<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended January 30, 1999
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______________ to _________________
Commission File No. 0-5648
OSHMAN'S SPORTING GOODS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 74-1031691
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
2302 Maxwell Lane 77023
Houston, Texas (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (713) 928-3171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
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 [_] No [X]
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. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 23, 1999 (based upon the closing sales price as of such
date) was $7,080,458.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of April 23, 1999:
Common Stock, $1.00 par value: 5,827,249
Documents incorporated by reference: Proxy Statement for the Registrant's
Annual Meeting of Stockholders to be held June 25, 1999 (to be filed within 120
days of the close of Registrant's fiscal year) is incorporated by reference into
Part III.
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS.
DEVELOPMENT OF BUSINESS
Oshman's Sporting Goods, Inc. ("Oshman's" or the "Company"), which operates
a chain of retail sporting goods specialty stores, was incorporated in Delaware
in 1946 as the successor to a proprietorship founded by J.S. Oshman in 1931.
Unless the context otherwise requires, the terms "Oshman's" and the "Company" as
used herein include the Company and its subsidiaries, whether operating under
the name "Oshman's"(R) or "SuperSports USA"(R).
Since 1990, the Company has developed an innovative, interactive concept in
sporting goods retailing that it is implementing through its SuperSports USA
megastores. The Company has transformed its business by focusing its efforts on
opening and operating SuperSports USA megastores occupying, on average,
approximately 59,000 square feet while reducing its preexisting base of
traditional stores, which currently average approximately 11,000 square feet.
SuperSports USA megastores offer a dominant selection of sporting goods in an
environment featuring a variety of "play areas" that provide customers with the
opportunity to try out sporting goods merchandise. This "play-before-you-pay"
approach encourages customers, with the assistance of qualified sales personnel,
to purchase the equipment that best satisfies their particular needs and desires
while also providing an entertaining shopping experience.
SuperSports USA megastores are organized as a collection of distinctive
sporting goods specialty shops. The merchandising format and layout of each
megastore is designed to lead customers along a path through the store, in and
out of specialty shops that concentrate on specific sporting goods categories
such as in-line skating and skateboarding; skiing and snowboarding; cycling;
golf; tennis and other racquet sports; fitness and exercise equipment; hunting,
fishing, hiking and camping; and team sports such as baseball, softball,
football, basketball, hockey, soccer and volleyball. Each specialty area
merchandises sporting equipment as well as the appropriate apparel in a
department-store style.
At the end of fiscal 1998, the Company operated 42 SuperSports USA stores,
including 36 SuperSports USA megastores ranging in size from approximately
36,000 to 85,000 square feet and six mini SuperSports USA stores, ranging in
size from approximately 19,000 to 32,000 square feet. The mini SuperSports USA
stores include certain "play areas" and merchandise assortments similar to the
megastores, and operate under the name SuperSports USA. At the end of fiscal
1998, the Company also operated 21 traditional stores, including one clearance
store. Subsequent to the end of fiscal 1998, the Company closed a SuperSports
USA megastore in Irvine, California and opened a new SuperSports USA megastore
in Auburn Hills, Michigan. The Company's stores are located primarily in medium
to large metropolitan areas across the United States. In fiscal 1998, excluding
results from stores closed or targeted to close, the 42 SuperSports USA stores
produced 90% of the Company's retail sales and approximately 88% of direct store
contributions. Since the beginning of fiscal 1990, the Company has reduced its
traditional store base from 193 to 19 (taking into account two stores closed in
the first quarter of fiscal 1999). See "Management's Discussion and Analysis of
Financial Condition and Results of
2
<PAGE>
Operations--Store Closings." The Company operates stores in Texas and
California as well as in Arizona, Florida, Kansas, Louisiana, Michigan,
Minnesota, New Mexico, Oklahoma, South Carolina, Tennessee, Utah and Washington.
Oshman's offers a full line of sporting goods equipment, sportswear and
athletic footwear focusing on middle- to high-end products. Nationally
advertised brand name products are featured, along with the Company's own labels
in certain categories. While certain of the Company's primary megastore
competitors employ "every-day-low-price" strategies, the Company is a
promotional retailer. As such, the Company seeks to attract customers into its
stores through advertised price reductions on selected merchandise, while
maintaining full markups on other merchandise. The following table sets forth
sales of sporting goods equipment, sports apparel and footwear as a percentage
of net sales during the last three fiscal years.
PERCENTAGE OF NET SALES
-----------------------
Fiscal Year
-----------------------
1998 1997 1996
---- ---- ----
Sporting goods equipment 52% 50% 49%
Sports apparel 30% 29% 28%
Footwear 18% 21% 23%
COMPETITION
The market for retail sporting goods is highly competitive, fragmented and
segmented. The Company competes with many different types of retail stores,
including full-line sporting goods chains, specialty footwear stores, warehouse-
format stores, specialty stores, discount and department stores and other stores
with a megastore format. While its stores face competition in individual markets
from a variety of retailers, the Company believes that its greatest competition
is likely to come from other megastore operators and from warehouse-format
operations. There can be no assurance that the Company will be able to maintain
or increase its current level of pricing, sales or profitability in light of
such competition, particularly as the Company expands into markets served by
existing competitors or as new competitors enter into the Company's markets.
Furthermore, there is substantial competition from large-format retailers for
prime commercial locations and favorable lease terms that could adversely affect
both the Company's ability to expand and its profitability.
The Company's ability to remain competitive is largely dependent upon its
ability to provide a selection of merchandise that appeals to its customers'
changing desires and that appropriately reflects geographical differences in
seasonality, brands and sports preferences. A failure by the Company to
accurately identify and respond to emerging trends in sports equipment or
athletic footwear, apparel or accessories could have a material adverse effect
on the Company's financial performance and results of operations.
Several sporting goods retailers currently operate stores with a megastore
format, including some with significantly greater resources than the Company. In
addition, there are other businesses, retailers and otherwise, with
substantially greater resources than the Company
3
<PAGE>
that may decide to enter the sporting goods megastore or warehouse-format retail
business. This competition could have a material adverse effect on the Company.
TRANSFORMATION PLAN
Management believes that changing consumer preferences toward sporting goods
megastores has had a detrimental impact on the Company's existing traditional
stores and will continue to limit their potential in the future. In response to
this trend, the Company has been focusing on opening and operating its
SuperSports USA megastores. During fiscal 1998, the Company closed seven
traditional stores. At the end of fiscal 1998, the Company operated 42
SuperSports USA stores, including 36 SuperSports USA megastores and six mini
SuperSports USA stores and 21 traditional stores, including one clearance store.
Subsequent to the end of fiscal 1998, the Company opened a SuperSports USA
megastore in Auburn Hills, Michigan and closed two of its traditional stores and
a megastore in California. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impairment of Long-Lived Assets."
The Company's stores are located primarily in medium to large metropolitan areas
across the United States. Most of the remaining traditional stores are
profitable and no further major traditional store closing program is
anticipated. The Company currently intends to open from two to five additional
SuperSports USA megastores in fiscal 1999 as it continues to focus on its
existing store base and improving its systems and processes. Future store
openings are, however, dependent upon numerous factors including timing of
construction and general market conditions.
Since the beginning of fiscal 1990 the Company has closed 185 traditional
stores including two stores closed in the first quarter of fiscal 1999, two
stores converted to SuperSports USA megastores, six stores converted to mini
SuperSports USA stores and one location closed, reopened and then closed again.
Changes in the number of stores and square footage during the last nine fiscal
years are summarized below:
<TABLE>
<CAPTION>
Number of Stores Square Footage (at end of period)
---------------------------------------------- -----------------------------------
SuperSports
Traditional USA Stores Operated
Stores Stores Closed or At Traditional Supersports
Fiscal Year Opened Opened Converted Year End Stores USA stores Total
- ----------- ----------- ----------- --------- -------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1990................... 5 2 11 189 2,090,000 158,000 2,248,000
1991................... 2 0 8 183 2,036,000 158,000 2,194,000
1992................... 2 3 18 170 1,879,000 337,000 2,216,000
1993................... 1 3(a) 13(a) 161(a) 1,744,000 504,000 2,248,000
1994................... 0 4(a) 24(a) 141(a) 1,454,000 785,000 2,239,000
1995................... 0 12(b) 20 133(b) 1,196,000 1,439,000 2,635,000
1996................... 0 7 25 115 948,000 1,847,000 2,795,000
1997................... 0 12 51 70 438,000 2,145,000 2,583,000
1998................... 0 0 7 63 377,000 2,118,000 2,495,000
Traditional Stores
Converted to mini
SuperSports USA stores (c) - 6 6 63 240,000 2,255,000 2,495,000
Total................. 10 43 183
</TABLE>
___________________
(a) Includes a traditional store which was expanded and converted to a
megastore.
(b) Includes megastores opened at seven locations purchased from SportsTown,
Inc.
(c) Stores ranging in size from 19,000 to 32,000 square feet which, over the
last several years, have been opened or converted from enlarged traditional
stores and which operate as SuperSports USA stores.
4
<PAGE>
SITE SELECTION
The Company subjects each potential new store location to extensive analysis
and evaluation, using its in-house staff to work with local real estate
developers and brokers. Sites are selected primarily based on the Company's
evaluation of the potential financial return on its investment, taking into
account internally prepared sales projections, estimated gross margins and store
operating expenses as compared to required capital expenditures and inventory
investments. The Company also utilizes demographic, geographic and competitive
analyses in arriving at its estimates for sales and gross margin. Oshman's seeks
to locate stores in areas that are experiencing a growth in population and have
high concentrations of white-collar workers with growing families and sufficient
financial resources and disposable income to devote significant spending to
leisure and sporting activities. Ten of the Company's existing megastores serve
as anchors for regional shopping malls and shopping centers. The Company intends
to continue to pursue locations that offer this desirable marquee status and the
associated benefits.
Although the Company realizes certain economies of scale in warehousing,
distribution and advertising through the "clustering" of several stores in one
market (most notably in the Dallas/Fort Worth, Houston and Los Angeles areas),
it has also taken advantage of opportunities to successfully open and profitably
maintain single SuperSports USA megastores in certain markets and intends to
continue to pursue this flexible strategy.
PURCHASING AND SUPPLIERS
The Company purchases its merchandise directly from a diverse group of
leading domestic and international suppliers, and achieves significant
efficiencies through large quantity purchases. The Company's largest supplier,
Nike, accounted for 16.0%, 17.2% and 15.1% of the Company's total purchases in
fiscal 1998, 1997 and 1996, respectively. No other supplier accounted for more
than 10% of the Company's purchases in any of the last three years.
DISTRIBUTION AND WAREHOUSING
The Company utilizes a centralized distribution system operated through two
distribution centers. One is located in Houston, Texas, and the other is located
in Santa Ana, California. Approximately 95% of the Company's inventory is
shipped through these distribution centers. However, for certain items that the
Company believes require more rapid delivery to stores because of higher product
turnover or other conditions, the Company uses direct delivery from vendors.
Substantially all of the merchandise distributed to Texas, Louisiana, Oklahoma,
Kansas, Minnesota and locations east of the Mississippi River flows through the
Company's distribution center located in Houston, Texas. The Company's
distribution center in Santa Ana, California is responsible for distributing
substantially all of the merchandise to the Company's stores in California,
Arizona, New Mexico, Utah and Washington.
5
<PAGE>
MANAGEMENT INFORMATION SYSTEMS
During fiscal 1996, the Company completed the installation of new financial
accounting and reporting systems and payroll and human resources systems, and in
fiscal 1997 the Company installed new sales audit software. The Company also
installed a new IBM AS400 computer in fiscal 1997 to accommodate the new systems
and those to be installed in 1998 and further upgraded all operating systems
software in the last quarter of 1998. During fiscal 1998, the Company upgraded
its personal computers making them year 2000 compliant. In addition, the Company
implemented its new merchandising information and inventory management systems
in March 1999. As a result of these acquisitions and upgrades, the Company has
updated substantially all of its computer systems with hardware and software
designed to accommodate the year 2000 and beyond.
The Company has scheduled significant upgrades to its financial accounting
and reporting systems software and its merchandising information and inventory
management systems software for the third quarter of fiscal 1999. The Company is
continuing to test these systems, and expects to finalize testing once upgrades
are installed.
Cumulatively, capital costs of approximately 5.0 million have been incurred
for the purchase and installation of hardware and software related to the year
2000 issue. Certain other internal costs incurred for work related to year 2000
matters have not been included in the capital costs and are not tracked
separately by the Company, but such costs are included in the related payroll
costs for its information system group. The Company does not expect future
expenditures related to the year 2000 issue to be significant for its internal
systems. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Issue."
SEASONAL FACTORS
Oshman's business is highly seasonal, with sales generally higher in the
fourth quarter, peaking in December due to holiday shopping and the purchase of
ski equipment. Any substantial decrease in sales during the fourth quarter could
adversely affect the Company's results of operations. Weather conditions add to
the seasonal nature of the business, particularly with respect to ski equipment
and cold weather apparel. The Company's results of operations may also fluctuate
on a quarterly basis as a result of seasonal variances and time and costs
associated with selecting, constructing, staffing, stocking and opening new
stores, as well as the timing of promotions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality and
Quarterly Fluctuations."
6
<PAGE>
TRADEMARKS AND SERVICE MARKS; OTHER BUSINESS
As of January 30, 1999, Oshman's owned approximately 25 trademarks and
service marks that were employed in its advertising and operations. The Company
has registered the "Oshman's" and "SuperSports USA" trademarks. The Company
believes that its marks are, in the aggregate, materially important in its
business and that the "Oshman's" and "SuperSports USA" marks are individually
material. The Company anticipates that it will continue to own each of its
trademarks and service marks for so long as it finds it beneficial to use them
in connection with its operations.
Since 1983 the Company has had a licensing agreement and consulting
arrangement with a major Japanese retailer, Ito-Yokado Co., Ltd., that currently
operates five stores in Japan under the Oshman's name. The Company also sells
merchandise to this entity. In fiscal 1997, it entered into a similar agreement
with Samsung Corporation, a major Korean company that operates two stores in
South Korea under the Oshman's name. However, primarily as a result of the
economic difficulties in Asia, the implementation of the agreement with Samsung
Corporation has been deferred for three years. Additionally, the sale of
merchandise under the agreement with Ito-Yokado Co., Ltd. declined significantly
in fiscal 1998.
MISCELLANEOUS
Oshman's typically satisfies its working capital needs out of internally
generated funds from current operations and its credit facilities as addressed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," below.
Inasmuch as Oshman's is a retailer, backlog is not relevant to its business.
Oshman's does not have contracts subject to renegotiation or termination and
does not conduct any material research and development activities.
Federal, state and local environmental regulations have not had, and are not
expected to have, any material effect upon the expenditures, earnings or
competitive position of the Company.
As of January 30, 1999, Oshman's employed approximately 3,182 people
including part-time employees.
ITEM 2. PROPERTIES.
Oshman's 79,000 square foot general and executive offices are leased by the
Company and located in Houston, Texas. A Houston warehouse and distribution
center occupies approximately 257,000 square feet of leased space in the same
building complex, and the Company also rents an office/warehouse in Santa Ana,
California, in which approximately 7,000 square feet are devoted to office space
and 151,000 square feet are used as warehouse space. Oshman's owns properties in
Houston, Texas and in Los Angeles, California. One of the
7
<PAGE>
properties owned by the Company is subject to a lien of the Company's lender,
The CIT Group/Business Credit, Inc. ("CIT").
Substantially all of Oshman's retail stores occupy leased space in modern
structures. As of January 30, 1999, these retail stores occupied an aggregate of
approximately 2,416,000 square feet of floor space under leases expiring at
various dates from 1999 to 2018 (exclusive of renewal options). Traditional
stores on average are comprised of approximately 11,000 square feet, while the
average megastore occupies approximately 59,000 square feet. One traditional
store and one megastore in locations owned by Oshman's occupied an aggregate of
approximately 79,000 square feet of floor space.
Aggregate rentals paid by the Company under all its leases amounted to
approximately $19.9 million during the 1998 fiscal year. Most store leases
provide for rentals that are the greater of a fixed minimum amount or a
specified percentage of sales. Oshman's owns the fixtures in its retail stores
and considers all property owned or leased to be well maintained, adequately
insured and suitable for its purposes.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to certain pending legal proceedings, most of which
are ordinary and routine litigation incidental to its business. None of such
legal proceedings, in the opinion of the Company, is material to its business or
financial condition. The Company maintains liability insurance coverage that it
believes to be customary in the sporting goods retailing industry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Oshman's did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ended January 30, 1999.
8
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name and age of each executive officer of
the Company and all positions and offices with the Company held by each person
named:
NAME AGE POSITIONS AND OFFICES HELD
- ------------------ --- ----------------------------------------------------
Alvin N. Lubetkin 65 Vice Chairman of the Board, Chief Executive Officer,
President and Director
Marilyn Oshman 59 Chairman of the Board and Director
Steven U. Rath 44 Executive Vice President
A. Lynn Boerner 58 Vice President, Chief Accounting Officer and
Assistant Secretary
Charles Carstens 48 Vice President
Richard G. Dennis 46 Vice President, Secretary and General Counsel
Thomas J. McVey 47 Senior Vice President
Ray Miller 52 Vice President, Treasurer and Assistant Secretary
Richard L. Randall 56 Vice President, General Merchandise Manager
Mr. Lubetkin has been an officer of the Company since 1966 and a Director
since 1962. Mr. Lubetkin has overall responsibility for the Company's
operations. He was originally hired by the Company in 1961.
Ms. Oshman was elected Chairman of the Board in April 1993 and has been a
Director of the Company since 1979. She has been employed by the Company since
1990.
Mr. Rath was elected as a Vice President of the Company in 1992 and
Executive Vice President in April 1998. In addition to his primary
responsibilities for the real estate and construction functions, Mr. Rath
assumed an expanded management role in the overall operations in 1997, including
oversight responsibility for the merchandising functions of the Company. In
1998, he assumed responsibility for the Management Information Systems area.
Prior to becoming Vice President of the Company, Mr. Rath served as a Divisional
Vice President for Corporate Development (1990-1992), and Director of Corporate
Development (1988-1989). Before joining the Company, Mr. Rath was Director of
Research and Strategic Planning for the Foley's Division of Federated Department
Stores, Inc.
Mr. Boerner has been an officer of the Company since 1984 and was elected
Vice President in 1988. He was hired by the Company in 1971. Prior to joining
the Company, Mr. Boerner was employed by Arthur Andersen & Co. Mr. Boerner is a
certified public accountant.
Mr. Carstens was elected as a Vice President of the Company in 1998. He is
primarily responsible for management and information systems and computer and
technical services at the Company. Prior to joining the Company in 1998, Mr.
Carstens served as Vice President of Information Technology at JumboSports Inc.,
a sporting goods retailer from March 1997 until March 1998, as Account Executive
at GSI Outsourcing, USA division from August 1996 until February 1997, as
Director of Data Processing at National Merchandise, a regional discount
department store, from
9
<PAGE>
July 1994 until July 1996 and as Director of Systems and Programming at Carnett,
a division of JM Family Enterprises, from February 1987 until June 1994.
Mr. Dennis was elected Vice President in June 1994 and Secretary in July
1996. Mr. Dennis has also served as General Counsel of the Company since 1993.
Prior to that, he was employed as Managing Attorney, Banc One New Hampshire
Asset Management Company from 1992 to 1993 and Associate Attorney, Weil, Gotshal
& Manges from 1986 until 1992.
Mr. McVey was elected Vice President of the Company in March 1996 and Senior
Vice President in June 1997. He is primarily responsible for store operations.
Since 1994, Mr. McVey has served as divisional Senior Vice President and
Regional Manager. Prior to that time, he was regional Vice President from 1989
to 1994.
Mr. Miller was elected Treasurer in July 1996, Assistant Secretary in
January 1997 and Vice President in May 1997. He originally joined the Company in
1976, serving in various accounting and treasury positions. In June of 1990, Mr.
Miller left the Company and joined Profit Recovery Group, a contingency audit
firm, where he was employed until September of 1993, at which time he rejoined
the Company.
Mr. Randall joined the Company and was elected Vice President, General
Merchandise Manager in May of 1998. He is primarily responsible for the
merchandising and advertising functions of the Company. Prior to joining the
Company, Mr. Randall was Vice President of Merchandising for Hills Department
Stores, where he was employed for approximately four years. Prior to that, Mr.
Randall was employed by Pace Warehouse Clubs for approximately two years and
B.J.'s Wholesale Clubs for approximately six years in a merchant vice president
capacity.
10
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company has been listed on the American Stock
Exchange under the symbol "OSH" since June 21, 1995. Prior to that date, the
Common Stock of the Company was quoted on The Nasdaq Stock Market. The following
table sets forth the quarterly high and low reported sales prices per share for
the Common Stock:
HIGH LOW
---- ---
FISCAL YEAR ENDED JANUARY 31, 1998
First Quarter ended May 3, 1997 $ 5.19 $ 3.88
Second Quarter ended August 2, 1997 6.06 4.50
Third Quarter ended November 1, 1997 8.19 5.00
Fourth Quarter ended January 31, 1998 7.00 4.25
FISCAL YEAR ENDING JANUARY 30, 1999
First Quarter ended May 2, 1998 $ 6.75 $ 4.25
Second Quarter ended August 1, 1998 9.38 5.63
Third Quarter ended October 31, 1998 8.69 3.88
Fourth Quarter ended January 30, 1999 4.75 2.88
FISCAL YEAR ENDING JANUARY 29, 2000
First Quarter ended May 1, 1999 (through April 23, 1999) $ 3.38 $ 2.38
As of April 23, 1999, there were approximately 1,400 holders of record of
the Common Stock. The last reported sale price for the Common Stock on the
American Stock Exchange composite tape as of April 23, 1999, was $2.81.
The Board of Directors of the Company suspended the payment of dividends in
March 1991 and does not anticipate paying dividends in the foreseeable future.
The Company's credit agreement with CIT places certain limitations and
restrictions on the Company's ability to pay dividends on the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following table provides selected consolidated financial information for
the Company's last five fiscal years.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
OR AS OF THE YEAR END
JANUARY 30 JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1999 1998 1997 1996 1995
(52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Sales $309,057 $342,609 $365,879 $342,889 $311,419
Net Earnings (Loss) (1,351) 6,372* (27,250) 1,942 290
Net Basic Earnings (Loss) per Share (0.23) 1.09 (4.67) 0.33 0.05
Net Diluted Earnings (Loss) per Share (0.23) 1.07 (4.67) 0.32 0.05
Dividends per Share -- -- -- -- --
Total Assets 126,004 148,350 160,734 162,923 135,077
Long-Term Debt 28,679 35,953 42,397 36,681 5,665
</TABLE>
- -----------------------
* Excludes loss of $1,299 from cumulative effect of change in accounting
method for pre-opening expenses. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Change of Accounting
Method for Pre-Opening Expenses."
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company has been in operation since 1931, having been incorporated in
1946 as the successor to a proprietorship founded by J.S. Oshman. After building
a base in Texas, where it is headquartered, the Company expanded into other
states across the Sun Belt, growing from 11 stores in 1970 to 193 stores at the
beginning of fiscal 1990. In fiscal 1990, the Company opened its first two
SuperSports USA megastores. The changing nature of retailing and the new
competitive challenges in the sporting goods sector had started to affect the
results of the Company's traditional stores. Since 1990, the Company has been in
the process of transforming its business by focusing on opening and operating
SuperSports USA megastores occupying, on average, approximately 59,000 square
feet, while reducing its pre-existing base of traditional stores, which
currently average approximately 11,000 square feet. In the fourth quarter of
fiscal 1996, the Company announced its intention to close 53 traditional stores
in 1997 and recorded a store closing reserve.
During fiscal 1997, the Company closed 51 sporting goods stores, including
one megastore, while opening six new SuperSports USA megastores, substantially
completing its transformation to primarily an operator of megastores. In fiscal
1998, the Company closed an additional seven traditional stores and at year-end
operated 42 SuperSports USA stores, including 36 SuperSports USA megastores, six
mini SuperSports USA stores, 20 traditional stores and one clearance store.
Subsequent to the end of fiscal 1998, the Company closed a SuperSports USA
megastore in Irvine, California and opened a SuperSports USA megastore in Auburn
Hills, Michigan. The Company's stores are located primarily in medium to large
metropolitan areas, in Texas and California as well as in Arizona, Florida,
Kansas, Louisiana, Michigan, Minnesota, New Mexico, Oklahoma, South Carolina,
Tennessee, Utah and Washington.
STORE CLOSINGS
In the fourth quarter of fiscal 1996, the Company announced a plan to close
53 of its traditional stores during fiscal 1997. The Company recorded a store
closing provision and asset impairments of $13.6 million to cover lease
termination costs ($5.2 million), employee costs and other incremental store
closing costs ($839,000), inventory adjustments ($6.3 million) and leasehold and
other asset write-offs ($1.3 million). Forty-four of these stores were closed in
fiscal 1997 and an additional six in 1998. The remaining three stores are
expected to continue to operate due to the Company's inability to terminate the
leases on a satisfactory basis.
In addition to the 50 store closings in the group of stores discussed above,
the Company closed one additional store in 1998 and seven stores in fiscal 1997,
including one megastore.
The Company expects to close an additional six traditional stores in fiscal
1999, two of which closed in the first quarter of the year. At the end of fiscal
1998, the Company had reserves of approximately $1.0 million, which its
management believes are sufficient, to cover estimated incremental costs
associated with anticipated store closings and remaining obligations from stores
12
<PAGE>
previously closed. During fiscal 1998, sales reductions related to stores closed
in fiscal 1998 and 1997, and those targeted to close in fiscal 1998, caused
sales to decline $29.2 million from $31.3 in fiscal 1997 to $2.1 million in
fiscal 1998.
IMPAIRMENT OF LONG-LIVED ASSETS
In the fourth quarter of fiscal 1998, the Company recorded a charge of $3.0
million to write down the carrying value of assets in four California
SuperSports USA megastores and two traditional stores located in Texas to fair
value under the requirements of FASB 121, Accounting for the Impairment of Long-
Lived Assets. The impairment loss is related primarily to the California
megastores.
Subsequent to the end of fiscal 1998, as a result of legal actions taken by
both the Company and the landlord of one of the California megastores, the
Company closed the store and is currently involved in litigation with the
landlord. It has also listed four other megastores in the Los Angeles/Orange
County, California market with brokers for possible re-leasing, or other
disposition. The Company intends to continue operating these four megastores and
the two traditional stores in Texas, pending an economically justifiable
resolution. The Company is continuing to explore its options and at this time is
not able to determine its financial exposure, if any, associated with the closed
store discussed above or relative to the potential disposition or continued
operation of the other impaired stores. Accordingly, it has recorded no reserves
for potential losses, if any, related to these stores. However, there can be no
assurance that the Company will be successful in its efforts to dispose of these
stores without incurring significant future costs.
In the fourth quarter of fiscal 1996, the Company recorded an impairment
loss of $1.3 million related to certain stores included in the group of 53
stores it planned to close in fiscal 1997 (see "Store Closings").
CHANGE OF ACCOUNTING METHOD FOR PRE-OPENING EXPENSES
Prior to fiscal 1997, the Company's accounting policy with regard to pre-
opening expenses of new stores was that expenses related to stores larger than
25,000 square feet in size (anticipated to be only SuperSports USA megastores)
would be deferred and amortized over a one year period subsequent to the store
opening. Effective at the beginning of fiscal 1997, the Company changed its
policy to require that non-capital expenses related to the opening of new
stores, regardless of size, be charged to expense as incurred. Accordingly, the
Company took a charge in the first quarter of fiscal 1997 of $1.3 million
related to pre-opening expenses of megastores opened in fiscal 1996.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected statements of operations data of the
Company expressed as a percentage of net sales for the periods indicated:
PERCENTAGE OF NET SALES
FISCAL YEAR
1998 1997 1996
------ ------ ------
Net Sales 100.0 100.0 100.0
Cost of goods sold 65.8 65.6 68.5
------ ------ ------
Gross profit 34.2 34.4 31.5
Operating expenses:
Selling and administrative expenses 34.4 34.2 35.1
Pre-opening expenses - .4 1.0
Impairment of Long-Lived Assets 1.0 - .4
Store closing provision (.2) (.2) 1.7
Miscellaneous income (1.4) (1.8) (.2)
------ ------ ------
Operating income (loss) .4 1.8 (6.5)
Interest expense, net 1.0 1.1 1.0
------ ------ ------
Income (loss) before income taxes and
cumulative effect of change in accounting
method for pre-opening expenses (.7) .7 (7.5)
Income tax (benefit) (.2) (1.2) (.1)
------ ------ ------
Income (loss) before cumulative effect of
change in accounting method for
pre-opening expenses (.4) 1.9 (7.4)
Cumulative effect of change in accounting
method for pre-opening expenses - (.4) -
------ ------ ------
Net earnings (loss) (.4) 1.5 (7.4)
====== ====== ======
14
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 decreased 9.8% to $309.1 million from $342.6
million in 1997. The net reduction in sales is primarily attributable to lost
sales from stores closed in fiscal 1997 and 1998 ($29.2 million) (see "Store
Closings") and a comparable store sales decline of 6.1% in continuing stores.
Management attributes the decline in comparable store sales to several factors
including lower inventory levels related to the Company's efforts to increase
margins and improve inventory turnover rates, reduced advertising expenditures
and increased competition. Additionally, the relatively soft market in 1998 for
footwear and golf equipment, as well as a weak Christmas selling season in the
sporting goods industry, further contributed to the decline in sales.
Gross profit, as a percentage of net sales, was 34.2% in fiscal 1998
compared to 34.4% in 1997. Gross margins in the fourth quarter of 1998 declined
approximately 2 points, as a percentage of sales, compared to 1997, primarily as
a result of lower than expected Christmas sales and higher than expected
footwear markdowns.
Selling and administrative expenses as a percentage of net sales were 34.4%
in fiscal 1998, compared to 34.2% in fiscal 1997. Comparable store selling and
administrative costs, as well as corporate overhead and distribution costs were
reduced approximately $5.1 million in fiscal 1998 compared to fiscal 1997.
However, the reductions were not sufficient to overcome the effect of the lower
sales levels.
The Company recorded an impairment loss of $3.0 million in fiscal 1998
related primarily to its megastores in the Los Angeles/Orange County, California
area (see "Impairment of Long-Lived Assets").
The Company had no pre-opening expenses in fiscal 1998 as no new stores were
opened. Pre-opening expenses as a percentage of net sales were .4% in fiscal
1997. (See "Change of Accounting Method for Pre-opening Expenses.")
Store closing provision was a benefit of $499,000 in fiscal 1998 compared to
a benefit of $836,000 in 1997. The benefit in both years is related to
management's re-evaluation of store closing reserves for lease termination
costs, leasehold and other asset writeoffs and other incremental store closing
costs. (See "Store Closings.")
15
<PAGE>
The major components of miscellaneous income for fiscal 1998 and fiscal 1997
are set out in the table below:
FISCAL YEAR
----------------
1998 1997
------ ------
(in thousands)
Gain on sale of real estate and leasehold interests $3,914 $5,616
Fees from foreign licensees 467 1,199
Other, net (118) (769)
------ ------
Total $4,263 $6,046
====== ======
Net interest expense for fiscal 1998 was $3.2 million, compared to $3.7
million in fiscal 1997. Net interest expense in fiscal 1997 includes interest
income of $662,000 related to a Federal income tax refund. The decreased
interest expense in fiscal 1998 is primarily related to reduced interest rates
and lower average borrowings under the Company's credit facility.
The income tax benefits in fiscal 1998 and 1997 include benefits related to
refunds of prior years Federal income taxes of $686,000 and $4.1 million
respectively. In 1998, no Federal Income tax benefit was recorded relative to
the Company's loss before income taxes due to valuation allowances recorded
against the deferred tax assets generated by the losses. No tax expense was
recorded related to 1997 due to the partial utilization of prior net operating
losses, which had been primarily subject to a valuation allowance.
In fiscal 1998, the Company had a loss of $2.1 million before income taxes
and cumulative effect of change of accounting method for pre-opening expenses
compared to income of $2.4 million in fiscal 1997. Significant factors
contributing to the loss in fiscal 1998 compared to fiscal 1997 are (i) the
decline in comparable store sales, (ii) the impairment loss in 1998 and (iii)
reduced gains from the sale of real estate and leasehold interests compared to
fiscal 1997, partially offset by (iv) reduced costs related to stores opened in
fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997, decreased 6.4% to $342.6 million from $365.9
million for fiscal 1996. The net decrease was attributable to the elimination of
$51.2 million of sales related to stores closed or targeted to close in fiscal
1997 and 1996 (see "Store Closings") and also to a comparable store sales
decrease of 3.7% or $9.5 million in continuing stores. These sales reductions
were partially offset by $37.4 million in sales from full year sales from seven
megastores opened in fiscal 1996 and to partial year sales from six new
megastores opened in fiscal 1997. Sales from continuing stores, including sales
from new stores, increased 9.9% to $310.3 million.
Same store sales in continuing stores declined 3.7% in fiscal 1997.
Management attributes the decline in comparable store sales to several factors,
including increased competition, the impact of liquidation sales in the
Company's own closing stores, particularly in the first quarter of fiscal 1997,
lower inventory levels related to the Company's efforts to increase margins and
improve inventory turnover rates and reduced advertising levels.
16
<PAGE>
Gross profit, as a percentage of net sales, increased to 34.4% in fiscal
1997 compared to 31.5% in fiscal 1996. The increased rate of gross profit as a
percentage of net sales in fiscal 1997 was primarily due to the nonrecurrence of
a $6.3 million (1.7% as a percentage of sales) store closing provision taken in
the fourth quarter of fiscal 1996 and additional markdowns taken during fiscal
1996 to reduce excessive inventories resulting from lower than planned sales and
from stores closed during the year.
Selling and administrative expenses as a percentage of net sales were 34.2%
in fiscal 1997, compared to 35.1% in fiscal 1996. Although selling and
administrative expenses, as a percentage of sales, in continuing stores actually
increased as a result of lower than expected sales, the increased rate was more
than offset by a reduction of corporate overhead and distribution costs,
resulting in a .6% reduction as a percentage of sales for the Company's ongoing
operations. The balance of the reduction in the rate of selling and
administrative expenses as a percentage of sales was attributable to stores
closed or targeted to close which experienced a lower rate of selling and
administrative expenses in fiscal 1997 as a result of higher sales rates during
liquidation and certain expenses which were offset by store closing reserves.
(See "Store Closings.")
Pre-opening expenses as a percentage of net sales were .4% and 1.0%,
respectively, in fiscal 1997 and fiscal 1996. (See "Change of Accounting Method
for Pre-opening Expenses.")
The impairment loss in fiscal 1996 was related to certain stores included in
the group of 53 stores that the Company planned to close in fiscal 1997. (See
"Store Closings.")
Store closing provision in fiscal 1997 as a percentage of net sales was a
benefit of .2% compared to an expense of 1.7% in fiscal 1996. In fiscal 1996 the
Company established of a store closing reserve of $6.0 million, excluding a
reserve for liquidation of inventory and fixed asset impairment, for 53
traditional stores it planned to close in fiscal 1997 (see "Store Closings").
The major components of miscellaneous income for fiscal 1997 and fiscal 1996
are set out in the table below:
FISCAL YEAR
----------------
1997 1996
------ ------
(in thousands)
Gain on sale of real estate and
leasehold interests $5,616 $ -
Fees from foreign licensees 1,199 1,238
Other, net (769) (465)
------ ------
Total $6,046 $ 773
====== ======
Net interest expense for fiscal 1997 was $3.7 million, compared to $3.8
million in fiscal 1996. Net interest expense in fiscal 1997 included interest
income of $662,000 related to a Federal income tax refund. The increase in
interest expense in fiscal 1997 was related to an increased interest rate under
its credit facility. In fiscal 1998, the Company amended its credit facility to,
among other things, reduce its interest rate.
17
<PAGE>
The $4.0 million income tax (benefit) in fiscal 1997 included a benefit of
$4.1 million related to a refund of prior years Federal income taxes. Income
taxes in fiscal 1996 were related primarily to state income taxes. In both
fiscal 1997 and 1996, deferred tax benefits were utilized in the calculation of
income tax expense in accordance with SFAS 109, and accordingly no federal
income tax expense was recognized.
In fiscal 1997, the Company had income of $2.4 million before income taxes
and cumulative effect of change of accounting method for pre-opening expenses
compared to a loss of $27.4 million before income taxes in fiscal 1996.
Significant factors contributing to the improved results in fiscal 1997 compared
to fiscal 1996 were (i) the nonrecurrence in 1997 of a $13.6 million store
closing provision recorded in fiscal 1996, (ii) gains of $5.6 million from sale
of real estate and leasehold interests in fiscal 1997, (iii) reduced operating
losses from stores closed in 1997 and 1996 and (iv) improved results from the
Company's continuing operations; both as a result of improved gross profit
contributions and reduced selling and administrative expenses as a percentage of
sales, including reduced corporate overhead and distribution costs and (v)
reduced pre-opening expenses.
18
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The following table sets forth certain unaudited financial information for
the Company for each of the quarterly periods in fiscal 1998 and fiscal 1997:
FISCAL 1998
-------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLAR IN THOUSANDS)
Net sales $72,140 $79,032 $64,312 $93,573
Gross profit $25,380 26,847 $24,079 $29,474
Gross margin 35.2% 34.0% 37.4% 31.5%
Operating income (loss) $ (149) $ 4,094 $(1,704) $(1,094)
Operating margin (0.2%) 5.2% (2.6%) (1.2%)
Net income (loss) $(1,124) $ 3,420 $(2,015) $(1,632)
Net income (loss) margin (1.6%) 4.3% (3.1%) (1.7%)
FISCAL 1997
-------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLAR IN THOUSANDS)
Net sales $88,432 $82,913 $69,608 $101,656
Gross profit $29,962 $28,368 $25,637 $ 34,022
Gross margin 33.9% 34.2% 36.8% 33.5%
Operating income (loss) $ 1,972 $ (136) $(2,505) 6,751
Operating margin 2.2% (0.2%) (3.6%) 6.6%
Net income (loss) $ (379) $(1,336) $ 1,197 5,591
Net income (loss) margin (0.4%) (1.6%) 1.7% 5.5%
During fiscal 1998, 1997 and 1996, 30.3%, 29.7% and 30.7%, respectively, of
the Company's sales were generated during the fourth quarter. As a result of the
increased sales, the Company's operating results for the fourth quarter
generally exceed the operating income for any other quarter during these fiscal
years. However, this did not occur in fiscal 1998, primarily as a result of a
real estate gain recognized in the second quarter of the year, an impairment
loss recorded in the fourth quarter of the year and a disappointing Christmas
selling season.
19
<PAGE>
COMPARABLE STORE SALES
The following table sets forth for the fiscal years 1998, 1997 and 1996
certain information regarding the percentage increase (decrease) in comparable
store sales for comparable 52 week periods.
FISCAL 1998
- -----------------------------------------------------
First Second Third Fourth FISCAL FISCAL
Quarter Quarter Quarter Quarter Year 1997 1996
------- ------- ------- ------- ---- ------ ------
(4.7)% (5.3)% (8.3)% (6.2)% (6.1)% (3.7)% (7.9)%
Management attributes the decline in comparable store sales to several
factors including, lower inventory levels related to the Company's efforts to
increase margins and improve inventory turnover rates, reduced advertising
expenditures and increased competition. Additionally, the relatively soft market
in 1998 for footwear and golf equipment, as well as a weak Christmas selling
season in the sporting goods industry, further contributed to the decline in
sales compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1998, operating activities provided cash totaling $6.1 million.
The primary sources of cash were reduced inventories of $13.4 million offset by
a related decrease in trade accounts payable of $8.9 million, earnings of $5.0
million, before depreciation, gains on disposition of fixed assets and leasehold
interests and loss from impairment of long-lived assets, offset by $2.4 million
used for stores closed or targeted to close. Investing activities provided cash
of $1.7 million from proceeds of sales of real estate and leasehold interests,
together with developer provided funds in excess of amounts used for the
purchase of property, plant and equipment during the year. Financing activities
used $7.8 million as a result of reduced utilization of the Company's credit
facility and the prepayment, at the Company's option, of a $3.1 million mortgage
secured by land and a building where it operates a SuperSports USA megastore.
Merchandise inventories decreased 13.6%, to $86.2 million at the end of
fiscal 1998 from $99.9 million at the end of fiscal 1997. The inventory decrease
is primarily related to the Company's efforts to reduce average inventory levels
and increase inventory turnover. The Company also closed seven traditional
stores during the year. Comparable inventories decreased approximately 12% in
fiscal 1998, in addition to an approximate 7% reduction in fiscal 1997. The
Company expects, with the utilization of its new merchandising information
systems which became operational in March, 1999, to continue to improve the
productivity of its inventories in fiscal 1999.
Additions to property, plant and equipment were $3.0 million in fiscal 1998.
The Company opened no new stores during the year. Capital expenditures were
primarily related to refurbishment of existing locations and improvement to the
Company's management information systems. Approximately $1.6 million was used
for computer hardware and software
20
<PAGE>
including the purchase of a new computer and merchandising systems software.
Approximately $1.0 million was used for the renovation and refurbishment of
other stores. The remaining amount was used for renovation and refurbishment of
administrative and warehouse locations.
Capital expenditures in fiscal 1999 are expected to be approximately $7.5
million. The Company plans to open from two to five new megastores during fiscal
1999 at a net cost of approximately $2.0 million. Approximately $2.5 million is
planned to be used for renovation and refurbishment of existing stores,
including the conversion of shoe departments in certain megastores to a more
customer friendly format. Approximately $1.4 million is allocated for computer
hardware and software, including communications upgrades, and the balance is
expected to be allocated to improvements to warehouses and administrative areas.
On August 31, 1992, the Company entered into an agreement providing for a
three-year, $32.5 million revolving credit facility with The CIT Group/Business
Credit, Inc. Advances under the facility are based on a borrowing base formula,
and subject to certain loan reserves. The facility is secured primarily by
inventory, accounts receivable and real estate. The credit agreement includes
various restrictions, requirements and financial covenants. During 1996, the
agreement was amended to increase the revolving line of credit to $65.0 million,
with a further seasonal increase to $80.0 million during the period from mid-
September through mid-December each year. In addition, the Company may, at its
option, increase the line of credit by an additional $5.0 million. In fiscal
1998, the agreement was amended to among other things, reduce interest rates
under the agreement and to extend the term of the agreement until August 31,
2001. Subsequent to the end of fiscal 1998, the agreement was amended to exclude
the effect of the Company's impairment loss from certain financial covenants.
With this amendment, the Company was in compliance with the financial covenants
under the agreement.
The Company's primary source of liquidity in fiscal 1998 was the Company's
credit facility, under which average borrowings during the year were $39.8
million. Operating activities also provided cash of $6.1 million. Because of the
seasonal nature of its business and the build up in inventory for the Christmas
shopping season, the amount of outstanding borrowings and letters of credit
under the Company's credit facility is typically highest in November and reached
$48.4 million in November 1998. At January 30, 1999, the Company had recorded
debt with respect to its credit facility of $28.7 million and had outstanding
letters of credit (used primarily to purchase certain of the Company's imported
inventory) of $1.1 million.
The Company believes that its existing revolving credit facilities together
with cash flow from operations will be adequate to meet anticipated capital
needs, including seasonal financing needs for fiscal 1999.
21
<PAGE>
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Without corrective
actions, programs with time-sensitive software would potentially recognize a
date ending in "00" as the year 1900 rather than the year 2000, causing many
computer applications to fail or create erroneous results and potentially
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business practices.
During fiscal 1996, the Company completed the installation of new financial
accounting and reporting systems and payroll and human resources systems, and in
fiscal 1997 the Company installed new sales audit software. The Company also
installed a new IBM AS400 computer in fiscal 1997 to accommodate the new systems
and those to be installed in 1998, and further upgraded all operating systems
software in the last quarter of 1998. During fiscal 1998, the Company upgraded
its personal computers making them year 2000 compliant. In addition, the Company
implemented its new merchandising information and inventory management systems
in March 1999.
As a result of these acquisitions and upgrades, the Company has updated
substantially all of its computer systems with hardware and software designed to
accommodate the year 2000 and beyond. The Company has scheduled significant
upgrades to its financial accounting and reporting systems software and its
merchandising information and inventory management systems software for the
third quarter of fiscal 1999. The Company is continuing to test these systems,
and expects to finalize testing once upgrades are installed. The Company
presently believes that upon completion of its installation of upgrades and
testing in fiscal 1999 of computer hardware and software systems described
above, the year 2000 issue will have been adequately addressed with respect to
all of the Company's internal computer systems. Any failure of the Company's
systems to be timely compliant, however, could have a material and adverse
impact on the business and operations of the Company.
Cumulatively, capital costs of approximately $5.0 million have been incurred
for the purchase and installation of hardware and software related to the year
2000 issue. Certain other internal costs incurred for work relating to year 2000
matters have not been included in the capital costs and are not tracked
separately by the Company, but such costs are included in the related payroll
costs for its information system group. The Company does not expect future
expenditures related to the year 2000 issue to be significant for its internal
systems.
The Company has substantially completed its review and assessment of its
non-information technology systems, and has contacted vendors to uncover any
potential year 2000 problems. At this time, the Company is not aware of any
compliance problems from its non-information technology systems that could have
a material effect on the Company's operation. In addition to its internal
computer and non-information technology systems, the Company may face risks to
the extent that suppliers of products, services and systems purchased by the
Company and others with whom the Company transacts business do not have business
systems or products that comply with the year 2000 requirements. The Company is
currently assessing the year 2000 compliance of its major providers of products,
services and systems through the
22
<PAGE>
use of surveys and formal communications. However, there can be no assurance
that the Company can correctly assess the year 2000 readiness of all its major
suppliers. Some suppliers have not responded to the Company's requests for
information. The Company is in the process of evaluating the potential effects
of non-compliance by its vendors. In the event that any such third parties
cannot timely provide the Company with products, services or systems as a result
of any such non-compliance, the Company's operating results could be materially
adversely affected.
The Company is developing contingency plans for its internal computer and
non-information technology systems, as well as for failure of its key suppliers
to perform. With respect to suppliers, these contingency plans are being done on
a case by case basis for those suppliers that the Company determines are at a
high risk of non-compliance. These plans may include booking orders for delivery
in advance of January 1, 2000, or finding alternative suppliers. If the
Company's contingency plans are not adequate to address non-compliance by its
computer and non-information technology systems, or by suppliers, this could
have a material adverse effect on the operating results of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the financial position of the Company is
exposed to minimal market risk associated with interest rate movements on
borrowings under the Company's credit facility with The CIT Group/Business
Credit, Inc. Borrowings with respect to the Company's credit facility averaged
$39.8 million in fiscal 1998, and, at January 30, 1999, the Company had recorded
debt of $28.7 million. A one percent increase or decrease in the levels of
interest rates on variable rate debt with all other variables held constant
would not result in a material change to the Company's result of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The information discussed herein includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included herein and in the letter from
the Chairman and Vice Chairman of the Company regarding expected direct store
profits, returns on investment, estimated operating costs, comparable store
sales, planned capital expenditures, store openings and closings, the Company's
financial position, business strategy and other plans and objectives for future
operations (typically using words and phrases such as "expect," "plan,"
"forecast," "anticipate," "should approximate," "believe," "intend" or similar
expressions), are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
they do involve certain assumptions, risks and uncertainties, and the Company
can give no assurance that such expectations will prove to have been correct.
The Company's actual results could differ materially from those anticipated by
such forward-looking statements as a result of certain factors, including: the
Company's ability to manage its expansion efforts in existing and new markets,
availability of suitable new store locations at acceptable terms, levels of
discretionary consumer spending, availability of merchandise to meet fluctuating
consumer demands, customer response to the Company's merchandise offerings,
23
<PAGE>
fluctuating sales margins, increasing competition in sporting goods and apparel
retailing, the results of financing efforts and financial market conditions.
Many of such factors are beyond the Company's ability to control or predict.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligations to update these forward-looking
statements, whether as a result of new information, future events or otherwise.
24
<PAGE>
PART III
In accordance with paragraph (3) of General Instruction G to Form 10-K, Part
III of this Report is omitted because the Company will file with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year
ended January 30, 1999 a definitive proxy statement pursuant to Regulation 14A
involving the election of directors, which proxy statement is incorporated
herein by reference.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
<S> <C>
PAGE
(a) 1. Financial Statements REFERENCE
---------
Report of Independent Certified Public Accountants......................... 27
Consolidated balance sheets at January 30, 1999 and January 31, 1998....... 29
Consolidated statements of operations for the years ended January 30, 1999,
January 31, 1998, and February 1, 1997..................................... 30
Consolidated statements of stockholders' equity for the years ended
February 1, 1997, January 31, 1998 and January 30, 1999.................... 32
Consolidated statements of cash flows for the years ended January 30, 1999,
January 31, 1998, and February 1, 1997..................................... 33
Notes to consolidated financial statements................................. 34
Selected quarterly financial data.......................................... 50
2. Financial Statement Schedules
Schedule II - Allowance for Doubtful Receivables - Years ended
January 30, 1999, January 31, 1998, and February 1, 1997................... 51
All other schedules have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule, or because the information
required is included in the financial statements or the notes thereto.
3. List of Exhibits
See index to exhibits immediately following the signature page.
The Registrant will furnish to stockholders a copy of any exhibit upon payment of $.20 per
page to cover the expense of furnishing such copies. Requests should be directed to A. Lynn Boerner,
Oshman's Sporting Goods, Inc., P.O. Box 230234, Houston, Texas 77223-0234.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the last quarter of the fiscal year ended
January 30 1999.
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Oshman's Sporting Goods, Inc.
We have audited the accompanying consolidated balance sheets of Oshman's
Sporting Goods, Inc. (a Delaware corporation) and Subsidiaries as of January 30,
1999 and January 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended January 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Oshman's Sporting
Goods, Inc. and Subsidiaries as of January 30, 1999 and January 31, 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended January 30, 1999, in conformity
with generally accepted accounting principles.
27
<PAGE>
We have also audited Schedule II of Oshman's Sporting Goods, Inc. and
Subsidiaries for each of the three years in the period ended January 30, 1999.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ GRANT THORNTON LLP
Houston, Texas
March 15, 1999
28
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 30, 1999 and January 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 356 $ 363
Accounts receivable, less allowance of $88 in 1999
and $130 in 1998 1,496 1,729
Merchandise inventories 86,184 99,874
Prepaid expenses and other 2,453 2,838
-------- --------
Total current assets 90,489 104,804
PROPERTY, PLANT AND EQUIPMENT - AT COST 87,262 91,957
Less accumulated depreciation and amortization 52,014 48,755
-------- --------
35,248 43,202
OTHER ASSETS 267 344
-------- --------
$126,004 $148,350
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ - $ 566
Trade accounts payable 33,478 42,367
Accrued liabilities 15,919 17,214
Store closing reserve 1,022 3,852
-------- --------
Total current liabilities 50,419 63,999
LONG-TERM OBLIGATIONS 28,679 35,953
OTHER NONCURRENT LIABILITIES 6,911 7,085
STOCKHOLDERS' EQUITY
Common stock 5,830 5,830
Additional capital 4,210 4,177
Retained earnings 29,976 31,327
Less Treasury stock, at cost (21) (21)
-------- --------
39,995 41,313
-------- --------
$126,004 $148,350
======== ========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended January 30, 1999, January 31, 1998 and February 1, 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales $309,057 $342,609 $365,879
Cost of goods sold 203,277 224,620 250,784
-------- -------- --------
Gross profit 105,780 117,989 115,095
Operating expenses
Selling and administrative expenses 106,396 117,264 128,517
Pre-opening expenses - 1,525 3,459
Impairment of long-lived assets 3,000 - 1,298
Store closing provision (499) (836) 6,212
Miscellaneous income (4,263) (6,046) (773)
-------- -------- --------
Operating income (loss) 1,146 6,082 (23,618)
Interest expense, net 3,241 3,711 3,821
-------- -------- --------
(Loss) earnings before income taxes (2,095) 2,371 (27,439)
Income tax benefit (744) (4,001) (189)
-------- -------- --------
(Loss) earnings before cumulative effect of change
in accounting principle (1,351) 6,372 (27,250)
Cumulative effect of change in accounting principle
for pre-opening expenses - (1,299) -
-------- -------- --------
NET (LOSS) EARNINGS $ (1,351) $ 5,073 $(27,250)
======== ======== ========
(Loss) earnings per share
(Loss) earnings before cumulative effect of change
in accounting principle
Basic (loss) earnings per share $ (.23) $ 1.09 $ (4.67)
Diluted (loss) earnings per share $ (.23) $ 1.07 $ (4.67)
Cumulative effect to February 2, 1997 of change
in accounting principle for pre-opening expenses
Basic (loss) earnings per share $ - $ (.22) $ -
Diluted (loss) earnings per share $ - $ (.22) $ -
Net (loss) earnings per share
Basic (loss) earnings per share $ (.23) $ .87 $ (4.67)
Diluted (loss) earnings per share $ (.23) $ .85 $ (4.67)
</TABLE>
30
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
Year ended January 30, 1999, January 31, 1998 and February 1, 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- ---------
<S> <C> <C> <C>
Proforma amounts assuming the change had been
applied retroactively
(Loss) earnings before cumulative effect of
change in accounting principle $(1,351) $6,372 $(27,250)
Adjustment for pre-opening expenses - - 1,348
------- ------ --------
NET (LOSS) EARNINGS $(1,351) $6,372 $(25,902)
======= ====== ========
Basic (loss) earnings per share $ (.23) $ 1.09 $ (4.44)
Diluted (loss) earnings per share $ (.23) $ 1.07 $ (4.44)
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended January 30, 1999, January 31, 1998 and February 1, 1997
(In thousands)
<TABLE>
<CAPTION>
Common stock
--------------- Treasury Additional Retained
Shares Amount stock capital earnings
------ ------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at February 3, 1996 5,822 $5,822 $(21) $3,865 $ 53,504
Compensation under stock
option and stock bonus
plans - - - 168 -
Issuance of shares under stock
option plan 8 8 - 35 -
Net loss for the year - - - - (27,250)
----- ------ -------- ------ --------
Balance at February 1, 1997 5,830 5,830 (21) 4,068 26,254
Compensation under stock
option and stock bonus
plans - - - 109 -
Net earnings for the year - - - - 5,073
----- ------ -------- ------ --------
Balance at January 31, 1998 5,830 5,830 (21) 4,177 31,327
Compensation under stock
option and stock bonus
plans - - - 33 -
Net loss for the year - - - - (1,351)
----- ------ -------- ------ --------
Balance at January 30, 1999 5,830 $5,830 $(21) $4,210 $ 29,976
===== ====== ======== ====== ========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended January 30, 1999, January 31, 1998 and February 1, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows of operating activities
Net (loss) earnings $(1,351) $ 5,073 $(27,250)
Adjustments to reconcile net cash provided (used)
by operating activities
Depreciation and amortization 7,181 7,180 6,942
Cumulative effect of change in accounting principle for
pre-opening costs - 1,299 -
Provision for losses on accounts receivable - - 7
Charge to reserve for store closings, net of
depreciation and amortization (2,092) (2,808) (120)
(Recovery) provision for losses on store closings, net (264) (471) 12,611
Stock option and bonus plan expense, net of stock
retained for income taxes 33 109 168
Loss (gain) on disposition of fixed assets 60 (30) 234
Amortization of deferred rental allowance (458) (344) (292)
Gain on disposition of real estate and leaseholds (3,859) (5,616) -
Recording impairment of long-lived assets 3,000 - 1,298
Changes in assets and liabilities
Decrease (increase) in accounts receivable 233 2,042 (326)
Decrease (increase) in merchandise inventories 13,352 7,311 (3,242)
(Increase) decrease in prepaid expenses and other (61) (2,476) 2,907
Decrease in other assets 2 - -
(Decrease) increase in trade accounts payable (8,889) (3,337) 10,219
(Decrease) increase in accrued liabilities (1,009) (947) 2,093
Increase in other noncurrent liabilities 382 1,774 2,147
(Decrease) increase in income taxes (167) (4,456) 147
------- -------- --------
Net cash provided by operating activities 6,093 4,303 7,543
Cash flows of investing activities
Proceeds from (payment on) disposition of fixed assets 4,197 8,527 (752)
Purchase of property, plant and equipment (2,976) (10,047) (19,225)
Proceeds from note receivable 73 45 44
Proceeds from landlords 446 3,752 6,774
------- -------- --------
Net cash provided (used) by investing activities 1,740 2,277 (13,159)
Cash flows of financing activities
Proceeds from stock issuance - - 43
Proceeds from issuance of long-term obligations - - 259
Payments of long-term obligations (3,527) (1,293) (883)
(Payments) proceeds from revolving credit facility, net (4,313) (5,361) 6,307
------- -------- --------
Net cash (used) provided by financing activities (7,840) (6,654) 5,726
------- -------- --------
Net (decrease) increase in cash and cash equivalents (7) (74) 110
Cash and cash equivalents at beginning of period 363 437 327
------- -------- --------
Cash and cash equivalents at end of period $ 356 $ 363 $ 437
======= ======== ========
Supplemental disclosures of cash flow information
Cash paid (received) during the year for
Income taxes $ (244) $ 147 $ (297)
Interest expense 3,134 4,405 3,679
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE A - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
GENERAL BUSINESS
Oshman's Sporting Goods, Inc. (the Company) operates a chain of retail sporting
goods specialty stores. As of January 30, 1999, the Company operated 42
Supersports USA stores, 36 of which are megastores and 6 of which are mini-
SuperSports USA stores, 20 traditional stores and 1 clearance store. Sales in
Texas and California accounted for 56% and 17% of retail sales. The majority
of the Company's sales are either cash or through major national credit cards.
1. FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to the end of January.
Fiscal years 1998, 1997, and 1996 ended on January 30, 1999, January 31, 1998,
and February 1, 1997, respectively.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Oshman's Sporting
Goods, Inc. and its subsidiaries, all wholly-owned. In consolidation, all
significant intercompany transactions have been eliminated.
3. USE OF ESTIMATES
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
4. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
5. MERCHANDISE INVENTORIES
Merchandise inventories are valued principally by the retail method and are
stated at the lower of cost, determined on a first-in, first-out (FIFO) basis,
or market.
34
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE A - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. PROPERTY, PLANT AND EQUIPMENT
The Company applies SFAS No. 121, Accounting for Impairment of Long-Lived
Assets to be Disposed Of, which requires that long-lived assets that are held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When it is determined that an asset's estimated future net cash
flows will not be sufficient to recover its carrying amount, an impairment
charge must be recorded to reduce the carrying amount for the asset to its
estimated fair value. Impairment charges of $3,000,000, $-0- and $1,298,000
were taken in 1998, 1997 and 1996 to reduce the carrying value of certain
leasehold improvements and fixtures to their estimated realizable value.
Depreciation and amortization are provided principally by the straight-line
method based upon estimated useful lives of 3 to 10 years for furniture,
fixtures and equipment, 3 to 30 years for leasehold improvements and 20 to 40
years for buildings. Estimated useful lives of leasehold improvements
represent the remaining term of the lease in effect at the time the
improvements are made.
7. AMORTIZATION OF OTHER ASSETS
Loan acquisition costs are being amortized over the term of the related debt
using the straight-line method.
8. DEFERRED RENTAL ALLOWANCES
The Company may receive payments from landlords as inducements to sign new
store leases. The construction costs of real property improvements are offset
by this landlord funding. Deferred rental allowances represent payments in
excess of the costs of the real property improvements and are recognized as a
reduction of rent expense over the life of each applicable lease.
9. INCOME TAXES
Provision has been made for deferred income taxes applicable to the temporary
differences between earnings for financial reporting purposes and taxable
income. Principal temporary differences include differences in accounting for
depreciation and capitalization of certain inventory costs.
35
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE A - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. PRE-OPENING EXPENSE
Effective February 2, 1997, the Company changed the method of accounting for
pre-opening expenses.
Expenses (other than property, plant and equipment) associated with the opening
of new stores are charged to expense as incurred. Previously, the Company
deferred and amortized all direct and incremental expenses related to the
opening of a store over a one-year period subsequent to the store opening. The
Company believes this change is preferable because there is no direct causal
relationship between these expenses and future revenues and it improves
comparability with other companies in its industry. The cumulative effect of
this change on periods prior to January 31, 1998 of $1,299,000 is shown
separately in the consolidated statement of operations.
11. ADVERTISING COSTS
Advertising costs consist principally of newspaper and television
advertisements and are recorded net of any co-op received from vendors.
Advertising costs were $11,376,000, $14,280,000 and $15,931,000 in 1998, 1997
and 1996.
12. STORE CLOSING PROVISION
The Company provides a provision for store closings when the decision to close
a store is made. The provision consists of the incremental costs which are
expected to be incurred, including future net lease obligations, employee costs
and other direct store closing costs. Inventory valuation adjustments, as
necessary, are recorded as additional cost of goods sold and as a direct
reduction to inventory.
13. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding. Dilutive earnings per share is calculated by dividing net income
available for common stockholders by the weighted average number of common
shares and dilutive potential common shares outstanding. Stock options may be
potential common shares and are therefore considered in the earnings per share
calculations, if dilutive. The number of dilutive potential common shares is
determined using the treasury stock method.
36
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE A - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
14. RECLASSIFICATIONS
Certain amounts in prior financial statements have been reclassified to conform
to the 1998 financial statement presentation.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
The cost of property, plant and equipment at the end of the year consists of
the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Furniture, fixtures and equipment $54,278 $56,919
Leasehold improvements 28,584 29,430
Buildings 2,000 2,924
Land 1,876 1,973
Leasehold improvements under capital leases 524 711
------- -------
$87,262 $91,957
======= =======
</TABLE>
NOTE C - NOTE RECEIVABLE
The Company has a non-interest bearing note receivable from the Company's Chief
Executive Officer. At the end of 1998 and 1997, the balance of the note was
$327,000 and $373,000, respectively. The note is payable in bi-weekly
installments of approximately $2,768 with the remainder due September 2000.
The note is collateralized by life insurance and Company stock options.
NOTE D - LONG-TERM OBLIGATIONS
Long-term obligations consist of a revolving credit facility due August 31,
2001. Interest is payable monthly and the credit facility is collateralized by
inventory, accounts receivable and real estate. The balance at January 30,
1999 was $28,679,000 and the balance at January 31, 1998 was $32,992,000.
In the first quarter of 1998, the Company, at its option and without penalty,
prepaid its mortgage note which totaled $3.4 million at year end 1997. The
Company used proceeds from its revolving line of credit to prepay this debt.
37
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE D - LONG-TERM OBLIGATIONS - CONTINUED
The Company has an agreement providing for a revolving credit facility with The
CIT Group/Business Credit, Inc. (CIT). Advances under the facility are based
on a borrowing base formula and subject to certain loan restrictions, and the
facility is secured primarily by inventory, accounts receivable and real
estate. The credit agreement includes various requirements, financial
covenants and restrictions, including a restriction on the payment of
dividends. During 1998, CIT amended one ratio covenant to exclude the
impairment losses so that the Company would be in compliance. The Company was
in compliance with all other financial covenants. Currently, the revolving
line of credit is $65,000,000, with a seasonal increase to $80,000,000 during
the period from mid-September through mid-December each year. In addition, the
Company may, at its option, increase the line of credit by an additional
$5,000,000.
Advances under the credit facility bear interest at the prime rate (7.75% at
January 30, 1999) and any unused borrowing capacity is subject to a line of
credit fee of .25%. The Company may, under certain circumstances, elect to
have interest computed at a rate of the London Interbank Offered Rate (LIBOR,
4.94% to 4.97% at January 30, 1999) plus 2.125%. The credit facility expires
August 31, 2001.
At the end of 1998 and 1997, outstanding letters of credit were $1,138,000 and
$1,055,000, respectively.
NOTE E - INCOME TAXES
The Company's tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
(In thousands)
<S> <C> <C> <C>
Current
Federal $(686) $(4,142) $ -
Foreign 43 78 28
State 2 19 33
Deferred
State (103) 44 (250)
----- ------- -----
$(744) $(4,001) $(189)
===== ======= =====
</TABLE>
38
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE E - INCOME TAXES - CONTINUED
A reconciliation of income tax benefits on net earnings (losses) before income
taxes computed at the statutory Federal income tax rate and income taxes
reported in the consolidated statements of operations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Income tax benefit at statutory
rate $ (712) $ 806 $(9,329)
Increases (reductions)
Change in valuation allowance
Current year operations 593 (851) 9,160
Net operating loss carryback (507) (2,489) -
Carryback of net operating loss to
periods for which tax rates exceed
current rate (179) (1,652) -
Other items - net 61 185 (20)
------ ------- -------
Income tax benefit $ (744) $(4,001) $ (189)
====== ======= =======
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
January 30, 1999 January 31, 1998
-------------------- --------------------
Current Long-Term Current Long-Term
------- --------- ------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Assets
-------
Accrued expenses $ 271 $ 471 $ 702 $ 613
Lease incentives 158 1,892 156 2,027
Store closing reserves 917 - 1,348 -
Net operating loss carryforward - 9,142 - 8,615
Business tax credits - 1,006 - 1,069
------ ------- ------- ---------
1,346 12,511 2,206 12,324
</TABLE>
39
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE E - INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
January 30, 1999 January 31, 1998
--------------------- ---------------------
Current Long-Term Current Long-Term
-------- ---------- -------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Liabilities
-----------
Depreciation of property and equipment $ - $ 4,727 $ - $ 5,079
Inventory capitalization 1,078 - 916 -
LIFO termination - - 478 -
State taxes 4 190 9 287
Other 50 127 141 128
------ ------- ------ -------
1,132 5,044 1,544 5,494
------ ------- ------ -------
Net asset before valuation allowance 214 7,467 662 6,830
Less valuation allowance (268) (7,783) (721) (7,244)
------ ------- ------ -------
NET LIABILITY $ 54 $ 316 $ 59 $ 414
====== ======= ====== =======
</TABLE>
Deferred income taxes of $54,000 and $59,000 were included in accrued
liabilities at 1998 and 1997.
In 1998, the Company recorded Federal income tax refunds of $686,000, of which
$219,000 plus interest of $3,000 was received by year-end, resulting from the
application of net operating loss carrybacks.
In the third quarter of fiscal 1995, the Company received Federal income tax
refunds of $4,142,000 plus interest of $662,000 resulting from the application
of net operating loss carrybacks. Approximately $179,000 ($1,652,000 in 1997)
of the tax refunds relate to the benefit of carrying back net operating losses
to periods for which the tax rates exceeded the current 34% Federal income tax
rate. These amounts resulted in tax benefits recordable in the Company's
statement of operations due to the expiration of the statute of limitations for
review of the refunds.
Deferred tax assets were reduced by valuation allowances of $8,608,000 and
$7,965,000 at January 30, 1999 and January 31, 1998, respectively. Due to the
operating loss carryforwards generated during fiscal 1998 from the Company's
continuing operations, management believes that uncertainties exist such that
it cannot be considered more likely than not that the Company's deferred tax
assets will be realized in the future and therefore have recorded a valuation
allowance against existing net deferred tax assets. In 1998, the Company
increased its valuation allowance by $643,000 due to net deferred tax assets
generated during the year, offset by the recognition of certain net operating
loss carrybacks.
40
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE E - INCOME TAXES - CONTINUED
The Company has net operating loss carryforwards of approximately $26,700,000.
The carryforwards expire as follows:
<TABLE>
<CAPTION>
Expiration Amount
---------- --------------
(In thousands)
<S> <C>
2007 $ 58
2008 81
2010 2,980
2011 2,375
2012 12,159
2013 6,161
2019 3,074
-------
$26,888
=======
</TABLE>
Additionally, the Company has foreign tax credit carryforwards of $196,000
expiring from 2000 to 2004, job tax credit carryforwards of $748,000 expiring
from 2008 to 2011 and alternative minimum tax credit carryforwards of $61,000.
NOTE F - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company conducts certain of its operations in owned facilities with its
remaining operations being conducted in facilities leased under noncancelable
operating leases. Rentals of the retail locations are based on minimum
required rentals and/or, in certain instances, contingent rentals based on a
percentage of sales. Some leases contain renewal options with provision for
increased rentals during the renewal term.
Future minimum rental payments under operating leases at the end of 1998 are as
follows:
<TABLE>
<CAPTION>
Fiscal year Amount
- ------------------------ --------------
(In thousands)
<S> <C>
1999 $ 18,748
2000 18,716
2001 18,984
2002 19,008
2003 18,380
Thereafter to 2019 174,465
</TABLE>
41
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE F - COMMITMENTS AND CONTINGENCIES - CONTINUED
Minimum payments have not been reduced by minimum sublease rental income of
$11,444,000 due in the future under noncancelable subleases.
Total rental expense entering into the determination of net earnings (loss) is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Leased facilities
Minimum rentals $18,862 $18,550 $18,479
Contingent rentals (based on a
percentage of sales) 1,003 1,525 1,813
------- ------- -------
19,865 20,075 20,292
Other rentals 394 425 388
------- ------- -------
$20,259 $20,500 $20,680
======= ======= =======
</TABLE>
Certain leases between the Company and two trusts, which are for the benefit of
two shareholders, provide for total minimum annual rentals of $399,000 through
November, 2003.
PROFIT SHARING PLAN
The Company and its subsidiaries participate in a discretionary employee profit
sharing plan. The Plan is a 401(k) Retirement Savings Plan covering
substantially all employees. Under the Plan, participating employees can
allocate up to 15% of their salary. The Company may make discretionary
contributions to the Plan. The Company made no contributions to the Plan in
1998, 1997 or 1996.
SEVERANCE PAY BONUS AGREEMENTS
The Company has employment agreements with certain executive officers that
become operative only upon a change in control of the Company. Compensation
which may be payable under these agreements has not been accrued in the
consolidated financial statements as a change in control, as defined, has not
occurred.
42
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE F - COMMITMENTS AND CONTINGENCIES - CONTINUED
DEFERRED COMPENSATION AGREEMENT
The Company has a deferred compensation agreement with an executive officer
under which the officer will receive an estimated annual retirement benefit of
$151,515 after he attains age 65. During 1998, the first payment was made.
These payments will continue for an additional nine years. This agreement
amends a previous deferred compensation agreement between the Company and the
executive officer, which was funded by a purchased life insurance policy on the
life of the executive. As part of the revised agreement, the Company cancelled
the life insurance policy for the full cash value at the time of cancellation.
If the executive dies before all payments are made, the remaining payments will
be made to his designated beneficiary under the same payment schedule.
LITIGATION
Various legal claims have arisen in the normal course of business, which, in
the opinion of management, will not have a material adverse effect on the
Company's financial statements.
NOTE G - STOCKHOLDERS' EQUITY
CAPITAL STOCK
Authorized capital stock consists of 500,000 shares of $1 par value preferred
stock and 15,000,000 shares of $1 par value common stock. No preferred stock
has been issued. Common stock shares issued were 5,830,000 and shares
outstanding were 5,827,000 at the end of 1998, 1997, and 1996.
COMMON STOCK OPTION PLANS
The Company's 1994 Omnibus Plan authorizes the grant of Incentive Awards for up
to 750,000 shares of common stock to key employees of the Company. Awards may
be in the form of stock options, stock appreciation rights, restricted stock,
performance units, performance shares or other stock based awards and certain
additional payments in the amount of Federal income taxes payable by a grantee
and relating to an award, and are to be determined by a committee of the Board
of Directors.
43
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE G - STOCKHOLDERS' EQUITY - CONTINUED
Stock options granted may be either nonqualified options or incentive stock
options and may include reload options. Exercise price will be determined by
the committee; however, in the case of incentive stock options, the exercise
price shall not be less than 100% of the market value of the shares at the time
the options are granted. No option is exercisable after the expiration of ten
years from the date of grant.
The 1994 Omnibus Plan replaces the Company's 1991 Stock Option Plan, 1986 Stock
Option Plan and 1986 Stock Bonus Plan. However, currently outstanding options
and grants under those plans will continue to exist until they vest and are
exercised or expire. No awards are outstanding under the 1986 Stock Bonus Plan
at year end.
Additionally, the Company's 1993 Non-Employee Director Stock Option Plan
provides for the issuance of options to non-employee directors of the Company
at an option price equal to the average of the closing prices of the last five
trading days preceding and including the date of grant. Unexercised options
expire no later than ten years from date of grant or three months after the
termination of the directorship, extended to one year if the termination of
directorship is caused by death or disability.
The Company records an expense based on the difference between the option price
and fair market value of the stock at date of grant, amortized over the vesting
period of the option. Selling and administrative expenses related to the grant
of stock options were not material in 1998, 1997 or 1996. Upon the exercise of
options, the proceeds are credited to the common stock account to the extent of
the par value of the shares issued, and the proceeds in excess of the par value
are credited to additional capital.
RESTRICTED STOCK AWARD
The Company granted 100,000 restricted shares of the Company's common stock to
the Company's current Chief Executive Officer in 1994 pursuant to the 1994
Omnibus Plan. The grantee has no rights as a stockholder with respect to the
restricted shares, including no right to transfer or receive dividends in most
circumstances. Grantee becomes 100% vested in restricted shares if retirement
occurs at or after age 65, in the event of death or disability of the grantee,
termination by grantee following a change in control of the Company,
termination of grantee by the Company without cause and termination by grantee
for good reason. Partial vesting occurs at the rate of 25% of the grant per
year if retirement occurs at or after the grantee reaches the age of 62.
Restrictions on the stock end on the vesting date. Additionally, the grant
provides that the Company will pay the grantee the Federal tax benefit (if any)
realized by the Company from the tax deduction for compensation resulting from
the restricted stock grant. Expense recorded for the grant was approximately
$39,000, $98,000 and $181,000 in 1998, 1997, and 1996, respectively.
44
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE G - STOCKHOLDERS' EQUITY - CONTINUED
FASB STATEMENT 123 DISCLOSURE
The Company applies APB 25 and related Interpretations in accounting for stock-
based compensation. Had compensation costs been determined based on the fair
value at the grant dates for awards consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- ----------
<S> <C> <C> <C>
Net (loss) income
As reported $(1,351) $5,073 $(27,250)
Pro forma (1,438) 4,806 (27,271)
Earnings (loss) per share - basic
As reported (.23) .87 (4.67)
Pro forma (.25) .82 (4.67)
Earnings (loss) per share - diluted
As reported (.23) .85 (4.67)
Pro forma (.25) .80 (4.67)
</TABLE>
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants issued in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Expected volatility 55.69% 56.10% 52.04%
Risk free rate 5.65% 5.76% 5.90%
Expected life of options 7.5 years 6 years 6 years
Expected dividend yield 0.00% 0.00% 0.00%
</TABLE>
45
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE G - STOCKHOLDERS' EQUITY - CONTINUED
A summary of the Company's stock options and warrants of 1998, 1997 and 1996
and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
Weighted-average Weighted-average Weighted average
Shares exercise price Shares exercise price Shares exercise price
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 586,650 $7.06 511,450 $5.38 682,800 $5.98
Granted 317,000 5.57 299,250 4.60 30,000 7.77
Exercised - - - - 8,100 5.97
Forfeited 290,000 6.92 224,050 5.80 145,650 7.56
Expired 2,500 6.75 - - 47,600 5.37
------- ------- -------
Outstanding at
end of year 611,150 4.42 586,650 5.04 511,450 5.38
======= ======= =======
Options exercisable
at end of year 38,166 5.94 278,833 7.06 335,838 7.03
======= ======= =======
</TABLE>
The weighted-average fair value of compensatory options granted during 1998,
1997 and 1996 was $4.02, $3.29 and $5.62 per option.
The following table summaries information about options and warrants
outstanding at January 30, 1999:
<TABLE>
<CAPTION>
Options/awards outstanding Options exercisable
----------------------------------- -------------------
Weighted-average
Range of Number remaining Weighted-average Number Weighted-average
exercise prices outstanding contractual life exercise price outstanding exercise price
- ------------------- ----------- ---------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$0 - $1 100,000 .45 years - - -
$4.50 - $6.00 491,150 8.82 years 5.21 28,166 5.51
$6.01 - $7.63 20,000 7.06 years 7.15 10,000 6.68
------- -------
611,150 38,166
======= =======
</TABLE>
46
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE H - EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings per share (EPS)
and the weighted average number of shares of dilutive potential common stock.
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- ---------
(In thousands)
<S> <C> <C> <C>
Net (loss) earnings $(1,351) $5,073 $(27,250)
======= ====== ========
Weighted average common shares used
In basic EPS 5,830 5,830 5,829
Effect of dilutive securities:
Stock Options - 110 -
------- ------ --------
Weighted average common and potential
dilutive common shares used in dilutive
EPS 5,830 5,940 5,829
======= ====== ========
</TABLE>
NOTE I - STORE CLOSING RESERVE
The Company has accrued store closing reserves to cover estimated lease costs
and other incremental closing costs of stores closed or targeted to close.
Management believes that these reserves are adequate.
NOTE J - MISCELLANEOUS INCOME (EXPENSE)
Miscellaneous income (expense) consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(In thousands)
<S> <C> <C> <C>
Gain on sale of real estate and leasehold
interests, net of commissions $3,914 $5,616 $ -
Fees from foreign licenses 467 1,199 1,238
Other, net (118) (769) (465)
------ ------ ------
$4,263 $6,046 $ 773
====== ====== ======
</TABLE>
47
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999, January 31, 1998
and February 1, 1997
NOTE J - MISCELLANEOUS INCOME (EXPENSE) - CONTINUED
Fees from foreign licenses represent annual royalties from license agreements
which provide the licensee the ability to use the Company's name and to import
and sell the Company's products. Revenue under the license agreements includes
annual royalties based on the greater of a minimum or a percentage of sales in
the licensee's stores and fees related to sales to the licensee.
NOTE K - NEW PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which is effective for financial statements issued for periods
beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company does not expect the effect of SFAS No.
133 to be material to the financial statements taken as a whole.
48
<PAGE>
SUPPLEMENTAL INFORMATION
49
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
Years ended January 30, 1999 and January 31, 1998
(In thousands except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
1998
Net sales $72,140 $79,032 $64,312 $ 93,573
======= ======= ======= ========
Gross profit $25,380 $26,847 $24,079 $ 29,474
======= ======= ======= ========
Net earnings (loss) $(1,124) $ 3,420 $(2,015) $ (1,632)
======= ======= ======= ========
Basic earnings (loss) per share $ (.19) $ .59 $ (.35) $ (.27)
======= ======= ======= ========
Diluted earnings (loss) per share $ (.19) $ .57 $ (.35) $ (.27)
======= ======= ======= ========
1997
Net sales $88,432 $82,913 $69,608 $101,656
======= ======= ======= ========
Gross profit $29,962 $28,368 $25,637 $ 34,022
======= ======= ======= ========
Net earnings (loss) before cumulative
effect of change in accounting
principal $ 920 $(1,336) $ 1,197 $ 5,591
======= ======= ======= ========
Cumulative effect of change in
accounting principle $(1,299) $ - $ - $ -
======= ======= ======= ========
Net earnings (loss) $ (379) $(1,336) $ 1,197 $ 5,591
======= ======= ======= ========
Earnings (loss) per share
Earnings before cumulative effect
of change in accounting principle
Basic earnings (loss) per share $ .15 $ (.23) $ .21 $ .96
======= ======= ======= ========
Diluted earnings (loss) per share $ .15 $ (.23) $ .21 $ .94
======= ======= ======= ========
Cumulative effect of change in
accounting principle
Basic earnings (loss) per share $ (.22) $ - $ - $ -
======= ======= ======= ========
Diluted earnings (loss) per share $ (.22) $ - $ - $ -
======= ======= ======= ========
Earnings per common and common
equivalent shares
Basic earnings (loss) per share $ (.07) $ (.23) $ (.21) $ .96
======= ======= ======= ========
Diluted earnings (loss) per share $ (.07) $ (.23) $ (.21) $ .94
======= ======= ======= ========
</TABLE>
50
<PAGE>
Schedule II
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL RECEIVABLES
Years ended January 30, 1999, January 31, 1998
and February 1, 1997
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
---------- ---------- ---------- -------------- ----------
Balance at Additions Balance at
beginning charged to end of
Description of period expense Deductions (A) period
------------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Year ended January 30, 1999 $130 $- $ 42 $ 88
Year ended January 31, 1998 $255 $- $125 $130
Year ended February 1, 1997 $386 $7 $168 $255
</TABLE>
(A) Receivables charged off, net of recoveries.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OSHMAN'S SPORTING GOODS, INC.
By: /s/ A. Lynn Boerner
___________________________
Name: A. Lynn Boerner
Title: Vice President, Chief Accounting
Officer and Assistant Secretary
Date: April 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 27, 1999, by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ Marilyn Oshman /s/ Alvin N. Lubetkin
- ---------------------------------- --------------------------------------
Marilyn Oshman Alvin N. Lubetkin
Chairman of the Board of Directors Vice Chairman of the Board of Directors,
Chief Executive Officer, President
(Principal Executive Officer) and Director
/s/ Marvin Aronowitz
- ---------------------------------- --------------------------------------
Marvin Aronowitz Margaret A. Gilliam
Director Director
/s/ Dolph B. H. Simon /s/ A. Lynn Boerner
- ---------------------------------- --------------------------------------
Dolph B.H. Simon A. Lynn Boerner
Director Vice President, Chief Accounting Officer
and Assistant Secretary (Principal
Accounting and Financial Officer)
/s/ William M. Hitchcock /s/ Karen Desenberg
- ---------------------------------- --------------------------------------
William M. Hitchcock Karen Desenberg
Director Director
/s/ Stephen A. Lasher
--------------------------------------
Stephen A. Lasher
Director
52
<PAGE>
INDEX TO EXHIBITS
3.1 Certificate of Incorporation of Oshman's Sporting Goods, Inc., as
amended to date (filed as Exhibit 3.1 to the Company's Form 10-K for
the fiscal year ended January 31, 1987 (the "1987 10-K") and
incorporated herein by reference).
3.2 Amended and Restated Bylaws of Oshman's Sporting Goods, Inc. as of
January 30, 1997 (filed as Exhibit 3.2 to the Company's Form 10-K
for the fiscal year ended February 3, 1997 and incorporated herein
by reference).
4.1 Amended and Restated Financing Agreement dated December 15, 1997
between the Company's subsidiaries and The CIT Group/Business
Credit, Inc. (the "Financing Agreement") (filed as Exhibit 4.1 to
the Company's Form 10-K for the fiscal year ended January 31, 1998
(the "1998 10-K") and incorporated herein by reference).
4.1(a) Amendment dated March 23, 1998 to the Financing Agreement (filed as
Exhibit 4.1(a) to the 1998 10-K and incorporated herein by
reference).
4.1(b) Amendment dated May 1, 1998 to the Financing Agreement (filed as
Exhibit 4.1(b) to the Company's Form 10-Q for the quarterly period
ended August 1, 1998 and incorporated herein by reference).
4.1(c) + Amendment dated December 16, 1998 to the Financing Agreement.
4.1(d) + Amendment dated December 28, 1998 to the Financing Agreement.
4.1(e) + Amendment dated March 5, 1999 to the Financing Agreement.
10.1 * Executive Salary Continuation Agreement between the Company and
Marvin Aronowitz, dated October 1, 1976 (filed as Exhibit 10.4 to
the Company's Form 10-K for the fiscal year ended January 29, 1983
and incorporated herein by reference).
10.2 * Deferred Compensation Agreement between the Company and Alvin N.
Lubetkin, dated December 29, 1988 (filed as Exhibit 10.5 to the
Company's Form 10-K for the fiscal year ended January 28, 1989 (the
"1989 10-K") and incorporated herein by reference).
10.2(a) *+ Amendment to Deferred Compensation Agreement between the Company
and Alvin N. Lubetkin, dated December 31, 1998.
10.3 * Oshman's Sporting Goods, Inc. 1986 Stock Option Plan, as amended
(filed as Exhibit 10.9 to the 1987 10-K and incorporated herein by
reference).
10.3(a) * Second Amendment to Oshman's Sporting Goods, Inc. 1986 Stock Option
Plan (filed as Exhibit 19.4 to the Company's Form 10-K for the
fiscal year ended January 30, 1993 (the "1993 10-K") and
incorporated herein by reference).
53
<PAGE>
10.3(b) * Third Amendment to Oshman's Sporting Goods, Inc. 1986 Stock Option
Plan (filed as Exhibit 19.5 to the 1993 10-K and incorporated herein
by reference).
10.4 * Oshman's Sporting Goods, Inc. 1986 Stock Bonus Plan (filed as
Exhibit 10.10 to the 1987 10-K and incorporated herein by
reference).
10.4(a) * First Amendment to Oshman's Sporting Goods, Inc. 1986 Stock Bonus
Plan (filed as Exhibit 10.9 to the Company's Form 10-K for the
fiscal year ended February 3, 1990 and incorporated herein by
reference).
10.5 * Employment Agreement dated October 3, 1990 between the Company and
Alvin N. Lubetkin (filed as Exhibit 10.8 to the Company's Form 10-K
for the fiscal year ended January 29, 1994 (the "1994 10-K") and
incorporated herein by reference).
10.6 * Loan Agreement dated October 3, 1990 between the Company and Alvin
N. Lubetkin (filed as Exhibit 10.9 to the Company's Form 10-K for
the fiscal year ended February 2, 1991 (the "1991 10-K") and
incorporated herein by reference).
10.7 * Oshman's Sporting Goods, Inc. 1991 Stock Option Plan (filed as
Exhibit 10.10 to the 1991 10-K and incorporated herein by
reference).
10.8 * Oshman's Sporting Goods, Inc. 1993 Non-Employee Director Stock
Option Plan (filed as Exhibit 10.14 to the 1994 10-K and
incorporated herein by reference).
10.9 * Oshman's Sporting Goods, Inc. 1994 Omnibus Plan (filed as Exhibit
10.13 to the Company's Form 10-K for the fiscal year ended January
28, 1995 (the "1995 10-K") and incorporated herein by reference).
10.9(a) * First Amendment to the Oshman's Sporting Goods, Inc., 1994 Omnibus
Plan (filed as Exhibit 10.13 to the Company's Form 10-Q for the
fiscal quarter ended July 29, 1995 and incorporated herein by
reference).
10.10 * Restricted Stock Grant Agreement between the Company and Alvin N.
Lubetkin, dated July 15, 1994 (filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarterly period ended July 30, 1994 and
incorporated herein by reference).
10.10(a)* First Amendment to Restricted Stock Grant Agreement between the
Company and Alvin N. Lubetkin dated as of July 15, 1994 (filed as
Exhibit 10.14 to the 1995 10-K and incorporated herein by
reference).
10.11 * Oshman's Sporting Goods, Inc. 1995 Incentive Compensation Plan for
Senior Management (filed as Exhibit 10.16 to the Company's Form 10-Q
for the quarterly period ended October 28, 1995 and incorporated
herein by reference).
10.12 * Statement of Policy Regarding Executive Severance Pay Bonus Program
(as amended and restated) (filed as Exhibit 10.12 to the 1998 10-K
and incorporated herein by reference).
54
<PAGE>
10.13 * Statement of Policy Regarding Key Executive Severance Pay Bonus
Program (as amended and restated) (filed as Exhibit 10.13 to the
1998 10-K and incorporated herein by reference).
10.14 *+ Repricing Stock Option Agreement Under the 1994 Omnibus Plan between
the Company and Alvin N. Lebetkin, dated April 9, 1998.
21.1 + Subsidiaries of the Registrant.
23.1 + Consent of Grant Thornton LLP.
27.1 + Financial data schedule.
- ---------------
* Management contract or compensatory plan or arrangement.
+ Filed herewith.
55
<PAGE>
EXHIBIT 4.1(c)
December 16, 1998
J.S. OSHMAN AND CO., INC.
OSHMAN SPORTING GOODS CO., ALABAMA
OSHMAN SPORTING GOODS CO., ARIZONA
OSHMAN SPORTING GOODS CO., ARKANSAS
OSHMAN SPORTING GOODS CO., CALIFORNIA
OSHMAN SPORTING GOODS CO., COLORADO
OSHMAN SPORTING GOODS CO., FLORIDA
OSHMAN SPORTING GOODS CO., GEORGIA
OSHMAN SPORTING GOODS CO., HAWAII
OSHMAN SPORTING GOODS CO., KANSAS
OSHMAN SPORTING GOODS CO., LOUISIANA
OSTMAN SPORTING GOODS CO., MICHIGAN
OSHMAN SPORTING GOODS CO., MINNESOTA
OSHMAN SPORTING GOODS CO., MISSOURI
OSHMAN SPORTING GOODS CO., NEVADA
OSHMAN SPORTING GOODS CO., NEW JERSEY
OSHMAN SPORTING GOODS CO., NEW MEXICO
OSHMAN SPORTING GOODS CO., NEW YORK
OSHMAN SPORTING GOODS CO., OHIO
OSHMAN SPORTING GOODS CO., OKLAHOMA
OSHMAN SPORTING GOODS CO., OREGON
OSHMAN SPORTING GOODS CO., SOUTH CAROLINA
OSHMAN SPORTING GOODS CO., TENNESSEE
OSHMAN SPORTING GOODS CO., TEXAS
OSHMAN SPORTING GOODS CO., UTAH
OSHMAN SPORTING GOODS CO., WASHINGTON
OSHMAN'S SKI SKOOL, INC.
OSHMAN'S SPORTING GOODS INC. - SERVICES
(collectively, the "Companies")
2302 Maxwell Lane
Houston, Texas 77023
Gentlemen:
Reference is made to the Amended and Restated Financing Agreement between the
Companies and us, dated as of December 15, 1997, as further amended (herein the
"Financing Agreement"). Capitalized terms as used herein shall have the
meanings ascribed to them in the Financing Agreement unless otherwise
specifically defined herein.
You have advised us that the Deferred Compensation Plan between Oshman's
Sporting Goods, Inc. (the "Company") and Alvin Lubetkin (A.L.) entered into on
December 29, 1988, providing
<PAGE>
for annual payments to A.L. of $100,000.00 each plus a supplemental payment
based on the Company's tax benefit from such payments (herein the "Payments"),
commencing January 4, 1999 has been amended to provide for (a) the cashing in of
the insurance policy on A.L. with the proceeds of such cash surrender value in
the approximate amount of $900,000.00 to be used in the operations of the
Company, and (b) the funding of all 10 payments of $151,515.00 each in lieu of
the Payments to A.L. to be made by the Company pursuant to the Deferred
Compensation Plan (herein the "Deferred Compensation Plan").
This is to confirm our agreement that the Deferred Compensation Plan is deemed
to be Permitted Indebtedness pursuant to clause (iv) of such definition under
the Financing Agreement.
No other change in the terms or conditions of the Financing Agreement is
intended or implied. If the foregoing is in accordance with your understanding
plans so indicate by signing and returning to us the enclosed copy of this
letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By:
______________________________
Title:
<PAGE>
Read and Agreed to:
J.S. OSHMAN AND CO., INC.
OSHMAN SPORTING GOODS CO., ALABAMA
OSHMAN SPORTING GOODS CO., ARIZONA
OSHMAN SPORTING GOODS CO., ARKANSAS
OSHMAN SPORTING GOODS CO., CALIFORNIA
OSHMAN SPORTING GOODS CO., COLORADO
OSHMAN SPORTING GOODS CO., FLORIDA
OSHMAN SPORTING GOODS CO., GEORGIA
OSHMAN SPORTING GOODS CO., HAWAII
OSHMAN SPORTING GOODS CO., KANSAS
OSHMAN SPORTING GOODS CO., LOUISIANA
OSHMAN SPORTING GOODS CO., MICHIGAN
OSHMAN SPORTING GOODS CO., MINNESOTA
OSHMAN SPORTING GOODS CO., MISSOURI
OSHMAN SPORTING GOODS CO., NEVADA
OSHMAN SPORTING GOODS CO., NEW JERSEY
OSHMAN SPORTING GOODS CO., NEW MEXICO
OSHMAN SPORTING GOODS CO., NEW YORK
OSHMAN SPORTING GOODS CO., OHIO
OSHMAN SPORTING GOODS CO., OKLAHOMA
OSHMAN SPORTING GOODS CO., OREGON
OSHMAN SPORTING GOODS CO., SOUTH CAROLINA
OSHMAN SPORTING GOODS CO., TENNESSEE
OSHMAN SPORTING GOODS CO., TEXAS
OSHMAN SPORTING GOODS CO., UTAH
OSHMAN SPORTING GOODS CO., WASHINGTON
OSHMAN'S SKI SKOOL, INC.
OSHMAN'S SPORTING GOODS INC. - SERVICES
(collectively, the "Companies")
By:
___________________________________
Title:
________________________________
(of each of the above Companies)
OSHMAN'S SPORTING GOODS, INC., in its capacity, as Guarantor, hereby
acknowledges the foregoing.
By:
___________________________________
Title:
<PAGE>
EXHIBIT 4.1(d)
December 28, 1998
J.S. OSHMAN AND CO., INC.
OSHMAN SPORTING GOODS CO., ALABAMA
OSHMAN SPORTING GOODS CO., ARIZONA
OSHMAN SPORTING GOODS CO., ARKANSAS
OSHMAN SPORTING GOODS CO., CALIFORNIA
OSHMAN SPORTING GOODS CO., COLORADO
OSHMAN SPORTING GOODS CO., FLORIDA
OSHMAN SPORTING GOODS CO., GEORGIA
OSHMAN SPORTING GOODS CO., HAWAII
OSHMAN SPORTING GOODS CO., KANSAS
OSHMAN SPORTING GOODS CO., LOUISIANA
OSTMAN SPORTING GOODS CO., MICHIGAN
OSHMAN SPORTING GOODS CO., MINNESOTA
OSHMAN SPORTING GOODS CO., MISSOURI
OSHMAN SPORTING GOODS CO., NEVADA
OSHMAN SPORTING GOODS CO., NEW JERSEY
OSHMAN SPORTING GOODS CO., NEW MEXICO
OSHMAN SPORTING GOODS CO., NEW YORK
OSHMAN SPORTING GOODS CO., OHIO
OSHMAN SPORTING GOODS CO., OKLAHOMA
OSHMAN SPORTING GOODS CO., OREGON
OSHMAN SPORTING GOODS CO., SOUTH CAROLINA
OSHMAN SPORTING GOODS CO., TENNESSEE
OSHMAN SPORTING GOODS CO., TEXAS
OSHMAN SPORTING GOODS CO., UTAH
OSHMAN SPORTING GOODS CO., WASHINGTON
OSHMAN'S SKI SKOOL, INC.
OSHMAN'S SPORTING GOODS INC. - SERVICES
(collectively, the "Companies")
2302 Maxwell Lane
Houston, Texas 77023
Gentlemen:
Reference is made to the Amended and Restated Financing Agreement between the
Companies and us, dated as of December 15, 1997, as further amended (herein the
"Financing Agreement"). Capitalized terms as used herein shall have the
meanings ascribed to them in the Financing Agreement unless otherwise
specifically defined herein.
Pursuant to mutual understanding, paragraph 10 of Section 6 of the Financing
Agreement is hereby amended as follows:
<PAGE>
1) The figure "$375,000.00" appearing in clause (ii) of paragraph F is hereby
deleted and the figure "$1,000,000.00" is substituted in lieu thereof; and
2) The figure "$375,000.00" appearing in clause (iv) of paragraph H is hereby
deleted and the figure "$1,000,000.00" is substituted in lieu thereof.
Except as otherwise specifically provided herein, no other change or amendment
in the terms and conditions of the Financing Agreement is intended or implied.
If the foregoing is in accordance with your understanding, please so indicate by
signing and returning to us the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By:
______________________________
Title:
___________________________
<PAGE>
Read and Agreed to:
J.S. OSHMAN AND CO., INC.
OSHMAN SPORTING GOODS CO., ALABAMA
OSHMAN SPORTING GOODS CO., ARIZONA
OSHMAN SPORTING GOODS CO., ARKANSAS
OSHMAN SPORTING GOODS CO., CALIFORNIA
OSHMAN SPORTING GOODS CO., COLORADO
OSHMAN SPORTING GOODS CO., FLORIDA
OSHMAN SPORTING GOODS CO., GEORGIA
OSHMAN SPORTING GOODS CO., HAWAII
OSHMAN SPORTING GOODS CO., KANSAS
OSHMAN SPORTING GOODS CO., LOUISIANA
OSHMAN SPORTING GOODS CO., MICHIGAN
OSHMAN SPORTING GOODS CO., MINNESOTA
OSHMAN SPORTING GOODS CO., MISSOURI
OSHMAN SPORTING GOODS CO., NEVADA
OSHMAN SPORTING GOODS CO., NEW JERSEY
OSHMAN SPORTING GOODS CO., NEW MEXICO
OSHMAN SPORTING GOODS CO., NEW YORK
OSHMAN SPORTING GOODS CO., OHIO
OSHMAN SPORTING GOODS CO., OKLAHOMA
OSHMAN SPORTING GOODS CO., OREGON
OSHMAN SPORTING GOODS CO., SOUTH CAROLINA
OSHMAN SPORTING GOODS CO., TENNESSEE
OSHMAN SPORTING GOODS CO., TEXAS
OSHMAN SPORTING GOODS CO., UTAH
OSHMAN SPORTING GOODS CO., WASHINGTON
OSHMAN'S SKI SKOOL, INC.
OSHMAN'S SPORTING GOODS INC. - SERVICES
(collectively, the "Companies")
By:
______________________________________
Title:
___________________________________
(of each of the above Companies)
OSHMAN'S SPORTING GOODS, INC., in its capacity, as Guarantor, hereby
acknowledges the foregoing.
By:
______________________________________
Title:
___________________________________
<PAGE>
EXHIBIT 4.1(e)
March 5, 1999
J.S. OSHMAN AND CO., INC.
OSHMAN SPORTING GOODS CO., ALABAMA
OSHMAN SPORTING GOODS CO., ARIZONA
OSHMAN SPORTING GOODS CO., ARKANSAS
OSHMAN SPORTING GOODS CO., CALIFORNIA
OSHMAN SPORTING GOODS CO., COLORADO
OSHMAN SPORTING GOODS CO., FLORIDA
OSHMAN SPORTING GOODS CO., GEORGIA
OSHMAN SPORTING GOODS CO., HAWAII
OSHMAN SPORTING GOODS CO., KANSAS
OSHMAN SPORTING GOODS CO., LOUISIANA
OSTMAN SPORTING GOODS CO., MICHIGAN
OSHMAN SPORTING GOODS CO., MINNESOTA
OSHMAN SPORTING GOODS CO., MISSOURI
OSHMAN SPORTING GOODS CO., NEVADA
OSHMAN SPORTING GOODS CO., NEW JERSEY
OSHMAN SPORTING GOODS CO., NEW MEXICO
OSHMAN SPORTING GOODS CO., NEW YORK
OSHMAN SPORTING GOODS CO., OHIO
OSHMAN SPORTING GOODS CO., OKLAHOMA
OSHMAN SPORTING GOODS CO., OREGON
OSHMAN SPORTING GOODS CO., SOUTH CAROLINA
OSHMAN SPORTING GOODS CO., TENNESSEE
OSHMAN SPORTING GOODS CO., TEXAS
OSHMAN SPORTING GOODS CO., UTAH
OSHMAN SPORTING GOODS CO., WASHINGTON
OSHMAN'S SKI SKOOL, INC.
OSHMAN'S SPORTING GOODS INC. - SERVICES
(collectively, the "Companies")
2302 Maxwell Lane
Houston, Texas 77023
Gentlemen:
Reference is made to the Amended and Restated Financing Agreement dated as of
December 15, 1997, as amended (herein the "Financing Agreement"). Capitalized
terms as used herein shall have the meanings ascribed to them in the Financing
Agreement unless otherwise specifically defined herein.
Pursuant to mutual understanding, paragraph 9 of Section 6 and subparagraph I of
paragraph 10 of Section 6 are hereby amended to provide that for purposes of
calculating the Net Worth and
<PAGE>
EBITDA financial covenants for the fiscal quarter year ending January 30, 1999,
the projected $3,700,000.00 of asset impairment expenses shall be excluded from
such calculations.
No other change in the terms or conditions of the Financing Agreement is
intended or implied. If the foregoing is in accordance with your understanding,
please so indicate by signing and returning to us the enclosed copy of this
letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By:
________________________________
Title:
<PAGE>
Read and Agreed to:
J.S. OSHMAN AND CO., INC.
OSHMAN SPORTING GOODS CO., ALABAMA
OSHMAN SPORTING GOODS CO., ARIZONA
OSHMAN SPORTING GOODS CO., ARKANSAS
OSHMAN SPORTING GOODS CO., CALIFORNIA
OSHMAN SPORTING GOODS CO., COLORADO
OSHMAN SPORTING GOODS CO., FLORIDA
OSHMAN SPORTING GOODS CO., GEORGIA
OSHMAN SPORTING GOODS CO., HAWAII
OSHMAN SPORTING GOODS CO., KANSAS
OSHMAN SPORTING GOODS CO., LOUISIANA
OSHMAN SPORTING GOODS CO., MICHIGAN
OSHMAN SPORTING GOODS CO., MINNESOTA
OSHMAN SPORTING GOODS CO., MISSOURI
OSHMAN SPORTING GOODS CO., NEVADA
OSHMAN SPORTING GOODS CO., NEW JERSEY
OSHMAN SPORTING GOODS CO., NEW MEXICO
OSHMAN SPORTING GOODS CO., NEW YORK
OSHMAN SPORTING GOODS CO., OHIO
OSHMAN SPORTING GOODS CO., OKLAHOMA
OSHMAN SPORTING GOODS CO., OREGON
OSHMAN SPORTING GOODS CO., SOUTH CAROLINA
OSHMAN SPORTING GOODS CO., TENNESSEE
OSHMAN SPORTING GOODS CO., TEXAS
OSHMAN SPORTING GOODS CO., UTAH
OSHMAN SPORTING GOODS CO., WASHINGTON
OSHMAN'S SKI SKOOL, INC.
OSHMAN'S SPORTING GOODS INC. - SERVICES
(collectively, the "Companies")
By:
___________________________________
Title:
________________________________
(of each of the above Companies)
OSHMAN'S SPORTING GOODS, INC., in its capacity, as Guarantor, hereby
acknowledges the foregoing.
By:
___________________________________
Title:
<PAGE>
EXHIBIT 10.2(a)
AMENDMENT
THIS AMENDMENT TO DEFERRED COMPENSATION AGREEMENT (this "Amendment") is made
as of the 31st day of December, 1998, by and between Alvin N. Lubetkin
("Employee") and Oshman's Sporting Goods Inc.-Services, a Delaware corporation
("Employer").
WHEREAS, Employee and Oshman's Sporting Goods, Inc. ("OSGI") have previously
entered into that certain Deferred Compensation Agreement (the "DCA"), providing
for the payment to Employee or Employee's designated beneficiary of certain
payments designated therein upon Employee's attainment of the age of 65 or
earlier death, and further providing for an insurance policy to be acquired and
held in trust to informally fund such payment obligations; and
WHEREAS, OSGI has previously assigned its interest in the DCA to Employer,
and Employer has assumed OSGI's obligation thereunder; and
WHEREAS, Employer and Employee now wish to amend the DCA to resolve certain
ambiguities therein and to provide for more immediate recovery of proceeds from
the insurance policy than would be available under the terms of the DCA;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth hereinafter, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree to amend the DCA as follows:
1. All terms used herein and not otherwise defined in this Amendment shall
have the meanings set forth in the DCA.
2. Immediately upon execution and delivery of this Amendment by both
parties hereto, Employer shall instruct the Trustee to cancel the
Insurance Policy and obtain from the insurance company issuing same full
and final payment of all cash value and other amounts payable to Trustee
upon termination thereof. Employer shall further instruct Trustee to
remit all of such funds promptly to Employer. Employee hereby expressly
consents to the cancellation of the Insurance Policy and the delivery of
such funds to Employer, in consideration for Employer's agreement to
make the payments described in Section 3 below.
3. In lieu of the payments provided under Section 4 of the DCA, Employer
shall make ten (10) annual payments to Employee in the amount of
$151,515.00 each. The first payment shall be made on the 1st day of the
month immediately following the month in which Employee attains the age
of 65, and each subsequent payment shall be made on the anniversary of
such date; provided, however, that the first payment shall not be made
prior to the date on which the later of the following shall have
occurred: (i) this Amendment has been executed and delivered by all
parties hereto and (ii) Employer shall have received from CIT
Group/Business Credit, Inc. a writing to the effect that execution and
delivery of this Amendment, and Employer's performance of its
obligations hereunder will
<PAGE>
not breach Employer's obligation under the Amended and Restated Financing
Agreement, as amended.
4. In the event of Employee's death before all ten (10) installments have
been paid to Employee, the remaining payments shall be made pursuant to
the above described schedule to Employee's beneficiary designated in
accordance with Section 5 of the DCA.
5. Upon cancellation of the Insurance Policy and delivery of the funds to
Employer, Employer shall instruct Trustee to terminate the Trust.
Employee hereby expressly consents to the termination of the Trust, and
joins in Employer's instructions to Trustee for such termination.
6. In the event of any conflict between the terms of this Amendment and the
DCA, the terms of this Amendment shall govern. Any inconsistent
provisions of the DCA shall be deemed to have been expressly amended to
the extent necessary to give full effect to the terms of this Amendment.
7. At any time or from time to time after the execution and delivery of
this Amendment, Employer and Employee shall, at the request of the
other, execute and deliver any further instruments or documents,
including but not limited to any waiver of claims against the Trustee,
and take all such further action as such party reasonably may request in
order to consummate and make effective the transaction described herein.
8. Except as expressly set forth herein, the DCA shall remain in full force
and effect.
In witness whereof, the parties hereto have executed this Amendment on the
____ day of December, 1998, to be effective on the day and year first written
above.
EMPLOYER
OSHMAN'S SPORTING GOODS INC.-SERVICES
By:
_____________________________________
Printed Name: Steven U. Rath
Title: Executive Vice President
Date: December 31, 1998
EMPLOYEE:
________________________________________
Alvin N. Lubetkin
Date: December 31, 1998
2
<PAGE>
EXHIBIT 10.14
OSHMAN'S SPORTING GOODS, INC.
REPRICING STOCK OPTION AGREEMENT
UNDER THE 1994 OMNIBUS PLAN
This agreement is made as of April 9, 1998, between Oshman's Sporting Goods,
Inc., a Delaware corporation (the "Company"), and Alvin N. Lubetkin
("Optionee").
WHEREAS, the Company has adopted the 1994 Omnibus Plan, as amended (the
"Plan"), which permits the grant of stock options ("Stock Options") to purchase
shares of the Company's common stock, par value $1.00 per share, regardless of
the series or class ("Common Stock"), to eligible employees;
WHEREAS, Optionee is employed by the Company and has previously been granted
Stock Options under the Plan; and
WHEREAS, the Company and the Optionee have agreed to cancel and terminate
certain of the Optionee's Stock Options previously granted to Optionee and to
issue new Stock Options to Optionee;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
Section 1. DEFINITIONS. Any capitalized term used and not otherwise defined
herein shall have the meaning ascribed to such term in the Plan.
Section 2. CANCELLATION AND TERMINATION. Effective as of the date of this
Agreement, the Company and Optionee hereby expressly agree that those Stock
Options set forth on Exhibit A previously granted to Optionee are hereby
canceled and terminated, and all of the Optionee's rights, options and
privileges regarding such stock options hereby cease and terminate in their
entirety.
Section 3. GRANT OF STOCK OPTION. Effective as of the date of this
Agreement, the Company hereby grants to Optionee the right, privilege and option
as herein set forth (the "Stock Option") to purchase up to 250,000 shares (the
"Shares") of common stock $1.00 par value per share, of the Company (or any
security or other property into which such common stock may be changed by reason
of any transaction or event of the type described in Section 5.5 of the Plan)
("Common Stock"), in accordance with the terms of this document. The Shares,
when issued to Optionee upon the exercise of the Stock Option, shall be fully
paid and nonassessable. The Stock Option is granted pursuant to the Oshman's
Sporting Goods, Inc. 1994 Omnibus Plan (the "Plan") and is subject to the
provisions of the Plan, which is hereby incorporated herein and is made a part
hereof, as well as the provisions of this document. By acceptance of the Stock
Option, Optionee agrees (i) to be bound by all of the terms, provisions,
conditions and limitations of the Plan and the Stock Option, (ii) not to
disclose any trade or secret data or any other confidential information of the
Company acquired during employment by the Company or a Subsidiary, or after the
termination of employment or Retirement and (iii) not to interfere with the
employment of any other employee of the Company or any Subsidiary. All
capitalized terms
<PAGE>
used herein shall have the same meanings as set forth in the Plan document
unless otherwise specifically provided. The Stock Option is not intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
Section 4. OPTION TERM. Subject to earlier termination as provided herein,
or in the Plan, the Stock Option shall terminate on April 8, 2008. The period
during which the Stock Option is in effect shall be referred to as the "Option
Period".
Section 5. OPTION EXERCISE PRICE. The exercise price (the "Option Price")
of the Shares subject to the Stock Option shall be $5.50 per Share for Shares
purchased during the Option Period.
Section 6. VESTING SCHEDULE. Except to the extent otherwise provided by the
Plan, the Stock Options granted under Section 3 shall vest and be exercisable as
provided in the following Schedule:
DATE PERCENTAGE OF STOCK OPTIONS
VESTED
APRIL 8, 2000 40%
APRIL 8, 2001 70%
APRIL 8, 2002 100%
However, all shares covered by the Stock Options may be exercised in
accordance with Section 5.7(a) of the Plan.
Section 7. METHOD OF EXERCISE. To exercise the Stock Option, Optionee shall
deliver written notice to the Company stating the number of Shares with respect
to which the Stock Option is being exercised together with payment for such
Shares. Payment shall be made (i) in cash or by check acceptable to Company,
(ii) provided Optionee can do so without incurring liability under Section 16(b)
of the Exchange Act, in nonforfeitable, unrestricted shares of the Company's
Common Stock owned by Optionee at the time of exercise of the Stock Option
having an aggregate Fair Market Value at the date of exercise equal to the
aggregate Option Price as set forth in Paragraph 5 herein or (iii) by a
combination of (i) and (ii).
Section 8. TERMINATION OF EMPLOYMENT. Termination of Optionee's employment
shall affect Optionee's rights under the Stock Option as follows:
(a) Termination of Employment For Cause. If the employment of
Optionee with the Company is "terminated for cause" (as defined in the Plan) no
further vesting shall occur after the date of said termination and Optionee's
right to exercise the vested portion of the Stock Option shall terminate at the
close of business on the date of termination of employment.
(b) Termination other than by Death or Disability that is not a
"termination for cause". If the employment of Optionee terminates for any reason
other than Death or Disability or a "termination for cause" by the Company, any
nonvested portion of the Stock Option shall immediately become vested, and
Optionee shall have the right to exercise any part of the vested portion of the
Stock Option at any time during the six (6) months following the date of such
termination (e.g., if termination occurs on June 15, the Stock Option would
terminate
2
<PAGE>
December 15, subject to the proviso below); and
(c) Termination by Death or Disability. If the employment of
Optionee terminates on account of Optionee's Death or Disability any nonvested
portion of the Stock Option shall immediately become vested and Optionee (or a
person described in the next succeeding sentence) shall have the right to
exercise any part of the vested portion of the Stock Option at any time during
the one-year period concluding on the first anniversary of the termination of
employment as a result of death or Disability. In the event Optionee's
employment is terminated by reason of death or Disability, the vested portion of
the Stock Option may be exercised pursuant to this Section (c) by Optionee or
(1) in the case of death, by the person or persons to whom Optionee's rights
under the Stock Option shall pass by will or by the applicable laws of descent
and distribution, or (2) in the case of Disability, by Optionee's personal
representative;
(d) Notwithstanding the foregoing, in no event shall any portion of
the Stock Option be exercisable for any reason (including pursuant to this
Section 8) at any time after April 8, 2008.
Section 9. REORGANIZATION OF THE COMPANY AND SUBSIDIARIES/CHANGE IN
CONTROL. The existence of the Stock Option shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
Company or any issue of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Shares or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If a Change in Control shall occur, then the Stock Option shall become
exercisable in full, whether or not otherwise exercisable. If approved by the
Board prior to or within 30 days after a Change of Control, the Board shall have
the right for a period of 45 days following the date of the Change in Control to
satisfy the Company's obligations under the Stock Option by paying Optionee in
cash or by certified check an amount net of any taxes required to be withheld
equal to any excess of the "market value" (as defined in Section 5.7(b) of the
Plan) per Share subject to Optionee's exercise of the Stock Option multiplied by
the number of Shares subject to Optionee's exercise of the Stock Option. "Change
in Control" shall have the meaning ascribed to it in the Plan.
Section 10. ADJUSTMENT OF SHARES. In the event of stock dividends, spin-
offs of assets, or other extraordinary dividends, stock splits, combinations of
shares, recapitalizations, mergers, consolidations, reorganizations,
liquidations, issuances of rights or warrants and similar transactions or events
affecting the Stock Option, the number of Shares subject to the Stock Option
shall be appropriately adjusted, as determined by the Committee.
Section 11. NO RIGHTS IN SHARES. Optionee shall have no rights as a
stockholder in respect of Shares until such Optionee becomes the holder of
record of such Shares.
Section 12. CERTAIN RESTRICTIONS. By exercising the Stock Option,
Optionee agrees that if at the time of such exercise the sale of Shares issued
hereunder is not covered by a valid registration statement filed under the
Securities Act of 1933 ("Act"), Optionee will acquire the Shares for his own
account and without a view to resale or distribution in violation of the Act or
any other securities law, and upon any such acquisition Optionee will enter into
such written
3
<PAGE>
representations, warranties and agreements as Company may reasonably request in
order to comply with the Act or any other securities law or with this document.
Optionee agrees that the Company shall not be obligated to take any affirmative
action in order to cause the issuance or transfer of Shares hereunder to comply
with any law, rule or regulation that applies to the Shares subject to the Stock
Option.
Section 13. SHARES RESERVED. The Company shall at all times during the
Option Period reserve and keep available such number of Shares as will be
sufficient to satisfy the requirements of this Stock Option.
Section 14. NON-TRANSFERABILITY OF OPTION. The Stock Option granted
pursuant to this document is not transferable other than by will, the laws of
descent and distribution or by qualified domestic relations order. The Stock
Option will be exercisable during Optionee's lifetime only by Optionee or by
Optionee's guardian or legal representative.
Section 15. AMENDMENT AND TERMINATION. No amendment or termination of the
Stock Option shall be made by the Board or the Committee at any time without the
written consent of Optionee.
Section 16. NO GUARANTEE OF EMPLOYMENT. The Stock Option shall not confer
upon Optionee any right with respect to continuance of employment or other
service with the Company or any Subsidiary, nor shall it interfere in any way
with any right the Company or any Subsidiary would otherwise have to terminate
such Optionee's employment or other service at any time.
Section 17. WITHHOLDING OF TAXES. The Company shall have the right to (i)
make deductions from the number of Shares otherwise deliverable upon exercise of
the Stock Option in an amount sufficient to satisfy withholding of any federal,
state or local taxes required by law, or (ii) take such other action as may be
necessary or appropriate to satisfy any such tax withholding obligations.
Section 18. NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company or any
Subsidiary nor the Committee makes any commitment or guarantee that any federal
or state tax treatment will apply or be available to any person eligible for
benefits under the Stock Option.
Section 19. SEVERABILITY. In the event that any provision of the Stock
Option shall be held illegal, invalid, or unenforceable for any reason, such
provision shall be fully severable, but shall not affect the remaining
provisions of the Stock Option, and the Stock Option shall be construed and
enforced as if the illegal, invalid, or unenforceable provision had never been
included herein.
Section 20. GOVERNING LAW. The Stock Option shall be construed in
accordance with the laws of the State of Texas to the extent federal law does
not supersede and preempt Texas law.
4
<PAGE>
Executed effective as of the 9th day of April, 1998.
"COMPANY"
OSHMAN'S SPORTING GOODS, INC.
By:
_________________________________
Printed Name: Steven U. Rath
Title: Executive Vice President
Accepted effective as of the 9th day of April, 1998.
"OPTIONEE"
ALVIN N. LUBETKIN
____________________________________
5
<PAGE>
EXHIBIT A
NUMBER OF SHARES
DATE OF GRANT UNDERLYING STOCK OPTIONS PURCHASE PRICE
------------- ------------------------ --------------
April 20, 1995 250,000 $7.125
6
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
All of the Company's subsidiaries are incorporated under the laws of the State
of Texas and operate under the name Oshman's unless otherwise indicated in
parentheses. Each is qualified to do business in the state mentioned in its
name. All are 100% owned by Oshman's Sporting Goods, Inc.
Oshman Sporting Goods Co., Alabama*
Oshman Sporting Goods Co., Arizona (also operates as SuperSports USA)
Oshman Sporting Goods Co., Arkansas*
Oshman Sporting Goods Co., California (also operates as SuperSports USA)
Oshman Sporting Goods Co., Colorado*
Oshman Sporting Goods Co., Connecticut*
Oshman Sporting Goods Co., Florida (operates as SuperSports USA)
Oshman Sporting Goods Co., Georgia
Oshman Sporting Goods Co., Hawaii
Oshman Sporting Goods Co., Kansas (operates as SuperSports USA)
Oshman Sporting Goods Co., Louisiana
Oshman Sporting Goods Co., Michigan (operates as SuperSports USA)
Oshman Sporting Goods Co., Minnesota (operates as SuperSports USA)
Oshman Sporting Goods Co., Missouri*
Oshman Sporting Goods Co., Nevada
Oshman Sporting Goods Co., New Jersey
Oshman Sporting Goods Co., New Mexico (also operates as SuperSports USA)
Oshman Sporting Goods Co., New York*
Oshman Sporting Goods Co., Ohio*
Oshman Sporting Goods Co., Oklahoma (operates as SuperSports USA)
Oshman Sporting Goods Co., Oregon*
Oshman Sporting Goods Co., South Carolina (operates as SuperSports USA)
Oshman Sporting Goods Co., Tennessee
Oshman Sporting Goods Co., Texas (Delaware) (also operates as SuperSports USA)
Oshman Sporting Goods Co., Utah (operates as SuperSports USA)
Oshman Sporting Goods Co., Washington (operates as SuperSports USA)
Oshman's Sporting Goods, Inc. - Services (Delaware)
Oshman Ski Skool, Inc.*
J.S. Oshman and Co., Inc.
Oshitch Company*
The Best of Oshitch, District of Columbia*
Oshitch Company of Maryland, Inc.*
Oshitch Company of Virginia, Inc.*
Oshitch at Home, Inc.*
URAFAN Corp. (operates as URAFAN Corp.)*
__________
* Indicates a currently inactive subsidiary.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 15, 1999, accompanying the
consolidated financial statements of Oshman's Sporting Goods, Inc. and
Subsidiaries included in the Annual Report on Form 10-K for the year ended
January 30, 1999. We hereby consent to the incorporation by reference of said
report in the Registration Statements of Oshman's Sporting Goods, Inc. on Form
S-8, File No. 33-14665, File No. 33-41404, File No. 33-28357, File No. 33-53451,
File No. 33-54221 and File No. 33-64515.
/s/ GRANT THORNTON LLP
Houston, Texas
April 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 356
<SECURITIES> 0
<RECEIVABLES> 1,496
<ALLOWANCES> 0
<INVENTORY> 86,184
<CURRENT-ASSETS> 90,489
<PP&E> 87,262
<DEPRECIATION> 52,014
<TOTAL-ASSETS> 126,004
<CURRENT-LIABILITIES> 50,419
<BONDS> 28,679
0
0
<COMMON> 5,830
<OTHER-SE> 34,165
<TOTAL-LIABILITY-AND-EQUITY> 126,004
<SALES> 309,057
<TOTAL-REVENUES> 309,057
<CGS> 203,277
<TOTAL-COSTS> 203,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,241
<INCOME-PRETAX> (2,095)
<INCOME-TAX> (744)
<INCOME-CONTINUING> (1,351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,351)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
