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, 1996 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) Identifiation No.)
1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 576-3500
--------------------------------------
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: 5,747,425 shares of Common
Stock, $.01 par value per share, outstanding as of January 6, 1997.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
November 30, 1996 and February 29, 1996
<TABLE>
<CAPTION>
November 30, February 29,
ASSETS 1996 1996
-------------------- -------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $835,049 $2,166,863
Receivables:
Trade, less allowance for
doubtful accounts of $726,000 at
November 30, 1996 and $489,000 at
February 29, 1996 18,733,522 16,228,666
Refundable income taxes - 155,146
Inventory 21,285,736 22,813,850
Prepaid expenses 411,459 960,079
Deferred income taxes 827,000 827,000
-------------------- -------------------
Total current assets $42,092,766 $43,151,604
-------------------- -------------------
PROPERTY AND EQUIPMENT, at cost
Land $600,000 $600,000
Building 5,024,767 4,825,740
Production equipment 4,774,323 4,069,078
Office furniture and equipment 1,824,164 1,509,120
Warehouse equipment 331,850 315,509
Vehicles 55,741 46,925
-------------------- -------------------
$12,610,845 $11,366,372
Less accumulated depreciation 2,566,189 1,511,689
-------------------- -------------------
$10,044,656 $9,854,683
-------------------- -------------------
OTHER ASSETS
License agreements, less accumulated
amortization of $2,894,000 at November
30, 1996 and $2,459,000 at February
29, 1996 $2,210,420 $2,645,268
Other 300,641 306,247
-------------------- -------------------
$2,511,061 $2,951,515
-------------------- -------------------
$54,648,483 $55,957,802
==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
November 30, 1996 and February 29, 1996
<TABLE>
<CAPTION>
November 30, February 29,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1996
-------------------- -------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $8,759,250 $5,268,000
Current maturities of
long-term debt 902,912 943,060
Accounts payable, trade 2,523,070 9,462,883
Accrued expenses 1,747,160 2,532,676
Income taxes 237,550 -
-------------------- -------------------
Total current liabilities $14,169,942 $18,206,619
-------------------- -------------------
LONG-TERM DEBT,
less current maturities $6,181,071 $6,880,360
-------------------- -------------------
DEFERRED INCOME TAXES $440,000 $440,000
-------------------- -------------------
DEFERRED REVENUE $600,000 $600,000
-------------------- -------------------
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per
share; authorized 10,000,000
shares; issued and outstanding
5,747,425 shares at November 30, 1996,
5,721,000 shares at February 29, 1996 $57,474 $57,210
Additional paid-in capital 9,573,032 9,396,802
Retained earnings 23,626,964 20,376,811
-------------------- -------------------
$33,257,470 $29,830,823
-------------------- -------------------
$54,648,483 $55,957,802
==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1996 1995 1996 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $16,656,582 $22,616,765 $62,878,324 $76,623,033
Cost of goods sold 12,930,350 16,097,675 45,909,026 53,333,890
------------------ ------------------ ------------------ ------------------
Gross profit $3,726,232 $6,519,090 $16,969,298 $23,289,143
------------------ ------------------ ------------------ ------------------
Operating expenses:
Selling $1,519,682 $1,714,894 $5,865,148 $6,491,990
General and
administrative 1,587,956 2,030,292 5,009,314 5,954,613
------------------ ------------------ ------------------ ------------------
$3,107,638 $3,745,186 $10,874,462 $12,446,603
------------------ ------------------ ------------------ ------------------
Operating income $618,594 $2,773,904 $6,094,836 $10,842,540
Other income
(expense):
Interest income - 3,079 - 3,079
Interest expense (334,757) (296,666) (1,060,938) (755,995)
Other - - 3,254 -
------------------ ------------------ ------------------ ------------------
Income before income
taxes $283,837 $2,480,317 $5,037,152 $10,089,624
Income taxes 100,000 893,000 1,787,000 3,668,000
------------------ ------------------ ------------------ ------------------
Net income for the
period $183,837 $1,587,317 $3,250,152 $6,421,624
================== ================== ================== ==================
Net income per
common share:
Primary $0.03 $0.27 $0.55 $1.06
Fully diluted $0.03 $0.27 $0.56 $1.08
================== ================== ================== ==================
Weighted average
number of common
shares outstanding
including Common
Share equivalents
Primary 5,832,643 5,950,429 5,903,226 6,062,450
Fully diluted 5,850,052 5,966,354 5,846,026 5,959,917
================== ================== ================== ==================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended November 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
November 30, November 30,
1996 1995
-------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $3,250,152 $6,421,624
Adjustments required to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation 1,054,500 528,000
Amortization 475,348 525,948
Deferred income taxes - (150,000)
Change in assets and liabilities:
Receivables (2,349,710) (6,251,117)
Inventories 1,528,114 (306,697)
Prepaid expenses 548,620 204,539
Accounts payable (6,939,813) (1,324,766)
Accrued expenses (785,516) (213,832)
Income taxes 237,550 393,997
-------------------- -------------------
Net cash provided by
(used in) operating activities ($2,980,755) ($172,304)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ($1,244,473) ($3,486,805)
Other (34,893) (98,345)
-------------------- -------------------
Net cash used in investing activities ($1,279,366) ($3,585,150)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on short-term borrowings $3,491,250 $5,095,000
Principal payments on long-term
borrowings (739,437) (724,356)
Net proceeds from
issuances of common stock 1996;
17,750 shares, 1995; 92,859 shares 176,494 501,887
-------------------- -------------------
Net cash provided by (used in) financing activities $2,928,307 $4,872,531
-------------------- -------------------
Increase (decrease) in cash and
cash equvalents ($1,331,814) $1,115,077
Cash and cash equivalents:
Beginning $2,166,863 $601,394
-------------------- -------------------
Ending $835,049 $1,716,471
==================== ===================
</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, 1996, and the
consolidated statements of operations for the three-month and nine-month periods
ended November 30, 1996 and November 30, 1995 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, 1996
and November 30, 1995 and for all periods presented have been made. The
operating results for the period ended November 30, 1996 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net Sales. Net sales were $16.7 million in the third quarter of fiscal
1997, a decrease of 26% over the comparable quarter of fiscal 1996 when sales
were $22.6 million. Net sales for the first nine-months of fiscal 1997 were
$62.9 million, compared to $76.6 million for the first nine-months of fiscal
1996, a decrease of 18%. In-line roller skates, ice skates, parts and
accessories and roller hockey product sales decreased 21%, 100%, 14% and 90%,
respectively, from the third quarter of fiscal 1996 to fiscal 1997. Sales of
in-line roller skates accounted for approximately 88% of total sales in the
third quarter of fiscal 1997 compared to 82% in the third quarter of fiscal
1996. Sales of parts and accessories accounted for approximately 12% of total
sales in the third quarter of fiscal 1997 compared to 10% in the third quarter
of fiscal 1996. Roller hockey equipment sales accounted for approximately 1% of
total sales in the third quarter of fiscal 1997 compared to 3% in the third
quarter of fiscal 1996. Ice skate sales were insignificant in the third quarter
of fiscal 1997 compared to 5% of total sales in the third quarter of fiscal
1996. Sales to the Company's ten largest customers accounted for approximately
73% of the Company's total sales in the third quarter of fiscal 1997 compared to
77% of the Company's total sales in the third quarter of fiscal 1996.
The European market for the Company's products continues to grow and
expand. As a result, the Company's sales in Europe increased from $1.0 million
in the third quarter of fiscal 1996 to $1.9 million in the third quarter of
fiscal 1997, an increase of approximately 90%. Domestic sales were 81% of total
net sales in the third quarter of fiscal 1997 compared to 84% in the third
quarter of fiscal 1996, while export sales were 19% in the third quarter of
fiscal 1997 compared to 16% in the third quarter of fiscal 1996. Export sales
consisted of sales in Canada and outside North America of 1% and 18% of total
net sales in the third quarter of fiscal 1997, respectively, compared to 1% and
15% in the third quarter of fiscal 1996, respectively.
Several factors contributed to the Company's sales performance in the third
quarter of fiscal 1997. The decrease in domestic and Canadian sales was a result
of continued overall retail slowdown in sporting good purchases, continued
excess inventory in the market place and continued strong competition,
especially with the Company's mass merchant accounts. Sales to the Company's
mass merchant accounts decreased approximately 44% from third quarter of fiscal
1996 to fiscal 1997, while sales to non-mass merchant accounts increased
approximately 12% from the third quarter of fiscal 1996 to fiscal 1997. With the
soft retail environment in the United States and Canada and the continued excess
inventory levels in the market place, the level of customer reorders was below
the Company's expectations. The increase in sales to Europe was a result of the
Company's ability to capitalize on continued industry growth in the European
market.
<PAGE>
Gross Margin. The Company's gross margin decreased $2.9 million (or 44%)
between the third quarter of fiscal 1997 and the third quarter of fiscal 1996.
Gross margin as a percentage of sales was 22% in the third quarter of fiscal
1997 compared to 29% in the third quarter for fiscal 1996. The decrease in the
gross margin percentage is primarily due to the overall retail slowdown and
continued excess retail inventories. The Company has had an increase in
competition and product pricing pressure at all levels, from the mass merchants
to the specialty shops. These factors resulted in an increase in close- out
product sales at even lower than normal close-out gross margins and an increase
in discounts and price markdowns.
Operating Expenses. The Company's operating expenses (consisting of Selling
expenses and General and Administrative expenses) were $3,107,638 (or 19% of net
sales) in the third quarter of fiscal 1997, compared to $3,888,286 (or 17% of
net sales) in the third quarter of fiscal 1996.
Selling expenses decreased $195,212 (or 11%) between the third quarter of
fiscal 1997 and 1996, and were approximately 9% and 8% of net sales in the third
quarter of fiscal 1997 and 1996, respectively. The overall decrease in selling
expenses was a result of a reduction in sales commissions and endorsement
royalties associated with the decreased sales volume and an increase in
advertising and promotional expenses.
General and Administrative expenses decreased $585,436 (or 27%) between the
third quarter of fiscal 1997 and 1996, and were approximately 10% and 9% of net
sales in the third quarter of fiscal 1997 and 1996, respectively. The decrease
in general and administrative expenses was primarily due to a reduction in
personnel costs, savings associated with the Company's new office and warehouse
facility and reduced operating expenditures resulting from management's control
over spending and expenses.
The overall decrease in operating expenses is a result of management's continued
efforts to closely monitor and control expenses and the ability of management to
respond on a timely basis to the Company's reduced sales activity.
Other Income and Expense. Interest expense in the third quarter of fiscal
1997 was $334,757 (or 2% of net sales) compared to $296,666 (or 1% of net sales)
in the third quarter of fiscal 1996. The increase in interest expense is due to
the addition of the mortgage note associated with the Company's new office and
warehouse facility.
Net Income. The Company had net income of $183,837 or ($ .03 per share) in
the third quarter of fiscal 1997, compared to $1,587,317 (or $ .27 per share) in
the third quarter of fiscal 1996. This represents a decrease of $1,403,480 (or
88%) in total earnings and a decrease of $ .23 (or 85%) in earnings per share.
This decrease can be attributed to the decrease in both the sales volume and the
gross margins as discussed above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $835,049 as of November 30,
1996, compared to $2,166,863 as of February 29, 1996. The decrease in cash and
cash equivalents is a result of $2,980,755 of cash used in operating activities
and $1,279,366 of cash used in investing activities being partially offset by
$2,928,307 of cash provided by financing activities. The net cash used in
operating activities was primarily from a decrease in accounts payable and an
increase in accounts receivable being partially offset by a decrease in
inventories and net income. The net cash used in investing activities was
primarily for the purchase of capital assets. The net cash provided by financing
activities was primarily from proceeds received on the Company's line of credit.
The Company had net working capital of $27,922,824 as of November 30, 1996,
compared to $24,944,985 as of February 29, 1996. The Company's current ratio at
November 30, 1996 was 3.0 to 1 compared to 2.4 to 1 at February 29, 1996. The
improvement in the Company's net working capital and current ratio was primarily
attributable to an increase in the Company's receivables and a decrease in the
Company's trade accounts payable.
The Company's debt-to-worth ratio was .6 to 1 as of November 30, 1996,
compared to .9 to 1 as of February 29, 1996. The Company's long-term debt, which
consists primarily of the mortgage note on the Company's office and warehouse
facility and obligations under endorsement license agreements, less current
maturities, was $6,181,071 as of November 30, 1996. As of November 30, 1996, the
Company had a revolving line of credit established with a bank that provides for
borrowings of up to $15,000,000, of which $8,759,250 was outstanding. In
addition, the Company has a line of credit established with the bank providing
for borrowings of up to $1,000,000 for the purchase of equipment and
improvements. As of November 30, 1996, there were no outstanding balances on
this credit 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 1997.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index immediately following the signature
page 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 and CFO
Dated: January 6, 1997
<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, 1996
-----------------------------------------------------------------
FIRST TEAM SPORTS, INC.
-------------------------------------------------------------------
Exhibit Number Description
3.1 Restated Articles of Incorporation--incorporated by reference
to Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 29, 1996
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 Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1991
4.2 Certificate of Designations of Series A Preferred Stock
(included in Restated Articles of Incorporation -- see
Exhibit 3.1)
4.3 Rights Agreement dated as of March 15, 1996 between the
Company and Norwest Bank Minnesota, N.A. as Rights Agent --
incorporated by reference to Exhibit 2.1 to the Company's
Registration Statement on Form 8-A, Reg. No. 0-16422
4.4 Form of Right Certificate -- incorporated by
reference to Exhibit 2.2 to the Company's
Registration Statement on Form 8-A, Reg. No. 0-16422
4.5 Summary of Rights to Purchase Share of Series A Preferred
Stock-incorporated by reference to Exhibit 2.3 to the
Company's Registration Statement of Form 8-A, Reg. No. 0-16422
27 Financial Data Schedule (included in electronic version only)
.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-K FOR THE YEAR
ENDED FEBRUARY 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1
<CASH> 835,049
<SECURITIES> 0
<RECEIVABLES> 19,459,522
<ALLOWANCES> 726,000
<INVENTORY> 21,285,736
<CURRENT-ASSETS> 42,092,766
<PP&E> 12,610,845
<DEPRECIATION> 2,566,189
<TOTAL-ASSETS> 54,648,483
<CURRENT-LIABILITIES> 14,169,942
<BONDS> 6,181,071
0
0
<COMMON> 57,474
<OTHER-SE> 33,199,996
<TOTAL-LIABILITY-AND-EQUITY> 54,648,483
<SALES> 62,878,324
<TOTAL-REVENUES> 62,878,324
<CGS> 45,909,026
<TOTAL-COSTS> 45,909,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,060,938
<INCOME-PRETAX> 5,037,152
<INCOME-TAX> 1,787,000
<INCOME-CONTINUING> 3,250,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,250,152
<EPS-PRIMARY> .55
<EPS-DILUTED> .56
</TABLE>
