for the five stores sold to Holiday (in thousands):
Fiscal Years Ended
-----------------------------------------------------------------
June 29, July 1, July 2,
1996 1995 1994
--------- ------- --------
Net sales $ 32,022 $ 23,278 $ 16,424
Cost of goods sold 23,094 15,773 11,041
--------- ---------- ----------
Gross profit $ 8,928 $ 7,505 $ 5,383
========= ========== ==========
Direct store expenses included $ 7,480 $ 5,283 $ 3,799
in operating expenses ========= ========== ==========
In addition the level of inventories (in thousands) associated with the above
five stores, as of the end of the 1996, 1995 and 1994 fiscal years
was $8,442, $7,371 and $5,378, respectively.
NOTE 5 - 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 was 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 was substantially completed 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 net $3.6 million
special charge to reduce this inventory to the estimated lower of cost or
market value. The charge was initially estimated at $5.3 million, but was
reduced by $1.7 million to $3.6 million in the fourth quarter reflecting better
than expected cost recovery margins on the liquidated inventory. The
components of this special charge were as follows (in millions):
Inventory Net
Value at Cost Charge Inventory
------------- ------ ---------
Retail Inventory $ 8.5 $ 2.5 $ 6.0
Catalog Inventory 3.8 1.1 2.7
------- ------- -------
Total 12.3 3.6 8.7
Reduction thru June 29, 1996 ( 11.5) ( 3.1) ( 8.4)
------- ------- -------
Balance at June 29, 1996 $ 0.8 $ 0.5 $ 0.3
======= ======= =======
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. The table below summarizes the activity
associated with these charges during the current year (in millions):
Reserve at Reserve at
July 1, 1995 Utilized June 29, 1996
------------ -------- -------------
Aged inventory write-off $ 2.4 $( 2.4) $ -
Other catalog charges:
Severance costs 0.6 - 0.6
EZ Pay program 0.5 ( 0.2) 0.3
Other 0.1 - 0.1
------ ------ ------
Total $ 3.6 $( 2.6) $ 1.0
===== ==== =====
24
25
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
June 29, July 1,
1996 1995
---------- ----------
Land and land improvements $ - $ 886
Building and leasehold improvements 8,331 22,501
Equipment 12,946 21,468
Furniture and fixtures 5,791 5,773
Construction in progress - 790
-------- --------
$ 27,068 $ 51,418
Less: accumulated depreciation ( 13,234) (15,833)
------- ------
Total $ 13,834 $ 35,585
======= =======
NOTE 7 - BORROWING ARRANGEMENTS
At June 29, 1996, the Company maintained a revolving line of credit with a Bank
Group (the "Banks") which was subject to changing availability as set forth in
short-term waiver agreements, as discussed below, whereby it could borrow up to
$32.8 million, subject to a borrowing base formula, expiring on July 20, 1996.
Subsequent to July 20, 1996, the Company negotiated successive waiver
agreements with the Banks which extended the waiver of defaults until August
16, 1996 and limited total borrowings to $11.0 million. This credit facility
was used for working capital needs and letters of credit and provided for
borrowings at the prime rate of interest. As of June 29, 1996, $29.4 million
was outstanding at an interest rate of 8.25 percent. At June 29, 1996, the
Company had $2.9 million available under the revolving line of credit. The
entire balance was subsequently paid utilizing the Debtor-In-Possession
Revolving Credit Agreement discussed below. A commitment fee of 0.375 percent
was 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 had
quarterly principal payments of $0.5 million commencing on March 1, 1996 and
was completely paid-off by June 29, 1996 utilizing the proceeds from the sale
of catalog assets (see Note 3). The term loan bore interest at the prime rate.
The revolving line of credit and term loan were secured by substantially all
assets of the Company. The Company was not in compliance with certain of the
financial covenants related to these borrowings. As a result, the Company and
the Banks signed successive amendments waiving these defaults, the final of
which expired on August 16, 1996. The entire balance owing to the Banks was
paid utilizing the Debtor-In-Possession Revolving Credit Agreement discussed
below.
On August 12, 1996, the Company entered into a Debtor-In-Possession Revolving
Credit Agreement, as amended, with CIT Group/Business Credit, Inc. (the
"Lender") which was approved by the Bankruptcy Court on September 6, 1996. The
Debtor-In-Possession Revolving Credit Agreement paid-off the previous
revolving line of credit with the Banks. The Debtor-In-Possession Revolving
Credit Agreement provides for extensions of revolving credit loans and letters
of credit, limited to a percentage of eligible inventory and receivables less
certain reserves for gift certificates and other fees, up to a maximum of
$25.0 million through the earlier of the effective date of a confirmed plan of
reorganization or the August 8, 1999 termination date. The
Debtor-In-Possession Revolving Credit Agreement provides for a security
interest in substantially all of the Company's assets and is guaranteed by GRS
and GMO. Interest is 1.5 percent over the Prime Rate and unused line fees
accrue at 0.375 percent per annum, both payable monthly. Payment of dividends
is prohibited under the Debtor-In-Possession Revolving Credit Agreement and the
Company is restricted to $1.0 million in capital expenditures in any fiscal
year. The Debtor-In-Possession Revolving Credit Agreement provides certain
restrictive covenants for which management believes that it has adequate
flexibility and that such covenants should not impose undue restrictions on the
operations of the Company during its Chapter 11 proceedings. The Company is
currently in compliance with the terms of the Debtor-In-Possession Revolving
Credit Agreement.
25
26
The carrying value of the Company's bank loans as of June 29, 1996 approximate
fair value, which was determined based on transactions reflected under the
Debtor-In-Possession Revolving Credit Agreement.
NOTE 8 - COMMITMENTS
The Company leases retail stores and office equipment under non-cancelable
operating leases. Total rental expense under these leases was $6,110,000,
$3,838,000 and $2,283,000 for the years ended June 29, 1996, July 1, 1995 and
July 2, 1994, respectively. Five stores were sold subsequent to year-end and
their related leases were assumed by the purchaser. For purposes of
determining the future minimum lease payments, these five stores were excluded.
Future minimum annual lease payments under these leases at June 29, 1996 are as
follows (in thousands):
FISCAL YEARS ENDING
-------------------
1997 $ 4,605
1998 4,047
1999 3,221
2000 2,684
2001 2,727
2002 and after 14,997
------
Total $ 32,281
======
Under the Bankruptcy Code, the Company may elect to assume or reject real
estate leases, and other unexpired executory pre-petition contracts, subject to
Bankruptcy Court approval. The Company cannot presently determine with
certainty the ultimate liability which may result from the filing of claims for
all contracts which may be rejected.
NOTE 9 - 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
---------------------------------------------------------------
June 29, July 1, July 2,
1996 1995 1994
-------- ------ --------
Federal $ - $ ( 104) $ ( 700)
State 109 90 ( 325)
Deferred - (6,185) 2,279
--------- --------- ---------
$ 109 $ (6,199) $ 1,254
========= ========= =========
26
27
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
---------------------------------------------------------------
June 29, July 1, July 2,
1996 1995 1994
-------- ------ --------
Federal income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 5.2 5.6 3.7
Change in valuation allowance ( 41.1) ( 1.5) -
Other 1.6 ( 1.6) 1.3
------- ------- ------
( 0.3) 36.5% 39.0%
======= ======= ======
The Company's temporary differences and carry-forwards that give rise to
deferred tax assets and deferred tax liabilities at June 29, 1996 and July 1,
1995 are as follows (in thousands):
June 29, 1996 July 1, 1995
-------------------------------------- --------------------------------------
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) $ -
Property and Equipment - 1,176 - ( 2,420)
Inventory cost capitalization 508 - 1,777 -
Software development - - - ( 1,676)
Nondeductible accruals 5,140 - 2,384 61
Net operating loss carryforwards - 6,806 1,309 4,202
Alternative minimum tax credit carryover - 181 43 138
Other 175 - ( 210) 47
Valuation allowance (5,823) (8,163) ( 62) ( 198)
------- ------- ------- --------
$ - $ - $ 48 $ 154
======= ======= ======= ========
At June 29, 1996, the Company had $15.7 million and $24.5 million of federal and
state net operating loss carryforwards; these carryforwards expire in 2008
through 2011. During fiscal 1996, the Company recorded a valuation allowance
of $13.7 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. 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. Future changes in ownership could
limit the amount of net operating loss carryforwards used in any one year.
NOTE 10 - 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.
27
28
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 12, 1996
Debtor-In-Possession Revolving Credit Agreement 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 payment 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 -
No dividends were paid in fiscal 1996. 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 $1,420,000, $311,000
and $49,000 were payable at June 29, 1996, July 1, 1995 and July 2, 1994,
respectively, and are included in the balance sheet under the caption, "Other
Current Liabilities."
NOTE 11 - 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.
NOTE 12 - 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.
28
29
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 June
29, 1996, 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 June 29, 1996.
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 June 29, 1996 261,408 $ 10.55
Options exercised 72,812 7.44
Options available for grant at June 29, 1996 391,780
-------
Total 726,000
=======
Activity involving the plans is summarized in the following table:
Number of Option Price
Shares Per Share
------------ -------------
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
Granted 17,250 $4.63 to $ 9.50
Canceled ( 105,725) $9.00 to $13.25
Exercised ( 4,550) $6.14 to $ 9.00
---------
Balance at June 29, 1996 261,408 $4.63 to $17.25
=========
Exercisable at June 29, 1996 154,033
=========
NOTE 13 - CONTINGENCIES
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 has challenged the Service's position and has paid the
tax and interest while immediately filing a claim for refund in the Court of
Claims. An agreement with the Service, subject to final approval by the Office
of Review of the U. S. Department of Justice, has been reached which would
result in a refund to the Company of approximately $375,000 plus interest of
approximately $125,000 as of June 29, 1996. Should approval not be reached,
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.
29
30
In the fourth quarter of fiscal 1996, the Company has been sued by several
creditors seeking overdue trade payable amounts which are generally recorded in
the Company's financial statements and the Company was served with a summons
and complaint in a breach of contract matter relating to a catalog paper order
in the amount of $4.6 million. The plaintiff is seeking $4.6 million in
damages. Management believes that the outcome of these matters 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.
NOTE 14 - RELATED PARTY TRANSACTIONS
David J. Lubar, Chairman of the Board, is President of Lubar & Co.,
Incorporated a private investment company which owns 10.6 percent of the Common
Stock of the Company. In fiscal 1996, the Company paid $306,250 to Mr. Lubar,
representing Lubar & Co., Incorporated., for consulting and advisory services
which included representing the Company in the various asset sale negotiations.
NOTE 15 - QUARTERLY RESULTS (UNAUDITED)
The following tables present selected quarterly data for fiscal 1996 and 1995
(in thousands, except per share data):
Fiscal 1996
-------------------------------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
--------- --------- --------- ---------
Net sales $ 96,279 $120,818 $ 47,389 $ 27,449
Gross profit 28,874 38,045 11,552 6,486
Pre-tax income (loss) (1,784) 3,373 (13,361) (21,900)(1)
Net income (loss) (1,106) 2,073 (14,774) (19,974)(1)
Primary net income (loss)
per share ( 0.43) 0.55 ( 4.63) ( 6.22)
Fully diluted net income
(loss) per share ( 0.43) 0.44 ( 4.63) ( 6.22)
Fiscal 1995
------------------------------------------------------------------------------
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 and fully diluted
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)
______________________
(1) The fourth quarter of 1996 includes the loss on exit from catalog business
of $13.3 million and the ($1.7) million adjustment of the special charge
recorded in the third quarter of fiscal 1996.
(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.
30
31
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 41, 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
56, 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 American Products
division since 1976. President, Simply The Best Sports companies since 1993
(direct marketing consumer catalog). Mr. Jacobsohn is 52 years of age.
JAMES F. KOBS DIRECTOR SINCE 1990
Chairman and Chief Executive Officer of Kobs, Gregory and Passavant since
1991 (direct marketing/consulting). Mr. Kobs, is 59 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 48 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 37, 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 64, 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 Director of International 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 49, is currently a Director of Hannaford Bros., Co., Ariel, Inc.,
Travel Smith, Cinmar/Frontgate and International Cornerstone Group.
31
32
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
executive officer of the Company and its principal subsidiaries as of September
16, 1996. 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 41
Ralph L. Freitag (1)
Chief Executive Officer 56
Kenneth C. Bloom (2) Executive Vice President, Chief Financial Officer, 36
Secretary and Treasurer
Kenneth J. Guerrini (3) General Controller, Assistant Secretary 34
Gary L. Hauger (4) Vice President Retail Operations 47
- --------------------------------------------
(1) See information set forth under Item 10, "Directors and Executive Officers"
of the Registrant" for a description of business experience during the past
five years.
(2) 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.
(3) Mr. Guerrini has served as General Controller of the Company since August
1995. Prior to joining the Company, he was Assistant Controller of K-Mart
Corporation from 1993 to 1995. Prior to 1993, Mr. Guerrini was the Director
of Internal Audit for Arbor Drugs, Inc., a retail drugstore operation.
(4) Mr. Hauger has served as Vice President of Retail Operations since January,
1993. Prior to 1993, Mr. Hauger served as Director of Retail Operations.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 June 29, 1996, the
Section 16 reporting persons complied with Section 16(a) filing requirements
applicable to them.
32
33
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 1996 fiscal year including stock options granted and
accrued deferred compensation.
SUMMARY COMPENSATION TABLE
Long
Term Compensation
----------------------
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 1996 245,000 - 23,234(3) - - 2,250
Chief Executive Officer 1995 245,000 - 18,852 - - 2,352
1994 245,000 - 17,214 - 60,000 2,916
Kenneth C. Bloom 1996 200,000 100,000(5) 462(4) - - 4,488(5)
Executive Vice President 1995 167,917 - - - 10,000 2,095
and Chief Financial Officer 1994 18,125 - - - 50,000 -
David W. Reirden(6) 1996 175,000 - 3,708(7) - - 2,513
President - GRS, Inc. 1995 140,000 14,000 1,525 - - 2,108
(Retail Subsidiary) 1994 135,000 10,000 - - 30,000 2,013
Robert D. Cocks(8) 1996 216,547 50,000(9) 357(4) - - 1,588
President - GMO, Inc. 1995 100,625 - - - 25,000 145,151(10)
(Catalog Subsidiary) 1994 130,000 5,000 - - 20,000 -
Jim C. Simons(11) 1996 102,119 50,000(12) 1,795(13) - - 1,824
Vice President of Catalog 1995 11,770 - - - - -
1994 53,250 - - - - -
Gary L. Hauger 1996 110,000 - 452(4) - - 2,973(14)
Vice President Retail Operation 1995 90,360 9,000 - - - 1,397
1994 85,312 7,500 - - 20,000 953
________________
(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 1996 includes $12,000 for automobile
allowance, $7,274 for the portion of Mr. Freitag's life insurance premium
related to the death benefit payable to Mr. Freitags' beneficiaries and
$3,960 for group term life insurance.
(4) The stated amount represents group term life insurance.
(5) The stated amount represents $100,000 stay-put bonus.
(6) 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 was also
President and Treasurer of GRS, Inc., a wholly owned subsidiary of the
Company incorporated in January, 1993. Mr. Reirden resigned from the
Company on August 9, 1996.
(7) The stated amount for fiscal 1996 includes $1,638 for the value of Mr.
Reirden's life insurance premium related to the death benefit payable to
Mr. Reirden's beneficiaries and $2,070 for group term life insurance.
(8) Mr. Cock's resigned as Senior Vice President of Operations during February
1995, rejoined the Company as President of GMO, Inc. during May 1995, and
resigned on June 30, 1996 as a result of the Company exiting the catalog
business.
33
34
(9) The stated amount of $50,000 represents a transaction bonus related to the
sale of catalog assets.
(10) The stated amount of $145,151 represents severance pay.
(11) Mr. Simons resigned as Director of Marketing in July 1994, rejoined the
Company as Vice President of Catalog Marketing in May 1995, and resigned
on June 15, 1996 as a result of the Company exiting the catalog business.
(12) The stated amount includes $25,000 transaction bonus related to the sale of
catalog assets and $25,000 stay-put agreement.
(13) The stated amount includes $1,363 for reimbursed employment relocation
expenses and $432 for group term life insurance.
(14) The stated amount includes 1,338 for the exercise of stock options.
EMPLOYMENT AGREEMENTS
Mr. Freitag has an employment agreement which is automatically renewed
each calendar year unless either Mr. Freitag or the Company gives notice of
non-renewal at least two months prior to expiration of the then current term.
The Company may, however, terminate Mr. Freitag's employment at any time for
cause, essentially misconduct. If the Company terminates Mr. Freitag's
employment for cause, the Company is obligated to pay Mr. Freitag his vested
rights to salary and fringe benefits prorated to the date of termination. If
the Company terminates Mr. Freitag's employment without cause, the Company is
obligated to continue Mr. Freitag's salary and group health and life insurance
benefits for a period of twenty four months.
The Company carries $2 million of keyman life insurance on the life of
Mr. Freitag, of which $500,000 is payable to the Company and $1,500,000 is
payable to beneficiaries designated by him. Premiums on this policy are paid
by the Company.
Mr. Bloom has an employment separation agreement that obligates the
Company to continue his salary and group health and life insurance benefits for
a period of twelve months if his employment is terminated by the Company
without cause. The Company has no obligation under this agreement if it
terminates the employment of Mr. Bloom for cause, essentially misconduct.
Mr. Hauger has an employment separation agreement that obligates the
Company to continue salary and group health and life insurance benefits for a
period of at least six months if his employment is terminated by the Company
without cause. The Company has no obligation under this agreement if it
terminates the employment of Mr. Hanger for cause, essentially misconduct.
The Company provides group health and life insurance benefits to its
full-time employees, including the named executive officers.
TERMINATION OF EMPLOYMENT ARRANGEMENTS
Two executive officers have resigned subsequent to the Company's fiscal
1996 year end. David W. Reirden, President of GRS, inc., resigned
effective August 9, 1996 and Robert D. Cocks, President of GMO, Inc., resigned
effective June 30, 1996. Each officer named above entered into an agreement
with the Company to which they received the consideration described below.
In connection with Mr. Reirden's resignation as President and GRS,
Inc. Mr. Reirden received a lump sum salary payment in the amount of $175,000,
his then current annual rate.
In connection with Mr. Cocks' resignation as President of GMO, Inc.,
Mr. Cocks received severance payments totalling $75,000.
34
35
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of James F. Kobs, David J.
Lubar and Alfred G. Goldstein. The responsibilities of the Compensation
Committee are, in addition to other duties the Board may specify, to make
recommendations to the Board with respect to compensation for the executive
officers of the Company and to administer the 1991 Stock Incentive Plan and the
Executive Stock Purchase Plan. The Compensation Committee met three times
during the past fiscal year.
David J. Lubar, Chairman of the Board, is President of Lubar & Co.,
Incorporated a private investment company which owns 10.6 percent of the Common
Stock of the Company. In fiscal 1996, the Company paid $306,250 to Mr. Lubar,
representing Lubar & Co., Incorporated, for consulting and advisory services
which included representing the Company in the various asset sale negotiations.
OPTIONS EXERCISED IN FISCAL 1996
AND VALUE OF OPTIONS AT END OF FISCAL YEAR
The following table sets forth information related to options exercised by
certain of the named executive officers during the 1996 fiscal year and the
number and value of options held at the fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Shares
Underlying Unexercised Value of Unexercised In-The
Shares Options At FY-End (#) Money Options At FY-End ($)*
Acquired On Value ----------------------------- ----------------------------
NAME Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------- ----------- ------------- ----------- -------------
Ralph L. Freitag - - 55,625 9,375 - -
Kenneth C. Bloom - - 26,250 31,250 - -
Robert D. Cocks - - 18,750 6,250 - -
Gary L. Hauger 275 3,025 13,975 4,375 - -
David W. Reirden - - 30,275 9,375 - -
(*) Value of unexercised, in-the-money options at fiscal year end is the
difference between exercise price and the fair market of the underlying
stock on the last day of the fiscal year. On such date, the fair market
value of the Company's Common Stock was 0.625 per share. Unless an amount
is indicated in the column, the named executive officer had unexercised
options which were in the money at the end of the 1996 fiscal year.
36
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 September 16, 1996, 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 10.6%
Lubar & Co., Incorporated
777 E. Wisconsin Avenue
Milwaukee, WI 53202
Common Stock Ralph L. Freitag (6) 255,155 7.8%
Common Stock David W. Reirden (7) 17,611 0.6%
Common Stock Robert D. Cocks (8) 614 *
Common Stock Kenneth C. Bloom (9) 26,250 0.9%
Common Stock Gary L. Hauger (10) 18,975 0.6%
Common Stock Jim C. Simons 0 *
Common Stock James F. Kobs (11) 16,150 *
Common Stock Stephen R. Lett (12) 11,750 *
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 (14) 10,625 *
1040 North Lake Shore Drive
Chicago, IL 60611
Common Stock William T. End (15) 4,625 *
International Cornerstone Group
415 Congress St. Suite 600
Portland, ME 04101
Common Stock All directors and executive (16) 724,450 22.2%
officers as a group (14 people)
Series A Sanjeev K. Mehra (17) 3,500 *
Preferred Stock Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
37
OTHER 5% STOCKHOLDERS:
Series A Goldman Sachs Group, L.P. (17) 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 September 16, 1996 except for shares held in the Company's 401(k)
Savings Plan which is as of June 29, 1996.
(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 55,625 shares of Common Stock.
(7) Includes 1,011 shares which are held in the Company's 401(k) Savings
Plan.
(8) Includes 614 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
26,250 shares of Common Stock.
35
38
(10) Includes stock options which, upon exercise, entitle Mr. Hauger to
acquire 13,975 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) Includes stock options which, upon exercise, entitle Mr. Goldstein to
acquire 625 shares of Common Stock.
(15) Includes stock options, which, upon exercise, entitle Mr. End to acquire
625 shares of Common Stock.
(16) Includes 123,850 shares subject to stock options.
(17) See footnote 16 below. 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.
(18) 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., collectively the GS Investors, 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.
36
39
Item 13. Certain Relationships and Related Transactions
Sanjeev K. Mehra, a director of the company, 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, as the Company has failed 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 Statement Schedules:
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
- ----------- ----------- --------- ---------- -------------- ---------- ----------
June 29, 1996 Allowance for estimated
uncollectible accounts $ 896 $ 510 $ 0 $(831)(d) $ 575
Allowance for slow
moving inventory 2,946 3,808(a) 0 (3,504) 3,250
July 1, 1995 Allowance for estimated
uncollectible accounts 285 1,591(b) 0 (980)(d) 896
Allowance for slow
moving inventory 350 4,650(c) 0 (2,054) 2,946
July 2, 1994 Allowance for estimated
uncollectible accounts 55 472 0 (242)(d) 285
Allowance for slow
moving inventory 125 286 0 (61) 350
- ----------------
(a) Includes $3,599 provided in conjunction with the fiscal 1996 special
provision.
(b) Includes $500 provided in conjunction with the special provision.
(c) Includes $4,500 provided in conjunction with the fiscal 1995 special
provision.
(d) 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.
37
40
(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).
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).
38
41
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).
10.10 Second Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference
to the Company's Form 10-Q for the quarter ended December 30, 1995).
10.11 Third Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference to
the Company's Form 10-Q for the quarter ended December 30, 1995).
10.12 Fourth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference
to the Company's Form 10-Q for the quarter ended December 30, 1995).
10.13 Fifth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference to
the Company's Form 10-Q for the quarter ended March 30, 1995).
10.14 Sixth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference to
the Company's Form 10-Q for the quarter ended March 30, 1995).
10.15 Seventh Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference
to the Company's Form 10-Q for the quarter ended March 30, 1995).
10.16 Eighth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference
to the Company's Form 10-Q for the quarter ended March 30, 1995).
10.17 Ninth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference to
the Company's Form 10-Q for the quarter ended March 30, 1995).
39
42
10.18 Tenth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by reference to
the Company's Form 10-Q for the quarter ended March 30, 1995).
10.19 Eleventh Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement.
10.20 Twelfth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement.
10.21 Letter Agreement to Third Amended and Restated Revolving Credit and Term Loan Agreement dated June 21, 1996.
10.22 Letter Agreement to Third Amended and Restated Revolving Credit and Term Loan Agreement dated June 25, 1996.
10.23 Fifteenth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement.
10.24 Sixteenth Amendment to Third Amended and Restated Revolving Credit and Term Loan Agreement (incorporated by
reference to the Company's Form 10-Q for the quarter ended September 28, 1996).
10.25 Asset Purchase Agreement between Cabela's, Inc. and Gander Mountain, Inc., dated as of April 10, 1996 (incorporated
by reference to the Company's Form 8-K dated May 17, 1996).
10.26 Asset Purchase Agreement between Holiday Stationstores, Inc. and Gander Mountain, Inc. dated as of July 11, 1996
(incorporated by reference to the Company's Form 8-K dated July 31, 1996).
10.27 The CIT Group/Business Credit, Inc. Debtor-In-Possession Revolving Credit Agreement
(b) Reports on Form 8-K:
On May 17, 1996, the Company filed a report on Form 8-K under Item
2 reporting that the Company sold selected catalog assets
including the customer list, certain other intangible assets and
selected inventory with an aggregate net book value of
approximately $26.5 million to Cabela's Incorporated for $35.0
million in cash. A press release was incorporated by reference.
On July 25, 1996, the Company filed a report on Form 8-K under
Item 2 reporting that the Company sold the assets of its three
Minnesota stores (Duluth, Maple Grove and St. Cloud) and two
stores in Wisconsin (Eau Claire and LaCrosse) and included the
purchase of inventory, store fixtures, leasehold
improvements and certain existing leases for the facilities to
Holiday Stationstores, Inc. for $16.2
million. A press release was incorporated by reference.
On July 31, 1996, the Company filed a report on Form 8-K under
Item 2 reporting that the Company sold its combined headquarters,
distribution and retail store facility in Wilmot, Wisconsin to
Pleasant Company for net proceeds of $6.6 million after tax
prorations and escrowed funds. Under the
agreement, the Company can continue to occupy the facility until
June 1, 1997 with extended rental
option periods for the retail store space beyond that date. A
press release was incorporated by
reference.
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43
On August 9, 1996, the Company filed a report on Form 8-K under
Item 3 reporting that the Company and its two subsidiaries, GRS,
Inc. and GMO, 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 debtor-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 27, 1996
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