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 MARCH 29, 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 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
------ ------
As of May 10, 1996 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
March 29, 1996 December 29, 1995
-------------- -----------------
CURRENT ASSETS:
Accounts receivable $ 1,897 $ 2,231
Inventory 12,577 14,208
Prepaid expenses 684 858
Promotional material 1,411 2,114
------------ -------------
Total current assets 16,569 19,411
PROPERTY AND EQUIPMENT - NET 4,213 4,298
------------ -------------
Total assets $ 20,782 $ 23,709
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft position $ 494 $ 1,619
Notes payable - bank 4,470 965
Current maturities of long-term obligations
Related parties 2,095 2,095
Other 1,368 1,368
Accounts payable 8,461 13,554
Accrued expenses 1,007 794
Customer deposits and other liabilities 987 1,479
------------ ------------
Total current liabilities 18,882 21,874
LONG TERM OBLIGATIONS 272 287
------------ ------------
Total liabilities 19,154 22,161
------------ ------------
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 deficit (745) (825)
------------ ------------
Total stockholders' equity 1,628 1,548
------------ ------------
Total liabilities & stockholders' equity$ 20,782 $ 23,709
============ ============
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
2
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirteen Weeks Ended
March 29, 1996 and March 31, 1995
(In thousands, except for per share data)
Thirteen Weeks Ended
------------------------------
March 29, 1996 March 31, 1995
-------------- --------------
Sales $ 24,177 $ 23,859
Cost of sales 16,100 15,235
-------------- -------------
Gross profit 8,077 8,624
Selling, general and administrative expenses 7,731 8,348
Merger related expenses 107 -
-------------- -------------
Earnings from operations 239 276
Interest expense (160) (149)
Miscellaneous income 1 6
-------------- -------------
Earnings before income taxes 80 133
Income tax expense - (43)
-------------- -------------
Net earnings $ 80 $ 90
============== =============
Net earnings per share $ - $ -
============== =============
Weighted average number of common
shares and common share equivalents
outstanding 23,336 26,996
============== =============
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
3
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended
March 29, 1996 and March 31, 1995
(In thousands of dollars)
Thirteen Weeks Ended
-----------------------------
March 29, 1996 March 31, 1995
-------------- --------------
Cash flows from operating activities:
Net earnings $ 80 $ 90
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 238 150
Other (6) (6)
Changes in assets and liabilities:
Accounts receivable 334 67
Inventory 1,631 (3,383)
Prepaid expenses 174 (81)
Promotional material 703 197
Bank overdraft position (1,125) -
Accounts payable (5,093) (1,915)
Accrued expenses 213 (232)
Customer deposits & other liabilities (495) 63
-------------- --------------
Cash flows used in operating activities (3,346) (5,050)
Cash flows from investing activities:
Purchases of property and equipment (154) (779)
Disposals of property and equipment - 149
-------------- --------------
Cash flows used in investing activities (154) (630)
Cash flows from financing activities:
Gross borrowings under line of credit 10,830 9,145
Gross payments under line of credit (7,325) (2,925)
Payments under long-term obligations (5) (420)
-------------- --------------
Cash flows provided by financing
activities 3,500 5,800
-------------- --------------
Increase in cash and cash equivalents - 120
Cash and cash equivalents at beginning
of the period - 653
-------------- --------------
Cash and cash equivalents at end of the period $ - $ 773
============== ==============
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
4
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Thirteen Weeks Ended
March 29, 1996 and March 31, 1995
(In thousands of dollars)
Thirteen Weeks Ended
----------------------------------
March 29, 1996 March 31, 1995
-------------- --------------
Supplemental disclosure of cash flow
- ------------------------------------
information
- -----------
Cash paid during the periods for:
Interest $ 236 $ 154
Income taxes $ 1 $ 80
Supplemental noncash investing activities
- -----------------------------------------
Fixed assets purchased with a capital lease $ - $ 17
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 thirteen weeks ended
March 29, 1996 is based on the weighted average number of shares
of common stock outstanding during the period. The exercise of
outstanding options and warrants is not considered in the computation
because their inclusion would have been anti-dilutive.
The computation of earnings per share for the thirteen weeks ended
March 31, 1995 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
The Company has been operating under a temporary credit facility pending
the merger with VISTA Acquisition Subsidiary Inc., a wholly-owned
subsidiary of VISTA 2000, Inc. ("VISTA") (see Note 5). The credit
facility provides for a line of credit up to $5.0 million, subject to an
adequate borrowing base, expiring March 1997. The revolving credit line
is for working capital and commercial letters of credit, the latter not
to exceed $1.0 million. The credit facility is secured by substantially
all of the assets of the Company. As of March 29, 1996, the Company was
in violation of certain financial covenants which have been waived by the
bank.
On May 1, 1996, the Company obtained a commitment letter from a local
bank to provide a revolving line of credit up to $10.0 million, subject
to an adequate borrowing base, expiring May 1998. The Company expects
to close on this credit facility in May 1996. The revolving credit
facility will provide an available base amount of $6.0 million with
additional seasonal availability of $1.0 million in April, and $4.0
million May 1 through November 30 of each year. The revolving credit
facility will be for working capital and letters of credit. Commercial
letters of credit may not exceed $1.0 million at any time.
6
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 3: Credit Facility (continued)
Borrowings under the new revolving credit facility will bear interest at
the bank's prime rate plus 1.50 percentage points. The availability of
funds under this revolving line of credit is subject to the principal
balance and commercial letter(s) of credit total being paid down to $2.0
million plus 80% of credit card receivables under an installment plan and
remaining at this level for not less than 30 consecutive days between
December 31 and March 31 of each year.
Under the terms of the commitment letter the new credit facility will be
secured by substantially all of the assets of the Company. All
borrowings are subject to various monthly covenants. The most restrictive
covenants require minimum year to date monthly profits or place limits on
the maximum year to date monthly losses, a minimum net worth and limit
the level of total liabilities to net worth. The closing is subject to
the condition of extending all subordinated notes payable to June 1998
(see Note 4).
Note 4: Current Maturities of Long-Term Obligations
The Company has received approval from the subordinated debt holders to
extend or replace $3,413,000 of notes payable for twenty-five months,
maturing June 1998. This renewal is expected to be completed by
May 15, 1996 and must be finalized in order to close on the new revolving
credit facility (see Note 3). The replacement notes will bear interest at
the bank's (providing the revolving credit facility) prime rate plus 1.75
percentage points, provided however that in the event the bank's prime rate
plus 1.75 percentage points is less than 9% during any period of time,
interest shall accrue at 9% per annum. Payments of interest only are due
quarterly. In connection with the subordinated debt extension the Company
will issue warrants to purchase 3,413,000 shares of common stock at an
exercise price of $.18079 per share. The notes are secured by substantially
all of the assets of the Company and subordinated to the bank credit
facility. The notes are subject to certain covenants including maintaining
all covenants subject to the bank under the revolving credit facility.
Note 5: Merger Agreement
The Company entered into an Agreement and Plan of Merger (the "Agreement")
with VISTA Acquisition Subsidiary, Inc. and VISTA 2000, Inc. ("VISTA") on
March 8, 1996. Under the terms of the Agreement, the Company will be
merged with and into a subsidiary of VISTA. The consummation of the
merger is subject to various significant terms and conditions including,
but not limited to, the Company obtaining stockholder approval, a
fairness opinion acceptable to the Company and regulatory consents,
approvals and/or authorizations from applicable governmental agencies.
7
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 5: Merger Agreement (continued)
The terms of the Agreement provide for the Company's stockholders to
receive shares of VISTA common stock based upon formulas defined in the
Agreement. Stockholders owning less than 100,000 common shares of the
Company will receive a cash payment, as defined in the Agreement, in lieu
of shares of VISTA common stock.
The Agreement also provides for the repayment in full of all of the
subordinated notes payable to stockholders and related interests
immediately upon closing. Concurrently with such repayment, VISTA will
issue warrants to each subordinated debt holder in return for extending
the maturity date of the related debt through the date of closing of the
merger. The aggregate number of warrants to be issued is 300,000
pursuant to the terms of the Agreement.
The Agreement includes various provisions for termination. Termination
fees may be payable by either party depending on the nature of the
termination. Under certain conditions, either party may terminate the
Agreement if the closing has not occurred by May 31, 1996 unless the
delay is caused solely by the failure to obtain regulatory consents,
approvals and/or authorizations.
The closing of the Agreement with VISTA has been delayed due to several
major announcements by VISTA regarding their financial performance,
including the requirement to restate prior years' and prior quarters'
earnings. The Company will reevaluate the terms of the Agreement as
information is made available by VISTA. The Company will continue normal
operations should the merger not be consummated.
8
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 and other investors. In February 1995, the Company
entered into a credit facility providing a revolving line of credit up to
$15.5 million, subject to an adequate borrowing base, expiring March 1997.
The revolving credit facility provided an available base amount of $5.0
million with an additional seasonal amount of $10.5 million available from
May 1 through November 30 of each year. In February 1996, the credit
facility was amended and capped at the low season availability of $5.0
million. As of March 29, 1996, the Company was in violation of certain
financial covenants, which have subsequently been waived by the bank through
May 15, 1996. As of March 29, 1996, the outstanding borrowings against the
credit line were $4,470,000. The revolving credit facility is secured by
substantially all of the assets of the Company.
On May 1, 1996, the Company obtained a commitment letter from a local bank to
provide a revolving line of credit up to $10.0 million, subject to an
adequate borrowing base, expiring May 1998. The Company expects to close on
this credit facility in May 1996. The revolving credit facility will provide
an available base amount of $6.0 million with additional seasonal
availability of $1.0 million in April, and $4.0 million May 1 through
November 30 of each year. The availability of funds under the facility is
subject to the principal balance and commercial letter(s) of credit being
paid down to $2.0 million, plus 80% of credit card receivables under the
installment plan, and remaining at this level for not less than 30
consecutive days between December 1 and March 31 of each year. The Company
believes that the new credit facility will provide sufficient operating funds
to meet current and future commitments. This credit facility will be secured
by substantially all of the assets of the Company.
The Company has received approval from the subordinated debt holders to extend
or replace $3,413,000 of notes payable for twenty-five months, maturing June
1998. This renewal is expected to be completed by May 15, 1996 and must be
finalized in order to close on the new revolving credit facility.
The Company entered into an Agreement and Plan of Merger dated March 8, 1996
(the "Agreement") with VISTA Acquisition Subsidiary, Inc. and VISTA 2000,
Inc. ("VISTA"). The closing of the Agreement with VISTA has been delayed due
to several major announcements by VISTA regarding their financial performance,
including the requirement to restate prior years' and prior quarters'
earnings. The Company will reevaluate the terms of the Agreement as
information is made available by VISTA. The Company will continue normal
operations should the merger not be consummated.
The cash flow used in operating activities for the thirteen week period ended
March 29, 1996 was $3,346,000 compared to $5,050,000 for the same period last
year. This decrease in cash flow used in operating activities was primarily
a result of carrying lower inventory levels during the first quarter 1996
which more than offset the associated lower balance of accounts payable.
9
The Company had a working capital deficit of $2,313,000 as of March 29, 1996
as compared to $2,463,000 as of December 29, 1995. Inventory levels as of
March 29, 1996 decreased $1,631,000 from December 29, 1995. The combined
balances of accounts payable and bank overdraft position as of March 29, 1996
decreased by $6,218,000 and were primarily funded by a $3,505,000 increase in
revolving credit utilization along with lower seasonal balance of inventory
including a significant improvement in inventory turnover. With the
extension of $3,413,000 of subordinated debt to June 1998, the Company will
be in a positive working capital position. Excluding the subordinated debt,
the Company has a current ratio of 1.07:1.00 at March 29, 1996.
10
Results of Operations
Comparison of the thirteen week period ended March 29, 1996, to the thirteen
- -------------------------------------------------------------------------------
week period ended March 31, 1995
- --------------------------------
The Company's sales for the thirteen week period ended March 29, 1996,
increased $318,000 or 1.3% from the same period last year. Sales in the
first quarter were up despite a 30% reduction in catalog circulation. An
overall improvement in customer response levels due to an improved
circulation plan and a higher average order size more than offset the
reduction in catalog circulation.
Gross profit for the thirteen week period ended March 29, 1996, was 33.4% of
sales compared to 36.1% of sales for the same period last year. The decrease
in gross profit as a percentage of sales was primarily due to lower retail
product margins. Lower retail product margins were largely due to aggressive
pricing in most product categories and a change in the product mix to lower
gross profit categories, combined with lower cash discounts and lower vendor
rebates.
Selling, general and administrative expenses for the thirteen week period ended
March 29, 1996, were $7,731,000 or 32.0% of sales compared to $8,348,000 or
35.0% of sales for the same period last year. The decrease in the dollar
spending level for the thirteen week period ended March 29, 1996, was
primarily the result of a planned reduction in catalog circulation with a
focus on balancing direct advertising costs with customer name acquisition
costs while maximizing profit on existing customer list. The Company has
continued an aggressive plan to control catalog costs by entering long-term
contracts with paper and print suppliers, utilization of a slightly lower
grade of paper and implementing printing efficiencies.
Merger related expenses of $107,000 associated with the VISTA merger
agreement were recognized during the thirteen week period. Earnings from
operations before merger related expenses for the thirteen week period ended
March 29, 1996 were $346,000 as compared to $276,000 for the same period last
year. Operating earnings after merger related expenses for the thirteen week
period ended March 29, 1996 were $239,000 as compared to $276,000 for the
same period last year.
Interest expense for the thirteen week period ended March 29, 1996, of $160,000
represented a 7.4% increase over $149,000 for the same period last year. The
increase was primarily due to higher interest rates associated with the credit
facility.
Income tax expense for the thirteen week period ended March 29, 1996
decreased by $43,000 from the same period last year. The Company will
utilize net operating loss carryforwards to offset any income tax expense for
the thirteen week period ended March 29, 1996.
As a result of the above, the net earnings for the thirteen week period ended
March 29, 1996, were $80,000 as compared to $90,000 for the same period last
year.
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
On March 22, 1996, the Company filed a Current Report on Form 8-K, under
Item 5, announcing that it had entered into an Agreement and Plan of
Merger, dated March 8, 1996, with VISTA Acquisition Subsidiary, Inc. and
VISTA 2000, Inc.
12
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: May 10, 1996 /s/Charles B. Lingen
----------------------------
Charles B. Lingen
Vice President Finance/CFO
13
EXHIBIT INDEX
Exhibit Method of Filing
- ------- ----------------------------
27 Financial Data Schedule............... Filed herewith electronically