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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 1, 2003

Commission File No. 1-13426

THE SPORTS AUTHORITY, INC.

(Exact name of registrant as specified in its charter)

(954) 735-1701

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the last sale price of registrant’s common stock on August 2, 2002, as reported by The New York Stock Exchange, was approximately $241 million. In determining the market value of non-affiliate voting stock, shares of registrant’s common stock beneficially owned by each executive officer and Director have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 33,013,544 Shares of Common Stock outstanding as of March 31, 2003.

Documents Incorporated by Reference: None.

PART I

We use terms such as “we,” “our” “us” or “Company” in this Annual Report on Form 10-K when we refer to The Sports Authority, Inc. and our consolidated subsidiaries, unless the context indicates otherwise. Unless we indicate otherwise, when we refer to a year or a quarter in this prospectus, we are referring to our fiscal year or our fiscal quarter for the year or quarter indicated. Our fiscal year ends on the Saturday closest to the last day of January. As a result, the actual number of weeks in our fiscal year fluctuates and occasionally results in a 53-week fiscal year.

Forward Looking Statements

Certain statements contained in or incorporated by reference in this Annual Report on Form 10-K constitute “forward looking statements” made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by, among other things, use of forward looking terms such as “believes,” “expects,” “estimate,” “may,” “will,” “should,” “seeks,” “pro forma,” “anticipates,” “intends” or the negative of any of these terms, or comparable terminology, or by discussions of strategy or intentions. As such, they involve risks and uncertainties that could cause actual results to differ materially from those set forth in such forward looking statements. Our 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 our particular merchandise mix and retail locations; our ability to effectively implement our merchandising, inventory control, marketing, store remodeling and growth, electronic commerce, supply chain, logistics and other strategies; increasing competition from other retailers; unseasonable weather; fluctuating sales margins; product availability; capital spending levels; the timing and completion of our pending merger with Gart Sports Company, which is subject to regulatory and shareholder approvals and conditions contained in the merger agreement, and the ability of the Company and Gart Sports Company to integrate our operations successfully and without unanticipated costs and to realize the anticipated synergies and other benefits from the pending merger; and the effects of possible terrorist attacks and the Middle Eastern conflict. 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 $1.4 billion in 2002, we are the largest full-line sporting goods retailer in the United States. Our strategy is to offer our customers extensive selections of competitively priced, quality, brand name sporting goods, including athletic footwear and apparel, with a focus on customer service through multiple channels, and to establish clear leadership in existing markets through focused growth. At February 1, 2003, we operated 205 stores in 33 states across the United States, substantially all of which range in size from 35,000 to 45,000 square feet. An additional 39 “The Sports Authority” stores are operated in Japan by Mega Sports Co., Ltd. under a license agreement with us. Mega Sports is a joint venture between us and AEON Co., Ltd., a major Japanese retailer which owns 9.2% of our shares. We own 19.9% of Mega Sports and AEON owns the remaining 80.1%. Our retail website, www.thesportsauthority.com, offers an internet based shopping alternative augmenting our store presence and is operated by a subsidiary of GSI Commerce, Inc. under a license agreement with us.

We maintain a website with the address www.thesportsauthority.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.

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We were incorporated in Delaware in 1987 and acquired by Kmart Corporation in 1990. Kmart divested its interest in us in public offerings in November 1994 and October 1995 and no longer owns any interest in us.

On February 20, 2003, we announced that we had entered into an Agreement and Plan of Merger (“Merger Agreement”) dated February 19, 2003 with Gart Sports Company (“Gart Sports”) and Gold Acquisition Corp., a wholly-owned subsidiary of Gart Sports (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into us, we will become a wholly-owned subsidiary of Gart Sports and Gart Sports will change its name to The Sports Authority, Inc. Our shareholders will receive 0.37 of a share of Gart Sports’ common stock for each share of our common stock. At the closing of the transaction, Gart Sports is expected to have approximately 25 million diluted shares outstanding. The stockholders of Gart Sports and our company will each own approximately 50 percent of the combined company after the merger is completed.

The transaction is subject to: (i) adoption of the merger agreement and approval of the merger by our shareholders; (ii) the approval by Gart Sports’ shareholders of the issuance of Gart common stock in connection with the merger and of amendments to its certificate of incorporation to increase the number of shares of its stock and to change its name to The Sports Authority, Inc.; (iii) absence of any legal restraint (including the expiration or termination of the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976); (iv) the effectiveness of a registration statement on Form S-4 for the shares of Gart Sports to be issued in the merger; (v) Gart Sports entering into a credit facility; (vi) Gart Sports and our receipt of a legal opinion that the merger will be treated as a “reorganization” and therefore not a taxable transaction to our shareholders; and (vii) absence of a material adverse effect on the other party, accuracy of the representations made by the other party and performance of covenants by the other party. The merger is structured to be tax-free to our shareholders. Green Equity Investors, L.P. (“GEI”), which beneficially owns approximately 26% of Gart Sport shares, has entered into a Stockholder’s Agreement with us dated as of February 19, 2003 (the “Stockholder’s Agreement”) pursuant to which GEI has agreed to vote its Gart Sports shares in favor of the Gart Sports share issuance contemplated by the Merger Agreement, subject to terms and conditions of the Stockholder’s Agreement. We expect to complete the merger during the second or early third calendar quarter of 2003. On April 2, 2003, the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired.

Following completion of the merger, Martin E. Hanaka, our chairman and chief executive officer, will serve as chairman of the board of the combined company, and John Douglas Morton, president and chief executive officer of Gart Sports, will become vice chairman and chief executive officer of the combined company. Elliott J. Kerbis, our president and chief merchandising officer, will become president and chief merchandising officer of the combined company. Thomas T. Hendrickson, chief financial officer of Gart Sports, will become non-director vice chairman, chief administrative officer, chief financial officer and treasurer of the combined company. The remainder of the management team of the combined company will be comprised of executives of both Gart Sports and our company.

The combined company’s board of directors will consist of a total of nine directors, four designated by each of the two companies from their current boards, including Messrs. Hanaka and Morton, and one new director, presently unaffiliated with either Gart Sports or us.

Industry Overview, Competition

The sporting goods retail sector is highly fragmented and intensely competitive. This sector is comprised of five principal categories of retailers, including traditional sporting goods retailers, specialty sporting goods retailers, full line sporting goods retailers, mass merchandisers, and catalog and Internet retailers. In addition, a variety of other retailers sell various types of sporting goods, principally athletic footwear and apparel.

Traditional Sporting Goods Retailers. Traditional sporting goods retailers tend to have relatively small stores, generally range in size from 5,000 to 20,000 square feet and are frequently located in malls or strip centers. Examples of these retailers are Modell’s Sporting Goods, Champs, Big 5 Sporting Goods, and Hibbett Sporting Goods. These retailers typically carry limited quantities of each item in their assortment and generally offer a more limited selection at higher prices than full line sporting goods retailers.

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Specialty Sporting Goods Retailers. Specialty sporting goods retailers include specialty shops and are frequently located in malls or strip centers. Examples of these retailers include Edwin Watts Golf Shops, Golfsmith, Nevada Bob’s, Foot Locker, Foot Action, The Athlete’s Foot, Bass Pro Shops, Just for Feet, The Finish Line, West Marine, Cabela’s and REI. These retailers also include pro shops that often are single store operations. These retailers typically carry a wide assortment of one specific product category, such as athletic shoes or golf, tennis, camping or outdoor equipment, and generally have higher prices than full line sporting goods retailers.

Full Line Sporting Goods Retailers. Full line sporting goods retailers like us, generally range in size from 20,000 to 70,000 square feet, offer a broad selection of brand name sporting goods and tend to be either anchor stores in strip malls or in free-standing locations. Examples of these retailers include Gart Sports Company, which includes Sportmart and Oshman’s Sporting Goods, Dick’s Sporting Goods, Academy Sports and Outdoors, Sport Chalet, Galyan’s Trading Company, GI Joes, Decathlon and Dunham’s Sports.

Mass Merchandisers. Mass merchandisers’ stores generally range in size from 50,000 to 200,000 square feet, feature sporting goods as part of their overall assortment and are located primarily in strip centers, free-standing locations or shopping malls. Stores in this category include discount retailers such as Wal-Mart, Target and Kmart, warehouse clubs such as Costco, and department stores such as JC Penney and Sears. These retailers usually have limited selection and fewer brand names and typically do not offer the customer service offered by specialty and full line sporting goods retailers.

Catalog And Internet Retailers. We compete with catalog and Internet retailers such as LL Bean, Eddie Bauer, Land’s End and Cabela’s, Internet retailers such as ShopSports.com and websites operated by GSI Commerce, Inc.

Merchandising

We offer a wide variety of sporting goods including equipment, footwear, apparel and accessories, ranging from value-oriented merchandise to high-end performance products at higher price points. This merchandise assortment is intended to meet the diverse needs of customers from the everyday athlete to the sports enthusiast. Our focused buying, economies of scale and store size permit us to offer this extensive selection at competitive prices. We offer brands from over 625 vendors including Nike, New Balance, Titleist, Taylor Made, Reebok, Wilson, Russell, Diamondback, Rossignol, Salomon and North Face. In addition, we are continuing to expand our exclusive assortment of private label merchandise.

Our stores offer an average of over 40,000 SKUs. New brands and products are continuously introduced and featured in our stores and our advertising. We also tailor merchandise assortments and store space allocations to reflect regional differences in customer preferences. This is accomplished by considering geographic as well as demographic differences by market and involves differentiation in brands, sizes, colors, fabrication and seasonality of the assortment.

Our merchandise consists of hard lines and soft lines. Hard line merchandise includes equipment for team sports, fitness, outdoor sports, golf, racquet sports, cycling, water sports, marine, snow sports and general merchandise. Soft lines merchandise includes athletic and active footwear and apparel. The following table shows our sales by each major category as a percentage of total sales for the periods indicated:

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Our merchandise can be further divided into the following categories: Athletic and Active Apparel, Athletic and Active Footwear, Fitness Sports, Outdoor Sports, Recreational Sports and Winter Sports.

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 merchandise 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. Our footwear category includes casual footwear intended for day-to-day street wear and athletic shoes for running, walking, tennis, fitness, cross training, basketball and hiking. We also carry specialty footwear including a complete line of cleated shoes for baseball, football, soccer and golf. Other categories within our footwear department are in-line, figure and hockey skates, and socks and accessories.

Fitness Sports. Our fitness category includes broad assortments for aerobic and anaerobic workouts, including treadmills, recumbent and elliptical stationary bicycles, weight benches, dumbbells and free weights. We carry a selection of yoga products, boxing equipment and accessories. Our cycling department offers all-terrain, touring, comfort, 20” BMX and freestyle bicycles, plus a complete range of cycling accessories including gloves, helmets and water bottles. We offer home delivery and assembly of fitness equipment and in-store bicycle repairs and assembly.

Outdoor. Our outdoor category includes camping equipment such as tents, sleeping bags and cooking appliances, fishing gear such as rods, reels, tackle and accessories, hunting products such as rifles, shotguns, ammunition, hunting apparel and boots, optics such as binoculars and scopes, knives and cutlery, archery equipment and accessories. We also carry marine and water sports equipment, including navigational electronics, diving and snorkeling equipment, water skis, inflatable boats, rafts, kayaks, canoes and accessories.

Recreational Sports. Our team sports category includes a full range of equipment and accessories for team sports such as basketball, baseball, soccer, football, hockey and lacrosse. Our golf line includes a complete assortment of golf clubs and club sets, bags, balls, teaching aids and accessories. Our racquet sports line includes equipment for tennis, racquetball, squash, badminton and platform or paddle ball. We also offer services such as racquet stringing and trial demonstration periods.

Winter Sports. Our winter sports category includes a complete line of ski apparel, including technical outerwear, bib pants, thermal underwear, sweaters and accessories. We also carry a complete line of ski equipment, including Alpine and cross country skis, snowboards, boots, bindings, goggles and accessories. We also provide technical services to support new sales and tune-ups on customers’ equipment.

Private Label Program. We market lines of directly sourced merchandise under our private brands including “The Sports Authority,” “TSA Total Sports America,” “TSA Athletic,” “Estero,” “Parkside,” “Northpoint Adventure Gear,” “Masse,” “ProV2,” “Woodbridge,” “Ocean Ridge,” “CO2” and “Tranquil Escapes.” We also market certain “Head” and “Body Glove” merchandise under licenses. We recently acquired the “Golf Day” brand name as part of our strategy to expand the golf category and to differentiate ourselves from our competitors by developing dedicated specialty shops within our stores. We intend to increase our selection of private label products in 2003.

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Stores

We operate full line stores located primarily in regional strip or power centers that generally have large format retail tenants. Some of our stores are located in malls and stand-alone locations. Substantially all of our stores range in size from 35,000 to 45,000 square feet. We continue to remodel our stores from a warehouse format to a specialty store-within-a-store format to create a more convenient, customer-friendly shopping environment. Our new store format features a full-service footwear department, relocated departments for greater visibility, a brighter color palette and light level, lower shelving and fixture profiles and enhanced signage. Our new format enables us to strategically arrange products to allow for improved cross-merchandising of related items, a display method commonly used by specialty shops and pro shops. We remodeled one store in 2000, eight stores in 2001 and 30 stores in 2002. We plan to remodel approximately 40 during 2003 and almost all of our stores by 2005.

We intend to open approximately seven new stores in 2003. As part of our focused growth strategy, we seek to open new stores primarily in our existing multi-store and contiguous markets. We believe we can achieve significant market penetration and greater economies of scale by leveraging existing distribution, advertising and management expenses, while minimizing cannibalization of sales at existing stores in these markets. We also believe our strategy of focused growth in existing multi-store markets will result in greater name recognition and enhanced customer convenience in each market. We believe that achieving and maintaining greater market penetration will enable us to compete more effectively and increase profitability and return on capital. In analyzing markets, we evaluate the market’s potential in terms of total number of store locations. We select sites based on demographics such as income levels and distribution, age and family size, population, regional access, co-tenancy, available lease terms, visibility, parking and distance from competition.

We generally lease new store locations through long-term operating leases. The cost of opening a new store generally ranges from approximately $2.0 million to $2.4 million, consisting primarily of the investment in inventory (net of vendor financing), the cost of furniture, fixtures and equipment and pre-opening expenses. Pre-opening expenses typically relate to training employees, stocking stores and grand opening advertising.

Customer Service And Store Operations

We seek to distinguish our business from other full line sporting goods retailers, traditional sporting goods retailers and mass merchandisers by offering superior customer service. We intend to accomplish this through a number of key initiatives designed to create a superior customer service culture among our employees by offering enhanced employee training, product knowledge certification for employees and specialty services such as tennis racket stringing, bicycle assembly, repair and maintenance and ski equipment tune-up. We are also using Internet based hiring kiosks to identify customer centric applicants. In addition, store management compensation includes incentive compensation to reward superior customer satisfaction. Our customer service initiatives are designed to encourage our customers to “Get Out and Play” and encourage our store employees to create a fun, satisfying shopping experience for their customers. In addition, our initiatives are designed to promote corporate community involvement and increase employee retention.

Utilizing benefits from recent information systems investments, we continue to increase the level of precision in developing planograms, which allow each store to display merchandise based on centrally developed presentation standards. 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.

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Other Distribution Channels

E-Commerce. We offer merchandise through alternative channels such as www.thesportsauthority.com, a retail website operated by a subsidiary of GSI Commerce, Inc. (“GSI”) under a license and e-commerce agreement. Under this agreement, GSI owns certain content and technology related to the website and hosts, maintains, fulfills orders and furnishes all other “back-end” operations required to operate the website. GSI receives all revenue generated from the website and pays us a royalty for using our trademarks, service marks and the domain name, www.thesportsauthority.com, and other intellectual property owned by us. Royalties paid by GSI are based on sales through the website. Customer information obtained from operation of the website is jointly owned by GSI and us. GSI may use this information only to design, develop, operate, maintain and promote the website and to perform GSI’s obligations under the license agreement. The website offers an online channel for customers to purchase a wide selection of sporting goods, with detailed product information, buying guides and size charts, along with special features such as item comparison charts, multiple views of an item, “E-mail to a Friend” and “Pro Tips.” The website also integrates information about us, including corporate and investor information, job opportunities, a retail store locator, and promotional and community event listings. We continue to test “in-store” interactive kiosks in selected stores in an effort to expand our e-commerce business.

Team And Catalog Sales. In 2002, we continued to develop our team sales division in an effort to expand into other channels of distribution for our products. The team sales division offers special order team uniforms, footwear and equipment for leagues, recreational organizations and schools through our outside sales force. In 2002, we suspended distribution of The Sports Authority Direct, a retail catalog which was launched in 2001.

Merchandise Purchasing And Allocation

Our merchandise purchasing and allocation departments manage all aspects of merchandise procurement, including the allocation of fashion and seasonal merchandise and replenishment of basic merchandise. Our central buying staff, in consultation with our allocation department and store operations, uses our sophisticated merchandise planning systems to determine our merchandise mix. These systems allow us to manage our sales and inventory levels by store to the SKU level. We use an automated allocation system to allocate basic merchandise to stores based on planned sales, recent sales trends and inventory position. We also utilize an automated replenishment system for a substantial number of products in our active assortment. The replenishment system allows us to balance merchandise in-stock levels to satisfy customer demand with the costs associated with carrying excess inventory.

We currently purchase merchandise from over 625 vendors. Our largest vendor, Nike, Inc., accounted for approximately 12.7% of total merchandise we purchased in 2002. We do not maintain any material long-term or exclusive commitments or arrangements to purchase merchandise from any vendor.

Supply Chain

During 2002, approximately 88% of our stores received some of their merchandise directly from our two distribution centers. Merchandise that is not shipped from our distribution centers is shipped directly to the stores from our vendors. One of our distribution centers is a 300,000 square foot facility located near Atlanta, Georgia. Our other distribution center is a 100,000 square foot facility located in Chino, California. Our distribution centers are flow-through facilities that receive and allocate merchandise to our stores. No reserve storage is maintained at these centers.

We are in the final stages of equipping and testing the material handling and warehouse management systems in our new 416,000 square foot distribution center in Burlington, New Jersey. Our new distribution center has been designed to accommodate reserve storage that will be introduced to better service the stores which will be supplied by this distribution center. We are planning to retrofit our existing distribution centers to accommodate reserve storage in 2003. We expect to gradually commence operations at the Burlington, New Jersey distribution center beginning in our second quarter 2003, and to be fully operational in our third quarter

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2003. Once fully implemented, we believe our supply chain redesign and upgrades will enable us to improve the flow of merchandise to our stores, improve merchandise in-stock levels and reduce overall inventories.

We use a combination of common carriers and contract carriers who operate tractor trailers to deliver merchandise from our vendors and distribution centers to our stores.

Information Systems

We have upgraded and integrated a “best of breed” portfolio of information systems utilized in our business. The core merchandising functions are supported by a suite of systems provided by JDA Software, Inc., an industry leader in retail system software development. JDA’s Merchandise Management System supports our purchase order, inventory management and tracking functions. Planning, allocations and automated replenishment ordering of merchandise are supported by JDA’s Arthur Planning & Allocation systems and E-3 Corporation’s Replenishment systems. These integrated systems facilitate precise, real time analysis of information that has led to improved merchandise in-stock levels at our stores while reducing our overall inventories. We continue to upgrade our systems in order to support our conversion to reserve storage capabilities in our distribution centers.

MarketMax’s merchandise assortment and space planning software continues to be deployed in concert with seasonal category merchandise sets and will enhance our ability to provide store product assortments tailored to individual sporting goods markets. Utilizing JDA’s Retail Ideas, a data warehouse system that stores detailed sales information, in combination with other sophisticated decision support tools, we are able to analyze our daily inventory and sales activity in a number of ways, including by store and SKU.

Supply chain activities are supported primarily by QRS Corporation’s automated purchase order transmission and receipt advisement software and services, Manhattan Associates’ PKMS warehouse management systems and JDA’s suite of systems. These integrated systems allow us to electronically track purchase orders from the time of the order to the final destination and electronic receipt at our stores or distribution centers. Various other reporting and tracking systems provide continuous monitoring of our merchandise within the supply chain.

Store sales transactions are supported by NCR Corporation’s point of sale registers. As part of our new store format and remodel initiatives, an upgraded wireless in-store infrastructure is being installed to support a new generation of wireless access devices that will provide enhanced functionality for customer price verification and inventory management functions.

We are in the early stages of a phased implementation of Kronos’ Internet-based Work Force Central and Smart Scheduler labor management tools that electronically collect labor data that will allow us to measure and improve store workforce productivity.

We communicate with our stores interactively over a sophisticated voice/data network providing a continuous interchange of data and information. Our retail and financial systems utilize IBM’s AS/400 and RS/6000 hardware architectures with Oracle and IBM DB2 databases. Our financial functions are supported by the full suite of Lawson Financial software, which is integrated with the merchandise and supply chain support systems.

Advertising and Promotion

We advertise our merchandise and seek to build name recognition and market share through newspaper advertising, direct mail, voice marketing, broadcast media, billboards and sports sponsorships. The focus on multi-store markets enables us to leverage a substantial portion of our advertising costs. In addition, we use variable levels of advertising among different markets based on effectiveness, and approach each advertising event with a season-based or savings theme. We focus 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.

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We also collect basic customer information in a database that we use for our advertising and marketing initiatives. The database includes over nine million customers. In addition, a third party private label credit card program launched in 1999 currently includes approximately 500,000 customers.

Community Involvement

We committed $1.1 million per year to the Boys & Girls Clubs of America for 2002 and 2003 to fund the operations of the Fitness Authority, a health and fitness educational program that encourages young people to participate in training, fitness evaluations and fitness events. The Fitness Authority events include year-round, age-appropriate fitness activities culminating in regional and national competitions. The Boys & Girls Clubs of America is a national network of over 3,000 clubs that promote and enhance the development of boys and girls by instilling a sense of competence, usefulness, belonging and influence.

Trademarks And Service Marks

We use “The Sports Authority” as our trade name and apply to qualify to do business as such in each jurisdiction where we operate stores under that name. Our retail identity is comprised of the trade name, as well as three families of trademarks and service marks featuring the words “Authority” and “Play,” as well as the names associated with our private label products. Many of these names are registered, or the subject of pending applications, with the U.S. Patent and Trademark Office and other applicable offices around the world. Marks registered in the United States in the “Authority” family include “Authority,” “The Sports Authority,” “Sports Authority,” “The Ski Authority,” “Golf Authority,” “Tennis Authority” and “Team Sports Authority,” among others. Marks used in the “Play” family include “Get Out and Play” and “Come In and Play,” among others. Marks used in our private label program include those listed under the caption “Merchandising.” We vigorously protect our trademarks, service marks and trade name from infringement throughout the world by strategic registration and enforcement efforts. Use of these marks is based on a license from The Sports Authority Michigan, Inc., our wholly-owned subsidiary.

Employees

We have approximately 5,300 full-time and 4,700 part-time employees. Of these, approximately 9,100 are employed in our stores and approximately 900 are employed in corporate office positions, regional and district positions, and our distribution centers. None of our employees are covered by a collective bargaining agreement. We believe that our relationship with our employees is good.

Seasonality

Our annual business cycle is seasonal, with higher sales and profits occurring in the second and fourth quarters. In 2002, our sales trended as follows: 24.8% in the first quarter, 26.3% in the second quarter, 21.7% in the third quarter and 27.2% in the fourth quarter.

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ITEM 2. PROPERTIES

The following table lists the location, by state, of our stores as of February 1, 2003.

We operate seven owned stores and 198 stores under long-term leases. We own two additional locations that are closed stores. Store leases typically provide for an initial 10 to 20 year term with multiple five-year renewal options. As current leases expire, we believe that we will generally be able to obtain lease renewals for present store locations, if desired, or obtain leases for equivalent or better locations in the same general area. In most cases, our 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 of our store leases are guaranteed by Kmart Corporation. We anticipate that Kmart will seek to extinguish its contingent liability under the guarantees in its bankruptcy proceedings. We do not expect the extinguishment of the guarantees to have a material impact on our business.

We lease a building at 3383 North State Road 7, Fort Lauderdale, Florida, containing approximately 106,000 square feet. This facility houses our corporate offices. Four years remain on the term of this lease and we have two 10-year renewal options. We lease a distribution center containing approximately 300,000 square feet near Atlanta, Georgia pursuant to a lease which expires in September 2010. We also lease a distribution center containing approximately 100,000 square feet in Chino, California pursuant to a lease which expires in March 2004 and a distribution center containing approximately 416,000 square feet in Burlington, New Jersey pursuant to a lease which expires in March 2013. The Burlington distribution center is expected to gradually commence operations beginning in our second quarter of 2003.

We have assigned or terminated our lease obligations at 13 stores that we have closed, and have entered into long-term subleases at three others, one of which covers approximately one-half of the store. We continue our efforts to dispose of the remaining closed store sites which include four leased stores, the remaining space in one leased store and two owned properties.

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ITEM 3. LEGAL PROCEEDINGS

We are one of thirty-three named 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 us in November 1998. The complaint was based on legal theories of public nuisance and negligent entrustment of firearms and alleged that the defendants distributed, marketed and 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 $433 million to compensate the City of Chicago and Cook County for their alleged costs resulting from the alleged public nuisance. The complaint also sought punitive damages and injunctive relief imposing additional regulations on the methods the defendants use to distribute, market and 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 contained both the public nuisance and negligent entrustment counts. In September 2000, the Court granted the motions of the defendants to dismiss the amended complaint, in its entirety, with prejudice. In October 2000, the plaintiffs appealed to the Appellate Court of Illinois, First Judicial District, but did not pursue the negligent entrustment issue before the Appellate Court. On November 4, 2002, the Appellate Court reversed the dismissal of the amended complaint and remanded the case to the trial court for further proceedings on the public nuisance issue. On November 25, 2002, we filed a petition for rehearing with the Appellate Court which was denied on March 7, 2003. On March 27, 2003, we joined in the petition for leave to appeal to the Illinois Supreme Court by the other defendants of the Appellate Court’s decision reversing the trial court’s dismissal of the amended case. We are currently unable to predict the outcome of this case.

There are various other claims, lawsuits and pending actions against us incident to our operations. In the opinion of management, the ultimate resolution of these matters will not have a material effect on our liquidity, financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

Price Range of Common Stock

Our Common Stock is traded on the New York Stock Exchange (“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.

As of March 31, 2003, we had approximately 2,001 shareholders of record. The number of holders of Common Stock does not include the beneficial owners of Common Stock whose shares are held in the name of banks, brokers, nominees or other fiduciaries.

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Dividend Policy

We did not declare any dividends in 2001 or 2002 and intend to retain our earnings to finance future internal investments. Therefore, we do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of dividends, if any, is subject to the discretion of our Board of Directors and to certain limitations under the General Corporation Law of the State of Delaware. In addition, certain agreements contain restrictions on our ability to pay dividends. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors.

Securities Authorized for Issuance Under Equity Compensation Plans. See Item 12 of this Annual Report.

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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below reflects our historical results of operations, financial position and operating data 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.

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SELECTED CONSOLIDATED FINANCIAL DATA, continued

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Results of Operations

The following table sets forth our statement of income data as a percent of sales for the periods indicated.

The following table sets forth our store openings and closings for the periods indicated.

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Critical Accounting Policies and Use of Estimates

Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing our consolidated financial statements, we are required to make estimates and judgments that affect the results of operations and the reported value of assets and liabilities. Actual results may differ from these estimates. We believe that the following summarizes the critical accounting policies that require significant judgments and estimates in the preparation of our consolidated financial statements. We made no material changes in the estimation methods used, or application of, our critical accounting policies in 2002.

Vendor Entitlements

Entitlements include rebates, allowances and cooperative advertising funds received from vendors. These funds are determined for each fiscal year and are, at times, dependent on projected purchase volumes and advertising plans. The amounts we receive are subject to changes in market conditions or marketing strategies for the vendors, and changes in our profitability or sell-through of the related merchandise. We record an estimate of earned entitlements based on the latest information available with respect to purchase volumes, advertising plans and status of negotiations with vendors. Certain vendor allowances are used exclusively for promotions and other direct expenses and are recognized as a reduction of selling, general and administrative expenses when earned. Rebates and other incentives are earned based on purchases and/or product sales. These monies are treated as a reduction of inventories and therefore reduce cost of sales as the inventories are sold.

Inventory Valuation

Lower of Cost or Market: Inventory is valued using the lower of weighted average cost or market method. Market is determined based on estimated net realizable value, which is generally the selling price of the merchandise. We regularly review aged and excess inventories to determine if the carrying value of such inventories exceeds realizable value, and record a reserve to reduce the carrying value to net realizable value as necessary. A determination of net realizable value requires significant judgment and estimates and is based on the age and levels of inventories, our historical markdown experience, anticipated markdowns, future merchandising and advertising plans, seasonal considerations, expected business trends and other factors.

Shrink Reserves: Shrink is accrued as a percentage of merchandise sales based on historical shrink trends. We perform physical inventories at the stores and distribution centers throughout the year. The shrink reserve at February 1, 2003 represents an estimate of shrink at each location since the last physical inventory date. Estimates by location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results.

Store Exit Reserves

Store exit reserves represent obligations associated with closed stores, which are established at the net present value of estimated costs to be incurred beyond the store closing date until final disposition of the property, including lease obligations, real estate taxes and other occupancy related costs. We actively pursue the sublease, assignment or termination of lease obligations at closed store sites. In recording store exit reserves, future obligations under store leases are reduced by estimated sublease receipts. The estimate of sublease amounts, as well as the estimate of time to secure a subtenant or to otherwise dispose of the lease obligation, requires significant judgment. Such estimates are based on our historical experience, broker analyses, the status of current negotiations on subleases and assignments, and current economic and real estate market conditions. We regularly review store exit reserves for adequacy based on current information and make adjustments to the reserves as necessary.

Asset Impairment

We review the carrying value of long-lived assets whenever events and circumstances indicate that the carrying value of assets may not be recoverable based on estimated future cash flows. Assets held for use are reviewed at the lowest level for which cash flows can be identified, which is the store level.

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In determining future cash flows, significant estimates are made with respect to future operating results of each store over its remaining lease term. Assets are written down to fair value, as measured by discounted future cash flows, when a determination is made that the carrying value of long-lived assets may not be recoverable. Assets held for sale, consisting solely of real property at closed store sites, are evaluated for impairment based on recent appraisals or broker estimates, less estimated costs to sell.

Income Taxes

Deferred tax assets and liabilities are recognized based on differences between the financial statement carrying amount and the tax bases of assets and liabilities. Deferred tax assets are reviewed for recoverability based on projections of future operating results, which dictate our ability to realize the tax assets. In 1999, we recorded a valuation allowance on 100% of our deferred tax assets based on a presumption that such tax assets would not be realizable due to recurring losses at that time. In the fourth quarter of 2002, we reversed the valuation allowance on our federal deferred tax assets and a portion of our state deferred tax assets. Based on improved financial performance in each of the last three years, as well as current tax planning strategies and management estimates of future taxable income, we now believe it is more likely than not that the related deferred tax assets will be realized.

Self-Insured Reserves

We are self-insured for our employee medical and dental plans, and for workers’ compensation and general liability, up to a self-insured retention amount. We record a reserve for the estimated cost of both reported and incurred but not reported (“IBNR”) claims. The estimate of our current claim obligation requires significant judgment and is based on specific loss estimates for reported claims, and on loss triangulation estimates of future claims payments, including IBNR’s. Reserves are regularly evaluated for adequacy based on the most current available information, including historical claims experience and expected future claims costs.

Analysis of Operating Results

Fiscal Years Ended February 1, 2003 (fiscal 2002) and February 2, 2002 (fiscal 2001)

Sales in 2002 were $1,426.9 million, an increase of $11.3 million, or 0.8% from sales of $1,415.6 million in 2001. The increase was attributable to sales from new store openings, including six full-line stores and one limited format store, of $14.7 million, and non-comparable sales from the commercial and catalog programs of $0.5 million. Excluding these sales, comparable store sales declined $3.9 million or 0.3%.

Through the first 39 weeks of 2002, comparable store sales increased 1.5%; however, earlier gains were offset by a decline in the fourth quarter of $19.0 million or 4.7%. The fourth quarter performance reflected a weak holiday selling season hampered by continued softness in the economy as well as one less week in the selling period between Thanksgiving and Christmas compared to 2001. Additionally, weather trends impacted key categories such as footwear, golf and basketball, which benefited from a mild winter in 2001, but were hurt by the severe winter weather in 2002. For the full year, most categories had sales gains, with solid increases in licensed merchandise, team sports, footwear and ladies apparel. Partially offsetting these gains were double-digit declines in the in-line skate category, a continuing trend for this category, and in the marine category, which continues to feel pressure from the decline in average unit retail prices on electronic products. We consider our store remodeling program a key initiative to protect and drive top-line sales. In 2002, we completed 30 remodels to convert stores from a warehouse format to a specialty store-within-a-store format. Based on the limited sales history available since completion of the remodels, the remodeled stores in aggregate are achieving or exceeding targeted comparable sales increases and return-on-investment criteria.

License fee income consists primarily of royalties earned under an agreement with Mega Sports, Inc. (“Mega Sports”), a joint venture between us and AEON, Co., Ltd. Royalties under this agreement were $3.9 million and $3.1 million in 2002 and 2001, respectively. (See Note 4 of the Notes to Consolidated Financial Statements.) We also have a License and E-Commerce Agreement with a wholly-owned subsidiary of GSI Commerce, Inc. (“GSI”), which operates the website www.thesportsauthority.com.

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Royalties earned under this agreement were $0.8 million and $0.2 million in 2002 and 2001, respectively.

Cost of merchandise sold, which includes certain buying and occupancy costs, decreased from 72.7% of sales in 2001 to 72.2% of sales in 2002, producing a gross margin increase of 50 basis points. The margin improvement reflected a decline in product costs from buying initiatives such as vendor bidding, and the increased penetration of private label merchandise, which comprised approximately 8% of sales in 2002. Improvements from these initiatives were partly offset by increases in inventory shrink and allocated occupancy costs. We experienced a significant increase in shrink rates in 2002, which we attribute to: (i) the more precise measurement of shrink (and all other components of margin) under the cost method of accounting versus the retail inventory method of accounting used previously, and (ii) an improved merchandise assortment, including a broader selection of higher-priced merchandise. We implemented a number of initiatives beginning in the second quarter of 2002 to address this trend, including the continuing conversion to full-service footwear departments that limit access to inventories and improved physical security of other shrink sensitive items. We believe these initiatives contributed to a modest improvement in shrink rates experienced in the fourth quarter of 2002 compared to results earlier in the year. Allocated occupancy costs increased 60 basis points in 2002 due to the sale-leaseback of 10 stores during 2001, one store in the second quarter of 2002, and seven new store openings during the year. The sale-leaseback transactions impact the Consolidated Statements of Income by converting depreciation and interest expense into allocated occupancy costs, thereby reducing gross margin.

Selling, general and administrative (“SG&A”) expenses were $371.6 million, or 26.0% of sales in 2002, compared to $360.8 million, or 25.5% of sales in the prior year, an increase of $10.8 million. The increase was primarily attributable to an increase in store and corporate payroll and benefits due to: (i) a $5.3 million increase in bonus expense as a result of improved financial performance in 2002; (ii) a $2.7 million increase in payroll due to new store openings and higher pay rates; (iii) a $3.6 million increase in benefits, of which $1.5 million related to increased costs under medical and workers’ compensation plans; and (iv) a $1.6 million charge for expenses related to the proposed merger. (See Note 17 of the Notes to Consolidated Financial Statements.) These increases were partially offset by a $2.6 million decline in depreciation expense due to the sale-leaseback transactions and a change in the estimated useful life of leasehold improvements. Beginning in the third quarter of 2002, we changed the estimated useful life of leasehold improvements from ten years to the remaining term of the underlying property lease, plus renewal options which management has committed to exercise. The change resulted in a reduction in depreciation expense of approximately $0.6 million in 2002.

Pre-opening expense was $1.7 million, or 0.1% percent of sales, and related to the opening of six full-line format stores and one limited format concept store. No stores were opened in 2001. Pre-opening expense consists principally of store payroll expense for associate training and store preparation prior to store opening, operating expenses and grand-opening advertising costs.

Store exit costs represent estimated costs to be incurred beyond the store closing date and through final disposition, including rent, common area maintenance charges, real property taxes and employee severance. (See Note 5 of the Notes to Consolidated Financial Statements.) Store exit costs were $1.7 million in 2002, compared to $5.6 million in 2001. The 2002 charge reflected net adjustments to existing reserves principally due to revised assumptions with respect to the estimated time to market remaining idle properties and achievable sublease rates, partially offset by the reversal of reserves for one store which we intend to reopen. Estimates of the time and rate at which closed stores can be marketed are based on current broker analyses, the status of negotiations on subleases and assignments, economic outlook, trends in the real estate market in general, and our closed store disposition experience in particular.

In the fourth quarter of 2002, we recorded an impairment charge of $2.7 million to write down the value of certain long-lived assets to recoverable value. The charge included the write down of assets at three open, leased stores based on a determination that the carrying value of assets at these locations exceeded estimated future cash flows. Additionally, one closed, owned property was written down to current market value less cost to sell.

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Interest, net was $4.6 million, or 0.3% of sales in 2002, compared to $13.3 million, or 0.9% of sales in 2001. The $8.7 million decrease reflected the reduction in borrowings under our committed revolving credit facility (“Credit Facility”), along with a decline in market interest rates during 2002. Additionally, interest expense was offset by interest income of $2.3 million on mortgage notes which we acquired in January 2002. (See Note 8 of the Notes to Consolidated Financial Statements.) The weighted average interest rate on Credit Facility borrowings was 3.7% in 2002, compared to 5.8% in 2001.

In the fourth quarter of 2002, we reversed the valuation allowance on 100% of our federal deferred tax assets, and a portion of our state deferred tax assets, resulting in an income tax benefit of $40.6 million. The valuation allowance was recorded in 1999 based on a presumption that such tax assets would not be realizable due to recurring losses at that time. As a result of improved financial performance in the last three years, as well as current tax planning strategies and management estimates of future taxable income, we now believe it is more likely than not that our federal deferred tax assets will be realized. Accordingly, we have reversed the allowance on such assets. The remaining valuation allowance of $8.1 million relates to state deferred tax assets for which there is continued uncertainty as to whether such assets are realizable. Exclusive of the one-time benefit, we recorded no tax provision in 2002 or 2001 due to the utilization of net operating loss carryforwards and the net reversal of other tax deductible temporary differences to offset taxable income. We expect our effective tax rate in 2003 to approximate the statutory rate of 39%.

Net income was $59.7 million in 2002, compared to $12.4 million in the prior year.

Fiscal Years Ended February 2, 2002 (fiscal 2001) and February 3, 2001 (fiscal 2000)

Sales for the 52 weeks ended February 2, 2002 were $1,415.6 million, a decrease of $70.2 million, or 4.7%, from sales of $1,485.8 million for the 53 weeks ended February 3, 2001. In the first quarter of 2001, we adopted Emerging Issues Task Force Issue No. 00-14 (“EITF 00-14”), “Accounting for Certain Sales Incentives,” which requires that sales be reported net of sales incentives such as coupons and rebates. In order to make sales in fiscal 2001 and 2000 comparable, sales in fiscal 2000 reflect the reclassification of $13.0 million in sales incentives, which were previously treated as a component of merchandise costs or as selling, general and administrative expense.

Results for fiscal 2000 include sales from closed stores of $21.0 million. During 2000, we closed ten stores, including two clearance stores, pursuant to store closing plans. Additionally, fiscal 2000 includes sales for 53 weeks, versus 52 weeks in 2001, producing a decline in sales of approximately $20.3 million. Excluding the impact of store closings and the 53-52 week comparison, sales decreased $28.9 million, or 2.0%. The decrease was attributable to a comparable store sales decline of $43.6 million, or 3.0%, partially offset by non-comparable sales from stores opened in 2000. In deriving comparable store sales, sales in the prior fiscal year were adjusted for the difference between the 2000 and 2001 calendars such that only comparable days are included in the measurement.

The decrease in comparable store sales reflected the soft economic climate in 2001, which deteriorated further after the terrorist attacks on September 11, 2001. The decline also resulted from a comparison to prior year non-comparable events such as Major League Baseball’s “Subway Series” and the scooter fad; however, comparable store sales increased 1.0% in the fourth quarter of 2001, reflecting an improved retail climate combined with the increasing impact of turnaround initiatives implemented throughout 2001. Key initiatives included: improving in-stock positions by increasing the number of SKU’s on automatic replenishment and other supply chain improvements; enhancing advertising effectiveness by changing the timing and type of media used; and increasing sales productivity through employee training and certification programs. In terms of merchandise sales mix, fitness, ladies activewear and bicycles performed well throughout 2001, and footwear and basketball showed significant improvements in the fourth quarter. Gains in these areas were offset by declines in the hunting and fishing categories, in-line skates and licensed product.

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License fee income consisted primarily of royalties earned under the license agreement with Mega Sports of $3.1 million and $2.4 million in 2001 and 2000, respectively. Royalties earned under the License and E-commerce Agreement were $0.2 million in both years.

Cost of merchandise sold decreased from 73.4% of sales in 2000 to 72.7% of sales in 2001, resulting in a gross margin increase of 70 basis points. The improvement in gross margin reflected the positive impact of vendor bidding programs, the increasing contribution from the private label and import business, and lower markdown and promotional activity as a result of strong inventory management. During the first quarter of 2001, we converted from the retail inventory method of accounting for inventories to the lower of weighted average cost or market method. The effect of the change on gross margin year over year is not determinable.

SG&A expenses were $360.8 million, or 25.5% of sales, in 2001, compared to $366.1 million, or 24.6% of sales in the prior year. The expense decrease was due primarily to a $5.3 million decline in store payroll expense, reflecting strong payroll management in order to better leverage this expense and improve payroll productivity. Other operational expense reductions included a $2.0 million decrease in equipment lease expense resulting from the purchase of equipment previously under operating leases, and an $0.8 million decline in tender fees due mainly to point-of-sale systems enhancements that allow us to process debit card transactions at a lower rate than credit cards. These savings were offset by a $1.4 million increase in costs under our self-insured workers’ compensation plan, and by a $1.6 million increase in advertising expense.

We opened no new stores in 2001, compared to five store openings in 2000 at a cost of $2.1 million.

Store exit costs were $5.6 million in 2001, compared to $2.8 million in 2000. The 2001 charge reflected net adjustments to existing reserves due to: (i) revised assumptions with respect to the estimated time to market remaining idle properties and anticipated sublease rates; plus (ii) lease termination fees for two stores which exceeded available reserves for these stores; partially offset by (iii) a reversal of reserves for one store reopened in 2002 using our new store format. In the first quarter of 2000, we closed five remaining Canadian stores pursuant to an announced store exit plan. Results of operations for the 53 weeks ended February 3, 2001 include sales of $3.4 million and operating income of $0.6 million related to the Canadian subsidiary.

During the first quarter of 2001, we approved a corporate restructuring plan to consolidate certain departmental functions. In conjunction with this plan, we eliminated 44 positions and recorded a charge of $0.8 million for employment termination benefits. Obligations under this plan have been fully satisfied.

Interest, net was $13.3 million, or 0.9% of sales in 2001, compared to $20.7 million, or 1.4% of sales in 2000. The $7.4 million decrease reflected the decline in interest rates during 2001, a reduction in borrowings under the Credit Facility, and retirement of our remaining obligation under the 5.25% Convertible Subordinated Notes (the “Notes”), which matured in September 2001. The weighted average interest rate on Credit Facility borrowings was 5.8% in 2001, compared to 9.1% in 2000.

During 2001, we exercised warrants to purchase stock in GSI, which we received as part of our e-commerce relationship with that company. The shares so acquired were immediately sold for net proceeds of $2.5 million. The gain has been reflected as other (non-operating) income in the accompanying Consolidated Statements of Income. As a result of these transactions, we have no further stock or warrant interest in GSI.

We had a nominal effective tax rate in 2001 and 2000 due to the utilization of net operating loss carryforwards and the reversal of tax-deductible timing differences to offset taxable income. We reduced the valuation allowance on our deferred tax assets by $3.1 million and $9.3 million in 2001 and 2000, respectively, principally due to utilization of the net operating loss carryforwards and other changes in deferred taxes.

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Prior to their September 2001 maturity, we purchased $31.9 million principal amount of the Notes for $31.4 million, and recorded an extraordinary gain of $0.5 million in 2001. In 2000, we purchased $81.3 million principal amount of the Notes for $60.0 million, and recorded a gain of $18.6 million, net of tax of $2.0 million.

Net income was $12.4 million in 2001, compared to $25.4 million in the prior year.

Liquidity and Capital Resources

Our principal capital requirements are to fund seasonal working capital needs and capital expenditures. In 2002, these capital requirements were generally funded by cash flows from operations. Cash flows from operating, investing and financing activities for 2002, 2001, and 2000 are summarized below.

Net cash provided by operations was $69.6 million in 2002, compared to $71.2 million in 2001 and $22.0 million in 2000. Inventory levels and accounts payable financing had little impact on cash flows in 2002 as a $3.9 million decline in inventory was offset by a $4.4 million decline in accounts payable. Conversely, cash flows in 2001 included $43.3 million related to inventory reductions combined with a higher level of accounts payable financing. The net decline of $43.8 million from these factors was partially offset by a $4.7 million increase in cash flows from income before non-cash items and non-routine credits and charges, from $57.8 million in 2001 to $62.5 million in 2002. Additionally, accrued payroll and other liabilities increased $11.4 million in 2002, versus a decline of $12.2 million in 2001, producing a change in operating cash flows of $23.6 million. The $11.4 million increase in accrued expenses in 2002 related primarily to a $6.0 million increase in bonus and deferred compensation accruals, while the decline in 2001 was due to higher payments under store exit reserves due to lease termination fees paid that year. We have ongoing obligations for lease and other occupancy costs at closed stores, and paid $3.6 million, $14.5 million, and $15.9 million, net of sublease income, in 2002, 2001, and 2000, respectively. Payments in 2003 are expected to approximate $3.6 million but may vary materially depending on lease buy out or assignment opportunities.

Net cash used for investing activities was $14.3 million in 2002, compared to $0.7 million in 2001 and $37.9 million in 2000. The increase in cash flows used for investing activities reflected an increase in capital expenditures, from $20.5 million in 2001 to $38.3 million in 2002. Capital expenditures in 2002 included $17.1 million to refurbish existing stores, $7.5 million for upgrades to information systems, $5.7 million for seven new stores, and $6.2 million primarily for development of a new regional distribution center (“RDC”) in Burlington, N.J. scheduled to gradually commence operations in the second quarter of 2003. In 2002, cash flows used for capital expenditures were partially offset by receipt of $16.0 million principal amount on mortgage notes then held by us and by proceeds of $5.9 million on the sale-leaseback of one store site. Mortgage notes related to five of our leased store sites were put to us and Kmart Corporation (“Kmart”) pursuant to a Note Put Agreement as more fully described in Note 8 of the Notes to Consolidated Financial Statements. As a result of the put, we paid $24.7 million principal amount for the notes in the fourth quarter of 2001 which were recorded as a prepayment of rent in the accompanying Consolidated Balance Sheets. During 2002, mortgage notes related to three of these stores were paid in full when the landlord-borrower(s) refinanced the notes or otherwise disposed of the underlying property. We received $15.7 million principal amount on the early retirement of these notes, and also received scheduled principal payments during the year of $0.3 million. As a result of these payments, the remaining principal balance due us at February 1, 2003 was $8.7 million and related to two stores sites. Separately, we completed a sale-leaseback of one store location in the second quarter of 2002 for essentially the book value of the property. In 2001, capital expenditures and the purchase of the mortgage notes were financed with proceeds from the sale-leaseback of ten stores for net proceeds of $43.9 million.

Net cash (used for) provided by financing activities was ($58.7) million in 2002, compared to $(70.0) million and $11.6 million in 2001 and 2000, respectively. The decline in financing cash flows during 2002 and 2001 resulted from a reduction in borrowings under the Credit Facility and retirement of the Notes in September 2001. These debt reductions were financed primarily with cash flows from operations and proceeds from the 2002 and 2001 sale-leaseback transactions. In contrast, we relied on borrowings under the Credit Facility during 2000, in addition to operating cash flows, to finance Notes purchases and capital expenditures.

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Our principal source of external financing consists of the $335 million committed Credit Facility. In November 2002, the Credit Facility was amended to extend its term from September 2003 to September 2006. Additionally, the interest rate margin that we pay on borrowings was changed to a range of 1.50% to 2.25%, based on collateral availability and attainment of certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) thresholds. Previously, the margin rate had ranged from 1.75% to 2.25%, based on collateral availability. The amendment also increased the inventory advance rate used to determine our borrowing base, and includes a provision which permits limited repurchases of our common stock. We remain subject to a limitation on stock repurchases under the Lease Guaranty, Indemnification and Reimbursement Agreement between us and Kmart. We expect that Kmart will be discharged of its obligations under this agreement in its bankruptcy proceedings, which would also terminate the limitation on our ability to repurchase our common stock.

Borrowings under the Credit Facility are secured by a pledge of inventories, accounts receivable, the mortgage notes acquired on February 1, 2002 and certain owned real estate. As a result of the 2001 and 2002 sale-leaseback transactions, mortgaged real estate has been reduced to nine owned store locations with a book value at February 1, 2003 of $33.4 million. Borrowings under the Credit Facility are limited to a borrowing base determined primarily by advance rate percentages applied against pledged assets. At February 1, 2003, outstanding borrowings under the Credit Facility were $121.4 million, and unused availability was $121.6 million. Amounts under documentary and standby letters of credit, which also reduce borrowing availability, aggregated $8.8 million.

Our working capital at February 1, 2003 was $181.8 million, compared to $188.7 million at February 2, 2002. The decrease of $6.9 million was due primarily to an increase in accrued payroll and other liabilities, reflecting increased bonus and other incentive compensation accruals as a result of the improved financial performance in 2002.

We opened seven new stores in 2002 pursuant to our strategy of focused growth. Our 2002 plan assumed three store openings in 2002, but additional stores were opened as a result of real estate opportunities and available cash flow. One new store is a limited format store with square footage of only approximately 6,000 square feet, versus our traditional full-line format store, which typically approximates 40,000 square feet. We are testing this limited format store. We estimate total capital expenditures in 2003 of $50—$55 million, primarily for 40 major store remodels, completion of the new RDC in Burlington, N.J., retrofit of the two existing RDC’s, and approximately seven new store openings.

We believe that anticipated cash flows from operations, combined with borrowings under the Credit Facility, will be sufficient to fund working capital and to finance capital expenditures during the next 12 months.

Proposed Merger

On February 20, 2003, we announced that we had entered into an Agreement and Plan of Merger (“Merger Agreement”) dated February 19, 2003 with Gart Sports Company (“Gart Sports”), and Gold Acquisition Corp., a wholly-owned subsidiary of Gart Sports (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will be merged with and into us, we will become a wholly-owned subsidiary of Gart Sports, and Gart Sports will change its name to The Sports Authority, Inc. Our shareholders will receive 0.37 of a share of Gart Sports’ common stock for each share of our common stock.

The transaction is subject to: (i) adoption of the merger agreement and approval of the merger by our shareholders; (ii) the approval by Gart Sports’ shareholders of the issuance of Gart common stock in connection with the merger and of amendments to its certificate of incorporation to increase the number of shares of its stock and to change its name to The Sports Authority, Inc.; (iii) absence of any legal restraint (including the expiration or termination of the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976); (iv) the effectiveness of a registration statement on Form S-4 for the shares of Gart Sports to be issued in the merger; (v) Gart Sports entering into a credit facility; (vi) Gart Sports and our receipt of a legal opinion that the merger will be treated as a “reorganization” and therefore not a taxable transaction to our

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shareholders; and (vii) absence of a material adverse effect on the other party, accuracy of the representations made by the other party and performance of covenants by the other party. The merger is structured to be tax-free to our shareholders. On April 2, 2003, the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” which requires capitalization of any retirement costs as part of the total cost of the related long-lived asset. Adoption of SFAS 143 is required for years beginning after June 15, 2002. We do not expect that the implementation of SFAS 143 will have a material impact on our financial position or results of operations.

In June 2002, the FASB issued SFAS 146, “Obligations Associated with Exit or Disposal Activities.” SFAS 146 requires companies to record a liability for costs associated with an exit activity when that liability is incurred and can be measured at fair value. SFAS 146 is required for exit activities initiated after December 31, 2002. We do not expect that the implementation of SFAS 146 will have a material impact on our financial position or results of operations.

In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.” The Task Force concluded that such consideration constitutes a reduction in vendor price, and should therefore be reflected as a reduction in inventories that would reduce cost of sales as the related merchandise is sold. This presumption can be overcome in two circumstances: (i) the consideration is a payment for assets or services delivered to the vendor, or; (ii) the consideration constitutes a reimbursement of costs incurred by the customer to sell the vendor’s products. Issue No. 02-16 is effective for us beginning in 2003. Currently, we treat certain of our entitlements as a reduction of the purchase price of inventory, and others as a reduction of SG&A expense as earned. We have not yet determined the impact the adoption of this consensus will have on our financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the variable interest entity. The primary beneficiary is defined as the party which, as a result of holding its variable interest, absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We do not expect that the implementation of FIN 46 will have a material impact on our financial position or results of operations.

Seasonality and Inflation

Our annual business cycle is seasonal, with higher sales and profits occurring in the second and fourth quarters. In 2002, our sales trended as follows: 24.8% in the first quarter, 26.3% in the second quarter, 21.7% in the third quarter and 27.2% in the fourth quarter.

Management does not believe inflation had a material effect on the financial statements for the periods presented.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates on debt obligations. Our debt consists primarily of variable interest rate borrowings under the Credit Facility. A hypothetical 1.0 percentage point increase in interest rates applied to 2002 average borrowings would result in an increase in interest expense of $1.5 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is listed in the Financial Statement index in Item 15 under the captions “Management’s Responsibility for Financial Reporting,” “Report of Independent Certified Public Accountants,” “Consolidated Statements of Income for the fiscal years ended February 1, 2003, February 2, 2002, and February 3, 2001,” “Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002,” “Consolidated Statements of Stockholders’ Equity for the fiscal years ended February 1, 2003, February 2, 2002, and February 3, 2001,” “Consolidated Statements of Cash Flows for the fiscal years ended February 1, 2003, February 2, 2002, and February 3, 2001,” and “Notes to Consolidated Financial Statements.”

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

None.

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PART III

Directors

The following table and information sets forth the names of the Directors, the year from which each individual has served as a Director, the age of each Director and the principal occupation or employment of each Director.

Martin E. Hanaka. Mr. Hanaka joined us in February 1998 as our Vice Chairman and currently serves as our Chief Executive Officer since his election in September 1998. He has served as our Chairman since November 1999. From 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 includes 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 during his 20 year career at Sears Roebuck & Co., most recently as Vice President in charge of Sears Brand Central. Mr. Hanaka also serves as a director of Trans-World Entertainment, a movie and video retail chain under several brands, and the Sporting Goods Manufacturers Association, as a National Trustee of the Boys & Girls Clubs of America, and as a member of the Cornell University Entrepreneurship and Personal Enterprise Council and the Cornell University Council.

A. David Brown. Mr. Brown is a Partner of Whitehead Mann, an executive search firm. Mr. Brown served as the Managing Director of Pendleton James Associates, which was acquired by Whitehead Mann in August 2000, since May 1997. Mr. Brown served as Vice President of the Worldwide Retail/Fashion Specialty Practice at Korn/Ferry International from June 1994 to May 1997 and as Senior Vice President for Human Resources at R.H. Macy & Co. from 1983 to June 1994. Mr. Brown was also a director of R.H. Macy & Co. from 1987 to 1992. Mr. Brown is a director of Zale Corporation, a jewelry retailer, and Selective Insurance Group, Inc. Mr. Brown also serves as a member of the Board of Trustees of Drew University, and as a member of the Board of Trustees of the Jackie Robinson Foundation.

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Mary Elizabeth Burton. Ms. Burton currently serves as the Chairman and Chief Executive Officer of BB Capital, Inc., a company which she founded in 1992 that provides retail advisory services and interim management. Previously, Ms. Burton served as the Chief Executive Officer of a number of companies, including Supercuts, Inc., PIP Printing and Cosmetic Center, Inc. Ms. Burton is also a director of Staples, Inc., Aeropostale, Inc. and Rent-A-Center, Inc.

Cynthia R. Cohen. Ms. Cohen is the founder of Strategic Mindshare, a strategic management consulting firm serving retailers, consumer product manufacturers and e-businesses. She served as President of Strategic Mindshare since the company’s organization in 1990. Prior to that, Ms. Cohen was a partner in management consulting with Deloitte & Touche LLP. Ms. Cohen is also a director of Office Depot, Inc., an office supply retailer, and Hot Topic, a teen apparel retailer. In addition, Ms. Cohen serves on the Executive Advisory Board for the Center for Retailing Education and Research at the University of Florida and is Vice Chair of the Board of the Center for Women’s Business Research.

Steve Dougherty. Mr. Dougherty is currently the President, Secretary and a director of SLD Properties, Inc., a real estate company based in Boca Raton, Florida. Mr. Dougherty has held these positions since 1993. Mr. Dougherty co-founded Office Depot, Inc. and Mr. How Warehouse, a retail home improvement chain. He served as President, Chief Operating Officer and as a director of Office Depot from 1986 until his retirement in 1990. Before 1986, Mr. Dougherty served as an executive officer and as a director of Mr. How Warehouse.

Julius W. Erving. Mr. Erving has served as Vice President of RDV Sports and as Executive Vice President of its division, the Orlando Magic Basketball Club, since June 1997. Mr. Erving engages in various product endorsements and promotions, which are managed by the Erving Group, Inc., of which he is the founder and President. He has held this position since 1979. Mr. Erving is also a director of Saks Holdings Inc., which operates retail department stores, Darden Restaurants, Inc. and Williams Communication Group.

Carol A. Farmer. Ms. Farmer has been the President of Carol Farmer Associates, Inc., a trend forecasting and retail consulting firm, since she founded it in 1984. Prior to that, Ms. Farmer was Executive Vice President of Lerner Stores and Vice President of American Can Company.

Paul E. Fulchino. Mr. Fulchino serves as the Chairman, President and Chief Executive Officer of Aviall, Inc., an independent technology-based provider of new and re-sellable component products and related services to the aviation and marine aftermarket. Mr. Fulchino has held these positions since December 1999. Between 1996 and 1999, Mr. Fulchino served as a President and Chief Operating Officer of B/E Aerospace, and he served as President and Vice Chairman of Mercer Management Consulting, an international management consulting firm, between 1990 and 1996. Mr. Fulchino also serves as a director of Aviall, Inc. and Global Technology Systems, and is a member of the President’s Advisory Board of Embry Riddle Aeronautical University.

Kevin M. McGovern. Mr. McGovern is currently the Chairman and Chief Executive Officer of McGovern Capital LLC, which structures, funds, and implements capital formation, joint ventures and business alliances. He is the principal in the law firm of McGovern & Associates. Mr. McGovern also serves as the Chairman of Greenwich Alliances, which specializes in the formation and negotiation of strategic alliances. He is also a Trustee of Cornell University.

Charles H. Moore. Mr. Moore serves as the Executive Director of the Committee to Encourage Corporate Philanthropy, having served as deputy to the Chairs from November 1999 through March 2001. Mr. Moore served as the Director of Athletics at Cornell University between 1994 and August 1999. Previously, Mr. Moore served as Executive Vice President of Illinois Tool Works, Inc. in 1991 and 1992, and as President and Chief Executive Officer of Ransburg Corporation from 1988 to 1992. Mr. Moore served as a Public Sector Director of the United States Olympic Committee and as Chairman of that organization’s Audit Committee between 1992 and 2000. Mr. Moore is currently a Governor of the National Art Museum of Sport, and formerly served as the Chairman and

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Chief Executive Officer of that organization. Mr. Moore is also a National Board member of the Smithsonian Institution, a Commissioner of the Smithsonian American Art Museum, a Regent of Mercersburg Academy, and a member of the President’s Council on Physical Fitness and Sports.

Executive Officers

The following table sets forth the name and age of each of our executive officers and all positions and offices held with us:

Martin E. Hanaka. Mr. Hanaka joined us in February 1998 as our Vice Chairman and currently serves as our Chief Executive Officer since his election in September 1998. He has served as our Chairman since November 1999. From 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 includes 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 during his 20 year career at Sears Roebuck & Co., most recently as Vice President in charge of Sears Brand Central. Mr. Hanaka also serves as a director of Trans-World Entertainment, a movie and video retail chain under several brands, and the Sporting Goods Manufacturers Association, as a National Trustee of the Boys & Girls Clubs of America, and as a member of the Cornell University Entrepreneurship and Personal Enterprise Council and the Cornell University Council.

Elliott J. Kerbis. Mr. Kerbis joined us in October 2000 as Executive Vice President—Merchandising and Sales Promotion and was promoted to President and Chief Merchandising Officer in January 2002. 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. Mr. Mihalko joined us in September 1999 as Executive Vice President and Chief Financial Officer and was promoted to Vice Chairman and Chief Administrative Officer in January 2002 while retaining his responsibilities as Chief Financial Officer. He previously served as Senior Vice President, Chief Financial Officer and Treasurer of Pamida Holdings 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. Prior to that, Mr. Mihalko held diverse management positions with Burlington Northern, Inc., Porsche Cars North America, Inc. and Firestone Tire & Rubber Company.

Louis-Philippe Vanier. Mr. Vanier joined us in September 2002 as Executive Vice President—Store Operations. From May 1999 until May 2001, he was employed by Dylex, one of Canada’s largest specialty retailers, where he served as President and Chief Executive Officer from August 2000 to May 2001, prior to which he served as President and Chief Operating Officer beginning in May 2000 and as president of its Fairweather division beginning in May 1999. Prior to that, he was employed by Duty Free Shops LP between 1987 and March 1998, most recently as its Regional President for North America beginning in March 1996.

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Todd Weyhrich. Mr. Weyhrich joined us in February 2001 as Senior Vice President and Controller and later assumed responsibility for Logistics. He previously served as Vice President—Controller, from 1995 to 2000, and Senior Vice President— Finance, from 2000 to 2001 for Pamida, Inc., which became a wholly-owned subsidiary of ShopKo Stores, Inc. in July 1999. Prior to joining Pamida, Mr. Weyhrich served in various capacities, most recently as Audit Senior Manager, with Deloitte & Touche LLP from 1985 to 1995.

Arthur Quintana. Mr. Quintana joined us 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 person listed above as an executive officer or Director.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our Directors and executive officers and any holders of more than ten percent of the shares to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of beneficial ownership on Form 3 and reports of changes in beneficial ownership of shares on Form 4 or Form 5. Copies of all of these Section 16(a) reports are required to be furnished to us. To our knowledge, based solely on a review of the copies of Section 16(a) reports furnished to us for 2002, and on representations furnished to us indicating that no Form 4 or 5 was due, all reports were filed on a timely basis.

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ITEM 11. EXECUTIVE COMPENSATION

The following table shows the compensation for each of the last three fiscal years earned by our Chief Executive Officer during 2002 and by each of our four most highly compensated executive officers who served in those capacities at the end of 2002.

Summary Compensation Table

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Stock Options

The following table shows stock options granted during 2002 to the executive officers named in the Summary Compensation Table. These option grants are also included under the heading “Shares Underlying Options” in that table. The hypothetical realizable values for each option grant are shown based on compound annual rates of share price appreciation of 0%, 5% and 10% from the grant date to the expiration date for each option. The assumed rates of appreciation are for illustration purposes only and are not intended to predict future share prices, which will depend upon market conditions and our future performance and prospects.

Stock Options Granted in Fiscal 2002