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 28, 1997 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
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As of May 6, 1997 there were 2,333,600 shares of the registrant's Common Stock
outstanding.
THE SPORTSMAN'S GUIDE, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
ASSETS March 28, 1997 December 27, 1996
-------------- -----------------
CURRENT ASSETS:
Accounts Receivable - net $ 1,883 $ 3,038
Inventory 24,989 17,765
Prepaid expenses 658 538
Promotional material 1,789 2,194
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Total current assets 29,319 23,535
PROPERTY AND EQUIPMENT - NET 4,296 4,355
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Total assets $ 33,615 $ 27,890
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft position $ 1,664 $ 3,539
Notes payable - bank 8,151 1,497
Current maturities of long-term
Obligations 52 52
Accounts payable 11,656 10,710
Accrued expenses 1,422 1,809
Customer deposits and other
liabilities 2,093 2,316
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Total current liabilities 25,038 19,923
Long-term debt
Related parties 1,795 1,795
Other 1,796 1,811
Deferred income taxes 486 486
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Total liabilities 29,115 24,015
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series A Preferred Stock-$.01 par
value; 200,000 shares authorized;
20,000 shares issued and outstanding -- --
Common Stock-$.01 par value; 36,800,000
shares authorized; 2,333,600 shares
issued and outstanding 23 23
Additional paid-in capital 2,350 2,350
Retained earnings 2,127 1,502
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Total stockholders' equity 4,500 3,875
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Total liabilities & stockholders'
equity $ 33,615 $ 27,890
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---------- -----------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
2
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
For the Thirteen Weeks Ended
March 28, 1997 and March 29, 1996
(In thousands, except for per share data)
Thirteen Weeks Ended
------------------------------
March 28, 1997 March 29, 1996
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Sales $27,876 $24,177
Cost of sales 17,360 16,100
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Gross profit 10,516 8,077
Selling, general and administrative expenses 9,424 7,731
merger related expenses (recovery) (100) 107
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Earnings from operations 1,192 239
Interest expense 239 160
Miscellaneous (income) expense (1) (1)
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Earnings before income taxes 954 80
Income tax expense 329 -
Net earnings $ 625 $ 80
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---------- ----------
Net earnings per common share $ .22 $ .03
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Weighted average number of common and common
equivalent shares outstanding 2,815 2,334
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SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
3
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended
March 28, 1997 and March 29, 1996
(In thousands of dollars)
Thirteen Weeks Ended
------------------------------
March 28, 1997 March 29, 1996
-------------- --------------
Cash flows from operating activities:
Net earnings $ 625 $ 80
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 317 238
Other (10) (6)
Changes in assets and liabilities:
Accounts receivable 1,155 334
Inventory (7,224) 1,631
Prepaid expenses (120) 174
Promotional material 405 703
Bank overdraft position (1,875) (1,125)
Accounts payable 946 (5,093)
Accrued expenses (387) 213
Customer deposits and other liabilities (223) (495)
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Cash flows used in operating activities (6,391) (3,346)
Cash flows from investing activities:
Purchases of property and equipment (258) (154)
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Cash flows used in investing activities (258) (154)
Cash flows from financing activities:
Net proceeds from revolving credit line 6,654 3,505
Payments on long-term debt (5) (5)
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Cash flows provided by financing
activities 6,649 3,500
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Increase (decrease) in cash and cash equivalents - -
Cash and cash equivalents at beginning
of the period - -
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Cash and cash equivalents at end of the period $ - $ -
---------- ----------
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the periods for:
Interest $ 185 $ 85
Income taxes $ 298 $ 1
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
4
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: Net Earnings Per Common Share
Net earnings per common share is computed by dividing net
earnings by the weighted average number of common and common
equivalent shares outstanding. Net earnings per common share
was calculated using the modified treasury stock method for the
thirteen weeks ended March 28, 1997 and the treasury stock
method for the thirteen weeks ended March 29, 1996.
The FASB has issued Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE, which is effective for financial
statements issued after December 15, 1997. Early adoption of
the new standard is not permitted. The new standard eliminates
primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together
with disclosure of how the per share amounts were computed. The
effect of adopting this new standard has not been determined.
Note 3: Credit Facility
The Company amended its credit facility during the first quarter
of 1997, temporarily increasing the collateral base relating to
inventory to $8.0 million during March and April of 1997 and
increasing the limit available for documentary letters of credit to
$2.0 million. The interest rate on the facility was reduced to
1.25 percentage points over the bank's prime rate effective
February 1, 1997, as adjusted under the floating rate provision
of the credit agreement. All other terms and conditions of the
credit agreement remain unchanged.
On April 18, 1997 the Company entered into an Amended and
Restated Credit Agreement increasing the revolving credit line
to $15.0 million and extending the expiration to May 2000.
Funding under the credit line is subject to a collateral base
consisting of inventory, plus accounts receivable under the
installment plan (the "EZ Pay Plan") less customer liabilities.
The collateral base related to inventory is limited to $10.0
million December 16 through March 31 and $12.0 million April 1
through April 15 of each year. The credit facility contains a
sub-limit for documentary letters of credit not to exceed $5.0
million. The revolving credit facility may be used for working
capital and letters of credit.
5
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 3: Credit Facility (continued)
Borrowings under the Amended and Restated Credit Agreement bear
interest at the bank's prime rate. The availability of funding
under this revolving line of credit is subject to the principal
balance and letter(s) of credit total being paid down to $4.0
million, plus 80% of credit card receivables under the EZ Pay
Plan, and remaining at this level for not less than 15
consecutive days between December 1 and March 31 of each year.
The amended credit facility is secured by substantially all of
the assets of the Company. All borrowings are subject to
various monthly covenants. The most restrictive covenants
require the Company to maintain certain levels of year-to-date
earnings (loss), however the Company is required to meet a
minimum earnings level during each fiscal year, a minimum net
worth and limit the level of total liabilities to net worth.
Note 4: Stockholders' Equity
The Company's Board of Directors approved a one-for-ten reverse
stock split which was approved by the stockholders on March 5,
1997. All share and per share amounts have been presented to
reflect the effect of the reverse stock split.
6
THE SPORTSMAN'S GUIDE, INC.
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.
The Company amended its credit facility during the first quarter of 1997,
temporarily increasing the collateral base relating to inventory to $8.0
million during March and April 1997 and increasing the limit available for
documentary letters of credit to $2.0 million. The interest rate on the
facility was reduced to 1.25 percentage points over the bank's prime rate
effective February 1, as adjusted under the floating rate provision of the
credit agreement. All other terms and conditions of the credit agreement
remain unchanged. As of March 28, 1997, the Company borrowed $8.2 million
against the revolving credit line.
On April 18, 1997 the Company entered into an Amended and Restated Credit
Agreement increasing the revolving credit line to $15.0 million and
extending the expiration date to May 2000. Funding under the amended credit
line is subject to a collateral base consisting of inventory plus accounts
receivable under the installment plan (the "EZ Pay Plan") less customer
liabilities. The collateral base related to inventory is limited to $10.0
million December 16 through March 31 and $12.0 million April 1 through April
15 of each year. The amended credit facility contains a sub-limit for
documentary letters of credit not to exceed $5.0 million. The availability
of funding under the amended facility is subject to the principal balance and
letters of credit total being paid down to $4.0 million, plus 80% of
receivables under the EZ Pay Plan, and remaining at this level for not less
than 15 consecutive days between December 1 and March 31 of each year. The
interest rate under the amended credit facility has been reduced to the
bank's prime rate demonstrating the improved credit-worthiness of the Company.
The amended revolving credit facility may be used for working capital and
letters of credit and is secured by substantially all of the assets of the
Company. The credit agreement contains certain financial covenants which, among
other factors, requires the Company to maintain certain levels of year-to-date
earnings (loss), however the Company is required to meet a minimum earnings
level during each fiscal year, a minimum net worth, and limit the level of total
liabilities to net worth. The Company was in compliance with these covenants at
March 28, 1997.
The cash flow used in operating activities for the thirteen week period ended
March 28, 1997 was $6,391 thousand compared to $3,346 thousand for the same
period last year. This increase in cash flow used in operating activities was
primarily a result of increased inventory levels which were partially offset by
changes in the timing of accounts payable.
The Company had working capital of $4,281 thousand as of March 28, 1997, as
compared to working capital of $3,612 thousand as of December 27, 1996. The
improvement is the result of year-to-date earnings. The Company's current ratio
was 1.17 to 1.00 as of March 28, 1997, as compared to 1.18 to 1.00 as of
December 27, 1996. The
7
THE SPORTSMAN'S GUIDE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
Company's working capital requirements have increased during the thirteen week
period ended March 28, 1997 as compared to the same period one year ago
primarily as a result of higher inventory levels and lower inventory turnover
which are consistent with the Company's strategic plan to increase product
margins through purchasing more manufacturers' close-outs. Purchases of
manufacturers' close-outs are made at the time products are available which
may be a number of months before the product is offered for sale within a
catalog.
The Company believes it will have sufficient funds available to meet current and
future commitments.
Results of Operations
COMPARISON OF THE THIRTEEN WEEK PERIOD ENDED MARCH 28, 1997, TO THE THIRTEEN
WEEK PERIOD ENDED MARCH 29, 1996.
The Company's sales for the thirteen week period ending March 28, 1997
totaled $27.9 million, an increase of $3.7 million (15.3%) over the same
period last year. The record level first quarter sales were driven by a 17%
increase in catalog circulation and a slight increase in the average order
size, offset partially by slightly lower customer response rates. The
increase in the catalog circulation was primarily from a planned increase of
specialty catalogs, from two editions in the first quarter of 1996 to five
editions in the first quarter of 1997. Gross returns and allowances from mail
order operations for the thirteen week period ended March 28, 1997 were 10.6%
of sales compared to 8.4% of sales for the same period last year. The
increase was anticipated as part of the merchandising strategy to offer more
products in the apparel and footwear categories.
Gross profit for the thirteen week period ending March 28, 1997 was 37.7% of
sales compared to 33.4% of sales for the same period last year. The increase in
gross profit as a percentage of sales was primarily due to higher retail product
margins. Higher retail product margins were the result of the ongoing plan of
shifting a larger percentage of product offerings to manufacturers' close-outs
as well as an emphasis in higher margin product categories of apparel and
footwear.
Selling, general and administrative expenses for the thirteen week period
ended March 28, 1997 were $9,424 thousand or 33.8% of sales compared to
$7,731 thousand or 32.0% of sales for the same period last year. This
increase was largely due to the 17% increase in circulation and the higher
costs associated with the lower circulation specialty catalogs. Effective
advertising expenses as a percentage of sales for the thirteen week period
ending March 28, 1997 were 18.9% of sales compared to 17.6% of sales for the
same period last year.
The Company recorded $100 thousand from recovery of merger costs
during the thirteen week period ended March 28, 1997, as compared to $107
thousand of merger related expenses during the same period last year.
Earnings from operations for the thirteen week period ended March 28, 1997
were $1,192 thousand as compared to $239 thousand during the same period last
year.
8
THE SPORTSMAN'S GUIDE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (continued)
Interest expense for the thirteen week period ended March 28, 1997 was $239
thousand as compared to $160 thousand during the same period last year.
Interest expense is up primarily due to the higher inventory levels required to
support the merchandising plan.
Income tax expense for the thirteen week period ended March 28, 1997 was $329
thousand. No tax expense was recorded during the same period last year due to
the utilization of net operating loss carryforwards.
As a result of the above, the Company recognized record first quarter earnings
of $625 thousand as compared to $80 thousand for the same period last year.
Net earnings as a percentage of sales was 2.2% during the quarter as
compared to .3% during the same period last year.
This report contains forward looking statements which are subject to change
based on various important factors, including but not limited to general
economic conditions, a changing market environment for the Company's products
and the market acceptance of the Company's catalogs.
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibits Index at page 12 of this report.
(b) Reports on Form 8-K
None.
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: May 6, 1997 /s/Charles B. Lingen
------------------------------
Charles B. Lingen
Sr. Vice President of Finance/CFO
11
EXHIBIT INDEX
Exhibit Method of filing
- ------- ----------------
4.2 Form of Promissory Note dated April 18,
1997 issued by the Company.................. Filed herewith
electronically
10.16 Amended and Restated Credit and Security
Agreement between the Company and
Norwest Business Credit, Inc. dated
April 18, 1997........................... Filed herewith
electronically
27 Financial Data Schedule.................. Filed herewith
electronically
12