SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 29, 2004
THE SPORTSMAN'S GUIDE, INC.
(Exact name of registrant as specified in its charter)
Minnesota 0-15767 41-1293081
(State or other jurisdiction (Commission File No.) (IRS Employer Identification No.)
of incorporation)
411 Farwell Avenue, South St. Paul, Minnesota 55075
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (651) 451-3030
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
- Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
- Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
- Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
- Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.01. Completion of Acquisition or Disposition of Assets
On June 29, 2004, The Sportsman's Guide, Inc. (the "Company"), through a
newly-formed wholly-owned subsidiary TGW Acquisition Corporation, acquired 100%
of the outstanding membership interests of The Golf Warehouse, L.L.C. ("TGW"),
from Falconhead Capital LLC, a private investment firm, and members of TGW
management pursuant to a Membership Interest Purchase Agreement dated as of June
29, 2004. The Company filed a Form 8-K on July 13, 2004, reporting the
acquisition.
The purchase price for the membership interests was $30 million, subject
to pre- and post-closing adjustments, and was funded from the Company's working
capital and borrowings under the Company's credit facility with Wells Fargo
Bank, National Association. The terms of the Membership Interest Purchase
Agreement were negotiated on an arm's length basis between the parties.
The Golf Warehouse is a leading on-line and catalog retailer of golf
equipment, apparel and accessories. Following the acquisition, TGW will continue
to be managed by company founders Mark S. Marney, CEO, and R. Michael Marney,
President, and will operate as an independent business unit of the Company from
its present office and warehouse facilities in Wichita, Kansas.
The Company is filing this Form 8-K/A to file (i) the historical financial
information for TGW as required by Item 9.01(a) of Form 8-K and (ii) the pro
forma financial statements of the Company as adjusted to give effect to the
acquisition, as required by Item 9.01(b) of Form 8-K.
Item 9.01. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired, The Golf Warehouse, L.L.C.
- Report of Independent Auditors
- Balance Sheets as of December 31, 2003 and 2002 and March 31,
2004;
- Statements of Operations for the Years Ended December 31, 2003
and 2002 and for the Three Months Ended March 31, 2004 and
2003;
- Statements of Members' Equity for the Years Ended December 31,
2003 and 2002 and for the Three Months Ended March 31, 2004;
- Statements of Cash Flows for the Years Ended December 31, 2003
and 2002 and for the Three Months Ended March 31, 2004 and
2003;
- Notes to Financial Statements.
(b) Pro Forma Financial Information.
- Unaudited Condensed Pro Forma Combined Financial Statements -
Basis of Presentation
- Unaudited Condensed Pro Forma Combined Balance Sheet as of
March 31, 2004;
- Notes to Unaudited Condensed Pro Forma Combined Balance Sheet
as of March 31, 2004;
- Unaudited Pro Forma Condensed Combined Statements of
Earnings for the Year Ended December 31, 2003 and for the
Three Months Ended March 31, 2004;
- Notes to Unaudited Condensed Pro Forma Combined Statements of
Earnings for the Year Ended December 31, 2003 and for the
Three Months Ended March 31, 2004.
(b) Exhibits
2.1 Membership Interest Purchase Agreement dated as of June 29,
2004 by and among TGW Acquisition Corporation, The Golf
Warehouse, L.L.C., Sports Capital Partners, L.P., Sports
Capital Warehouse, L.P., Sports Capital Partners (CEV),
L.L.C., Marney Enterprises, Inc., Mark S. Marney, R. Michael
Marney and Richard D. Marney*
23.1 Consent of PricewaterhouseCoopers LLP, independent certified
public accountants
99 Press Release dated June 29, 2004*
- --------------------
* Previously filed
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 hereunto duly authorized.
THE SPORTSMAN'S GUIDE, INC.
Date: September 13, 2004 By: /s/ CHARLES B. LINGEN
------------------------------
Name: Charles B. Lingen
Title: Executive Vice President
of Finance and Administration
and Chief Financial Officer
3
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Members
The Golf Warehouse, L.L.C.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in members' equity and cash flows present fairly, in all
material respects, the financial position of The Golf Warehouse, L.L.C. (the
"Company") at December 31, 2003 and 2002, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLC
March 8, 2004
4
The Golf Warehouse, L.L.C.
Balance Sheets
December 31,
---------------------------- March 31,
2002 2003 2004
------------ ------------ ------------
(Unaudited)
ASSETS
Current assets
Cash and temporary investments $ 1,833,982 $ 100,542 $ 1,914,080
Receivables 88,606 49,832 956,315
Inventory 6,206,682 6,459,164 6,358,366
Prepaid expenses 147,389 146,727 416,367
------------ ------------ ------------
Total current assets 8,276,659 6,756,265 9,645,128
Fixed assets
Computer software 826,400 900,674 886,995
Office furniture and equipment 506,668 564,354 594,896
Leasehold improvements 758,711 806,886 806,763
Warehouse and retail equipment 275,875 320,353 320,353
Less accumulated depreciation and amortization (983,766) (1,404,447) (1,512,447)
------------ ------------ ------------
Total fixed assets 1,383,888 1,187,820 1,096,560
Other assets
Restricted cash 300,000 300,000 300,000
Goodwill, net of amortization (Note 1) 1,829,534 1,829,534 1,829,534
------------ ------------ ------------
Total assets $ 11,790,081 $ 10,073,619 $ 12,871,222
============ ============ ============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable $ 4,600,927 $ 4,196,937 $ 5,969,085
Accrued expenses 490,408 441,614 680,830
Dividends payable -- 259,719 --
Notes payable and other obligations - current 168,004 131,739 489,305
Line of credit -- 750,000 1,200,000
------------ ------------ ------------
Total current liabilities 5,259,339 5,780,009 8,339,220
Notes payable and other obligations 533,015 401,647 8,784
Commitments and contingencies (Note 6) -- -- --
Members' equity 5,997,727 3,891,963 4,523,218
------------ ------------ ------------
Total liabilities and members' equity $ 11,790,081 $ 10,073,619 $ 12,871,222
============ ============ ============
The accompanying notes are an integral part of these financial statements
5
The Golf Warehouse, L.L.C.
Statements of Operations
Three months ended
Years ended December 31, March 31
---------------------------- ---------------------------
2002 2003 2003 2004
------------ ------------ ----------- ------------
(Unaudited) (Unaudited)
Sales $ 29,380,744 $ 42,426,352 $ 8,162,715 $ 11,273,892
Cost of sales 20,620,996 29,621,804 5,768,098 7,873,888
------------ ------------ ----------- ------------
Gross profit 8,759,748 12,804,548 2,394,617 3,400,004
Selling expense 2,745,674 5,441,295 641,607 859,257
General and administrative 4,234,231 5,525,421 1,397,625 1,864,742
Management fees and related expenses 231,708 160,200 68,718 26,707
------------ ------------ ----------- ------------
Income from operations 1,548,135 1,677,632 286,667 649,298
Other
Interest income 37,647 23,353 4,671 1,944
Other income -- -- 7,464 --
Interest expense (54,418) (47,030) (12,222) (19,987)
------------ ------------ ----------- ------------
Total other expense (16,771) (23,677) (87) (18,043)
------------ ------------ ----------- ------------
Net income $ 1,531,364 $ 1,653,955 $ 286,580 $ 631,255
============ ============ =========== ============
The accompanying notes are an integral part of these financial statements
6
The Golf Warehouse, L.L.C.
Statements of Members' Equity
Years ended December 31, 2002 and 2003 and
Three months ended March 31, 2004 (unaudited)
Number of Units Members' Equity Total
--------------------------- ---------------------------------- Members'
Class A Class B Class C Class A Class B Class C Equity
------- --------- ------- ----------- ----------- ------- -----------
Balances at
December 31, 2001 7,589 1,920 270 $ 2,944,962 $ 1,521,401 $ -- $ 4,466,363
Net income -- -- -- 1,531,364 -- -- 1,531,364
----- ----- --- ----------- ----------- ----- -----------
Balances at
December 31, 2002 7,589 1,920 270 4,476,326 1,521,401 -- 5,997,727
Dividends -- -- -- (3,759,719) -- -- (3,759,719)
Net income -- -- -- 1,653,955 -- -- 1,653,955
----- ----- --- ----------- ----------- ----- -----------
Balances at
December 31, 2003 7,589 1,920 270 2,370,562 1,521,401 -- 3,891,963
Net income
(unaudited) -- -- -- 631,255 -- -- 631,255
----- ----- --- ----------- ----------- ----- -----------
Balances at
March 31, 2004
(unaudited) 7,589 1,920 270 $ 3,001,817 $ 1,521,401 -- $ 4,523,218
===== ===== === =========== =========== ===== ===========
The accompanying notes are an integral part of these financial statements
7
The Golf Warehouse, L.L.C.
Statements of Cash Flows
Years ended December 31, Three months ended March 31,
---------------------------- ----------------------------
2002 2003 2003 2004
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income $ 1,531,364 $ 1,653,955 $ 286,580 $ 631,255
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 424,272 420,682 99,900 108,000
Changes in operating assets and liabilities
Receivables 147,077 38,774 (602,517) (906,483)
Inventories (3,351,470) (252,482) 485,596 100,798
Prepaid expenses 27,235 662 (395,952) (269,640)
Accounts payable 2,564,445 (403,990) (235,750) 1,772,148
Accrued expenses (292,921) (48,794) (129,500) 239,216
------------ ------------ ------------ ------------
Net cash provided (used) by
operating activities 1,050,002 1,408,807 (491,643) 1,675,294
Cash flows used in investing activities
Purchase of fixed assets (334,713) (224,614) (143,812) (16,740)
Cash flows from financing activities
Dividends paid -- (3,500,000) -- (259,719)
Borrowing on line of credit -- 750,000 -- 450,000
Notes payable payments (174,910) (167,633) (38,285) (35,297)
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (174,910) (2,917,633) (38,285) 154,984
------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 540,379 (1,733,440) (673,740) 1,813,538
Cash and cash equivalents
Beginning of period 1,293,603 1,833,982 1,833,982 100,542
------------ ------------ ------------ ------------
End of period $ 1,833,982 $ 100,542 $ 1,160,242 $ 1,914,080
============ ============ ============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 54,418 $ 47,030 $ 12,222 $ 19,987
Supplemental disclosure of noncash financing
activities
Dividends declared and payable -- 259,719 -- --
The accompanying notes are an integral part of these financial statements.
8
The Golf Warehouse, L.L.C.
Notes to Financial Statements
(All information as of March 31, 2004 and for the three months ended March 31,
2003 and 2004 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the financial position and the results of
operations of The Golf Warehouse, L.L.C. (the "Company"), a Delaware
limited liability company, which was formed on September 15, 1999. The
Company was inactive until October 14, 1999, when the Company received
$5,150,000 from the sale of 5,000 Class A units and acquired all of the
outstanding ownership of The Golf Warehouse, LLC, a Kansas corporation.
The accompanying financial statements and related footnote data as of
March 31, 2004 and for the three months ended March 31, 2003 and 2004 are
unaudited, but in the opinion of management include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. The results of operations for the three months ended
March 31, 2003 and 2004 are not necessarily indicative of the results for
the full year.
BUSINESS OPERATIONS
The Company is engaged primarily in sales of golf equipment and
accessories throughout the United States, as well as internationally,
through its on-line retail site, "tgw.com", and through its retail store
in Wichita, Kansas.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and
cash equivalents are primarily located in one bank which subjects the
Company to a concentration of credit risk. As of December 31, 2003, the
Company had cash and cash equivalents in banks totaling $1,193,040 in
excess of Federal Depository Insurance limits.
INVENTORY
Inventory, consisting of golf equipment and accessories, is valued at the
lower of cost or market, determined on a first-in, first-out basis.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is recorded on the
straight-line basis by charges to expense at rates based on the shorter of
the estimated useful lives of the fixed assets or the remaining lease
term. Useful lives for furniture, fixtures, and equipment range from five
to ten years. The useful life for software is three years.
REVENUE RECOGNITION
The Company recognizes retail sales at the time the customer takes
possession of the merchandise and purchases are paid for, primarily with
either cash or credit card. Catalogue and e-commerce sales are recorded
upon customer receipt of merchandise. Amounts relating to shipping and
handling billed to customers in a sale transaction are classified as
revenue and the related costs are classified as cost of goods sold. The
Company's customers may return ordered items for an exchange or refund.
The Company reserves for sales returns through estimates based on
historical experience and various other assumptions that management
believes to be reasonable. Revenue for gift certificate sales and store
credits is recognized upon redemption.
SHIPPING COSTS
Revenues received related to shipping charged to customers are included in
sales. Out-bound shipping charges are included in cost of goods sold.
In-bound shipping charges are capitalized and included in inventory.
Tangible supplies used to package products for shipments to customers are
included in general and administrative expense. Revenues received from
shipping, included in sales, totaled $1,690,634 and $2,905,730 for the
years ended December 31, 2002 and 2003 and $506,145 and $670,887 for the
three months ended March 31, 2003 and 2004, respectively. Out-bound and
in-bound shipping charges, included in cost of sales, totaled $2,230,854
and $3,603,427 for the years ended December 31, 2002 and 2003 and $574,596
and $920,768 for
9
the three months ended March 31, 2003 and 2004, respectively. The cost of
tangible supplies, included in general and administrative expense, totaled
$192,369 and $330,528 for the years ended December 31, 2002 and 2003 and
$49,156 and $54,785 for the three months ended March 31, 2003 and 2004,
respectively.
ADVERTISING COSTS
The costs associated with direct response advertising, which consist
primarily of catalogue production and mailing costs, are capitalized and
amortized over the expected future revenue stream of the catalogue
mailings, which approximates four months. The expected future revenue
stream is determined based on historical revenue trends. If the current
revenue streams were to diverge from the expected trend, the future
revenue streams would be adjusted accordingly. Other advertising costs,
primarily television ads, are expensed as incurred in accordance with
Statement of Position 93-7, Reporting on Advertising Costs. Advertising
included in prepaids totaled $2,571 and $33,828 at December 31, 2002 and
2003 and $64,366 at March 31, 2004, respectively. Advertising expense was
$1,429,376 and $3,437,826 for the years ended December 31, 2002 and 2003
and $650,950 and $801,641 for the three months ended March 31, 2003 and
2004, respectively.
GOODWILL
The unamortized costs in excess of the fair value of acquired net tangible
assets are included in goodwill. On January 1, 2002, the Company adopted
the provisions of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets ("FAS 142"). FAS 142 ended the amortization of
goodwill and certain intangible assets and subsequently requires, at least
annually, that an impairment test be performed on such assets to determine
whether impairment has occurred. There was no impairment charge recorded
by the Company in 2002 or 2003 or in the three months ended March 31,
2004.
LONG-LIVED ASSETS
The Company periodically evaluates its long-lived assets, primarily
property and equipment and goodwill, to determine that their carrying
value is not in excess of their net realizable value. The Company
considers a number of factors such as estimated future cash flows,
appraisals and current market analysis in determining net realizable
value. Assets are written down to their fair value if it is below its net
carrying value.
INCOME TAXES
The Company is a limited liability company, which for federal and state
income tax purposes, is not a tax-paying entity. As such, the Company's
income or loss is taxable to the members, and, accordingly, no income tax
expense or benefit has been recorded in the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Because of the short-term nature and the variable rate of interest on the
Company's debt, the carrying value of all financial instruments
approximate their respective fair value.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
2. MEMBERS' EQUITY
The members' equity of the Company consists of the capital contributions
of each member plus or minus their applicable share of profit or loss as
determined in accordance with the limited liability company agreement.
Losses of the Company, other than goodwill amortization and impairment,
are generally allocated to the unit holders to the extent of their capital
contributions as defined. Currently, only Class A unit holders have made
capital contributions as defined. Net income is generally allocated first
to the Class A units in an amount equal to the aggregate amount of losses
previously allocated to these unit holders and then to Class B and C unit
holders in an amount equal to the aggregate amount of losses previously
allocated to these unit holders. Any amortization or impairment of the
goodwill associated with the acquisition resulting from the value assigned
to the Class B units is being allocated solely to the members' equity of
the Class B unit holders. The Company may issue additional units as
authorized by the limited liability company agreement.
Under the terms of the limited liability company agreement, the Class A
and Class B units are voting units whereas the Class C units are
non-voting.
10
In December 2003, dividends of $3,759,719 were declared and authorized. Of
this amount, $3,500,000 was distributed in 2003. The remaining $259,719 is
reflected as dividends payable as of December 31, 2003 and was paid during
the three months ended March 31, 2004.
For the period ended March 31, 2004, there were no dividends declared.
3. RELATED PARTY TRANSACTIONS
The Company has a professional services agreement with a unit holder of
the Company for financial and management consulting services. The
agreement is on an annual basis in the amount of $100,000 renewing on
October 15 of each year. The Company also incurred expenses from this
member for general and administrative services which amounted to $18,764
and $18,200 for the years ended December 31, 2002 and 2003 and no expenses
were incurred for the three months ended March 31, 2003 and 2004,
respectively.
4. LINE OF CREDIT
The Company has a $1,200,000 line of credit agreement with a bank. Amounts
outstanding under the line of credit bear interest at the prime rate plus
0.250 percent, which is payable monthly. All outstanding amounts under the
line of credit, including unpaid interest, are due in May 2004. The
Company had $450,000 available for borrowing under the line of credit at
December 31, 2003. The Company had no amounts available for borrowing
under the line of credit at March 31, 2004.
5. NOTES PAYABLE AND OTHER
Notes payable and other long-term obligations consist of the following:
December 31, March 31,
2002 2003 2004
-------- -------- --------
Installment loan (a) $479,616 $428,670 $415,300
Installment loan (b) 142,661 85,481 70,390
Installment loan (c) 43,966 -- --
Capital lease (d) 34,776 19,235 12,399
-------- -------- --------
701,019 533,386 498,089
Less: Current installments 168,004 131,739 489,305
-------- -------- --------
$533,015 $401,647 $ 8,784
======== ======== ========
(a) On March 21, 2000, the Company entered into an Installment Loan
Agreement with a bank. The agreement consists of a $600,000
installment loan. Amounts outstanding under the loan are payable in
59 monthly payments of $7,295, including interest at a fixed rate of
7.925 percent, and a final payment of the remaining unpaid principal
and interest due on March 21, 2005.
(b) On August 31, 2000, the Company entered into an Installment Loan
Agreement with a bank. The agreement consists of a $251,250
installment loan. Amounts outstanding under the loan are payable in
59 monthly payments of $5,354, including interest at a fixed rate of
10 percent, and a final payment of the remaining unpaid principal
and interest due on August 30, 2005. On January 9, 2002, the
agreement was amended to change the interest rate to prime plus 1.5
percent.
(c) On October 4, 2000, the Company entered into an Installment Loan
Agreement with a bank. The agreement consists of a $150,750
installment loan. Amounts outstanding under the loan are payable in
35 monthly payments of $4,874, including interest at a fixed rate of
10 percent, and a final payment of the remaining unpaid principal
and interest which was made on October 4, 2003. On January 9, 2002,
the agreement was amended to change the interest rate to prime plus
1.5 percent.
(d) On February 13, 2001, the Company entered into a capital lease with
a financing company for $59,494, payable in 60 monthly payments of
$1,335, including interest at approximately 12 percent, with a final
payment due on February 14, 2006.
11
The line of credit and notes payable are collateralized by a
security interest in a $300,000 certificate of deposit, accounts
receivable, inventory, equipment and leasehold improvements.
Future aggregate annual payments due on notes payable and other long-term
obligations are as follows:
2004 $131,739
2005 398,647
2006 3,000
--------
$533,386
========
6. COMMITMENTS AND CONTINGENCIES
The Company is currently leasing warehouse/retail space under an operating
lease. The agreement, effective May 1, 2000, has a term of five years with
renewal options. In 2003, the Company signed a contract for additional
space effective March 1, 2003, with the same lease terms as the original
contract. Future minimum lease payments under operating leases are as
follows:
2004 $201,720
2005 67,240
--------
$268,960
========
Rent expense for the years ended December 31, 2002 and 2003 amounted to
$147,432 and $194,976 and $47,483 and $51,168 for the three months ended
March 31, 2003 and 2004, respectively.
The Company in the ordinary course of business becomes involved in claims
and litigation. The Company's management believes that losses, if any,
resulting from such claims or litigation will not have a material impact
on the financial position and results of operation of the Company.
7. SUBSEQUENT EVENTS (UNAUDITED)
On June 29, 2004, all of the membership interests of the Company were sold
to The Sportsman's Guide, Inc. (a Minnesota-based public company) pursuant
to a Membership Interest Purchase Agreement (the Agreement). The purchase
price was $30 million and is subject to pre- and post-closing adjustments
as specified in the Agreement.
12
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS -
BASIS OF PRESENTATION
The following unaudited condensed pro forma combined balance sheet is
derived from the balance sheets of The Sportsman's Guide, Inc. and The Golf
Warehouse, L.L.C. at March 31, 2004. The unaudited condensed pro forma combined
balance sheet reflects The Sportsman's Guide's purchase of all of The Golf
Warehouse's membership interests using the purchase method accounting and
assumes that such acquisition was consummated as of March 31, 2004. The
following unaudited condensed pro forma combined statements of income for the
year ended December 31, 2003 and the three months ended March 31, 2004 give
effect to the acquisition of The Golf Warehouse as if it occurred on January 1,
2003.
The adjustments necessary to fairly present the unaudited condensed pro
forma combined financial statements have been made based on available
information and in the opinion of management are reasonable. Assumptions
underlying the pro forma adjustments are described in the accompanying notes,
which should be read in conjunction with this unaudited condensed pro forma
combined financial statements.
The pro forma adjustments reflect the purchase price allocations and
financing of the transactions based on a valuation of net assets acquired
conducted by the independent valuation specialists engaged by The Sportsman's
Guide. The values assigned to the fixed and intangible assets acquired and to
the amounts and timing of the future amortization expense may change based on
finalization of the purchase price, but such changes are not expected to be
material.
The unaudited condensed pro forma combined financial data is for
comparative purposes only and does not purport to represent what The Sportsman's
Guide's financial position or results of operations would actually have been had
the events noted above in fact occurred on the assumed dates or to project the
financial position or results of operations of The Sportsman's Guide for any
future date or future period. The unaudited condensed pro forma combined
financial data should be read in conjunction with the notes hereto.
13
The Sportsman's Guide, Inc. and The Golf Warehouse, L.L.C.
Unaudited Condensed Pro Forma Combined Balance Sheet
March 31, 2004
(In thousands)
Historical
---------------------------
The The Golf
Sportsman's Warehouse, Pro Forma Pro Forma
Guide, Inc. L.L.C. Adjustments Combined
------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 16,694 $ 1,914 $ (16,694)(A) $ 228
(1,686)(A)
Accounts receivable - net 2,147 956 -- 3,103
Inventory 23,032 6,358 -- 29,390
Promotional material 3,622 -- -- 3,622
Prepaid expenses and other 2,489 416 -- 2,905
Income taxes receivable 655 -- -- 655
Deferred income taxes 2,220 -- -- 2,220
------------ ------------ ------------ ------------
Total current assets 50,859 9,644 (18,380) 42,123
PROPERTY AND EQUIPMENT - NET 1,947 1,097 -- 3,044
OTHER ASSETS
Restricted cash -- 300 -- 300
Goodwill -- 1,830 15,846 (B) 17,676
Trade and domain name -- -- 10,200 (B) 10,200
Non-compete agreements -- -- 500 (B) 500
Customer lists -- -- 250 (B) 250
------------ ------------ ------------ ------------
Total other assets -- 2,130 26,796 28,826
------------ ------------ ------------ ------------
Total assets $ 52,806 $ 12,871 $ 8,416 $ 74,093
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 16,024 $ 5,969 $ -- $ 21,993
Line of credit -- 1,200 (1,200)(A) 2,125
2,125 (A)
Current portion of long term debt -- 477 (477)(A) 2,500
2,500 (A)
Accrued expenses 3,294 509 -- 3,803
Deferred revenue 4,783 -- -- 4,783
Returns reserve 1,805 172 -- 1,977
Customer deposits and other liabilities 2,465 12 -- 2,477
------------ ------------ ------------ ------------
Total current liabilities 28,371 8,339 2,948 39,658
LONG-TERM LIABILITIES
Long-term deferred liabilities 173 -- -- 173
Long-term debt -- 9 (9)(A) 10,000
10,000 (A)
------------ ------------ ------------ ------------
Total long-term liabilities 173 9 9,991 10,173
------------ ------------ ------------ ------------
Total liabilities 28,544 8,348 12,939 49,831
COMMITMENTS AND CONTINGENCIES -- -- -- --
SHAREHOLDERS' EQUITY
Common stock - $.01 par value 47 -- -- 47
Additional paid-in capital 7,904 -- -- 7,904
Retained earnings 16,311 4,523 (4,523)(C) 16,311
------------ ------------ ------------ ------------
Total shareholders' equity 24,262 4,523 (4,523) 24,262
------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 52,806 $ 12,871 $ 8,416 $ 74,093
============ ============ ============ ============
14
The Sportsman's Guide, Inc. and The Golf Warehouse, L.L.C.
Notes to Unaudited Condensed Pro Forma Combined Balance Sheet
As of March 31, 2004
(In thousands)
(A) Pursuant to the Membership Interest Purchase Agreement dated June 29, 2004
and for the purposes of this pro forma presentation, the acquisition of
The Golf Warehouse, L.L.C. is assumed to have been funded in the following
manner:
Total estimated purchase price $30,769
Plus estimated transaction costs 550
-------
Total estimated consideration $31,319
=======
The consideration listed above includes an estimated payment of $769 to
reflect a net working capital adjustment per the Membership Interest
Purchase Agreement based on The Golf Warehouse's balance sheet as of June
29, 2004. Upon approval of the Sellers, The Sportsman's Guide, Inc. will
report the final purchase price in its next SEC filing.
The estimated consideration of $31,319 is assumed to be funded by The
Sportsman's Guide, Inc. as follows:
Cash on hand $16,694
Cash proceeds from 39 month term loan
($2.5 million of which is current) 12,500
Cash proceeds from revolving line of credit 2,125
-------
$31,319
=======
Pursuant to the Membership Interest Purchase Agreement, $4 million of the
estimated purchase price was deposited into an escrow account. In
accordance with and subject to the escrow agreement, the escrow agent
shall distribute amounts (net of claims) from the escrow account to the
Sellers as follows:
90 days after closing date $ 500
180 days after closing date 500
360 days after closing date 1,500
540 days after closing date Remaining Funds
For purposes of this pro forma presentation, the restricted cash in escrow
was offset by the current and long term distributions from the escrow
account.
Pursuant to the Membership Interest Purchase Agreement, all of the bank
debt of The Golf Warehouse was repaid prior to the acquisition closing
date. Accordingly, The Golf Warehouse repaid the bank debt in the
following manner:
Cash on hand $ 1,914
Cash payment of line of credit (1,200)
Cash payment of other bank debt (486)
-------
Remaining cash on hand $ 228
=======
15
(B) The pro forma adjustments reflect the purchase price allocations based on
a valuation of the fair market value of the intangible assets conducted by
an independent valuation specialist engaged by The Sportsman's Guide, Inc.
The estimated purchase price was allocated as follows:
Net acquisition cost $ 31,319
Net assets acquired, including:
Current assets $ 7,958
Restricted cash 300
Property and equipment 1,097(1)
Liabilities assumed (6,662)
--------
Net assets acquired 2,693
--------
Preliminary amount assigned to intangibles $ 28,626
Estimated fair value of identifiable intangible assets per
independent valuation:
Trade and domain name $ 10,200
Non-compete agreements 500
Catalog and email customer lists 250
--------
Estimated fair value of identifiable intangible assets 10,950
--------
Preliminary amount assigned to goodwill $ 17,676
========
(1) The fair value presented for property and equipment is management's
estimate. An independent appraisal was not obtained as management believes
the net book value of the property and equipment as of the closing date
approximated fair value.
(C) Represents accumulated equity of The Golf Warehouse, L.L.C. prior to the
acquisition.
16
The Sportsman's Guide, Inc. and The Golf Warehouse, L.L.C.
Unaudited Condensed Pro Forma Combined Statements of Earnings
Twelve Months Ended December 31, 2003
(In thousands, except per share data)
Historical
---------------------------
The The Golf
Sportsman's Warehouse, Pro Forma Pro Forma
Guide, Inc. L.L.C. Adjustments Combined
------------- ---------- ----------- ----------
Sales $ 194,703 $ 42,426 -- $ 237,129
Cost of sales 130,639 29,622 -- 160,261
---------- ---------- ---------- ----------
Gross profit 64,064 12,804 -- 76,868
Selling, general and administrative expenses 54,467 11,126 183(A) 65,776
---------- ---------- ---------- ----------
Earnings (loss) from operations 9,597 1,678 (183) 11,092
Interest expense -- 47 585(B) 632
Miscellaneous income (expense), net 24 23 (123)(C) (76)
---------- ---------- ---------- ----------
Earnings (loss) before income taxes 9,621 1,654 (891) 10,384
Income tax expense 3,463 -- (275)(D) 3,738
---------- ---------- ---------- ----------
Net earnings (loss) $ 6,158 $ 1,654 $ (1,166) $ 6,646
========== ========== ========== ==========
Net earnings per share:
Basic $ 1.29 $ 1.39
========== ==========
Diluted $ 1.16 $ 1.26
========== ==========
Weighted average common and common equivalent
shares outstanding:
Basic 4,785 4,785
========== ==========
Diluted 5,290 5,290
========== ==========
17
The Sportsman's Guide, Inc. and The Golf Warehouse, L.L.C.
Unaudited Condensed Pro Forma Combined Statements of Earnings
Three Months Ended March 31, 2004
(In thousands, except per share data)
Historical
---------------------------
The The Golf
Sportsman's Warehouse, Pro Forma Pro Forma
Guide, Inc. L.L.C. Adjustments Combined
------------ ------------ ----------- ----------
Sales $ 44,594 $ 11,274 $ -- $ 55,868
Cost of sales 30,466 7,874 -- 38,340
------------ ------------ ----------- ----------
Gross profit 14,128 3,400 -- 17,528
Selling, general and administrative expenses 12,346 2,751 46(A) 15,143
------------ ------------ ----------- ----------
Earnings (loss) from operations 1,782 649 (46) 2,385
Interest expense -- 20 146(B) 166
Miscellaneous income (expense), net 42 2 (42)(C) 2
------------ ------------ ----------- ----------
Earnings (loss) before income taxes 1,824 631 (234) 2,221
Income tax expense 657 -- 143(D) 800
------------ ------------ ----------- ----------
Net earnings (loss) $ 1,167 $ 631 $ (377) $ 1,421
============ ============ =========== ==========
Net earnings per share:
Basic $ .25 $ .30
============ ==========
Diluted $ .22 $ .26
============ ==========
Weighted average common and common equivalent
shares outstanding:
Basic 4,753 4,753
============ ==========
Diluted 5,368 5,368
============ ==========
18
The Sportsman's Guide, Inc. and The Golf Warehouse, L.L.C.
Notes to Unaudited Condensed Pro Forma Combined Statements of Earnings
For the Twelve Months Ended December 31, 2003 and the Three Months
Ended March 31, 2004
(In thousands)
(A) Represents recording of estimated amortization expense of intangible
assets related to the acquisition of The Golf Warehouse, L.L.C.
(B) Represents recording of estimated interest expense relating to the term
loan and credit line advances incurred to finance the acquisition of The
Golf Warehouse, L.L.C.
(C) Represents the elimination of interest income earned on the $16,694 of
cash and cash equivalents utilized in the funding of the acquisition of
The Golf Warehouse, L.L.C.
(D) Adjusts the provision for federal and state income taxes to that required
by combined operation. The Golf Warehouse, L.L.C. was a limited liability
company, which for federal and state income tax purposes, was not a
taxpaying entity. For the purposes of these pro form presentations, it is
assumed The Golf Warehouse, L.L.C. was a taxpaying entity. The estimated
income tax provision (federal and state) for the twelve months ended
December 31, 2003 and the three months ended March 31, 2004 was calculated
as follows:
Twelve Months Three Months
Ended Ended
December 31, 2003 March 31, 2004
----------------- --------------
Income tax provision on The Golf Warehouse's earnings $ 595 $ 227
Income tax benefit from pro forma adjustments (320) (84)
-------- --------
Total estimated income tax expense $ 275 $ 143
======== ========
19
EXHIBIT INDEX
Exhibits
2.1 Membership Interest Purchase Agreement dated as of June 29,
2004 by and among TGW Acquisition Corporation, The Golf
Warehouse, L.L.C., Sports Capital Partners, L.P., Sports
Capital Warehouse, L.P., Sports Capital Partners (CEV),
L.L.C., Marney Enterprises, Inc., Mark S. Marney, R. Michael
Marney and Richard D. Marney*
23.1 Consent of PricewaterhouseCoopers LLP, independent certified
public accountants
99 Press Release dated June 29, 2004*
- --------------------
* Previously filed