-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K1bEJMcZbxGDt4lvhW3ogo6U6lmOITfzdCjViDrOmkn42On2wYKodqp0bSpX18X3 nB7W8l+1ErnBUbOKNCgeQA== 0000914190-98-000254.txt : 19980720 0000914190-98-000254.hdr.sgml : 19980720 ACCESSION NUMBER: 0000914190-98-000254 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980714 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TEAM SPORTS INC CENTRAL INDEX KEY: 0000820242 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 411545748 STATE OF INCORPORATION: MN FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16442 FILM NUMBER: 98665587 BUSINESS ADDRESS: STREET 1: 1201 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303 BUSINESS PHONE: 6127804454 MAIL ADDRESS: STREET 1: 1201 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303-1092 10-Q 1 FORM 10-Q FOR FIRST QUARTER 1999 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, 1998 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: 5,792,253 shares of Common Stock, $.01 par value per share, outstanding as of July 10, 1998. PART I FINANCIAL INFORMATION Item 1. Financial Statements FIRST TEAM SPORTS, INC. CONSOLIDATED BALANCE SHEETS May 31, 1998 and February 28, 1998
May 31, February 28, ASSETS 1998 1998 ----------- ----------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 2,934,471 $ 1,869,545 Receivables: Trade, less allowance for doubtful accounts of $507,000 at May 31, 1998 and $666,000 at February 28, 1998 16,738,793 11,417,176 Refundable income taxes 1,358,396 1,678,405 Inventories 19,696,070 22,709,519 Prepaid expenses 822,793 957,903 Deferred income taxes 896,000 896,000 ----------- ----------- Total current assets 42,446,523 39,528,548 ----------- ----------- PROPERTY AND EQUIPMENT, Land 600,000 600,000 Building 4,988,680 4,988,680 Production equipment 2,007,406 2,132,156 Office furniture and equipment 1,789,533 1,766,911 Warehouse equipment 916,591 820,626 Vehicles 104,148 102,906 ----------- ----------- 10,406,358 10,411,279 Less accumulated depreciation 2,297,674 1,993,004 ----------- ----------- 8,108,684 8,418,275 ----------- ----------- OTHER ASSETS License agreements, less accumulated amortization of $3,126,000 at May 31, 1998 and $3,039,000 at February 28, 1998 1,942,014 1,766,584 Goodwill, less accumulated amortization of $102,000 at May 31, 1998 and $64,000 at February 28, 1998 1,391,403 1,462,291 Other 943,300 986,030 ----------- ----------- 4,276,717 4,214,905 ----------- ----------- $54,831,924 $52,161,728 =========== ===========
See Notes to Consolidated Financial Statements FIRST TEAM SPORTS, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) May 31, 1998 and February 28, 1998
May 31, February 28, LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1998 ------------ ------------ (Unaudited) CURRENT LIABILITIES Notes payable to bank $ 12,060,000 $ 8,685,000 Current maturities of long-term debt 1,134,308 978,965 Accounts payable, trade 1,783,417 2,697,675 Accrued expenses 1,944,282 2,115,728 ------------ ------------ Total current liabilities 16,922,007 14,477,368 ------------ ------------ LONG-TERM DEBT, less current maturities 6,526,134 6,774,496 ------------ ------------ DEFERRED INCOME TAXES 69,000 69,000 ------------ ------------ DEFERRED REVENUE 600,000 600,000 ------------ ------------ SHAREHOLDERS' EQUITY Common Stock, par value $.01 per share; authorized 10,000,000 shares; issued and outstanding 5,792,240 shares at May 31, 1998 and February 28, 1998 57,923 57,923 Additional paid-in capital 9,806,341 9,806,341 Retained earnings 21,056,860 20,492,860 Accumulated other comprehensive income (loss) (206,341) (116,260) ------------ ------------ 30,714,783 30,240,864 ------------ ------------ $ 54,831,924 $ 52,161,728 ============ ============
See Notes to Consolidated Financial Statements FIRST TEAM SPORTS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended May 31, 1998 1997 ------------ ------------ Net sales $ 15,138,589 $ 26,007,262 Cost of goods sold 10,782,924 19,050,049 ------------ ------------ Gross profit 4,355,665 6,957,213 ------------ ------------ Operating expenses: Selling 1,400,361 2,041,830 General and administrative 1,749,570 1,807,155 ------------ ------------ 3,149,931 3,848,985 ------------ ------------ Operating income 1,205,734 3,108,228 Interest expense (359,181) (250,542) ------------ ------------ Income before income tax expense 846,553 2,857,686 Income tax expense (282,553) (996,000) ------------ ------------ Net income for the period $ 564,000 $ 1,861,686 ============ ============ Net income per share: Basic $ 0.10 $ 0.32 Diluted $ 0.10 $ 0.32 Shares used in computation of net income per share: Basic 5,792,253 5,751,319 Diluted 5,885,956 5,787,328
See Notes to Consolidated Financial Statements FIRST TEAM SPORTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For Three Months Ended May 31, 1998 and 1997 (Unaudited)
May 31, May 31, 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 564,000 $ 1,861,686 Adjustments required to reconcile net income to net cash used in operating activities: Depreciation 311,205 448,950 Amortization 164,727 87,300 Change in operating assets and liabilities: Receivables (5,389,085) (7,600,310) Inventories 2,983,737 1,336,169 Prepaid expenses 134,798 (46,450) Accounts payable (899,783) 1,018,405 Accrued expenses (168,259) (119,593) Income taxes 312,597 760,902 ----------- ----------- Net cash used in operating activities (1,986,063) (2,252,941) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment -- (414,114) Other (261,774) (8,766) ----------- ----------- Net cash used in investing activities (261,774) (422,880) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds on short-term borrowings 3,375,000 1,840,000 Proceeds from long-term borrowings 262,760 1,000,000 Principal payments on long-term borrowings (356,158) (205,749) Net proceeds from exercise of stock options -- 56,683 ----------- ----------- Net cash provided by financing activities 3,281,602 2,690,934 ----------- ----------- Increase in cash and cash equvalents 1,033,765 15,113 Effect of foreign currency translation 31,161 -- Cash and cash equivalents: Beginning 1,869,545 381,427 ----------- ----------- Ending $ 2,934,471 $ 396,540 =========== ===========
See Notes to Consolidated Financial Statements FIRST TEAM SPORTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. The consolidated condensed balance sheet as of May 31, 1998, and the consolidated statements of operations for the three-month periods ended May 31, 1998 and 1997 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 May 31, 1998 and 1997 and for all periods presented have been made. The operating results for the period ended May 31, 1998 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. REPORT COMPREHENSIVE INCOME As of March 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130 (Statement 130), Report Comprehensive Income Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption this statement had no impact on the Company's net income or shareholders' equity. Statement 130 requires the Company's foreign currency translation, which prior to adoption was reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. During the quarters ended May 31, 1998 and 1997, total comprehensive income amounted to $357,659 and $1,861,686, respectively. EARNINGS PER SHARE Basic EPS Diluted EPS 1998 1997 1998 1997 ------ ------ ------ ------ (in thousands, except per share data) Net Income $ 564 $1,862 $ 564 $1862 ====== ====== ====== ====== Weighted average common shares outstanding $5,792 $5,751 $5,792 $5,751 Stock Options -- -- 94 36 ------ ------ ------ ------ Total common equivalent shares outstanding $5,792 $5,751 $5,886 $5,787 ====== ====== ====== ====== Net Income per share $ .10 $ .32 $ .10 $ .32 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net Sales. Net sales were $ 15.1 million in the first quarter of fiscal 1999, a decrease of 42% over sales of $26.0 million in the comparable quarter of fiscal 1998. In-line skate sales volume decreases, combined with a decrease in the average selling price of both the Company's Skate Attack and Ultra Wheels lines, were the principal factors in the Company's net sales decline in the first quarter of fiscal 1999. The total number of in-line skate units sold in the first quarter of fiscal 1999 decreased approximately 42% and the average selling price in the first quarter of fiscal 1999 decreased approximately 15% compared to the first quarter of fiscal 1998. These decreases were the result of the Company experiencing continued pricing pressures from all areas of the market place due primarily to excess inventory levels and competitive price cutting in the in-line skate industry. The Company's product groups consist of in-line skates, in-line accessories and parts (primarily protective wear and replacement wheels and bearings), roller hockey products, ice hockey sticks, and ice hockey protective wear and accessories. Within the product groups, the Company maintains Ultra Wheels, Skate Attack, Heavy and Third World in-line product lines and a Hespeler ice hockey line. The Ultra Wheels, Heavy and Third World lines consist of higher quality and higher priced products that are targeted for the specialty and sporting goods chain store customers. The Skate Attack line consists of lower priced products for the mass merchant customers. The Hespeler line consists of high quality products that are targeted primarily at the specialty and sporting goods chain stores. In-line skate and in-line accessory and part sales decreased 46% and 47% respectively, from the first quarter of fiscal 1998 to fiscal 1999. Sales of in-line skates accounted for approximately 81% of total sales in the first quarter of fiscal 1999 compared to 87% in the first quarter of fiscal 1998. Sales of in-line accessories and parts accounted for approximately 12% of total sales in the first quarter of fiscal 1999 compared to 13% in fiscal 1998. Sales of ice hockey sticks and ice hockey protective wear and accessories accounted for approximately 4% and 3%, respectively, of total sales in the first quarter of fiscal 1999. The Company purchased Hespeler Hockey Company in September 1997, therefore there were no ice hockey product sales during the first quarter of fiscal 1998. The Company currently distributes products to numerous countries worldwide. Domestic sales were $8.8 million or 59% of total sales in the first quarter of fiscal 1999 compared to $16.9 million or 65% in the first quarter of fiscal 1998. Sales in Canada were $4.2 million or 27% of total sales in the first quarter of fiscal 1999 compared to $4.3 million or 17% in the first quarter of fiscal 1998. Sales in Europe were $2.1 million or 14% of total sales in the first quarter of fiscal 1999 compared to $4.2 million or 16% in the first quarter of fiscal 1998. Other International sales were insignificant in the first quarter of fiscal 1999 compared to $0.6 million in the first quarter of fiscal 1998. Several factors contributed to the company's sales performance in the first quarter of fiscal 1999. The decrease in domestic sales was a result of continued excess inventory levels in the market place and competitive price cutting which has continued to plague the in-line skate industry. The decrease in domestic in-line sales were also due to certain customers, primarily large mass merchant retailers purchasing in-line skate products directly from Pacific Rim manufacturers. The consistent sales results in Canada were primarily the result of continued strong acceptance of the Company's USA made products and the Company's strong sales force in Canada. The decrease in European sales was primarily the result of excess inventory levels in the European market and an increase in the number of customers buying direct from Pacific Rim manufacturers. The decrease in other international sales was primarily the result of the continued excess inventory levels in both the Pacific Rim and South American marketplaces. While the Company believes there are some positive signs that the market conditions in the in-line industry are improving, the national and international markets continue to be plagued by excess inventories and extreme price competition, with no clear signs of when these market conditions will abate. Furthermore, the increased purchases of product direct from the manufacturers by large mass merchants will continue to affect the Company's domestic sales to these customers. Gross Margin. As a percentage of net sales, the Company's gross margin was 28.8% in the first quarter of fiscal 1999 compared to 26.8% in the first quarter of fiscal 1998. The increase in the gross margin in fiscal 1999 was primarily due to a reduction in product warranty/return claims, Hespeler Hockey product sales which carry a higher margin, and a reduction in freight costs. In the first quarter of fiscal 1998 the Company had to airfreight certain products to meet customer ship dates. The Company's UltraWheels brand of in-line skates accounted for 65% of total in-line skate sales in the first quarter of fiscal 1999 compared to 66% in the first quarter of fiscal 1998, while the Company's Skate Attack brand accounted for 35% of total in-line skate sales in the first quarter of fiscal 1999 compared to 34% in the first quarter of fiscal 1998. Operating Expenses. Selling expenses were $1.4 million or 9.3% of total net sales in the first quarter of fiscal 1999 compared to $2.0 million or 7.9% in the first quarter of fiscal 1998. The decrease in the absolute dollar amount of selling expenses in 1999 was primarily the result of a reduction in commissions, royalties and co-op advertising costs associated with the decreased sales volume and management's efforts to closely monitor and control its expenditures. The increase in selling expenses as a percentage of net sales in 1999 was due to continued efforts to advertise and market the Company's two new subsidiaries Hespeler and Mothership and the Company's new products. General and administrative expenses were $1.7 million or 11.6% of total net sales in the first quarter of fiscal 1999 compared to $1.8 million or 6.9% in the first quarter of fiscal 1998. The decrease in the absolute dollar amount of general and administrative expenses in 1999 was primarily the result of a reduction in insurance costs associated with the decreased sales volume and reduced operating expenditures resulting from management's continued efforts to closely monitor and control operating costs. The increase in general and administrative expenses as a percentage of net sales in 1999 was primarily due to the effect of fixed costs as related to the reduced sales volume and the administrative costs associated with the Company's new offices for Hespeler and Mothership. In fiscal 1997, the Company purchased a new software system and appropriate computer hardware. As part of the selection process, the ability to recognize the year 2000 was a major requirement and thus the company believes it is prepared for the change. The Company is currently working to resolve the potential impact of the year 2000 on the processing of date sensitive information by the Company's computerized information systems, which might occur due to vendors and/or customers not being ready. Based on preliminary information, costs of addressing potential problems are currently not expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. Other Income and Expense. Interest expense was $359,000 in the first quarter of fiscal 1999 compared to $251,000 in the first quarter of fiscal 1998. The increase in interest expense for 1999 is primarily due to increased borrowings under the Company's line of credit facility needed for the operation of the Company's new subsidiaries, which were not in existence in the first quarter of fiscal 1998. Provision for Income Taxes. The Company's effective tax rate was 33.4% in the first quarter of fiscal 1999 compared to 34.9% in the first quarter of fiscal 1998. The decrease in 1999 was primarily due to the effect of state and foreign tax rates and the percentage of state and foreign revenues. Net Income. The Company had net income of $564,000 or $.10 per share in the first quarter of fiscal 1999 compared to $1.9 million or $.32 per share in the first quarter of fiscal 1998. This decrease can be primarily attributed to the decrease in the sales volume and other issues as discussed above. LIQUIDITY AND CAPITAL RESOURCES In the first quarter of fiscal 1999 the Company's operations used $2.0 million of cash compared to $2.3 million in the first quarter of fiscal 1998. The decrease in the net cash used in operations is primarily the result of the Company reducing its inventory balances. While the Company's inventories have been reduced by approximately 13% since February 1998, management believes that its inventories need to be reduced even further, and is currently in the process of developing and implementing aggressive and competitive programs for effectively reducing unneeded inventory. Net cash used in investing activities was $262,000 in the first quarter of fiscal 1999 compared to $423,000 in the first quarter of fiscal 1998. The use of cash for this activity was primarily attributable to expenditures relating to new licensing arrangements in 1999. Net cash provided by financing activities was $3.3 million in the first quarter of fiscal 1999 compared to $2.7 million in the first quarter of fiscal 1998. The cash provided in 1999 was primarily due to proceeds from the Company's line of credit facility. The proceeds on the line of credit facility were used primarily for the operations of the Company. The Company's debt to worth ratio was .8 to 1 as of May 31, 1998 compared to .7 to 1 as of February 28, 1998 and May 31, 1997. The Company's long-term debt, which consists primarily of a mortgage note on the Company's facility and obligations under endorsement license agreements, less current maturities, was $6.5 million as of May 31, 1998 (see Note 6 in Notes to Financial Statements). The Company has a revolving line of credit with a bank that provides for borrowings of up to $15 million of which $12.1 million was outstanding at May 31, 1998 and $8.4 million at July 10, 1998. In addition, the Company had a line of credit established with the bank providing for borrowings of up to $1 million for the purchase of equipment and facility improvements. As of May 31, 1998 there was a $667,000 balance outstanding on this credit facility. In connection with these credit facilities, the Company agreed, among other things, to maintain certain minimum financial ratio and income levels. The Company's ability to comply with the credit facility covenants may, among other things, depend on the success of the Company's inventory reduction programs. Subject to the foregoing the Company believes its current cash position, funds available under existing bank arrangements and cash generated from operations will be sufficient to finance the Company's operating requirements through fiscal 1999. PART II OTHER INFORMATION Item 5. Other Information Shareholder Proposals at 1999 Annual Shareholders' Meeting. Pursuant to recent amendments to the proxy rules under the Securities Exchange Act of 1934 (17 CFR ss.240.14a), the Company's shareholders are notified that the deadline for giving the Company timely notice of any shareholder proposal to be submitted outside of the Rule 14a-8 process for consideration at the Company's 1999 Annual Meeting of Shareholders is April 20, 1999. 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. 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: July 14, 1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBIT INDEX TO FORM 10-Q For Quarter Ended: Commission File No.: 0-16422 May 31, 1998 ------------------------------------------------------------------- FIRST TEAM SPORTS, INC. ------------------------------------------------------------------- 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, 1998 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) EX-27 2 ART 5 FDS FOR 1ST QUARTER 10-Q
5 1 U. S. Dollars 3-MOS FEB-28-1999 MAR-01-1998 MAY-31-1998 1 2,934,471 0 17,245,793 507,000 19,696,070 42,446,523 10,406,358 2,297,674 54,831,924 16,922,007 6,526,134 0 0 57,923 30,656,860 54,831,924 15,138,589 15,138,589 10,782,924 10,782,924 0 0 359,181 846,553 282,553 564,000 0 0 0 564,000 .10 .10
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