<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 28, 1996 Commission File Number 0-14579
Gander Mountain, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Wisconsin 39-1742710
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
P.O. Box 128, Highway W, Wilmot, Wisconsin 53192
(Address of principal executive offices)
Registrant's telephone number, including area code: 414-862-2331
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
On September 28, 1996, there were outstanding 3,265,347 shares of the
Registrant's $.01 par value common stock.
1
<PAGE> 2
GANDER MOUNTAIN, INC.
FORM 10-Q
SEPTEMBER 28, 1996
REPORT INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the Thirteen
Weeks Ended September 28, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets at September 28, 1996
and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended September 28, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
2
<PAGE> 3
GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
Thirteen Weeks Ended
-------------------------------------
September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net Sales $22,858 $96,279
Cost of goods sold 16,462 67,405
------- -------
Gross profit 6,396 28,874
Selling, general and administrative expenses 7,784 28,786
------- -------
Income (loss) from operations (1,388) 88
------- -------
Other (income) expense:
Net interest expense 321 1,771
Other - net (3,188) 101
------- -------
(2,867) 1,872
------- -------
Income (loss) before income taxes 1,479 (1,784)
Provision for income taxes 0 (678)
------- -------
Net income (loss) 1,479 (1,106)
Preferred redeemable stock dividends 278 275
------- -------
Net income (loss) to common shareholders $ 1,201 $(1,381)
======= =======
Earnings (loss) per share: (See note 6)
Primary $ 0.37 $ (0.43)
======= =======
Fully diluted $ 0.31 $ (0.43)
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
GANDER MOUNTAIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
----------------------------------
September 28, June 29,
1996 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,999 $ 3,287
Accounts receivable 853 1,623
Refundable income taxes 515 500
Inventories 24,985 37,352
Other current assets 958 584
Assets held for sale 335 7,335
-------- --------
30,645 50,681
-------- --------
Property and equipment:
Leasehold improvements 5,813 8,331
Furniture and equipment 16,956 18,737
-------- --------
22,769 27,068
Less: Accumulated depreciation (12,870) (13,234)
-------- --------
9,899 13,834
-------- --------
$ 40,544 $ 64,515
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,974 $ 24,282
Notes payable to bank 5,876 29,376
Other current liabilities 12,238 15,207
-------- --------
43,088 68,865
Long-term obligations 500 -
-------- --------
Preferred Redeemable Stock 20,000 20,000
-------- --------
Shareholders' Deficit:
Class B preferred stock - -
Common stock 33 33
Additional paid-in capital 12,667 12,662
Accumulated deficit (35,294) (36,495)
Less notes receivable from stockholders (450) (550)
-------- --------
(23,044) (24,350)
-------- --------
$ 40,544 $ 64,515
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
GANDER MOUNTAIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Thirteen Weeks Ended
-----------------------------------
September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,479 $ (1,106)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Net gain on sale of 5 stores (3,844) -
Net gain on sale of Wilmot facility (52) -
Depreciation and amortization 724 1,380
Deferred income taxes - (777)
Changes in operating assets and liabilities:
Accounts receivable 870 (5,066)
Refundable income taxes (15) 1,278
Inventories 3,341 (8,595)
Accounts payable 692 8,037
Other (3,327) 1,284
--------- ---------
Cash used for operating activities $ (132) $ (3,565)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of 5 stores 16,150 -
Net proceeds from sale of Wilmot facility 6,589 -
Acquisition of property, plant and equipment - (1,331)
--------- ---------
Cash provided by (used) for investing activities $ 22,739 $ (1,331)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments and proceeds from line of credit agreements $ (23,500) $ 9,050
Proceeds from long-term obligations 500 -
Proceeds from stock subscription receivable 100 -
Net proceeds from issuance of common stock 5 66
--------- ---------
Cash provided by (used for) financing activities $ (22,895) $ 9,116
--------- ---------
INCREASE/(DECREASE) IN CASH ($288) $ 3,417
CASH BEGINNING OF PERIOD 3,287 2,818
--------- ---------
CASH END OF PERIOD $ 2,999 $ 6,235
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the interim periods are unaudited.
However, these consolidated financial statements reflect all adjustments,
consisting of only normal recurring accruals and disclosures which, in the
opinion of management, are necessary for a fair presentation. Changing
economic conditions and seasonality of the business may have a significant
impact on the operating results. As a consequence, the statements of
operations for any interim period are not necessarily indicative of the results
that can be expected for the entire year.
Certain reclassifications may have been made to the fiscal 1996 consolidated
financial statements presented herein to conform to the presentation for fiscal
1997. For more complete financial information, these consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the applicable notes that appear in the Company's 1996 Annual
Report on Form 10-K.
Certain of these notes are presented below to provide more current financial
information.
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 September 28,
1996 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 that would be subject to compromise under
any plan of reorganization consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 28, June 29,
1996 1996
------------- --------
<S> <C> <C>
Accounts payable $ 21,734 $ 24,282
Accrued liabilities 7,126 4,755
-------- --------
Total $ 28,860 $ 29,037
======== ========
</TABLE>
6
<PAGE> 7
GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies as previously presented in the Company's
1996 Annual Report on Form 10-K are consistent with those policies in existence
as of September 28, 1996.
NOTE 3 - SALE OF CERTAIN ASSETS
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 was 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.
Included in the unaudited consolidated statements of operations are the
following amounts for the five stores sold to Holiday (in thousands):
<TABLE>
<CAPTION>
13 Weeks Ended
------------------------------------------------
September 28, September 30,
1996 1995
---------------- -----------------
<S> <C> <C>
Net sales $ 1,667 $ 8,213
Cost of goods sold 1,188 5,735
------- -------
Gross profit $ 479 $ 2,478
======= =======
Direct store expenses included
in operating expense $ 613 $ 1,799
======= =======
</TABLE>
In addition the level of inventories associated with the above five stores, as
of September 30, 1995 was $10.0 million.
7
<PAGE> 8
GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - SPECIAL CHARGE
In fiscal 1996, the Company recorded a net $3.6 million special charge related
to a large scale inventory liquidation plan to reduce inventory which was
discontinued from the standard merchandise mix and primarily out of season as
well as slower moving and aged inventory from the catalog division. The
components of this special charge were as follows (in millions):
<TABLE>
<CAPTION>
Inventory Net
Value at Cost Charge Inventory
------------- ------ ---------
<S> <C> <C> <C>
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
Reduction in the first quarter (0.8) (0.5) (0.3)
------ ------ ------
Balance at September 28, 1996 - - -
====== ====== ======
</TABLE>
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 interim period (in millions):
<TABLE>
<CAPTION>
Reserve at Reserve at
June 29, 1996 Utilized September 28, 1996
------------- -------- ------------------
<S> <C> <C> <C>
Other catalog charges:
Severance costs $ 0.6 - $ 0.6
EZ Pay program 0.3 $ (0.1) 0.2
Other 0.1 - 0.1
---- ----- ------
Total $ 1.0 $ (0.1) $ 0.9
==== ===== ======
</TABLE>
8
<PAGE> 9
GANDER MOUNTAIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BORROWING ARRANGEMENTS
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 and had approximately $7.5 million borrowing availability at
September 28, 1996.
NOTE 6 - EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted average
number of shares outstanding plus the shares that would be outstanding assuming
exercise of dilutive stock options. Net income has been adjusted for dividends
on the Series A Redeemable Preferred Stock. Fully diluted earnings per share
amounts reflect the maximum dilution that would result from conversion of the
Series A Redeemable Preferred Stock and exercise of stock options.
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------------------
September 28, September 30,
1996 1995
-------------- --------------
<S> <C> <C>
Average number of common shares:
Primary 3,261 3,241
======= =======
Fully diluted 4,716 3,241
======= =======
</TABLE>
9
<PAGE> 10
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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 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.
RESULTS OF OPERATIONS
Total Company net sales decreased $73.4 million to $22.9 million for the
thirteen weeks ended September 28, 1996 from $96.3 million for the thirteen
weeks ended September 30, 1995. As a result of the exit from the catalog
business as discussed above, catalog net sales decreased to $0.6 million
compared to $59.5 million during the prior year quarter.
Retail net sales decreased 39.5 percent to $22.3 million compared to $36.8
million reported in the first quarter of fiscal year 1996. The decrease in
sales resulted from the sale of five retail stores discussed above and a
decrease in comparable store sales. On a comparable basis, Gander Mountain's
retail stores in business more than one year had sales decreases of 28.8 versus
a decrease of 1.2 percent in the first quarter of fiscal year 1996. The
decrease is attributable to poor in-stock positions due to the Company's
inability to purchase inventory on open account which resulted in decreased
customer transactions and lower average ticket purchases.
10
<PAGE> 11
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the quarter, gross profit decreased $22.5 million or 77.8 percent under
the same period last year. The gross margin decrease is attributable to the
lower sales volume and lower gross margins. Catalog gross margin decreased
$18.1 million to zero due to the exit from the catalog business. Retail's
gross margin decreased $4.4 million to $6.4 million. The Company's gross
profit margin as a percent of sales for the first quarter of 1996 was 28.0
percent compared to 30.0 percent for the same period last year. Catalog gross
profit margins decreased from 30.4 percent of sales in the first quarter of
fiscal year 1996 to 0.0 percent in fiscal year 1997 and retail gross profit
margins decreased from 29.3 percent in the first quarter of fiscal year 1996 to
28.7 percent in fiscal year 1997. The decline in gross profit margins was due
primarily to a sales mix weighted towards lower-margined consumable products
due to out-of-stock conditions on many products.
Operating expenses for the quarter were $7.8 million or $21.0 million less than
in the first quarter of fiscal year 1996. As a percentage of net sales,
operating costs increased from 29.9 percent to 34.1 percent reflecting negative
fixed cost leverage on reduced sales levels and higher general and
administrative expenses.
Interest expense decreased $1.4 million to $0.3 million due to reduced
short-term borrowings on the Company's line of credit.
Other income increased $3.3 million to $3.2 million due to a $3.8 million gain
on the sale of five stores as discussed above, offset by $0.6 million for
expenses incurred in relation to the Company's bankruptcy filing.
Net income for the thirteen weeks ended September 28, 1996 was $1.5 million
compared to net loss of $1.1 million reported in the first quarter of fiscal
year 1996. The primary and fully diluted income per share of 37 and 31 cents
per share, respectively, compares to a loss of 43 cents per share reported in
the prior year quarter.
11
<PAGE> 12
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
12
<PAGE> 13
GANDER MOUNTAIN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
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.
During the first quarter of fiscal 1997, the Company's operating activities
used $0.1 million of cash compared to $3.6 million for the first quarter of
fiscal 1996. The decrease is primarily the result of a reduction in inventory
and accounts receivable levels.
The Company's accounts receivable decreased $0.8 million from June 29, 1996 to
$0.9 million at September 28, 1996 due to the discontinuance of the deferred
payment plan offered by the catalog business.
The Company's inventories decreased $12.4 million from June 29, 1996 to $25.0
million at September 28, 1996 primarily due to the sale of the five retail
stores.
The Company's accounts payable increased $0.7 million from June 29, 1996 to
$25.0 million at September 28, 1996 due to increased purchases on terms.
During the first quarter of fiscal 1997, the Company's investing activities
provided $22.7 million as a result of the Company selling five of its retail
stores and its facility in Wilmot, WI. The Company's financing activities used
$22.9 million primarily the result of repayments of short-term borrowings.
SEASONALITY
The Company's business is seasonal with greater revenues historically being
generated during the first half of the fiscal year. As a result, revenues for
the three month period ending September 28, 1996 should not be considered to be
indicative of results to be reported for the balance of the fiscal year.
13
<PAGE> 14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable to the Company at September 28, 1996
ITEM 2. CHANGES IN SECURITIES
Not applicable to the Company at September 28, 1996
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable to the Company at September 28, 1996
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable to the Company at September 28, 1996
ITEM 5. OTHER INFORMATION
Not applicable to the Company at September 28, 1996
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Not applicable to the Company at September 28, 1996
(b) Form 8-K
Not applicable to the Company at September 28, 1996
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gander Mountain, Inc.
Date: November 12, 1996 By: /s/ Kenneth C. Bloom
---------------------------
Executive Vice President
and Chief Financial Officer
13
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<CIK> 0000789598
<NAME> GANDER MOUNTAIN, INC.
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<S> <C>
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<PERIOD-END> SEP-28-1996
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20,000
0
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