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 24, 1999
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 1, 1999: 32,022,191
<PAGE>
THE SPORTS AUTHORITY, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 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 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
INDEX TO EXHIBITS 21
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- -----------------------------
October 24, October 25, October 24, October 25,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 327,255 $ 366,973 $ 1,069,323 $ 1,140,675
License fees and rental income 359 38 1,162 812
----------- ----------- ----------- -----------
327,614 367,011 1,070,485 1,141,487
----------- ----------- ----------- -----------
Cost of merchandise sold, including
buying and occupancy costs 244,026 299,296 793,378 870,080
Selling, general and administrative expenses 96,493 105,726 284,697 299,722
Pre-opening expense 348 3,578 1,555 7,859
Goodwill amortization 491 491 1,472 1,472
----------- ----------- ----------- -----------
341,358 409,091 1,081,102 1,179,133
----------- ----------- ----------- -----------
Store exit costs -- 39,446 -- 39,446
Corporate restructuring -- 3,930 (700) 3,930
Impairment of long-lived assets -- 13,457 -- 13,457
----------- ----------- ----------- -----------
-- 56,833 (700) 56,833
----------- ----------- ----------- -----------
Operating loss (13,744) (98,913) (9,917) (94,479)
Other (income) expense:
Interest, net 3,798 2,801 11,360 8,099
Gain on deconsolidation of joint venture -- -- (5,001) --
----------- ----------- ----------- -----------
3,798 2,801 6,359 8,099
----------- ----------- ----------- -----------
Loss before income taxes and extraordinary gain (17,542) (101,714) (16,276) (102,578)
Income tax benefit (6,794) (35,703) (6,323) (35,673)
Minority interest -- (1,123) -- (2,098)
----------- ----------- ----------- -----------
Loss before extraordinary gain (10,748) (64,888) (9,953) (64,807)
Extraordinary gain, net of tax of $3,678 5,517 -- 5,517 --
----------- ----------- ----------- -----------
Net loss $ (5,231) $ (64,888) $ (4,436) $ (64,807)
=========== =========== =========== ===========
Earnings (loss) per common share:
Loss before extraordinary gain $ (0.33) $ (2.04) $ (0.31) $ (2.04)
Extraordinary gain 0.17 -- 0.17 --
----------- ----------- ----------- -----------
Net loss $ (0.16) $ (2.04) $ (0.14) $ (2.04)
=========== =========== =========== ===========
Weighted average common shares outstanding 31,993 31,813 31,948 31,745
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
<TABLE>
<CAPTION>
October 24, January 24,
1999 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,109 $ 22,946
Merchandise inventories 418,199 367,951
Accounts receivable and other current assets 43,040 48,438
--------- ---------
Total current assets 479,348 439,335
Net property and equipment 268,845 341,371
Other assets and deferred charges 53,585 72,073
Goodwill - net of accumulated amortization of
$19,057 and $17,585, respectively 47,348 48,820
--------- ---------
Total Assets $ 849,126 $ 901,599
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 139,330 $ 180,117
Accrued payroll and other liabilities 97,811 139,468
Short-term debt 145,539 75,623
Taxes other than income taxes 15,928 13,582
--------- ---------
Total current liabilities 398,608 408,790
Long-term debt 126,224 173,248
Other long-term liabilities 53,745 50,804
--------- ---------
Total liabilities 578,577 632,842
Minority interest -- (4,155)
Stockholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized, 32,072 and 31,951 issued, respectively 321 320
Additional paid-in-capital 251,587 251,024
Deferred compensation and receivables from officers (425) (531)
Retained earnings 20,999 25,435
Treasury stock, 55 and 56 shares at cost, respectively (521) (527)
Accumulated other comprehensive loss (1,412) (2,809)
--------- ---------
Total stockholders' equity 270,549 272,912
--------- ---------
Total Liabilities and Stockholders' Equity $ 849,126 $ 901,599
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
39 WEEKS ENDED
---------------------------
October 24, October 25,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net loss $ (4,436) $ (64,807)
Adjustments to reconcile net loss to net cash used for operations:
Depreciation and amortization 35,572 34,662
Gain on deconsolidation of joint venture (5,001) --
Gain on extinguishment of debt (9,195) --
Cumulative translation adjustment 27 (1,492)
Loss on sale or disposal of property and equipment 2 16
Minority interest in net loss of joint venture -- (2,098)
Impairment of long-lived assets -- 13,457
Store exit costs -- 39,446
Corporate restructuring -- 3,930
Decrease (increase) in accounts receivable and other current assets 9,774 (285)
Increase in merchandise inventories (76,470) (65,986)
Increase in deferred tax assets (8,882) (37,242)
Decrease (increase) in other assets and deferred charges 1,598 (6,511)
(Decrease) increase in accounts payable - trade (19,056) 29,122
Decrease in accrued payroll and other liabilities (26,357) (3,316)
Increase in other long-term liabilities 2,941 3,393
Other - net 2,626 4,495
--------- ---------
Net cash used for operations (96,857) (53,216)
--------- ---------
INVESTING
Capital expenditures - owned property (21,226) (60,110)
Proceeds from sale of property and equipment, net 36,976 2
Deconsolidation of joint venture (3,127) --
Other - net (4) 6,536
--------- ---------
Net cash provided by (used for) investing 12,619 (53,572)
--------- ---------
FINANCING
Short-term borrowings, net 95,272 96,116
(Payment of) proceeds from long-term borrowings (14,015) 12,950
Proceeds from sale of stock 196 1,959
Proceeds from sale (purchase) of treasury stock 6 (33)
Debt issuance costs (1,432) --
Payment of capital lease obligations (626) (543)
--------- ---------
Net cash provided by financing 79,401 110,449
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,837) 3,661
Cash and cash equivalents at beginning of year 22,946 20,359
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,109 $ 24,020
========= =========
</TABLE>
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. (the "Company") management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results for the interim periods have been included.
NOTE 2: INVESTMENTS IN JOINT VENTURES
JAPANESE JOINT VENTURE:
In March 1999, the Company sold 32% of its 51% ownership interest in the
Japanese joint venture Mega Sports Co., Ltd. ("Mega Sports") to its joint
venture partner, JUSCO Co., Ltd. ("JUSCO"). The sale reduced the Company's
ownership in the joint venture to 19%. In May 1999, JUSCO made an additional
capital contribution to Mega Sports, not matched by the Company, which further
reduced the Company's ownership to 8.4%. As a minority owner, the Company
discontinued consolidation of the joint venture in 1999.
The Company has a license agreement with Mega Sports which permits Mega
Sports to use certain trademarks, technology and know-how of the Company in
exchange for royalty fees of 1.0% of Mega Sports' gross sales in 1999, 1.1% in
2000 and 1.2% in 2001 through 2005. Mega Sports has the option of extending the
agreement for three ten-year periods expiring in 2035. The Company's results of
operations include royalty fees pursuant to the agreement of approximately $0.3
million and $1.1 million for the 13 and 39 weeks ended October 24, 1999,
respectively. In 1998, intercompany royalty fees were eliminated due to
consolidation of the joint venture in the Company's results of operations.
E-COMMERCE JOINT VENTURE:
In May 1999, the Company and Global Sports Interactive, Inc. ("Global
Sports") formed TheSportsAuthority.com, Inc. ("TSA.com"), a joint venture which
operates the e-commerce business of the Company. The Company has an initial
ownership in TSA.com of 19.9%, which will automatically increase in increments
up to 49.9% if certain performance criteria are met by either TSA.com or the
Company. In addition, the Company has an option to purchase additional shares of
TSA.com, up to 49.9%, in certain events.
6
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: RESTRUCTURING RESERVES
STORE CLOSINGS:
In the third quarter of 1998, the Company recorded a pre-tax restructuring
charge of $39.4 million related to the closing of 17 underperforming stores. The
charge included reserves for remaining lease obligations and related costs,
fixed asset write-downs and disposal costs, employee severance payments and
other exit costs. The Company completed 15 store closings in the first quarter
of 1999, and paid approximately $0.4 million in severance to approximately 500
employees. The remaining two stores were scheduled to be relocated in 2000.
Based on current economic and competitive factors, as well as the negotiation of
a rent concession in the third quarter of 1999, the Company has determined that
it will not close one of the two remaining stores. Additionally, in October
1999, the Company opened two clearance stores in previously closed locations.
The stores were opened on a test basis to evaluate the viability of the
clearance store format. The operating results of the clearance stores are
included in the Company's results of operations.
In 1997, the Company recorded a $4.3 million restructuring charge related to
the closing of three stores and two off-site receiving facilities. The store
closings were due primarily to the expiration of leases and openings of new
stores in close proximity to the closing locations. Operations of the two
receiving facilities were consolidated into the Company's regional distribution
center ("RDC") in the fourth quarter of 1997. The three stores were closed in
February 1998. Remaining reserves under the 1997 restructuring relate to the
remaining lease obligation for one store.
During the third quarter of 1999, the Company reviewed the adequacy of its
remaining reserves related to the 1997 and 1998 store closings based on
historical activity, expected future payments and plan modifications. Based on
this review, the Company reduced its reserves for severance pay and lease
obligations, and accrued additional amounts for other store closing costs. Store
closing costs in the aggregate were not affected. The following table sets forth
the activity in the restructuring reserves related to the 1998 and 1997 store
closing plans:
<TABLE>
<CAPTION>
39 Weeks Ended October 24, 1999
-------------------------------------------------------------------------------
Reserve at Reserve at
January 24, Asset Reserve October 24,
(IN THOUSANDS) 1999 Payments Disposals (net) Adjustments 1999
---------------- --------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Lease obligations and related costs $ 32,419 $ (5,637) $ - $ (585) $ 26,197
Fixed assets 9,264 - (7,339) - 1,925
Employee severance 671 (487) - (110) 74
Other 661 (834) - 695 522
------------ ------------ ------------ ----------- ------------
Total $ 43,015 $ (6,958) $ (7,339) $ - $ 28,718
============ ============= ============= ============ ============
</TABLE>
7
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CORPORATE RESTRUCTURING:
Pursuant to a corporate restructuring in the third quarter of 1998, the
Company recorded $3.9 million in employment contract obligations to several
departing executives. In the first quarter of 1999, the Company negotiated the
settlement of one contract and reduced the corporate restructuring reserve by
$0.7 million. As of October 24, 1999, the Company's payment under these
contracts had substantially satisfied its remaining obligation.
NOTE 4: EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share"
("EPS"), which requires a dual presentation of basic and diluted EPS. Basic EPS
equals net income divided by the number of weighted average common shares
outstanding while diluted EPS includes potentially dilutive securities. Due to
net losses in all periods presented, the calculation of diluted EPS excludes (1)
the antidilutive effect of 4,580,964 shares issuable under the Company's 5.25%
Convertible Subordinated Notes, and (2) the effect of stock options.
NOTE 5: COMPREHENSIVE INCOME
Comprehensive income represents the change in equity arising from non-owner
sources, including net income and other comprehensive income items such as
foreign currency translation adjustments and minimum pension liability
adjustments. The Company's other comprehensive income consists solely of foreign
currency translation adjustments. In the first quarter of 1999 the Company
recognized $1.4 million in cumulative translation adjustments in conjunction
with the deconsolidation of Mega Sports. For the 13 and 39 weeks ended October
24, 1999, the Company's comprehensive loss was $5.1 million and $4.4 million,
respectively, compared to a comprehensive loss of $66.7 million and $66.3
million for the same periods in the prior year.
NOTE 6: REPLACEMENT OF REVOLVING CREDIT FACILITY
On April 13, 1999, the Company signed a three year, $200 million revolving
credit agreement with BankBoston Retail Finance Inc. (the "BankBoston Credit
Facility") to replace the Company's prior $160 million revolving credit
facility. The BankBoston Credit Facility is secured by inventory and contains no
financial covenants related to operating results. Borrowings under the new
facility bear interest at the election of the Company at either the Base Rate or
the Eurodollar Rate plus a margin ranging from 1.75% to 2.25%, both as defined
in the credit agreement. The agreement limits borrowings to a borrowing base
determined largely with reference to eligible inventory balances.
8
<PAGE>
THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: EXTRAORDINARY GAIN
In the third quarter of 1999, the Company recorded an extraordinary gain of
$5.5 million, net of tax, on the purchase of $23.5 million in principal amount
of its 5.25% Convertible Subordinated Notes (the "Notes"), for $14.0 million,
excluding accrued interest. In September 1996, the Company issued a total of
$149.5 million of Notes, due in September 2001. The Company's Board of Directors
has authorized the purchase of additional Notes from time to time.
NOTE 8: SALE-LEASEBACK TRANSACTION
In November 1999, the Company completed the sale of its eighth owned
property pursuant to a sale-leaseback agreement with SPI Holdings, LLC ("SPI
Holdings"). The Company entered into the agreement with SPI Holdings in the
second quarter of 1999, and completed the sale of seven properties during the
third quarter. The eight properties were sold for an aggregate sales price of
$46.8 million. The Company anticipates no additional properties will be sold in
1999. Proceeds from the sale were used primarily to pay down existing debt. The
Company will continue to operate The Sports Authority stores in these locations
under long-term leases.
9
<PAGE>
Item 2.
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
JAPANESE JOINT VENTURE OWNERSHIP REDUCTION
In March 1999, the Company reduced its ownership interest in Mega Sports,
its Japanese joint venture. As a minority owner, the Company discontinued
consolidation of the accounts of Mega Sports beginning in fiscal 1999, and
recorded a $5.0 million gain on deconsolidation in the first quarter of 1999.
The decision to reduce its ownership in Mega Sports was based on the Company's
commitment to focus its resources on the profitability and growth of its core
North American operations. (See Note 2 of the Notes to Consolidated Financial
Statements).
E-COMMERCE JOINT VENTURE
In May 1999, the Company and Global Sports Interactive, Inc. formed
TheSportsAuthority.com., Inc. The joint venture operates the Company's
e-commerce business, which commenced with the launch of a Web site early in the
fourth quarter of 1999. The site offers online a wide selection of sporting
goods, athletic footwear and apparel currently available in The Sports Authority
stores. Global Sports is contributing the technological, organizational and
working capital requirements of the joint venture, as well as dedicated
marketing funds to promote online traffic. The Company contributes its brand
name and marketing reach. (See Note 2 of the Notes to Consolidated Financial
Statements).
STORE CLOSINGS AND IMPAIRMENTS
The Company recorded pre-tax restructuring charges of $39.4 million and $4.3
million in 1998 and 1997, respectively, related to the closing of
underperforming stores and certain of its off-site receiving facilities. All
locations encompassed in the 1997 plan were closed in early 1998, and 15 of the
17 stores targeted in the 1998 plan were closed in 1999. The remaining two
stores were scheduled to be relocated in 2000. Based on current economic
factors, including the negotiation of a rent concession in the third quarter of
1999, the Company has determined that it will not close one of the two remaining
stores. Additionally, in October 1999 the Company opened two clearance stores,
on a test basis, in previously closed locations. The Company paid $2.4 million
and $7.0 million in store exit costs during the 13 and 39 weeks ended October
24, 1999, respectively, primarily under its long-term lease obligations. (See
Note 3 of the Notes to Consolidated Financial Statements).
Per Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and based on continued underperformance of certain stores
during the 1999 period, the Company is conducting a comprehensive review of the
recoverability of its asset carrying values, including goodwill of $47.3
million. The Company expects to complete its 1999 impairment analysis in the
fourth quarter. The Company recorded an impairment loss of $13.5 million in 1998
to write down the carrying amount of fixed assets and lease acquisition costs at
six stores.
10
<PAGE>
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.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- ----------------------------
October 24, October 25, October 24, October 25,
1999 1998 1999 1998
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold, including
buying and occupancy costs 74.6 81.6 74.2 76.3
----------- ----------- ---------- ----------
Gross margin 25.4 18.4 25.8 23.7
License fees and rental income 0.1 - 0.1 0.1
Selling, general and administrative expenses 29.5 28.8 26.6 26.3
Pre-opening expense 0.1 1.0 0.2 0.7
Goodwill amortization 0.1 0.1 0.1 0.1
Store exit costs - 10.7 - 3.5
Corporate restructuring - 1.1 (0.1) 0.3
Impairment of long-lived assets - 3.7 - 1.2
----------- ----------- ---------- ----------
Operating loss (4.2) (27.0) (0.9) (8.3)
Interest, net 1.2 0.7 1.1 0.7
Gain on deconsolidation - - (0.5) -
----------- ----------- ---------- ----------
Loss before income taxes and extraordinary gain (5.4) (27.7) (1.5) (9.0)
Income tax benefit (2.1) (9.7) (0.6) (3.1)
Minority interest - (0.3) - (0.2)
----------- ------------ ----------- ----------
Loss before extraordinary gain (3.3) (17.7) (0.9) (5.7)
Extraordinary gain, net of tax 1.7 - 0.5 -
----------- ----------- ---------- ----------
Net loss (1.6)% (17.7)% (0.4)% (5.7)%
=========== =========== ========== ==========
</TABLE>
The following table sets forth the Company's store openings and closings for the
periods indicated.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------------- -----------------------------
October 24, October 25, October 24, October 25,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Beginning number of stores 200 206 226 199
Openings 1 10 3 20
Closings - - (15) (3)
Deconsolidation of joint venture - - (13) -
----------- ----------- ----------- -----------
Ending number of stores - full-line 201 216 201 216
Clearance stores 2 - 2 -
----------- ----------- ----------- -----------
Total stores 203 216 203 216
=========== =========== =========== ===========
</TABLE>
11
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
13 WEEKS ENDED OCTOBER 24, 1999 AND OCTOBER 25, 1998
Sales for the 13 weeks ended October 24, 1999 were $327.3 million, a $39.7
million, or 10.8%, decrease from sales of $367.0 million for the same period in
the prior year. Sales in the prior period include $18.0 million from Mega
Sports, the Company's Japanese joint venture. The Company discontinued
consolidation of Mega Sports in 1999 due to a reduction of its ownership
interest in the joint venture. Additionally, the Company closed 15 stores in the
first quarter of 1999 pursuant to its previously announced restructuring plans.
The prior period includes sales of $16.8 million from the closed stores.
Excluding the impact of the deconsolidation of Mega Sports and the store
closings, sales decreased $5.1 million, or 1.5%. The decrease resulted from a
decrease in comparable store sales from continuing operations of $22.3 million,
or 6.7%, offset by an increase in sales of $17.2 million, or 5.2%, from stores
opening in 1998 and 1999 which had no comparable sales in the prior period. The
decrease in comparable store sales reflected continued weakness in the key
categories of footwear, golf and men's apparel, which have trended negatively
for several consecutive quarters. Additionally, sales in the hunting category
have declined as a result of the Company's decision to exit the handgun business
and reduce its rifle and other hunting assortment. The Company is aggressively
pursuing initiatives to address these trends, including revamping its pricing
and buying strategies and assessing the effectiveness of its incentive selling
and advertising programs.
License fees and rental income was $0.4 million, or 0.1% of sales, for
the 13 weeks ended October 24, 1999, as compared to $38,000, or less than 0.1%
of sales, for the same period in the prior year. In 1999, license fees included
$0.3 million in royalty fee income under a license agreement between the Company
and Mega Sports. (See Note 2 of the Notes to Consolidated Financial Statements).
Prior to 1999, intercompany royalty fees were eliminated due to consolidation of
Mega Sports in the Company's results of operations. Additionally, the Company
has a license arrangement for the sale of diving merchandise in three stores.
Sales of licensee merchandise are excluded from the Company's total sales.
Cost of merchandise sold, including buying and occupancy costs, for the 13
weeks ended October 24, 1999 was $244.0 million, or 74.6% of sales, as compared
to $299.3 million, or 81.6% of sales, for the same period in the prior year. As
a percent of sales, gross margin was 25.4% for 1999, as compared to 18.4% for
the comparable period in the prior year. Of the 7.0% increase in gross margin,
6.6% resulted from a $24.1 million non-comparable inventory writedown in the
1998 period related to aged inventory and anticipated markdowns at closing
stores. The comparable increase of 0.4% resulted from improved purchase markons.
12
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Selling, general and administrative (SG&A) expenses for the 13 weeks ended
October 24, 1999 were $96.5 million, or 29.5% of sales, as compared to $105.7
million, or 28.8% of sales, for the same period in the prior year. The 0.7% of
sales increase in SG&A expenses is attributable to the lack of sales
productivity in the 1999 period, as well as an increase in advertising costs
related to aggressive back-to-school electronic media advertising.
Pre-opening expense for the 13 weeks ended October 24, 1999 was $0.3
million, or 0.1% of sales, as compared to $3.6 million, or 1.0% of sales, for
the same period in the prior year. The decrease in expense reflects the
reductions in store openings, from ten stores in the 1998 period to one
full-line format store in the 1999 period. During the 1999 period, the Company
also opened two clearance stores, on a test basis, in previously closed
locations. No pre-opening expense was incurred on these openings. Pre-opening
expenses consist principally of store payroll expense for associate training and
store preparation prior to a store opening, as well as grand-opening advertising
expenditures.
Interest, net for the 13 weeks ended October 24, 1999 was $3.8 million, or
1.2% of sales, as compared to $2.8 million, or 0.7% of sales, for the same
period in the prior year. The increase of $1.0 million was primarily
attributable to an increase in short-term borrowings under the Company's
revolving credit facility.
Income tax benefit for the 13 weeks ended October 24, 1999 was $6.8 million
at an effective tax rate of 38.7%, as compared to $35.7 million at an effective
tax rate of 35.1% for the same period of 1998. The current period rate is a
close approximation of the Company's statutory income tax rate. The lower
effective tax rate in the prior period resulted from the impact of a
non-comparable tax charge to establish a valuation allowance on the deferred tax
assets of the Company's Canadian subsidiary.
In the third quarter of 1999, the Company recorded an extraordinary gain
of $5.5 million, net of tax, on the early extinguishment of $23.5 million in
principal amount of its 5.25% Convertible Subordinated Notes (the "Notes"), due
in September 2001. The Company purchased the Notes on the open market for $14.0
million, excluding accrued interest.
As a result of the foregoing factors, net loss for the 13 weeks ended
October 24, 1999 was $5.2 million, or (1.6)% of sales, as compared to $64.9
million, or (17.7%) of sales, for the same period in the prior year.
13
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
39 WEEKS ENDED OCTOBER 24, 1999 AND OCTOBER 25, 1998
Sales for the 39 weeks ended October 24, 1999 were $1,069.3 million, a $71.4
million, or 6.3%, decrease from sales of $1,140.7 million for the same period in
the prior year. Excluding the impact of the deconsolidation of Mega Sports and
the 15 store closings in the first quarter of 1999, sales increased $27.6
million, or 2.7%. Of the 2.7% increase, 7.5%, or $76.7 million, was due to the
inclusion of sales for the stores opened in 1998 and 1999 which had no
comparable store sales in the prior year, offset by a decline in comparable
store sales from continuing operations of 4.8%, or $49.1 million. The comparable
store sales decrease in the 1999 period was primarily the result of
disappointing sales in footwear, men's apparel and golf.
License fees and rental income was $1.2 million for the 39 weeks ended
October 24, 1999, as compared to $0.8 million for the same period of the prior
year. In 1999, license fees consisted primarily of royalty fee income earned
under the Company's license agreement with Mega Sports. In 1998, license fees
were largely earned under a license agreement covering the sale of winter sports
merchandise in the Company's North American stores, which was terminated in
August 1998.
Cost of merchandise sold, including buying and occupancy costs, was $793.4
million, or 74.2% of sales, for the 39 weeks ended October 24, 1999, as compared
to $870.1 million, or 76.3% of sales, for the same period in the prior year. As
a percent of sales, gross margin was 25.8% for 1999, as compared to 23.7% in
1998. The 2.1% of sales increase in gross margin was primarily the result of a
$24.1 million non-comparable charge in the 1998 period for markdowns related to
aged inventory and store closings.
SG&A expenses for the 39 weeks ended October 24, 1999 were $284.7 million,
or 26.6% of sales, as compared to $299.7 million, or 26.3% of sales, for the
same period in the prior year. The 0.3% of sales increase in SG&A expenses was
mainly attributable to increased advertising expenditures to drive traffic into
the stores.
Pre-opening expense for the 39 weeks ended October 24, 1999 was $1.6
million, or 0.2% of sales, as compared to $7.9 million, or 0.7% of sales, for
the same period in the prior year. The decrease in pre-opening expense reflects
the decrease in store openings, from 20 stores in the 1998 period to three
full-line stores in the 1999 period.
Corporate restructuring was ($0.7) million, or (0.1)% of sales, for the 39
weeks ended October 24, 1999. During the third quarter of 1998, the Company
recorded $3.9 million in employment contract obligations to several departing
executives. In the first quarter of 1999, the Company negotiated the settlement
of one contract and reduced the corporate restructuring reserve by $0.7 million.
14
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Interest, net for the 39 weeks ended October 24, 1999 was $11.4 million, or
1.1% of sales, as compared to $8.1 million, or 0.7% of sales, for the same
period in the prior year. The increase of $3.3 million was primarily
attributable to an increase in short-term borrowings under the Company's
revolving credit facilities.
In the first quarter of 1999, the Company recorded a gain on deconsolidation
of its Japanese joint venture of $5.0 million, or 0.5% of sales. See Note 2 of
the Notes to Consolidated Financial Statements.
Income tax benefit for the 39 weeks ended October 24, 1999 was $6.3 million
at an effective tax rate of 38.8%, as compared to $35.7 million at an effective
tax rate of 34.8% for the same period in the prior year. The increase in the
effective tax rate reflects the impact of a $4.2 million non-comparable charge
in the 1998 period, primarily to establish a valuation allowance on the deferred
tax assets of the Company's Canadian subsidiary.
In the third quarter of 1999, the Company recorded an extraordinary gain
of $5.5 million, net of tax, on the early extinguishment of $23.5 million in
principal amount of its 5.25% Convertible Subordinated Notes (the "Notes"), due
in September 2001. The Company purchased the Notes on the open market for $14.0
million, excluding accrued interest.
As a result of the foregoing factors, net loss for the 39 weeks ended
October 24, 1999 was $4.4 million, or (0.4)% of sales, as compared to $64.8
million, or (5.7)% of sales, for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs and for capital expenditures on hardware and software upgrades, store
refurbishments and new store openings. For the 39 weeks ended October 24, 1999,
these capital requirements have generally been satisfied by short-term
borrowings.
Cash flows related to operating, investing and financing activities as
reported in the Consolidated Statements of Cash Flows for the 39 weeks ended
October 24, 1999 are summarized below. The net decrease in cash and cash
equivalents for the 39 weeks ended October 24, 1999 was $4.8 million, as
compared to an increase of $3.7 million for the same period in the prior year.
Net cash used for operations was $96.9 million for the 39 weeks ended
October 24, 1999 as compared to $53.2 million for the same period in the prior
year. Inventory net of accounts payable increased $95.5 million as compared to
$36.9 million for the same period in the prior year. The current
15
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
period increase resulted primarily from an increase in inventory combined with a
decrease in accounts payable financing. The inventory increase resulted, in
part, from the purchase of merchandise for the holiday selling season earlier in
1999 as compared to 1998. Additionally, accrued payroll and other liabilities
decreased $26.4 million in the 1999 period, as compared to $3.3 million in the
1998 period. The decrease reflects the overall decline in payables as a result
of limited expansion in 1999, a reduction in bonus reserves and payment of $4.8
million in short-term store exit costs. These uses of cash were partially offset
by income before depreciation and amortization, income taxes, gain from
deconsolidation of Mega Sports and the extraordinary gain on extinguishment of
debt, of $14.3 million.
Net cash provided by investing was $12.6 million for the 39 weeks ended
October 24, 1999, as compared to net cash used for investing of $53.6 million
for the same period in the prior year. The increase in cash provided by
financing resulted from the sale-leaseback of seven owned properties during the
third quarter of 1999 for an aggregate selling price of $38.4 million. An eighth
location was sold early in the fourth quarter for an additional $8.4 million.
Proceeds from the sale-leaseback were partially offset by capital expenditures
of approximately $21.2 million, which included $7.9 million for hardware and
software upgrades, $5.9 million for refurbishment of existing stores, $5.1
million for new store openings and $2.3 million for improvements at the RDC and
corporate office.
Net cash provided by financing was $79.4 million for the 39 weeks ended
October 24, 1999, as compared to $110.4 million for the same period in the prior
year. The decrease in the 1999 period resulted from payment of $14.0 million for
the purchase of $23.5 million principal amount of the Company's 5.25%
Convertible Subordinated Notes (the "Notes"), which mature in September 2001.
Incremental short-term borrowings under the revolving credit facilities was
comparable year over year, increasing approximately $95.3 million in the 1999
period as compared to $96.1 million in the 1998 period.
The Company's working capital at October 24, 1999 was $80.7 million, as
compared to $25.5 million at October 25, 1998, an increase of $55.2 million. The
increase in working capital resulted primarily from higher inventories combined
with lower vendor and expense payables. Additionally, working capital in the
1998 period was adversely impacted by the $24.1 million inventory writedown in
the third quarter of 1998 and the impact from consolidation of Mega Sports,
which had negative working capital at October 25, 1998 of $24.4 million.
The Company has substantially curtailed its expansion program, opening just
three full-line format stores in 1999. All three stores were financed with
operating leases. Due to the reduction in store openings, 1999 capital
expenditures are projected to be significantly lower than in prior years. The
Company estimates full year capital expenditures will approximate $32.6 million,
as compared to $84.6 million in 1998. Additionally, the Company plans a similar
limited expansion for the year 2000. The Company plans to open three to six new
stores in 2000, while focusing most of its capital expenditures on computer
system enhancements and potential refurbishment of 10% to 15% of its existing
store base.
16
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The Company believes that anticipated cash flows from operations, combined
with borrowings under its credit facility, will be sufficient to fund working
capital and finance capital expenditures through the next 12 months.
SEASONALITY AND INFLATION
The Company's business is seasonal, with its highest sales and operating
profitability occurring in the fourth quarter, which includes the holiday
selling season. In fiscal 1998, 28.7% of the Company's sales occurred in the
fourth quarter. In the future, changes in the number and timing of store
openings and consumer buying habits, particularly in the holiday selling season,
may change seasonality trends.
Management does not believe inflation had a material effect on the financial
statements for the periods presented.
YEAR 2000
Many information and business systems utilize programming code in which
calendar years are abbreviated as two digits. The Year 2000 issue relates to the
potential for systems to incorrectly interpret this two digit convention,
causing system failure or unreliability.
The Company began its Year 2000 compliance project in 1997. Analysis of
internal compliance consists of the following phases: assessment of information
and non-information systems; remediation; testing; implementation; and,
contingency planning. The Company is also determining compliance of key vendors
and suppliers, and will incorporate alternate sources of goods and services, as
necessary, in its contingency plan.
The assessment of internal information systems is 100% complete. The
assessment indicated areas of non-compliance primarily in the Company's
inventory management system and certain retail applications. Remediation is 100%
complete. Remediation efforts consist principally of software programming
modifications and, to a lesser extent, hardware replacement. The Company
utilized a team of outside consultants and programmers for programming
modifications and testing, both of which are 100% complete. Contingency planning
is 95% complete, and should be completed during the fourth quarter of 1999.
The Company has expensed as incurred approximately $2.7 million on its Year
2000 compliance project, and expects no material costs in the future. Costs
incurred relate primarily to outside consulting and programming fees, and
exclude the cost of internal staff hours dedicated to the project. Total project
costs are not anticipated to have a material adverse affect on the Company's
results of operations.
17
<PAGE>
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The Company has completed its assessment of non-information technology such
as signage, time clocks, office equipment and alarm systems and has determined
these systems to be materially compliant. Such determinations were made from
written and verbal communication with vendors as well as internal review and
testing.
The Company has sent surveys to all key vendors and suppliers to determine
Year 2000 compliance. Substantially all vendors surveyed have indicated that
they are or will be compliant by the end of 1999. The Company is continuing to
evaluate the scope of contingency and disaster recovery plans to establish
alternate sources of merchandise, supplies and services.
Management believes that conversion of internal business and operating
systems will be completed in a timely manner; however, failure to do so could
have a material impact on the Company's operations. Additionally, there can be
no assurances that the Company's key suppliers or vendors will complete their
conversions in a timely manner. In the event this issue prevents third parties
from timely delivery of inventory or services required by the Company, the
Company's results of operations could be materially adversely affected.
FORWARD LOOKING STATEMENTS
Certain statements under the heading "Management's Discussion and Analysis"
and elsewhere in this Form 10-Q constitute "forward looking statements" made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. As such, they involve risks and uncertainties that could
cause actual results to differ materially from those set forth in such forward
looking statements. The Company's forward looking statements are based on
assumptions about, or include statements concerning, many important factors,
including without limitation changes in discretionary consumer spending and
consumer preferences, particularly as they relate to sporting goods, athletic
footwear and apparel; seasonal patterns in consumer spending and, in particular,
the level of consumer spending during the fourth quarter; the Company's ability
to effectively implement its strategies, including its merchandising,
distribution, marketing and store expansion and refurbishment strategies;
competitive trends and consolidation within the sporting goods retailing
industry; the growing impact of electronic commerce; Year 2000 compliance by the
Company and its significant vendors; and the effect of economic changes in other
countries in which the Company does business. While the Company believes that
its assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors which could cause actual results to differ materially
from expected results.
18
<PAGE>
THE SPORTS AUTHORITY, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 24, 1999 and September 29, 1999, the plaintiffs in
MCNAMARA, WAYNE COUNTY ET AL V. ARMS TECHNOLOGY, INC. ET AL and ARCHER AND CITY
OF DETROIT V. ARMS TECHNOLOGY, INC. ET AL, respectively, dismissed their
complaints, without prejudice, against the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index on page 21.
(b) Reports on Form 8-K:
A Form 8-K containing information under Item 5 was filed on
November 12, 1999 announcing the appointment of Chief Executive Officer, Martin
E. Hanaka, as Chairman of the Board.
19
<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 8, 1999 By: /S/ GEORGE R.MIHALKO
------------------------------
George R. Mihalko
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
20
<PAGE>
INDEX TO EXHIBITS
EXHIBITS DESCRIPTION
- -------- -----------
10.1 Form of Severance Agreement between the Company and each of Jim
Tener and George Mihalko, incorporated by reference to Exhibit
10.18 to the Form 10-K for 1998.
10.2 Termination Agreement, dated October 11, 1999, between the
Company and Anthony F. Crudele.
10.3 Amendment No. 1 to Director Stock Plan, as of November 9, 1999.
10.4 First Amendment to Loan and Security Agreement dated as of April
13, 1999 between BankBoston Retail Finance, Inc., as Agent for
the Lenders referenced therein, and the Company and its
wholly-owned United States subsidiaries, dated as of November
17, 1999.
27.1 Financial Data Schedule
21
EXHIBIT 10.2
TERMINATION AGREEMENT
October 11, 1999
Mr. Anthony F. Crudele
Dear Tony:
This letter will confirm our understanding concerning the termination
of your employment with The Sports Authority, Inc. (the "Company").
1. Your employment will terminate effective November 1, 1999, by mutual
consent.
2. Your last regular pay check will be the one dated November 5, 1999.
Thereafter, the Company will pay to you fifteen (15) bi-weekly severance
payments equal to your current bi-weekly base salary (the first of which shall
be dated November 19, 1999 and the last of which shall be dated June 2, 2000),
and one payment of $2376.93 dated June 16, 2000, in each case without reduction
for any other compensation earned by you. In addition, promptly after November
1, 1999, the Company shall pay your accrued vacation pay and shall promptly
reimburse you for all reasonable business expenses incurred on the Company's
behalf prior to that date. All payments hereunder shall be subject to applicable
withholding and deductions. You also agree that such payments may be terminated
at any time if the Company determines that the Company could have terminated
your employment for cause under the Company's policies.
3. The payments provided hereunder shall constitute the exclusive
payments due you from, and the exclusive obligation of, the Company upon the
termination of your employment. 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.
4. In consideration of the obligations of the Company hereunder, you
agree that you shall not, (a) until June 16, 2000, directly or indirectly become
an employee, director, consultant or advisor of, or otherwise affiliated with,
any retailer of sporting goods, footwear or apparel with retail outlets in the
United States (unless the classes of products sold by such retailer constitute
less than 10% of the total sales by the Company and its licensees in the United
States during the Company's 1998 fiscal year), or (b) for a period of one year
from the date hereof, (i) 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 more than six months
shall have elapsed between the last day of such person's employment by the
Company and the first date of such solicitation or hiring), (ii) disparage the
name, business reputation or business practices of the Company or any of its
officers or directors, or interfere with the
<PAGE>
Company's existing or prospective business relationships, or (iii) without the
written consent of the Chief Executive Officer of the Company, 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
any other officer thereof to a third party without restrictions on the
disclosure of such information.
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 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.
5. You irrevocably and unconditionally release the Company, its
predecessors, successors, and assigns, as well as past and present officers,
directors, and employees, from any and all claims, liabilities, or promises
outside of this agreement, known or unknown, arising out of or relating to your
employment with the Company. You waive these claims on behalf of yourself and on
behalf of your heirs, assigns, and anyone making a claim through you. The claims
waived and discharged include, but are not limited to: (a) employment
discrimination claims (including claims of sex discrimination and/or sexual
harassment) and retaliation under Title VII of the Civil Rights Act of 1964; (b)
age discrimination claims under the Age Discrimination in Employment Act; (c)
State of Florida and County of Broward equal employment opportunity act claims;
(d) disputed wages, including claims for any back wages; (e) wrongful discharge
and/or breach of contract claims; and (f) tort claims, including invasion of
privacy, defamation, fraud, and infliction of emotional distress. You will not
bring any legal action against the Company, its predecessors, successors and
assigns, as well as past and present officers, directors, and employees for any
claim waived and you represent and warrant that you have not filed any such
claim to date.
6. You represent that you understand completely your right to review
all aspects of this agreement with an attorney of your choice, have had the
opportunity to
<PAGE>
consult with an attorney of your choice, have carefully read and fully
understand all the provisions of this agreement and that you are freely,
knowingly, and voluntarily entering into this agreement and the release
contained herein.
7. You acknowledge that you have been informed of the following rights
available to you under Age Discrimination in Employment Act (ADEA):
(a) You have the right to consult with an attorney before signing this
Agreement;
(b) You do not waive rights or claims under ADEA that might arise after
the date this waiver is executed;
(c) You have twenty-one (21) days from the date you receive this
agreement to consider this agreement;
(d) You have seven days after signing this agreement to revoke it.
8. This agreement shall be governed by and interpreted under the laws
of the State of Florida without giving effect to any conflict of laws
provisions.
9. 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.
10. 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
you records.
Sincerely,
THE SPORTS AUTHORITY, INC.
By: /S/ MARTIN E. HANAKA
---------------------------
Witness: Agreed:
/S/ DIANE CRUDELE /S/ ANTHONY F. CRUDELE
- ------------------------ ---------------------------
Date: October 21, 1999 Date: October 21, 1999
EXHIBIT 10.3
THE SPORTS AUTHORITY, INC.
AMENDMENT NO. 1
TO
DIRECTOR STOCK PLAN
(AS OF NOVEMBER 9, 1999)
The Sports Authority, Inc. Director Stock Plan is hereby amended by
replacing "150,000" in Section 3 with "154,810," effective November 9, 1999.
EXHIBIT 10.4
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement (the "First
Amendment") is made as of the 17th day of November, 1999 by and between
BankBoston Retail Finance Inc. (in such capacity, the
"Agent"), as Agent for the Lenders party to a certain Loan and
Security Agreement dated as of April 13, 1999,
the Lenders party thereto, and
and
Each of the following corporations (collectively, and each
individually, the "BORROWER"), each of which has its principal
executive offices at 3383 North State Road 7, Fort Lauderdale,
Florida 33319:
The Sports Authority, Inc. (A Delaware corporation)
The Sports Authority Florida, Inc. (A Florida corporation)
The Sports Authority Michigan, Inc. (A Michigan corporation)
Authority International, Inc. (A Delaware corporation)
and
The Sports Authority, Inc., a Delaware corporation with its
principal executive offices at 3383 North State Road 7, Fort
Lauderdale, Florida 33319 in the additional capacity as the
"LEAD BORROWER"
and
The Sports Authority, Inc., a Delaware corporation with its
principal executive offices at 3383 North State Road 7, Fort
Lauderdale, Florida 33319 in the additional capacity as the
"PARENT"
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H:
WHEREAS, on April 13, 1999, the Agent, the Lenders and the Borrowers
entered in a certain Loan and Security Agreement (the "Agreement"); and
WHEREAS, the Lead Borrower has requested that the Agent and the Lenders
agree to amend the Agreement to permit the Borrowers to increase the amount of
Permitted Repurchases which the Borrowers are permitted to make under the
Agreement; and
WHEREAS, subsequent to the date of the Agreement OSR, Inc. (A Delaware
corporation), was merged into the Parent: and
<PAGE>
WHEREAS, the Agent, the Lenders, and the Borrowers desire to modify
certain of the provisions of the Agreement as set forth herein.
NOW, THEREFORE, it is hereby agreed among the Agent, the Lenders and
the Borrowers as follows:
1. CAPITALIZED TERMS. All capitalized terms used herein and not
otherwise defined shall have the same meaning herein as in the
Agreement.
2. AMENDMENT TO ARTICLE 4. The provisions of Section 4-20(b)(ii)
of the Agreement are hereby amended to read as follows:
(ii) Immediately after having made the subject
repurchase, the aggregate of such repurchases during
the then current calendar year shall not exceed the
aggregate of $30 Million plus a carry forward for the
unused portion of such $30 Million per calendar year
(not to exceed in the aggregate $90 Million)
(commencing with calendar year 1999 (e.g.. the
maximum of repurchases for calendar year 1999 shall
be $30 Million and the maximum repurchases for
calendar year 2000 shall be (x) $30 Million plus (y)
$30 Million MINUS repurchases during calendar year
1999).
3. RATIFICATION OF LOAN DOCUMENTS. Except as provided herein, all
terms and conditions of the Agreement on the other Loan
Documents remain in full force and effect.
4. MISCELLANEOUS.
(a) This First Amendment may be executed in several
counterparts and by each party on a separate counterpart, each
of which when so executed and delivered shall be an original,
and all of which together shall constitute one instrument.
(b) This First Amendment expresses the entire
understanding of the parties with respect to the transactions
contemplated hereby. No prior negotiations or discussions
shall limit, modify, or otherwise affect the provisions
hereof.
(c) Any determination that any provision of this
First Amendment or any application hereof is invalid, illegal
or unenforceable in any respect and in any instance shall not
affect the validity, legality, or enforceability of such
provision in any other instance, or the validity, legality or
enforceability of any other provisions of this First
Amendment.
(d) The Borrower shall pay on demand all costs and
expenses of the Agent and each Lender, including, without
limitation, reasonable attorneys' fees in connection with the
preparation, negotiation, execution and delivery of this First
Amendment.
IN WITNESS WHEREOF, the parties have hereunto caused this First
Amendment to be executed and their seals to be hereto affixed as of the date
first above written.
<PAGE>
The "BORROWERS":
The "LEAD BORROWER":
The "PARENT":
THE SPORTS AUTHORITY, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
THE SPORTS AUTHORITY FLORIDA, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
THE SPORTS AUTHORITY MICHIGAN, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
AUTHORITY INTERNATIONAL, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
The "AGENT":
BANKBOSTON RETAIL FINANCE INC.
By_________________________________
Print Name:________________________________
Title:________________________________
<PAGE>
The "LENDERS":
BANKBOSTON RETAIL FINANCE INC.
By_________________________________
Print Name:________________________________
Title:________________________________
FOOTHILL CAPITAL CORPORATION
By_________________________________
Print Name:________________________________
Title:________________________________
GENERAL ELECTRIC CAPITAL CORPORATION
By_________________________________
Print Name:________________________________
Title:________________________________
HELLER FINANCIAL, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
NATIONS BANK, N.A.
By_________________________________
Print Name:________________________________
Title:________________________________
<PAGE>
CITIZENS BUSINESS CREDIT, A DIVISION OF
CITIZENS LEASING CORPORATION
By_________________________________
Print Name:________________________________
Title:________________________________
FLEET CAPITAL CORPORATION
By_________________________________
Print Name:________________________________
Title:________________________________
LASALLE BUSINESS CREDIT, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
DEUTSCHE FINANCIAL SERVICES CORPORATION
By_________________________________
Print Name:________________________________
Title:________________________________
MELLON BANK, N.A.
By_________________________________
Print Name:________________________________
Title:________________________________
UNION BANK OF CALIFORNIA, N.A.
By_________________________________
Print Name:________________________________
Title:________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-23-2000
<PERIOD-START> JAN-25-1999
<PERIOD-END> OCT-24-1999
<CASH> 18,109
<SECURITIES> 0
<RECEIVABLES> 45,422
<ALLOWANCES> (2,382)
<INVENTORY> 418,199
<CURRENT-ASSETS> 479,348
<PP&E> 428,089
<DEPRECIATION> (159,244)
<TOTAL-ASSETS> 849,126
<CURRENT-LIABILITIES> 398,608
<BONDS> 0
0
0
<COMMON> 321
<OTHER-SE> 270,228
<TOTAL-LIABILITY-AND-EQUITY> 849,126
<SALES> 327,255
<TOTAL-REVENUES> 327,614
<CGS> 244,026
<TOTAL-COSTS> 244,026
<OTHER-EXPENSES> 97,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,798
<INCOME-PRETAX> (17,542)
<INCOME-TAX> (6,794)
<INCOME-CONTINUING> (10,748)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,517
<CHANGES> 0
<NET-INCOME> (5,231)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
