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.:
May 31, 2000 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
--------------------------------------
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: 5,861,640 shares of Common
Stock, $.01 par value per share, outstanding as of July 10, 2000.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
May 31, 2000 and February 29, 2000
<TABLE>
<CAPTION>
May 31, February 29,
ASSETS 2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,939,326 $ 860,671
Receivables:
Trade, less allowance for
doubtful accounts of $967,000 at
May 31, 2000 and $765,000 at
February 29, 2000 17,418,267 15,918,474
Inventories 11,299,092 12,079,722
Prepaid expenses 1,170,055 1,331,238
Deferred income taxes 1,000,000 1,179,000
----------- -----------
Total current assets 32,826,740 31,369,105
PROPERTY AND EQUIPMENT
Land 600,000 600,000
Building 4,988,680 4,988,680
Production equipment 2,382,348 2,382,555
Office furniture and equipment 2,063,607 1,956,004
Warehouse equipment 1,047,232 945,377
Vehicles 95,142 97,007
----------- -----------
11,177,009 10,969,623
Less accumulated depreciation 4,628,655 4,411,801
----------- -----------
6,548,354 6,557,822
Deferred income taxes 1,450,000 1,821,000
OTHER ASSETS
License agreements, less accumulated
amortization of $4,123,000 at May 31,
2000 and $4,036,000 at February 29, 2000 1,243,374 1,330,704
Goodwill, less accumulated amortization
of $495,000 at May 31, 2000 and $463,000
at February 29, 2000 968,501 1,029,528
Other 114,012 140,349
----------- -----------
2,325,887 2,500,581
----------- -----------
$43,150,981 $42,248,508
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
May 31, 2000 and February 29, 2000
<TABLE>
<CAPTION>
May 31, February 29,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to bank $ 6,323,349 $ 4,912,275
Current maturities of
long-term debt 617,373 850,859
Accounts payable, trade 4,388,443 4,656,107
Accrued expenses 1,128,379 1,735,399
------------ ------------
Total current liabilities 12,457,544 12,154,640
LONG-TERM DEBT,
less current maturities 5,565,214 5,693,696
DEFERRED INCOME TAXES 90,000 90,000
DEFERRED REVENUE 519,160 523,000
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per
share; authorized 10,000,000
shares; issued and outstanding
5,861,640 shares at May 31, 2000 and
5,860,140 shares at February 29, 2000 58,617 58,602
Additional paid-in capital 9,928,602 9,926,180
Retained earnings 15,558,087 14,665,261
Accumulated other comprehensive loss (1,026,243) (862,871)
------------ ------------
24,519,063 23,787,172
------------ ------------
$ 43,150,981 $ 42,248,508
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
May 31,
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 15,871,401 $ 14,176,606
Cost of goods sold 10,776,006 9,599,922
------------ ------------
Gross profit 5,095,395 4,576,684
------------ ------------
Operating expenses:
Selling 1,435,922 1,325,459
General and
administrative 1,988,117 1,993,517
------------ ------------
3,424,039 3,318,976
------------ ------------
Operating income 1,671,356 1,257,708
Interest expense (308,243) (178,769)
------------ ------------
Income before income
tax expense 1,363,113 1,078,939
Income tax expense (470,287) (382,211)
------------ ------------
Net income for the
period $ 892,826 $ 696,728
------------ ------------
Net income per share:
Basic $ 0.15 $ 0.12
Diluted $ 0.15 $ 0.12
Shares used in computation of
net income per share:
Basic 5,861,457 5,803,861
Diluted 6,041,686 5,904,487
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Three Months Ended May 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
May 31, May 31,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 892,826 $ 696,728
Adjustments required to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation 220,676 307,416
Amortization 145,644 143,402
Deferred income taxes 550,000 --
Deferred revenue (3,840) --
Change in operating assets and liabilities:
Receivables (1,526,731) (5,333,047)
Inventories 672,677 (36,560)
Prepaid expenses 158,276 210,118
Accounts payable (243,408) (236,604)
Accrued expenses (600,544) (376,487)
Income taxes -- 410,470
----------- -----------
Net cash provided by (used in) operating activities 265,576 (4,214,564)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (213,911) (49,344)
----------- -----------
Net cash used in investing activities (213,911) (49,344)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on short-term borrowings 1,411,074 5,240,000
Principal payments on long-term
borrowings (361,865) (405,433)
Proceeds from exercise of stock options 2,437 --
----------- -----------
Net cash provided by financing activities 1,051,646 4,834,567
----------- -----------
Increase in cash and
cash equvalents 1,103,311 570,659
Effect of foreign currency translation (24,656) (22,559)
Cash and cash equivalents:
Beginning 860,671 723,574
----------- -----------
Ending $ 1,939,326 $ 1,271,674
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST TEAM SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation have been
included. The operating results for the period ended May 31, 2000 are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report or Form 10-K for the year ended February
29, 2000.
NOTE 2.
During the quarters ended May 31, 2000 and 1999, total comprehensive income
amounted to $729,454 and $697,560 respectively.
<PAGE>
NOTE 3.
Basic EPS Diluted EPS
2000 1999 2000 1999
(in thousands, except per share data)
Three Months Ended May 31
Net Income $ 893 $ 697 $ 893 $ 697
=================== =====================
Weighted average common
shares outstanding 5,861 5,804 5,861 5,804
Stock options -- -- 181 100
------------------- ---------------------
Total common equivalent
shares outstanding 5,861 5,804 6,042 5,904
=================== =====================
Net Income per share $.15 $.12 $.15 $.12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
First Team Sports, Inc. is a leading manufacturer, designer and
marketer of brand name sporting goods. The Company's product groups consist of
in-line skates, in-line accessories and parts (primarily protective wear and
replacement wheels and bearings), ice hockey sticks and ice hockey protective
wear and accessories. Within the product groups, the Company maintains Ultra
Wheels(TM) and Skate Attack (TM) in-line product lines and a Hespeler(TM) ice
hockey line. The Ultra Wheels line consists of higher quality and higher priced
products that are targeted for specialty and sporting goods chain store
customers. The Skate Attack line consists of lower priced products for the mass
merchant customers. The Hespeler ice hockey line consists of high quality
products that are targeted primarily for the specialty and sporting goods chain
stores.
RESULTS OF OPERATIONS
Net Sales. Net sales were $15.9 million in the first quarter of fiscal
2001, an increase of 12% compared to the first quarter of fiscal 2000 when sales
were $14.2 million. Increases in unit sales of in-line skates and ice hockey
sticks and protective wear, were the principal factors in the Company's net
sales increase in the first quarter of fiscal 2001.
A breakdown and analysis of the Company's main product lines is as follows:
<TABLE>
<CAPTION>
(dollar amounts in millions) Fiscal 2001 Fiscal 2000
----------- -----------
Amount % Amount % Change
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
In-line Skates $12.1 76.9% $11.3 79.6% 7.1%
In-line Accessories and Parts 1.5 9.4% 1.5 10.6% 0.0%
Ice Hockey Sticks 0.7 4.4% 0.5 3.5% 40.0%
Ice Hockey Protective and Access. 1.6 10.1% 0.9 6.3% 77.8%
------------ ----------- ----------- ----------- -----------
Total Net Sales $15.9 100.0% $14.2 100.0% 12.0%
============ =========== =========== =========== ===========
</TABLE>
The Company currently distributes products to numerous countries
worldwide. A geographic breakdown of the Company's net sales for the first
quarter is as follows:
<TABLE>
<CAPTION>
(dollar amounts in millions) Fiscal 2001 Fiscal 2000
----------- -----------
Amount % Amount % Change
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Domestic $11.1 69.8% $ 7.7 54.2% 44.2%
Canada 3.6 22.6% 4.8 33.8% (25.0%)
Europe 0.8 5.1% 1.5 10.6% (46.7%)
Other International 0.4 2.5% 0.2 1.4% 100.0%
------------ ----------- ----------- ----------- -----------
Total Net Sales $15.9 100.0% $14.2 100.0% 12.0%
============ =========== =========== =========== ===========
</TABLE>
<PAGE>
Several factors contributed to the Company's sales performance in the
first quarter of fiscal 2001. The increase in domestic sales is the result of
strong acceptance of the Company's UltraWheels products and significant increase
in sales to the large national sporting goods chains ("big box" retailers). This
increase offset a decline in sales of the Company's Skate Attack products to
mass merchant customers due to their reduction in branded in-line skate
offerings. During the first quarter of fiscal 2000, approximately 43% of the
Company's in-line skate sales came from the sporting good chain stores compared
to 78% during the first quarter of fiscal 2001. The decreased sales in Canada
were primarily the result of the Company receiving product from its
manufacturers earlier this year than in prior years and filling a greater
portion of spring season orders from Canada during the Company's Fourth Quarter
ended February 29, 2000, combined with a slight slow down in reorders due to
poor weather conditions throughout the spring season in Canada. The decrease in
European sales is primarily the result of continued competitive pressures in the
European in-line skate market and the continued number of in-line skate
customers buying direct from Pacific Rim manufacturers. The increase in other
international sales is primarily the result of the Company's continued efforts
to open up new accounts in the international arena.
While the Company believes there are some positive signs that the
market conditions in the in-line industry may be improving, the national and
international markets continue to be very competitive and under extreme price
competition.
Gross Margin As a percentage of net sales, the Company's gross margin
was 32% in the first quarter of fiscal 2001 and fiscal 2000. The relatively
unchanged gross margin as a percentage of net sales in the first quarter of
fiscal 2001 was primarily due to the continued strong percentage of Ultra Wheels
skates being sold versus the Skate Attack skates and an increase in the
percentage of total sales related to Hespeler products.
The Company's Ultra Wheels brand accounted for 80% of total net sales
in the first quarter of fiscal 2001 compared to 79% in the first quarter of
fiscal 2000, while the Company's Skate Attack brand accounted for 6% of total
sales in the first quarter of fiscal 2001 compared to 11% in the first quarter
of fiscal 2000. The Hespeler brand accounted for 14% of total net sales in the
first quarter of fiscal 2001 compared to 10% in the first quarter of fiscal
2000.
Operating Expenses. Selling expenses were $1.4 million, or 9% of total
net sales, in the first quarter of fiscal 2001 compared to $1.3 million or 9% in
the first quarter of fiscal 2000. The increase in selling expenses in fiscal
2001 is primarily the result of an increase in commissions and co-op advertising
costs associated with the increased sales volume.
General and administrative expenses were $2.0 million, or 13% of total
net sales, in the first quarter of fiscal 2001 compared to $2.0 million or 14%
in the first quarter of fiscal 2000. The decrease in general and administrative
expenses as a percentage of net sales in fiscal 2001 was primarily related to
increased personnel costs being offset by decreased insurance and occupancy
costs.
<PAGE>
Other Income and Expense. Interest expense was $308,000 in the first
quarter of fiscal 2001, compared to $179,000 in the first quarter of fiscal
2000. The increase in interest expense for fiscal 2001 was primarily due to
increased usage of the Company's line of credit facility and an increase in the
bank prime rates. The increased rates affected both the Company's revolving line
of credit facility and its term loan.
Provision for Income Taxes. The Company's effective tax rate was 34.5%
in the first quarter of fiscal 2001 compared to 35.4% in the first quarter of
fiscal 2000. The slight decrease in fiscal 2001 is primarily due to the effect
of state and foreign tax rates, the percentage of state and foreign revenues,
deferred tax items and the level of pre-tax income.
Net Income. The Company had net income of $893,000, or $.15 per share,
in the first quarter of fiscal 2001 compared to $697,000 or $.12 per share, in
fiscal 2000. The improvement for the first quarter can be primarily attributed
to the increase in the net sales as discussed above and management's continued
control over the company's operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of fiscal 2001, the Company's operations provided
$.3 million of cash compared to using $4.2 million of cash in the first quarter
of fiscal 2000. The cash provided by operations in the current year was
primarily the result of a decrease in the Company's inventory due to increased
sales volume and recognition of deferred taxes due to usage of income tax NOL
carryforwards. The large amount of cash used by operations in the prior year was
primarily the result of an increase in the Company's receivable balances.
Net cash used in investing activities was $214,000 in the first quarter
of fiscal 2001 compared to $49,000 in the first quarter of fiscal 2000. The use
of cash for investing activities in fiscal 2001 and fiscal 2000 was attributable
to equipment purchases.
Net cash provided by financing activities was $1.1million in the first
quarter of fiscal 2001 compared to $4.8 million in the first quarter of fiscal
2000. The net cash provided by bank financing activities in both fiscal 2001 and
2000 was primarily for funding the normal day to day operations of the Company.
The decrease in the amount provided in fiscal 2001 as compared to fiscal 2000 is
the result of a larger portion of the Company's inventory being delivered
earlier this year than last year resulting in a larger line of credit balance at
the year ended February 29, 2000 compared to February 28, 1999.
The Company's debt to worth ratio was .8 to 1 as of May 31, 2000,
February 29, 2000 and May 31, 1999. The Company's long-term debt, which consists
primarily of a term note secured by a mortgage on the Company's headquarters and
warehouse building and obligations under endorsement license agreements, less
current maturities, was $5.6 million as of May 31, 2000.
<PAGE>
The Company's primary financing facility is a $10 million revolving
credit line, which expires August 31, 2002, bears interest at the banks prime
rate and is subject to a borrowing base that is calculated monthly and updated
periodically during each month. The borrowing base is based on a percentage of
eligible receivables and inventories. As of May 31, 2000, the borrowing base
limitation was $10 million, of which $6.3 million was outstanding.
In connection with this revolving credit facility, the Company
agreed, among other things, to maintain certain minimum financial ratio and
income levels.
The Company believes its current cash position, funds available under
existing bank arrangements, the ability to obtain additional financing, and cash
generated from operations will be sufficient to finance the Company's operating
requirements through fiscal 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk. The Company's sales and results of operations are subject
to foreign currency fluctuations. The Company's foreign operations are in
countries with fairly stable currencies; therefore, the effect of foreign
currencies has not been significant. The Company attempts to limit its exposure
to translation gains and losses by maintaining and controlling its foreign cash
flows when possible, thus reducing such exposure.
Interest Rate Risk. The Company's interest rate risk exposure results
from the floating prime rate on the Company's revolving credit line and term
loan. The impact of an increase in interest rates by 100 basis points (1%) would
not have a material effect on the Company's financial statement.
<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/ Kent A. Brunner
Kent A. Brunner
Vice President and CFO
Dated: July 11, 2000
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For Quarter Ended: Commission File No.: 0-16422
May 31, 2000
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FIRST TEAM SPORTS, INC.
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Exhibit
Number Description
3.1 Restated Articles of Incorporation -- incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K for the year ended February 28,
1997
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
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)
-------------
*Filed herewith
