<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934. FOR THE QUARTERLY FISCAL PERIOD ENDED
SEPTEMBER 27, 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 November 6, 1996 there were 23,335,833 shares of the registrant's
Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SPORTSMAN'S GUIDE, INC.
BALANCE SHEETS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
September 27, December 29,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable $ 2,242 $ 2,231
Inventory 18,867 14,208
Prepaid expenses 739 858
Promotional material 2,201 2,114
---------- ----------
Total current assets 24,049 19,411
PROPERTY AND EQUIPMENT - NET 4,442 4,298
---------- ----------
Total assets $ 28,491 $ 23,709
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft position $ 1,794 $ 1,619
Notes payable - bank 8,681 965
Current maturities of long-term debt
Related parties - 2,095
Other 51 1,368
Accounts payable 10,392 13,554
Accrued expenses 999 794
Customer deposits and other liabilities 1,480 1,479
---------- ----------
Total current liabilities 23,397 21,874
LONG-TERM OBLIGATIONS:
Long-term debt
Related parties 1,795 -
Other 1,785 220
Other long-term obligations 38 67
---------- ----------
Total long-term obligations 3,618 287
---------- ----------
Total liabilities 27,015 22,161
COMMITMENTS AND CONTINGENCIES - -
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 (897) (825)
---------- ----------
Total stockholders' equity 1,476 1,548
---------- ----------
Total liabilities & stockholders' equity$ 28,491 $ 23,709
========== ==========
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirteen Weeks and Thirty-nine Weeks Ended
September 27, 1996 and September 29, 1995
(In thousands of dollars, except for per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-nine Weeks
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 26,485 $ 24,579 $ 69,273 $ 66,050
Cost of sales 17,224 16,310 45,624 43,450
-------- -------- -------- --------
Gross profit 9,261 8,269 23,649 22,600
Selling, general and
administrative expenses 8,608 9,113 22,799 24,377
Merger related expenses 12 - 218 -
-------- -------- -------- --------
Earnings (loss) from operations 641 (844) 632 (1,777)
Interest expense 323 332 714 720
Miscellaneous (income) expense (1) 1 (10) (14)
-------- -------- -------- --------
Earnings (loss) before income
taxes 319 (1,177) (72) (2,483)
Income tax expense (benefit) - (406) - (756)
-------- -------- -------- --------
Net earnings (loss) $ 319 $ (771) $ (72) $ (1,727)
======== ======== ======== ========
Net earnings (loss) per share $ .01 $ (.03) $ - $ (.07)
======== ======== ======== ========
Weighted average number of
common shares outstanding 23,336 23,336 23,336 23,336
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks and Thirty-nine Weeks Ended
September 27, 1996 and September 29, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-nine Weeks
------------------ -----------------
1996 1995 1996 1995
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 319 $ (771) $ (72) $(1,727)
Adjustments to reconcile net earnings
(loss) to net cash used in operating
activities:
Depreciation and amortization 260 186 751 491
Other (10) (6) (40) (31)
Changes in assets and liabilities:
Accounts receivable (515) (297) (11) (19)
Inventory (3,205) (2,622) (4,659) (10,108)
Prepaid expenses 61 697 119 (284)
Promotional material 302 (1,870) (87) (738)
Bank overdraft 329 (766) 175 1,637
Accounts payable 1,442 4,234 (3,162) 2,582
Accrued expenses 316 (57) 205 (783)
Customer deposits & other
liabilities 539 325 1 134
-------- -------- -------- --------
Cash flows used in operating
activities (162) (947) (6,780) (8,846)
Cash flows from investing activities:
Purchases of property and equipment (501) (436) (895) (1,636)
Disposals of property and equipment - - - 149
-------- -------- -------- --------
Cash flows used in investing
activities (501 (436) (895) (1,487)
Cash flows from financing activities:
Net borrowings (payments) under line
of credit 668 1,425 7,716 10,770
Payments on trade creditors' obligation - - - (561)
Payments under long-term debt (5) (42) (41) (529)
-------- -------- -------- --------
Cash flows provided by financing
activities 663 1,383 7,675 9,680
Decrease in cash and cash equivalents - - - (653)
Cash and cash equivalents at beginning
of the period - - - 653
-------- -------- -------- --------
Cash and cash equivalents at end of the
period $ - $ - $ - $ -
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Thirteen Weeks and Thirty-nine Weeks Ended
September 27, 1996 and September 29, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-nine Weeks
---------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information
Cash paid during the periods for:
Interest $ 320 $ 231 $ 779 $ 626
Income taxes $ 1 $ - $ 3 $ 190
Supplemental noncash investing activities
Fixed assets purchased with a capital lease $ - $ - $ - $ 17
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
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 is based on the weighted
average number of shares outstanding. The exercise of outstanding
options and warrants is not considered in the computation because
their inclusion would have been immaterial or anti-dilutive.
Note 3: Credit Facility
The Company has a new credit facility providing a revolving line of
credit up to $10.0 million, subject to an adequate collateral base,
expiring May 1998. The credit facility provides for an available
base amount of $6.0 with an 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. Letters of credit may not exceed $1.0 million at
any time.
Borrowings under the credit facility bear interest at the Bank's
prime rate plus 1.50 percentage points. 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 $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 1 and March 31 of each year.
The 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 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.
6
<PAGE>
THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 3: Credit Facility (continued)
On October 21, 1996, the credit facility was amended to increase the
availability thereby providing a revolving line of credit up to $11.5
million, subject to an adequate borrowing base. The additional $1.5
million of availability expires on December 15, 1996. On
December 16, 1996, the credit facility provides a revolving line of
credit up to $10.0 million, expiring May 1998. For 1997, and
thereafter, the seasonal availability has been amended to provide for
an available base amount of $6.0 million with an additional seasonal
amount of $1.0 in April, and $4.0 million May 1 through December 15
of each year. All other terms and conditions remain the same.
Note 4: Stockholders' Equity
On May 16, 1996, the Company renewed $3.4 million of subordinated
notes payable which mature on June 15, 1998. The notes bear interest
at the Bank's 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 issued
warrants to purchase 3,413,426 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 under the revolving credit facility.
Note 5: Merger Agreement
The Company has terminated the Agreement and Plan of Merger (the
"Agreement") dated as of March 8, 1996, by and among The Sportsman's
Guide, Inc., VISTA 2000, Inc. and VISTA Acquisition Subsidiary, Inc.
All merger related costs have been expensed in the statement of
operations during the thirteen and thirty-nine week periods ended
September 27, 1996.
7
<PAGE>
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 existing shareholders and new investors. On October 21, 1996, the
Company amended its existing credit facility thereby providing a revolving
line of credit up to $11.5 million, subject to an adequate borrowing base.
The additional $1.5 million of availability expires on December 15, 1996.
On December 16, 1996, the credit facility provides a revolving line of credit
up to $10.0 million, expiring May 1998. For 1997, and thereafter, the
seasonal availability has been amended to provide for an available base amount
of $6.0 million with an additional seasonal availability of $1.0 million in
April, and $4.0 million May 1 through December 15 of each year. The
availability of funding under the facility is subject to the principal balance
and 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 1 and March 31 of each
year. The revolving line of credit is secured by substantially all of the
assets of the Company. The Company has issued $3.4 million of subordinated
notes payable which mature June 1998. As of September 27, 1996, the Company
borrowed $8,681,000 against the revolving line of credit.
The cash flow used in operating activities for the thirteen week period ended
September 27, 1996, was $162,000 compared to $947,000 for the same period last
year. This decrease in cash flow used in operating activities was primarily
a result of net earnings of $319,000, up $1,090,000 from third quarter last
year. Other significant variances include a $2,172,000 decrease in cash flow
used for promotional materials (caused by changes in the timing of catalog in
home dates year over year) which was more than offset by a related $2,792,000
decrease in cash flow provided by a decrease in accounts payable. The cash
flow used in operating activities for the thirty-nine week period ended
September 27, 1996, was $6,780,000 compared to $8,846,000 for the same period
last year. This decrease in cash flow used in operating activities was
primarily a result of improvements in the year to date net loss position of
$(72,000), which is $1,655,000 favorable to prior year. Other significant
variances include a $5,449,000 decrease in cash flow used for inventory which
was more than offset by a related $5,744,000 decrease in cash flow provided
by a decrease in accounts payable.
The Company had working capital of $652,000 as of September 27, 1996, as
compared to a working capital deficit of $2,463,000 as of December 29, 1995.
The improvement is primarily the result of the renewal of $3,413,000 of
subordinated notes to June 1998. The Company's current ratio was 1.03 to
1.00 as of September 27, 1996, as compared to .89 to 1.00 as of December 29,
1995. The Company's working capital requirements have declined during the
thirty-nine week period ended September 27, 1996, as compared to the same
period one year ago primarily as a result of lower seasonal inventory levels,
including a significant improvement in inventory turnover.
The Company believes it will have sufficient funds to meet current and future
commitments.
8
<PAGE>
Results of Operations
Comparison of the thirteen and thirty-nine week periods ended September 27,
- ---------------------------------------------------------------------------
1996, to the thirteen and thirty-nine week periods ended September 29, 1995
- ---------------------------------------------------------------------------
The Company's sales for the thirteen and thirty-nine week periods ended
September 27, 1996, increased $1,906,000 and $3,223,000 or 7.8% and 4.9%,
respectively, from the same periods last year. Sales in the thirteen and
thirty-nine week periods ended September 27, 1996 were up due to higher
customer response levels and a higher average order size driven by strategic
changes in the marketing and merchandising plans. The favorable response
rates and average order size variances have been partially offset by
circulation reductions of 11% during the third quarter of 1996 versus the
third quarter of 1995 and 20% on a year to date basis ending September 27,
1996 versus year to date September 29, 1995.
Gross profit for the thirteen and thirty-nine week periods ended September 27,
1996, was 35.0% and 34.1% of sales, respectively, compared to 33.6% and 34.2%
of sales, respectively, for the same periods last year. Year over year
improvement in the gross profit as a percentage of sales for the thirteen
week period was primarily related to stronger product margins combined with
efficiencies in distribution costs. Year over year gross profit as a
percentage of sales on a year to date basis is flat, with slightly lower
product margins largely recovered with efficiencies in distribution costs.
Selling, general and administrative expenses for the thirteen week period
ended September 27, 1996, were $8,608,000 or 32.5% of sales compared to
$9,113,000 or 37.1% of sales for the same period last year. Selling, general
and administrative expenses for the thirty-nine week period ended
September 27, 1996, were $22,799,000 or 32.9% of sales compared to $24,377,000
or 36.9% of sales for the same period last year. The decrease in expenses
for the thirteen and thirty-nine week periods ended September 27, 1996 was
primarily the result of the improved 1996 circulation plan. The strategy
supporting the 1996 catalog circulation plan emphasizes a reduction in overall
circulation while balancing advertising and customer acquisition costs with
response rates and profits. Effective advertising expenses as a percentage
of sales for the thirteen and thirty-nine week periods ended September 27,
1996, were 18.4% and 18.3%, respectively, as compared to 23.4% and 22.0%,
respectively, for the same periods last year.
Merger related expenses for the thirteen and thirty-nine week periods ended
September 27, 1996, were $12,000 and $218,000, respectively. All merger
related costs have been expensed in the statement of operations during the
thirteen and thirty-nine week periods ended September 27, 1996. Earnings
(loss) from operations before merger related expenses for the thirteen and
thirty-nine week periods ended September 27, 1996, were $653,000 and $850,000,
respectively, compared to $(844,000) and $(1,777,000) for the same periods one
year ago. Earnings from operations after merger related expenses for the
thirteen and thirty-nine week periods ended September 27, 1996, was $641,000
and $632,000, respectively.
9
<PAGE>
Results of Operations (continued)
Comparison of the thirteen and thirty-nine week periods ended September 27,
- ---------------------------------------------------------------------------
1996, to the thirteen and thirty-nine week periods ended September 29, 1995
- ---------------------------------------------------------------------------
Interest expense for the thirteen and thirty-nine week periods ended
September 27, 1996, was $323,000 and $714,000, respectively as compared to
$332,000 and $720,000 for the same periods last year.
No income tax expense was recorded during the thirteen week period and no
income tax benefit was recorded during the thirty-nine week period, ended
September 27, 1996. Income tax benefit for the thirteen and thirty-nine week
periods ended September 29, 1995, was $406,000 and $756,000, respectively.
The Company has operating loss carryforwards of approximately $3,756,000 that
expire in 2010. The income tax benefit for the periods ended September 29,
1995 represents recoverable income taxes from the prior year.
As a result of the above, the net earnings (loss) for the thirteen and
thirty-nine week periods ended September 27, 1996, was $319,000 and $(72,000),
respectively, as compared to net (loss) of $(771,000) and $(1,727,000),
respectively, for the same periods last year.
10
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on July 17, 1996, at which the
following two matters were submitted to a vote of shareholders:
1. Election of seven directors. The vote on this matter was as follows:
Nominee For Withheld
------- --- --------
Vincent W. Shiel 16,620,055 0
Gary Olen 16,620,055 0
Leonard M. Paletz 16,620,055 0
Mark F. Kroger 16,620,055 0
William T. Sena 16,620,055 0
Greg Binkley 16,620,055 0
Charles Lingen 16,620,055 0
2. Approval and ratification of the selection of Grant Thornton LLP as
independent public accountants to audit the Company's financial
statements for the fiscal year ending December 27, 1996. The vote on
this matter was as follows:
For Against Abstain
--- ------- -------
16,620,055 0 0
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
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SPORTSMAN'S GUIDE, INC.
Date: November 6, 1996 BY:/s/ Charles B. Lingen
-----------------------
Charles B. Lingen
Vice President Finance/CFO
12
<PAGE>
EXHIBIT INDEX
EXHIBIT
27 Financial Data Schedule Filed herewith electronically
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 2 AND 3 OF THE
COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> SEP-27-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,296
<ALLOWANCES> 54
<INVENTORY> 18,867
<CURRENT-ASSETS> 24,049
<PP&E> 6,563
<DEPRECIATION> 2,121
<TOTAL-ASSETS> 28,491
<CURRENT-LIABILITIES> 23,397
<BONDS> 3,618
0
2
<COMMON> 233
<OTHER-SE> 1,241
<TOTAL-LIABILITY-AND-EQUITY> 28,491
<SALES> 69,273
<TOTAL-REVENUES> 69,273
<CGS> 45,624
<TOTAL-COSTS> 45,624
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 714
<INCOME-PRETAX> (72)
<INCOME-TAX> 0
<INCOME-CONTINUING> (72)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
