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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 3, 2001
Commission File No. 1-13426
THE SPORTS AUTHORITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3511120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3383 N. State Road 7, Ft. Lauderdale, Florida 33319
(Address of principal executive offices) (Zip Code)
(954) 735-1701
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on which Registered
Common Stock, $.01 par value The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and nonvoting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing: $73,650,748 at the close of business
on April 30, 2001.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 32,603,222 Shares of
Common Stock outstanding as of April 30, 2001.
Documents Incorporated by Reference: the Company's Proxy Statement dated
May 18, 2001, incorporated partially in Parts II and III hereof.
1
PART I
Forward Looking Statements
Certain statements contained in or incorporated by reference in this Form
10-K constitute "forward looking statements" made in reliance on the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. As such,
they involve risks and uncertainties that could cause actual results to differ
materially from those set forth in such forward looking statements. The
Company's forward looking statements are based on assumptions about, or include
statements concerning, many important factors, including without limitation,
consumer confidence, changes in discretionary consumer spending and consumer
preferences, particularly as they relate to sporting goods, athletic footwear
and apparel and the Company's particular merchandise mix and retail locations;
the Company's ability to effectively implement its merchandising, inventory
control, marketing, store remodeling, electronic commerce, and other strategies;
increasing competition from other retailers; unseasonable weather; fluctuating
sales margins; product availability; and capital spending levels. The Company
undertakes no obligation to release publicly the results of any revisions to
these forward looking statements to reflect events or circumstances after the
date such statements were made.
ITEM 1. BUSINESS
General
With sales of $1.5 billion in fiscal 2000, the Company is the largest
full-line sporting goods retailer in the United States. The Company's business
strategy is to serve its customer by offering, through multiple channels,
extensive selections of quality, brand name sporting goods, athletic footwear
and apparel, with a focus on customer service. At February 3, 2001, the Company
directly operated 198 stores in 32 states across the United States,
substantially all in excess of 40,000 gross square feet. Another 28 stores in
Japan are operated under a license agreement with the Company by MegaSports Co.,
Ltd., a joint venture with JUSCO Co., Ltd. ("JUSCO") that is now 8.4% owned by
the Company. JUSCO is a major Japanese retailer that owns 9.3% of the Company's
outstanding shares. The Company owns 19.9% of TheSportsAuthority.com, Inc., a
joint venture with a wholly-owned subsidiary of Global Sports, Inc. Since
November 1999, TheSportsAuthority.com has operated the retail e-commerce site
www.thesportsauthority.com as a "clicks" shopping alternative augmenting the
Company's "bricks" store presence. Under the terms of the joint venture
agreement, the Company's ownership interest can increase to 49.9%.
The Company was incorporated in Delaware in 1987. In 1990, the Company was
acquired by Kmart Corporation. Following public offerings in November 1994 and
October 1995, Kmart no longer owns any interest in the Company.
Industry Overview
According to the National Sporting Goods Association, total U.S. retail
sales of sporting goods, athletic footwear and apparel were approximately $45
billion in 1999. The retail sporting goods industry is comprised of four
principal categories of retailers: (i) traditional sporting goods retailers,
(ii) specialty sporting goods retailers, (iii) large format sporting goods
retailers and (iv) mass merchandisers. In addition, a variety of other retailers
sell various types of sporting goods, principally athletic footwear and apparel.
Sporting goods retailing in the United States is characterized by intensive
competition among retailers, increasing competition from new channels of
distribution such as catalogs and electronic commerce, and consolidation among
vendors.
Business Strategy
The Company is focused on encouraging consumers to "Get Out and Play," and
to make participation in or attendance at almost any type of sports, leisure or
recreational activity a meaningful part of their lifestyle. The stores offer the
2
extensive selection and competitive pricing associated with category dominant
retailers while, at the same time, offering quality brand names and high levels
of customer service. The key elements of this strategy are as follows:
Store Format. The Company operates large format stores, substantially all
of which are in excess of 40,000 gross square feet. This format enables the
Company to provide under one roof an extensive selection of merchandise for
sports and leisure activities that ordinarily are associated with specialty
shops and pro shops, such as golf, tennis, snow skiing, cycling, hunting,
fishing, bowling, archery, boating and water sports, as well as for activities
ordinarily associated with traditional sporting goods retailers, such as team
sports, physical fitness, and men's, women's and children's athletic and active
apparel and footwear. The average store offers over 40,000 active SKUs
(excluding discontinued items) across 27 major departments.
Quality Brand Name Sporting Goods. The Company's merchandising strategy is
to offer strong assortments in quality brand name sporting goods in its
merchandise classifications. The Company's comprehensive merchandise assortment
includes over 700 brand names, including Adams, Adidas, Asics, Champion,
Coleman, Columbia, Cross Creek, Easton, Head, Huffy, Izod, K2, Mongoose, New
Balance, Nike, Orlimar, Penn, Prince, Proform, Rawlings, Reebok, Rollerblade,
Russell, Salomon, Shakespeare, Spalding, Taylor Made, Teva, Timberland, Titleist
and Wilson. In 2000, the Company reached an agreement to expand Salomon products
in its assortment of skis, in-line skates and footwear for the 2001 selling
season.
Customer Service. The Company seeks to distinguish itself from other large
format sporting goods retailers, traditional sporting goods retailers and mass
merchandisers by executing a sales and service culture.
Pricing: Always Priced Right. The Company's pricing policy is to market
merchandise at prices that are always competitive in the market at the time. The
Company also seeks to be a price leader on certain highly identifiable items.
Focus on Multi-Store Markets. The Company seeks to establish a significant
presence in each of its markets and has pursued a store expansion strategy
primarily focused on opening multiple stores in its markets. This focus enables
the Company to obtain significant market penetration and to leverage management
and advertising expenses, thereby achieving greater economies of scale. In
addition, the Company believes its multi-store market strategy results in
greater name recognition and enhanced customer convenience in each market. The
Company believes that achieving greater market penetration will enable it to
compete more effectively and increase profitability and return on capital over
the long-term.
E-Commerce. TheSportsAuthority.com offers an online channel for customers
to purchase a wide selection of sporting goods, athletic footwear and apparel,
with detailed product information, buying guides and size charts, along with
special features such as: item comparison chart, multiple views of an item and
"e-mail to a friend." The site integrates sports related content such as "Pro
Tips," corporate communications features, a retail store locator, and
promotional and community event listings. The Company's joint venture partner,
Global Sports Interactive, Inc., a wholly-owned subsidiary of Global Sports,
Inc., contributes the technological, organizational and working capital
requirements of the joint venture. The Company licenses trademarks, service
marks and domain names, and provides content, purchasing power and vendor
relationships to the joint venture. The Company's initial ownership in
TheSportsAuthority.com of 19.9% automatically increases to 49.9% if certain
performance criteria are met by either TheSportsAuthority.com or the Company. In
addition, the Company has an option to purchase additional shares of
TheSportsAuthority.com, up to 49.9%, in certain events.
Stores
The Company's stores are located primarily in regional strip or power
centers that generally have tenants that are value-oriented large format
retailers. A small percentage of stores are located in malls and stand alone
locations. The markets in which the stores are located are listed in Item 2.
3
In 2000, the Company opened three new stores, relocated two stores, closed
its remaining five stores in Canada, and closed two temporary clearance outlets
and one other store. See Note 4 to the Consolidated Financial Statements
contained in Part II, Item 8.
No new stores are planned to open in 2001. Over the next few years, the
Company anticipates only modest new store growth. Expansion in future years will
depend on, among other things, general economic and business conditions
affecting consumer confidence and spending and, in particular, the level of
consumer demand for sporting goods, the availability of adequate capital,
desirable locations at acceptable terms, qualified management personnel, the
Company's ability to manage the operational aspects of its growth and comparable
store performance.
While the Company's expansion program in prior years has included opening
stores in Canada and Japan, the Company has exited the Canadian market and
reduced its ownership interest in its joint venture in Japan. The Company has no
current plans for expansion outside the United States, but will continue to
evaluate expansion opportunities.
The Company's expansion strategy focuses primarily on multi-store markets
where it can achieve significant market penetration and can leverage management,
distribution and advertising expenses while minimizing cannibalization of sales
at existing stores. In analyzing markets, the Company evaluates the market's
potential in terms of total number of store locations. Sites are selected based
on demographics (such as income levels and distribution, age and family size),
population, regional access, co-tenancy, available lease or purchase terms,
visibility, parking, and distance from competition.
The Company traditionally has obtained new store locations through
long-term operating leases. On an operating lease basis, the cost of opening a
new store has historically approximated $2.2 million, consisting primarily of
the investment in inventory, the cost of furniture, fixtures and equipment and
pre-opening expenses, such as the costs associated with training employees,
stocking the store and grand opening advertising. If the site requires a
retrofit of an existing building, costs (excluding furniture, fixtures and
equipment) can be significantly higher. The Company currently plans to finance
substantially all of its new stores with operating leases, assuming availability
and appropriate terms.
The Company believes customers want an easy shopping environment and
therefore seeks to make shopping at its stores as convenient as possible through
its extensive in-store signage and its department placement. The Company has
developed and tested a new store prototype that can be seen in its new stores
which features specialty stores within a store, interactive kiosks, in-store
customer clinics and demonstrations, and an array of audio visual entertainment.
The Company is enhancing its presentation with improved fixtures, signage,
adjacencies, and increased point-of-purchase information.
In 2000, the Company spent approximately $9.7 million refurbishing its
existing stores. One store received a comprehensive remodel featuring improved
departmental adjacencies modeled after the new store prototype. This included
interactive and audio visual developments as well as new shopping areas
specifically focused on youth and team sports fans. All stores received basic
renovations that included relamping, new category end cap and bin signage and
aisle widening. The Company estimates capital expenditures in 2001 will be
approximately $15-$20 million, primarily for refurbishment of existing stores
and upgrades of information systems.
Store Operations and Customer Service
Each store displays merchandise in accordance with centrally developed
presentation standards. These standards are designed to provide logical
department adjacencies to promote convenience and multiple purchases of related
items. The layouts for each department are also centrally developed to ensure
that each store utilizes display techniques to highlight merchandise and present
a consistent and attractive shopping environment.
4
The Company divides selling and non-selling functions in order to allow its
sales associates to devote their full attention to assisting customers.
Non-selling duties, such as receiving and stocking, are performed immediately
before and after store operating hours.
Merchandising
The Company's merchandising strategy focuses on offering a broader and
deeper selection of quality, brand name and private label merchandise than is
generally available in traditional sporting goods retailers. The Company's
merchandise assortment consists of a wide variety of sporting goods, athletic
footwear and apparel and accessories and is designed to meet the sporting goods
needs of its customers, from the sports enthusiast to the weekend athlete. The
Company continuously introduces new products under its Hot-New-Now program. The
average store offers over 40,000 active SKUs (excluding discontinued items).
The Company also tailors merchandise assortment and store space allocation
to reflect customer preferences at each store location. This is accomplished by
considering geographical as well as demographic differences by store and
involves differentiation in brands, sizes, colors, fabrication and seasonality
of the assortment. For example, not all stores carry stationary bicycles or
feature water shops.
In 2000, the Company launched a team sales division to focus on direct
sales of sporting goods to schools, professional and recreational leagues, teams
and cheerleading squads.
Merchandise consists of two lines: hard lines, which include equipment for
team sports, fitness, outdoor sports, golf, racquet sports, cycling, water
sports, marine, snow sports and general merchandise; and soft lines, which
consist of athletic and active footwear and apparel. During the past three
years, hard lines constituted approximately 51% of the Company's sales, apparel
constituted approximately 22%, and footwear constituted approximately 27%.
The hard lines and soft lines sold by the Company include the following
merchandise categories:
Athletic and Active Apparel: This category consists of both casual and
leisure apparel, as well as apparel designed and fabricated for specific sports,
in men's, women's and children's assortments. Casual and leisure apparel
includes basic and seasonal T-shirts, shorts, sweats and warm-ups. Performance
specific apparel includes offerings for sports such as golf, tennis, running,
fitness, soccer, baseball, football, hockey, and skiing. The apparel category
also includes NCAA and professional league licensed apparel.
Athletic and Active Footwear: The footwear selection includes casual
footwear intended for day to day streetwear, as well as athletic shoes for
running and walking, tennis, fitness and cross training, basketball and hiking.
In addition, the Company carries specialty footwear including a complete line of
cleated shoes for baseball, football, soccer and golf. Important categories
within the footwear department are recreational and hockey skates, and socks and
accessories.
Outdoor Sports: A large assortment of merchandise is carried in the stores
aimed at outdoor sports enthusiasts. Included are camping equipment, including
tents, sleeping bags and cooking appliances; fishing gear, including rods,
reels, terminal tackle and accessories; optics, including binoculars and scopes;
knives and cutlery; archery equipment and accessories; and marine and water
sports equipment, including navigational electronics, diving and snorkeling
equipment, water skis, inflatable boats and rafts and accessories.
Recreational Sports: Team sports include a full range of equipment and
accessories for such sports as basketball, baseball, soccer, football, hockey
and lacrosse. The golf department includes a complete assortment of golf clubs
and club sets, bags, balls, teaching aids and accessories. The racquet sports
department covers the needs of participants in tennis, racquetball, squash,
badminton and platform or paddle ball. The Company offers services such as
racquet stringing and trial demo periods.
Fitness Sports: The fitness category includes complete assortments for
aerobic and anaerobic workouts, including treadmills, stationary bicycles and
steppers for aerobic and home gyms, weight benches, dumbbells and free weights.
In addition, the department carries a selection of boxing equipment and
accessories, and also features items designed for wellness and relaxation, such
5
as massagers, magna-therapy and nutritional supplements. An extension of the
fitness category is the cycling department, which focuses on all terrain,
touring, 20" BMX and freestyle bicycles. In addition, the Company carries
accessories such as gloves, helmets, and water bottles.
Winter Sports: The Company offers a complete line of ski apparel, including
technical outerwear, bib pants, thermal underwear, sweaters and accessories. The
Company also offers a complete line of skis and ski equipment, including Alpine
and cross country skis, snowboards, boots, bindings, goggles and accessories, as
well as technical services to support new sales and tune-ups on customer owned
product.
Purchasing and Allocation
The Company maintains a central buying staff, as well as replenishment and
allocation staff. This staff manages the planning system, allocates fashion and
seasonal merchandise, replenishes basic merchandise and coordinates the
distribution of all merchandise.
Under the Company's merchandise planning system, the merchandise mix for
each store is selected by the central buying staff in consultation with field
management. The system allows the Company to manage its sales and inventory
levels by store at the class level. The Company uses an automated allocation
system to allocate non-basic merchandise to stores based on planned sales and
inventory at the SKU level, as well as recent sales trends and inventory
position. The Company also utilizes an automated replenishment system for
approximately 40% of its active assortment. This replenishment system balances
in-stock positions to satisfy customer demand with the costs associated with
carrying such inventory.
The Company currently purchases merchandise from approximately 750 vendors.
The Company's largest vendor, Nike, Inc., accounted for approximately 12% of its
total merchandise purchased in 2000. The Company is either the largest or one of
the largest customers for many of its vendors, and does not maintain any
material long-term or exclusive commitments or arrangements to purchase from any
vendor. In 2000, Total Sports America, a division of the Company, began to
implement a private label program for the Company.
Distribution
In late 1997, the Company opened its first regional distribution center
("RDC") near Atlanta, Georgia. The fully automated RDC serves as a total
flow-through facility to receive and allocate merchandise to the Company's
stores. Merchandise is received at the RDC, allocated, made "floor ready" as
necessary, and subsequently distributed to 152 Company stores. The Company also
has a non-automated RDC and flow-through cross-dock facility in Chino,
California that supplies 27 stores and handles imported merchandise. Merchandise
not distributed through the RDC's is shipped directly to the stores.
Information Systems
Since its inception, the Company has implemented information systems that
integrate purchasing, receiving, sales and perpetual inventory data on a daily
basis. These systems include the functions of automated replenishment, automated
merchandising planning and allocation, electronic data interchange, daily
tracking of in-stock levels by item and location and a "data warehouse" which
gives buying staff access to sales information on a class and sub-class level.
In 2000, the Company implemented JDA's Merchandise Management System and
began implementation of MarketMax's Assortment and Space Planning system. JDA
provides an increased level of precision in the management and tracking of
inventory and product. MarketMax enables stores with similar characteristics to
be grouped together to produce assortments and space plans that match the
individual sporting goods markets.
The Company employs point-of-sale ("POS") terminals in all of its stores,
which provide price look-up capabilities and SKU-level sales data, capture
customer telephone data and initiate requests for authorization of the different
credit and check tenders accepted by the Company. The Company also utilizes IBM
AS/400 computers and hand held radio frequency terminals at store level as
in-store processors to record merchandise receipts, produce price tickets,
6
maintain SKU-level perpetual inventories and for general data inquiry. These
in-store processors communicate interactively with central AS/400 computers to
exchange data created at store level and the Company's corporate offices. These
processors are intended to provide local management with the ability to more
closely manage inventory productivity and merchandise space planning, as well as
reduce the amount of employee time spent on non-selling functions.
Advertising and Promotion
The Company advertises its products and seeks to build name recognition and
market share through newspaper advertising, direct mail, broadcast media,
billboards and sports sponsorships. The focus on multi-store markets enables the
Company to leverage a substantial portion of advertising costs. In addition, the
Company uses variable levels of advertising among different markets based on
return, and approaches each advertising event with a season-based or savings
theme. During 2000, the Company implemented changes in ad content, timing and
medium based on the results of a study by Accenture (formerly Andersen
Consulting) of the Company's advertising effectiveness. The Company's private
label credit card program launched in 1999 currently includes approximately
242,000 customers.
Competition
The Company believes that the principal strengths with which it competes
are customer service, a broad assortment of brand name merchandise, ease of
shopping and a competitive pricing strategy. The retail sporting goods industry
is very competitive and highly fragmented, and is comprised of the following
four principal categories of retailers:
Traditional Sporting Goods Retailers. Traditional sporting goods retailers
tend to have relatively small stores, generally ranging in size from 5,000 to
20,000 square feet, frequently located in malls or strip centers (e.g., Modell's
Sporting Goods, Champs, Dunham's and Hibbett Sporting Goods). These stores
typically carry limited quantities of each item in their assortment and
generally offer a more limited selection at higher prices than large format
stores.
Specialty Sporting Goods Retailers. Specialty sporting goods retailers
include specialty shops, ranging in size from 1,000 to 10,000 square feet,
frequently located in malls or strip centers (e.g., Bike USA, Busy Body Fitness,
Edwin Watts, Foot Locker, Footstar, Foot Action, The Athlete's Foot, The Finish
Line and West Marine), and also include pro shops that often are single store
operations. These stores typically carry a wide assortment of one specific
product category, such as athletic shoes or golf or tennis equipment, and
generally have higher prices than large format stores.
Large Format Sporting Goods Retailers. Large format stores, such as the
Company's stores, generally range in size from 30,000 to 70,000 square feet,
offer a broad selection of brand name sporting goods merchandise and tend to be
either anchor stores in strip malls or free-standing locations (e.g., Galyan's,
Gart Sports, Oshman's and Dick's Clothing and Sporting Goods). In addition,
other large format sporting goods retailers compete with certain product
categories sold by the Company (e.g., REI in outdoor sporting products).
Mass Merchandisers. Mass merchandisers are large stores, generally ranging
in size from 50,000 to 200,000 square feet, featuring sporting equipment as part
of their overall assortment, and are located primarily in strip centers or
free-standing locations (e.g., Wal-Mart, Target and Kmart). These stores have
limited selection and fewer brand names and also typically do not offer the
customer service offered by sporting goods retailers.
In addition, a variety of other retailers sell various types of sporting
goods, principally athletic footwear and apparel. Sporting goods retailing in
the United States is characterized by intensive competition, increasing
competition from new channels of distribution such as catalogs and electronic
commerce, and consolidation among vendors.
Trademarks and Service Marks
The Company uses "The Sports Authority" as its trade name and applies to
qualify to do business as such in each jurisdiction where it operates stores.
The Company's retail identity is comprised of the trade name, as well as a
family of trademarks and service marks featuring the word
7
AUTHORITY, many of which are registered (or the subject of pending applications)
in the U.S. Patent and Trademark Office, the Canadian Trade-Marks Office, the
Japanese Patent Office and other applicable offices around the world. Marks
registered in the U.S. Patent and Trademark Office include AUTHORITY(R), THE
SPORTS AUTHORITY(R), THE SPORTS AUTHORITY & DESIGN(R), THE SKI AUTHORITY(R),
GOLF AUTHORITY(R), TENNIS AUTHORITY(R) and TEAM SPORTS AUTHORITY(R), among
others. In 2000, the Company filed applications to register a number of marks,
including "Get Out and Play." The Company vigorously protects its trademarks,
service marks and trade name from infringement throughout the world by strategic
registration and enforcement efforts. Use of these marks is under license from
The Sports Authority Michigan, Inc., a wholly-owned subsidiary of the Company.
Associates
As of February 3, 2001, the Company had a total of approximately 5,600
full-time and approximately 5,400 part-time associates. Of these, approximately
10,100 were employed in the Company's stores and approximately 900 were employed
in corporate office positions, regional and district positions, and the
Company's RDCs. None of the Company's associates is covered by a collective
bargaining agreement. The Company endeavors to promote new store management from
its existing personnel. The Company believes that its relationships with its
associates are good.
Seasonality
The Company's annual business cycle is seasonal, with higher sales and
profits occurring in the second and fourth quarters. In 2000, the Company's
sales trended as follows: 23.5% in the first quarter, 26.1% in the second
quarter, 22.4% in the third quarter and 28.1% in the fourth quarter.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the markets in
which the Company had stores as of February 3, 2001.
Number
United States Regions/Metropolitan Area of Stores
- --------------------------------------------------------------------------------
Northeast
Baltimore.......................................................... 4
Boston............................................................. 6
Hartford/North Haven............................................... 4
New York........................................................... 29
Portland, ME....................................................... 1
Philadelphia....................................................... 9
Providence......................................................... 2
Washington, D.C.................................................... 14
------
Subtotal Northeast............................................... 69
8
Number
United States Regions/Metropolitan Area of Stores
- --------------------------------------------------------------------------------
Southeast
Augusta, GA........................................................ 1
Atlanta............................................................ 11
Charleston......................................................... 1
Charlotte.......................................................... 3
Chattanooga........................................................ 1
Fayetteville....................................................... 1
Ft. Myers.......................................................... 1
Gainesville, FL.................................................... 1
Greensboro......................................................... 1
Greenville, SC..................................................... 1
Jacksonville....................................................... 2
Memphis............................................................ 1
Montgomery......................................................... 1
Myrtle Beach....................................................... 1
Naples............................................................. 1
Nashville.......................................................... 2
New Orleans........................................................ 1
Norfolk/Hampton.................................................... 3
Orlando............................................................ 7
Pensacola.......................................................... 1
Raleigh............................................................ 1
Southeast Florida.................................................. 16
Tampa/St. Petersburg............................................... 11
Winston-Salem...................................................... 1
------
Subtotal Southeast............................................... 71
Midwest
Chicago............................................................ 14
Detroit............................................................ 7
Madison, WI........................................................ 1
Omaha.............................................................. 1
St. Louis.......................................................... 6
------
Subtotal Midwest................................................. 29
Southwest
Dallas............................................................. 1
El Paso............................................................ 1
Las Vegas.......................................................... 2
Little Rock........................................................ 1
Phoenix............................................................ 7
Tucson............................................................. 1
------
Subtotal Southwest............................................... 13
Northwest
Anchorage.......................................................... 1
Seattle/Tacoma..................................................... 3
------
Subtotal Northwest............................................... 4
West
Honolulu........................................................... 3
Fresno............................................................. 1
Los Angeles........................................................ 1
Sacramento......................................................... 2
San Diego.......................................................... 5
------
Subtotal West.................................................... 12
------
Total United States.................................................. 198
======
9
As of February 3, 2001, the Company occupied 18 owned stores and 180 stores
pursuant to long-term leases. The leases typically provide for an initial 10 to
25 year term with multiple five-year renewal options. In most cases, the
Company's leases provide for minimum annual rent subject to periodic
adjustments, plus other charges, including a proportionate share of taxes,
insurance and common area maintenance. Fifty-seven of the Company's store leases
are guaranteed by Kmart.
The Company leases a building at 3383 N. State Road 7, Fort Lauderdale,
Florida, containing approximately 106,000 square feet, that houses its corporate
offices, with a remaining primary term of 7 years and two 10-year renewal
options.
During 2000 and through March 31, 2001, the Company terminated, assigned,
or subleased in whole or in part the leases for 10 of the 23 stores closed or
relocated in 1999 and 2000, and continues its efforts to dispose of the
remaining closed stores.
ITEM 3. LEGAL PROCEEDINGS
The Company is one of thirty-three defendants, including firearms
manufacturers and retailers, in City of Chicago and County of Cook v. Beretta
U.S.A. Corp. et al, Circuit Court of Cook County, Illinois. This suit was served
on the Company in November 1998. The complaint was based on legal theories of
public nuisance and negligent entrustment of firearms and alleged that the
defendant retailers sold firearms in the portion of Cook County outside Chicago
that were found illegally in Chicago. The complaint sought damages allocated
among the defendants exceeding $358.1 million to compensate the City of Chicago
and Cook County for their alleged costs (of which the complaint enumerates a
total of $153 million) resulting from the alleged public nuisance. The complaint
also sought punitive damages and injunctive relief imposing additional
regulations on the methods the defendant retailers use to sell firearms in Cook
County. In February 2000, the Court dismissed the complaint's negligent
entrustment count. The plaintiffs filed an amended complaint with the Court's
permission in March 2000, which contains both the public nuisance and negligent
entrustment counts. In September 2000, the Court granted the motions of the
defendants to dismiss the amended complaint with prejudice. In October 2000, the
plaintiffs appealed to the Appellate Court of Illinois, First Judicial District.
The Company is currently unable to predict the outcome of this case.
There are various other claims, lawsuits and pending actions against the
Company incident to its operations. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on the Company's
liquidity, financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
The Common Stock of the Company is traded on the New York Stock Exchange
(the "NYSE") under the symbol "TSA." The following table sets forth, for the
fiscal quarters indicated, the high and low market prices for the Common Stock
as reported on the NYSE.
High Low
---------------
Fiscal 1999
1st Quarter $8.50 $4.00
2nd Quarter 8.06 2.81
3rd Quarter 4.38 2.19
4th Quarter 3.25 1.63
Fiscal 2000
1st Quarter 3.63 1.88
2nd Quarter 3.06 1.13
3rd Quarter 2.69 1.38
4th Quarter 4.26 1.00
As of April 30, 2001, the Company had approximately 2,061 shareholders of
record.
Dividend Policy
The Company did not declare any dividends in 1999 or 2000 and intends to
retain its earnings to finance future internal investments. Therefore, the
Company does not anticipate paying any cash dividends in the foreseeable future.
The declaration and payment of dividends, if any, is subject to the discretion
of the Board of Directors of the Company and to certain limitations under the
General Corporation Law of the State of Delaware. In addition, certain
agreements contain restrictions on the Company's ability to pay dividends. The
timing, amount and form of dividends, if any, will depend, among other things,
on the Company's results of operations, financial condition, cash requirements
and other factors deemed relevant by the Board of Directors.
11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below reflects the
historical results of operations, financial position and operating data of the
Company for the periods indicated and should be read in conjunction with the
consolidated financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
herein.
Fiscal Year Ended (1)
------------------------------------------------------------------
February 3, January 29, January 24, January 25, January 26,
(in thousands, except per share data) 2001 2000 1999 1998 1997
------------------------------------------------------------------
Statement of Operations Data:
Sales $1,498,844 $1,492,860 $1,599,660 $1,464,565 $1,271,296
Gross margin 400,891 360,564 390,959 419,537 365,373
License fees and rental income 2,748 1,829 841 3,345 3,165
Selling, general and
administrative expenses 371,222 394,963 410,730 365,363 304,955
Pre-opening expense 2,131 1,609 11,194 10,570 11,408
Goodwill amortization -- 1,963 1,963 1,963 1,963
Store exit costs 2,763 8,861 39,446 4,302 --
Corporate restructuring -- (700) 3,930 -- --
Impairment of long-lived assets -- 88,751 13,457 -- --
------------------------------------------------------------------
Operating income (loss) 27,523 (133,054) (88,920) 40,684 50,212
Interest, net 20,744 15,287 11,965 5,952 2,180
Gain on deconsolidation
of joint venture -- (5,001) -- -- --
------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary gain 6,779 (143,340) (100,885) 34,732 48,032
Income tax expense (benefit) -- 22,721 (35,028) 14,730 19,597
Minority interest -- -- (2,066) (2,191) (1,570)
------------------------------------------------------------------
Income (loss) before
extraordinary gain 6,779 (166,061) (63,791) 22,193 30,005
Extraordinary gain, net of tax 18,647 5,517 -- -- --
------------------------------------------------------------------
Net income (loss) $ 25,426 $ (160,544) $ (63,791) $ 22,193 $ 30,005
==================================================================
Basic earnings (loss) per common share:
Income (loss) before
extraordinary gain $ .21 $ (5.19) $ (2.01) $ 0.70 $ 0.96
Extraordinary gain .57 .17 -- -- --
------------------------------------------------------------------
Net income (loss) $ .78 $ (5.02) $ (2.01) $ 0.70 $ 0.96
==================================================================
Diluted earnings (loss) per common share:
Income (loss) before
extraordinary gain $ .21 $ (5.19) $ (2.01) $ 0.70 $ 0.94
Extraordinary gain .57 .17 -- -- --
------------------------------------------------------------------
Net income (loss) $ .78 $ (5.02) $ (2.01) $ 0.70 $ 0.94
==================================================================
12
Fiscal Year Ended (1)
------------------------------------------------------------------
February 3, January 29, January 24, January 25, January 26,
2001 2000 1999 1998 1997
------------------------------------------------------------------
Percent of Sales Data:
Gross margin 26.7% 24.2% 24.4% 28.6% 28.8%
Selling, general and
administrative expenses 24.8 26.5 25.7 24.9 24.0
Operating income (loss) 1.8 (8.9) (5.6) 2.8 4.0
Income (loss) before income taxes
and extraordinary gain 0.5 (9.6) (6.3) 2.4 3.8
Selected Financial and Operating Data:
End of period stores 198 203 226 199 168
Comparable store sales
increase (decrease) (2) 1.5% (3.4)% (3.7)% (2.2)% 3.3%
Inventory turnover 2.8 2.9 3.1 3.1 3.2
Weighted average sales
per square foot $ 175 $ 172 $ 177 $ 193 $ 203
Weighted average sales per store
(in thousands) 7,545 7,390 7,661 8,334 8,819
Average sale per transaction 47.68 45.67 46.53 46.54 45.99
End of period inventory net of
accounts payable per store
(in thousands) 1,495 1,250 831 900 729
Capital expenditures (in thousands) 35,879 31,640 84,561 114,271 102,165
Depreciation and amortization
(in thousands) 40,840 46,908 47,921 37,314 28,506
Balance Sheet Data--End of Period:
(in thousands)
Working capital (3) $160,200 $ 62,102 $ 30,545 $ 99,710 $175,997
Total assets 662,547 643,003 897,454 807,990 750,158
Long-term debt 205,100 126,029 173,248 157,439 152,021
Stockholders' equity 142,317 116,110 272,912 333,551 310,317
(1) The fiscal years ended February 3, 2001 and January 29, 2000 consisted of
53 weeks. All other fiscal years shown each consisted of 52 weeks.
(2) Reflects comparable store sales, excluding sales from stores closed during
the respective fiscal years. (See Management's Discussion and Analysis of
Financial Condition and Results of Operations).
(3) The increase in working capital in 2000 resulted primarily from a change in
the terms of the Company's committed revolving credit facility and the
resulting reclassification of outstanding borrowings thereunder.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the Company's statement of operations data
as a percent of sales for the periods indicated.
Fiscal Year Ended
--------------------------------------
February 3, January 29, January 24,
2001 2000 1999
--------------------------------------
Sales 100.0% 100.0% 100.0%
Cost of merchandise sold, including buying and occupancy costs 73.3 75.8 75.6
--------------------------------------
Gross margin 26.7 24.2 24.4
License fees and rental income (0.2) (0.1) (0.1)
Selling, general and administrative expenses 24.8 26.5 25.7
Pre-opening expense 0.1 0.1 0.7
Goodwill amortization -- 0.1 0.1
Store exit costs 0.2 0.6 2.5
Corporate restructuring -- -- 0.3
Impairment of long-lived assets -- 5.9 0.8
--------------------------------------
Operating income (loss) 1.8 (8.9) (5.6)
Interest, net 1.3 1.0 0.7
Gain on deconsolidation of joint venture -- (0.3) --
--------------------------------------
Income (loss) before income taxes and extraordinary gain 0.5 (9.6) (6.3)
Income tax expense (benefit) -- 1.5 (2.2)
Minority interest -- -- (0.1)
--------------------------------------
Income (loss) before extraordinary gain 0.5 (11.1) (4.0)
Extraordinary gain, net of tax 1.2 0.3 --
--------------------------------------
Net income (loss) 1.7% (10.8)% (4.0)%
======================================
The following table sets forth the Company's store openings and closings for
the periods indicated.
Fiscal Year Ended
--------------------------------------
February 3, January 29, January 24,
2001 2000 1999
--------------------------------------
Beginning number of stores (a) 201 226 199
Openings 5 3 30
Closings (a) (8) (15) (3)
Deconsolidation of joint venture -- (13) --
--------------------------------------
Ending number of stores 198 201 226
======================================
(a) The beginning number of stores for the 53 weeks ended February 3, 2001
excludes two clearance stores, opened on a test basis in previously closed
store sites, and subsequently re-closed in the second quarter of 2000. The
clearance centers were also excluded from the fiscal 1999 ending number of
stores and store openings.
Fiscal Years Ended February 3, 2001 (fiscal 2000) and January 29, 2000 (fiscal
1999)
Sales for the 53 weeks ended February 3, 2001 were $1,498.8 million, an
increase of $5.9 million, or 0.4%, from sales of $1,492.9 million for the fiscal
year ended January 29, 2000. The Company closed 8 stores in 2000 and 15 stores
in 1999 pursuant to its store exit plans. Additionally, in the second quarter of
2000, the Company closed two clearance centers opened in previously closed
locations. Sales in 2000 include $21.0 million from closed stores, as compared
to $60.0 million in the prior year.
Excluding the impact of store closings, sales increased $45.0 million, or
3.1%. Of this increase, $24.5 million, or 1.7%, was attributable to stores
opening in 2000 and 1999 which had no comparable sales in the prior year, and
$22.5 million, or 1.5%, was due to an increase in comparable
14
store sales from continuing stores. The remaining change in sales of ($2.0)
million, or (0.1%) of sales, was due primarily to an increase in the Company's
reserve for sales returns and the impact on comparable store sales of adding six
days to the fiscal 1999 calendar.
The increase in comparable store sales for the year reflected the execution
of a number of turnaround initiatives, including changes in the Company's
advertising, pricing and buying strategies, to increase traffic into the stores
and to improve sales conversions. These initiatives, combined with high demand
for trend items such as scooters and "ab rollers," spurred sales in the key
categories of fitness, footwear and ladies activewear. Increases in these
categories were somewhat offset by continued declines in outdoor categories such
as hunting and fishing, which reflected particularly soft sales in the fourth
quarter of 2000. As a result of its initiatives, quarterly comparable store
sales from continuing stores increased during the first three quarters of 2000,
culminating with a 4.9% increase in the third quarter. Comparable store sales
slowed in the fourth quarter, primarily due to national macro-economic trends,
and were essentially flat to the prior year.
License fees and rental income were $2.7 million in 2000, compared to $1.8
million in 1999. License fees consist primarily of royalty fee income earned
under a license agreement between the Company and Mega Sports, Inc. ("Mega
Sports") of $2.4 million and $1.6 million in 2000 and 1999, respectively. (See
Note 3 of the Notes to Consolidated Financial Statements). Royalty fees under a
license agreement with TheSportsAuthority.com, Inc., which commenced in the
fourth quarter of 1999, were $0.2 million in 2000 and nominal in 1999. The
Company also has a license arrangement for the sale of diving merchandise in
three stores. Sales of licensee merchandise are excluded from the Company's
total sales.
The major components of cost of merchandise sold are merchandise costs
(including distribution) and, to a lesser extent, certain occupancy costs. Cost
of merchandise sold decreased from 75.8% of sales in 1999 to 73.3% of sales in
2000, a decrease of 2.5% of sales. In 1999, merchandise costs included a $28.9
million charge for markdowns on aged inventory, closed store liquidations and
inventory shrink. Excluding the 1999 charge, cost of merchandise sold decreased
0.7% of sales, due to reduced inventory markdowns combined with improved product
pricing.
Selling, general and administrative ("SG&A") expenses in 2000 were $371.2
million, or 24.8% of sales, compared to $395.0 million, or 26.5% of sales in the
prior year. The 1.7% of sales decrease resulted from a 1.4% of sales decline in
advertising expenditures consistent with the fiscal 2000 advertising plan, and a
0.5% of sales reduction in depreciation expense as a result of the fourth
quarter 1999 impairment charge.
Pre-opening expense was $2.1 million in 2000 compared to $1.6 million in
1999. The increase in expense correlates to the increase in store openings, from
three stores in 1999 to five stores in 2000. On a per store basis, pre-opening
costs declined in 2000, largely due to a reduction in grand-opening advertising.
Pre-opening expense consists principally of store payroll expense for associate
training and store preparation prior to a store opening, operating expenses and
grand-opening advertising costs.
Store exit costs were $2.8 million in 2000, compared to $8.9 million in
1999. The 2000 charge reflected a $4.0 million increase of reserves established
under prior store exit plans due to changes in the estimated time and rate to
sublease or assign remaining real estate. The charge was partially offset by a
$1.2 million net gain on the lease termination for one store closed in the
fourth quarter of 2000. Store exit costs represent estimated costs to be
incurred beyond the store closing date, including rent, common area maintenance
charges, real property taxes and employee severance. (See Note 4 of the Notes to
Consolidated Financial Statements).
Operating income was $27.5 million, or 1.8% of sales in 2000, compared to
an operating loss of $133.1 million, or (8.9)% of sales in 1999. Exclusive of
pre-opening expense, goodwill amortization and restructuring charges, the 1999
operating loss was $32.6 million, or (2.2)% of sales. By comparison, operating
income before pre-opening expense and store exit costs was $32.4 million, or
2.2% of sales in 2000, an increase of $65.0 million.
15
Interest, net was $20.7 million, or 1.3% of sales in 2000, compared to
$15.3 million, or 1.0% of sales in 1999. Interest expense increased as a result
of refinancing a portion of the 5.25% Convertible Subordinated Notes due
September 2001 (the "Notes") with higher rate borrowings under the Company's
committed revolving credit facility ("Credit Facility"). The Company recorded an
extraordinary gain in connection with the Notes purchases, as discussed below.
Additionally, the borrowing rate under the Credit Facility increased due to a
general rise in market rates combined with an increase in the interest margin
charged by the lender pursuant to an amendment to the Credit Facility in August
2000. The Company's weighted average interest rate on Credit Facility borrowings
was 9.1% in 2000 compared to 7.4% in 1999.
Exclusive of income taxes on extraordinary gains, the Company has a nominal
effective tax rate in 2000 due to the utilization of net operating loss
carryforwards. The Company recorded a $2.0 million tax provision for estimated
alternative minimum taxes and state taxes related to the extraordinary gain on
early extinguishment of debt. In 1999, the Company recorded a valuation
allowance on 100% of the Company's deferred tax assets, based on a presumption
that the realization of such tax assets could not be reasonably assured given
operating losses of the Company at that time. In 2000, the Company reduced this
valuation allowance by $9.3 million, primarily due to the utilization of $22.7
million in net operating loss carryforwards. Further reductions will be made as
the deferred tax assets are realized or when management believes the
aforementioned presumption can be overcome, principally by sufficient profitable
operating results. The Company expects that its effective tax rate in 2001 will
be significantly below the statutory rate due to the availability of remaining
federal and state net operating loss carryforwards of approximately $4.7 million
and $100.0 million, respectively, as well as other tax deductible timing
differences.
The Company recorded an extraordinary gain of $18.6 million, net of tax, on
the early extinguishment of $81.3 million principal amount of the Notes for
$60.0 million. In 1999, the Company recorded a gain of $5.5 million, net of tax,
on Notes purchases. As a result of its cumulative purchases, the Company's
remaining obligation under the Notes, which mature in September 2001, was
approximately $45 million at February 3, 2001.
As a result of the foregoing factors, net income was $25.4 million in 2000,
as compared to a net loss of $160.5 million in the prior year.
Fiscal Years Ended January 29, 2000 (fiscal 1999) and January 24, 1999 (fiscal
1998)
Sales for the 53 weeks ended January 29, 2000 were $1,492.9 million, a
$106.8 million, or 6.7% decrease from sales of $1,599.7 million for the fiscal
year ended January 24, 1999. Sales in fiscal 1998 include $84.9 million from
Mega Sports, not comparable to the 1999 year due to the deconsolidation of the
joint venture in 1999. Sales from stores closed during 1998 and 1999 were $78.8
million in the 1998 period, compared to $11.3 million in 1999.
Excluding the impact of the deconsolidation of Mega Sports and the store
closings, sales increased $45.6 million, or 2.9%. Of this increase, $85.6
million, or 5.3%, was attributable to stores opening in 1998 and 1999 which had
no comparable sales in the prior year, and approximately $15.7 million, or 1.0%,
was attributable to adding six days to the 1999 fiscal year. These increases
were offset by a decrease in comparable store sales of $55.7 million, or 3.4%,
excluding the impact of store closings and declines in the hunting category due
to the discontinuance of handgun sales and the reduction of rifle and hunting
assortments in early 1999. The decrease in comparable store sales reflected
weakness in the key categories of footwear, golf and men's apparel.
License fees and rental income was $1.8 million in 1999, compared to $0.8
million in 1998. License fees in 1999 include $1.6 million in royalty fee income
under the Mega Sports license agreement. Prior to 1999, intercompany royalty
fees were eliminated due to consolidation of Mega Sports in the Company's
results of operations. License fees in 1998 include fees earned under a license
agreement for the sale of winter sports merchandise, which was terminated in
1998.
Cost of merchandise sold increased from 75.6% of sales in 1998 to 75.8% of
sales in 1999, an increase of 0.2% of sales. This increase was attributable to
an increase in occupancy costs of 0.3% of sales resulting from the decline in
sales productivity. Merchandise costs were flat at 67.4% of sales in both years,
and included charges of $28.9 million and $24.1 million in 1999 and 1998,
respectively.
16
The charges related to markdowns for aged inventory, liquidations at closing
stores and, in 1999, inventory shrink. Excluding these charges, merchandise
costs decreased 0.5%, from 65.9% of sales in 1998 to 65.4% of sales in 1999, as
a result of improved purchase markons.
SG&A expenses in 1999 were $395.0 million, or 26.5% of sales, compared to
$410.7 million, or 25.7% of sales in the prior year. The increase as a
percentage of sales resulted from the decline in sales productivity and an
increase in advertising expenditures to drive traffic into the stores.
Pre-opening expense in 1999 was $1.6 million, or 0.1% of sales, compared to
$11.2 million, or 0.7% of sales in 1998. The decrease in expense reflected the
reduction in store openings, from 30 stores in 1998 to three full-line stores in
1999. During 1999, the Company also opened two clearance stores, on a test
basis, in previously closed locations. No pre-opening expense was incurred on
these clearance store openings.
In the fourth quarter of 1999, the Company recorded charges aggregating
$156.5 million, of which $28.9 million was applicable to the inventory related
charges discussed previously, and $127.6 million was comprised of the following:
$8.9 million for store exit costs; $88.8 million for asset impairments,
including goodwill of $46.9 million; $28.8 million for tax charges, net of
expected tax refunds; and $1.3 million for cumulative translation losses related
to the Canadian subsidiary.
The store exit charge related to the closure of five Canadian and two
domestic locations, all of which were closed in 2000. With the closing of the
five Canadian stores, the Company ceased its operations in Canada. The Company's
results of operations include Canadian store sales of $3.4 million, $28.4
million and $31.0 million in 2000, 1999 and 1998, respectively, and operating
losses excluding restructuring charges of $0.2 million, $4.4 million and $3.7
million, respectively.
Based on continued declines in store operating performance, the Company
evaluated the recoverability of its store-level assets pursuant to Financial
Accounting Standards No. 121 ("SFAS 121"). The Company recorded a $41.9 million
impairment charge on property and equipment at 40 stores based on a
determination that the carrying value of assets at these locations exceeded
estimated future cash flows. Estimated future cash flows were based on the
Company's fiscal year 2000 budget and internal projections for years beyond
2000. The charge included $3.8 million for the writedown of assets at seven now
closed locations.
An impairment charge of $46.9 million on the Company's enterprise-level
goodwill was recognized pursuant to a change in the Company's method of
measuring the recoverability of goodwill. The Company changed from the
undiscounted cash flows method to the market value method, whereby impairment is
measured by the excess of the Company's net book value over its market
capitalization. Since the excess of the Company's net book value over its market
capitalization exceeded the carrying value of the Company's goodwill, the
remaining value of goodwill was written off.
In conjunction with closing the Canadian subsidiary, the Company recognized
$1.3 million in cumulative translation adjustments, previously a component of
stockholders' equity, as required by Financial Accounting Standards No. 52. This
charge was included in SG&A expenses.
Corporate restructuring of ($0.7) million related to the settlement of the
Company's obligation under an employment contract with a former executive. The
initial reserve for this obligation was included in the Company's 1998
restructuring charge. As a result of the settlement, the Company reversed the
remaining reserve under this contract in 1999.
The operating loss was $133.1 million, or (8.9)% of sales in 1999, as
compared to $88.9 million, or (5.6)% of sales in 1998. The operating loss before
pre-opening expense, goodwill amortization and restructuring charges was $32.6
million, or (2.2)% of sales in 1999, versus $18.9 million, or (1.2)% of sales
for the preceding year.
Interest, net was $15.3 million, or 1.0% of sales in 1999, compared to
$12.0 million, or 0.7% of sales in 1998. The increase of $3.3 million was due to
an increase in borrowings under the Company's current and prior revolving credit
facilities, combined with an increase in the borrowing rate under the current
facility. The Company's weighted average interest rate on revolving credit
borrowings was 7.4% in 1999, compared to 6.6% in 1998.
17
In March 1999, the Company reduced its ownership interest in Mega Sports.
Accordingly, the Company discontinued consolidation of the results of Mega
Sports in 1999 and recorded a gain on deconsolidation of $5.0 million, or 0.3%
of sales.
Income tax expense on loss before extraordinary gain was $22.7 million in
1999, compared to an income tax benefit of $35.0 million in 1998. The 1999
amount includes a $37.6 million valuation allowance on the Company's U.S.
deferred tax assets as of the beginning of fiscal 1999, and a $5.7 million
writeoff of Canadian deferred tax assets. These charges were partially offset by
an estimated $18.7 million tax refund expected to be generated by the carryback
of the Company's 1999 net operating loss. The Company's effective tax rate in
1998 was 34.7%.
As discussed previously, in the third quarter of 1999, the Company recorded
an extraordinary gain of $5.5 million, net of tax, on the early extinguishment
debt.
As a result of the foregoing factors, the Company's 1999 net loss was
$160.5 million, as compared to $63.8 million in the prior year.
Liquidity and Capital Resources
The Company's principal capital requirements are to fund working capital
needs as well as for capital expenditures on hardware and software upgrades,
store refurbishments and new store openings. In 2000, these capital requirements
were generally funded by cash flow from operations and borrowings under the
Credit Facility. Cash flows generated by (used for) operating, investing and
financing activities for 2000, 1999 and 1998 are summarized below.
Net cash provided by (used for) operations was $22.0 million in 2000, as
compared to ($78.9) million in 1999 and $7.5 million in 1998. In 2000, the
increase in cash flow resulted primarily from income before non-cash charges and
the extraordinary gain of $51.1 million, and an income tax refund of $21.7
million. These increases were partially offset by an increase in inventory of
$45.8 million due to the slowdown in sales in the fourth quarter and to
incremental merchandise purchases associated with the conversion of the
Company's merchandise management system. The Company largely completed the
system conversion in the fourth quarter of 2000 and has reduced inventory levels
in line with its plans. By comparison, operating cash flows decreased in 1999
due to management's decision to accelerate vendor payments during the fourth
quarter. Therefore, inventory financed by accounts payable declined from 49.0%
at the end of 1998 to 26.9% at the end of 1999. Inventory financing remained
relatively flat in 2000, and was 24.7% at February 3, 2001. The Company has
ongoing obligations for lease and other occupancy costs at closed stores.
Payments under the store exit plans aggregated $15.9 million, $10.3 million and
$0.8 million in 2000, 1999 and 1998, respectively, and are expected to
approximate $15 million in 2001.
Net cash provided by (used for) investing was ($37.9) million in 2000, as
compared to $11.1 million in 1999 and ($78.2) million in 1998. Investing
activities in 2000 consisted primarily of capital expenditures, while 1999
included the sale-leaseback of eight owned properties for an aggregate sales
price of $46.8 million. Capital expenditures were $35.9 million in 2000, and
consisted of $18.0 million for upgrades to information systems, $9.7 million to
refurbish existing stores, $6.5 million for five new stores, and $1.7 million
for RDC and corporate improvements.
Net cash provided by financing activities was $11.6 million in 2000, as
compared to $63.6 million in 1999 and $72.0 million in 1998. Cash provided by
financing activities consisted principally of borrowings under the Company's
Credit Facility with a group of lenders led by Fleet Retail Finance, Inc.
(formerly BankBoston Retail Finance, Inc.). Borrowings increased $74.1 million
in 2000 and were used to fund working capital needs, store refurbishment,
upgrades to information systems and the Notes purchases. In 2000, the Company
purchased $81.3 million principal amount of the Notes for $60.0 million.
In December 1999, the Credit Facility was amended to increase maximum
borrowings from $200 million to $275 million and to extend the maturity date of
the facility from April 2002 to September 2003. In August 2000, the Credit
Facility was amended to increase the committed line of credit from $275 million
to $335 million. In conjunction with this increase, the Company mortgaged 19
owned store locations, with a net book value of $83.5 million, to supplement its
existing
18
pledge of inventory and accounts receivable. Subsequent to February 3, 2001, the
Company mortgaged one additional owned property, with a net book value of $2.6
million. Borrowings under the Credit Facility are limited to a borrowing base
determined primarily by advance rate percentages applied against eligible
inventories and the mortgaged real estate.
The Company's working capital at February 3, 2001 was $160.2 million, as
compared to $62.1 million at January 29, 2000. The increase of $98.1 million
resulted primarily from reclassification of borrowings under the Credit Facility
from short-term to long-term debt in 2000, based on the revised terms of the
amended Credit Facility. Borrowings under the Credit Facility were $203.8
million and $129.7 million at February 3, 2001 and January 29, 2000,
respectively. Conversely, the remaining Notes obligation of approximately $45.0
million was reclassified from long-term to short-term debt based on a September
2001 maturity.
The Company substantially curtailed expansion in 2000 and 1999, and
currently plans to open no new stores in 2001. The Company estimates capital
expenditures in 2001 will be approximately $15-$20 million, primarily for
refurbishment of existing stores and upgrades of information systems. The
Company is exploring additional distribution channels in 2001, including catalog
and team sales, but anticipates that the initial investment in these initiatives
will be nominal in 2001.
The Company believes that anticipated cash flows from operations, combined
with borrowings under the Credit Facility, will be sufficient to fund working
capital, finance capital expenditures and retire the remaining Notes obligation
during the next 12 months.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended,
which is required to be adopted by the Company in 2001. The Company generally
does not use derivatives; accordingly, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
In May 2000, the Emerging Issues Task Force ("EITF") reached a consensus in
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives." Under this
consensus, the estimated cost of sales incentives such as coupons and rebates
must be treated as a reduction of revenue in the period in which the related
sale is recognized. Currently, the Company classifies the cost of sales
incentives as a component of merchandise costs or as SG&A expense, depending on
the incentive. The EITF has deferred the effective date of Issue No. 00-14 until
the quarter beginning after March 15, 2001. The Company will early adopt Issue
No. 00-14 in the first quarter of 2001, and expects that this adoption will have
no impact on the Company's financial position or results of operations, other
than the reclassification of such costs in the statement of operations. Such
reclassifications are not expected to be material.
Seasonality and Inflation
The Company's annual business cycle is seasonal, with higher sales and
profits occurring in the second and fourth quarters. In 2000, the Company's
sales trended as follows: 23.6% in the first quarter, 26.0% in the second
quarter, 22.4% in the third quarter and 28.0% in the fourth quarter.
Management does not believe inflation had a material effect on the
financial statements for the periods presented.
Forward Looking Statements
Refer to Forward Looking Statements in Part I.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material exposure to the market risks covered by this
Item.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Management's Responsibility for Financial Reporting........................ 21
Report of Independent Certified Public Accountants......................... 22
Report of Independent Certified Public Accountants......................... 23
Consolidated Statements of Operations for the fiscal years ended
February 3, 2001, January 29, 2000 and January 24, 1999.................. 24
Consolidated Balance Sheets, as of February 3, 2001 and January 29, 2000... 25
Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended February 3, 2001, January 29, 2000
and January 24, 1999..................................................... 26
Consolidated Statements of Cash Flows for the fiscal years
ended February 3, 2001, January 29, 2000 and January 24, 1999............ 27
Notes to Consolidated Financial Statements................................. 28
20
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the integrity and consistency of all
financial information presented in this Annual Report. The consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and include certain amounts based on
Management's best estimates and judgments as required.
Management has developed and maintains a system of accounting and controls
designed to provide reasonable assurance that the Company's assets are protected
from improper use and that accounting records provide a reliable basis for the
preparation of financial statements. This system includes policies which require
adherence to ethical business standards and compliance with all laws to which
the Company is subject. This system is continually reviewed, improved and
modified in response to changing business conditions and operations. The
Company's comprehensive internal audit program provides for constant evaluation
of the adequacy of and adherence to Management's established policies and
procedures; the extent of the Company's system of internal accounting controls
recognizes that the cost should not exceed the benefits derived. Management
believes that assets are safeguarded and financial information is reliable.
The consolidated financial statements of the Company for the years ended
February 3, 2001 and January 29, 2000 have been audited by Ernst & Young LLP,
independent certified public accountants. Their report, which appears herein, is
based upon their audits conducted in accordance with auditing standards
generally accepted in the United States. These standards include a review of the
systems of internal controls and tests of transactions to the extent considered
necessary by them for purposes of supporting their opinion.
The Audit Committee of the Board of Directors is comprised solely of
Directors who are not officers or employees of the Company. The Committee is
responsible for recommending to the Board of Directors the selection of
independent certified public accountants. It meets periodically and monitors the
financial, accounting and auditing procedures of the Company in addition to
reviewing the Company's financial reports. The Company's independent certified
public accountants and The Sports Authority's internal auditors have full and
free access to the Audit Committee.
Martin E. Hanaka George R. Mihalko
Chief Executive Officer Chief Financial Officer
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
The Sports Authority, Inc.
We have audited the accompanying consolidated balance sheets of The Sports
Authority, Inc. as of February 3, 2001 and January 29, 2000, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the two years in the period ended February 3, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Sports
Authority, Inc. at February 3, 2001, and the consolidated results of its
operations and its cash flows for each of the two years then ended, in
conformity with accounting principles generally accepted in the United States.
Miami, Florida
March 23, 2001
22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
The Sports Authority, Inc.
In our opinion, the accompanying consolidated statements of operations, of
changes in stockholders' equity and of cash flows for the year ended January 24,
1999 present fairly, in all material respects, the results of operations and
cash flows of The Sports Authority, Inc. for the year ended January 24, 1999, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. We have not audited the
consolidated financial statements of The Sports Authority, Inc. for any period
subsequent to January 24, 1999.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
April 6, 1999
23
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Fiscal Year Ended
---------------------------------------------
February 3, January 29, January 24,
2001 2000 1999
---------------------------------------------
Sales $1,498,844 $1,492,860 $1,599,660
License fees and rental income 2,748 1,829 841
---------------------------------------------
1,501,592 1,494,689 1,600,501
---------------------------------------------
Cost of merchandise sold, including buying
and occupancy costs 1,097,953 1,132,296 1,208,701
Selling, general and administrative expenses 371,222 394,963 410,730
Pre-opening expense 2,131 1,609 11,194
Goodwill amortization -- 1,963 1,963
---------------------------------------------
1,471,306 1,530,831 1,632,588
---------------------------------------------
Store exit costs 2,763 8,861 39,446
Corporate restructuring -- (700) 3,930
Impairment of long-lived assets -- 88,751 13,457
---------------------------------------------
2,763 96,912 56,833
---------------------------------------------
Operating income (loss) 27,523 (133,054) (88,920)
---------------------------------------------
Interest:
Interest expense 21,734 17,657 13,197
Interest income (990) (2,370) (1,232)
---------------------------------------------
Interest, net 20,744 15,287 11,965
---------------------------------------------
Gain on deconsolidation of joint venture -- (5,001) --
---------------------------------------------
Income (loss) before income taxes and extraordinary gain 6,779 (143,340) (100,885)
Income tax expense (benefit) -- 22,721 (35,028)
Minority interest -- -- (2,066)
---------------------------------------------
Income (loss) before extraordinary gain 6,779 (166,061) (63,791)
Extraordinary gain, net of taxes of $2,000
and $3,678, respectively 18,647 5,517 --
---------------------------------------------
Net income (loss) $ 25,426 $ (160,544) $ (63,791)
=============================================
Basic and diluted earnings (loss) per common share:
Income (loss) before extraordinary gain $ .21 $ (5.19) $ (2.01)
Extraordinary gain, net of tax .57 .17 --
---------------------------------------------
Net income (loss) $ .78 $ (5.02) $ (2.01)
=============================================
Weighted average common shares outstanding:
Basic 32,295 32,003 31,768
=============================================
Diluted 32,311 32,003 31,768
=============================================
See accompanying Notes to Consolidated Financial Statements.
24
THE SPORTS AUTHORITY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
February 3, January 29,
2001 2000
--------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 7,535 $ 11,814
Merchandise inventories 393,087 347,273
Receivables and other current assets 32,690 55,264
--------------------------------
Total current assets 433,312 414,351
Net property and equipment 212,991 213,638
Other assets and deferred charges 16,244 15,014
--------------------------------
Total Assets $ 662,547 $ 643,003
================================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable--trade $ 97,097 $ 93,584
Accrued payroll and other current liabilities 114,990 111,392
Current debt 45,756 130,544
Taxes other than income taxes 10,380 12,894
Income taxes 4,889 3,835
--------------------------------
Total current liabilities 273,112 352,249
Long-term debt 205,100 126,029
Other long-term liabilities 42,018 48,615
--------------------------------
Total liabilities 520,230 526,893
--------------------------------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.01 par value; 100,000 shares authorized;
32,449 and 32,264 shares issued, respectively 324 323
Additional paid-in capital 252,279 251,991
Deferred compensation (83) (574)
Accumulated deficit (109,683) (135,109)
Treasury stock, 56 and 55 shares, respectively, at cost (520) (521)
--------------------------------
Total stockholders' equity 142,317 116,110
--------------------------------
Total Liabilities and Stockholders' Equity $ 662,547 $ 643,003
================================
See accompanying Notes to Consolidated Financial Statements.
25
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Accumulated
Retained Other Com-
Common Stock Additional Earnings prehensive
-------------------- Paid-in Deferred (Accumulated Treasury Income
Shares Amount Capital Compensation Deficit) Stock (Loss) Total
--------------------------------------------------------------------------------------------------
Balance, January 25, 1998 31,539 $ 316 $ 247,140 $ (1,589) $ 89,226 $ (494) $ (1,048) $ 333,551
Common stock issued
under stock plans 140 2 1,445 (794) 653
Common stock re-issued
under stock plans 105 1 999 1,000
Common stock retired
under stock plans (2) (25) 25 --
Amortization of
deferred compensation 1,827 1,827
Stock options exercised 120 1 1,465 1,466
Treasury stock acquired (7) (33) (33)
Comprehensive loss:
Net loss (63,791) (63,791)
Cumulative
translation adjustment (1,761) (1,761)
---------
Comprehensive loss (65,552)
--------------------------------------------------------------------------------------------------
Balance, January 24, 1999 31,895 320 251,024 (531) 25,435 (527) (2,809) 272,912
Common stock issued
under stock plans 322 3 1,012 (660) 355
Common stock retired
under stock plans (2) (25) 25 --
Common stock cancelled
under stock plans (7) (20) (20)
Treasury stock re-issued 1 6 6
Amortization of
deferred compensation 592 592
Comprehensive loss:
Net loss (160,544) (160,544)
Cumulative
translation adjustment 2,809 2,809
---------
Comprehensive loss (157,735)
--------------------------------------------------------------------------------------------------
Balance, January 29, 2000 32,209 323 251,991 (574) (135,109) (521) -- 116,110
Common stock issued
under stock plans 214 1 350 (174) 177
Common stock cancelled
under stock plans (30) (62) 10 (52)
Treasury stock re-issued 9 1 10
Amortization of
deferred compensation 646 646
Net income and
comprehensive income 25,426 25,426
--------------------------------------------------------------------------------------------------
Balance, February 3, 2001 32,393 $ 324 $ 252,279 $ (83) $(109,683) $ (520) $ -- $ 142,317
==================================================================================================
See accompanying Notes to Consolidated Financial Statements.
26
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Fiscal Year Ended
-----------------------------------------------
February 3, January 29, January 24,
2001 2000 1999
-----------------------------------------------
Cash Provided by (Used for):
Operations
Net income (loss) $ 25,426 $(160,544) $ (63,791)
Adjustments to reconcile net income (loss)
to operating cash flows:
Depreciation and amortization 40,840 46,908 47,921
Extraordinary gain (20,647) (9,195)
Gain on deconsolidation of joint venture -- (5,001) --
Impairment of long-lived assets -- 88,751 13,457
Accrual for store exit costs 3,513 8,861 39,446
Other non-cash items--net 325 3,762 478
Change in deferred tax assets -- 43,313 (25,107)
Change in other assets (335) 3,167 (7,552)
Change in other long-term liabilities (5,214) (1,340) 5,993
Cash provided by (used for) current assets and liabilities:
Change in income taxes receivable 22,976 (21,313) --
Increase in inventories (45,814) (5,544) (40,289)
Change in accounts payable 3,513 (64,801) 31,605
Other--net (2,628) (5,921) 5,344
-----------------------------------------------
Net cash provided by (used for) operations 21,955 (78,897) 7,505
-----------------------------------------------
Investing
Capital expenditures (35,879) (31,640) (84,561)
Net proceeds from sale of property and equipment -- 45,845 9
Deconsolidation of joint venture -- (3,127) --
Other--net (2,000) (16) 6,353
-----------------------------------------------
Net cash (used for) provided by investing (37,879) 11,062 (78,199)
-----------------------------------------------
Financing
Borrowings under revolving credit facility, net 74,132 80,277 44,509
Proceeds from short-term debt -- -- 9,646
Proceeds from long-term debt -- -- 16,578
Purchase of convertible notes (59,965) (14,015) --
Proceeds from sale of stock and treasury stock 272 359 2,035
Debt issuance costs (1,326) (2,158) --
Payments under capital lease obligations (1,468) (821) (769)
-----------------------------------------------
Net cash provided by financing 11,645 63,642 71,999
-----------------------------------------------
Net (decrease) increase in cash and cash equivalents (4,279) (4,193) 1,305
Cash and cash equivalents at beginning of year 11,814 16,007 14,702
-----------------------------------------------
Cash and cash equivalents at end of year $ 7,535 $ 11,814 $ 16,007
===============================================
Supplemental disclosures of cash flow information
Interest paid, net of amount capitalized $ 20,647 $ 15,375 $ 15,854
Income taxes (refunded) paid, net (22,029) (7,177) 3,291
Noncash investing and financing activities:
Purchase of assets under capital lease financing 2,881 -- 7,192
See accompanying Notes to Consolidated Financial Statements.
27
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The Company
The Sports Authority, Inc. ("The Sports Authority" or "Company") is the
largest full-line sporting goods retailer in the United States. At February 3,
2001, the Company operated 198 stores, substantially all in excess of 40,000
square feet, in 32 states across the United States.
The Company's Japanese joint venture, Mega Sports Co., Ltd. ("Mega Sports")
operates 28 The Sports Authority stores in Japan pursuant to a license agreement
with the Company. The Company owns 8.4% of the outstanding stock of Mega Sports,
which was formed in January 1995 pursuant to the Company's joint venture
agreement with JUSCO Co., Ltd. ("JUSCO"), a major Japanese retailer which owns
9.3% of the Company's outstanding stock.
The Company also owns 19.9% of TheSportsAuthority.com, Inc., a joint
venture with Global Sports Interactive, Inc., a wholly-owned subsidiary of
Global Sports, Inc., which operates the e-commerce business of the Company.
Under the terms of the joint venture agreement, the Company's ownership interest
can increase up to a total ownership of 49.9%. In addition, the Company has the
option to purchase additional shares of TheSportsAuthority.com, Inc., up to a
total ownership of 49.9%, upon certain events.
Note 2: Summary of Significant Accounting Policies
The Company's significant accounting policies are described below.
Basis of Financial Statement Presentation: The Company prepares its
financial statements in conformity with accounting principles generally accepted
in the United States. These principles require management to (1) make estimates
and assumptions that affect the reported amounts of assets and liabilities, (2)
disclose contingent assets and liabilities at the date of the financial
statements and (3) report amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Fiscal Year: During 1999, the Company revised its fiscal calendar to end
the 1999 fiscal year on Saturday, January 29, 2000, and to cause all succeeding
years to end on the Saturday closest to the end of January. This change added
six days to the 1999 fiscal year, which were included in the Company's results
of operations. Prior to 1999, the Company's fiscal year ended on the Sunday
prior to the last Wednesday in January. The 2000 and 1999 fiscal years each
consisted of 53 weeks. The 1998 fiscal year consisted of 52 weeks and ended on
January 24, 1999.
Basis of Consolidation: The Company includes its wholly-owned and
majority-owned subsidiaries in the consolidated financial statements. All
intercompany transactions and amounts have been eliminated in consolidation.
28
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Earnings Per Share: The Company calculates earnings per share ("EPS") in
accordance with Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings Per Share," which requires a dual presentation of basic and diluted
EPS. A reconciliation of the basic and diluted EPS computations is illustrated
below:
(in thousands, except per share data) 2000 1999 1998
--------------------------------------------
Basic EPS Computation
Income (loss) before extraordinary gain $ 6,779 $(166,061) $ (63,791)
--------------------------------------------
Weighted average common shares 32,295 32,003 31,768
--------------------------------------------
Basic earnings (loss) before extraordinary gain per common share $ .21 $ (5.19) $ (2.01)
============================================
Diluted EPS Computation
Income (loss) before extraordinary gain $ 6,779 $(166,061) $ (63,791)
--------------------------------------------
Weighted average common shares 32,295 32,003 31,768
Effect of stock options 16 -- --
--------------------------------------------
Total shares 32,311 32,003 31,768
--------------------------------------------
Diluted earnings (loss) before extraordinary gain per common share $ .21 $ (5.19) $ (2.01)
============================================
The computation of diluted EPS for all years presented excludes shares
issuable under the Company's 5.25% Convertible Subordinated Notes due September
2001 (the "Notes") because the issuance of the shares would be antidilutive. The
computation also excludes the effect of stock options, aggregating 3,013,760,
2,859,927 and 2,934,197 in 2000, 1999 and 1998, respectively, which would be
antidilutive.
Cash and Cash Equivalents: The Company considers cash on hand in stores,
deposits in banks, certificates of deposit and short-term marketable securities
with original maturities of 90 days or less to be cash and cash equivalents.
Inventories: Merchandise inventories are valued on a first-in, first-out
(FIFO) basis at the lower of cost or market using the retail inventory method.
Property and Equipment: Land, buildings, leasehold improvements and
furniture, fixtures and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of related assets on the straight-line method
for financial statement purposes and on accelerated methods for income tax
purposes. Most store properties are leased and improvements are amortized over
the term of the lease but not more than 10 years. Other estimated useful lives
include 40 years for building, seven years for store fixtures and five years for
other furniture, fixtures and equipment.
Impairment of Property and Equipment: In accordance with Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
the Company evaluates the carrying value of property and equipment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. An impairment loss is recorded when the net book
value of assets exceed their fair value, as measured by projected undiscounted
future cash flows.
Goodwill: In 1999, the Company changed the method by which it evaluates the
recoverability of goodwill from the undiscounted cash flow method to the market
value method. As a result of this change, the Company recorded an impairment
charge for the remaining carrying value of its goodwill in 1999. (See Note 4 of
the Notes to Consolidated Financial Statements). Previously, goodwill was
amortized on a straight-line basis over 40 years.
29
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Financial Instruments: The following methods and assumptions were used to
estimate fair value of the Company's financial instruments:
o The carrying amounts of cash and cash equivalents, accounts receivable
and accounts payable approximate fair value due to their short-term
nature.
o The fair value of the Company's note receivable is based on current
interest rates and repayment terms of the note. (See Note 7 of the
Notes to Consolidated Financial Statements).
o The carrying value of current debt approximates fair value due to its
short-term nature.
o Market prices were used to determine the fair value of the Notes.
As of February 3, 2001, the Notes outstanding had a carrying value of $44.8
million and a fair value of $42.5 million, and the note receivable had a
carrying value of $5.0 million and a fair value of $4.5 million.
Revenue Recognition, License Fees and Rental Income: Merchandise sales are
recognized at the point of sale. The Company has license agreements with Mega
Sports and TheSportsAuthority.com, Inc. under which the Company receives royalty
fees. (See Note 3 of the Notes to Consolidated Financial Statements).
Additionally, the Company sells diving merchandise in three locations through a
license agreement under which the Company receives a percentage of product sales
in exchange for rent and services. Such license fees and rental income are
recognized on an accrual basis. Sales of licensee merchandise are excluded from
total sales. The Company adopted Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements," in the fourth quarter of 2000.
Such adoption did not have a material impact on the Company's financial position
or results of operations.
Advertising Costs: Production costs are expensed upon first showing of the
advertising, and other advertising costs are generally expensed as incurred. The
Company participates in cooperative advertising with its vendors under which a
portion of advertising costs are reimbursed to the Company. Advertising
expenditures, net of cooperative advertising reimbursements, were $30.8 million,
$51.4 million, and $47.0 million in 2000, 1999, and 1998, respectively.
Pre-Opening Costs: In 1999, the Company adopted Statement of Position No.
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires that start-up and pre-opening costs be expensed as incurred effective
for fiscal years beginning after December 15, 1998. Previously, start-up costs
were expensed in the month the store opened. The adoption of SOP 98-5 did not
have a material impact on the Company's consolidated results of operations or
financial position.
Store Closing Costs: The Company provides for future net lease obligations,
severance payments and other expenses related to store closings in the period
that the Company commits to a plan of exit. Reserves are evaluated periodically
based on actual costs and changing market conditions, and are adjusted for
significant changes in estimates.
Income Taxes: The Company provides for income taxes currently payable or
receivable, deferred income taxes resulting from temporary differences between
the book and tax bases of assets and liabilities, and valuation allowances on
its deferred tax assets in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."
Foreign Currency Translation: The financial statements of the Company's
foreign subsidiaries were maintained in their functional currencies and
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. Assets and liabilities were translated at current
exchange rates existing at the balance sheet date and stockholders' equity was
translated at historical exchange rates. Revenues and expenses were translated
at the average exchange rate for the period. In 1999, the Company recognized
cumulative translation adjustments of $2.8 million due to the deconsolidation of
Mega Sports and the discontinuance of operations in Canada.
30
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Comprehensive Income: Comprehensive income represents the change in equity
arising from non-owner sources, including net income (loss) and other
comprehensive income items such as foreign currency translation adjustments and
minimum pension liability adjustments. Prior to 2000, the Company's
comprehensive income (loss) consisted of net income (loss) and foreign currency
translation adjustments. In 2000, the Company had no other comprehensive income
items.
New Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended, which is required to be adopted by the
Company in fiscal year 2001. The Company generally does not use derivatives;
accordingly, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
In May 2000, the Emerging Issues Task Force ("EITF") reached a consensus in
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives." Under this
consensus, the estimated cost of sales incentives such as coupons and rebates
must be treated as a reduction of revenue in the period in which the related
sale is recognized. Currently, the Company classifies the cost of sales
incentives as a component of merchandise costs or as SG&A expense, depending on
the incentive. The EITF has deferred the effective date of Issue No. 00-14 until
the quarter beginning after March 15, 2001. The Company will early adopt EITF
Issue No. 00-14 in the first quarter of 2001, and expects that this adoption
will have no impact on the Company's financial position or results of
operations, other than the reclassification of such costs in the statement of
operations. Such reclassifications are not expected to be material.
Reclassification: Certain amounts in the prior year's financial statements
have been reclassified to conform to the current year's presentation.
Note 3: Related Party Transactions
Japanese Joint Venture:
The Company has a license agreement with Mega Sports which permits Mega
Sports to use certain trademarks, technology and know-how of the Company in
exchange for royalty fees of 1.0% of Mega Sports' gross sales in 1999, 1.1% in
2000 and 1.2% in 2001 through 2005. Mega Sports has the option of extending the
license agreement for three ten-year periods expiring in 2035. The Company's
results of operations in 2000 and 1999 include royalty fees of $2.4 million and
$1.6 million, respectively, pursuant to the license agreement. In 1998, royalty
fees were eliminated due to consolidation of the joint venture in the Company's
results of operations. The Company discontinued consolidation of the joint
venture in 1999 upon a reduction of its ownership interest, and recorded a $5.0
million gain on deconsolidation.
JUSCO provides management and other services to Mega Sports pursuant to a
services agreement with the joint venture, for which it receives a fee equal to
1.0% of Mega Sports' gross sales and reimbursement of reasonable expenses. The
Company's results of operations for fiscal 1998 include fees paid by Mega Sports
to JUSCO totaling $0.8 million.
E-Commerce Joint Venture:
In May 1999, the Company entered into a license agreement with
TheSportsAuthority.com, Inc. ("TSA.com") which licenses certain trademarks,
service marks, domain names, content, purchasing power and vendor relationships
to the joint venture. The license agreement expires on December 31, 2014 or upon
the earlier termination of other agreements with or relating to TSA.com. The
Company and TSA.com also entered into an e-commerce agreement under which the
Company will furnish certain purchasing, merchandising and management services,
for which TSA.com will reimburse all reasonable costs incurred, while TSA.com
will furnish all the services necessary to operate the e-commerce website.
Royalty fees under the license agreement were $0.2 million in 2000, and were
nominal in 1999.
31
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4: Restructuring and Impairment Charges
Store Exit Costs:
The Company recorded store exit costs of $2.8 million, $8.9 million and
$39.4 million in 2000, 1999 and 1998, respectively. The 2000 charge related
principally to a $4.0 million increase in reserves established under prior store
exit plans based on changes in the estimated time and rate to sublease or assign
certain locations. The charge was partially offset by a net $1.2 million gain on
the lease termination of one store approved for closure in 2000 pursuant to a
favorable lease buy out agreement. This store closed in the fourth quarter of
2000.
The 1999 charge related primarily to closure of five Canadian and two U.S.
stores. The Canadian stores were closed in the first quarter of 2000, and the
two U.S. stores by the end of the third quarter of 2000. The 1998 charge related
to the announced closure of 18 underperforming stores, including two in Canada.
As a result of favorable market and lease factors, the Company decided not to
close three stores and reversed its exit reserves for these stores in 1999. The
remaining 15 stores were closed in the first quarter of 1999.
As part of its store closures, the Company ceased its Canadian operations
in 2000. The Company's results of operations include sales of $3.4 million,
$28.4 million, and $31.0 million in 2000, 1999, and 1998, respectively, from the
Canadian stores, and operating losses before restructuring charges of $0.2
million, $4.4 million, and $3.7 million, respectively.
The Company is actively marketing its closed store sites. During 2000, the
Company assigned or sold its lease rights under six leases, and entered into
long-term sublease arrangements on three others.
Following is a summary of activity in the store exit reserves:
Lease and
Related Fixed Employee
(in thousands) Obligations Assets Severance Other Total
------------------------------------------------------------------------
Balance at January 24, 1999 $ 32,419 $ 9,264 $ 671 $ 661 $ 43,015
Reserves for 1999 store closing plan 7,540 -- 251 372 8,163
Adjustment of prior year reserves 413 (494) (189) 969 699
Reclassification of accrued step rent 673 -- -- -- 673
Payments and asset disposals (8,573) (8,496) (485) (1,193) (18,747)
------------------------------------------------------------------------
Balance at January 29, 2000 32,472 274 248 809 33,803
Reserves for 2000 store closing 194 -- 100 174 468
Adjustment of prior year reserves 3,519 (167) 676 4,028
Payments and asset disposals (14,551) (25) (345) (992) (15,913)
------------------------------------------------------------------------
Balance at February 3, 2001 $ 21,634 $ 82 $ 3 $ 667 $ 22,386
========================================================================
Corporate Restructuring:
In 1998, the Company recorded a $3.9 million charge for employment contract
obligations to several departing executives. In the first quarter of 1999, the
Company negotiated the settlement of one contract and reduced the corporate
restructuring reserve by $0.7 million. The Company has satisfied its obligations
under these contracts.
Impairment of Long-Lived Assets:
The Company recorded impairment charges under SFAS 121 of $41.9 million and
$13.5 million in 1999 and 1998, respectively. The Company wrote down the assets
at 40 stores in 1999, and six stores in 1998, based on a determination that the
carrying value of assets at these locations exceeded estimated future cash
flows. The 1999 charge included a write off of assets at seven stores to be
closed or relocated.
32
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In 1999, the Company changed its method of evaluating the recoverability of
goodwill from the undiscounted cash flow method to the market value method.
Under the market value method, impairment is measured by the excess of the
Company's net book value over its market capitalization. The Company believes
the market value method is preferable because it results in a more objective
measurement of recoverability and better reflects the value of goodwill as
perceived by investors. The change in method resulted in the write off of the
remaining carrying value of goodwill of $46.9 million. This change represented a
change in method which is inseparable from a change in estimate and,
accordingly, the effect of the change has been reflected as an impairment charge
in the accompanying 1999 statement of operations.
Note 5: Receivables and Other Current Assets
Receivables and other current assets consists of the following:
February 3, January 29,
(in thousands) 2001 2000
--------------------------
Income taxes receivable $ -- $ 22,976
Other receivables, net of allowances of $1,253 and $1,820, respectively 19,813 18,289
Prepaid expenses 12,877 13,999
--------------------------
Total $ 32,690 $ 55,264
==========================
Note 6: Property and Equipment
Net property and equipment consists of the following:
February 3, January 29,
(in thousands) 2001 2000
--------------------------
Land $ 38,946 $ 38,946
Buildings 65,051 64,991
Leasehold improvements 64,306 60,566
Furniture, fixtures and equipment 217,142 186,464
Property under capital leases 5,213 2,332
Construction in progress -- 140
--------------------------
390,658 353,439
Less--accumulated depreciation and amortization (177,667) (139,801)
--------------------------
Total $ 212,991 $ 213,638
==========================
Note 7: Other Assets and Deferred Charges
Other assets and deferred charges consist of the following:
February 3, January 29,
(in thousands) 2001 2000
--------------------------
Lease costs, net $ 6,045 $ 4,363
Note receivable 4,983 5,182
Debt issuance costs and loan fees, net 2,335 2,837
Deferred loss on sale/leaseback of property 2,090 2,235
Deposits and other 791 397
--------------------------
Total $ 16,244 $ 15,014
==========================
33
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Lease costs consist of costs to acquire or execute leases, which are
deferred and amortized on a straight-line basis over the remaining lease terms
of the stores. Deferred costs at February 3, 2001 relate primarily to the
unamortized acquisition costs for eight store leases, two of which were acquired
from a competitor in fiscal 2000 for $2.0 million. In 1999, lease acquisition
costs of $3.0 million related to five store leases were written off as impaired.
Note receivable consists of the Company's participation in a privately
placed mortgage note. The Company paid Kmart Corporation ("Kmart") $5.5 million
in principal and accrued interest in June 1996 for participation in the note.
Principal is payable annually, and interest semi-annually at a rate of 8.4%. The
note has a remaining term of 14 years.
Debt issuance costs relate to the Notes and are being amortized over the
five-year term of the debt using the effective interest method. The Company
wrote off $0.7 million and $0.3 million in debt issuance costs in conjunction
with its Notes purchases in 2000 and 1999, respectively. Loan fees relate to the
Credit Facility and are being amortized on a straight-line basis over the term
of the Credit Facility.
During 1999, the Company sold eight properties under a sale-leaseback
agreement with SPI Holdings, LLC. The properties were sold for an aggregate
sales price of $46.8 million, and resulted in a loss on sale of $3.1 million.
The Company recognized $0.9 million of this loss in 1999, representing the
excess of the carrying value of the assets sold over their fair market value.
The remaining loss was deferred and is being amortized over the lease term,
which is 20 years for all properties.
Note 8: Income Taxes
Income (loss) before income taxes and extraordinary gain is as follows:
(in thousands) 2000 1999 1998
-----------------------------------
United States $ 6,250 $(130,985) $ (88,332)
Foreign 529 (12,355) (12,553)
-----------------------------------
Total $ 6,779 $(143,340) $(100,885)
===================================
The provision (benefit) for income taxes consists of:
(in thousands) 2000 1999 1998
-----------------------------------
Current:
Federal $ 1,741 $ (18,599) $ (5,441)
State and local 259 1,685 (1,500)
-----------------------------------
2,000 (16,914) (6,941)
-----------------------------------
Deferred:
Federal -- 34,012 (22,012)
State and local -- 3,596 (6,050)
Foreign -- 5,705 (25)
-----------------------------------
-- 43,313 (28,087)
-----------------------------------
Total $ 2,000 $ 26,399 $ (35,028)
===================================
The provision (benefit) for income taxes is included in the Company's
Statements of Operations as follows:
(in thousands) 2000 1999 1998
-----------------------------------
Income tax expense (benefit) $ -- $ 22,721 $ (35,028)
Income tax expense on extraordinary gain 2,000 3,678 --
-----------------------------------
Total $ 2,000 $ 26,399 $ (35,028)
===================================
34
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A reconciliation of the federal statutory rate to the Company's effective
tax rate follows:
(in thousands) 2000 1999 1998
-----------------------------------
Federal statutory rate $ 9,599 $(46,951) $(35,310)
State and local taxes, net of federal tax benefit 168 3,433 (4,908)
Change in valuation allowance (9,271) 61,958 --
Goodwill and other non-deductible items 70 17,087 687
Foreign tax rate differential -- (1,167) 3,617
Other 1,434 (7,961) 886
-----------------------------------
Total $ 2,000 $ 26,399 $(35,028)
===================================
Deferred tax assets and liabilities resulted from the following:
February 3, January 29,
(in thousands) 2001 2000
----------------------
Deferred tax assets:
Inventory $ 541 $ 774
Short-term accruals and other liabilities 12,084 11,167
Long-term accruals and other liabilities 14,907 12,323
Canada excess liabilities 907 3,221
Restructuring charges 25,945 26,848
Net operating loss carryforwards 6,927 13,212
Tax credit carryforwards 2,118 1,274
Other 2,613 1,796
----------------------
Total deferred tax assets 66,042 70,615
Less: valuation allowance (52,687) (61,958)
----------------------
Deferred tax assets, net of allowance 13,355 8,657
----------------------
Deferred tax liabilities:
Property and equipment 12,550 7,763
Other 805 894
----------------------
Total deferred tax liabilities 13,355 8,657
----------------------
Net deferred tax assets $ -- $ --
======================
The Company has a net operating loss carryforward for federal income tax
purposes of approximately $4.7 million, which will expire in the Company's
fiscal year ending January 2020. In addition, the Company has $1.8 million of
federal alternative minimum tax credit carryforwards, which are not subject to
expiration. The Company has state income tax net operating loss carryforwards of
approximately $100 million, also expiring in varying amounts through the
Company's fiscal year ending January 2020. The federal and state net operating
loss and tax credit carryforwards could be subject to limitation if, within any
three year period prior to the expiration of the applicable carryforward period,
there is more than 50% change in the ownership of the Company.
In 1999, the Company established a valuation allowance of $62.0 million on
its net deferred tax assets, based on the presumption that the realization of
such assets could not be reasonably assured given the losses incurred by the
Company at that time. Additionally, in 1999, the Company wrote off approximately
$5.7 million of deferred tax assets attributable to its Canadian subsidiary that
would not be realized as a result of the Company's decision to terminate its
operations in Canada. The Company had previously written down the Canadian
deferred assets by $3.6 million in 1998. In 2000, the valuation allowance was
reduced by $9.3 million, principally as a result of the utilization of
approximately $22.7 million in federal and state net operating loss
carryforwards. Further reductions in the valuation allowance will be made as the
deferred tax assets are realized or when
35
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
management believes the aforementioned presumption can be overcome, principally
by sufficient profitable results.
Note 9: Current Debt
Current debt consists of the following:
February 3, January 29,
(in thousands) 2001 2000
------------------------
Revolving Credit Facility $ -- $129,725
5.25% Convertible Subordinated Notes 44,767 --
Current portion of capital lease obligations 989 819
------------------------
Total $ 45,756 $130,544
========================
The Notes mature on September 15, 2001, and are convertible at the option
of the holders into an aggregate of 1,371,748 shares of the Company's common
stock at any time until the maturity date, at a conversion price of $32.635 per
share, subject to adjustment in certain events. Interest is payable
semi-annually, on March 15 and September 15 of each year. The Notes are
redeemable at the option of the Company at any time on or after September 15,
1999 at declining redemption prices beginning with 102.1% of par at September
15, 1999. The Notes are unsecured obligations of the Company subordinated in
right of payment to all existing and future Senior Indebtedness, as defined in
the Indenture pursuant to which the Notes were issued.
In 2000, the Company recorded an extraordinary gain of $18.6 million, net
of tax, on the purchase of $81.3 million principal amount of Notes for $60.0
million. The Company also recorded an extraordinary gain of $5.5 million, net of
tax, on Notes purchased in 1999. As a result of its purchases through February
3, 2001, the Company's outstanding obligation under the Notes has been reduced
to approximately $45 million.
Borrowings outstanding under the Credit Facility have been classified as
long-term debt at February 3, 2001 based upon the terms and structure of the
agreement. (See Note 10 of the Notes to Consolidated Financial Statements).
Note 10: Long-term Debt
Long-term debt consists of the following:
February 3, January 29,
(in thousands) 2001 2000
--------------------------
Revolving Credit Facility $203,857 $ --
5.25% Convertible Subordinated Notes -- 126,029
Long-term portion of capital lease obligations 1,243 --
--------------------------
Total $205,100 $126,029
==========================
In August 2000, the Credit Facility was amended to increase the committed
line of credit from $275 million to $335 million. In conjunction with this
increase, the Company mortgaged 19 owned store locations, with a net book value
of $83.5 million, to supplement its existing pledge of inventory and accounts
receivable. Subsequent to February 3, 2001, the Company mortgaged one additional
owned location with a net book value of $2.6 million. The Credit Facility
previously provided for an interest rate margin on Eurodollar loans ranging from
1.75% to 2.25%, based on Collateral Availability. Under the amendment, the
Company agreed to pay interest at a 2.25% margin through January 31, 2001, after
which the rate is once again determined with reference to Collateral
Availability. The Company was paying interest at a 2.00% margin over Eurodollar
rates prior to the amendment. The Credit Facility matures in September 2003.
36
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company's weighted average interest rates on revolving credit
borrowings were 9.1%, 7.4%, and 6.6% in 2000, 1999, and 1998, respectively.
Interest expense in the accompanying Consolidated Statements of Operations is
net of capitalized interest of $762,000 in 1998. No amounts were capitalized in
2000 or 1999.
Note 11: Other Long-term Liabilities
Other long-term liabilities consists of the following:
February 3, January 29,
(in thousands) 2001 2000
-------------------------
Step rent accrual $32,267 $28,737
Long-term portion of store exit reserve 9,751 19,878
-------------------------
Total $42,018 $48,615
=========================
A majority of the Company's store leases contain fixed escalation clauses.
Rental expense for such leases is recognized on a straight-line basis with
adjustments to the corresponding step rent accrual.
The store exit reserve consists primarily of accrued lease obligations and
costs, net of estimated future sublease income, related to the Company's store
closing plans. (See Note 4 of the Notes to Consolidated Financial Statements).
Note 12: Commitments and Contingencies
Prior to its Initial Public Offering ("IPO") on November 23, 1994, the
Company was a wholly-owned subsidiary of Kmart. Kmart continues to guarantee
approximately 57 leases in effect or committed to as of the date of the IPO.
Pursuant to a Lease Guaranty, Indemnification and Reimbursement Agreement
("Indemnification Agreement"), the Company has agreed to indemnify Kmart for any
losses incurred by Kmart as a result of actions or omissions on the part of the
Company, as well as for all amounts paid by Kmart pursuant to Kmart's guarantees
of the Company's leases. In addition, Kmart has certain rights to acquire leased
stores guaranteed by Kmart if its losses or unreimbursed guaranty payments
exceed certain levels or the Company fails to meet certain financial performance
ratios.
Leases with respect to five of the Company's stores serve as collateral for
certain mortgage pass-through certificates (the "Certificates"). The
Certificates include a provision which would permit the holders of the mortgage
pass-through certificates to require the Company or, upon the Company's failure,
Kmart, to repurchase the underlying mortgage notes in certain events, including
the failure by the Company to make payments of rent under the related lease, the
failure by Kmart to maintain required debt ratings or the termination of the
guarantee by Kmart of the Company's obligations under the related lease. In the
event the Company is required to repurchase all of the underlying mortgage
notes, the Company would be obligated to either refinance or pay approximately
$25.3 million.
The lease with respect to one of the Company's stores serves as collateral
for a privately placed mortgage note (the "Note") which is also secured by
leases of adjacent tenants. The Note, of which the Company's original allocable
share was $3.5 million, may be put back to Kmart in certain events, including a
decline in Kmart's debt rating. Under the Indemnification Agreement, the Company
must reimburse Kmart for "losses" in connection with the Company's allocable
share of Kmart's payments on the put of the Note. The Note expires in June 2013.
The Company is one of thirty-three defendants, including firearms
manufacturers and retailers, in City of Chicago and County of Cook v. Beretta
U.S.A. Corp. et al, Circuit Court of Cook County, Illinois. This suit was served
on the Company in November 1998. The complaint was based on legal theories of
public nuisance and negligent entrustment of firearms and alleged that the
defendant retailers sold firearms in the portion of Cook County outside Chicago
that are found illegally
37
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
in Chicago. The complaint sought damages allocated among the defendants
exceeding $358.1 million to compensate the City of Chicago and Cook County for
their alleged costs (of which the complaint enumerates a total of $153 million)
resulting from the alleged public nuisance. The complaint also sought punitive
damages and injunctive relief imposing additional regulations on the methods the
defendant retailers use to sell firearms in Cook County. In February 2000, the
Court dismissed the complaint's negligent entrustment count. The plaintiffs
filed an amended complaint with the Court's permission in March 2000, which
contains both the public nuisance and negligent entrustment counts. In September
2000, the Circuit Court of Cook County, Illinois granted the motions of the
defendants to dismiss the amended complaint, with prejudice. In October 2000,
the plaintiffs appealed to the Appellate Court of Illinois, First Judicial
District. The Company is currently unable to predict the outcome of this case.
There are various other claims, lawsuits and pending actions against the
Company incident to its operations. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on the Company's
liquidity, financial position or results of operations.
Note 13: Leases
The Company conducts operations primarily in leased facilities. Store
leases are generally for terms of 10 to 25 years with multiple five-year renewal
options which allow the Company to extend the term of the lease up to 25 years
beyond the initial noncancelable term. Certain leases require the Company to pay
additional amounts, including rental payments based on a percentage of sales,
and executory costs related to taxes, maintenance and insurance. Some selling
space has been sublet to other retailers in certain of the leased facilities.
The Company also leases certain equipment used in the course of operations under
operating leases.
Future minimum lease payments under noncancelable operating leases at
February 3, 2001 were as follows:
(in thousands)
Year:
2001 $ 98,591
2002 98,297
2003 95,729
2004 95,104
2005 91,338
Later years 737,646
----------
Total minimum lease payments 1,216,705
Less: minimum sublease rental income (17,502)
----------
Net minimum lease payments $1,199,203
==========
A summary of operating lease rental expense and sublease income follows:
(in thousands) 2000 1999 1998
-----------------------------------------
Minimum rentals $ 96,067 $ 89,482 $ 101,866
Percentage rentals 19 (69) 80
Less: sublease income (1,039) (1,038) (1,023)
-----------------------------------------
Total $ 95,047 $ 88,375 $ 100,923
=========================================
38
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 14: Employee Retirement Plans
Employees of the Company who meet certain requirements as to age and
service are eligible to participate in The Sports Authority 401(k) Savings and
Profit Sharing Plan and certain executives are eligible to participate in The
Sports Authority Supplemental 401(k) Savings and Profit Sharing Plan. The
Company's expense related to these plans was $2.0 million, $2.4 million, and
$2.5 million in 2000, 1999, and 1998, respectively.
The Company has an unfunded supplemental executive retirement plan for
certain executives of the Company. Pension benefits earned under the plan are
primarily based on years of service at the level of Vice President or higher
after June 1990 and average compensation, including salary and bonus. Pension
expense was $0.4 million in 2000 and $0.8 million in 1999 and 1998. The accrued
pension liability, including obligations assumed by the Company related to the
Kmart supplemental executive retirement plan, was $2.2 million and $1.9 million
as of February 3, 2001 and January 29, 2000, respectively.
Note 15: Stock Purchase, Stock Option and Restricted Stock Plans
In connection with the IPO, the Company adopted the Employee Stock Purchase
Plan (the "Employee Plan") which allows the Company's employees to purchase
shares of the Company's common stock at a 15% discount from its fair market
value. Shares purchased through the Employee Plan are restricted from sale or
transfer for one year from the date of purchase, except in the event of a change
in control of the Company, as defined in the plan, and certain other events.
In June 2000, the Company's shareholders approved the adoption of the 2000
Stock Option and Stock Award Plan (the "2000 Plan"), which merged and replaced
the 1994 Stock Option Plan (the "1994 Plan") and the 1996 Stock Option and
Restricted Stock Plan (the "1996 Plan"). Shares available for grant are
4,273,783, which is the aggregate number of shares formerly reserved for
issuance under the 1994 Plan and the 1996 Plan. No more than 2,000,000 shares
may be used for grant of stock awards. The exercise price of options granted
under the 2000 Plan may not be less than the fair value per share of common
stock at grant date. The Compensation Committee of the Board (the "Committee")
has sole discretion to determine the vesting and exercisability provisions of
each option granted. In general, the term of each option may not exceed ten
years from the date of grant. The Committee has sole discretion to determine the
restricted period for each grant of restricted shares under the 2000 Plan. In
order for shares to vest, the employee must remain in the employ of the Company
during the restricted period, except in certain circumstances and unless
otherwise determined by the Committee. Exercisability of stock options, and the
restricted period on stock awards, is accelerated on a change in control of the
Company, as defined in the 2000 Plan, and in certain other events. The 2000 Plan
expires in March 2006.
Subsequent to February 3, 2001, the Company adopted the Salaried Employees'
Stock Option and Stock Award Plan (the "Salaried Plan"). Under this plan,
1,600,000 shares have been reserved for issuance under stock option and
restricted stock grants to full-time salaried employees other than "executive
officers," as defined in the Salaried Plan. All other terms and provisions of
the Salaried Plan with respect to vesting, price, exercisability and restricted
periods are substantially identical to those of the 2000 Plan. The Salaried Plan
expires in March 2006.
In May 1999, the stockholders approved the Performance Unit Plan. Under
this plan, executive officers and certain other employees are eligible to
receive cash payments based upon the Company's attainment of an earnings per
share target measured over a three year performance period, unless otherwise
specified by the Committee. The number of target performance units (with an
initial unit value of $1.00 and a maximum unit value of $2.00) are established
at the beginning of a performance period for each participant based on the
participant's role and responsibilities and competitive levels of long-term
compensation. The Plan is designed to be self-funding out of the
39
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Company's earnings and involves no stockholder dilution. The Company recognized
$1.2 million in compensation expense under this plan during 2000. No
compensation expense was recognized in 1999.
The Company recognizes compensation expense for restricted shares granted
under the 1996 Plan and the 2000 Plan on a straight-line basis over the
restricted period. The Company's expense related to grants of restricted stock
was $0.4 million, $0.3 million and $0.9 million in 2000, 1999, and 1998,
respectively.
A summary of stock option activity is as follows:
2000 1999 1998
----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------
Outstanding at
beginning of year 2,859,927 $ 8.61 2,934,197 $12.36 2,323,885 $14.86
Granted 1,478,050 2.35 1,469,725 3.97 1,314,321 9.81
Exercised -- -- -- -- (120,413) 12.18
Canceled (865,717) 9.46 (1,543,995) 11.32 (583,596) 16.65
--------- --------- ---------
Outstanding at end of year 3,472,260 5.73 2,859,927 8.61 2,934,197 12.36
========= ========= =========
Exercisable at end of year 827,760 13.52 773,202 14.35 1,105,226 12.72
========= ========= =========
Weighted average
fair value of options
granted during year $1.19 $1.82 $4.06
A summary of stock options outstanding at February 3, 2001 is as follows:
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------------
Outstanding at Weighted Average Weighted Weighted
Range of February 3, Remaining Average Exercisable at Average
Exercise Prices 2001 Life (in years) Exercise Price February 3, 2001 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
$ 1.50-$ 5.00 2,494,648 8.5 $ 3.05 29,898 $ 4.25
5.01- 10.75 375,775 6.5 8.87 197,025 10.75
10.76- 24.88 601,837 4.9 14.89 600,837 14.88
--------- -------
3,472,260 7.7 5.73 827,760 13.52
========= =======
Available for grant
at end of year 351,523
=========
40
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company used the Black-Scholes option-pricing model with the following
weighted average assumptions in determining the fair value of options granted in
2000, 1999 and 1998: expected volatility of 49%, 43% and 37%, respectively;
risk-free interest rates of 6.3%, 5.6%, 5.2%, respectively; and an expected life
of 5 years. The Company applies Accounting Principles Board Opinion No. 25 ("APB
25") and related interpretations in accounting for its plans. Since the exercise
prices of stock options granted equal or exceed the market value of the
Company's stock on date of grant, no compensation cost has been recognized for
the stock option plans. Had Statement of Financial Accounting Standards No. 123
been applied, compensation expense under the stock option plans and the Employee
Plan would have been $1.0 million, $0.8 million, and $2.7 million for 2000,
1999, and 1998, respectively, and net income (loss) and earnings (loss) per
common share would have been as follows:
(in thousands, except per share data) 2000 1999 1998
----------------------------------
Net income (loss) As reported $25,426 $(160,544) $(63,791)
Pro forma 24,800 (161,301) (65,517)
Basic and diluted earnings
(loss) per common share As reported $ .78 $ (5.02) $ (2.01)
Pro forma .77 (5.04) (2.06)
Note 16: Shareholder Rights Plan
In September 1998, the Company's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend distribution of one "Right" per outstanding
share of common stock. Each Right entitles the stockholder to buy a unit
consisting of one one-thousandth of a share of Series A Junior Participating
Preferred Shares (a "Unit") or, in certain circumstances, a combination of
securities and assets of equivalent value at a purchase price of $50 per Unit,
subject to adjustment. Each Unit carries voting and dividend rights that are
intended to produce the equivalent of one share of common stock.
The Rights become exercisable only if (i) a person or group acquires 20% or
more of the Company's outstanding common stock, or (ii) a person or group
announces a tender offer for 20% or more of the Company's outstanding common
stock. In certain events the Rights entitle each stockholder to receive shares
of common stock having a value equal to two times the exercise price of the
Right, and the Rights of the acquiring person or group will become null and
void. These events include, but are not limited to (i) a merger in which the
Company is the surviving corporation, and (ii) acquisition of 20% or more of the
Company's outstanding common stock other than through a tender offer that
provides fair value to all stockholders. If the Company is acquired in a merger
in which it is not the surviving corporation, or more than 50% of its assets or
earning power is sold or transferred, each holder of a Right will have the right
to receive, upon exercise, common shares of the acquiring company. The Company
can redeem each Right for $.01 at any time prior to the Rights becoming
exercisable. Rights that are not redeemed or exercised will expire on October 5,
2001.
41
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 17: Quarterly Highlights (Unaudited)
2000 Quarter Ended
-------------------------------------------------------
(in thousands, except per share data) April July October January
-------------------------------------------------------
Sales $354,184 $389,595 $334,809 $420,256
Cost of merchandise sold 266,989 283,398 244,106 303,460
Operating income (loss) (3,992) 12,076 374 19,065
Income (loss) before extraordinary gain (8,219) 6,743 (4,649) 12,904
Net income (loss) 8,970 8,184 (4,649) 12,921
Diluted earnings (loss) before
extraordinary gain per common share (0.25) 0.21 (0.14) 0.38
Diluted earnings (loss) per common share 0.28 0.25 (0.14) 0.38
1999 Quarter Ended
-------------------------------------------------------
(in thousands, except per share data) April July October January
-------------------------------------------------------
Sales $356,517 $385,550 $327,255 $423,538
Cost of merchandise sold 264,959 284,393 244,026 338,919
Operating income (loss) (3,962) 7,787 (13,744) (123,135)(a)(c)
Income (loss) before extraordinary gain (1,471) 2,265 (10,748) (156,107)(a)(b)(c)
Net income (loss) (1,471) 2,265 (5,231) (156,107)
Diluted earnings (loss) before
extraordinary gain per common share (0.05) 0.07 (0.33) (4.85)
Diluted earnings (loss) per common share (0.05) 0.07 (0.16) (4.85)
(a) During the fourth quarter of 1999, the Company recorded charges as follows:
$8.9 million for store exit costs; $88.8 million for asset impairments; and
$1.3 million for cumulative translation losses related to the Canadian
subsidiary. The Company also recorded inventory-related charges aggregating
$28.9 million for excess markdowns, liquidations in connection with store
closings and inventory shrink.
(b) During the fourth quarter of 1999, the Company recorded $28.8 million for
tax charges (net of expected tax refunds).
(c) During the fourth quarter of 1999, the Company reduced bonus and other
accruals by approximately $3.1 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information concerning a change in the Company's independent public
accountants in April 1999 is contained under the caption "Ratification of the
Appointment of Independent Public Accountants" in the Company's Proxy Statement
dated May 18, 2001.
42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and their business experience during
at least the past five years, are as follows:
Martin E. Hanaka, age 52. Mr. Hanaka was elected as Chairman in November
1999, after having been elected as Chief Executive Officer in September 1998,
and having been elected as Vice Chairman in February 1998. From August 1994
until October 1997, Mr. Hanaka served as President and Chief Operating Officer
and a director of Staples, Inc., an office supply retailer. Mr. Hanaka's
extensive retail career has included serving as Executive Vice President of
Marketing and as President and Chief Operating Officer of Lechmere, Inc. from
1992 to 1994, and serving in various capacities for 20 years at Sears Roebuck &
Co., most recently as Vice President in charge of Sears Brand Central. Mr.
Hanaka is also a director of Trans-World Entertainment (movie and video retail
chain under several brands) and RMS Networks, Inc. (a provider of advertising
and information distributed by broadband satellite networks).
James R. Tener, age 52. Mr. Tener joined the Company in June 1999 as
Executive Vice President and Chief Operating Officer. He previously served as
Executive Vice President for Store Operations of OfficeMax, Inc., an office
supply retailer, from April 1996 to May 1999, as Chief Operating Officer of
Busybody Inc., a specialty fitness equipment retailer, from March 1995 to April
1996, and as Senior Vice President for Operations of Pier 1 Imports, Inc., a
decorative home furnishings retailer, from 1989 to 1994.
Elliott J. Kerbis, age 48. Mr. Kerbis joined the Company in October 2000 as
Executive Vice President--Merchandising and Sales Promotion. He previously
served as Senior Vice President of Merchandise at Filene's, a department store
owned by The May Department Store Company from May 1999 to August 2000, and as
Executive Vice President of Merchandise for Hardlines of The Caldor Corporation,
a discount retailer, from 1987 to 1999. Prior to joining Caldor Corporation, Mr.
Kerbis served in various capacities with R.H. Macy & Co. from 1977 to 1987.
George R. Mihalko, age 46. Mr. Mihalko joined the Company in September 1999
as Executive Vice President and Chief Financial Officer. He previously served as
Senior Vice President, Chief Financial Officer and Treasurer of Pamida Holding
Corporation, a general merchandise retailer, from 1995 to July 1999, and as Vice
President and Treasurer of Pier 1 Imports, a specialty retailer, from 1993 to
1995.
Arthur Quintana, age 51. Mr. Quintana joined the Company in October 1998 as
Senior Vice President, Supply Chain. He previously served as Vice President,
Inventory Management and Logistics at Sunglass Hut International, Inc. from July
1997 to October 1998, and prior to that as Vice President of Replenishment at
Office Depot, an office supply retailer, from 1990 to 1997.
There is no family relationship between any of these executive officers or
between any such officer and any Director of the Company. The remaining
information required by this Item 10 is incorporated herein by reference to the
information under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement
dated May 18, 2001.
43
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference to the information under the caption "Executive Compensation" in the
Company's Proxy Statement dated May 18, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference to the information under the caption "Stock Ownership" in the
Company's Proxy Statement dated May 18, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to the information under the caption "Certain Transactions" in the
Company's Proxy Statement dated May 18, 2001.
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed with, and as a part of, this Annual
Report on Form 10-K.
1. Financial Statements.
"Index to Financial Statements" contained in Part II, Item 8.
2. Financial Statement Schedules.
The schedules have been omitted because they are not applicable or not
required.
3. Exhibits.
Exhibits
- --------
3.1 Restated Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit 3.1 to the Form 10-K for 1994.
3.2 Certificate of Designation of Series A Junior Participating Preferred
Stock of the Company, incorporated by reference to Exhibit 3.1 to the
Form 10-Q for the third quarter of 1998.
3.3 Amended and Restated Bylaws of the Company, incorporated by reference
to Exhibit 3.2 to the Form 10-Q for the third quarter of 1998.
4.1 Indenture, dated as of September 20, 1996, between the Company and The
Bank of New York, as Trustee, relating to the Company's $149,500,000
5.25% Convertible Subordinated notes due September 15, 2001 (including
forms of note), incorporated by reference to Exhibit 4.1 to
Registration Statement No. 333-16877 on Form S-3.
4.2 Registration Rights Agreement, dated as of September 20, 1996, between
the Company and Goldman, Sachs & Co., relating to the Company's
$149,500,000 5.25% Convertible Subordinated Notes due September 15,
2001, incorporated by reference to Exhibit 4.2 to Registration
Statement No. 333-16877 on Form S-3.
4.3 Amended and Restated Rights Agreement dated as of February 1, 2000
between the Company and American Stock Transfer and Trust Company, as
Rights Agent, incorporated by reference to Exhibit 4.3 to the Form
10-K for 1999.
10.1 Lease Guaranty, Indemnification and Reimbursement Agreement, dated
November 23, 1994, as amended, between the Company and Kmart
Corporation, incorporated herein by reference to Exhibit 10.3 to the
Form 10-K for 1994.
10.2 Employee Stock Purchase Plan, as amended, incorporated herein by
reference to Exhibit 10.9 to the Form 10-Q for the second quarter of
1995.
10.3 Supplemental Executive Retirement Plan, as amended, incorporated by
reference to Exhibit 10.3 to the Form 10-Q for the second quarter of
1997.
10.4 Management Stock Purchase Plan, as amended, incorporated by reference
to Exhibit 10.1 to the Form 10-Q for the third quarter of 1997.
10.5 Deferred Compensation Plan, incorporated by reference to Exhibit 10.19
to the Form 10-K for 1997.
10.6 Annual Incentive Bonus Plan, as amended, incorporated by reference to
Exhibit A to the Company's Proxy Statement dated April 27, 1998.
10.7 Performance Unit Plan, incorporated by reference to Exhibit B to the
Company's Proxy Statement dated April 26, 1999.
10.8 2000 Stock Option and Stock Award Plan, incorporated by reference to
Exhibit A to the Company's Proxy Statement dated April 28, 2000.
45
10.9 Director Stock Plan, incorporated by reference to Exhibit 10.1 to the
Form 10-Q for the third quarter of 2000.
10.10* Supplemental 401(k) Savings and Profit Sharing Plan, as amended
effective January 1, 2001.
10.11* Employment Agreement dated April 30, 2001 between the Company and
Martin E. Hanaka.
10.12 Form of Severance Agreement dated January 11, 2000 between the Company
and each of James R. Tener, George R. Mihalko, Henry Flieck and Arthur
Quintana, incorporated by reference to Exhibit 10.13 to the Form 10-K
for 1999.
10.13 Severance Agreement dated as of October 9, 2000 between the Company
and Elliott J. Kerbis, incorporated by reference to Exhibit 10.2 to
the Form 10-Q for the third quarter of 2000.
10.14 Amended and Restated Joint Venture Agreement dated as of March 12,
1999 between the Company and JUSCO Co., Ltd., incorporated by
reference to Exhibit 10.19 to the Form 10-K for 1998.
10.15 Amended and Restated License Agreement dated as of March 26, 1999
between the Company and Mega Sports Co., Ltd., incorporated by
reference to Exhibit 10.20 to the Form 10-K for 1998.
10.16 Amended and Restated Services Agreement dated as of March 26, 1999
between the Company and Mega Sports Co., Ltd., incorporated by
reference to Exhibit 10.21 to the Form 10-K for 1998.
10.17 Guaranty dated as of March 12, 1999 from JUSCO Co., Ltd. to the
Company, incorporated by reference to Exhibit 10.22 to the Form 10-K
for 1998.
10.18 Agreement dated as of March 12, 1999 between the Company and JUSCO
Co., Ltd., incorporated by reference to Exhibit 10.23 to the Form 10-K
for 1998.
10.19 Agreement for Purchase and Sale and Leaseback, dated May 14, 1999,
between the Company and SPI Holdings, LLC, incorporated by reference
to Exhibit 10.2 to the Form 10-Q for the second quarter of 1999.
10.20 Letter Agreement, dated June 14, 1999, between the Company and SPI
Holdings, LLC, including form of Lease Agreement attached thereto,
incorporated by reference to Exhibit 10.3 to the Form 10-Q for the
second quarter of 1999.
10.21 Second Amendment to Agreement for Purchase and Sale and Leaseback,
dated May 14, 1999, dated as of July 29, 1999, incorporated by
reference to Exhibit 10.4 to the Form 10-Q for the second quarter of
1999.
10.22 Third Amendment to Agreement for Purchase and Sale and Leaseback,
dated May 14, 1999, dated as of August 31, 1999, incorporated by
reference to Exhibit 10.5 to the Form 10-Q for the second quarter of
1999.
10.23 E-Commerce Venture Agreement between the Company and Global Sports
Interactive, Inc. dated May 7, 1999.
10.24 Amendment No. 1 to E-Commerce Venture Agreement between the Company
and Global Sports Interactive, Inc. dated May 14, 1999, incorporated
by reference to Exhibit 10.29 to the Form 10-K for 1999.
10.25 E-Commerce Agreement between the Company and TheSportsAuthority.com,
Inc. dated May 14, 1999, incorporated by reference to Exhibit 10.30 to
the Form 10-K for 1999.
10.26 E-Commerce Services Agreement between TheSportsAuthority.com, Inc. and
Global Sports Interactive, Inc. dated May 14, 1999, incorporated by
reference to Exhibit 10.31 to the Form 10-K for 1999.
46
10.27 License Agreement between the Company, The Sports Authority Michigan,
Inc. and TheSportsAuthority.com, Inc. dated May 14, 1999, incorporated
by reference to Exhibit 10.32 to the Form 10-K for 1999.
10.28 Agreement between the Company and Global Sports, Inc. dated May 14,
1999, incorporated by reference to Exhibit 10.33 to the Form 10-K for
1999.
10.29 Amended and Restated Loan and Security Agreement dated as of August 3,
2000 between Fleet Retail Finance Inc., as Agent for the Lenders
referenced therein, and the Company and its wholly-owned United States
subsidiaries, incorporated by reference to Exhibit 10.1 to the Form
10-Q for the second quarter of 2000.
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of PricewaterhouseCoopers LLP.
- ----------
* Filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
None.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 SPORTS AUTHORITY, INC.
Date: May 3, 2001 By: /s/ MARTIN E. HANAKA
-------------------------
Martin E. Hanaka,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------------------------------------------------------------------
/s/ MARTIN E. HANAKA Chief Executive Officer May 3, 2001
- ------------------------ and Director (Principal
Martin E. Hanaka Executive Officer)
/s/ GEORGE R. MIHALKO Executive Vice President and May 3, 2001
- ------------------------ Chief Financial Officer
George R. Mihalko (Principal Financial Officer)
/s/ TODD WEYHRICH Senior Vice President and May 3, 2001
- ------------------------ Controller (Principal
Todd Weyhrich Accounting Officer)
/s/ A. DAVID BROWN Director May 3, 2001
- ------------------------
A. David Brown
/s/ MARY ELIZABETH BURTON Director May 3, 2001
- ------------------------
Mary Elizabeth Burton
/s/ CYNTHIA R. COHEN Director May 3, 2001
- ------------------------
Cynthia R. Cohen
/s/ STEVE DOUGHERTY Director May 3, 2001
- ------------------------
Steve Dougherty
/s/ JULIUS W. ERVING Director May 3, 2001
- ------------------------
Julius W. Erving
/s/ CAROL FARMER Director May 3, 2001
- ------------------------
Carol Farmer
/s/ CHARLES H. MOORE Director May 3, 2001
- ------------------------
Charles H. Moore
/s/ KEVIN MCGOVERN Director May 3, 2001
- ------------------------
Kevin McGovern
48