UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 28, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-13322
Sports & Recreation, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1643157
(State or other jurisdiction of incorporation (I.R.S. employer
or organization) identification number)
4701 W. Hillsborough Avenue Tampa, FL 33614
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 813/886-9688
Former name, former address and former fiscal year, if changed since last
report
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date 19,828,031 as of April 28, 1996.
<PAGE>
SPORTS & RECREATION, INC.
Index to Form 10-Q
April 28, 1996
Page Number
Part I - Financial Information
Item 1 - Financial Statements
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 6-7
Note to Financial Statements 8
Item 2 - Management's Discussion and Analysis 9-11
Part II - Other Information 12
Signatures 13
<PAGE>
SPORTS & RECREATION, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
January 28, 1996 April 28, 1996
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $3,590 $3,550
Inventories 236,234 255,487
Other current assets 9,223 7,071
Total current assets 249,047 266,108
Property and Equipment - net 218,269 222,768
Other Assets 17,527 17,754
Total Assets $484,843 $506,630
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term liabilities $497 $497
Accounts payable and other current liabilities 57,576 69,688
Total current liabilities 58,073 70,185
Long term liabilities, less current maturities 239,240 249,255
Total liabilities 297,313 319,440
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares
authorized, 19,769,059 and 19,828,031 issued
and outstanding, respectively 198 198
Additional paid-in capital 147,006 147,011
Retained earnings 40,326 39,981
Total stockholders' equity 187,530 187,190
Total Liabilities & Stockholders' Equity $484,843 $506,630
See Note to Financial Statements.
3
<PAGE>
SPORTS & RECREATION, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Thirteen Weeks Ended
April 30, 1995 April 28, 1996
Sales $110,742 $143,658
Cost of sales including
buying & occupancy costs 84,752 110,835
Gross Profit 25,990 32,823
Operating expenses 21,298 29,695
Income from operations 4,692 3,128
Interest expense 1,890 3,685
Income before provision for income taxes 2,802 (557)
Provision for income taxes 1,084 (212)
Net Income (Loss) $1,718 $(345)
Net income (loss) per common share $0.09 $(0.02)
Weighted average shares outstanding 20,152 20,090
See Note to Financial Statements.
4
<PAGE>
SPORTS & RECREATION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THIRTEEN WEEKS ENDED APRIL 30, 1995 AND APRIL 28, 1996
(IN THOUSANDS)
(UNAUDITED)
Additional
Common Stock Paid in Retained
Shares Par Value Capital Earnings Total
Balance, January 29, 1995 19,723 $197 $146,595 $33,330 $180,122
Issuance of common stock 10 75 75
Tax benefit from exercise of
options 18 18
Net income 1,718 1,718
Balance April 30, 1995 19,733 $197 $146,688 $35,048 $181,933
Balance, January 28, 1996 19,769 $198 $147,006 $40,326 $187,530
Issuance of common stock 59 5 5
Net loss (345) (345)
Balance April 28, 1996 19,828 $198 $147,011 $39,981 $187,190
See Note To Financial Statements.
5
<PAGE>
SPORTS & RECREATION, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Thirteen Weeks Ended
April 30, 1995 April 28, 1996
Increase in cash and cash equivalents:
Cash flows from operating activities:
Cash received from customers $113,141 $147,449
Cash paid to suppliers & employees (113,134) (149,129)
Interest paid (947) (2,749)
Income taxes (paid) refunded (702) 104
Net cash used in operating activities (1,642) (4,325)
Cash flow from investing activities:
Capital expenditures (17,146) (3,818)
Net collections under note receivable 94 25
Net cash used in investing activities (17,052) (3,793)
Cash flows from financing activities:
Proceeds from sale of common stock-net 75 5
Net borrowings under
revolving credit agreements 19,633 8,500
Principal repayments on capital
lease obligations (99) (152)
Tax benefit of options exercised 18
Loan costs 101 (275)
Net cash provided by
financing activities 19,728 8,078
Net (decrease) increase in cash
and cash equivalents 1,034 (40)
Cash, beginning of period 4,904 3,590
Cash, end of period $5,938 $3,550
6
<PAGE>
SPORTS & RECREATION, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
Thirteen Weeks Ended
April 30, 1995 April 28, 1996
Reconciliation of net income to net
cash used in operating activities:
Net income $1,718 $(345)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 1,338 2,014
Goodwill amortization 85 85
Deferred loan cost amortization 127 130
Deferred income tax provision 465 1,924
Decrease (increase) in accounts receivable 1,518
Increase in inventories (24,882) (19,253)
Increase in prepaid expenses and other assets (1,647)
Decrease (increase) in other assets 1,095 (385)
Increase in accounts payable 18,284 9,121
Increase in accrued expenses 1,638
Increase (decrease)in other current liabilities 1,002
Increase in deferred rent 94
Increase in long term liabilities 128
Gain on asset sale (221)
Total adjustments (3,360) (3,980)
Net cash used in operating activities ($1,642) ($4,325)
See Note to Financial Statements.
7
<PAGE>
SPORTS & RECREATION, INC.
NOTE TO FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, 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 material adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Interim results are not necessarily indicative of results for a full year.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the fiscal year ended January 28,
1996 contained in the Company's Form 10-K dated April 26, 1996.
(2) Subsequent Events
Management expects to take a $50-60 million restructuring charge in the
second quarter of fiscal 1996 for the liquidation of obsolete and slow moving
inventory, store closings and other expenses associated with its recent change
in management.
The Company terminate the existing $200 million revolving credit facility
and its $85 million lease facility and entered into a new two year $285 million
revolving line of credit. The credit facility limits the amount of capital
expenditures to $16 million for Fiscal 1996.
(3) Contingencies
Pending Litigation - In March 1995, two identical actions were filed
against the Company, its executive officers and certain of its directors. During
Fiscal 1995, the two actions were merged into one class action suit which is
currently pending certification by the court. The lawsuit purports to be on
behalf of purchasers of the Company's common stock from July 14, 1994 through
March 13, 1995. The complaint asserts claims under the federal securities laws,
and alleges that the Company artificially inflated the price of its common stock
during the class period. The complaint does not specify the amount of damages
sought. The Company believes the claim is without merit and a motion to dismiss
the complaint is currently pending. The litigation is at a preliminary stage and
discovery is postponed. The Company is not able to estimate the potential
exposure or range of exposure, if any, at this time.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations for the first quarter of fiscal 1996 should be read in conjunction
with the discussion and analysis set forth in Form 10-K filed April 26, 1996 for
the fiscal year ended January 28, 1996.
Subsequent to April 28, 1996, the Company has opened 1 new store through
June 7, 1996, operating 85 stores in 29 states. This new store was opened in
Augusta, GA. Additionally, the Company entered into a $285 million 2 year
Revolving Credit Facility with a group of banks.
Results of Operations
The following table sets forth certain operating data as a percentage of
sales for the periods indicated:
First Quarter Ended
April 30, 1995 April 28, 1996
-------------- --------------
Sales 100.0% 100.0%
Cost of sales including buying
and occupancy costs 76.5 77.1
------- -----
Gross profit 23.5 22.9
Operating expenses 19.3 20.7
------- -----
Income from operations 4.2 2.2
Interest expense-net 1.7 2.6
------- -----
Income before provision
for income taxes 2.5 (0.4)
Provision for income taxes 0.9 (0.2)
------ ------
Net Income 1.6% (0.2)%
===== =======
Thirteen Weeks Ended (First Quarter) April 28, 1996 Compared To Thirteen Weeks
Ended April 30, 1995
The Company opened four new stores in its first quarter compared to five
new stores in the same quarter last year, ending the quarter with 84 stores this
year compared to 61 stores last year.
Sales for the first quarter increased 29.7% to $143.7 million compared with
sales of $110.7 million in the first quarter of the prior year. Of this
increase, substantially all was derived from twenty-eight stores in the first
quarter of this year that had no full quarter comparable sales in the first
quarter of the prior year, while comparable store sales growth was slightly
negative, (0.5%).
Gross profit for the first quarter was $32.8 million, or 22.9% of sales, as
compared to $26.0 million, or 23.5% of sales, for the first quarter of the prior
year. Six of nine merchandising departments recorded better margins than the
prior year, however, costs associated with buying and occupancy costs rose by
100 basis points to offset any margin gains.
9
<PAGE>
Operating expenses for the first quarter were $29.7 million, or 20.7% of
sales, as compared to $21.3 million, or 19.3% of sales, for the first quarter of
the prior year. This increase as a percent of sales was primarily the result of
lower sales volume leverage on store expenses for the 28 non-comparable stores.
Payroll expense was up 81 basis points compared to the prior year.
Income from operations in the first quarter of this year decreased 33% to
$3.1 million, or 2.2% of sales, as compared to $4.7 million, or 4.2% of sales,
in the first quarter of the prior year due to the factors previously discussed.
Interest expense for the first quarter increased to $3.7 million as
compared to $1.9 million for the prior year's first quarter. Approximately half
the increase was the result of increased borrowings on the Company's $200
million unsecured revolving credit facility and the other half of the increase
was due to lower capitalized interest.
The Company's income tax benefit for the first quarter was $212,000 with an
effective tax benefit rate of 38.1% compared to a tax expense of $1.1 million in
the prior year with an effective tax rate of 38.7%.
The Company posted a net loss of 344,640 or (0.2)% of sales, as compared to
a net income of $1.7 million or 1.6% of sales, for the same quarter of the prior
year.
Liquidity and Capital Resources
The Company's primary capital requirements have been to support capital
investment for new stores, to purchase inventory for new stores, to meet
seasonal working capital needs, and to retire indebtedness. Historically, the
Company's working capital needs peak in the fiscal fourth quarter.
Operating activities resulted in cash usage of $4.3 million for the first
quarter of fiscal 1996 as compared to cash used of $1.6 million for the same
period of fiscal 1995. The increase on operating cash usage was primarily due to
increased inventories associated with the opening of four stores during the
quarter as well as normal seasonal increases in preparation for the summer
selling season. The increase in inventories was partially offset by increase
leverage on trade accounts payable.
Net cash of $3.8 million was used in investing activities during the first
quarter of fiscal 1996 compared to net cash used in investing during the first
quarter of fiscal 1995 of $17.1 million. This decrease was primarily related to
capital expenditures for four new stores opened in the first quarter of fiscal
1996 and one fiscal 1996 site in progress in the first quarter of fiscal 1996 as
compared to five new stores opened and ten sites in progress in the first
quarter of fiscal 1995.
Cash flows from financing activities provided $8.1 million for the first
quarter of 1996 compared to $19.7 million for the first quarter of fiscal 1995.
The decrease was primarily due to lower borrowings on the Company's $200 million
unsecured revolving line of credit from the first quarter of the prior year.
As of April 28, 1996, the Company had $3.2 million of capital lease
obligations and $74.8 million of 4 1/4% Convertible Subordinate Notes Due 2000
outstanding and had drawn $165.5 million on its $200.0 million unsecured
revolving credit facility.
Subsequent to the end of the first quarter of fiscal 1996, the Company
terminated the existing $200 million revolving credit facility and its $85
million lease facility and entered into a new two year $285 million revolving
line of credit. The credit facility limits the amount of capital expenditures to
$16 million for fiscal 1996.
10
<PAGE>
Management also reported that it expects to take a $50-60 million
restructuring charge in the second quarter of fiscal 1996 for the liquidation of
obsolete and slow moving inventory, store closings and other expenses associated
with its recent change in management.
Management believes its current cash position, expected net cash provided
by operating activities and its $285 million of credit will be sufficient to
fund its store expansion and working capital requirements.
Seasonality and Inflation
The Company's business is seasonal in nature, with its highest sales and
operating profitability historically occurring during the fiscal fourth quarter,
which includes the Christmas selling season. The Company recorded 32.8% of its
sales and 30.5% of its income from operations, prior to the one time $2,096
charge for management change and store relocation charges, in the fourth quarter
in fiscal 1995. In the future, the number and timing of the opening of new
stores may impact this historical trend.
The Company does not believe that inflation had a material effect on its
results from operations for the first quarter of fiscal 1996 or 1995. There can
be no assurance, however, that Company's business will not be affected by
inflation in the future.
11
<PAGE>
SPORTS & RECREATION, INC.
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of the Security-Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
1) Exhibits.
Exhibit 11 - Weighted Average Shares Outstanding Calculation
Exhibit 27 - Financial Data Schedule
2) Reports on Form 8-K.
On or about April 20, 1996, the Company filed with the Commission a
current report on Form 8-K (including the exhibit thereto) dated
April 15, 1996 relating to a change in the Company's Certifying
Accountants.
12
<PAGE>
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.
Sports & Recreation, Inc.
(Registrant)
6/11/96 /S/ Stephen Bebis
Date Chairman of the Board, Chief
Executive Officer and President
6/11/96 /S/ Raymond P. Springer
Date Executive Vice President and
Chief Financial Officer
13
SPORTS & RECREATION, INC.
EXHIBIT 11
WEIGHTED AVERAGE SHARES OUTSTANDING CALCULATION
FOR THE PERIOD ENDED APRIL 28, 1996
PRIMARY
Weighted average common stock shares outstanding 19,798,545
Weighted average stock issued assuming exercise
of stock options using the treasury stock
method at average market price 291,082
Total weighted average shares outstanding 20,089,627
Net Loss $(344,640)
Primary Loss Per Share $(0.02)
FULLY DILUTED
Weighted average common stock shares outstanding 19,798,545
Weighted average stock issued assuming exercise of
stock options using the treasury stock
method at the higher of average market price
or ending market price 291,082
Weighted average stock issued assuming the as adjusted
method for the 4 1/4% Convertible Subordinated
Notes Due 2000 0 (1)
Total weighted average shares outstanding 20,089,627
Net Income as reported $(344,640)
Interest adjustment net of tax for
the 4 1/4% Convertible Subordinated Notes 0 (1)
Net Income as adjusted $(344,640)
Fully diluted loss per share $(0.02) (1)
(1) Not reported under GAAP as conversion would be anti-dilutive, and dilution
less than 3%.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SPORTS & RECREATION, INC. FOR THE THREE MONTHS ENDED
APRIL 28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-28-1996
<PERIOD-START> Jan-29-1996
<PERIOD-END> Apr-28-1996
<CASH> 3,550
<SECURITIES> 0
<RECEIVABLES> 3,409
<ALLOWANCES> 0
<INVENTORY> 255,487
<CURRENT-ASSETS> 266,108
<PP&E> 241,678
<DEPRECIATION> 18,910
<TOTAL-ASSETS> 506,630
<CURRENT-LIABILITIES> 70,185
<BONDS> 74,750
198
0
<COMMON> 0
<OTHER-SE> 186,992
<TOTAL-LIABILITY-AND-EQUITY> 506,630
<SALES> 143,658
<TOTAL-REVENUES> 143,658
<CGS> 105,412
<TOTAL-COSTS> 110,835
<OTHER-EXPENSES> 29,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,685
<INCOME-PRETAX> (557)
<INCOME-TAX> (212)
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