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.:
November 30, 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.)
1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 576-3500
2274 Woodale Drive
Mounds View, MN 55112
(Former Address)
--------------------------------------
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: 5,721,000 shares of Common
Stock, $.01 par value per share, outstanding as of January 5, 1996.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
November 30, 1995 and February 28, 1995
<TABLE>
November 30, February 28,
ASSETS 1995
------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................................ $ 1,716,471 $ 601,394
Receivables:
Trade, less allowance for
doubtful accounts of $482,000 at
November 30, 1995 and $562,000 at
February 28, 1995 ...................................................... 23,105,942 16,854,825
Refundable income taxes ................................................ -- 46,146
Inventory (finished goods) ............................................... 14,214,674 15,187,283
Inventory (unfinished goods) ............................................. 6,930,194 5,650,888
Prepaid expenses ......................................................... 684,195 888,734
Deferred income taxes .................................................... 712,000 501,000
----------- -----------
Total current assets
$47,363,476 $39,730,270
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
at cost
Vehicles ................................................................ $ 63,582 $ 62,306
Office furniture and equipment .......................................... 847,668 650,479
Warehouse equipment ..................................................... 149,821 118,898
Production equipment .................................................... 3,380,970 2,558,748
Leasehold improvements .................................................. 161,483 155,738
Building construction in process ........................................ 2,429,450 --
----------- -----------
$ 7,032,974 $ 3,546,169
Less accumulated depreciation ............................................ 1,454,284 926,284
----------- -----------
$ 5,578,690 $ 2,619,885
----------- -----------
OTHER ASSETS
License agreements, less accumulated
amortization of $2,300,000 at November
30, 1995 and $1,807,000 at February
28, 1995 ............................................................... $ 2,804,182 $ 3,296,830
Other ................................................................... 281,813 216,768
----------- -----------
$ 3,085,995 $ 3,513,598
----------- -----------
$56,028,161 $45,863,753
=========== ===========
</TABLE>
<PAGE>
See Notes to Consolidated Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
November 30, 1995 and February 28, 1995
<TABLE>
November 30, February 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1995
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank ........................................................ $14,159,000 $ 9,064,000
Current maturities of
long-term debt .............................................................. 815,972 936,644
Accounts payable, trade ...................................................... 7,690,610 9,015,376
Accrued expenses ............................................................. 2,391,328 2,605,160
Income taxes ................................................................. 347,851 --
----------- -----------
Total current liabilities ...................................................... $25,404,761 $21,621,180
----------- -----------
LONG-TERM DEBT,
less current maturities ...................................................... $ 2,449,810 $ 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 5,721,043 shares at November 30, 1995,
5,628,184 shares at February 28, 1995 ....................................... $ 57,210 $ 56,282
Additional paid-in capital ................................................... 8,729,802 8,228,843
Retained earnings ............................................................ 18,986,578 12,564,954
----------- -----------
$27,773,590 $20,850,079
----------- -----------
$56,028,161 $45,863,753
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Three months ended Six months ended
November 30, November 30,
1995 1994 1995 1994
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales .......................................................... $ 22,616,765 $ 24,344,356 $ 76,623,033 $ 66.209,299
Cost of goods sold .... ............................................ 15,954,575 16,878,111 52,973,790 46,465,259
------------ ------------ ------------ ------------
Gross profit ....................................................... $ 6,662,190 $ 7,466,245 $ 23,649,243 $ 19,744,040
------------ ------------ ------------ ------------
Operating expenses:
Selling .......................................................... $ 1,714,894 $ 2,017,508 $ 6,491,990 $ 5,371,511
General and
administrative .................................................. 2,173,392 2,180,770 6,314,713 5,906,216
------------ ------------ ------------ ------------
$ 3,888,286 $ 4,198,278 $ 12,806,703 $ 11,277,727
------------ ------------ ------------ ------------
Operating income ................................................ $ 2,773,904 $ 3,267,967 $ 10,842,540 $ 8,466,313
Other income
(expense):
Interest income .................................................. 3,079 0 3,079 149
Interest expense ................................................. (296,666) (204,838) (755,995) (510,507)
Other ............................................................ 0 8,782 0 (42,773)
------------ ------------ ------------ ------------
Income before income
taxes .......................................................... $ 2,480,317 $ 3,054,347 $ 10,089,624 $ 7,913,182
Income taxes ................ ...................................... 893,000 1,109,098 3,668,000 2,924,354
------------ ------------ ------------ ------------
Net income for the
period ......................................................... $ 1,587,317 $ 1,945,249 $ 6,421,624 $ 4,988,828
============ ============ ============ ============
Net income per common share:
Primary ......................................................... $ 0.27 $ 0.34 $ 1.06 $ 0.89
Fully diluted ................................................... $ 0.27 $ 0.34 $ 1.08 $ 0.87
============ ============ ============ ============
Weighted average number of
common shares outstanding
including Common Share
equivalents:
Primary ......................................................... 5,950,429 5,745,320 6,038,616 5,621,781
Fully diluted ................................................... 5,966,354 5,752,568 5,959,917 5,738,118
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended November 30, 1995 and 1994
(Unaudited)
<TABLE>
November 30, November 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .............................. $ 6,421,624 $ 4,988,828
Adjustments required to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation ........................... 528,000 330,331
Amortization ........................... 525,948
Deferred income taxes .................. (150,000) --
Change in assets and liabilities:
Receivables ........................... (6,251,117) (8,744,972)
Inventories ........................... (306,697) (5,045,286)
Prepaid expense ....................... 204,539 (86,008)
Accounts payable ...................... (1,324,766) 6,449,200
Accrued expenses ...................... (213,832) 1,734,052
Income taxes .......................... 393,997 (31,000)
----------- -----------
Net cash used in
operating activities ................. ($ 172,304) ($ 74,153)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ....... ($3,486,805) ($ 562,727)
Other .................................... (98,345) (48,969)
----------- -----------
Net cash used in investing activities . ($3,585,150) ($ 611,696)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on short-term
borrowings .............................. $ 5,095,000 $ 1,252,000
Principal payments on long-term
borrowings .............................. (724,356) (592,818)
Net proceeds from
issuances of common stock: 1995,
92,859 shares; 1994, 38,721 shares ...... 501,887 364,732
----------- -----------
Net cash provided by
financing activities .................. $ 4,872,531 $ 1,023,914
----------- -----------
Increase in cash and
cash equivalents ...................... $ 1,115,077 $ 338,065
Cash and cash equivalents:
Beginning ................................ $ 601,394 $ 417,987
----------- -----------
Ending ................................... $ 1,716,471 $ 756,052
=========== ===========
</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 November 30, 1995 and
the consolidated statements of operations for the three-month and nine-month
periods ended November 30, 1995 and November 30, 1994 and the consolidated
statements of cash flows for the nine-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 November 30, 1995 and November 30, 1994 and for all periods presented have
been made. The operating results for the period ended November 30, 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 third quarter of fiscal
1996 (the quarter ended November 30, 1995) were $22,616,765, a decrease of 7%
over the comparable quarter of fiscal 1995 when net sales were $24,344,356. Net
sales for the first nine-months of fiscal 1996 were $76,623,034, compared to
$66,209,299 for the first nine-months of fiscal 1995, an increase of 16%. Net
export sales were $3,582,151, or 16% of total sales, in the third quarter of
fiscal 1996 compared to $2,449,611, or 10% of total sales, in the third quarter
of fiscal 1995. The net export sales for the third quarter of fiscal 1996 and
1995 consisted of Canadian net sales of $459,978 and $623,171 and net sales
outside of North America of $3,122,173 and $1,826,440 respectively. In-line
skate sales accounted for approximately 82% and 84% of total sales in the third
quarter of fiscal 1996 and fiscal 1995 respectively. Accessories, street hockey
equipment, and ice skate sales accounted for approximately 10%, 3%, 5%, and, 7%,
6% and 3% of total sales in the third quarter of fiscal 1996 and fiscal 1995
respectively. Sales to the Company's ten largest accounts accounted for
approximately 77% of the Company's sales in the third quarter of fiscal 1996
compared to 71% of sales in the third quarter of fiscal 1995. The total backlog
orders as of January 4, 1996 were approximately $23,875,000 compared to
$21,887,000 as of January 5, 1995. Included in the Company's current backlog are
orders in the amount of $21,676,000 for future ship dates.
Several factors contributed to the decrease in the Company's sales in the
third quarter of fiscal 1996. The retail environment was pessimistic and
cautious toward the holiday selling season and thus retailers kept their
purchases on the conservative side. With the soft retail environment the level
of customer reorders were below Company expectations. In addition, with the
industry anticipating another growth year in 1995 similar to that of 1994, the
marketplace was inundated with product early, resulting in excess inventory
levels prior to the holiday selling season. The increase in the Company's sales
for the first nine-months of fiscal 1996 compared to fiscal 1995, is a result of
the Company's emphasis on building brand image and awareness with innovative new
products, (e.g. the Company's new disc braking system (DBS)). This emphasis
resulted in strong sales during the first six-months of fiscal 1996. The Company
has also been able to capitalize on the continued growth of the industry,
particularly in foreign markets. The Company's net export sales increased 46% in
the third quarter and 175% in the first nine-months of fiscal 1996 compared to
the third quarter and first nine-months of fiscal 1995 respectively.
<PAGE>
Gross Margin. In the third quarter of fiscal 1996, the Company's
gross margin was 29.5% of net sales compared to a gross margin of 30.7% in the
third quarter of fiscal 1995. This decrease was due primarily to an increase in
sales of the Company's lower margin Skate Attack products as a percentage of
total product sales. The Company's Skate Attack brand is made overseas and is
sold primarily to mass merchant customers.
Operating Expenses. The Company's operating expenses, (consisting of
selling expenses and general and administrative expenses), for the third quarter
of fiscal 1996 were $3,888,286, or 17% of net sales, compared to $4,198,278, or
17% of net sales, in the third quarter of fiscal 1995.
Selling expenses were $1,714,894, or 8% of net sales in the third quarter of
fiscal 1996, compared to $2,017,508, or 8% of net sales, in the third quarter of
fiscal 1995. Selling expenses decreased $302,614 (or 15%) in the third quarter
of fiscal 1996, compared to the third quarter of fiscal 1995. This decrease can
be attributed to reduced commissions, and promotional expenses associated with
the decreased sales volume.
General and administrative expenses were $2,173,392 or 9% of net sales in the
third quarter of fiscal 1996, compared to $2,180,770 or 9% of net sales in the
third quarter of fiscal 1995.
Net Income. The Company had net income of $1,587,317 or $.27 per
share, in the third quarter of fiscal 1996, compared to $1,945,249, or $.34 per
share in the third quarter of fiscal 1995. This represents a decrease of
$357,932 (or 18%) in total earnings and a decrease of $.07 (or 20%) in earnings
per share. This decrease can be attributed to the decrease in sales and gross
margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $1,716,471 as of November
30, 1995, compared to $601,394 as of February 28, 1995. This increase in cash
and cash equivalents is a result of $4,872,531 of cash provided by financing
activities being partially offset by $3,585,150 of cash used in investing
activities and $172,304 of cash used in operating activities. The net cash used
in operating activities for the first nine-months of fiscal 1996 resulted
primarily from the net earnings and the net effect of the change in receivables,
inventories and payables. The net cash used in investing activities was
primarily used for the purchase of capital assets including the Company's new
warehouse and office facility. The net cash provided by financing activities was
primarily from the net borrowings on the Company's line of credit.
<PAGE>
The Company had net working capital of $21,958,715 as of November 30,
1995, compared to $18,109,090 as of February 28, 1995. The Company's current
ratio at November 30, 1995 was 1.9 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 accounts payable.
The Company's debt-to-worth ratio was 1 to 1 on November 30,
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 $2,449,810 as of November 30,
1995. As of November 30, 1995, the Company had a revolving line of credit
established with a bank that provides for borrowings of up to $15,000,000. 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 November 30, 1995, $243,000 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 Company commenced occupying date for the
new facility on January 1, 1996. The Company anticipates financing the new
facility through a conventional real estate mortgage. As of November 30, 1995
the Company had borrowed approximately $2,400,000 on the $15,000,000 line of
credit to pay for construction costs to date on the new facility.
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.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index at p. 13 of this Form
10-Q.
(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.
<PAGE>
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
(Principal Financial Officer)
Dated: January 9, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For Quarter Ended: Commission File No.: 0-16422
November 30, 1995
- -------------------------------------------------------------------
FIRST TEAM SPORTS, INC.
- -------------------------------------------------------------------
Exhibit
3.1 Articles of Incorporation, as amended--incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K for the fiscal year ended February 28,
1994 *
3.2 Bylaws--incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-18 Reg. No. 33-16345C *
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 *
27 Financial Data Schedule (filed only with electronic version)
- ----------------------
* Incorporated by reference to a previously filed exhibit or report
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> NOV-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,716,471
<SECURITIES> 0
<RECEIVABLES> 23,105,942
<ALLOWANCES> 482,000
<INVENTORY> 21,144,868
<CURRENT-ASSETS> 47,363,476
<PP&E> 7,032,974
<DEPRECIATION> 1,454,284
<TOTAL-ASSETS> 56,028,161
<CURRENT-LIABILITIES> 25,404,761
<BONDS> 2,449,810
<COMMON> 57,210
0
0
<OTHER-SE> 27,716,380
<TOTAL-LIABILITY-AND-EQUITY> 56,028,161
<SALES> 76,623,033
<TOTAL-REVENUES> 76,623,033
<CGS> 52,973,790
<TOTAL-COSTS> 52,973,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 755,995
<INCOME-PRETAX> 10,089,624
<INCOME-TAX> 3,668,000
<INCOME-CONTINUING> 6,421,624
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,421,624
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.08
</TABLE>
