-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cfi8Bh8UxOipj8adYfsjFRPthDk5lBljlaeA341jxpu6QoQr+v5ExEjYfrfdWKHI wbHTtz4l/LTa+WSN4d1XLQ== 0000950134-04-017070.txt : 20041110 0000950134-04-017070.hdr.sgml : 20041110 20041110165500 ACCESSION NUMBER: 0000950134-04-017070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041110 DATE AS OF CHANGE: 20041110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPORTSMANS GUIDE INC CENTRAL INDEX KEY: 0000791450 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 411293081 STATE OF INCORPORATION: MN FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15767 FILM NUMBER: 041133712 BUSINESS ADDRESS: STREET 1: 411 FARWELL AVENUE SO CITY: ST PAUL STATE: MN ZIP: 55075 BUSINESS PHONE: 6124513030 MAIL ADDRESS: STREET 1: 411 FARWELL AVE CITY: S ST PAUL STATE: MN ZIP: 55075 10-Q 1 c89618e10vq.txt FORM 10-Q 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 period ended September 30, 2004 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) (651) 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] As of November 10, 2004, there were 4,706,373 shares of the registrant's Common Stock outstanding. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands of dollars, except share amounts)
September 30, December 31, 2004 2003 -------- ------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 715 $32,054 Accounts receivable - net 2,725 3,034 Inventory 38,439 18,874 Promotional material 3,999 2,565 Prepaid expenses and other 2,650 1,871 Income taxes receivable 1,505 -- Deferred income taxes 951 3,176 -------- ------- Total current assets 50,984 61,574 PROPERTY AND EQUIPMENT - NET 2,691 2,248 OTHER ASSETS Goodwill 17,219 -- Trade and domain name 10,200 -- Other 714 -- -------- ------- Total other assets 28,133 -- -------- ------- Total assets $ 81,808 $63,822 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and bank overdrafts $ 10,216 $ -- Accounts payable 20,657 18,950 Accrued expenses 4,463 5,891 Income taxes payable 368 3,107 Deferred revenue 5,141 4,623 Returns reserve 2,194 2,240 Customer deposits and other liabilities 2,663 2,016 -------- ------- Total current liabilities 45,702 36,827 LONG-TERM LIABILITIES Note payable - bank 10,000 -- Other 267 187 -------- ------- Total long-term liabilities 10,267 187 -------- ------- Total liabilities 55,969 37,014 COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' EQUITY Common Stock-$.01 par value; 36,800,000 shares authorized; 4,695,373 shares issued and outstanding at September 30, 2004 and 4,826,321 shares issued and outstanding at December 31, 2003 47 48 Additional paid-in capital 7,626 11,616 Accumulated comprehensive loss (11) -- Retained earnings 18,177 15,144 -------- ------- Total shareholders' equity 25,839 26,808 -------- ------- Total liabilities & shareholders' equity $ 81,808 $63,822 ======== =======
See accompanying notes to consolidated financial statements 2 THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) For the Three Months and Nine Months Ended September 30, 2004 and 2003 (In thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Sales $ 56,554 $ 41,213 $ 140,009 $ 123,003 Cost of sales 40,139 28,672 97,329 84,321 ---------- ---------- ---------- ---------- Gross profit 16,415 12,541 42,680 38,682 Selling, general and administrative expenses 14,564 11,424 37,839 35,056 ---------- ---------- ---------- ---------- Earnings from operations 1,851 1,117 4,841 3,626 Interest expense 168 -- 168 -- Other income (expense), net -- (10) 80 (14) ---------- ---------- ---------- ---------- Earnings before income taxes 1,683 1,107 4,753 3,612 Income tax expense 614 397 1,720 1,299 ---------- ---------- ---------- ---------- Net earnings $ 1,069 $ 710 $ 3,033 $ 2,313 ========== ========== ========== ========== Net earnings per share: Basic $ .23 $ .15 $ .64 $ .49 ========== ========== ========== ========== Diluted $ .20 $ .13 $ .57 $ .44 ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding: Basic 4,701 4,801 4,719 4,769 ========== ========== ========== ========== Diluted 5,312 5,355 5,320 5,241 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements 3 THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30, 2004 and 2003 (In thousands of dollars)
2004 2003 ----------- ----------- Cash flows from operating activities: Net earnings $ 3,033 $ 2,313 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 1,079 985 Deferred income taxes 2,336 112 Tax benefit related to exercise of stock options 832 -- Other -- 16 Changes in assets and liabilities, net of acquisition: Accounts receivable 389 1,161 Inventory (13,300) (9,117) Promotional material (1,264) (1,380) Prepaid expenses and other (630) (891) Accounts payable (2,916) 2,233 Accrued expenses (1,719) (678) Income taxes payable (4,244) (1,326) Customer deposits and other liabilities 662 1,165 Other long term liabilities (46) -- ----------- ----------- Cash flows used in operating activities (15,788) (5,407) Cash flows from investing activities: Purchases of property and equipment (464) (640) Business acquisition (30,478) -- Other -- 14 ----------- ----------- Cash flows used in investing activities (30,942) (626) Cash flows from financing activities: Proceeds from term loan 12,500 -- Net proceeds from revolving line of credit and bank overdrafts 7,716 -- Payments on capital lease (2) -- Proceeds from exercise of stock options 907 616 Repurchase of common stock (5,730) (925) ----------- ----------- Cash flows provided by (used in) financing activities 15,391 (309) ----------- ----------- Decrease in cash and cash equivalents (31,339) (6,342) Cash and cash equivalents at beginning of the period 32,054 17,152 ----------- ----------- Cash and cash equivalents at end of the period $ 715 $ 10,810 =========== =========== Supplemental disclosure of cash flow information Cash paid during the periods for: Interest $ 110 $ -- Income taxes $ 2,810 $ 2,513
See accompanying notes to consolidated financial statements 4 THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation The Sportsman's Guide, Inc. (referred to in this report as the "Company") is comprised of two separate companies namely, The Sportsman's Guide ("TSG") and The Golf Warehouse ("TGW"). TSG markets and sells value priced outdoor gear and general merchandise through catalogs and two e-commerce Web sites. TSG's offices and fulfillment center are located in South St. Paul, Minnesota. TGW markets and sells golf equipment, apparel and accessories primarily through one e-commerce Web site and catalogs. TGW's offices and fulfillment center are located in Wichita, Kansas. 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. 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. In preparing the Company's consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company's fiscal quarter ends on the Sunday nearest September 30 for 2004 and 2003, but for clarity of presentation, all periods are described as if the three and nine month periods end September 30. Each fiscal third quarter of 2004 and 2003 consisted of 13 weeks. Amounts billed to customers for shipping and handling are recorded in revenues at the time of shipment. Sales include shipping and handling revenues of $6.1 million and $5.3 million for the three months ended September 30, 2004 and 2003 and $16.7 million and $16.1 million for the nine months ended September 30, 2004 and 2003. Note 2: Acquisition On June 29, 2004, the Company acquired 100% of the outstanding membership interests of The Golf Warehouse, LLC 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 purchase price for TGW was approximately $30.5 million, subject to 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 purchase price for TGW of $30.5 million consisted of $30 million for 100% of outstanding membership interests and $0.5 million of transactions costs. 5 The acquisition of TGW has been accounted for using the purchase method of accounting. The fair market value of the net assets acquired resulted in the following purchase price allocation: Net assets acquired, including: Current assets $ 6,674 Property and equipment 1,013 Liabilities assumed (5,378) ------------- Net assets acquired 2,309 Trade and domain name 10,200 Customer lists and non-compete agreements 750 Goodwill 17,219 ------------- Total purchase price $ 30,478 =============
Note 3: Debt On June 29, 2004, we entered into an amended Credit Agreement with Wells Fargo Bank, National Association, providing a revolving line of credit up to $15.0 million and a term loan of $12.5 million, expiring September 30, 2007. The revolving line of credit is for working capital and letters of credit and the proceeds from the term loan are for financing acquisitions of other business operations. Letters of credit may not exceed $10.0 million at any one time. Funding under the line of credit if combined borrowings under the line of credit and term loan exceed $20.0 million, is limited to a collateral base of 50% of eligible inventory plus 75% of eligible trade accounts receivable. Borrowings from the revolving line of credit and term loan bear interest at the bank's prime rate less 0.15% or, at our option, fixed term LIBOR plus 2.5 percentage points, provided certain financial ratios are met. Repayments of the term loan are payable annually each September as follows: $2,500,000 payable September 30, 2005, $5,000,000 payable September 30, 2006 and $5,000,000 payable September 30, 2007. The revolving line of credit and the term loan are collateralized by substantially all of our assets. All borrowings are subject to various covenants (while the term loan remains outstanding), which include funded debt to earnings before interest, income taxes, depreciation and amortization ratio and a fixed charge coverage ratio. The agreement also prohibits the payment of dividends to shareholders, without the consent of the bank. As of September 30, 2004, and December 31, 2003, we were in compliance with all applicable covenants under the revolving line of credit agreement. We had borrowings of $4.5 million against the revolving line of credit and $12.5 million against the term loan at September 30, 2004. We had no borrowings against the revolving line of credit as of December 31, 2003. Outstanding letters of credit were $0.7 million at September 30, 2004 compared to $2.5 million at December 31, 2003. Note 4: Stock Options Stock options issued to employees are accounted for under the intrinsic value method. No stock-based compensation cost is reflected in the net earnings, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share as if the Company had applied the fair value method of accounting for stock options (in thousands, except per share data):
Three months ended September 30, Nine months ended September 30, -------------------------------- ------------------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Net earnings as reported $ 1,069 $ 710 $ 3,033 $ 2,313 Deduct: Total stock-based employee compensation expense under the fair value method for all awards, net of related tax effects 376 116 866 349 ---------- ---------- ---------- ---------- Pro-forma net earnings $ 693 $ 594 $ 2,167 $ 1,964 ========== ========== ========== ========== Earnings Per Share: Basic - as reported $ .23 $ .15 $ .64 $ .49 Basic - pro-forma .15 .13 .48 .43 Diluted - as reported $ .20 $ .13 $ .57 $ .44 Diluted - pro-forma .14 .11 .42 .39
6 Note 5: Net Earnings Per Share The Company's basic net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares. Diluted net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to the stock options and warrants, when dilutive. For the three months and nine months ended September 30, 2004, 611,053 and 600,478 share equivalents were included in the computation of diluted net earnings per share. All outstanding options during the three months ended September 30, 2004 were included in the computation of diluted earnings per share because the average market price of the common shares during the period exceeded the exercise price of the options. Options to purchase 140,000 shares of common stock with a weighted average exercise price of $20.55 were outstanding during the nine months ended September 30, 2004, but were not included in the computation of diluted net earnings per share because their exercise price exceeded the average market price of the common shares during the period. For the three months and nine months ended September 30, 2003, 553,867 and 472,005 share equivalents were included in the computation of diluted net earnings per share. All outstanding options during the three months and nine months ended September 30, 2003 were included in the computation of diluted earnings per share because the average market price of the common shares during the period exceeded the exercise price of the options. Note 6: Legal Proceedings The Company has been notified by NCR Corporation that NCR believes some of the Company's e-commerce website functions are covered by certain "business method" patents owned by NCR. NCR has stated it is willing to grant a patent license to the Company on commercially reasonable terms. The Company is currently investigating the claims. At the present time, the Company cannot predict the outcome of this matter or the potential amount or range of loss or expense involved. In March 2003, the Company was notified by the Bureau of Industry, United States Department of Commerce (BIS) that BIS has reason to believe the Company violated Export Administration Regulations by exporting optical sighting devices for firearms and associated parts to Canada and other destinations without obtaining required authorization from BIS. BIS asserts the Company committed 61 separate violations for shipments from October 1999 to March 2002. The potential maximum civil penalty is up to $11,000 for each violation. The Company is currently in discussions with BIS to settle the matter prior to issuance of a charging letter. The BIS has initially offered to settle the matter for a penalty of $207,500, representing 32 violations at $1,500 per violation and 29 violations at $5,500 per violation. The Company believes the settlement offer is excessive based on civil penalties imposed in similar cases and intends to continue negotiations with BIS. While the Company cannot predict the outcome of this matter at this time, management believes the matter will not have a material adverse impact on the Company. Note 7: Repurchase of Common Stock On May 13, 2004, the Company announced that its board of directors authorized a plan to repurchase up to ten percent of its outstanding common stock in the open market or in privately negotiated transactions over the next 12 months. Under this plan 29,245 shares of common stock at a total cost of $583,000 were repurchased during the three and nine months ended September 30, 2004. On May 5, 2003, the Company announced that its board of directors authorized a plan to repurchase up to ten percent of its outstanding common stock in the open market or in privately negotiated transactions over the next 12 months. Under this plan no shares were repurchased during the three months ended September 30, 2004 and 259,644 shares of common stock at a total cost of $5,148,000 were repurchased during the nine months ended September 30, 2004. 7 Note 8: Segment Information The Company operates in two business segments. The Sportsman's Guide ("TSG") markets and sells value priced outdoor gear and general merchandise, with a special emphasis on clothing, equipment and footwear through main, specialty and Buyer's Club Advantage (TM) catalogs and two e-commerce Web sites. The Golf Warehouse, Inc. ("TGW") markets and sells golf equipment, apparel and accessories through one e-commerce Web site and catalogs. On June 29, 2004, The Sportsman's Guide, Inc. acquired 100% of the outstanding membership interests of The Golf Warehouse, LLC. Business Segment Comparisons (in thousands):
Three months ended September 30, Nine months ended September 30, -------------------------------- ------------------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Sales The Sportsman's Guide $ 44,505 $ 41,213 $ 127,960 $ 123,003 The Golf Warehouse 12,049 -- 12,049 -- ---------- ---------- ---------- ---------- Total 56,554 41,213 140,009 123,003 Earnings From Operations The Sportsman's Guide 1,480 1,117 4,470 3,626 The Golf Warehouse 371 -- 371 -- ---------- ---------- ---------- ---------- Total 1,851 1,117 4,841 3,626 Depreciation and Amortization The Sportsman's Guide 297 323 925 985 The Golf Warehouse 154 -- 154 -- ---------- ---------- ---------- ---------- Total 451 323 1,079 985 Capital Expenditures The Sportsman's Guide 205 179 398 640 The Golf Warehouse 66 -- 66 -- ---------- ---------- ---------- ---------- Total 271 179 464 640
Business Segment Assets (in thousands):
As of September 30, 2004 2003 ------ ------ Assets The Sportsman's Guide 44,459 52,879 The Golf Warehouse 37,349 -- ------ ------ Total 81,808 52,879
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Sportsman's Guide, Inc. (referred to in this report as the "Company") is comprised of two separate companies namely, The Sportsman's Guide ("TSG") and The Golf Warehouse ("TGW"). On June 29, 2004, the Company acquired 100% of the outstanding membership interests of The Golf Warehouse, LLC. The third quarter of 2004 is the first quarter for inclusion of TGW's sales, operations and earnings. TSG is a leading marketer of value priced outdoor gear and general merchandise, with a special emphasis on outdoor clothing, equipment and footwear. TSG markets and sells merchandise through main, specialty and Buyer's Club Advantage(TM) catalogs and two e-commerce Web sites. TSG's catalogs as well as its Web sites offer high quality products at low prices. TSG's catalogs are advertised as The "Fun-to-Read" Catalog(R) and the primary Web site is advertised as the "Fun-to-Browse" Website(R). TSG's Web sites include www.sportsmansguide.com, the online retail store modeled on our print catalogs and www.bargainoutfitters.com, our online liquidation outlet. 8 TGW is a leading online and catalog retailer of golf equipment, apparel and accessories. TGW markets and sells golf related merchandise primarily through its Web site (www.TGW.com) and through several catalogs as well as one retail outlet. With the acquisition of TGW on June 29, 2004 and the continued growth of Internet related sales for TSG, the Company continues to post strong growth in sales and earnings for the third quarter of 2004. FISCAL YEAR Our fiscal quarter ends on the Sunday nearest September 30 for 2004 and 2003, but for clarity of presentation, all periods are described as if the quarter end is September 30. Each fiscal third quarter of 2004 and 2003 consisted of 13 weeks. CRITICAL ACCOUNTING POLICIES The critical accounting policies of both business segments, where applicable, are the same as described in the following paragraphs. Sales are recorded at the time of shipment along with a provision for anticipated merchandise returns, net of exchanges, which is recorded based upon historical experience and current expectations. Amounts billed to customers for shipping and handling are recorded in sales at the time of shipment. TSG's customers can purchase one year memberships in our Buyer's Club for a $29.99 annual fee. TSG also offers two year memberships for $59.97. Club members receive merchandise discounts of 10% on regularly priced items and 5% on ammunition. Membership fees are deferred and recognized in income as the individual members place orders and receive discounts. Any remaining deferred membership fees are recognized in income after the expiration of the membership. The cost of producing and mailing catalogs is deferred and expensed over the estimated useful lives of the catalogs. Catalog production and mailing costs are amortized over periods ranging from four to six months from the in-home date of the catalog with the majority of the costs amortized within the first month of the catalog's life cycle. We estimate the in-home date to be one week from the known mailing date of the catalog. The ongoing cost of developing and maintaining our customer list is charged to operations as incurred. All other advertising costs are expensed as incurred. Stock options issued to employees are accounted for under the intrinsic value method. Pro-forma disclosures as if the fair value method were used are included in Note 4 to the Consolidated Financial Statements. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information from our Consolidated Statements of Earnings expressed as a percentage of sales:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2004 2003 2004 2003 ----- ----- ----- ----- Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 71.0 69.6 69.5 68.6 ----- ----- ----- ----- Gross profit 29.0 30.4 30.5 31.4 Selling, general and administrative expenses 25.7 27.7 27.0 28.5 ----- ----- ----- ----- Earnings from operations 3.3 2.7 3.5 2.9 Interest expense 0.3 -- 0.1 -- ----- ----- ----- ----- Earnings before income taxes 3.0 2.7 3.4 2.9 Income tax expense 1.1 1.0 1.2 1.0 ----- ----- ----- ----- Net earnings 1.9% 1.7% 2.2% 1.9% ===== ===== ===== =====
Three months ended September 30, 2004 compared to three months ended September 30, 2003
The Sportsman's Guide The Golf Warehouse Consolidated ------------------------------ ------------------------------ ------------------------------ 2004 2003 2004 2003 2004 2003 ------------ ------------ ------------ ------------ ------------ ------------ Net sales $ 44,505 $ 41,213 $ 12,049 $ -- $ 56,554 $ 41,213 Earnings from operations $ 1,480 $ 1,117 $ 371 $ -- $ 1,851 $ 1,117
9 SALES. Consolidated sales for the three months ended September 30, 2004 of $56.6 million were $15.3 million or 37% higher than sales of $41.2 million during the same period last year. The increase in sales for the third quarter of 2004 was primarily a result of including the sales from the newly-acquired The Golf Warehouse. The acquisition of The Golf Warehouse was effective June 29, 2004. The third quarter of 2004 was the first quarter for inclusion of TGW's sales, operations and earnings. Sales for TSG for the third quarter of 2004 increased 8% when compared to the same period a year ago primarily as a result of increased Internet sales. As of the end of the third quarter 2004, the Buyer's Club membership for TSG had increased to 369,000, up 5.1% over the 351,000 members reported at December 31, 2003 and up 8.8% over the membership count one year ago. Sales generated through the Internet for TSG in the third quarter of 2004 were approximately 41% of total catalog and Internet sales compared to 36% during the same period last year. The majority of The Golf Warehouse's total sales for the third quarter of 2004 were generated through the Internet. We define sales generated through the Internet as sales that are derived from our web sites, catalog orders processed online and online offers placed by telephone. Internet related sales continue to grow, period over period, as we continue to make enhancements to our Web sites and implement and improve upon various marketing and merchandising programs. Gross returns and allowances for the three months ended September 30, 2004 were $3.7 million or 6.1% of gross sales compared to $2.9 million or 6.5% of gross sales during the same period last year. The decrease in gross returns and allowances, as a percentage of sales, for the three months ended September 30, 2004 was primarily due to favorable trends in actual customer return activity within TSG. GROSS PROFIT. Consolidated gross profit for the three months ended September 30, 2004 was $16.4 million or 29.0% of sales compared to $12.6 million or 30.4% of sales during the same period last year. The majority of the decrease in consolidated gross profit for the three months ended September 30, 2004, as a percentage of sales, was primarily due to the inclusion of lower product margin sales of The Golf Warehouse. The Golf Warehouse's product margins are traditionally lower than those of TSG. TSG's business product margins, as a percentage of sales, were lower in the third quarter of 2004 when compared to the same period a year ago primarily due to promotional pricing, competitive pressure and a higher percentage of lower margin factory direct merchandise sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated Selling, general and administrative expenses for the three months ended September 30, 2004 were $14.6 million or 25.7% of sales compared to $11.4 million or 27.7% of sales for the same period last year. Selling, general and administrative expenses, as a percentage of sales, for the third quarter ended September 30, 2004 were lower compared to the same period last year as a result of additional productivity from the Internet leverage in TSG as well as the inclusion of The Golf Warehouse's selling, general and administrative expenses which historically have been lower than those of TSG. TSG's selling, general and administrative expenses, as a percentage of sales, for the third quarter of 2004 were lower compared to the same period last year as a result of higher Internet sales and lower order processing costs as a result of the increase in sales generated through the Internet. The Golf Warehouse's selling, general and administrative expenses, as a percentage of sales, traditionally have been lower than TSG's with a higher percentage of its sales generated from the Internet coupled with a higher average customer order amount. For the three months ended September 30, 2004, the increase in dollars, compared to the same period last year, in consolidated selling, general and administrative expenses was primarily due to the inclusion of The Golf Warehouse's expenses since the acquisition on June 29, 2004 and higher advertising spending by TSG from an increase in catalog circulation and increased order fulfillment costs from higher sales volume. Total Company catalog circulation during the third quarter of 2004 was 10.9 million catalogs compared to 9.9 million catalogs during the same period last year including 0.7 million catalogs (one edition) circulated by The Golf Warehouse since the acquisition on June 29, 2004. TSG mailed nine catalog editions, consisting of three main catalogs, three Buyer's Club Advantage (TM) catalogs and three specialty catalog editions, during the three months ended September 30, 2004 and 2003. Consolidated advertising expense for the third quarter of 2004 was $7.5 million or 13.3% of sales compared to $6.2 million or 15.0% of sales for the same period last year. The decrease in consolidated advertising expense for the third quarter of 2004, as a percentage of sales, compared to the same period last year was primarily due to the increase in TSG's sales generated from the Internet and the inclusion of The Golf Warehouse since the acquisition on June 29, 2004. The Golf Warehouse's advertising expense as a percentage of sales 10 is lower than the traditional TSG percentage as a result of its higher percentage of Internet driven sales coupled with a higher average customer order amount. The increase in consolidated advertising dollars for the third quarter was primarily due to an increase in TSG's catalog circulation and the inclusion of The Golf Warehouse's advertising expense since the acquisition on June 29, 2004. EARNINGS FROM OPERATIONS. Earnings from operations for the three months ended September 30, 2004 were $1.9 million compared to $1.1 million during the same period last year. The increase in earnings from operations was largely due to the inclusion of The Golf Warehouse's earnings since the acquisition on June 29, 2004 as well as growth and improved performance in TSG. INTEREST EXPENSE. Interest expense for the three months ended September 30, 2004 was $0.2 million or 0.3% of sales. Interest expense increased in the third quarter of 2004 over the prior year period as a result of the acquisition of The Golf Warehouse. A portion of the purchase price of approximately $30.5 million was financed by borrowings under a new credit facility. NET EARNINGS. As a result of the above factors, net earnings for the three months ended September 30, 2004 were $1.1 million compared to $0.7 million for the same period last year. Nine months ended September 30, 2004 compared to nine months ended September 30, 2003
The Sportsman's Guide The Golf Warehouse Consolidated -------------------------------- -------------------------------- -------------------------------- 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------- ------------- ------------- ------------- Net sales $ 127,960 $ 123,003 $ 12,049 $ -- $ 140,009 $ 123,003 Earnings from operations $ 4,470 $ 3,626 $ 371 $ -- $ 4,841 $ 3,626
SALES. Consolidated sales for the nine months ended September 30, 2004 of $140.0 million were $17.0 million or 13.8% higher than sales of $123.0 million during the same period last year. The increase in sales for the first nine months of 2004 was primarily a result of including the sales of the newly-acquired The Golf Warehouse, effective June 29, 2004. Sales for TSG for the nine months ended September 30, 2004 increased 4% when compared to the same period a year ago as a result of increased Internet sales. As of the end of the third quarter 2004, the Buyer's Club membership for TSG had increased to 369,000, up 5.1% over the 351,000 members reported at December 31, 2003 and up 8.8% over the membership count one year ago. Sales generated through the Internet for TSG for the nine months ended September 30, 2004 were approximately 42% of total catalog and Internet sales compared to 36% during the same period last year. We define sales generated through the Internet as sales that are derived from our web sites, catalog orders processed online and online offers placed by telephone. Internet related sales continue to grow, period over period, as we continue to make enhancements to our Web sites and implement and improve upon various marketing and merchandising programs. Gross returns and allowances for the nine months ended September 30, 2004 were $9.3 million or 6.2% of gross sales compared to $8.8 million or 6.6% of gross sales during the same period last year. The decrease in gross returns and allowances, as a percentage of sales, for the nine months ended September 30, 2003 was primarily due to favorable trends in actual customer return activity within TSG. GROSS PROFIT. Consolidated gross profit for the nine months ended September 30, 2004 was $42.7 million or 30.5% of sales compared to $38.7 million or 31.4% of sales during the same period last year. The decrease in the consolidated gross profit percentage for the nine months ended September 30, 2004 was primarily due to inclusion of lower product margin sales of The Golf Warehouse which traditionally are lower than the product margins of TSG. TSG's product margins, as a percentage of sales, for the nine months ended September 30, 2004 were lower when compared to the same period last year primarily due to promotional pricing, competitive pressure and a higher percentage of lower margin factory direct merchandise sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and administrative expenses for the nine months ended September 30, 2004 were $37.8 million or 27.0% of sales compared to $35.1 million or 28.5% of sales for the same period last year. 11 Consolidated selling, general and administrative expenses, as a percentage of sales, for the nine months ended September 30, 2004 were lower compared to the same period last year primarily due to improved performance in TSG with the continued leverage of the Internet as well as the inclusion of The Golf Warehouse's selling, general and administrative expenses which historically have been lower than that of TSG. TSG's selling, general and administrative expenses, as a percentage of sales, for the nine months ended September 30, 2004 were lower compared to the same period last year as a result of higher Internet sales and lower order processing and order fulfillment costs as a result of the increase in sales generated through the Internet and the factory direct merchandise program. For the nine months ended September 30, 2004, the increase in dollars, compared to the same period last year, in selling, general and administrative expenses was primarily due to the inclusion of The Golf Warehouse's selling, general and administrative expenses since its acquisition on June 29, 2004 by the Company. Total Company catalog circulation during the first nine months of 2004 was 31.9 million catalogs compared to 30.4 million catalogs during the same period last year including 0.7 million catalogs (one edition) circulated by The Golf Warehouse since the acquisition on June 29, 2004. TSG mailed 26 catalog editions, consisting of nine main catalogs, nine Buyer's Club Advantage (TM) catalogs and eight specialty catalog editions, during the nine months ended September 30, 2004 compared to 25 catalog editions, consisting of nine main catalogs, nine Buyer's Club Advantage (TM) catalogs and seven specialty catalog editions, during the same period last year. Consolidated advertising expense for the first nine months of 2004 was $20.0 million or 14.3% of sales compared to $18.7 million or 15.2% of sales for the same period last year. The decrease in advertising expense for first nine months of 2004, as a percentage of sales, compared to the same period last year was primarily due to higher Internet sales in TSG. The minor increase in advertising dollars for the nine months ended September 30, 2004 was primarily due to the inclusion of The Golf Warehouse's advertising expenses since the acquisition on June 29, 2004 by the Company. EARNINGS FROM OPERATIONS. Earnings from operations for the nine months ended September 30, 2004 were $4.8 million compared to $3.6 million for the same period last year. INTEREST EXPENSE. Interest expense for the nine months ended September 30, 2004 was $0.2 million. We borrowed under the new credit facility during the nine months ended September 30, 2004 to finance a portion of the purchase price of The Golf Warehouse. NET EARNINGS. As a result of the above factors, net earnings for the nine months ended September 30, 2004 were $3.0 million compared to $2.3 million for the same period last year. SEASONALITY AND QUARTERLY RESULTS The majority of our sales historically occur during the second half of the year. The seasonal nature of our business is due to our focus on outdoor merchandise and related accessories for the fall, as well as winter apparel and gifts for the holiday season. We expect this seasonality will continue in the future. In anticipation of increased sales activity during the third and fourth fiscal quarters, we incur significant additional expenses for hiring employees and building inventory levels. 12 The following table sets forth certain unaudited financial information for each of the quarters shown (in thousands, except per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- 2004 Sales $ 44,594 $ 38,861 $ 56,554 Gross profit 14,128 12,137 16,415 Earnings from operations 1,782 1,208 1,851 Net earnings 1,167 797 1,069 Net earnings per share: Basic .25 .17 .23 Diluted .22 .15 .20 2003 Sales $ 43,749 $ 38,041 $ 41,213 $ 71,700 Gross profit 14,197 11,944 12,541 25,832 Earnings from operations 1,467 1,042 1,117 5,971 Net earnings 957 646 710 3,845 Net earnings per share: Basic .20 .14 .15 .80 Diluted .19 .12 .13 .71
Note: The acquisition of The Golf Warehouse, LLC was effective June 29, 2004. The third quarter of 2004 was the first quarter for inclusion of TGW's sales, operations and earnings. LIQUIDITY AND CAPITAL RESOURCES We meet our operating cash requirements through funds generated from operations and borrowings under our revolving line of credit. WORKING CAPITAL. We had working capital of $5.3 million as of September 30, 2004 compared to $24.7 million as of December 31, 2003, with current ratios of 1.1 to 1and 1.7 to 1, respectively. We purchase large quantities of manufacturers' closeouts and direct imports, particularly in footwear and apparel merchandise categories. The seasonal nature of the merchandise 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 our working capital requirements and related carrying costs. TSG offers its Buyer's Club members an installment credit plan with no finance fees, known as the "Buyer's Club 4-Pay Plan". Each of the four consecutive monthly installments is billed directly to customers' credit cards. We had installment receivables of approximately $1.7 million at September 30, 2004 compared to approximately $2.4 million at December 31, 2003. The installment plan will continue to require the allocation of working capital, which we expect to fund from operations and availability under our revolving credit facility. On June 29, 2004, we entered into an amended Credit Agreement with Wells Fargo Bank, National Association, providing a revolving line of credit up to $15.0 million and a term loan of $12.5 million, expiring September 30, 2007. The revolving line of credit is for working capital and letters of credit and the proceeds from the term loan are for financing acquisitions of other business operations. Letters of credit may not exceed $10.0 million at any one time. Funding under the line of credit if combined borrowings under the line of credit and term loan exceed $20.0 million, is limited to a collateral base of 50% of eligible inventory plus 75% of eligible trade accounts receivable. Borrowings from the revolving line of credit and term loan bear interest at the bank's prime rate less 0.15% or, at our option, fixed term LIBOR plus 2.5 percentage points, provided certain financial ratios are met. Repayments of the term loan are payable annually each September as follows: $2,500,000 payable September 30, 2005, $5,000,000 payable September 30, 2006 and $5,000,000 payable September 30, 2007. The revolving line of credit and the term loan are collateralized by substantially all of our assets. All borrowings are subject to various covenants (while the term loan remains outstanding), which include funded debt to earnings before interest, income taxes, depreciation and amortization ratio and a fixed charge coverage ratio. The agreement also prohibits the payment of dividends to shareholders, without the consent of the bank. As of September 30, 2004, and December 31, 2003, we were in compliance with all applicable covenants under the revolving line of credit agreement. We had borrowings of $4.5 million against the revolving line of credit and $12.5 million against the term loan at September 30, 13 2004. We had no borrowings against the revolving line of credit as of December 31, 2003. Outstanding letters of credit were $0.7 million at September 30, 2004 compared to $2.5 million at December 31, 2003. OPERATING ACTIVITIES. Cash flows used in operating activities for the nine months ended September 30, 2004 were $15.8 million compared to $5.4 million for the same period last year. The increase in cash flows used in operating activities for the nine months ended September 30, 2004 when compared to the same period last year was primarily the result of an increase in inventory and higher vendor and income tax payments made during this period. The inventory level increased, year over year, primarily as a result of an earlier receipt flow of fourth quarter goods than the previous year along with the inclusion of The Golf Warehouse's inventory activity for the first time since its acquisition on June 29, 2004. INVESTING ACTIVITIES. Cash flows used in investing activities for the nine months ended September 30, 2004 were $30.9 million compared to $0.6 million for the same period last year. The Company acquired 100% of the outstanding membership interests of The Golf Warehouse, LLC for a purchase price of approximately $30 million with an additional $0.5 million of transactions costs incurred. FINANCING ACTIVITIES. Cash flows provided by financing activities during the nine months ended September 30, 2004 were $15.4 million compared to cash flows used in financing activities of $0.3 million during the same period last year. The increase in cash flows from financing activities during the nine months ended September 30, 2004, compared to the prior year, was largely due to the Company's borrowings under the new credit facility to finance a portion of the total consideration paid for the outstanding membership interests of The Golf Warehouse, LLC. The increase in cash flows from financing activities was offset somewhat by the Company's repurchase of its common stock. We believe that cash flows from operations and borrowing capacity under our revolving credit facility will be sufficient to fund operations and future growth for the next twelve months. FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We use words such as "may," "believe," "estimate," "plan," "expect," "intend," "anticipate" and similar expressions to identify forward looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors, including general economic conditions, a changing market environment for our products and the market acceptance of our product offerings as well as the factors set forth in Exhibit 99 "Risk Factors" to the Company's Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Our interest expense on borrowings is affected by changes in interest rates in the United States. The Company believes that there may be future exposure to interest rate risk. The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments. All transactions with customers are entered into in U.S. dollars, precluding the need for foreign currency hedges. As a result, the exposure to market risk is not material. ITEM 4. CONTROLS AND PROCEDURES The Company's management evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company has been notified by NCR Corporation that NCR believes some of the Company's e-commerce website functions are covered by certain "business method" patents owned by NCR. NCR has stated it is willing to grant a patent license to the Company on commercially reasonable terms. The Company is currently investigating the claims. At the present time, the Company cannot predict the outcome of this matter or the potential amount or range of loss or expense involved. 14 In March 2003, the Company was notified by the Bureau of Industry, United States Department of Commerce (BIS) that BIS has reason to believe the Company violated Export Administration Regulations by exporting optical sighting devices for firearms and associated parts to Canada and other destinations without obtaining required authorization from BIS. BIS asserts the Company committed 61 separate violations for shipments from October 1999 to March 2002. The potential maximum civil penalty is up to $11,000 for each violation. The Company is currently in discussions with BIS to settle the matter prior to issuance of a charging letter. The BIS has initially offered to settle the matter for a penalty of $207,500, representing 32 violations at $1,500 per violation and 29 violations at $5,500 per violation. The Company believes the settlement offer is excessive based on civil penalties imposed in similar cases and intends to continue negotiations with BIS. While the Company cannot predict the outcome of this matter at this time, management believes the matter will not have a material adverse impact on the Company. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Issuer Purchases of Equity Securities
Total Number of Maximum Number Shares Repurchased Of Shares that May Total Number as Part of Publicly Yet be Purchased of Shares Average Price Announced Plans Under the Plans Period Purchased Paid per Share or Programs (1) or Programs (1) - ------ --------- -------------- --------------- --------------- July 1 - 31, 2004 -- -- -- 470,756 August 1 - 31, 2004 29,245 $ 19.92 29,245 441,511 September 1 - 30, 2004 -- -- -- 441,511 ------- Total 29,245 $ 19.92 29,245 441,511 ====== =========== ====== =======
(1) On May 13, 2004, the Company announced that its Board of Directors authorized a plan to repurchase up to ten percent of the Company's outstanding common stock in the open market or in privately negotiated transactions over the next 12 months. ITEM 6. EXHIBITS Exhibits 10.1 Form of Stock Option Agreement under 2004 Stock Incentive Plan 10.2 Annual Bonus Program 31 Rule 13a-14(a)/15d-14(a) Certifications 32 Section 1350 Certifications 15 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 10, 2004 /s/ Charles B. Lingen -------------------------------------- Charles B. Lingen Executive Vice President of Finance and Administration/CFO 16 EX-10.1 2 c89618exv10w1.txt FORM OF STOCK OPTION AGREEMENT UNDER 2004 STOCK INCENTIVE PLAN Exhibit 10.1 THE SPORTSMAN'S GUIDE INC. 2004 STOCK INCENTIVE PLAN INCENTIVE STOCK OPTION AWARD AGREEMENT This Agreement is made as of ___________, 200_ (the "Grant Date"), by and between The Sportsman's Guide, Inc. (the "Company") and ___________________ (the "Participant"). WHEREAS, the Committee, pursuant to the Company's 2004 Stock Incentive Plan (the "Plan"), has made an Award to the Participant and authorized and directed the execution and delivery of this Agreement; NOW, THEREFORE, in consideration of the foregoing, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Participant hereby agree as follows: 1. AWARD. The Participant is hereby granted an Incentive Stock Option (an "Option") to purchase from the Company up to a total of ______ shares of Common Stock of the Company at $_____ per share (the "Exercise Price"). The term of such Option shall be ten years, commencing on the Grant Date (the "Term"). This Option is intended to qualify as an Incentive Stock Option. 2. EXERCISE. The Option may be exercised only in accordance with the Plan, as supplemented by this Agreement, and not otherwise. a. VESTING. During its Term and prior to its earlier termination in accordance with Section 3 of this Agreement, the Option shall vest and become exercisable in cumulative installments in accordance with the following schedule:
PERCENT OF OPTION EXERCISABLE AS OF - ----------------- ----------------- 33 1/3% First Anniversary of the Grant Date 33 1/3% Second Anniversary of the Grant Date 33 1/3% Third Anniversary of the Grant Date
The Option may be exercised for less than the full number of Shares for which the Option is then exercisable. b. EXERCISE. To the extent then exercisable, the Option may be exercised by the Participant by giving written notice of exercise to the Company in such form as may be provided by the Committee, specifying the number of Shares with respect to which the Option is to be exercised and such other information as the Committee may require. Such exercise shall be effective upon receipt by the Company of such written notice together with the required payment of the Exercise Price and any applicable withholding taxes. c. PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price may be made by cash, check (subject to collection) or, provided that such Shares have been owned by the Participant for at least six months prior to such payment, by the delivery (or attestation of ownership) of Shares having a Fair Market Value equal to the aggregate Exercise Price and any applicable withholding taxes. Alternatively, the Participant may make such payment by authorizing the simultaneous sale of Shares (or a sufficient portion thereof) acquired upon exercise through a brokerage or similar arrangement approved in advance by the Committee. Subject to the foregoing and except as otherwise provided by the Committee before the Option is exercised, the Company will deliver to the Participant, within a reasonable period of time thereafter, a certificate or certificates representing the Shares so acquired, registered in the name of the Participant or in accordance with other delivery instructions provided by the Participant and acceptable to the Committee. 3. TERMINATION. Except as otherwise provided in this Section 3, the Option shall terminate upon the expiration of its Term or, if earlier, termination of the Participant's employment or other service. a. If the Participant's employment or other service terminates for any reason other than cause, disability (as defined below) or death, the Participant may at any time within a period of three months after such termination of employment or other service exercise the Option to the extent the Option was exercisable by the Participant on the date of such termination. b. If the Participant's employment or other service terminates because of disability within the meaning of Code section 22(e)(3), the Participant may at any time within a period of one year after such termination of employment or other service exercise the Option to the extent the Option was exercisable by the Participant on the date of such termination. c. If the Participant dies at a time when the Option was exercisable by the Participant, his or her estate, personal representative or beneficiary to whom it has been transferred pursuant to Section 6 hereof may, within six months following the death, exercise the Option to the extent the Option might have been exercised at the time of the Participant's death. d. The Option may not be exercised to any extent by anyone after the expiration of its Term. 4. CHANGE OF CONTROL. Notwithstanding the provisions of Section 2(a) hereof, in the event of a Change of Control, the Option shall fully vest and become immediately exercisable in its entirety, provided that the Participant's employment or other service has not terminated prior to the date of such Change of Control. 5. WITHHOLDING. The Company shall withhold all applicable taxes required by law from all amounts paid in respect of the Option. A Participant may satisfy the withholding obligation (i) by paying the amount of any such taxes in cash or check (subject to collection), (ii) by the delivery (or attestation of ownership) of Shares or (iii) with the approval of the Committee, by having Shares deducted from the payment. Alternatively, the Participant may satisfy such obligation by authorizing the simultaneous sale of Shares (or a sufficient portion thereof) acquired upon exercise through a brokerage or similar arrangement approved in advance by the Committee. The amount of the withholding and, if applicable, the number of Shares to be delivered or deducted, as the case may be, shall be determined by the Committee as of when the withholding is required to be made, provided that the number of Shares so delivered or withheld shall not exceed the minimum required amount of such withholding. 6. NON-ASSIGNABILITY. The Option is not assignable or transferable other than by will or by the laws of descent and distribution and, during the Participant's life, may be exercised only by the Participant. 7. RIGHTS AS A SHAREHOLDER. A Participant shall have no rights as a shareholder with respect to any Shares subject to this Award until the date the Participant becomes the holder of record of the Shares. 8. NO RIGHT TO CONTINUED SERVICE. Nothing herein shall obligate the Company or any Subsidiary to continue the Participant's employment or other service for any particular period or on any particular basis of compensation. 9. BURDEN AND BENEFIT. The terms and provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the Participant and his or her executors or administrators, heirs, and personal and legal representatives. 10. EXECUTION. This Option is not enforceable until this Agreement has been signed by the Participant and the Company. By executing this Agreement, the Participant shall be deemed to have accepted and consented to any action taken under the Plan by the Committee, the Board of Directors or their delegates. 11. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Minnesota, without regard to the conflict of laws principles thereof. 3 12. MODIFICATIONS. Except for alterations and amendments permitted under the Plan without the consent of the Participant, no change or modification of this Agreement shall be valid unless it is in writing and signed by the parties hereto. 13. ENTIRE AGREEMENT. This Agreement, together with the Plan, sets forth all of the promises, agreements, conditions, understandings, warranties and representations between the parties hereto with respect to the Option, and there are no promises, agreements, conditions, understandings, warranties or representations, oral or written, express or implied, between them with respect to the Option other than as set forth herein or therein. The terms and conditions of the Plan are incorporated by reference herein, and to the extent that any conflict may exist between any term or provision of this Agreement and any term or provision of the Plan, the term or provision of the Plan shall control. 14. ADDITIONAL DEFINITIONS. Any capitalized term to the extent not defined in this Agreement shall have the same meaning as set forth in the Plan. 15. CONSTRUCTION. The use of any gender herein shall be deemed to include the other gender and the use of the singular herein shall be deemed to include the plural and vice versa, wherever appropriate. 16. NOTICES. Any and all notices required herein shall be addressed: (i) if to the Company, to the principal executive offices of the Company; and (ii) if to the Participant, to his or her address as reflected in the records of the Company. 17. INVALID OR UNENFORCEABLE PROVISIONS. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provisions were omitted. IN WITNESS WHEREOF, the Company and the Participant have executed this Agreement as of the date first above written. THE SPORTSMAN'S GUIDE, INC. By: __________________________ Gregory R. Binkley President/CEO _________________________________ 4 EX-10.2 3 c89618exv10w2.txt ANNUAL BONUS PROGRAM Exhibit 10.2 THE SPORTSMAN'S GUIDE, INC. ANNUAL BONUS PROGRAM The Sportsman's Guide, Inc.'s annual bonus program provides for the payment of cash bonuses to employees and executive officers based upon achievement of pre-determined corporate performance goals. For 2004, as in past years, the Compensation Committee of the Board of Directors has established specific levels of Company pre-tax earnings as the performance measure for determining cash bonuses. The bonus pool can range from $50,000 at the threshold pre-tax earnings level increasing to $350,000 plus 30% of the excess over the maximum pre-tax earnings level. The Company's Chief Executive Officer is authorized to allocate the bonus pool among eligible employees at the end of the year. The Compensation Committee approves the bonus paid to the Chief Executive Officer. EX-31 4 c89618exv31.txt RULE 13A-14(A)/15D-14(A) CERTIFICATIONS Exhibit 31 CERTIFICATIONS I, Gregory R. Binkley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Sportsman's Guide, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 10, 2004 /s/ Gregory R. Binkley ------------------------ Gregory R. Binkley President and CEO I, Charles B. Lingen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Sportsman's Guide, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 10, 2004 /s/ Charles B. Lingen ------------------------------------- Charles B. Lingen Executive Vice President of Finance & Administration/CFO EX-32 5 c89618exv32.txt SECTION 1350 CERTIFICATIONS Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Sportsman's Guide, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, Gregory R. Binkley, Chief Executive Officer, and I, Charles B. Lingen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 10, 2004 /s/ Gregory R. Binkley ------------------------------------------------- Gregory R. Binkley, President (Chief Executive Officer) /s/ Charles B. Lingen ------------------------------------------------- Charles B. Lingen, Executive Vice President of Finance and Administration/Chief Financial Officer (Principal Financial and Accounting Officer) A signed original of this written statement required by Section 906 has been provided to The Sportsman's Guide, Inc. and will be retained by The Sportsman's Guide, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----