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 JUNE 27, 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
------- -------
As of July 21, 1997 there were 2,333,600 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)
June 27, December 27,
ASSETS 1997 1996
------------ ------------
CURRENT ASSETS
Accounts receivable - net $ 2,538 $ 3,038
Inventory 26,466 17,765
Prepaid expenses 1,438 538
Promotional material 3,617 2,194
--------- ---------
Total current assets 34,059 23,535
PROPERTY AND EQUIPMENT - NET 4,284 4,355
--------- ---------
Total assets $ 38,343 $ 27,890
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 1,330 $ 3,539
Notes payable - bank 13,215 1,497
Current maturities of long-term debt
Related parties 1,795 -
Other 1,668 52
Accounts payable 12,651 10,710
Accrued expenses 851 1,809
Customer deposits and other liabilities 1,439 2,316
--------- ---------
Total current liabilities 32,949 19,923
LONG-TERM LIABILITIES
Long-term debt
Related parties - 1,795
Other 128 1,811
Deferred income taxes 696 486
--------- ---------
Total liabilities 33,773 24,015
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' 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
Accumulated earnings 2,197 1,502
--------- ---------
Total shareholders' equity 4,570 3,875
--------- ---------
Total liabilities and shareholders' equity $ 38,343 $ 27,890
--------- ---------
--------- ---------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
2
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirteen Weeks and Twenty-six Weeks Ended
June 27, 1997 and June 28, 1996
(In thousands, except per share data)
Thirteen Weeks Twenty-six Weeks
------------------------------ ---------------------------------
1997 1996 1997 1996
------------ ----------- -------------- ----------------
Sales $ 23,245 $ 18,611 $ 51,121 $ 42,788
Cost of sales 14,064 12,300 31,424 28,400
---------- ---------- ----------- ----------
Gross profit 9,181 6,311 19,697 14,388
Selling, general and administrative
expenses 8,719 6,559 18,043 14,397
---------- ---------- ----------- ----------
Earnings (loss) from operations 462 (248) 1,654 (9)
Interest expense (350) (231) (589) (391)
Miscellaneous income (expense), net (5) 8 (4) 9
---------- ---------- ----------- ----------
Earnings (loss) before income taxes 107 (471) 1,061 (391)
Income taxes (37) - (366) -
---------- ---------- ----------- ----------
Net earnings (loss) $ 70 $ (471) $ 695 $ (391)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Net earnings (loss) per common and
common equivalent share:
Primary $ .03 $ (.20) $ .24 $ (.17)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Fully diluted $ .02 $ (.20) $ .23 $ (.17)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Weighted average common and common
equivalent shares outstanding:
Primary 2,941 2,334 2,943 2,334
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Fully diluted 2,989 2,334 2,990 2,334
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
3
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks and Twenty-six Weeks Ended
June 27, 1997 and June 28, 1996
(In thousands of dollars)
Thirteen Weeks Twenty-six Weeks
------------------------------ ---------------------------------
1997 1996 1997 1996
------------ ----------- -------------- ----------------
Cash flows from operating activities:
Net earnings (loss) $ 70 $ (471) $ 695 $ (391)
Adjustments to reconcile net earnings
(loss) to net cash used in operating
activities:
Depreciation and amortization 337 253 654 491
Deferred income taxes 84 - 210 -
Other (22) (20) (32) (25)
Changes in assets and liabilities:
Accounts receivable (655) 170 500 504
Inventory (1,477) (3,085) (8,701) (1,454)
Prepaid expenses (780) (116) (900) 58
Promotional material (1,828) (1,092) (1,423) (389)
Bank overdraft (334) 971 (2,209) (154)
Accounts payable 995 489 1,941 (4,604)
Accrued expenses (445) (324) (958) (111)
Customer deposits and other
liabilities (654) (46) (877) (541)
---------- ---------- ----------- ----------
Cash flows used in operating
activities (4,709) (3,271) (11,100) (6,616)
Cash flows from investing activities:
Purchases of property and equipment (325) (241) (583) (396)
---------- ---------- ----------- ----------
Cash flows used in investing
activities (325) (241) (583) (396)
Cash flows from financing activities:
Net proceeds from revolving credit line 5,064 3,543 11,718 7,048
Payments on long-term debt (30) (31) (35) (36)
---------- ---------- ----------- ----------
Cash flows provided by financing
activities 5,034 3,512 11,683 7,012
Decrease in cash and cash equivalents - - - -
Cash and cash equivalents at beginning
of the period - - - -
---------- ---------- ----------- ----------
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 Twenty-six Weeks Ended
June 27, 1997 and June 28, 1996
(In thousands of dollars)
Thirteen Weeks Twenty-six Weeks
------------------------ ------------------------
1997 1996 1997 1996
-------- --------- --------- ---------
Supplemental disclosure of cash flow
- ------------------------------------
information
- -----------
Cash paid during the periods for:
Interest $ 337 $ 223 $ 522 $ 459
Income taxes $ 658 $ 1 $ 956 $ 2
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: Net Earnings (Loss) Per Common and Common Equivalent Share
Net earnings (loss) per common and common equivalent share is computed
by dividing net earnings (loss) by the weighted average number of
common and common equivalent shares outstanding, when dilutive. Net
earnings (loss) per common and common equivalent share was calculated
using the modified treasury stock method for the thirteen and twenty-
six weeks ended June 27, 1997 and the treasury stock method for the
thirteen and twenty-six weeks ended June 28, 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
On April 18, 1997 the Company entered into an Amended and Restated
Credit and Security Agreement ("the amended agreement") with its bank
which expires in May 2000. The amended agreement contains
substantially the same terms and conditions as the previous agreement
except that the maximum borrowing under the line of credit was
increased from $10.0 million to $15.0 million, the interest rate was
reduced to the bank's prime rate and the limit on letters of credit
was increased from $1.0 million to $5.0 million. The amended credit
facility has an increased collateral base related to inventory of
$10.0 million December 16 through March 31, $12.0 million April 1
through April 15 and $15.0 million April 16 to December 15 of each
year.
6
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 4: Public Offering
On July 11, 1997 the Company filed a Registration Statement with the
Securities and Exchange Commission for the sale of 2,000,000 shares of its
common stock. The Company expects the offering price to be between $7.00 and
$8.00 per share. Of the shares being registered, 1,600,000 are to be sold by
the Company and 400,000 are to be sold by certain selling shareholders. The
Registration Statement has not yet become effective.
Note 5: Shareholders' Equity
The Company's Board of Directors approved a one-for-ten reverse stock split
which was approved by the shareholders on March 5, 1997. All share and per
share amounts have been presented to reflect the effect of the reverse stock
split.
On June 20, 1997 the Company's Board of Directors approved increasing the
number of shares reserved for issuance under the 1996 Stock Option Plan from
400,000 to 600,000, subject to shareholder approval which was obtained on
July 16, 1997.
On July 1, 1997 the Company's Board of Directors approved the grant to
officers of the Company options to purchase 220,000 shares of common stock
contingent upon the completion of the Company's public offering. The exercise
price will be the same as the price to public in the offering document and
25% of the options will vest immediately upon the date of grant with the
balance vesting over the next three years. The options will expire ten years
from the date of grant.
On July 1, 1997 the Company's Board of Directors approved the repurchase of
all of the Company's Series A Preferred Stock for $1.0 million upon
completion of the Company's public offering.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN AND TWENTY-SIX WEEKS ENDED JUNE 27, 1997 COMPARED TO THE THIRTEEN AND
TWENTY-SIX WEEKS ENDED JUNE 28, 1996
SALES. Sales for the thirteen and twenty-six weeks ended June 27, 1997 of
$23.2 million and $51.1 million were $4.6 million or 24.9% and $8.3 million
or 19.5% higher than sales of $18.6 million and $42.8 million for the same
periods last year. The increase in sales was due to a 57% and 34% increase
in catalog circulation for the thirteen and twenty-six weeks ended June 27,
1997, offset partially by lower customer response rates resulting from
increased catalog editions and the planned merchandising shift to higher
margin products. The Company mailed six catalog editions, including four
specialty editions, during the thirteen weeks ended June 27, 1997, compared
to five editions, including two specialty editions, during the same period
last year. Year to date the Company has mailed 14 catalog editions,
including nine specialty editions, compared to ten catalog editions,
including four specialty editions, during the same period last year. Gross
returns and allowances for the thirteen and twenty-six weeks ended June 27,
1997, were $2.9 million or 11.0% of gross sales and $6.1 million or 10.7% of
gross sales compared to $1.5 million or 7.7% of gross sales and $3.7 million
or 8.0% of gross sales for the same periods last year. The increase was
anticipated as part of the merchandise strategy to offer more products in the
apparel and footwear categories, which tend to have higher return rates than
other product categories.
GROSS PROFIT. Gross profit for the thirteen and twenty-six weeks ended June 27,
1997 was $9.2 million or 39.5% of sales and $19.7 million or 38.5% of sales
compared to $6.3 million or 33.9% of sales and $14.4 million or 33.6% of sales
for the same periods last year. The increase in gross profit as a percent of
sales was due primarily to higher retail product margins which was the result of
the Company's ongoing plan to shift a larger percentage of product offerings to
higher margin manufacturers' close-outs and military surplus as well as apparel
and footwear.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the thirteen and twenty-six weeks ended June 27,
1997 were $8.7 million or 37.5% of sales and $18.0 million or 35.3% of sales
compared to $6.6 million or 35.2% of sales and $14.4 million or 33.6% of
sales for the same periods last year. The dollar increase was primarily due
to the 57% and 34% increase in circulation. Total circulation during the
thirteen and twenty-six weeks ended June 27, 1997 was 12.0 million and 23.8
million catalogs compared to 7.7 million and 17.8 million catalogs during the
same periods last year. The increase in catalog circulation was primarily
due to a planned increase in the number of specialty catalog editions and
increased efforts to develop new customers. Advertising expense for the
thirteen and twenty-six weeks ended June 27, 1997 was $5.2 million or 22.5%
of sales and $10.5 million or 20.5% of sales compared to $3.5 million or
19.0% of sales and $7.8 million or 18.2% of sales for the same periods last
year. The increase as a percent of sales was due to lower customer response
rates associated with the number of catalog editions mailed to existing
customers and new customer prospecting. The Company did not have any merger
related expenses during the thirteen weeks ended June 27, 1997 and recorded
$100,000 of recovered merger costs during the twenty-six weeks ended June
27,1997 compared to $99,000 and $206,000 of merger related expenses during the
same periods last year. These expenses were incurred in connection with an
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL (continued)
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Agreement and Plan of Merger entered into in March 1996 among the Company, VISTA
2000, Inc. and VISTA Acquisition Subsidiary, Inc. The Company terminated the
agreement in May 1996 based upon various breaches of the agreement by VISTA
2000, Inc.
EARNINGS (LOSS) FROM OPERATIONS. Earnings from operations for the thirteen and
twenty-six weeks ended June 27, 1997 were $462,000 or 2.0% of sales and $1.7
million or 3.2% of sales compared to losses from operations of $248,000 and
$9,000 for the same periods last year.
INTEREST EXPENSE. Interest expense for the thirteen and twenty-six weeks ended
June 27, 1997 was $350,000 and $589,000 compared to $231,000 and $391,000 for
the same periods last year. The increase was primarily due to increased
borrowings against the revolving line of credit as a result of higher inventory
levels.
INCOME TAXES. Income tax expense for the thirteen and twenty-six weeks ended
June 27, 1997 was $37,000 and $366,000. No income tax benefits were recorded
during the same periods last year due to a valuation allowance being recorded.
NET EARNINGS (LOSS). Net earnings for the thirteen and twenty-six weeks
ended June 27, 1997 were $70,000 or 0.3% of sales and $695,000 or 1.4% of
sales compared to net losses of $471,000 and $391,000 for the same periods
last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its operating cash requirements through funds
generated from operations and borrowings under its revolving line of credit and
from subordinated notes payable to shareholders and other investors.
The Company had working capital of $1.1 million as of June 27, 1997 compared
to working capital of $3.6 million as of December 27, 1996. The decrease of
$2.5 million in working capital during the twenty-six weeks ended June 27,
1997 was the result of $3.4 million in subordinated notes payable, maturing
June 15, 1998, being classified as a current liability as of June 27,1997,
partially offset by year-to-date earnings. The Company's working capital
requirements have increased during the thirteen and twenty-six weeks ended
June 27, 1997 compared to the same periods last year 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. The Company purchases large
quantities of manufacturers' close-outs and other individual product items on
an opportunistic or when-available basis, particularly in the case of
footwear and apparel. The seasonal nature of the merchandise or the time of
its acquisition may require that it be held for several months before being
offered in a catalog. This can result in increased inventory levels and
lower inventory turnover, thereby increasing the Company's working capital
requirements and related carrying costs.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL (continued)
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In November 1995, the Company began offering its customers an installment credit
plan with no finance fees, known as the "G.O. Painless 4-Pay Plan." Each of the
four consecutive monthly installments is billed directly to customers' credit
cards. The Company had installment receivables of $1.5 million at June 27, 1997
compared to $2.3 million at December 27, 1996. The installment plan will
continue to require the allocation of working capital which the Company expects
to fund from operations and availability under its revolving credit facility.
On April 18, 1997, the Company entered into an Amended and Restated Credit and
Security Agreement with Norwest Business Credit, Inc. increasing its revolving
line of credit from $10.0 million to $15.0 million, subject to an adequate
borrowing base, and extending the expiration date to May 2000. The amended
credit facility increased the limit for letters of credit from $1.0 million to
$5.0 million and the interest rate was reduced from the bank's prime rate plus
1.25% to the bank's prime rate. All other terms and conditions remained
substantially the same as in the previous agreement. The Company was in
compliance with the credit agreement's covenants as of June 27, 1997. As of
June 27, 1997, the Company had borrowed $13.2 million against the revolving
credit line compared to $1.5 million at December 27, 1996. The increase during
the twenty-six weeks ended June 27, 1997 is due to the $8.7 million increase in
inventory required to support the merchandising plan.
Cash flows used in operating activities for the twenty-six weeks ended June 27,
1997 were $11.1 million compared to $6.6 million for the same period last year.
The increase in cash flows used in operating activities was primarily the result
of increased inventory levels.
Cash used in investing activities during the twenty-six weeks ended June 27,
1997 was $583,000 compared to $396,000 for the same period last year. During
1994, the Company began a multi-year project of replacing and enhancing its
operational and management information systems which has resulted in significant
capital expenditures being incurred each year to develop computer software
programs. Additionally, the Company has made investments to enhance warehouse
operations in terms of efficiencies and capacity. During 1997, the Company
plans to continue the system development plan with additional hardware and
software upgrades of approximately $900,000 which are expected to be funded from
operations.
The Company believes that cash flow from operations and borrowing capacity under
its revolving credit facility will be sufficient to fund operations for the next
12 months.
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
See Exhibit Index at page 13 of this report.
(B) REPORTS ON FORM 8-K:
None.
11
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: July 25, 1997 BY: /s/ Charles B. Lingen
-----------------------------
Charles B. Lingen
Vice President Finance/CFO
12
EXHIBIT INDEX
Exhibit Method of Filing
- ---------- -----------------------------
27 Financial Data Schedule.................Filed herewith electronically
13