SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 27, 1996
OR
[ ] 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. 1-13426
THE SPORTS AUTHORITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3511120
- -------------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3383 N. STATE ROAD 7, FT. LAUDERDALE, FLORIDA 33319
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 735-1701
---------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X} No [ ]
Number of shares of Common Stock outstanding at December 9, 1996: 31,449,631
<PAGE>
THE SPORTS AUTHORITY, INC.
INDEX TO FORM 10-Q
PAGE NUMBER
-----------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 2. Changes in Securities 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBITS 19
2
<PAGE>
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------ ------------------------------
OCTOBER 27, OCTOBER 22, OCTOBER 27, OCTOBER 22,
1996 1995 1996 1995
------------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 292,920 $ 234,200 $ 895,074 $ 724,143
Licensee fees and rental income 224 154 823 771
----------- ----------- ----------- -----------
293,144 234,354 895,897 724,914
----------- ----------- ----------- -----------
Cost of merchandise sold, includes
buying and occupancy costs 209,758 169,491 646,710 529,196
Selling, general and administrative expenses 76,522 59,989 219,602 173,671
Pre-opening expense 3,217 3,240 5,720 4,180
Goodwill amortization 491 491 1,473 1,473
----------- ----------- ----------- -----------
Operating income 3,156 1,143 22,392 16,394
Interest, net 458 89 1,536 365
----------- ----------- ----------- -----------
Income before income taxes 2,698 1,054 20,856 16,029
Income tax expense 1,225 423 8,700 6,817
Minority interest (503) - (1,056) -
----------- ----------- ----------- -----------
Net income $ 1,976 $ 631 $ 13,212 $ 9,212
=========== =========== =========== ===========
Earnings per common share and common
share equivalents $ 0.06 $ 0.02 (1) $ 0.41 $ 0.29 (1)
=========== =========== =========== ===========
Weighted average common shares and common
share equivalents 32,371 31,746 32,073 31,442
=========== =========== =========== ===========
- ------------------
<FN>
(1) Amount adjusted to reflect a three-for-two common stock split distributed on
July 16, 1996 to shareholders of record as of July 1, 1996.
</FN>
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
OCTOBER 27, JANUARY 28,
1996 1996
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 65,440 $ 11,752
Merchandise inventories 295,671 248,307
Accounts receivable and other current assets 39,586 30,442
Property held for resale 21,083 21,063
--------- ---------
Total current assets 421,780 311,564
Net property owned 190,919 134,706
Other assets and deferred charges 39,775 22,950
Goodwill - net of accumulated amortization of
$13,168 and $11,697 respectively 53,237 54,708
--------- ---------
Total Assets $ 705,711 $ 523,928
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 151,285 $ 136,344
Accrued payrolls and other liabilities 75,994 73,737
Taxes other than income taxes 9,138 7,438
Income taxes 1,759 10,507
--------- ---------
Total current liabilities 238,176 228,026
Long-term debt 152,146 --
Other long-term liabilities 21,499 18,062
--------- ---------
Total liabilities 411,821 246,088
Minority interest 616 312
Stockholders' equity:
Common stock, $.01 par value, 100,000
shares authorized, 31,489 issued 315 209
Additional paid-in-capital 245,303 241,525
Deferred compensation and receivables
from officers (2,198) (553)
Retained earnings 50,240 37,028
Treasury stock, 39 shares (381) (381)
Cumulative translation adjustment (5) (300)
--------- ---------
Total stockholders' equity 293,274 277,528
--------- ---------
Total Liabilities and
Stockholders' Equity $ 705,711 $ 523,928
========= =========
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
39 WEEKS ENDED
OCTOBER 27, OCTOBER 22,
1996 1995
------------ -----------
(Unaudited)
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income $ 13,212 $ 9,212
Adjustments to reconcile net income to
operating cash flows:
Depreciation and amortization 20,526 14,746
Cumulative translation adjustment 295 27
Minority interest in net loss of
Joint Venture (1,056) --
Loss on sale or disposal of fixed
assets 3 --
Increase in long-term liabilities 3,437 2,471
Cash provided by (used for) current
assets and liabilities:
Increase in inventories (47,364) (22,362)
(Increase) decrease in property
held for resale (20) 1,229
Increase (decrease) in accounts payable 14,942 (95)
Other - net (13,917) (5,047)
--------- --------
Net cash (used for) provided by
operations (9,942) 181
--------- --------
INVESTING
Capital expenditures - owned property (74,346) (40,704)
Proceeds from sale of fixed assets 372 --
Other assets and deferred charges (17,649) (15,094)
--------- --------
Net cash used for investing (91,623) (55,798)
--------- --------
FINANCING
Net borrowings under Revolving
Credit Facility -- 31,132
Long-term borrowings 152,146 --
Net proceeds from sale of stock 1,747 2,030
Purchase of treasury stock -- (96)
Minority interest in equity of
Joint Venture 1,360 --
--------- --------
Net cash provided by financing 155,253 33,066
--------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 53,688 (22,551)
Cash and cash equivalents at
beginning of year 11,752 37,115
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 65,440 $ 14,564
========= ========
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements do not include
all information and footnotes necessary for the annual presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.
In the opinion of The Sports Authority, Inc. management, all adjustments
necessary for a fair presentation of the results for the interim periods have
been included. All adjustments were of a normal and recurring nature.
NOTE 2: EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
Earnings per common share and common share equivalents equals net income
divided by the number of weighted average common shares outstanding plus common
share equivalents. Common share equivalents includes incremental shares relating
to stock options granted to employees by the Company. The incremental shares are
calculated using the "treasury stock" method. Convertible shares under the
Company's 5.25% Convertible Subordinated Notes (see Note 3) are not considered
common share equivalents for purposes of calculating primary earnings per share.
NOTE 3: LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
OCTOBER 27, OCTOBER 22,
1996 1995
----------- -----------
5.25% Convertible Subordinated Notes $ 149,500 $ -
1.76% Term Loans 2,646 -
----------- -----------
$ 152,146 -
Less current portion - -
----------- -----------
$ 152,146 $ -
=========== ===========
6
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONVERTIBLE SUBORDINATED NOTES
In September 1996, the Company issued 5.25% Convertible Subordinated Notes
at a principal amount of $149,500,000. The Notes will mature on September 15,
2001, and are convertible at the option of the holder into shares of the
Company's Common Stock at any time on or after the 90th day following the issue
date until the maturity date, at a conversion price of $32.635 per share,
subject to adjustment in certain events. Interest is payable semi-annually, on
March 15 and September 15 of each year. The notes are redeemable at the option
of the Company at any time on or after September 15, 1999. The Notes are
unsecured obligations of the Company subordinated in right of payment to all
existing and future Senior Indebtedness, as defined in the Indenture pursuant to
which the Notes were issued.
TERM LOANS
In October 1996, Mega Sports Co., Ltd., of which 51% is owned by the Company
and 49% is owned by Jusco Co., Ltd. ("JUSCO"), a major Japanese retailer,
entered into four unsecured term loans with two Japanese banks at a principal
amount of 300,000,000 yen (US $2,646,000). The loans have substantially the same
terms. The loans bear interest at 1.76% per year and mature in their entirety on
October 18, 1999. Interest is due quarterly and is paid in advance. The loans
may not be prepaid without consent of the banks. The loans contain no financial
performance covenants.
7
<PAGE>
Item 2.
<TABLE>
<CAPTION>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's income statement data as a percent
of sales for the periods indicated.
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------ -----------------------------
OCTOBER 27, OCTOBER 22, OCTOBER 27, OCTOBER 22,
1996 1995 1996 1995
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Licensee fees and rental income 0.1 0.1 0.1 0.1
----------- ----------- ---------- ----------
100.1 100.1 100.1 100.1
Cost of merchandise sold, includes
buying and occupancy costs 71.6 72.4 72.3 73.1
----------- ----------- ---------- ----------
Gross margin 28.5 27.7 27.8 27.0
Selling, general and administrative
expenses 26.1 25.6 24.5 24.0
Pre-opening expense 1.1 1.4 0.6 0.6
Goodwill amortization 0.2 0.2 0.2 0.2
----------- ----------- ---------- ----------
Operating income 1.1 0.5 2.5 2.2
Interest expense 0.2 - 0.2 -
----------- ----------- ---------- ----------
Income before income taxes 0.9 0.5 2.3 2.2
Income taxes 0.4 0.2 0.9 0.9
Minority interest (0.2) - (0.1) -
----------- ----------- ---------- ----------
Net income 0.7% 0.3% 1.5% 1.3%
=========== =========== ========== ==========
</TABLE>
The following table sets forth the Company's store openings for the periods
indicated. No stores were closed during these periods.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- ----------------------------
OCTOBER 27, OCTOBER 22, OCTOBER 27, OCTOBER 22,
1996 1995 1996 1995
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Beginning number of stores 143 110 136 107
Openings 7 9 14 12
----------- ----------- ----------- ----------
Ending number of stores 150 119 150 119
=========== =========== =========== ==========
</TABLE>
8
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
13 WEEKS ENDED OCTOBER 27, 1996 AND OCTOBER 22, 1995
Sales for the 13 weeks ended October 27, 1996 were $292.9 million, a $58.7
million, or 25.1%, increase over sales of $234.2 million for the same period in
the prior year. Of the 25.1% increase in sales, 9.4%, or $22.0 million, was
attributable to the 14 new stores opened in the first 39 weeks of 1996; 8.2%, or
$19.7 million, was attributable to the inclusion of a full 13 weeks sales for
the stores opened in 1995 which had no comparable store sales in the prior year;
and 7.5%, or $17.0 million, was attributable to comparable store sales growth.
Comparable store sales increased 7.5% in the third quarter of 1996 and were flat
in the same period in the prior year. The strong comparable store sales increase
in the third quarter was primarily the result of an increase in apparel, due to
strong sales of licensed products and ladies activewear, as well as golf and
footwear. Comparable sales were positively impacted by the closing of Herman's
Sporting Goods, a sporting goods chain located primarily in the Northeast, and
the Summer Olympic Games. Excluding all or a portion of the third quarter of
1996 sales from eight stores considered to be cannibalized by new store
openings, comparable store sales increased 8.3% in the third quarter of 1996, as
compared to 1.5% in the same period of last year after excluding all or a
portion of the third quarter of 1995 sales from nine stores considered to be
cannibalized. The Company considers an existing store to be cannibalized for a
period of one year from the date on which a new store overlaps its primary trade
area. In calculating comparable store sales excluding cannibalized stores, sales
from a cannibalized store are excluded from the calculation of total comparable
sales for such months.
Cost of merchandise sold, including buying and occupancy costs, for the 13
weeks ended October 27, 1996 was $209.8 million, or 71.6% of sales, as compared
to $169.5 million, or 72.4% of sales, for the same period in the prior year. As
a percent of sales, gross margin was 28.5% for the 1996 period and 27.7% for the
1995 period. The major components of cost of goods sold are merchandise costs
and, to a lesser extent, occupancy costs. For the 1996 period, merchandise costs
as a percent of sales decreased primarily because the Company is selling a
higher proportion of higher margin products such as footwear and apparel.
Occupancy costs, which consist principally of fixed minimum rentals, increased
slightly as a percent of sales as a result of lower initial sales volumes for
non-comparable stores opened in the second half of 1995.
Selling, general and administrative (SG&A) expenses for the 13 weeks ended
October 27, 1996 were $76.5 million, or 26.1% of sales, as compared to $60.0
million, or 25.6% of sales, for the same period in the prior year. The 0.5% of
sales increase in SG&A expenses was attributable to one time charges in store
payroll expense and advertising expense. The one time payroll expense of $0.7
million reflects the cost of reticketing merchandise to a new price point of
0.99 from 0.96. The one time advertising expense of $0.8 million reflects the
cost of additional advertising to introduce former Herman's customers in the
Northeast to the Company. Excluding these charges, SG&A expenses for the 13
weeks ended October 27, 1996 would have been $76.0 million, or 25.6% of sales.
9
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Pre-opening expense for the 13 weeks ended October 27, 1996 was $3.2
million, or 1.1% of sales, as compared to $3.2 million, or 1.4% of sales, for
the same period in the prior year. Although the Company opened seven stores in
the 1996 period versus nine stores in the same period in the prior year,
pre-opening expense on a per store basis increased as a result of higher
pre-opening occupancy expenses in two stores. The pre-opening occupancy charges
include $0.3 million in minimum rentals and $0.2 million in other occupancy
charges due to assuming existing lease obligations in two locations opened in
the third quarter. Pre-opening expenses consist principally of store payroll
expense for associate training and store preparation prior to the store opening
as well as grand-opening advertising expenditures.
Operating income for the 13 weeks ended October 27, 1996 was $3.2 million,
or 1.1% of sales, as compared to operating income of $1.1 million, or 0.5% of
sales, for the same period in the prior year. Operating income before
pre-opening expense and goodwill amortization was $6.9 million, or 2.3% of
sales, for the 13 weeks ended October 27, 1996, as compared to $4.9 million, or
2.1% of sales, for the same period in the prior year.
Interest expense for the 13 weeks ended October 27, 1996 was $0.5 million,
or 0.2% of sales, as compared to interest expense of $0.1 million (less than
0.1% of sales) for the same period in the prior year. The increase of 0.2% of
sales was attributable to interest expense related to the Company's long-term
convertible debt (see Note 3), as well as higher average borrowings under the
Company's Revolving Credit Facility as a result of the increased store base. The
interest expense is partially offset by interest income from short-term
investments, a note receivable from a developer, and a participation in a
privately placed mortgage note secured by one of the Company's store leases.
Income tax expense for the 13 weeks ended October 27, 1996 was $1.2 million
with an effective tax rate of 45.4%, as compared to income tax expense of $0.4
million with an effective tax rate of 40.1% for the same period of 1995. The
increase in the effective tax rate resulted primarily from the effect of a
valuation allowance offsetting the income tax benefit related to the Company's
joint venture in Japan. This was partially offset by a decrease in state taxes,
the tax rate differential of the Company's Canadian subsidiary, and the
declining effect of non-deductible goodwill expense due to the growth of the
Company's pre-tax income from the third quarter of 1995 to the third quarter of
1996.
As a result of the foregoing factors, net income for the 13 weeks ended
October 27, 1996 was $2.0 million, or 0.7% of sales, as compared to net income
of $0.6 million, or 0.3% of sales, for the same period in the prior year.
10
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
39 WEEKS ENDED OCTOBER 27, 1996 AND OCTOBER 22, 1995
Sales for the 39 weeks ended October 27, 1996 were $895.1 million, a $171.0
million, or 23.6%, increase over sales of $724.1 million for the same period in
the prior year. Of the 23.6% increase in sales, 14.3%, or $103.9 million, was
attributable to the inclusion of a full 39 weeks of sales for the stores opened
in 1995 which had no comparable store sales in the prior year; 5.1%, or $37.0
million, was attributable to the 14 new stores opened in the first 39 weeks of
1996; and 4.2%, or $30.1 million, was attributable to comparable store sales
growth. Comparable store sales increased 4.2% and 2.6%, respectively, in the
first 39 weeks of 1996 and 1995. The comparable store sales increase in the
first 39 weeks of 1996 was primarily the result of an increase in apparel, due
to strong sales of licensed products, as well as fitness equipment and footwear.
Comparable sales were positively impacted by the closing of Herman's in July
1996, and the Summer Olympic Games. Excluding all or a portion of the first 39
weeks of 1996 sales from eight stores considered to be cannibalized by new store
openings, comparable store sales increased 4.8% in the first 39 weeks of 1996,
as compared to 4.6% in the same period of last year after excluding all or a
portion of the first 39 weeks of 1995 sales from 11 stores considered to be
cannibalized.
Licensee fees and rental income for the 39 weeks ended October 27, 1996 was
$0.8 million as compared to $0.8 million for the same period in the prior year,
or 0.1% of sales for both periods. Sales of snow ski merchandise in the first
quarter of 1996 were flat in comparison to the prior year as the sales were more
heavily weighted in the beginning of the ski season, which falls into fiscal
1995. The snow ski merchandise departments in the Company's stores are operated
pursuant to a licensee agreement with a third party under which the Company
receives a fee of approximately 10% of licensee snow ski merchandise sales in
the Company's stores. Snow ski merchandise sales are not included in the
Company's sales.
Cost of merchandise sold, including buying and occupancy costs, for the 39
weeks ended October 27, 1996 was $646.7 million, or 72.3% of sales, as compared
to $529.2 million, or 73.1% of sales, for the same period in the prior year. As
a percent of sales, gross margin was 27.8% for the 1996 period and 27.0% for the
1995 period. The major components of cost of goods sold are merchandise costs
and, to a lesser extent, occupancy costs. For the 1996 period, merchandise costs
as a percent of sales decreased primarily because the Company is selling a
higher proportion of higher margin products such as footwear and apparel.
Occupancy costs increased slightly as a percent of sales due to lower initial
sales volumes for non-comparable stores opened in the second half of 1995.
SG&A expenses for the 39 weeks ended October 27, 1996 were $219.6 million,
or 24.5% of sales, as compared to $173.7 million, or 24.0% of sales, for the
same period in the prior year. The 0.5% of sales increase in SG&A expenses was
attributable to an increase in store payroll expenses partly due to
11
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
increased payroll related to the Company's TSA 2000 project, which was
implemented in the second half of 1995, and the one time store payroll charge
for reticketing. In addition, corporate general and administrative expenses
increased due to start-up costs in the Company's joint venture in Japan. This is
partially offset by a decrease in advertising due to leveraging of advertising
expenses in multiple store markets.
Pre-opening expense for the 39 weeks ended October 27, 1996 was $5.7
million, or 0.6% of sales, as compared to $4.2 million, or 0.6% of sales, for
the same period in the prior year. Pre-opening expense increased $1.5 million
due primarily to higher pre-opening occupancy expenses in three stores as a
result of assuming existing lease obligations and, to a lesser extent, by the
opening of 14 stores in the 1996 period versus 12 stores in the same period in
the prior year.
Operating income for the 39 weeks ended October 27, 1996 was $22.4 million
or 2.5% of sales, as compared to operating income of $16.4 million, or 2.2% of
sales, for the same period in the prior year. Operating income before
pre-opening expense and goodwill amortization was $29.6 million, or 3.3% of
sales, for the 39 weeks ended October 27, 1996, as compared to $22.0 million, or
3.0% of sales, for the same period in the prior year.
Interest expense for the 39 weeks ended October 27, 1996 was $1.5 million,
or 0.2% of sales, as compared to interest expense of $0.4 million (less than
0.1% of sales) for the same period in the prior year. The increase of 0.2% of
sales was attributable to higher average borrowings under the Company's
Revolving Credit Facility as a result of the increased store base. The interest
expense is partially offset by interest income from short-term investments, a
note receivable from a developer, and a participation in a privately placed
mortgage note secured by one of the Company's store leases.
Income tax expense for the 39 weeks ended October 27, 1996 was $8.7 million
with an effective tax rate of 41.7%, as compared to income tax expense of $6.8
million with an effective tax rate of 42.5% for the same period of 1995. The
decrease in the effective tax rate resulted primarily due to a decrease in state
taxes, the tax rate differential of the Company's Canadian subsidiary, and the
declining effect of non-deductible goodwill expense due to the growth of the
Company's pre-tax income from the first 39 weeks of 1995 to the first 39 weeks
of 1996. This was partially offset by the effect of a valuation allowance
offsetting the income tax benefit related to the Company's joint venture in
Japan.
As a result of the foregoing factors, net income for the 39 weeks ended
October 27, 1996 was $13.2 million or 1.5% of sales, as compared to net income
of $9.2 million, or 1.3% of sales, for the same period in the prior year.
12
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs and to open new stores in connection with its expansion strategy. For the
39 weeks ended October 27, 1996 these capital requirements have generally been
satisfied by issuance of long-term convertible debt, cash and cash equivalents
at the beginning of the year, borrowings under the Revolving Credit Facility and
by cash flows from operations.
Cash flows generated by operating, investing and financing activities as
reported in the Consolidated Statements of Cash Flows for the 39 weeks ended
October 27, 1996 are summarized below. The net increase in cash and cash
equivalents for the 39 weeks ended October 27, 1996 was $53.7 million as
compared to a decrease of $22.6 million for the same period in the prior year.
Net cash used for operations was $9.9 million for the 39 weeks ended October
27, 1996 as compared to net cash provided by operations of $0.2 million for the
same period in the prior year. Income before depreciation and amortization for
the 39 weeks ended October 27, 1996 was $33.7 million. Depreciation and
amortization expense resulted primarily from leasehold improvements, store
fixtures and goodwill. Depreciation expense is expected to continue to increase
in the future due to continued expansion and new store openings such as those
discussed below. Other long-term liabilities increased due to increased step
rent accruals as a result of the relative immaturity of the existing stores and
the increased store base. In the other-net category, accrued taxes other than
income taxes increased primarily due to a seasonal increase in accrued real
estate and personal property taxes. These provisions of cash were offset by a
seasonal increase in inventory net of accounts payable of $32.4 million. In the
other-net category, accounts receivable and other current assets increased due
to prepayment of estimated federal taxes relating to the fourth quarter of 1996.
Income taxes payable decreased due to payment of the remaining 1995 taxes in
1996, as well as payment of estimated 1996 federal and state taxes relating to
the first 39 weeks of 1996.
Net cash used for investing was $91.6 million for the 39 weeks ended October
27, 1996, as compared to $55.8 million for the same period in the prior year.
Capital expenditures in the first 39 weeks of 1996 included $47.4 million of
expenditures associated with opening stores, of which $16.4 million was used for
the development of the 14 stores opened in the first 39 weeks of 1996, and $31.0
million was used for stores to be opened subsequent to the third quarter. In
addition, capital expenditures of $12.9 million were recorded for three
locations purchased by the Company from the trustee under the Operating Lease
Facility. The remaining $14.0 million was used to refurbish certain existing
stores and purchase computer hardware and software for the corporate office.
Other assets and deferred charges increased by $17.6 million due to the purchase
of a participation in a privately placed mortgage note secured by one of the
Company's stores, the acquisition of leases of two future store locations, and
the issuance costs related to the long-term convertible debt.
13
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Net cash provided by financing for the 39 weeks ended October 27, 1996 was
$155.3 million, as compared to $33.1 million for the same period in the prior
year. The increase for the first 39 weeks of 1996 was comprised principally of
issuance of long-term convertible debt.
Pursuant to the Company's rapid expansion program, the Company currently
plans to open 18 stores during the remainder of 1996, resulting in a total of 32
new stores opened during the year and a year-end total of 168 stores. The
Company currently plans to open at least 30 stores in 1997. Since the Company
has decided to acquire, develop and own a number of its new stores, and begin
implementation of a logistics program involving creation of a network of
regional distribution centers, the Company expects that its capital expenditures
will be up to $100 million and $125 million in 1996 and 1997, respectively. The
Company will continue to finance a certain number of its new stores with
operating leases, assuming availability and appropriate terms. To the extent
stores are not financed with operating leases, capital expenditures will be
higher by approximately $4 million to $8 million per location.
The Company believes that anticipated cash flows from operations, borrowings
under the Revolving Credit Facility, operating leases from developers and
residual funds from the long-term convertible debt will be sufficient to satisfy
its currently anticipated working capital and capital expenditure requirements
through the end of 1997. In October 1996, the Company terminated its $50 million
Operating Lease Facility, which provided financing for certain new store
development. The Company continues to evaluate various sources of financing its
expansion, and may seek to raise additional funds through debt or equity-related
offerings, or through an additional commercial bank debt arrangement. The
Company's Revolving Credit Facility currently provides for borrowings in a
principal amount of $110 million at any one time. As of December 9, 1996, the
Company had no borrowings under the Revolving Credit Facility.
The Company's working capital at October 27, 1996 was $183.6 million
compared with $82.1 million at October 22, 1995, an increase of $101.5 million.
This increase was primarily due to an increase in cash of $50.9 million as a
result of the $149.5 million convertible debt issue in September 1996. In
addition, inventory net of trade payables increased $29.8 million due to the
Company's opening of 31 stores since October 22, 1995, and the Company had no
short-term debt as of October 27, 1996 as a portion of the proceeds from the
long-term convertible debt were used to pay the remaining balance in the
Revolving Credit Facility.
14
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
SEASONALITY AND INFLATION
The Company's business is highly seasonal, with its highest sales and
operating profitability occurring in the fourth quarter, which includes the
holiday selling season. In fiscal 1995, 30.8% of the Company's sales and 57.0%
of its operating income occurred in the fourth quarter. The Company's expansion
program generally is weighted with store openings in the second half of the
fiscal year. In the future, changes in the number and timing of store openings
may change seasonality trends.
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
15
<PAGE>
THE SPORTS AUTHORITY, INC.
Part II. OTHER INFORMATION
Item 2. Changes in Securities
As reported in the Company's Form 8-K filed on
September 24, 1996, on September 20, 1996 the Company issued
$149,500,000 principal amount of 5.25% Convertible Subordinated
Notes due September 15, 2001 (the "Notes").
The Notes were sold to Goldman, Sachs & Co. for
$145,762,500 in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the
"1933 Act") under Section 4(2) thereof. Of the Notes,
$19,540,000 aggregate principal amount were resold in offshore
transactions in reliance on the exemption from the registration
requirements of the 1933 Act provided by Regulation S and
$129,960,000 aggregate principal amount were resold to
"qualified institutional buyers," as defined in Rule 144A, in
reliance on the exemption from the registration requirements of
the 1933 Act provided by Rule 144A.
The Notes are convertible into shares of Common Stock
of the Company at the rate of 30.6419 shares per $1,000
principal amount of Notes (equivalent to $32.635 per share),
subject to adjustment, at any time on or after the 90th day
following the last original issue date of the Notes and prior to
the close of business on the maturity date, unless previously
redeemed or repurchased. Holders of Notes called for redemption
or repurchase will be entitled to convert the Notes up to and
including, but not after, the date fixed for redemption or
repurchase, as the case may be.
16
<PAGE>
THE SPORTS AUTHORITY, INC.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit index on Page 19
(b) Reports on Form 8-K:
The Company filed a Form 8-K September 24, 1996
reporting under Item 5 the issuance of $149,500,000 principal
amount of 5.25% Convertible Subordinated Notes due September 15,
2001.
17
<PAGE>
THE SPORTS AUTHORITY, INC.
SIGNATURES
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.
THE SPORTS AUTHORITY, INC.
Date: December 9, 1996 By: /s/ RICHARD J. LYNCH, JR.
-------------------------
Richard J. Lynch, Jr.
President, Chief Operating Officer
and Director
Date: December 9, 1996 By: /s/ ANTHONY F. CRUDELE
----------------------
Anthony F. Crudele
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBITS PAGE NUMBER
-----------
<S> <C> <C>
4.1 Indenture, dated as of September 20, 1996, by and between the Company
and The Bank of New York, as Trustee, relating to the Company's
$149,500,000 5.25% Convertible Subordinated Notes due September 15, 2001
(including forms of note), incorporated by reference to Exhibit 4.1 to
Registration Statement No. 333-16877 on Form S-3.
4.2 Registration Rights Agreement, dated as of September 20, 1996, by and
between the Company and Goldman, Sachs & Co., relating to the Company's
$149,500,000 5.25% Convertible Subordinated Notes due September 15, 2001,
incorporated by reference to Exhibit 4.2 to Registration Statement No.
333-16877 on Form S-3.
10.1 First Amendment to Joint Venture Agreement, entered into on September 6, 20
1996 effective as 20 of January 19, 1995, by and between the Company and
JUSCO Co., Ltd., amending the Joint Venture Agreement filed as Exhibit
10.14 to the Company's Form 10-K for 1994.
10.2 Employment Agreement, dated as of August 29, 1996, by and between the 28
Company and Jack A. 28 Smith.
10.3 Lessor's Statement of Termination, dated October __, 1996, made (pursuant 34
to a notice from 35 the Company) by Harris Trust and Savings Bank in
favor of the Company, The Sports Authority Florida, Inc. and The Sports
Authority Michigan, Inc., terminating the Participation Agreement, dated
as of July 11, 1995, among the Company, Harris Trust and Savings Bank,
FBTC Leasing Corp., BNY Leasing Corporation, Bank of Montreal, First
Union National Bank of Florida, Pearl Street, L.P. and certain other
financial institutions named therein, which Participation Agreement was
filed as Exhibit 10.16 to the Company's Form 10-Q for the second quarter
of 1995.
11.1 Computation of earnings per share 37
</TABLE>
19
EXHIBIT 10.1
FIRST AMENDMENT TO JOINT VENTURE AGREEMENT
This First Amendment to Joint Venture Agreement ("Agreement")
is made and entered into this 6th day of September, 1996, effective as of the
19th day of January, 1995 (the "Effective Date"), by and between JUSCO CO., LTD.
("JUSCO"), a company incorporated under the laws of Japan and having its
registered office at 1, 1-Chome, Kandanishiki-cho, Chiyoda-ku, Tokyo 101, Japan
and THE SPORTS AUTHORITY, INC. ("TSA"), a corporation organized and existing
under the laws of the State of Delaware, United States of America ("U.S.A."),
and having its principal place of business at 3383 North State Road 7, Fort
Lauderdale, Florida 33319 U.S.A., in accordance with the following terms and
provisions:
WHEREAS, Jusco and TSA entered into a certain Joint Venture Agreement
as of January 19, 1995 (the "JVA") establishing, developing and operating in
Japan sporting goods retail stores stocked and designed along the lines of "TSA
Stores" (as defined in the JVA);
WHEREAS, the joint venture is to be carried out through the
incorporation in Japan of a "Joint Venture Company" (as defined in the JVA) to
be named "Mega Sports Co., Ltd." ("MEGA"); and
WHEREAS, actual formation and operation of MEGA requires certain
refinements and amendments to the JVA;
NOW THEREFORE, Jusco and TSA acknowledge and agree to the following
amendments to the JVA.
<PAGE>
1. In Section II entitled "TERMS AND DEFINITIONS" the definition of
"BUSINESS PLAN" shall be deleted in its entirety and shall be replaced by the
following provision:
The plan entitled "Business Plan for Mega Sports Co., Ltd."
and dated as of March 20, 1996 for the four-year period
commencing from February, 1996, which includes a preliminary
schedule for establishing Stores set forth in Section 3.7.
2. In Section II entitled "TERMS AND DEFINITIONS" the definition of
"OPERATIVE DOCUMENTS" shall be deleted in its entirety and shall be replaced by
the following provision:
The Joint Venture Agreement, the Jusco Services Agreement
between Jusco and the Joint Venture Company and the TSA
Services Agreement and License Agreement between TSA and the
Joint Venture Company.
3. In Section II entitled "TERMS AND DEFINITIONS" the
definition of "DATE OF INCORPORATION" shall be changed by deleting "Joint
Venture Agreement" and adding in its place "Joint Venture Company."
4. In Section 3.4 entitled "AUTHORIZED CAPITAL" the figure for
authorized capital of the Joint Venture Company shall be yen 400,000,000 and the
total paid-in capital shall be yen 100,000,000. After that, as a result of the
second issue of capital, the figure for authorized capital shall be yen
1,000,000,000 and the total paid-in capital shall be yen 250,000,000. As a
result of the third issue of capital, the figure for the authorized capital
shall be yen 1,000,000,000 and the total paid-in-capital shall be yen
400,000,000.
<PAGE>
5. In Section 3.5. entitled "INITIAL CAPITAL CONTRIBUTIONS" the figures
for Jusco's subscription shall be 980 shares at par, representing 49% of the
issued share capital of the Joint Venture Company. Further, the figures for
TSA's subscription shall be 1,020 shares at par, representing 51% of the issued
share capital of the Joint Venture Company. The figures for Jusco's shares shall
be 2,450 and 3,920 respectively immediately after the second and third issue of
capital. The figures of TSA's shares shall be 2,550 and 4,080 respectively
immediately after the second and third issue of capital.
6. In Section 3.7 entitled "ADDITIONAL FUNDING" the Joint Venture
Company's annual funding goals shall be set in view of the revised plan for
opening TSA Stores below:
YEAR NUMBER OF TSA STORES:
---- ---------------------
1995 0
1996 3
1997 4
1998 5
1999 5
7. The last paragraph of Section 3.7 entitled "ADDITIONAL FUNDING" is
deleted in its entirety and shall be replaced by the following provision:
<PAGE>
The Parties shall take such steps as are necessary to assure
that the Joint Venture Company shall not issue any other
Shares, convertible bonds and bonds with warrants without
first offering such other Shares or securities to each of the
Jusco JV Shareholder and the TSA JV Shareholder in proportion
to their shareholding in the Joint Venture Company at the time
of issuance so as to enable each Party to maintain its
proportional holding (measured in nominal value) of the issued
share capital of the Joint Venture Company. New Shares,
convertible bonds and bonds with warrants may be issued to
those other than Shareholders if approved by the affirmative
vote of at least two-thirds of the shares represented at a
general meeting of shareholders at which shareholders holding
a majority of the issued and outstanding Shares are present or
represented by proxy. Such resolution shall only be effective
for new shares to be issued for the first time after the
resolution and to be paid up within six (6) months of the date
of the resolution and for convertible bonds and bonds with
warrants to be issued for the first time after the resolution
and to be paid up within six (6) months of the date of the
resolution.
8. In Section 3.9 entitled "CORPORATE NAME OF THE JOINT VENTURE
COMPANY" the Joint Venture Company shall be named "Mega Sports Co., Ltd."
9. In Section 4.4(c), the reference to "Management Services
Agreements" shall be changed to "TSA and Jusco Services Agreements."
10. To Section 4.5 entitled "TRANSACTIONS WITH JUSCO OR TSA; INSURANCE"
a new paragraph shall be added prior to the last paragraph to specify a
potential reimbursement responsibility in connection with U.S.
Merchandise and Store Fixtures, to wit:
To the extent that the Joint Venture Company does not fulfill
its indemnification obligations as provided above in this
Section 4.5 to defend, indemnify and hold harmless the
Provider and its officers, directors, employees,
representatives and
<PAGE>
agents, at the Joint Venture Company's expense, from and
against any claim, damage, loss, cost, expense (including
reasonable attorneys' fees) or penalty, or any action
therefor, arising out of or in connection with any services,
goods or facilities provided to the Joint Venture Company
and/or its Subsidiaries by a Provider, including U.S. and
Japan Merchandise or Store Fixtures pursuant to Article 2.3 of
the TSA and Jusco Services Agreements ("Damages"), Jusco and
TSA shall promptly reimburse such Provider, at the expense of
Jusco and TSA, for all such Damages which are not paid
directly by the Joint Venture Company, in proportion to their
shareholding interests in the Joint Venture Company at the
time any such Damages are incurred, including but not limited
to any claims for damaged or defective products, product or
premises liability, failure to comply with product labeling,
instructions, testing or certification requirements, trademark
or other proprietary right or intellectual property
infringement, negligence, defamation, misappropriation, unfair
competition and failure to pay withholding tax.
11. In Section 4.8 entitled "ACTIONS BY BOARD OF DIRECTORS FOR CATEGORY
A ACTIONS" in subsection (vii) is deleted in its entirety and shall be replaced
by the following provision.
The borrowing by the Joint Venture Company which would result
in the borrowing to equity ratio of the Joint Venture Company exceeding the
ratio of twenty to one(20/1);
12. Section VI entitled "Management Services and License Agreements"
shall be re-entitled "Services and License Agreements," Section 6.3 entitled
"MANAGEMENT SERVICES AGREEMENTS" shall be re-entitled "TSA AND JUSCO SERVICES
AGREEMENTS" and Section 6.3 shall be deleted in its entirety and shall be
replaced by the following provision:
Attached hereto as Exhibits C and D, each of which the Parties
shall cause the Joint Venture Company to execute immediately
after the Date of Incorporation, are the forms of agreements
pursuant to which TSA and Jusco, respectively, shall provide
services to the Joint Venture Company.
<PAGE>
13. In Section 8.2. entitled "SUBSCRIPTION OF SHARES" the figures for
remittances by the Jusco JV Shareholder and the TSA JV Shareholder shall be yen
49,000,000 for 980 Shares at par, representing 49% of the issued share capital
of the Joint Venture Company, and yen 51,000,000 for 1,020 Shares at par value
of yen 50,000 each, representing 51% of the issued share capital of the Joint
Venture Company, respectively. After that, as a result of the second issue of
capital, the figures for remittances by the Jusco JV Shareholder and the TSA JV
Shareholder shall be yen 122,500,000 for 2,450 Shares at par and yen 127,500,000
for 2,550 Shares at par respectively. As a result of third issue of capital, the
figures for remittances by the Jusco JV Shareholder and the TSA JV Shareholder
shall be yen 196,000,000 for 3,920 Shares at par and yen 204,000,000 for 4,080
Shares at par respectively.
14. A new Section 10.7 entitled "BOARD APPROVAL OF TRANSFERS OF SHARES"
is added to Section X, to wit: "Notwithstanding the provisions of Sections 10.1
through 10.6 above, after the Parties have fully complied with the requirements
of such Sections, Article 8 of the Company's Articles of Incorporation shall
apply, which provides that any transfer of Shares shall be subject to approval
by the Board of Directors by way of an unanimous vote of all the Directors in
office. Such action shall be regarded as a Category A Action and shall be
governed by the provisions of Section 4.8."
15. Sections 11.2 (a) and (b) are deleted in their entirety
and shall be replaced by the following provisions:
11.2. TERMINATION. This Agreement may be terminated at any time
BY TSA OR JUSCO, AS THE CASE MAY BE, IF:
<PAGE>
(a) The other Party shall materially
default in the performance of any of the covenants, terms and
conditions of this Agreement and shall fail to cure such
default within sixty (60) calendar days after receipt of
notice in writing from the terminating Party of such default,
giving reasonable particulars of such default and of the
intention of the Party serving the notice to terminate this
Agreement unless such default is cured; provided, however,
that if such default cannot reasonably be cured within sixty
(60) calendar days, no termination shall occur so long as the
Party against which default has been declared continues to use
its best efforts to cure such default;
AUTOMATICALLY, IF:
(b) Either Party shall be judicially
declared bankrupt or insolvent, make an assignment for the
benefit of, or enter into a compromise with, its creditors;
initiate bankruptcy or insolvency proceedings of any kind or
proceedings for the appointment of a receiver, manager,
judicial manager or similar official with respect to it or any
of its assets or become a party to dissolution proceedings;
provided, however, that no termination shall occur if any such
action is stayed, dismissed or reversed within sixty (60)
calendar days of the initiation of such action and the subject
Party provides satisfactory evidence of the same within such
period.
16. Section 11.4 is deleted in its entirety and shall be replaced
by the following provision:
11.4. EFFECT OF TERMINATION UNDER SECTION 11.2(B). Upon a
termination of this Agreement under Section 11.2(b), the
Parties agree that the Joint Venture Company shall be
voluntarily dissolved and liquidated, provided that no
dissolution and liquidation shall occur upon such a
termination (or as otherwise provided in the Joint Venture
Company's Articles of Incorporation) if the non-bankrupt
holders of all of the remaining Shares elect to continue the
existence of the Joint Venture Company, in which case the
bankrupt holders shall vote with the non-bankrupt to approve
such continuance (including any necessary amendment of the
Articles of Incorporation to effect such continuance) and the
non-bankrupt holders shall purchase all (but not less than
all) of the Shares then owned by the bankrupt Party or any of
its direct or indirect wholly-owned Subsidiaries by serving
written notice to such Party and paying for such Shares in
accordance with Section 11.3. As a part of a dissolution and
liquidation, the non-bankrupt Party shall have the right (but
not the obligation) to purchase all, but not less than all, of
the assets of the Joint Venture Company at a price
<PAGE>
equal to the Fair Market Value thereof determined in
accordance with an Appraisal. The Party exercising its rights
under this Section 11.4 shall do so by serving written notice
to the other Party and the Joint Venture Company within thirty
(30) calendar days after the date of termination. The closing
shall be held within forty-five (45) days of the Parties'
receipt of the final appraisal of the assets of the Joint
Venture Company unless otherwise agreed by the Parties. The
purchase price of the assets purchased under this Section 11.4
must be paid in Japanese Yen in immediately available and
transferable funds through a transfer of funds to a banking
account to be designated at that time by the Joint Venture
Company. As a condition to the closing, the Parties shall
procure that the Joint Venture Company shall deliver to the
Party exercising its rights hereunder such instruments of
transfer as such Party may reasonably request, transferring
the assets free and clear of any lien or encumbrance other
than, with respect to real estate, encumbrances of record that
do not materially interfere with the use of the property for
the conduct of a retail store.
17. In all other respects the JVA remains unmodified. In any conflict
or inconsistency between the provisions of this Agreement and the provisions of
the JVA, the provisions of this Agreement shall govern.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed as of the date first above written by its duly authorized officer or
officers.
JUSCO CO. , LTD.
By: /S/ TAKUYA OKADA
----------------
Name: Takuya Okada
Title: Chairman and CEO
THE SPORTS AUTHORITY, INC.
By: /S/ JACK A. SMITH
------------------
Name: Jack A. Smith
Title: Chairman of the Board and CEO
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
August 29, 1996
Mr. Jack Smith
Chairman and Chief Executive Officer
The Sports Authority, Inc.
3383 North State Road 7
Ft. Lauderdale, FL 33319
Dear Mr. Smith:
This letter will confirm our understanding concerning your employment
with The Sports Authority, Inc. (the "Company").
1. You will continue to render services for the Company as its Chief
Executive Officer through June 30, 2000, subject to the provisions of this
agreement.
2. If your employment with the Company is terminated by the Company
other than for Cause, or if your employment is terminated by death, the Company
will (i) pay to you (or, in the case of death, your estate) through June 30,
2000, a monthly fee equal to (x) one-twelfth of your annualized base salary in
effect on the date your employment is terminated, plus yen one-twelfth of the
"on plan" bonus amount targeted for you for the fiscal year during which your
employment is terminated (to be paid on or about the 15th day of each month),
and (ii) during such period and thereafter, provide you and your spouse coverage
under the Company's medical and dental insurance plan until you reach age 65,
and thereafter pay Medicare Part B premiums for you and your spouse for the
remainder of your lives, and to the extent the Company is unable to provide such
benefits, it will pay the cost of equivalent coverage. In addition, all of your
unvested options to purchase Company stock under the Company's stock option
plans and all of your unvested restricted stock granted under the Management
Stock Purchase Plan will vest upon termination of your employment.
3. If you terminate your employment with the Company at any time after
March 31, 1997 and before June 30, 2000, the Company will (i) pay to you through
the earlier of one year after the last day of your employment or June 30, 2000,
a monthly fee equal to (x) one-twelfth of your annualized base salary in effect
on the date your employment is terminated, plus yen one-twelfth of the "on plan"
bonus amount targeted for you for the fiscal year during which your employment
is terminated (to be paid on or about the 15th day of each month), and (ii)
during such period and thereafter, provide you and your spouse coverage under
the Company's medical and dental insurance plan until
<PAGE>
you reach age 65, and thereafter pay Medicare Part B premiums for you and your
spouse for the remainder of your lives, and to the extent the Company is unable
to provide such benefits, it will pay the cost of equivalent coverage. In
addition, all of your unvested options to purchase Company stock under the
Company's stock option plans will vest upon such termination of your employment.
4. If there is a Change in Control of the Company while you are
employed by the Company and if your employment with the Company is terminated by
the Company other than for Cause or if you terminate your employment with the
Company for Good Reason, or if your employment is terminated by death, in any
case within a two-year period following such a Change in Control, the Company
will pay to you an amount equal to 2.99 times the sum of (i) your annual rate of
base salary at the time of termination or immediately prior to the Change in
Control, whichever base salary amount is greater, and (ii) the "on plan" bonus
amount targeted for you for the fiscal year in which termination occurs or the
fiscal year immediately prior to the Change in Control, whichever bonus amount
is greater; provided, however, that the amount of such payment may be reduced as
provided in paragraph 6. Such payment shall be made within fifteen days after
your termination, or as promptly thereafter as possible if the procedures set
forth in paragraph 6 cannot be completed within fifteen days. In addition,
subject to any reduction as provided in paragraph 6, the Company will provide
you and your spouse coverage under the Company's medical and dental insurance
plan until you reach age 65, and thereafter will pay Medicare Part B premiums
for you and your spouse for the remainder of your lives, and to the extent the
Company is unable to provide such benefits, it will pay the cost of equivalent
coverage.
5. (a) Termination by the Company for "Cause" means termination based
on (i) conduct which is a material violation of Company policy, as in effect
immediately before any Change in Control, or which is fraudulent or unlawful or
which materially interferes with your ability to perform your duties, (ii)
misconduct which damages or injures the Company or substantially damages the
Company's reputation, or (iii) gross negligence in the performance of, or
willful failure to perform, your duties and responsibilities.
(b) Termination by you for "Good Reason" means termination
based on the occurrence without your express written consent of any of the
following: (i) a significant diminution by the Company of your role with the
Company or a significant detrimental change in the nature and/or scope of your
status with the Company, other than for Cause, (ii) a reduction in your base
salary, other than for Cause and other than as part of an across-the-board
reduction in salaries of management personnel (including all Vice Presidents and
above) of less than 20%, (iii) a material diminution by the Company of benefits
(taken as a whole) provided to you immediately prior to the Change in Control,
or (iv) the relocation of the Company's principal executive offices to a
location outside of Broward County, Palm Beach County or Dade County, Florida or
any requirement that you be based anywhere other than the Company's principal
executive offices.
<PAGE>
(c) A "Change in Control" shall be deemed to have
occurred if:
(i) the "beneficial ownership" (as defined in
Rule l3d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of securities representing more than 50% of the combined voting power of
the Company is acquired by any "person" as defined in sections 13(d) and 14(d)
of the Exchange Act (other than the Company or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company), or
(ii) the shareholders of the Company approve a
definitive agreement to merge or consolidate the Company with or into another
corporation or to sell or otherwise dispose of all or substantially all of its
assets, or
(iii) during any period of three consecutive years,
individuals who at the beginning of such period were members of the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof (unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of
such period).
6. If it is determined that any payment or distribution by the Company
to you or for your benefit, whether paid or payable or distributed or
distributable pursuant to the terms of this agreement or otherwise (a
"Payment"), would constitute an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the
aggregate present value of amounts payable or distributable to you or for your
benefit pursuant to this agreement (such payments or distributions pursuant to
this agreement are hereinafter referred to as "Agreement Payments") shall be
reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall
be an amount expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be subject to
taxation under Section 4999 of the Code. For this purpose, present value shall
be determined in accordance with Section 280G(d)(4) of the Code.
All determinations to be made under this paragraph 6 shall be made by
the Company's independent public accountant immediately prior to the Change in
Control (the "Accounting Firm")), which firm shall provide its determinations
and any supporting calculations both to the Company and to you within ten days
of your termination. Any such determination by the Accounting Firm shall be
binding on both the Company and you. You shall, in your sole discretion,
determine which and how much of any Payment will be eliminated or reduced
consistent with the requirements of this paragraph 6. Within five days after
your determination, the Company shall pay (or cause to be paid) or distribute
(or cause to be distributed) to or for your benefit such amounts as are then due
to you under this agreement.
<PAGE>
As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. Within two years after the termination of your employment, the
Accounting Firm shall review the determination made by it pursuant to the
preceding paragraph. If the Accounting Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all purposes as a loan to
you which you shall repay to the Company together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code (the
"Federal Rate"); PROVIDED, HOWEVER, that no amount shall be payable by you to
the Company if and to the extent such payment would not reduce the amount which
is subject to taxation under Section 4999 of the Code. If the Accounting Firm
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to you or for your benefit, together with interest
at the Federal Rate.
All of the fees and expenses of the Accounting Firm in performing the
determinations referred to above shall be borne solely by the Company. The
Company agrees to indemnify and hold harmless the Accounting Firm against any
and all claims, damages and expenses resulting from or relating to such
determinations, except for claims, damages or expenses resulting from the gross
negligence or willful misconduct of the Accounting Firm.
7. In consideration of the obligations of the Company hereunder, unless
an event occurs entitling you to payments under paragraph 4, you agree that you
shall not (i) directly or indirectly become an employee, director or advisor of,
or otherwise affiliated with, any other entity or enterprise whose business is
in competition with the business of the Company, (ii) directly or indirectly
solicit or hire, or encourage the solicitation or hiring of, any person who was
an employee of the Company at any time on or after the date of this agreement,
unless at the time of such solicitation the person solicited had not been an
employee of the Company for more than twelve months, and (iii) without the
written consent of the Board of Directors or a person authorized thereby,
disclose to any person other than as required by law or court order, any
confidential information obtained by you while in the employ of the Company,
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by you) or any specific information or type of
information generally not considered confidential by persons engaged in the same
business as the Company, or information disclosed by the Company, by any member
of its Board of Directors or by any other officer thereof to a third party
without restrictions on the disclosure of such information. Your obligations
under this paragraph will continue until June 30, 2000.
You acknowledge that these restrictions are reasonable and necessary to
protect the Company's legitimate interests, that the Company would not have
entered into this
<PAGE>
agreement in the absence of such restrictions, and that any violation of these
restrictions will result in irreparable harm to the Company. You agree that the
Company shall be entitled to preliminary and permanent injunctive relief,
without the necessity of proving actual damages, as well as an equitable
accounting of all earnings, profits and other benefits arising from any
violation hereof, which rights shall be cumulative and in addition to any other
rights or remedies to which the Company may be entitled. You irrevocably and
unconditionally (i) agree that any legal proceeding arising out of this
paragraph may be brought in the United States District Court for the Southern
District of Florida, or if such court does not have jurisdiction or will not
accept jurisdiction, in any court of general jurisdiction in Broward County,
Florida, (ii) consent to the non-exclusive jurisdiction of such court in any
such proceeding, and (iii) waive any objection to the laying of venue of any
such proceeding in any such court. You also irrevocably and unconditionally
consent to the service of any process, pleadings, notices or other papers.
8. The payments provided hereunder shall constitute the exclusive
payments due you from, and the exclusive obligation of, the Company in the event
of any termination of your employment, except for any benefits which may be due
you in normal course under any employee or executive benefit plan of the Company
which provides benefits after termination of employment, other than a severance
pay plan. You shall not be required to mitigate the amount of any payment or
benefit provided for in this agreement by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for herein be reduced by
any compensation earned by other employment or otherwise. The payments hereunder
may not be transferred, assigned or encumbered in any manner, either voluntarily
or involuntarily. In the event of your death, any payments then or thereafter
due hereunder will be made to your estate.
9. It is the intent of the parties that you not be required to incur
any expenses associated with the enforcement of your right to receive payments
due under paragraph 4 of this agreement by arbitration, litigation or other
legal action because the cost and expense thereof would substantially detract
from the benefits intended to be extended to you. Accordingly, the Company shall
pay you on demand the amount necessary to reimburse you in full for all
reasonable expenses (including all attorneys' fees and legal expenses) incurred
by you in enforcing the obligations of the Company to make the payments due
under paragraph 4 of this agreement.
10. The obligation to make the payments hereunder is conditioned upon
your execution and delivery to the Company at the time of the termination of
your employment of a release, in form satisfactory to the Company, of any claims
you may have as a result of your employment or termination of employment under
any federal, state or local law, excluding any claim for benefits which may be
due you in normal course under any employee or executive benefit plan of the
Company which provides benefits after termination of employment, other than a
severance pay plan, and excluding any claims for reimbursement for liabilities,
costs or expenses incurred in any action against you within the scope of your
employment by the Company and for which you would have been indemnified pursuant
to the bylaws of the Company as of the date hereof (in which case
<PAGE>
you shall notify the Company in writing within ten days after receiving service
of process as to the commencement of the action and give the Company the right
to control the defense of any such action), unless later limited in accordance
with applicable law.
11. The Company shall require any successor or successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to you, to acknowledge expressly that this
agreement is binding upon and enforceable against the Company in accordance with
the terms hereof, and in the same manner and to the same extent that the Company
would be required to perform if no such succession or successions had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this agreement. As
used in this agreement, the Company shall mean the Company as hereinbefore
defined and any such successor or successors to its business and/or assets,
jointly and severally.
12. All payments hereunder shall be subject to applicable tax
withholding and deductions.
13. This agreement shall be governed by and interpreted under
the laws of the State of Delaware without giving effect to any conflict of
laws provisions.
14. This agreement sets forth the entire understanding with respect to
the subject matter hereof and supersedes all prior agreements, written or oral
or express or implied, between you and the Company as to such subject matter.
This agreement may not be amended, nor may any provision hereof be modified or
waived, except by an instrument in writing duly signed by you and the Company.
15. If any provision of this agreement, or any application thereof to
any circumstances, is invalid, in whole or in part, such provision or
application shall to that extent be severable and shall not affect other
provisions or applications of this agreement.
Please indicate your agreement by signing below and retain one copy for
your records.
Sincerely,
THE SPORTS AUTHORITY, INC.
By: /S/ HAROLD TOPPEL
-----------------
Harold Toppel
Agreed:
/S/ JACK SMITH
- ------------------------
Date: August 29, 1996
EXHIBIT 10.3
LESSOR'S STATEMENT OF TERMINATION
THIS LESSOR'S STATEMENT OF TERMINATION is executed and delivered this
__ day of October, 1996 by HARRIS TRUST AND SAVINGS BANK, not in its individual
capacity but solely as Owner Trustee ("Lessor"), in favor of THE SPORTS
AUTHORITY, INC., a Delaware corporation ("TSA"), THE SPORTS AUTHORITY FLORIDA,
INC. , a Florida corporation ("TSA Florida"), and THE SPORTS AUTHORITY MICHIGAN,
INC., a Michigan corporation ("TSA Michigan"). TSA, TSA Florida and TSA Michigan
are collectively referred to herein as "Lessee".
RECITALS:
A. On July 11, 1995, Lessor and Lessee entered into that certain Master
Lease and Open End Mortgage ( the "Master Lease") and that certain Construction
Agency Agreement.
B. TSA, as assignor, executed and delivered to the Lessor for the
benefit of the Lessor that certain Construction Documents Assignment (the
"Construction Documents Assignment") dated as of July 11, 1995. Lessor executed
and delivered to Bank of Montreal, as agent for the Tranche A Lenders, and BNY
Leasing Corporation and FBTC Leasing Corp., as the Tranche B Lenders, for their
benefit, an Assignment of Leases and Rents (the "Assignment of Leases") dated as
of July 11, 1995.
C. TSA, as Lessee, the Owner Trustee, the Owner Participants, and the
Lenders executed and delivered that certain Participation Agreement (the
"Participation Agreement") dated as of July 11, 1995.
D. On June 12, 1996, the Lessor and TSA executed and delivered that
certain First Amendment to Master Lease, Construction Agency Agreement, and
Construction Documents Assignment. On June 12, 1996, TSA, as Lessee, the Owner
Trustee, the Owner Participants, and the Lenders executed and delivered that
certain First Amendment to Participation Agreement. TSA Florida and TSA Michigan
executed and delivered to Lessor on June 12, 1996 Subsidiary Lessee Adoption
Agreements for the purpose of becoming Lessees under the Master Lease and the
Operative Documents.
E. On September 24, 1996, Lessee delivered to Lessor a Purchase Notice
in accordance with the terms of Section 18.1(a) of the Master Lease stating
Lessee's intent to purchase all of the Properties and to terminate the Master
Lease, Participation Agreement and the other Operative Documents.
<PAGE>
F. This Lessor's Statement of Termination is intended to serve as the
Lessor's statement of termination described in Section 21(a)(iii) of the Master
Lease.
NOW, THEREFORE, the Lessor hereby agrees as follows:
1. CAPITALIZED TERMS. All capitalized terms used herein shall have the
same meanings as used in Appendix A of the Participation Agreement, unless
otherwise defined in this Statement of Termination.
2. STATEMENT OF TERMINATION. Lessor acknowledges and agrees that upon
the Lessee's satisfaction of the conditions precedent in Section 18.1(a) of the
Master Lease, Lessor shall comply with its obligations under Section 21.1 (a) of
the Master Lease and the Operative Documents with respect to termination of the
Operative documents and reconveyance of the Properties to Lessee and Lessee
shall have no further obligations to Lessor or the Lenders under the Master
Lease, Participation Agreement or the other Operative Documents except to the
extent that under the terms of such Operative Documents the obligations of
Lessor, Lessee or the Lenders is to continue beyond Lessee's payment in full of
the Lease Balance.
3. FURTHER ASSURANCES. Lessor agrees to execute all documents,
certificates and affidavits reasonably requested by Lessee's title insurance
company or Lessee in order to effectuate the transfer of title in the Properties
to Lessee and cause Lessee's title insurance company to issue a commitment to
insure Lessee's title in the Properties.
IN WITNESS WHEREOF, THE LESSEE HAS EXECUTED AND DELIVERED THIS
STATEMENT OF TERMINATION ON THE DATE FIRST SET FORTH ABOVE.
HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but as Owner Trustee
/s/ KEITH RICHARDSON
--------------------------------------
Name: Keith Richardson
-------------------------------
Title:
-------------------------------
ACKNOWLEDGED AND AGREED TO BY:
THE SPORTS AUTHORITY, INC.
By: /s/ JACK SMITH
-------------------------
Name: Jack Smith
------------------------
Title: Chairman and CEO
----------------------
<PAGE>
THE SPORTS AUTHORITY MICHIGAN, INC.
By: /s/ JACK SMITH
-------------------------
Name: Jack Smith
------------------------
Title: President
----------------------
THE SPORTS AUTHORITY FLORIDA, INC.
By: /s/ JACK SMITH
-------------------------
Name: Jack Smith
------------------------
Title: President
----------------------
EXHIBIT 11.1
THE SPORTS AUTHORITY, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
-------------------------------- ------------------------------
OCTOBER 27, OCTOBER 22, OCTOBER 27, OCTOBER 22,
1996 1995 1996 1995
------------- ------------ ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Financial statement computations:
Income before income taxes $ 2,698 $ 1,054 $ 20,856 $ 16,029
Income tax expense 1,225 423 8,700 6,817
Minority interest (503) - (1,056) -
----------- ----------- ----------- -----------
Net income $ 1,976 $ 631 $ 13,212 $ 9,212
=========== =========== =========== ===========
Earnings per share:
Shares used in primary earnings per share
computation:
Weighted average common shares outstanding 31,443 31,256 31,372 31,215
Net additional shares assuming options
exercised and proceeds used to purchase
treasury shares at average market price 928 490 701 227
----------- ----------- ----------- -----------
Common and common share equivalents 32,371 31,746 32,073 31,442
=========== =========== =========== ===========
Earnings per share assuming primary dilution $ 0.06 $ 0.02 $ 0.41 $ 0.29
=========== =========== =========== ===========
Shares used in fully diluted earnings per share
computation:(1)
Weighted average common shares outstanding 31,443 31,256 31,372 31,215
Net additional shares assuming options
exercised and proceeds used to purchase
treasury shares at higher of average market
price and period-end market price 957 490 916 369
----------- ----------- ----------- -----------
Common and common share equivalents 32,400 31,746 32,288 31,584
=========== =========== =========== ===========
Earnings per share assuming full dilution $ 0.06 $ 0.02 $ 0.41 $ 0.29
=========== =========== =========== ===========
- -------------------
<FN>
(1)The calculation of fully diluted earnings per share excludes convertible
shares under the Company's 5.25% Convertible Subordinated Notes (see Note 3)
because they have an antidilutive effect.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-26-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> OCT-27-1996
<CASH> 65,440
<SECURITIES> 0
<RECEIVABLES> 23,307
<ALLOWANCES> (1,350)
<INVENTORY> 295,671
<CURRENT-ASSETS> 421,780
<PP&E> 253,430
<DEPRECIATION> (62,511)
<TOTAL-ASSETS> 705,711
<CURRENT-LIABILITIES> 238,176
<BONDS> 0
0
0
<COMMON> 315
<OTHER-SE> 292,959
<TOTAL-LIABILITY-AND-EQUITY> 705,711
<SALES> 895,074
<TOTAL-REVENUES> 895,897
<CGS> 646,710
<TOTAL-COSTS> 646,710
<OTHER-EXPENSES> 226,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,536
<INCOME-PRETAX> 20,856
<INCOME-TAX> 8,700
<INCOME-CONTINUING> 22,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,212
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
