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 FISCAL PERIOD ENDED
SEPTEMBER 29, 1995, 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 No. 015767
The Sportsman's Guide, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1293081
(State or other jurisdiction (I.R.S. Employer I.D. Number)
of incorporation or organization)
411 Farwell Ave., So. St. Paul, Minnesota 55075
(Address of principal executive offices)
(612) 451-3030
(Registrant's telephone number, including area code)
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 by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed
by a court. Yes x No
--- ---
As of November 8, 1995 there were 23,335,833 shares of the registrant's
Common Stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SPORTSMAN'S GUIDE, INC.
BALANCE SHEETS
(UNAUDITED)
(In thousands of dollars)
ASSETS
September 29, December 30,
1995 1994
----------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 653
Accounts receivable 804 785
Inventory 23,679 13,571
Prepaid expenses 1,011 727
Promotional material 2,893 2,155
--------- ---------
Total current assets 28,387 17,891
PROPERTY AND EQUIPMENT - NET 4,301 3,288
--------- ---------
Total assets $ 32,688 $ 21,179
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 10,770 $ -
Current maturities of long-term debt
Related parties 2,095 150
Other 1,392 314
Trade creditors' obligation - 561
Accounts payable 15,109 10,890
Accrued expenses 260 1,043
Customer deposits and other liabilities 1,121 981
--------- ---------
Total current liabilities 30,747 13,939
LONG-TERM OBLIGATIONS:
Long-term debt
Related parties - 2,095
Other 225 1,678
Other long-term obligations 151 175
--------- ---------
Total long-term obligations 376 3,948
--------- ---------
Total liabilities 31,123 17,887
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Series A Preferred Stock-$.01 par value;
200,000 shares authorized, issued and
outstanding 2 2
Common Stock-$.01 par value; 36,800,000
shares authorized; 23,335,833 shares
issued and outstanding 233 233
Additional paid-in capital 2,138 2,138
Retained earnings (deficit) (808) 919
--------- ---------
Total stockholders' equity 1,565 3,292
--------- ---------
Total liabilities & stockholders' equity $ 32,688 $ 21,179
========= =========
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
2
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirteen Weeks and Thirty-nine Weeks Ended
September 29, 1995 and September 30, 1994
(In thousands, except for per share data)
Thirteen Weeks Thirty-nine Weeks
------------------ ------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Sales $ 24,673 $ 25,483 $ 66,050 $ 60,895
Cost of sales 16,378 16,770 43,450 41,485
-------- -------- -------- --------
Gross profit 8,295 8,713 22,600 19,410
Selling, general and administrative
expenses 9,136 7,822 24,377 17,881
-------- -------- -------- --------
Earnings (loss) from operations (841) 891 (1,777) 1,529
Interest expense (332) (223) (720) (421)
Miscellaneous income (expense) (4) (54) 14 (84)
-------- -------- -------- --------
Earnings (loss) before income taxes (1,177) 614 (2,483) 1,024
Income tax benefit 406 - 756 -
-------- -------- -------- --------
Net earnings (loss) $ (771) $ 614 $ (1,727) $ 1,024
======== ======== ======== ========
Net earnings (loss) per share $ (.03) $ .02 $ (.07) $ .04
======== ======== ======== ========
Weighted average number of common
shares and common share equivalents
outstanding 23,336 26,151 23,336 25,607
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
3
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks and Thirty-nine Weeks Ended
September 29, 1995 and September 30, 1994
(In thousands of dollars)
Thirteen Weeks Thirty-nine Weeks
------------------- -----------------
1995 1994 1995 1994
--------- --------- -------- ---------
Cash flows from operating activities:
Net earnings (loss) $ (771) $ 614 $ (1,727)$ 1,024
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 186 129 491 316
Other (6) 51 (31) 100
Changes in assets and liabilities:
Accounts receivable (297) 107 (19) (52)
Inventory (2,622) 732 (10,108) (5,945)
Prepaid expenses 697 54 (284) (347)
Promotional material (1,870) 309 (738) (248)
Accounts payable 3,468 (1,881) 4,219 (230)
Accrued expenses (57) 266 (783) 356
Customer deposits & other
liabilities 325 886 134 (413)
-------- -------- -------- --------
Cash flows provided by (used in)
operating activities (947) 1,267 (8,846) (5,439)
Cash flows from investing activities:
Purchases of property and equipment (436) (673) (1,636) (1,637)
Disposals of property and equipment - - 149 -
-------- -------- -------- --------
Cash flows used in investing
activities (436) (673) (1,487) (1,637)
Cash flows from financing activities:
Gross borrowings under line of credit 11,810 8,130 30,350 14,685
Gross payments under line of credit (10,385) (8,645) (19,580) (10,500)
Payments on trade creditors' obligation - - (561) (150)
Borrowings under long-term debt - - - 2,500
Payments under long-term debt (42) (79) (529) (180)
-------- -------- -------- --------
Cash flows provided by (used in)
financing activities 1,383 (594) 9,680 6,355
Increase (decrease) in cash and cash
equivalents - - (653) (721)
Cash and cash equivalents at beginning
of the period - - 653 721
Cash and cash equivalents at end of the
period $ - $ - $ - $ -
======== ======== ======== ========
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
4
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Thirteen Weeks and Thirty-nine Weeks Ended
September 29, 1995 and September 30, 1994
(In thousands of dollars)
Thirteen Weeks Thirty-nine Weeks
-------------- -----------------
1995 1994 1995 1994
----- ----- ----- -----
Supplemental disclosure of cash flow
- ------------------------------------
information
- -----------
Cash paid during the periods for:
Interest $ 231 $ 227 $ 626 $ 404
Income taxes $ - $ 9 $ 190 $ 9
Supplemental noncash investing activities
- -----------------------------------------
Fixed assets purchased with a capital lease $ - $ - $ 17 $ 11
Disposed of fixed assets held under a
capital lease $ - $ 27 $ - $ 27
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
5
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying financial statements are unaudited and reflect all
adjustments which are normal and recurring in nature, and which,
in the opinion of management, are necessary for a fair presentation
of operations and cash flows. Reclassifications have been made to
prior year financial information wherever necessary to conform to
the current year presentation. Results of operations for the
interim periods are not necessarily indicative of full-year
results.
Note 2: Per Share Data
The computation of earnings per share for the thirty-nine and
thirteen week periods of 1995 is based on the weighted average
number of shares outstanding during the periods. The exercise of
outstanding options and warrants is not considered in the
computation because their inclusion would have been anti-dilutive
for all periods presented for 1995.
The computation of earnings per share for the thirty-nine and
thirteen week periods of 1994 is based on the weighted average
number of shares of common stock and common stock equivalents
outstanding during the period. The dilutive effect of the
potential exercise of outstanding options and warrants to purchase
shares of common stock is calculated using the treasury stock
method.
Note 3: Credit Facility
Effective February 16, 1995, the Company entered into a new credit
facility providing a revolving line of credit up to $15,500,000,
subject to an adequate borrowing base, expiring March 1997. The
revolving credit facility provides an available base amount of
$5,000,000 with an additional seasonal amount of $10,500,000
available from May 1 through November 30 of each year. The
revolving line of credit is secured by substantially all of the
assets of the Company.
To facilitate a newly created customer installment pay plan, the
Company's credit facility was amended in October 1995 to include
in its borrowing base accounts receivable financed under the
Company's EZ Pay installment plan. In addition, the amended credit
facility calls for payments of principal and interest as may be
necessary to reduce and maintain the sum of the outstanding balance
and any outstanding letter of credit at not more than $2 million
plus 80% of the daily average account receivable EZ Pay balance for
a 30 day paydown period of not less than 30 consecutive days from
December 1 through March 31 each year of the plan.
In November 1995, the Company negotiated certain amendments to its
loan covenants due to less than expected year-to-date Company
performance.
6
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 4: Current Maturities of Long-Term Debt
The Company is pursuing financing alternatives to refinance the
existing subordinated debt of approximately $3.2 million due
February 1996.
Note 5: Stockholders' Equity
On April 26, 1995, the Company's stockholders authorized the Board
of Directors to determine at any time prior to December 29, 1995
that the number of outstanding shares of common stock of the
Company will be changed into one new share of common stock in a
ratio of not less than 5 to 1 nor more than 20 to 1, or if such
reverse stock split is not advisable, no further action will be
taken in such regard. As of September 29, 1995, the Board of
Directors of the Company has not taken any action on this proposed
reverse stock split.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company meets its operating cash requirements through funds generated
from operations, borrowings under its revolving line of credit and
subordinated debt with shareholders. Because of increasing sales and
correspondingly higher levels of inventory, the Company's needs for
external sources to fund working capital have increased. Effective
February 16, 1995, the Company entered into a new credit facility providing
a revolving line of credit up to $15,500,000, subject to an adequate
borrowing base, expiring March 1997. The revolving credit facility provides
an available base amount of $5,000,000 with an additional seasonal amount of
$10,500,000 available from May 1 through November 30 of each year. The
revolving line of credit is secured by substantially all of the assets of
the Company. As of September 29, 1995, the Company borrowed $10,770,000
against the revolving line of credit.
In October 1995, to facilitate a newly created customer installment pay
plan, the Company's credit facility was amended to include in its borrowing
base accounts receivable financed under the Company's EZ Pay installment
plan. In November 1995, the Company negotiated certain amendments to its
loan covenants due to less than expected year-to-date Company performance.
The cash flow used in operating activities for the thirteen week period
ended September 29, 1995 was $947,000 compared to the cash flow provided by
operating activities of $1,267,000 for the same period last year. This
increase in cash flow used in operating activities was primarily a result of
an increase in inventory and promotional material offset partially with an
increase in accounts payable and lower earnings in 1995 as compared to same
period last year. The cash flow used in operating activities for the thirty-
nine week period ended September 29, 1995 was $8,846,000 compared to
$5,439,000 for the same period last year. This increase in cash flow used
in operating activities was largely due to the net loss in 1995 as compared
to the net earnings in 1994.
The Company had a working capital deficit of $2,360,000 as of September 29,
1995 as compared to working capital of $3,952,000 as of December 30, 1994.
The decrease in working capital was primarily as a result of an increase in
the current maturities of subordinated long-term debt to related and other
parties. The inventory level as of September 29, 1995 increased $10,108,000
from the fiscal year ended December 30, 1994. This increase was primarily
due to the seasonality of the Company's business with greater sales
generated during the second half of the year. In addition, the higher level
of inventory was as a result of lower than expected catalog sales in the
first three quarters of 1995. The notes payable-bank as of September 29,
1995 increased $10,770,000 from the fiscal year ended December 30, 1994.
This increase was primarily due to the higher level of inventory and lower
earnings in 1995 as compared to 1994.
The Company is actively pursuing financing alternatives to refinance the
existing subordinated debt of approximately $3.2 million due February 1996.
The Company believes it will have sufficient funds available to meet current
and future commitments.
8
Results of Operations
Comparison of the thirteen and thirty-nine week periods ended
- -------------------------------------------------------------
September 29, 1995, to the thirteen and thirty-nine week periods
- ----------------------------------------------------------------
ended September 30, 1994
- ------------------------
The Company's sales for the thirteen week period ended September 29, 1995,
decreased $810,000 or 3% from the same period last year. The Company's
sales for the thirty-nine week period ended September 29, 1995, increased
$5,155,000 or 8% from the same period last year. The decrease in sales for
the thirteen week period ended September 29, 1995 is attributable to lower
than anticipated customer response partially caused by several catalog
mailings being delivered late to the customers' homes. Sales for the
thirteen week period ended September 29, 1995, were down from the same
period last year despite an increase in mailings primarily from new
specialty catalog editions. The increase in sales for the thirty-nine week
period ended September 29, 1995, is attributable to a planned increase in
catalog mailings, with a significant portion offset by lower than
anticipated customer demand. The sales results for the thirteen and thirty-
nine week periods reflect a softness in consumer demand within the mail order
industry and retailing in general.
Gross profit for the thirteen and thirty-nine week periods ended
September 29, 1995, was 33.6% and 34.2% of sales, respectively, compared to
34.2% and 31.9% of sales, respectively, for the same periods last year.
When comparing to the same period last year, the decrease in the gross
profit as a percent of sales, for the thirteen week period, was primarily
due to lower retail product margins in the ammunition category. The
increase in the gross profit as a percent of sales, for the thirty-nine week
period, was primarily due to reduced shipping costs of outgoing parcels
to customers, an increase in the shipping and handling charges to the
customer and improved retail product margins primarily in the footwear
category.
Selling, general and administrative expenses for the thirteen week period
ended September 29, 1995, were $9,136,000 or 37.0% of sales compared to
$7,822,000 or 30.7% of sales for the same period last year. Selling,
general and administrative expenses for the thirty-nine week period ended
September 29, 1995, were $24,377,000 or 36.9% of sales compared to
$17,881,000 or 29.4% of sales for the same period last year. The increase
in the dollar spending level, for the thirteen week and thirty-nine week
periods ended September 29, 1995, was due to higher catalog costs with the
planned increase in catalog circulation. The increase as a percent of sales
was primarily due to lower customer response on the catalogs partially
caused by several catalog mailings being delivered late to the customers'
homes.
Interest expense for the thirteen and thirty-nine week periods ended
September 29, 1995, was $332,000 and $720,000, respectively as compared to
$223,000 and $421,000 for the same periods last year. The increase was
primarily due to interest on the revolving line of credit to finance the
increased inventory level and the net losses from operations.
Income tax benefit for the thirteen and thirty-nine week periods ended
September 29, 1995, was $406,000 and $756,000, respectively. The income tax
benefit for the periods ended September 29, 1995 represents recoverable
income taxes from the prior year and expected tax benefits to be realized
in the fourth quarter of 1995. In 1994, the Company utilized net operating
loss carryforwards to offset any income tax charges.
9
Results of Operations (continued)
Comparison of the thirteen and thirty-nine week periods ended
- -------------------------------------------------------------
September 29, 1995, to the thirteen and thirty-nine week periods
- ----------------------------------------------------------------
ended September 30, 1994
- ------------------------
As a result of the above, the net losses for the thirteen and thirty-nine
week periods ended September 29, 1995, were ($771,000) and ($1,727,000),
respectively, as compared to net earnings of $614,000 and $1,024,000,
respectively, for the same periods last year.
10
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.
THE SPORTSMAN'S GUIDE, INC.
Date: November 10, 1995 BY:/s/ Charles B. Lingen
---------------------
Charles B. Lingen
Vice President Finance/CFO
11