SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: January 16, 1997
(Date of Earliest Event Reported)
SPORTMART, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State of Other Jurisdiction of Incorporation)
0-20672 36-2702213
(Commission File No.) (I.R.S. Employer
Identification No.)
1400 South Wolf Road, Suite 200, Wheeling, Illinois 60090
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (847) 520-0100
<PAGE>
SPORTMART, INC.
Index
This report consists of a Current Report on Form 8-K. The Form 8-K
includes information with respect to the disposition of assets of the
Registrant and the recognition of reserves for potential liabilities
in connection with the store closings of Sportdepot Stores Inc. in
Canada.
Page
Item 2. Disposition of Assets . . . . . . . . . . . . . . . . . . 2
Item 7. Financial Statements and Exhibits
Pro Forma Consolidated Condensed Balance
Sheet as of October 27, 1996. . . . . . . . . . . . .3
Pro Forma Statement of Operations for the
thirty-nine weeks ended
October 27, 1996. . . . . . .. . . . . . . . . . . .4
Pro Forma Statement of Operations for the Year
Ended January 28, 1996. . . . . . . . . . . . . . . . 5
Notes to Pro Forma Financial Statements . . . . . . . . 6 - 7
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
Item 2. Disposition of Assets
On January 16, 1997, Registrant announced the closing of all
stores operated by its wholly owned subsidiary Sportdepot Stores Inc.
(" Sportdepot") located in Canada and the liquidation of the
inventories and fixed assets at such store locations. In connection
with the store closings, the Registrant has established a reserve
for payment of rents and related costs due under store leases in Canada
along with other reserves relating to fixed assets, inventories and
severance.
2.1 Liquidation of Inventory. Sportdepot entered into an
Agency Agreement with Hilco Trading Company, Inc. and Garcel, Inc.
(hereinafter collectively referred to as "Hilco"), dated January 15,
1997 for the liquidation of inventory at seven closed Sportmart stores
in the metropolitan Toronto area, two Sportdepot stores in Vancouver
and one Sportdepot store in each of the cities of Calgary and
Edmonton. Pursuant to the Agency Agreement, Hilco will pay Sportdepot
a guaranteed amount of approximately $17 to $19 million based on a
physical inventory by an outside inventory tabulating firm. After
recovery from the liquidation of inventories of the guaranteed amount
plus expenses and an agency fee, proceeds will be divided equally
between Sportdepot and Hilco. The funds received by Sportdepot are
being used for the payment of vendors and other debts. The Agency
Agreement was approved after the solicitation of competitive bids.
2.2 Reserve for Store Lease and Other Reserves. Sportdepot
had entered into lease agreements for ten of its eleven stores in Canada.
These leases are guaranteed by the parent company, Sportmart, Inc.
Additionally, the store in Edmonton is owned by Sportdepot.
In connection with the store closings in Canada, the Company has established
a reserve of approximately $13.5 million for estimated liabilities
associated with store leases, severance and other write-offs relating to
the store closings. Sportdepot has retained the services of commercial
real estate brokers to market the store leases for subletting or
assignment.
<PAGE>
Item 7. Financial Statements and Exhibits
Sportmart, Inc.
Pro Forma Condensed Balance Sheet
As of October 27, 1996
(Dollars in thousands)
(Unaudited)
The following unaudited pro forma condensed balance sheet as of
October 27, 1996 has been presented as if the disposition of its
Canadian operations, including eleven retail locations, had occurred
on October 27, 1996. The unaudited pro forma condensed balance sheet
and related notes should be read in conjunction with the financial
statements of Sportmart, Inc. included in its Quarterly Reports on
Form 10-Q and its Annual Report on Form 10-K as previously filed with
the Commission. In management's opinion, all adjustments necessary to
reflect the dispositions have been made. The unaudited pro forma
condensed balance sheet is not necessarily indicative of what the
actual financial position would have been at October 27, 1996, nor
does it purport to reflect the future financial position of the
Company.
<TABLE> Historical Pro Forma
October 27, Pro Forma October 27.
Description 1996 Adjustments 1996
<S> <C> <C> <C>
Current Assets:
Due from related parties 1,404 1,404
Merchandise inventories 190,553 (6,000) 184,553
Assets held pending sale
& leaseback 4,284 (300) 3,984
Prepaid assets and other assets 10,468 (1,050) 9,418
Advertising co-op receivable 6,259 (145) 6,114
Deferred income taxes 4,347 13,160 17,507
Total current assets 217,315 5,665 222,980
Property & equipment, net 73,588 (12,375) 61,213
Other assets 4,822 (525) 4,297
Deferred income taxes 2,220 2,220
Total assets 297,945 (7,235) 290,710
Current Liabilities:
Bank overdraft 289 289
Revolving line of credit due 2001 104,706 104,706
Current portion of capital lease
and long-term debt 299 299
Accounts payable 60,723 270 60,993
Accrued expenses 17,997 17,997
Reserve for store closing 2,856 13,450 16,306
Total current liabilities 186,870 13,720 200,590
Cap lease oblig. net of current
portion 3,489 3,489
Other long-term liabilities 5,590 (1,215) 4,375
Total liabilities 195,949 12,505 208,454
Stockholders' Equity
Preferred stock 0 0
Common stock 128 128
Additional paid-in capital 79,842 79,842
Cumulative translation adjustment (32) (32)
Retained earnings 22,058 (19,740) 2,318
Total stockholders' equity 101,996 (19,740) 82,256
Total liabilities and
stockholders equity 297,945 (7,235) 290,710
</TABLE>
<PAGE>
Sportmart, Inc.Pro Forma Condensed Statement of Operations
For the Thirty-nine Weeks Ended October 27, 1996
(Dollars in thousands)
(Unaudited)
The following unaudited pro forma condensed statement of operations
have been presented as if the disposition of the Canadian operations,
including eleven retail locations, had occurred on January 29, 1996.
The unaudited pro forma condensed statements of operations and related
notes should be read in conjunction with the financial statements of
Sportmart, Inc. included in its Quarterly Reports on Form 10-Q and its
Annual Report on Form 10-K as previously filed with the Commission.
The unaudited pro forma condensed statement of operations is not
necessarily indicative of what the actual results of operations would
have been, nor does it purport to reflect the future results of
operations of the Company.
<TABLE>
Historical Pro Forma
39 Weeks Ended Pro Forma 39 Weeks Ended
10/27/96 Adjustments 10/27/96
<S> <C> <C> <C>
Net Sales 373,948 (37,989) 335,959
Cost of sales, including buying,
distribution and occupancy 286,581 (31,994) 254,587
Gross profit 87,367 (5,995) 81,372
Operating expenses:
Store 63,913 (9,357) 54,556
General & administrative 14,230 (225) 14,005
Store pre-opening 907 (668) 239
Operating income 8,317 4,255 12,572
Other income(expense):
Interest expense, net (6,019) 2,084 (3,935)
Other income 241 155 86
(5,778) 1,929 (3,849)
Income from continuing operations
before income taxes 2,539 6,184 8,723
Income tax provision (1,062) (2,602) (3,664)
Income from continuing operations 1,477 3,582 5,059
Net income per share from continuing
operations 0.12 0.28 0.40
Weighted average number of common
shares outstanding 12,823,434 12,823,434 12,823,434
</TABLE>
<PAGE>
Sportmart, Inc.
Pro Forma Condensed Statement of Operations
For the Year Ended January 28, 1996
(Dollars in thousands)
(Unaudited)
The following unaudited pro forma condensed statement of operations
have been presented as if the disposition of the Canadian operations,
including eleven retail locations, had occurred on January 30, 1995.
The unaudited pro forma condensed statements of operations and related
notes should be read in conjunction with the financial statements of
Sportmart, Inc. included in its Quarterly Reports on Form 10-Q and its
Annual Report on Form 10-K as previously filed with the Commission.
The unaudited pro forma condensed statement of operations is not
necessarily indicative of what the actual results of operations would
have been, nor does it purport to reflect the future results of
operations of the Company.
<TABLE>
Historical Pro Forma Pro Forma
52 Weeks Ended Adjustments 52 WeeksEnded
Description 1/28/96 1/28/96
<S> <C> <C> <C>
Net Sales 492,179 (29,642) 462,537
Cost of sales, including buying,
distribution and occupancy 381,146 (23,071) 358,075
Gross profit 111,033 (6,571) 104,462
Operating expenses:
Store 89,007 (6,789) 82,218
General & administrative 15,921 (150) 15,771
Non-recurring charge 5,711 0 5,711
Store pre-opening 3,791 (2,636) 1,155
Operating loss (3,397) 3,004 (393)
Other income(expense):
Interest expense, net (5,168) 752 (4,416)
Other income 1,440 (262) 1,178
(3,728) 490 (3,238)
Loss from continuing operations
before income taxes (7,125) 3,494 (3,631)
Income tax benefit 3,004 (1,497) 1,507
Loss from continuing operations (4,121) 1,997 (2,124)
Net loss per share from continuing
operations (0.32) (0.16) (0.16)
Weighted average number of common
shares outstanding 12,771,911 12,771,911 12,771,911
</TABLE>
<PAGE>
Sportmart, Inc.
Notes To Unaudited Pro Forma Condensed Financial Statem
(Dollars in thousands)
(Unaudited)
The Company's current estimate of losses resulting from the closing of the
Canadian operations is estimated at $18 to $21 million, after related income
tax benefits. The following assumptions have been made for the purposes
of the pro forma financial statements. The pro forma adjustments to the
Company's condensed financial statements are as follows:
Balance Sheet
- - Inventories and assets held pending sale and leaseback in the
accompanying condensed balance sheet were reduced $6,000 and $300,
respectively, to write-down to estimated net realizable value for
the Canadian locations.
- - Net property and equipment, was reduced $12,375 to write-down to
estimated salvage value for the Canadian locations.
- - Prepaid assets, advertising co-op receivable and other assets were
reduced $1,720 to write-down the assets relating to the Canadian
locations to the estimated net realizable value.
- - Deferred income taxes were increased $13,160 to reflect the U.S.
tax benefit of closing the Canadian subsidiary.
- - Reserve for store closing was increased $13,450 to provide for
estimated closing costs.
- - Accounts payable was increased $270 for estimated vendor claims
relating to the store closings.
- - Other long term liabilities were decreased $1,215 to write-off the
straight-line rent accrual related to the Canadian locations.
- - Retained earnings decreased $19,740 to reflect reserves for store
closings, net of the income tax benefit to be realized relating to
the Canadian locations.
Statement of Operations
- - The accompanying Pro Forma Statements of Operations for both the
thirty-nine weeks ended October 27, 1996 and for the year ended
January 28, 1996 have been adjusted to eliminate the results of
operations for the closed stores for the periods presented.
- - For the thirty-nine weeks ended October 27, 1996 pro forma
adjustments were made to decrease net sales by $37,989, decrease
cost of sales $31,994, and decrease operating, administrative and
pre-opening expenses by $10,250. Interest expense and other income
were decreased by $2,084 and $155, respectively. The income tax
provision was increased by $2,602. The effect of these pro forma
adjustments was to increase income from continuing operations by
$3,582.
<PAGE>
- - For the year ended January 28, 1996 pro forma adjustments were made
to decrease net sales by $29,642, decrease cost of sales $23,071, and
decrease operating, administrative and pre-opening expenses by
$9,575. Interest expense and other income were decreased by $752
and $262, respectively. The income tax provision was increased by
$1,497. The effect of these pro forma adjustments was to increase
income from continuing operations by $1,997.
- - Non-recurring charges directly attributable to the closing of the
Canadian operations, including eleven retail locations, is
estimated to be approximately $18 to $21 million, after related
income tax benefits. These non-recurring charges have not been
included in the pro forma income statements presented.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SPORTMART, INC.
By:/S/ANDREW S. HOCHBERG
Andrew S. Hochberg
Chief Executive Officer
Dated: January 31, 1997
