SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File No.:
August 31, 1995 0-16442
FIRST TEAM SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1545748
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2274 Woodale Drive
Mounds View, Minnesota 55112
(Address of principal executive offices)
Registrant's telephone number, including area
code:
(612) 780-4454
--------------------------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,718,479 shares of Common
Stock, $.01 par value per share, outstanding as of October 9, 1995.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
August 31, 1995 and February 28, 1995
<TABLE>
<CAPTION>
August 31, February 28,
1995 1995
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,429,873 $ 601,394
Receivables:
Trade, less allowance for
doubtful accounts of $595,000 at
August 31, 1995 and $562,000 at
February 28, 1995 18,279,243 16,854,825
Refundable income taxes 45,146 46,146
Inventory (finished goods) 15,780,090 15,187,283
Inventory (unfinished goods) 5,673,359 5,650,888
Prepaid expenses 609,689 888,734
Deferred income taxes 712,000 501,000
------------ ------------
Total current assets $ 42,529,400 $ 39,730,270
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
at cost
Vehicles $ 63,582 $ 62,306
Office furniture and equipment 810,470 650,479
Warehouse equipment 149,821 118,898
Production equipment 3,004,168 2,558,748
Leasehold improvements 162,685 155,738
Building construction in process 535,995 --
------------ ------------
$ 4,726,721 $ 3,546,169
Less accumulated depreciation 1,241,284 926,284
------------ ------------
$ 3,485,437 $ 2,619,885
------------ ------------
OTHER ASSETS
License agreements, less accumulated
amortization of $2,137,000 at August
31, 1995 and $1,807,000 at February
28, 1995 $ 2,967,072 $ 3,296,830
Other 273,983 216,768
------------ ------------
$ 3,241,055 $ 3,513,598
------------ ------------
$ 49,255,892 $ 45,863,753
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
August 31, 1995 and February 28, 1995
<TABLE>
<CAPTION>
August 31, February 28,
1995 1995
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $ 8,482,000 $ 9,064,000
Current maturities of
long-term debt 795,698 936,644
Accounts payable, trade 8,567,232 9,015,376
Accrued expenses 2,291,555 2,605,160
Income taxes -- --
----------- -----------
Total current liabilities $20,136,485 $21,621,180
----------- -----------
LONG-TERM DEBT,
less current maturities $ 2,567,549 $ 3,053,494
----------- -----------
DEFERRED INCOME TAXES $ 400,000 $ 339,000
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per
share; authorized 10,000,000 shares;
issued and outstanding 5,718,522
shares at August 31, 1995,
5,628,184 shares at February 28, 1995 $ 57,185 $ 56,282
Additional paid-in capital 8,695,412 8,228,843
Retained earnings 17,399,261 12,564,954
----------- -----------
$26,151,858 $20,850,079
----------- -----------
$49,255,892 $45,863,753
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 31, August 31,
1995 1994 1995 1994
----------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Net sales $ 23,229,805 $ 21,172,760 $ 54,006,268 $ 41.864,943
Cost of goods sold 15,867,635 14,903,468 37,019,215 29,587,148
------------- ------------- ------------- -------------
Gross profit $ 7,362,170 $ 6,269,292 $ 16,987,053 $ 12,277,795
------------- ------------- ------------- -------------
Operating expenses:
Selling $ 2,183,890 $ 1,917,148 $ 4,777,096 $ 3,354,003
General and
administrative 1,990,809 1,855,702 4,141,321 3,725,446
------------- ------------- ------------- -------------
$ 4,174,699 $ 3,772,850 $ 8,918,417 $ 7,079,449
------------- ------------- ------------- -------------
Operating income $ 3,187,471 $ 2,496,442 $ 8,068,636 $ 5,198,346
Other income
(expense):
Interest income 0 149 0 149
Interest expense (195,370) (144,035) (459,329) (305,669)
Other 0 4,373 0 (33,991)
------------- ------------- ------------- -------------
Income before income
taxes $ 2,992,101 $ 2,356,929 $ 7,609,307 $ 4,858,835
Income taxes 1,040,000 873,006 2,775,000 1,815,256
------------- ------------- ------------- -------------
Net income for the
period $ 1,952,101 $ 1,483,923 $ 4,834,307 $ 3,043,579
============= ============= ============= =============
Net income per common share:
Primary $ 0.32 $ 0.26 $ 0.80 $ 0.55
Fully diluted $ 0.32 $ 0.26 $ 0.80 $ 0.55
============= ============= ============= =============
Weighted average
number of common
shares outstanding
including Common
Share equivalents
Primary 6,089,271 5,616,920 6,062,450 5,551,212
Fully diluted 6,047,530 5,703,800 6,037,780 5,526,705
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended August 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
August 31, August 31,
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,834,307 $ 3,043,579
Adjustments required to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation 315,000 406,128
Amortization 351,358 --
Loss on retirement of equipment -- 45,004
Deferred income taxes (150,000) --
Change in assets and liabilities:
Receivables (1,424,418) (4,297,304)
Inventories (615,278) (2,102,221)
Prepaid expense 279,045 180,204
Accounts payable (448,144) 3,383,463
Accrued expenses (313,605) 710,183
Income taxes 1,000 489,632
------------ ------------
Net cash provided by
operating activities $ 2,829,265 $ 1,858,668
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ($ 1,180,552) ($ 229,724)
Other (78,815) (8,939)
------------ ------------
Net cash used in investing activities ($ 1,259,367) ($ 238,663)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on short-term
borrowings ($ 582,000) ($ 1,499,000)
Principal payments on long-term
borrowings (626,891) (357,647)
Net proceeds from
issuances of common stock 1995;
90,338 shares, 1994; 5,541 shares 467,472 28,140
------------ ------------
Net cash used in
financing activities ($ 741,419) ($ 1,828,507)
------------ ------------
Increase (decrease) in cash and
cash equivalents $ 828,479 ($ 208,502)
Cash and cash equivalents:
Beginning $ 601,394 $ 417,987
------------ ------------
Ending $ 1,429,873 $ 209,485
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.
The consolidated condensed balance sheet as of August 31, 1995, and
the consolidated statements of operations for the three-month and six-month
periods ended August 31, 1995 and August 31, 1994 and the consolidated
statements of cash flows for the six-month periods then ended have been prepared
by the Company without audit. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
consolidated financial position, results of operations and cash flows at August
31, 1995 and August 31, 1994 and for all periods presented have been made. The
operating results for the period ended August 31, 1995 are not necessarily
indicative of the operating results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in
consolidated financial statements in accordance with generally accepted
accounting principles have been condensed or omitted.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
Net Sales. The Company's net sales for the second quarter of fiscal 1996
(the quarter ended August 31, 1995) were $23,229,805, an increase of 10% over
the comparable quarter of fiscal 1995 when net sales were $21,172,760. Net sales
for the first six-months of fiscal 1996 were $54,006,268, compared to
$41,864,943 for the first six-months of fiscal 1995, an increase of 29%. Net
export sales were $7,444,220, or 32% of total sales, in the second quarter of
fiscal 1996 compared to $3,375,793, or 16% of total sales, in the second quarter
of fiscal 1995. The net export sales for the second quarter of fiscal 1996 and
1995 consisted of Canadian net sales of $2,779,678 and $1,660,324 and net sales
outside of North America of $4,664,542 and $1,715,469 respectively. In-line
skate sales accounted for approximately 82% of total sales in the second quarter
of fiscal 1996 and fiscal 1995. Accessories, street hockey equipment, and ice
skate sales accounted for approximately 11%, 4%, 3%, and, 7%, 11% and less then
1% of total sales in the second quarter of fiscal 1996 and fiscal 1995
respectively. Sales to the Company's ten largest accounts accounted for
approximately 55% of the Company's sales in the second quarter of fiscal 1996,
and fiscal 1995. The total backlog orders as of October 9, 1995 were
approximately $16,201,738, compared to $18,663,000 as of October 12, 1994.
Included in the Company's current backlog are orders in the amount of
$14,027,922 for future ship dates.
Several factors contributed to the increase in the Company's sales in the second
quarter and the first six-months of fiscal 1996. The Company's new Disc Braking
System (DBS(TM)) has been well-accepted by the industry. The Company's in-line
skates which have the DBS accounted for approximately 13% of total second
quarter and the first six-months of fiscal 1996 net sales. Management also
believes that the Company has been able to capitalize on the continued growth of
the industry, particularly the growth in the foreign markets. The Company's net
export sales increased 348% in the second quarter and 187% in the first
six-months of fiscal 1996 compared to the second quarter and first six-months of
fiscal 1995.
Gross Margin. In the second quarter of fiscal 1996, the Company's gross
margin was 32% of net sales compared to a gross margin of 30% in the second
quarter of fiscal 1995. This increase was due primarily to the increased sales
of the Company's made-in-USA products, which accounted for approximately 60% of
the Company's skate sales and improved margins on the Company's international
sales. The Company's gross margin on its foreign sales was 31% for the second
quarter of fiscal 1996 compared to 28% for the second quarter of fiscal 1995,
which is a result of the increased demand for the Company's Ultra-Wheels
products.
Operating Expenses. The Company's operating expenses, (consisting of
selling expenses and general and administrative expenses), for the second
quarter of fiscal 1996 were $4,174,699, or 18% of net sales, compared to
$3,772,850, or 18% of net sales, in the second quarter of fiscal 1995.
Selling expenses were $2,183,890, or 9% of net sales in the second quarter of
fiscal 1996, compared to $1,917,148, or 9% of net sales, in the second quarter
of fiscal 1995. Selling expenses increased $226,742 (or 14%) in the second
quarter of fiscal 1996, compared to the second quarter of fiscal 1995. This
increase can be attributed to additional royalty, and promotional expenses
associated with the increased sales volume.
<PAGE>
General and administrative expenses were $1,990,809 in the second quarter of
fiscal 1996, a 7% increase from the second quarter of fiscal 1995. The increase
can be attributed to increased personnel and occupancy expenses incurred to
manage the increased sales volume. General and administrative expenses as a
percentage of net sales were 9% for the second quarter of fiscal 1996 compared
to 9% for the second quarter of fiscal 1995.
Net Income. The Company had net income of $1,952,101 or $.32 per
share, in the second quarter of fiscal 1996, compared to $1,483,923, or $.26 per
share in the second quarter of fiscal 1995. This represents an increase of
$468,178 (or 32%) in total earnings and an increase of $.06 (or 23%) in earnings
per share. This increase can be attributed to the increase in sales and gross
margins and the continued efforts of the company to control operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $1,429,873 as of August
31, 1995, compared to $601,394 as of February 28, 1995. This increase in cash
and cash equivalents is a result of $2,829,265 of cash provided by operating
activities being partially offset by $1,259,367 of cash used in investing
activities and $741,419 of cash used in financing activities. The net cash
provided by operating activities for the first six-months of fiscal 1996
resulted primarily from the net earnings and the net effect of the change in
receivables, and inventories. The net cash used in investing activities was
primarily used for the purchase of capital assets. The net cash used in
financing activities was primarily used for the net payments on the company's
line of credit and long-term borrowings.
The Company had net working capital of $22,392,915 as of August 31, 1995,
compared to $18,109,090 as of February 28, 1995. The Company's current ratio at
August 31, 1995 was 2.1 to 1 compared to 1.8 to 1 at February 28, 1995. The
improvement in the Company's net working capital and current ratio was primarily
attributable to an increase in the Company's cash and receivables and a decrease
in the balance outstanding under the Company's line of credit.
The Company's debt-to-worth ratio was .9 to 1 on August 31, 1995, compared
to 1.2 to 1 on February 28, 1995. The Company's long-term debt, which primarily
consists of obligations under endorsement license agreements and equipment
notes, less current maturities, was $2,567,549 as of August 31, 1995. As of
August 31, 1995, the Company had a revolving line of credit established with a
bank that provides for borrowings of up to $15,000.000 and is limited by the
level of its eligible receivables. As of August 31, 1995, the Company's eligible
receivables would have permitted the Company to borrow up to $12,305,000 under
the line of credit, of which $7,885,000 was outstanding. In addition, the
Company has a lease line of credit established with the bank providing for
borrowings of up to $1,000,000 for the purchase of equipment and leasehold
improvements. As of August 31, 1995, $326,664 was outstanding on this credit
facility.
The Company has entered into a development agreement and construction
contract to build an office and warehouse facility at a projected cost of
approximately $5,500,000. The projected occupancy date for the new facility is
January 1, 1996. The Company anticipates financing the new facility through a
conventional real estate mortgage.
The Company believes that its current cash position, funds available under
existing bank arrangements and cash generated from profitable operations will be
sufficient to finance the cash flows for operating activities at projected
levels of sales through fiscal 1996.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the quarter to which this Form 10-Q relates.
SIGNATURES
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 thereunto duly authorized.
FIRST TEAM SPORTS, INC.
By: /s/ John J. Egart
John J. Egart
President and CEO
and By: /s/ Robert L. Lenius, Jr.
Robert L. Lenius, Jr.
Vice President-Finance
(Chief Financial Officer)
Dated: October 7, 1995
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For Quarter Ended: Commission File No.: 0-16422
August 31, 1995
FIRST TEAM SPORTS, INC.
Exhibit
4.1 Specimen of Common Stock Certificate--incorporated by reference to 4.1 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1991(1)
10.1 Office/Warehouse Lease Agreement between the Company and Everest
Investments Limited Partnership dated June 28, 1991 regarding the Company's
facilities at 2274 Woodale Drive, Mounds View, Minnesota(1)
10.2 The Company's 1987 Stock Option Plan, as amended by resolutions dated May
25, 1989 -- incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the year ended February 28, 1991(1)(2)
10.3 Amendment dated April 22, 1992 to the Company's 1987 Stock Option Plan --
incorporated by reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended February 29, 1992(1)(2)
10.4 Form of Incentive Stock Option Agreement under 1987 Stock Option Plan --
incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-18, Reg. No. 33-16345C(1)(2)
10.5 Form of Nonqualified Stock Option Agreement under 1987 Stock Option Plan --
incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-18, Reg. No. 33-16345C(1)(2)
10.6 Lease Agreement between the Company and B.D.I. Partnership dated February
1, 1988 regarding the Company's former facility at 2141 - 108th Lane N.E.,
Minneapolis, Minnesota -- incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended February 29,
1988(1)
10.7 Amendment to Lease between the Company and B.D.I. Partnership dated July 1,
1990 regarding the Company's former facility at 2141 - 108th Lane N.E.,
Minneapolis, Minnesota -- incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended February 28,
1991(1)
10.8 Agreement Regarding Termination of Lease between the Company and B.D.I.
Partnership dated February 18, 1991 regarding the Company's former facility
at 2141 - 108th Lane N.E., Minneapolis, Minnesota -- incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended February 28, 1991(1)
10.9 License Agreement between the Company and STX, Inc. dated February 21, 1991
regarding the Company's license for knee and elbow pads -- incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended February 28, 1991(1)
10.10License Agreement between the Company, Wayne Gretzky and Janet Jones
Gretzky dated as of December 1, 1994 -- incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year
ended February 28, 1995(1)
10.11License Agreement between the Company and Creative Sports Concepts, Inc.
dated as of October 31, 1994 -- incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K for the year ended February 28,
1995(1)
10.12License Agreement between the Company and Katarina Witt effective March 1,
1992 -- incorporated by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended February 29, 1992(1)
10.13Player Agreement between the Company and Brett Hull dated as of April 7,
1992 -- incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended February 29, 1992(1)
10.14Company Bonus Plan for certain executive officers of the Company regarding
fiscal 1995 -- incorporated by reference to Exhibit 10.14 to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1994(1)
<PAGE>
10.15Company Bonus Plan for certain executive officers of the Company regarding
fiscal 1996 -- incorporated by reference to Exhibit 10.15 to the company's
annual report on Form 10-K for the year ended February 28, 1995(1)(2)
10.16The Company's 1990 Nonqualified Stock Option Plan, as amended by
resolutions dated May 25, 1989 -- incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for the year ended
February 28, 1991(1)(2)
10.17Agreement for consulting services dated August 19, 1992 between the
Company and Joe Mendelsohn -- incorporated by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the year ended February 28,
1993(1)(2)
10.18Amendment to Agreement for consulting services dated May 17, 1994 between
the Company and Joe Mendelsohn -- incorporated by reference to Exhibit
10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1994(1)(2)
10.19Amendment to Agreement for consulting services dated March 9, 1995 between
the Company and Joe Mendelsohn -- incorporated by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-K for the year ended February 28,
1995(1)(2)
10.20The Company's 1993 Employee Stock Purchase Plan -- incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for
the year ended February 28, 1993(1)(2)
10.21The Company's 1994 Stock Option and Incentive Compensation Plan --
incorporated by reference to Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the year ended February 28, 1994(1)(2)
- - ---------------------------------
(1) Incorporated by reference to a previously filed exhibit or report
(2) Management contract or compensatory plan or arrangement
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,429,873
<SECURITIES> 0
<RECEIVABLES> 18,324,389
<ALLOWANCES> 595,000
<INVENTORY> 21,453,449
<CURRENT-ASSETS> 42,529,400
<PP&E> 4,726,721
<DEPRECIATION> 1,241,284
<TOTAL-ASSETS> 49,255,892
<CURRENT-LIABILITIES> 20,567,549
<BONDS> 2,567,549
<COMMON> 57,185
0
0
<OTHER-SE> 26,094,673
<TOTAL-LIABILITY-AND-EQUITY> 49,255,892
<SALES> 54,006,268
<TOTAL-REVENUES> 54,006,268
<CGS> 37,019,215
<TOTAL-COSTS> 37,019,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459,329
<INCOME-PRETAX> 7,609,307
<INCOME-TAX> 2,775,000
<INCOME-CONTINUING> 4,834,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,834,307
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
