10-Q 1 0001.txt FORM 10-Q Form 10-Q 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 29, 2000 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 0-5648 OSHMAN'S SPORTING GOODS, INC. ----------------------------- (Exact name of registrant as specified in its charter) DELAWARE 74-1031691 -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 2302 MAXWELL LANE, HOUSTON, TEXAS 77023 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (713) 928-3171 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NO CHANGE -------------------------------------------------------------------------------- (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_____ ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $1.00 par value 5,763,249 ---------------------------------- --------- PART I -- FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 29, 2000, JANUARY 29, 2000 AND MAY 1, 1999 (IN THOUSANDS)
APRIL 29, JANUARY 29, MAY 1, 2000 2000 1999 ------------- -------------- ------------- (UNAUDITED) (UNAUDITED) ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS 224 321 337 ACCOUNTS RECEIVABLE, LESS ALLOWANCE OF $88 APR 00, JAN 00 AND MAY 99 1,682 1,750 1,007 MERCHANDISE INVENTORIES 92,378 94,157 96,258 PREPAID EXPENSES AND OTHER 1,412 466 2,345 -------------- -------------- -------------- TOTAL CURRENT ASSETS 95,696 96,694 99,947 PROPERTY, PLANT AND EQUIPMENT, AT COST 68,227 87,103 88,487 LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 34,623 51,140 53,133 -------------- -------------- -------------- NET PROPERTY, PLANT AND EQUIPMENT 33,604 35,963 35,354 OTHER ASSETS 8 8 250 -------------- -------------- -------------- 129,308 132,665 135,551 ============== ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES CURRENT MATURITIES OF LONG-TERM OBLIGATIONS 71 58 16 TRADE ACCOUNTS PAYABLE 31,071 30,094 41,467 ACCRUED LIABILITIES 18,906 20,998 15,376 STORE CLOSING RESERVE 1,045 1,044 961 -------------- -------------- -------------- TOTAL CURRENT LIABILITIES 51,093 52,194 57,820 LONG-TERM OBLIGATIONS 24,706 37,463 31,074 OTHER NONCURRENT LIABILITIES 8,020 6,643 7,159 STOCKHOLDERS' EQUITY COMMON STOCK 5,830 5,830 5,830 ADDITIONAL CAPITAL 4,210 4,210 4,210 RETAINED EARNINGS 35,608 26,346 29,479 LESS TREASURY STOCK, AT COST (159) (21) (21) -------------- -------------- -------------- STOCKHOLDERS' EQUITY 45,489 36,365 39,498 -------------- -------------- -------------- 129,308 132,665 135,551 ============== ============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OSHMAN'S SPORTING GOODS, INC, AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTER ENDED APRIL 29, 2000 AND MAY 1, 1999 (in thousands, except per share data) (UNAUDITED) Three Months Ended 2000 1999 --------- --------- NET SALES $ 74,662 $ 71,374 COST OF GOODS SOLD 48,808 46,212 --------- --------- GROSS PROFIT 25,854 25,162 OPERATING EXPENSES SELLING AND ADMINISTRATIVE EXPENSES 23,031 24,937 PRE-OPENING EXPENSES 102 303 STORE CLOSING PROVISION 200 - MISCELLANEOUS INCOME (6,724) (209) --------- --------- OPERATING INCOME 9,245 131 INTEREST EXPENSE, NET 641 597 --------- --------- INCOME(LOSS) BEFORE INCOME TAXES AND 8,604 (466) CUMULATIVE EFFECT OF CHANGE FROM RETAIL TO COST METHOD OF ACCOUNTING FOR INVENTORY INCOME TAX EXPENSE 314 31 --------- --------- NET INCOME(LOSS) BEFORE CUMULATIVE EFFECT OF 8,290 (497) CHANGE FROM RETAIL TO COST METHOD OF ACCOUNTING FOR INVENTORY CUMULATIVE EFFECT OF CHANGE FROM RETAIL TO COST METHOD OF ACCOUNTING FOR INVENTORY 972 0 --------- --------- NET INCOME(LOSS) $ 9,262 $ (497) ========= ========= EARNINGS(LOSS) PER SHARE EARNINGS(LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE FROM RETAIL TO COST METHOD OF ACCOUNTING FOR INVENTORY BASIC EARNINGS(LOSS) PER SHARE $ 1.42 $ (.09) ========= ========= DILUTED EARNINGS(LOSS) PER SHARE $ 1.40 $ (.09) ========= ========= CUMULATIVE EFFECT OF CHANGE FROM RETAIL TO COST METHOD OF ACCOUNTING FOR INVENTORY BASIC EARNINGS(LOSS) PER SHARE $ .17 $ - ========= ========= DILUTED EARNINGS(LOSS) PER SHARE $ .17 $ - ========= ========= NET EARNINGS(LOSS) BASIC EARNINGS(LOSS) PER SHARE $ 1.59 $ (.09) ========= ========= DILUTED EARNINGS(LOSS) PER SHARE $ 1.57 $ (.09) ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING 5,814 5,827 DILUTIVE EFFECT OF STOCK OPTIONS 102 - --------- --------- DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 5,916 5,827 ========= ========= SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 29, 2000 AND MAY 1, 1999 (in thousands) (UNAUDITED)
2000 1999 ---------- --------- CASH FLOWS OF OPERATING ACTIVITIES: NET INCOME(LOSS) $ 9,262 $ (497) ADJUSTMENTS TO RECONCILE NET CASH (USED)PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 1,496 1,632 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INVENTORY (972) - CHARGE TO RESERVE FOR STORE CLOSINGS, NET OF DEPRECIATION AND AMORTIZATION (258) (279) PROVISION FOR LOSSES ON STORE CLOSINGS 200 - GAIN ON DISPOSITION OF REAL ESTATE AND FIXED ASSETS (6,561) - ASSET RETIREMENTS OFFSET BY MOVING ALLOWANCE 298 - AMORTIZATION OF DEFERRED RENTAL ALLOWANCES (139) (45) CHANGES IN ASSETS AND LIABILITIES: DECREASE IN ACCOUNTS RECEIVABLE 68 489 DECREASE(INCREASE) IN MERCHANDISE INVENTORIES 2,789 (9,867) INCREASE IN PREPAID EXPENSES AND OTHER (2,221) (800) INCREASE IN TRADE ACCOUNTS PAYABLE 977 7,989 DECREASE IN ACCRUED LIABILITIES (2,484) (581) INCREASE IN DEFERRED RENTAL ALLOWANCE 1,612 320 INCREASE IN INCOME TAXES 296 11 ---------- --------- NET CASH PROVIDED(USED) BY OPERATING ACTIVITIES 4,363 (1,628) CASH FLOWS OF INVESTING ACTIVITIES: PROCEEDS FROM SALE OF FIXED ASSETS 7,743 - PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (596) (1,727) PROCEEDS FROM NOTE RECEIVABLE 17 17 PROCEEDS FROM LANDLORDS 1,258 908 ---------- --------- NET CASH PROVIDED(USED) BY INVESTING ACTIVITIES 8,422 (802) CASH FLOWS OF FINANCING ACTIVITIES: ACQUISITION OF TREASURY STOCK (138) - PROCEEDS FROM LONG-TERM OBLIGATIONS 38 148 PAYMENTS OF LONG-TERM OBLIGATIONS (14) (5) (PAYMENTS)PROCEEDS FROM REVOLVING CREDIT FACILITY, NET (12,768) 2,268 ---------- --------- NET CASH (USED)PROVIDED BY FINANCING ACTIVITIES (12,882) 2,411 NET DECREASE IN CASH AND CASH EQUIVALENTS (97) (19) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 321 356 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 224 $ 337 ========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 1 $ 2 INTEREST 560 700
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 29, 2000 AND MAY 1, 1999 (UNAUDITED) NOTE A The financial statements are condensed and should be read in conjunction with the 1999 annual report. The financial information contained herein is unaudited, but in the opinion of the management of the Company, includes all adjustments (consisting of normal recurring adjustments) for a fair presentation of the results of operations for the periods indicated. The results for the three months ended April 29, 2000 are not necessarily indicative of the results to be expected for the full year. NOTE B In fiscal 2000, the Company changed its method of accounting for inventory from the retail method to the average cost method. The Company believes the cost method is a preferable method for matching the cost of merchandise with the revenues generated. The cumulative effect of this change was an increase in the inventory value of $972,000. It is not possible to determine the effect of the change on income in any previously reported fiscal periods. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations The following table sets forth selected statements of operations data of the Company expressed as a percentage of net sales for the periods indicated:
Percentage of Net Sales ------------------------------- 1st Quarter ------------------------------- 2000 1999 ----------- ------------ Net sales 100.0 100.0 Cost of goods sold 65.4 64.7 -------- ------ Gross profit 34.6 35.3 Operating expenses Selling and administrative expenses 30.8 34.9 Pre-opening expenses .1 .4 Store closing provision .3 -- Miscellaneous income (9.0) ( .3) -------- ------ Operating income 12.4 .2 Interest expense, net .9 .8 -------- ------ Income (loss) before income taxes and cumulative effect of change in accounting method for inventory 11.5 (.7) Income taxes .4 -- -------- ------ Income (loss) before cumulative effect of change in accounting method for inventory 11.1 (.7) -------- ------ Cumulative effect of change in accounting method for inventory 1.3 -- -------- ------ Net income (loss) 12.4 (.7) ======= =============
Net sales for the first quarter of fiscal 2000 increased 4.6% to $74.7 million from $71.4 million in the same period last year, while comparable store sales increased by approximately 8.4%. The overall increase in sales was less than the comparable store increase because the loss of sales from locations closed in 1999 and the first quarter of 2000 was greater than incremental sales from the two stores opened during 1999. Net sales in the last half of the first quarter of fiscal 1999 were negatively impacted by certain out of stock conditions attributable to the start-up of the Company's new merchandise information system, which went on-line March 1, 1999. These problems have been addressed, and their resolution helped spur the increased comparable store sales that the Company has experienced. Cost of goods sold as a percentage of net sales was 65.4% in the first quarter of fiscal 2000 compared to 64.7% in the same period of fiscal 1999. This increase was due to a number of factors including a lower of cost or market adjustment and a slightly higher shrink accrual percentage. Selling and administrative expenses as a percentage of net sales were 30.8% for the first quarter of fiscal 2000 compared to 34.9% in 1999. The decrease in selling and administrative expenses as a percentage of sales in fiscal 2000 is primarily due to increased sales along with reduced payroll costs and reduced advertising expenses. A portion of the decrease in payroll is due to payroll in stores closed in 1999 and the first quarter of 2000 exceeding payroll in the two new stores opened in 1999. However, the majority of the cuts in payroll related to planned reductions in the payrolls of on-going stores. Pre-opening expenses of $102,000 in the first quarter of fiscal 2000 are primarily related to the move of an existing SuperSports USA megastore to a new location. The pre-opening expenses of $303,000 for the same period in 1999 related to the opening of a new SuperSports USA megastore in the first quarter of that year. Miscellaneous income was $6.7 million in the first quarter of fiscal 2000 compared to $209,000 in 1999. In the first quarter of 2000, the Company sold an owned property in Los Angeles, California and recorded a gain on the sale of $6.8 million. In addition to this sale, the Company wrote off approximately $268,000 of assets that are no longer in use. The remainder of the miscellaneous income recorded in the first quarter of 2000 along with the first quarter income for 1999 is related primarily to fees from foreign licensees. In the first quarter of 2000, the Company recorded $200,000 of additional reserves for closing stores. No such adjustment was made in 1999. Net interest expense increased slightly to $641,000 in the first quarter of fiscal 2000 compared to $597,000 in 1999 in spite of reduced borrowings primarily as a result of increased interest rates in the first quarter of fiscal 2000 compared to the prior year. Income taxes of $314,000 in the first quarter of fiscal 2000 include an estimate of Alternative Minimum Tax for federal purposes along with state and foreign taxes. The expense of $31,000 shown in the first quarter of 1999 is related entirely to state and foreign income taxes. In fiscal 2000, net operating loss carryforwards are anticipated to be utilized, so that the only Federal income tax expense will be the Alternative Minimum Tax that cannot be offset by the loss carryforwards. In the first quarter of 2000, the Company is converting from the Retail Method of Accounting for Inventory to the Average Cost Method of Accounting for Inventory. The Company believes the cost method is a preferable method for matching the cost of merchandise with the revenues generated. As part of the conversion process the Company revalued its inventory. This resulted in an inventory write-up of $972,000 which is shown as a cumulative effect on the income statement. It is not possible to determine the effect of the change on income in any previously reported periods. Liquidity and Capital Resources In the first quarter of fiscal 2000, operating activities provided cash totaling $4.4 million, investing activities provided $8.4 million, primarily from the proceeds of the sale of the owned property in California, and financing activities used net cash of $12.9 million through reduced utilization of the Company's credit facility. Merchandise inventories decreased to $92.4 million at the end of the first quarter of fiscal 2000 from $94.2 at the beginning of the fiscal year. The reduction reflects better management of the inventory in part due to more effective utilization of the new merchandising system. Comparable store inventories decreased approximately 4% between the end of the first quarters of 1999 and 2000. In the first quarter of 2000, the Company wrote off assets that were no longer in use. For the most part, these assets were fully depreciated and the net write-off only amounted to $268,000. The Company spent approximately $596,000 on asset additions during the first quarter of 2000. The vast majority of these expenditures related to the move of an existing store along with renovation and refurbishment of other existing stores. The Company plans to open at least one SuperSports USA megastore in 2000. This store is scheduled to open in the third quarter. Long-term obligations decreased to $24.7 million from $37.5 million at the beginning of fiscal 2000 as the Company used cash provided by operating and investing activities to reduce utilization of the Company's line of credit. Average borrowings during the first quarter of fiscal 2000 were $30.1 million compared to $31.2 million in the first quarter of fiscal 1999. The Company believes that its revolving credit facility together with cash provided by operations will be adequate to meet anticipated capital needs for fiscal 2000. Disclosure Regarding Forward-Looking Statements The information discussed herein includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included herein regarding planned capital expenditures, store openings and closings, the Company's financial position, business strategy and other plans and objectives for future operations (typically using the words "expect," "plan," "anticipate," "believe," "intend" or similar expressions), are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and the Company can give no assurance that such expectations will prove to have been correct. The Company's actual results could differ materially from those anticipated by such forward-looking statements as a result of certain factors, including: the Company's ability to manage its expansion efforts in existing and new markets, availability of suitable new store locations at acceptable terms, levels of discretionary consumer spending, availability of merchandise to meet fluctuating consumer demands, customer response to the Company's merchandise offerings, fluctuating sales margins, increasing competition in sporting goods and apparel retailing, the results of financing efforts and financial market conditions. Many of such factors are beyond the Company's ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligations to update these forward-looking statements, whether as a result of new information, future events or otherwise. PART II -- OTHER INFORMATION SIGNATURES ---------- 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. OSHMAN'S SPORTING GOODS, INC. Date: June 9, 2000 By: /s/ Steve Martin -------------------- ---------------------------- Steve Martin Senior Vice-President and Chief Financial Officer ITEM 6. EXHIBITS Exhibit Index 4.1(g) Amendment dated March 24, 2000 to the Amended and Restated Financing Agreement dated December 15, 1997 between the Company and The CIT Group/Business Credit, Inc. 18 Preferability letter from Grant Thornton LLP regarding the change in accounting method. 27.1 Financial data schedule.