SecProbe.io

CORRESP
1
filename1.htm

corresp

April 15, 2005

Confidential

Mr. Michael Moran, Branch Chief

Mr. Brian V. McAllister

Securities and Exchange Commission

Division of Corporation Finance, Stop 3-8

Washington, D.C. 20549

Via EDGAR and Federal Express

    Re:

    The Sportsman’s Guide, Inc.

    Form 10-K for the year ended December 31, 2004

    File No. 0-15767

Dear Messrs. Moran and
McAllister:

On behalf of The Sportsman’s Guide, Inc. (the “Company”), set forth below is our response to the
Staff’s comment letter regarding the above-referenced filing of the Company dated March 31, 2005
(the “Comment Letter”). Please note that we have also
enclosed in this correspondence a draft Amendment No. 1 to the
Form 10-K/A (the “Draft Form 10-K/A”),
marked to show changes made to the Form 10-K filed with the
Commission on March 17, 2005, to reflect changes made to our
disclosure in response to the Staff’s comments. Following the
resolution of the Staff’s comments, we would propose to file the
Draft Form 10-K/A with the Commission, as modified to reflect any additional changes
resulting from the Staff’s comments. To facilitate your review of our response, this letter sets forth the headings,
item numbers under each heading, and text of each of the Staff’s comments provided in the Comment
Letter. Capitalized terms used herein that are not otherwise defined herein shall have the same
meaning as in the above-referenced Draft Form 10-K/A.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
page 16

Critical Accounting Policies, page 16

    1.
    In future filings, please disclose the uncertainties involved in applying your critical
accounting policies and the variability that is reasonably likely to result from their
application. In doing so, provide an analysis, to the extent material, of the factors you
consider, how accurate your estimates or assumptions have been in the past and whether the
estimates are reasonably likely to change in the future. Please disclose the impact of any
material changes in each of your critical accounting estimates on income and financial
position for the periods presented. Please refer to SEC Release No. 33-8350. In your response
please show us what your revised disclosure will look like.

     In
response to the Staff’s comment, we would propose to revise the disclosure
related to our Critical Accounting Policies as set forth on
pages 18, 19 and 20 of the Draft Form 10-K/A.

Table of Contractual Obligations, page 22

    2.
    Please revise your disclosure in future filings to include the amount of estimated interest
payments on long-term obligations for the periods presented as required by Item 303
(a)(5)(ii)(A) of Regulation S-K. Where interest rates are variable and unknown, estimates of
future variable rate interest payments may be included or excluded provided disclosure is made
in a footnote to the table. In this regard, please include your assumptions used to calculate
such estimated interest payments. Also, in your response please tell us the reason for the
difference in operating lease obligations reflected in this table and the amount reflected in
footnote F.

     In
response to the Staff’s comment, we would propose to add the following sentence as a footnote to
the table of contractual obligations as set forth on page 25 of the Draft Form 10-K/A:

     The interest rates for our long-term debt obligations are variable based on the bank’s
prime rate or LIBOR, and therefore, we have not included an estimate of future interest
payments in the table of contractual obligations.

     In addition, with respect to the operating lease obligations reflected in this table and
the amount reflected in Note F, the amounts included in Note F are comprised of operating lease
obligations as well as purchase obligations related to office equipment and long-distance
telephone services. Specifically, the operating lease obligations and purchase obligations in
the contractual obligations table of $8,964,000 and $3,200,000, respectively, equal the
$12,164,000 of lease commitments in Note F to the consolidated financial statements.

Consolidated Balance Sheets, page 22

    3.
    We note you recorded $3 million in restricted cash and escrow liability in addition to
allocating the $30 million purchase price to The Golf Warehouse assets acquired and
liabilities assumed. Please tell us why you believe you have a probable obligation to
transfer future assets for the escrow liability and support your accounting treatment. If
this is not the case, please tell us how you recorded the purchase price allocation for The
Golf Warehouse. Please be specific in your response and include any applicable accounting
pronouncements. Reference is made to SFAS 141, paragraphs 26-27.

     The total purchase price of The Golf Warehouse was $30.4 million. As of December 31,
2004, $27.4 million of the purchase price had been paid to the sellers. The remaining $3.0
million was held in an escrow account to be paid over future periods, net of any claims as a
result of a breach of representations or warranties by

the sellers. The payment of funds out of the escrow account is not contingent upon any
other future event or happening, and, the escrow funds have been included in the purchase price
allocation as provided in paragraph 26 of SFAS 141.

    4.
    Please tell us and disclose if deferred revenue consists of both layaway and installment
sales and/or gift cards, and if so, the amount applicable to each revenue stream.

     The deferred revenue amount included on the balance sheet is comprised solely of unearned
Buyer’s Club fees. We do not have any layaway plans or installment sales. Please note our
response in Item 8 below regarding the accounting for our Buyer’s Club “4-Pay Plan.”

     Further,
we would propose to revise the disclosure related to our Critical Accounting
Policies as set forth on page 19 of the Draft Form 10-K/A and our
Significant Accounting Policies in Note A-3
of our consolidated financial statements as set forth in the Draft
Form 10-K/A to clarify and describe our revenue recognition
policies regarding gift certificates. As reflected in the revised disclosure, all unredeemed
gift certificates are included in customer deposits and other liabilities on our consolidated
balance sheet.

    5.
    In future filings please present the par or stated value, the number of shares authorized,
issued and outstanding and outstanding dollar amounts, if applicable, for your Series A
Preferred Stock. Expand your disclosure to discuss any dividend and liquidation preferences,
participation rights, call price and dates, conversion or exercise prices and unusual voting
rights, as applicable. See Rule 4-08(d) of Regulation S-X. In your response, please show us
what your revised disclosure will look like.

     We repurchased all issued Series A Preferred Stock in 1998, and, therefore, do not have
any Series A Preferred Stock outstanding. In light of the
Staff’s comment, we would propose to revise
Note H of our consolidated financial statements as set forth in the
Draft Form 10-K/A to reflect this and to include
a description of the rights, preferences and privileges of the authorized Series A Preferred
Stock.

Consolidated Statements of Earnings, page 24

    6.
    Please disclose whether membership fees combined with other service revenues exceed 10% of
consolidated net sales, and if so, state them separately from the sale of tangible product.
We also note you record sales net of returns and exchanges. Please advise or revise to
present sales as either net sales or gross revenue less discounts, returns and allowances.
See Rule 5-03(b) of Regulation S-X.

     Our membership fees
did not exceed 10% of our consolidated net sales for the periods
presented by the report. In light
of the Staff’s comment, we would propose to revise our
disclosure as set forth in the Draft Form 10-K/A to refer to net sales
in accordance with Rule 5-03(b) of Regulation S-X.

Notes to Consolidated Financial Statements, page 31

Note A-Summary of Significant Accounting Policies, page 31

    7.
    Please include a policy note discussing expenses classified within cost of sales specifically
as it relates to your inbound freight charges, purchasing and receiving costs, inspection
costs, warehousing costs, internal transfer costs, and the other costs of your distribution
network. If you currently exclude a portion of these costs from cost of sales:

    •
    Disclose the amount and line item in which they are presented for each period
presented, and

    •
    Disclose in Management’s Discussion and Analysis, that your gross margins may not
be comparable to those of other entities, since some entities include all of the
costs related to their distribution network in cost of goods sold and others like
you exclude a portion of them from gross margin, including them instead in a line
item, such as selling, general and administrative expenses.

    We note that amounts billed to customers for shipping and handling are recorded in revenue at
the time of shipment. Please disclose your policy for classifying shipping and handling costs.
If such costs are significant and not included in cost of sales, disclose both the amount and
the line item it is presented in your statement of earnings.

     In
response to the Staff’s comment, we would propose to revise the disclosure in Note A-4 of our
consolidated financial statements as set forth in the Draft Form 10-K/A to describe our accounting policies regarding cost of sales
and selling, general and administrative expenses.

     We
would propose to revise the disclosure regarding the components of
gross profit as set forth on page 21 of the Draft Form 10-K/A to incorporate the disclosure recommended by the Staff.

Note A-3 Revenue Recognition, page 31

8. Please tell us:

    •
    How you recognize revenue for your installment payment plan sales and how such
recognition corresponds to the timing of payments;

    •
    How you record revenue for drop ship arrangements, and address whether you receive
payments in advance of shipments, when the title and significant risks and rewards of
ownership pass to the buyer and the form of affirmative acceptance necessary for you
to recognize revenues; and

    •
    The nature of your commission based affiliate-marketing arrangements with various
search engines. Tell us the amount of consideration payments provided to third
parties in 2004, 2003 and 2002, how you classify such payments in your statement of
earnings and the applicable accounting pronouncements that support your treatment. We
may have further comments.

    Expand your revenue accounting policy to discuss the topics above, as applicable. In your
response, please show us what your revised disclosure will look like.

     TSG offers its Buyer’s Club members an installment credit plan with no finance fees, known
as the “Buyer’s Club 4-Pay Plan.” The initial payment, as well as the three subsequent monthly
payments, are billed directly to our customers’ credit cards. The average merchandise sale
amount under the 4-Pay Plan is approximately $200.00 per order with a collection period of ninety days. With
the collectibility reasonably estimated or assured and all other criteria of SAB 101 required
for revenue recognition being satisfied, employing the installment sales method of accounting
is not warranted. Our collection history on this arrangement has been excellent, with no
significant charges to earnings. We would propose to revise the disclosure
related to our Critical Accounting Policies as set forth on
page 19 of the Draft Form 10-K/A as well as our Significant Accounting Policies in Note A of our
consolidated financial statements as set forth in the Draft Form 10-K/A to include the following sentence:

     We
record sales generated
under the Buyer’s Club 4-Pay Plan at the time of shipment along with
related shipping and handling revenue.

     For our factory direct or drop ship arrangements, we record the associated revenue when
the third party factory direct vendor confirms to us the shipment to our customers. The title
and significant risks and rewards of ownership pass when the shipment is accepted by the third
party freight carrier. Before we recognize the revenue on these arrangements, the third party
factory direct vendor is required to communicate (via telephone, e-mail or fax) to us the
necessary tracking/shipment information. For our factory direct arrangements, we receive
payment in advance of shipment with such amount included as a customer liability until the
factory direct vendor confirms with us the shipment. We would propose
to revise
the disclosure related to our Critical Accounting
Policies as set forth on page 34 of the Draft Form 10-K/A as well as our Significant Accounting Policies in
Note A of our consolidated financial statements as set forth in the
Draft Form 10-K/A to include the following sentence:

     All
sales generated as a result of our factory direct or drop ship arrangements are recorded as
sales when the third party factory direct vendor confirms to us the shipment to our
customer.

     Our affiliate marketing arrangements with various third parties are such that the third
parties incur costs to send traffic (customer visits) to our web sites and are paid a
commission by us only if the visiting customer purchases merchandise from our web sites and the
shipment to the customer has taken place. The amount of commissions paid to third party
affiliates for 2004, 2003 and 2002 is $2.3 million, $1.4 million and $1.0 million,
respectively. The commissions paid to third party affiliates are included as an advertising
expense within selling, general and administrative expenses. These are commissions and are not
payments made to customers or suppliers. We have reviewed the applicable accounting literature
for advertising costs (SOP 93-7) and believe these transactions are properly recorded as
selling expense.

    9.
    Please expand your policy regarding recognition of membership fees to indicate how you
determine the amount of the membership fee to be recognized into income as the member places
orders. Please also tell us whether or not the installment sales are treated differently.

     In
response to the Staff’s comment, we would propose to revise the disclosure
related to our Significant Accounting Policies in
Note A to our consolidated financial statements as set forth in
the Draft Form 10-K/A to further clarify and describe our significant accounting
policies regarding membership fees and TSG’s Buyer’s Club 4-Pay Plan. As noted in our response
to Comment 4, we do not currently have installment sales.

 Stock Options, page 33

    10.
    Please tell us why your pro forma earnings per share cannot be accurately recalculated when
using the pro-forma earnings in this note and the weighted average number of shares
outstanding in your statement of earnings.

In reviewing our information for the Basic—pro-forma earnings per share in
the referenced note to our consolidated financial statements, we noted an incorrect weighted average number of shares
outstanding was utilized. Although we believe the errors in our calculations were not
material, we would propose to revise Note A-11 of our consolidated
financial statements as set forth in the Draft Form 10-K/A to reflect the correct earnings per
share for Basic-pro forma for each for the periods presented. As
noted in Note J to our consolidated financial statements set
forth in the Draft Form 10-K/A, the
number of shares and per share amounts set forth in Note A-11
to our consolidated financial statements as set forth in the
Draft Form 10-K/A have been adjusted to reflect a 3-for-2 stock split paid on
April 15, 2005. On a pre-split basis, the corrected amounts for
Basic—pro forma earnings per share were as follows:

    2004

    2003

    2002

    $