|
Our
product offerings include the following product lines and merchandise
categories: |
|
|
|
Athletic
Equipment: golf and racquet sports, team sports (for example, baseball,
softball, soccer, basketball, hockey, football and lacrosse), fitness, health
and exercise equipment and family recreation games such as ping pong tables and
lawn games. |
|
|
|
Athletic
and Casual Apparel: running, training and aerobics apparel, khakis, jeans, sweaters and shorts,
swimwear, licensed products and golf, tennis and team apparel. |
|
|
|
Footwear: athletic
shoes, casual footwear (including brown shoes and sandals) and hiking and hunting boots and
footwear. |
|
|
|
Outdoor
Equipment: camping, hunting and fishing equipment, winter sports equipment
(including alpine and cross country skis, snowboards and snow shoes), water
sports merchandise (such as water skis, wake boards and other towables) and
bicycles and in-line skates. |
|
|
|
Outdoor
Apparel: technical and fashion outerwear, hunting and fishing apparel, ski
apparel and mountain outerwear, rainwear and work apparel. |
The following table
sets forth the approximate percentage of sales attributable to athletic
equipment, athletic and casual apparel, footwear, outdoor equipment and outdoor
apparel for fiscal 2001:
Merchandise Category Percentage of Sales
Fiscal 2001
Athletic equipment 17%
Athletic and casual apparel 23%
Footwear 14%
Outdoor equipment 31%
Outdoor apparel 15%
Total 100%
We showcase products from a
large number of widely recognized vendors such as Nike, Columbia, adidas, New
Balance and The North Face. In some cases, the breadth of our product categories
allows us to show a wide variety of a vendor’s products, which strengthens
our relationships with these vendors and provides us with favorable privileges,
such as increased access to new product introductions, exclusive limited edition
goods, color updates and size extensions. We purchase merchandise from over
1,100 vendors, of which the top twenty vendors accounted for 35.4% of our total
purchases in fiscal 2001.
We provide private label
merchandise in selected areas in which we believe we have a competitive
advantage in terms of price or quality. We also offer private label merchandise
to fill a niche or gap in branded product offerings. We intend to increase the
penetration of our private label offerings to capture the higher margins they
generate, to offer a more comprehensive assortment of merchandise to our
customers and to further enhance our image as a retailer of high quality active
lifestyle
5
products. In general, we strive to position our private label
offerings as equal or superior in quality to their branded counterparts at
competitive price points.
We customize our
merchandise selection based on local customer interest and demand, as well as
the seasonal variances in our markets. For example, our fishing department may
feature ice and walleye fishing products in the Minneapolis/St. Paul market,
bass fishing products in the Atlanta market, salt water fishing products in the
Washington, D.C. market and fly fishing products in the Denver market.
Additionally, we typically arrange the baseball department in early February in
the Atlanta and the Washington, D.C. markets to accommodate the earlier season
while waiting until April in markets such as Minneapolis and Buffalo.
Marketing
We emphasize our active
lifestyle image and every day value pricing strategy through print, radio and
television advertising, as well as preferred customer direct mail and our
support of local community activities. All of our marketing efforts are designed
to emphasize our five point commitment to “Selection, Quality, Value,
Service and Community.”
Our marketing effort
consists of print campaigns, primarily magazine style newspaper inserts,
supplemented with periodic radio and television advertising emphasizing our
active lifestyle image and every day value pricing. In addition, we have
established a preferred customer program and are rapidly building a database
that we use to reward those customers and encourage customer loyalty by
providing our preferred customers with special incentives. We ask our preferred
customers about their interests to better understand their individual
preferences and purchasing decisions. We use this information to send customized
mailings that highlight promotions and events relating to their particular areas
of interest.
Another key component of
our marketing initiative is our community commitment program through which we
prominently participate in the activities that are important to our customers in
their community. We sponsor activities and events with national and local
organizations, as well as coordinating clinics and creating events in our stores
and in the community. We believe our community commitment program generally
positions us as a positive force in our communities and further enhances our
image as an active lifestyle retailer, which differentiates us from many of our
competitors.
New Store Site Selection
We generally seek to enter
metropolitan markets across the United States in prime real estate locations
with high visibility and easy access to major roadways. We target a variety of
locations, including malls, lifestyle centers, power strip centers and
freestanding locations, in areas with upscale demographics, which fit well with
our middle to high-end merchandise profile. Although we have historically
operated primarily in areas with marked seasonal variation, we have successfully
opened and operated stores in Atlanta and believe there are significant
expansion opportunities in areas with less marked seasonal variation.
After we identify potential
sites, we combine the market research, demographic and competitive data with an
analysis of our store characteristics to develop forecasts for each proposed
store location. To assess the costs of a potential site, we also gather
preliminary proposals from developers and have our store planning group estimate
the total cost of constructing the store, including both the exterior and the
interior materials and fixtures, which our store planning group generally
procures for new stores. Based on our revenue and cost estimates, we build a
detailed store level model to assess the potential profitability and return on
capital from a site. We present information on potential sites to the real
estate committee of our board of directors for their review. If our real estate
committee determines that a potential site may be sufficiently desirable, it
recommends the site for approval to the full board of directors or the executive
committee of the board of directors.
6
New Store Financing
We seek to obtain financing
for new stores from real estate developers, real estate investment companies and
other sources, which is important for achieving our growth strategy. In our
experience, developer financing is often available for malls, lifestyle centers
and power strip centers. In addition, it is also possible to receive financing
for freestanding locations through a real estate investment company. Financing
for new stores typically involves a per square foot cash allowance that is
generally sufficient to cover all or a significant portion of the building
construction costs. In general, the financing party owns the building and, in
some cases, also the land, and leases the property to us under a lease to
operate the store. Our leases generally have an initial term of fifteen to
twenty years, with several multi-year renewal options. We prefer these methods
of financing our new stores because it often requires us to supply only the
capital necessary to purchase the interior fixtures and initial inventory and to
fund pre-opening costs. We will need to continue to receive significant
financing from developers or real estate investment companies in order to
continue expanding our store base. As more fully described in the section of
this report entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” we anticipate receiving
similar relative levels of developer financing in fiscal 2002 as we received in
fiscal 2001, although we can make no assurances that this type of financing will
continue to be available on terms that are favorable to the Company.
If developer or real estate
investment company financing is not available, we typically seek construction
loans, secured by a mortgage, or rely on our revolving credit facility. Under a
construction loan, we generally borrow money from a financial institution, with
a mortgage against the building being built as security for the loan.
Construction loans typically require payment of all outstanding principal no
later than two years after the store opens. When repayment on these loans
becomes due, we seek alternative financing transactions, which might include a
sale-leaseback transaction under which we sell our ownership interests in the
store building and the land, and enter into a lease covering both the land and
the building, or we may seek to do longer term mortgage financing on the
building to replace the initial construction loan. We may also use funds
available under our revolving credit facility to retire these construction
loans. Our revolving credit facility requires us to obtain the consent of our
lenders to enter into sale-leaseback transactions and long-term mortgages and,
in excess of specific limits, construction loans. With our lender’s
previous consent, we entered into construction loans for our Buffalo, New York
and Rochester, New York stores. Our revolving credit facility permits us to
enter into sale-leaseback transactions for these two stores. On April 1, 2002,
we received a three month extension for repayment of the construction loan for
our Buffalo, New York store, extending the maturity date to July 1, 2002. While
we may enter into sale-leaseback transactions for these two stores in the
future, we are currently exploring several alternatives, including replacing the
construction loans for each of those stores either with longer term mortgage
financing, which we believe is available at favorable rates and to which our
lenders must consent, or with funds available under our revolving credit
facility.
Distribution
We operate a 364,000 square
foot distribution center in Plainfield, Indiana. This distribution center serves
as our primary receiving, distribution and warehousing facility, supplemented by
smaller regional warehouse facilities in Minnesota, Kansas, Ohio and Virginia.
We contract with common carriers to deliver merchandise to our stores outside of
the Indianapolis area, and we operate our own trucks for delivery of merchandise
from the distribution center to our five greater Indianapolis market stores.
Merchandise not distributed through the distribution center is shipped directly
to the stores.
The substantial majority of
our product received at the distribution center is processed by unpacking and
verifying the contents received and then sorting the contents by store for
delivery. Some of the product received at the distribution center is
pre-packaged and pre-ticketed by the vendor so it can be immediately
cross-docked to trucks bound for our
7
stores. Due to the efficiencies
cross-docking creates, we encourage our vendors to pre-package their products to
increase the percentage of merchandise that we cross-dock.
Management Information Systems
We have management
information software systems for our store point of sale transactions, warehouse
transactions, inventory and merchandise management, financial systems and new
store planning and construction reporting. We track our store level point of
sale transactions using a software system from Datavantage (previously known as
Applied Digital Solutions) that we installed in October 2000. This software
features basic cash register functions and gathers batch transaction data for
inventory management and loss prevention. We monitor our warehouse transactions
and track both the shipments we receive from our vendors and the shipments we
make to our stores, using software from Retek that we installed in February
2001. For inventory and merchandise management software, we currently collect
transactional information gathered by our Datavantage and Retek software systems
and transfer that information into a software system supplied by STS Systems
that handles our overall inventory and merchandise management. During fiscal
2002, we plan to upgrade our inventory and merchandise management system to a
system provided by JDA. Also, during fiscal 2002, we expect to install sales
audit and loss prevention systems from Datavantage as well as the PeopleSoft
Human Resource module. During 2001, we replaced our financial tracking and
reporting software with the PeopleSoft system, which included the installation
of the general ledger, accounts payable, new store planning and construction
reporting and asset management modules.
Although many of our
management information systems are newly installed or still being implemented or
transitioned from existing systems, we believe they will be adequate to support
our current operations and planned new store expansion if the implementation and
transitions continue to go smoothly.
Store Management and Operations
We manage our stores
through national, regional and store based personnel. Our director of store
operations has general oversight responsibility for all of our stores. We employ
territory directors who oversee stores in several states and report directly to
the director of store operations. Each of our stores has a store manager who is
responsible for all aspects of store operations and reports directly to a
territory director.
In general, we divide the
management of each store into athletics, outdoors, and administration and
operations, each of which is headed by an assistant store manager who reports
directly to the store manager. We also employ several department managers who
report directly to the assistant store managers. Each department manager is
typically responsible for several related merchandise departments. Each of our
stores also has a visual manager, who has responsibility for implementing our
corporate merchandising plans and who reports directly to the store manager.
Competition
The retail market for
athletic and outdoor equipment, footwear and outdoor and specialty apparel is
highly competitive. We face competition largely from five general categories of
retailers: sporting goods stores, outdoor specialty stores, casual apparel
retailers, footwear specialty stores and mass merchandisers. We compete on the
basis of selection, customer service, style, price and quality.
Sporting Goods Stores. Stores
in this category include large format sporting goods stores, such as The
Sports Authority, Inc., Gart Sports Company and Dick’s Sporting Goods,
Inc., which typically range from 30,000 to 60,000 square feet in size and tend
to be freestanding or located in strip shopping center anchor locations, and
traditional sporting goods chains and local independent sporting goods
retailers, whose stores typically range from 5,000 to 20,000 square feet and are
typically located in regional malls and strip shopping centers. Although these
competitors, including Henry Modell & Company, Inc., Champs Sports (owned by
Foot Locker, Inc.) and Hibbetts Sporting Goods, Inc.,
8
carry many of the same
items as we do and several have a larger number of stores and more widely
recognized name, we believe we carry more high-end, technical merchandise, and
more apparel, and have a more appealing store environment. In addition, with
respect to the traditional and local sporting goods stores, we have
significantly larger stores and carry a much broader merchandise selection.
Outdoor Specialty Stores. Stores
in this category include specialty stores and pro shops such as Golf Galaxy, Inc.,
Nevada Bob’s Golf, Inc., Cabela’s, Inc. Bass Pro Shops, Inc., Eastern Mountain Sports, Inc. and Recreational Equipment,
Inc. Although these competitors do not carry as broad of a merchandise selection as we do, they are generally well
recognized for their customer service and product selection in their respective areas of specialization, such as golf,
fishing or backpacking equipment.
Casual Apparel Retailers. Companies
in this category include national outdoor apparel retailers such as L.L. Bean, Inc.,
Lands End, Inc., Abercrombie & Fitch Co. and Eddie Bauer, Inc. These companies use multiple channels to sell their
products, including catalogs, e-commerce, traditional retail stores and outlet mall locations. These retailers focus
primarily on casual apparel, and generally carry significantly less outdoor equipment.
Footwear Specialty. Stores in this category include The Athlete’s Foot Stores, Inc., Finish Line, Inc. and Foot Locker,
Inc. These stores typically range in size from 1,000 to 10,000 square feet, are frequently located in regional malls and
strip shopping centers. These competitors have greater national name recognition and more stores than we do, but carry a
more limited selection of merchandise.
Mass Merchandisers. Stores
in this category include national discount retailers such as Target Corporation
and Wal-Mart Stores, Inc., warehouse clubs such as Costco Wholesale Corporation,
and department stores such as JC Penney Company, Inc., Sears, Roebuck and Co.
and Kohl’s Corporation. These stores range in size from approximately
50,000 to 200,000 square feet and are primarily located in regional malls and
power strip shopping centers. Sporting goods merchandise and athletic apparel
represent a very small portion of the total merchandise in these stores and, in
general, the selection is limited and focused on entry-level price points.
Trademarks and Tradenames
Through a wholly owned
subsidiary, we have registered our trademark “Galyan’s” and our
bear design with the United States Patent and Trademark Office.
“Galyan’s” is also a federally registered servicemark. In
addition, through our wholly-owned subsidiary, we own several other trademarks
and servicemarks involving advertising slogans and other names and phrases used
in our business.
Governmental Regulation
We must comply with
federal, state and local regulations, including the federal Brady Handgun
Violence Prevention Act, which require us, as a federal firearms licensee, to
perform a pre-sale background check of purchasers of firearms. We perform this
background check using either the FBI-managed National Instant Criminal
Background Check System (NICS) or a state government-managed system that relies
on NICS and any additional information collected by the state. These background
check systems confirm that a sale can be made, deny the sale, or require that
the sale be delayed for further review and provide us with a transaction number
for the proposed sale. We are required to record the transaction number on Form
4473 of the Bureau of Alcohol, Tobacco and Firearms and retain a copy for our
records for 20 years for auditing purposes for each approved, denied or delayed
sale. After all of these procedures are complete, we finalize the sale by
transferring the product.
In addition, many of our
imported products are subject to existing or potential duties, tarriffs or
quotas that may limit the quantity of products that we may import into the U.S.
and other countries or impact the cost of such products. To date, we have not
been restricted by quotas in the operation of our business and customs duties
have not comprised a material portion of the total cost of our products.
9
Employees
On April 1, 2002, we had
approximately 5,000 employees, of whom approximately 2,100 worked full time,
approximately 1,900 worked part time and approximately 1,000 were full time and
part time seasonal employees. During our fourth fiscal quarter, the number of
our employees increases significantly. For example, on December 31, 2001, we had
approximately 5,600 employees of which approximately 2,100 worked full time,
approximately 2,100 worked part time and approximately 1,400 were full time and
part time seasonal employees. None of our employees are covered by a collective
bargaining agreement and we believe our relations with our employees are good.
Seasonality and Inflation
Our business cycle is
seasonal, with higher sales and profits generally occurring in the second and
fourth fiscal quarters. In fiscal 2001, our sales trended as follows: 18.2% in
the first quarter, 23.8% in the second quarter, 21.8% in the third quarter and
36.2% in the fourth quarter. We have significantly higher cash outlays in the
fourth fiscal quarter due to higher purchase volumes and increased staffing.
Management does not believe
inflation had a material effect on the consolidated financial statements for the
periods presented. There can be no assurance, however, that our business will
not be affected by inflation in the future.
Our principal executive
offices are located in leased facilities at 2437 East Main Street, Plainfield,
Indiana 46168. We lease our main distribution center in Plainfield, Indiana and
small regional satellite distribution warehouses located in Minnesota, Kansas,
Ohio and Virginia. The lease for our executive offices expires in October 2005
and we have six five-year renewal options. The lease for our main distribution
center expires in December 2020 and we have eight five-year renewal options. We
believe our executive offices and distribution facilities are in good condition
and are currently suitable for our business needs.
The following table
describes each of our 28 stores in the order in which they were opened, starting
with the most recent:
Market Location Opening Date Square Feet
Denver Park Meadows Mall April 2002 79,000
Littleton, CO
Chicago Village Crossing March 2002 106,743
Niles, IL
Salt Lake City The Gateway November 2001 91,146
Salt Lake City, UT
Louisville Oxmoor Centre October 2001 80,355
Louisville, Kentucky
Detroit Fountain Walk Center October 2001 83,281
Novi, MI
Rochester Marketplace Mall July 2001 83,578
Henrietta, NY
Dallas Stonebriar Centre May 2001 79,391
Frisco, TX
Grand Rapids Rivertown Crossing Mall September 2000 91,471
Grand Rapids, MI
Denver Flatiron Crossing Mall August 2000 97,241
Broomfield, CO
Buffalo Walden Galleria Mall April 2000 80,118
Buffalo, NY
Atlanta Mall of Georgia August 1999 83,391
Buford, GA
Atlanta Lenox Town Center July 1999 122,494
Atlanta, GA
Atlanta Town Center Commons March 1999 76,505
Kennesaw, GA
Chicago Fountain Square February 1999 89,917
Lombard, IL
Indianapolis Castleton Square Mall October 1998 76,108
Indianapolis, IN
10
Market Location Opening Date Square Feet
Chicago Streets of Woodfield October 1998 170,521
Schaumburg, IL
Washington, D.C. Washingtonian Center July 1998 100,584
Gaithersburg, MD
Washington, D.C. Fairlakes July 1998 104,236
Fairfax, VA
Minneapolis/St. Paul Richfield, MN September 1997 101,270
Minneapolis/St. Paul West Ridge Market October 1996 99,445
Minnetonka, MN
Columbus Easton Marketplace September 1997 83,638
Columbus, OH
Minneapolis/St. Paul Tamarack Village Center October 1996 81,019
Woodbury, MN
Kansas City Leawood Town Center September 1996 100,945
Leawood, KS
Indianapolis Village Park Plaza March 1995 65,520
Carmel, IN
Columbus Dublin, OH September 1994 74,636
Indianapolis Pike Plaza February 1989 33,642
Indianapolis, IN
Indianapolis Greenwood Park Mall August 1985 42,189
Greenwood, IN
Indianapolis Plainfield, IN January 1960 47,806
Currently, we lease the
land and building improvements for 25 of our stores. We own the building
improvements for the remaining three stores, which are located in Plainfield,
Indiana, Buffalo, New York and Rochester, New York. Our store leases provide for
original lease terms that generally range from 15 to 20 years and most of them
provide for multiple five-year renewal options at increased rents.
There are no material
pending legal proceedings against us. We are, however, involved in routine
litigation arising in the ordinary course of our business. We believe that the
final outcome of such proceedings should not have a material adverse effect on
our consolidated financial condition or results of operations.
No matters were submitted
to a vote of security holders during the fourth quarter of the fiscal year
covered by this annual report.
PART II
Our common stock is listed
on the Nasdaq National Market System under the symbol “GLYN.” The
closing price of our common stock on Nasdaq was $16.35 on April 1, 2002. The
market price of our common stock has fluctuated significantly in the past, and
is likely to continue to be highly volatile. In addition, the trading volume in
our common stock has fluctuated, and significant price variations can occur as a
result. More generally, the U.S. equity markets have from time to time
experienced significant price and volume fluctuations that have particularly
affected the market prices for the stocks of emerging-growth companies such as
ours. These broad market fluctuations may be the result of changes in the
trading characteristics that prevail in the market for our common stock,
including low trading volumes, trading volume fluctuations and other similar
factors that are particularly common among highly volatile securities of
emerging-growth companies. Variations also may be the result of changes in our
business, operations or prospects, announcements or activities by our
competitors, new contractual relationships with key suppliers or manufacturers
by us or our competitors, proposed acquisitions by us or our competitors,
financial results that fail to meet public market analyst expectations, changes
in stock market analysts’ recommendations regarding us, other retail
companies or the retail
11
industry in general, and domestic and international
market and economic conditions.
STOCKHOLDERS
The number of our common
stockholders of record as of April 1, 2002 was 122. This number excludes
stockholders whose stock is held in nominee or street name by brokers.
DIVIDEND POLICY
We have not paid cash
dividends in the two most recent fiscal years and we do not currently intend to
pay any dividends. Our revolving credit facility currently prohibits us from
declaring or paying cash dividends or other distributions on any shares of our
capital stock. Any payments or cash dividends in the future will be at the
discretion of our board of directors and will depend upon our results of
operations, earnings, capital requirements, contractual restrictions contained
in our revolving credit facility or other agreements, and other factors deemed
relevant by our board of directors.
STOCK PRICE INFORMATION
Set forth below are the
high and low closing sale prices for shares of our common stock for each quarter
during the fiscal year ended February 2, 2002 as reported by the Nasdaq National
Market System.
Fiscal Quarter Ended High Low
July 29, 2001 $20.47 $12.60
October 28, 2001 $12.95 $ 8.00
February 2, 2002 $14.36 $10.74
RECENT SALES OF UNREGISTERED SECURITIES
None.
The following table sets
forth our summary of selected consolidated financial data, which should be read
in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our audited consolidated financial
statements and the related notes included elsewhere in this report. The selected
statement of operations data for fiscal 2001, 2000 and 1999 and selected balance
sheet data for fiscal 2001 and 2000 are derived from our audited consolidated
financial statements that are included in this Report. The summary consolidated
financial data for fiscal year 1997 was derived from our unaudited consolidated
financial statements. Our unaudited consolidated financial statements have been
prepared on a basis consistent with the audited consolidated financial
statements appearing elsewhere in this report and, in the opinion of management,
include all adjustments necessary for a fair presentation of such data. The
following historical results of consolidated operations are not necessarily
indicative of results to be expected for any subsequent period.
12
Fiscal Year (1)
Selected Financial Data 2001 2000 1999 1998 1997
(dollars in thousands, except per share and square footage data)
Statement of Operations Data:
Net sales $482,528 $421,662 $328,121 $219,597 $158,760
Gross profit (2) 144,575 126,451 94,371 61,315 42,659
Selling, general and administrative expenses (3) 118,070 105,935 81,377 57,319 45,302
Corporate allocation from The Limited (4) - - 3,600 4,930 3,012
Costs of recapitalization (5) - - 1,085 - -
Operating income 26,505 20,516 8,309 (934) (5,655)
Interest expense (6) 6,723 13,891 5,384 159 128
Loss on investment in MVP.com - 4,621 - - -
Income (loss) before income tax expense (benefit),
extraordinary loss and cumulative effect of change
in accounting principle 19,782 2,004 2,925 (1,093) (5,783)
Income tax expense (benefit) 8,340 1,641 1,708 (107) (1,874)
Income (loss) before extraordinary loss and cumulative
effect of change in accounting principle 11,442 363 1,217 (986) (3,909)
Extraordinary loss, net of income tax (7) (6,810) - - - -
Cumulative effect of change in accounting principle,
net of income tax (8) - - (1,067) - -
Net income (loss) $ 4,632 $ 363 $ 150 $ (986) $ (3,909)
Earnings (loss) per share (7)(8)(9)
Basic $ 0.32 $ 0.03 $ 0.02 $ (0.27) $ (1.09)
Diluted $ 0.32 $ 0.03 $ 0.02 $ (0.27) $ (1.09)
Weighted average shares outstanding (9)
Basic 14,445,401 10,419,021 6,226,220 3,600,000 3,600,000
Diluted 14,688,800 10,573,261 6,226,220 3,600,000 3,600,000
Cash dividend declared per share (10) $ 2.60
Store Data:
Number of stores open (at fiscal year end) 26 21 18 14 11
Comparable store sales increase (11)(12) 0.2% 10.2% 8.4% 4.8% 1.3%
Average net sales per store (13) 20,796 21,142 19,524 16,716 16,250
Total gross square footage (at fiscal year end) 2,240,447 1,822,696 1,553,866 1,181,559 779,827
Avg. gross square footage per store (at fiscal
year end) (14) 86,171 86,795 86,326 84,397 70,893
Net sales per gross square foot (15) $ 240 $ 245 $ 231 $ 229 $ 246
Net sales per selling square foot (16) $ 302 $ 308 $ 292 $ 287 $ 307
Other Operating Data:
Capital expenditures $ 37,252 $20,413 $24,318 $21,077 $14,758
Depreciation and amortization of non-financing intangibles $ 13,749 $11,504 $10,671 $ 6,984 $ 4,791
13
Fiscal Year (1)
Selected Financial Data, continued 2001 2000 1999 1998 1997
(dollars in thousands, except per share and square footage data)
Balance Sheet Data:
Net working capital (17) $ 52,139 $ 47,903 $ 45,907 $ 42,580 $ 31,974
Total assets $275,740 $201,089 $174,800 $138,160 $ 98,759
Total long term-debt and capital lease obligations $ 5,932 $ 75,995 $ 70,077 $ 1,270 $ 1,649
Total shareholders' equity $187,221 $ 69,039 $ 66,914 $ 9,664 $ 10,650
(1) |
Our fiscal year ends the Saturday closest to January 31 and usually consists of
52 weeks. However, every five or six years our fiscal year consists of 53 weeks.
Fiscal 2000 included 53 weeks. |
(2) |
Gross profit is the difference between net sales and the cost of net sales. Cost
of sales includes buying, occupancy and distribution costs. |
(3) |
Selling, general
and administrative expenses include goodwill amortization of $783,000 in 2001,
$783,000 in 2000, $808,000 in 1999, $772,000 in 1998 and
$728,000 in 1997 and include store preopening costs such as store payroll, grand opening
event marketing, travel, supplies and other store costs. |
(4) |
Prior to the
recapitalization in fiscal 1999, The Limited charged us for services they
provided, including tax, treasury, legal, audit, leasing, risk management, benefit
administration and other services. If these charges were not specifically
identified, we charged them as a corporate allocation from The Limited. Costs
charged to us by The Limited may be different from the costs we may have
incurred had we provided these services ourselves or obtained them from third
parties. |
(5) | Costs of recapitalization represent expenses incurred in connection with our recapitalization in fiscal 1999. |
(6) | Interest expense includes interest, amortization of financing intangibles, net of interest income. |
(7) | We incurred an extraordinary loss of $5.2 million, net of taxes,
related to the expense of
the remaining discount and deferred financing costs that resulted from
extinguishing the subordinated and junior subordinated debt. In addition, we
expensed the remaining deferred financing costs of $1.6 million, net of taxes,
associated with the previous revolving credit facility. Earnings per share in
fiscal 2001 before the extraordinary loss was $0.79 per share, basic and $0.78
per share, diluted. |
(8) | Effective January 31, 1999, we changed our method of accounting for store
pre-opening costs to conform with the American Institute of Certified Public
Accountant’s Statement of Position 98-5, which required companies to
expense these store pre-opening costs as incurred. Earnings per share in fiscal
1999 before the cumulative effect of change in accounting principle was $0.19
per share (basic and diluted). |
(9) | Share data for fiscal 1997, 1998 and 1999 reflect a 1999 stock dividend effected
in the form of a stock split (35,999:1). |
(10) | In connection with the 1999
recapitalization, we paid a $9,344,000 special dividend to a wholly owned
subsidiary of The Limited. |
(11) | A store is not included in comparable store
sales until its 14th month of operation. In October 1998, we relocated a single
freestanding store in Castleton, Indiana to a larger two story mall store. We
have not included this relocated store in the comparable store sales calculation
until its 14th month of operation. If we had included the sales of the relocated
store in comparable store sales, the comparable store sales would have been
higher for fiscals 1998 and 1999. |
(12) | Comparable store sales increased 8.8% for
the first 52 weeks of fiscal 2000. |
(13) | Average net sales per
store is calculated by dividing net sales for store open the entire period by
the number of stores open the entire period. |
(14) | Average gross square footage
per store is calculated by dividing total gross square footage at period end by
the number of stores open at period end. |
(15) | Net sales per square foot is
calculated by dividing net sales for stores open the entire period by the total
gross square feet for those stores. |
(16) | Net sales per selling square foot is
calculated by dividing net sales for stores open the entire period by the total
square selling feet of those stores. |
(17) | Net working capital is calculated as
the difference between current assets (excluding cash) and current liabilities
(excluding accounts payable to The Limited and the current portion of long term
debt). |
14
Item 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations for the fiscal years ended February 2, 2002, February 3, 2001 and
January 29, 2000 should be read in conjunction with “Selected Consolidated
Financial Data” and our audited consolidated financial statements and the
notes to those statements that are included elsewhere in this Report. Our
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including those set forth under
“Cautionary Note Regarding Forward-Looking Statements” below and
elsewhere in this Annual Report.
Business Overview
We are a rapidly growing
specialty retailer that offers a broad range of products appealing to consumers
with active lifestyles, from the casual consumer to the serious sports
enthusiast. We sell outdoor and athletic equipment, apparel, footwear and
accessories, as well as casual apparel and footwear. A typical store ranges from
approximately 80,000 to 100,000 square feet and features a distinctive two story
glass facade, a fifty five foot high interior atrium, metal appointments and
interactive and entertaining elements, such as the signature rock climbing wall.
We currently operate 28 stores in 14 states, including two stores opened during
the first quarter of fiscal 2002.
Critical Accounting Policies
The preparation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires the appropriate
application of certain accounting policies, many of which require us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period.
We believe the application
of our accounting policies, and the estimates inherently required therein, are
reasonable and generally accepted for companies in the retail industry. We
believe that the following represent the more critical accounting policies used
in the preparation of our consolidated financial statements.
|
Revenue recognition: We
recognize retail sales upon the purchase of the merchandise by our customers,
net of returns and allowances, which are based on estimates determined using
historical customer returns experience. We use gift cards and store credits, the
revenue of which is recognized upon redemption by the customer. We recognize
markdowns associated with our preferred customer programs upon redemption in
conjunction with a qualifying purchase.
|
|
Inventories: We state inventories at the
lower of cost or market, on a first-in, first-out basis, utilizing the retail
method. We make certain assumptions to adjust inventory based on historical
experience and current information in order to assess that inventory is recorded
properly at the lower of cost or market.
|
|
Property and Equipment: Our
property and equipment is stated at cost. We compute depreciation and
amortization of property and equipment on a straight-line basis over the
estimated useful lives of the related assets. We amortize leasehold improvements
over the shorter of the estimated useful life or term of the lease.
|
Initial Public Offering
We consummated our initial
public offering on July 2, 2001. In the offering, we sold 6,500,000 shares of
our common stock for $19.00 per share, and received approximately $112.0 million
in net proceeds. Effective immediately prior to the closing of the offering, we
amended and restated our articles of incorporation so that shares of our capital
15
stock previously designated as Class A common stock or Class B common stock
automatically converted into the same number of shares of a single class of
voting common stock, no par value, and securities previously convertible into
Class A common stock or Class B common stock automatically became convertible
into the same number of shares of our common stock.
Recapitalization
From July 1995 through
August 31, 1999, we were a wholly owned subsidiary of The Limited. Under a
transaction agreement dated as of May 3, 1999 and a modification agreement dated
as of August 31, 1999, Freeman Spogli and The Limited entered into a transaction
that resulted in a recapitalization of our company. This transaction did not
create any goodwill on our consolidated financial statements.
Effect of Certain Non-Recurring Items
Our audited consolidated
statements of operations include the following non-recurring items and events
that affect comparability with other periods:
- Upon the closing of our initial
public offering, we repaid all outstanding principal and accrued interest under
our subordinated and junior subordinated notes. In connection therewith, we
recorded an extraordinary loss of $5.2 million incurred on early extinguishment
of debt in connection with expensing the remaining deferred financing costs
($1.2 million) and the remaining unamortized discount on the subordinated and
junior subordinated notes ($6.6 million), net of income taxes of $2.6 million.
- During fiscal 2001, we recorded a charge of approximately $900,000 associated
with termination costs for the former President and Chief Operating Officer.
- In fiscal 2001 and 2000, we recorded compensation expense of $165,000 and
$50,000, respectively, relating to the issuance of stock options to management
with an exercise price that was below fair value. We will record additional
compensation expense relating thereto in fiscal 2002 and 2003 of $165,000 and
$115,000, respectively.
- On May 3, 2001, we refinanced our revolving credit
facility to provide for borrowings up to $160.0 million, of which $15.0 million
is allocated for the issuance of standby and import letters of credit. In
conjunction with the refinancing, we expensed the remaining deferred financing
costs, net of income tax, of $1.6 million as an extraordinary loss on early
extinguishment of debt relating to the former credit facility.
- In fiscal 2000,
we wrote off our $4.6 million investment in MVP.com, Inc., a related party that
has ceased operations, and $1.2 million of accounts receivable due from MVP.com.
MVP.com voluntarily entered into an assignment for the benefit of creditors in
February 2001, at which time management deemed the value of the investment to be
permanently impaired and the accounts receivable to be uncollectible. During
fiscal 2001, we recorded a bad debt recovery of approximately $600,000 related
to MVP.com.
- In fiscal 2000, we
recorded stock compensation expense of $430,000 associated with the sale of
common stock at below fair value to members of management and a director.
- In
connection with recruiting and hiring our chief executive officer, we incurred
expenses of $855,000 for a signing bonus, recruiting costs and relocation
expenses in fiscal 2000.
- In connection with the recapitalization of our
Company, we incurred costs of $1.1 million in fiscal 1999.
16
- In connection with a
change in accounting principle relating to store pre-opening costs, we recorded
an expense, net of income taxes, of $1.1 million in fiscal 1999.
- We recorded
corporate allocation expense from The Limited of $3.6 million in fiscal 1999.
Net Sales
Net sales consist of sales
from comparable stores, new stores and non-comparable stores. A store is not
included in comparable store sales until the start of its fourteenth month of
operation. New store sales include sales from stores we opened in the current
fiscal year. Non-comparable store sales include sales in the current fiscal year
from our stores opened during the previous fiscal year before they have begun
their fourteenth month of operation. In addition, our net sales in fiscal 2000
included sales we made at our merchandise cost to MVP.com.
Cost of Sales
Cost of
sales includes the cost of merchandise, inventory markdowns, inventory
shrinkage, inbound freight, distribution and warehousing, payroll for our buying
personnel, and store occupancy costs. Store occupancy costs include rent,
contingent rents, common area maintenance, real estate and personal property
taxes, utilities, and repairs and maintenance.
Selling, General and
Administrative Expenses
Selling, general and administrative expenses include
selling, store management and corporate expenses, including payroll (other than
for our buying personnel), employment taxes, employee benefits, management
information systems, marketing, insurance, legal, depreciation, amortization of
non-financing intangibles, store pre-opening and other corporate level expenses.
Store pre-opening expenses include store level payroll, grand opening event
marketing, travel, supplies, and other store opening expenses. Corporate level
expenses are primarily attributable to our corporate offices in Plainfield,
Indiana and, to a lesser extent, to our corporate personnel located in some of
our markets. Depreciation and amortization of non-financing intangibles consists
primarily of the depreciation of leasehold improvements, fixtures and equipment
owned by us, and amortization of goodwill that resulted from The Limited’s
purchase of us in 1995.
Cost of Recapitalization
We incurred $1.1 million as an
expense in fiscal 1999, which includes $749,000 paid to Freeman Spogli for an
equity commitment fee relating to Freeman Spogli’s $50.0 million investment
in us, and $336,000 paid to attorneys for transaction costs incurred in
connection with our recapitalization.
Corporate Allocation from The Limited
Prior to our recapitalization in fiscal 1999, The Limited charged us for
services they provided to us, including tax, treasury, legal, audit, leasing,
risk management, benefit plan administration and other services. If these
charges were specifically identified to us by The Limited, we recorded them as a
selling, general and administrative expense. If these charges were not
specifically identified by The Limited, we recorded them as a corporate
allocation from The Limited. The Limited allocated to us costs of $3.6 million
in fiscal 1999. Costs charged as a corporate allocation from The Limited may be
different from the actual costs incurred by The Limited in providing those
services. There were no corporate allocation charges from The Limited in fiscal
2001 or 2000 and there will be no future corporate allocations.
Interest Expense, net
Interest expense, net of
interest income, primarily includes non cash pay-in-kind interest relating to
our subordinated and junior subordinated notes, interest relating to our
revolving credit facility and amortization of financing intangibles.
17
Cumulative Effect of Change in Accounting Principle
Effective January 31, 1999, we changed
our method of accounting for store pre-opening costs to conform with the
American Institute of Certified Public Accountant’s Statement of Position
98-5, which requires companies to expense these store pre-opening costs as
incurred. The cumulative effect of this change resulted in an expense, net of
income taxes, of $1.1 million in fiscal 1999.
Results of Operations
The following table sets
forth our statement of operations data as a percent of net sales for the periods
indicated:
Fiscal Year (1)
2001 2000 1999
Net sales 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy 70.0 70.0 71.2
Gross profit 30.0 30.0 28.8
Selling, general and administrative expenses 24.5 25.1 24.8
Corporate allocation from The Limited - - 1.1
Costs of recapitalization - - 0.3
Operating income 5.5 4.9 2.5
Interest expense, net 1.4 3.3 1.6
Loss on investment in MVP.com - 1.1 -
Income before income tax expense
extraordinary loss and cumulative effect of
change in accounting principle 4.1 0.5 0.9
Income tax expense 1.7 0.4 0.5
Income before extraordinary loss and
cumulative effect of change in accounting
principle 2.4 0.1 0.4
Extraordinary loss, net of income tax (1.4) - -
Cumulative effect of change in accounting
principle, net of income tax - - (0.3)
Net income 1.0% 0.1% 0.0%
(1) Due to rounding, columns may not add.
Fiscal Year 2001 (52 weeks)
compared to Fiscal Year 2000 (53 weeks)
Extra Week in Fiscal 2000
Our fiscal year ends on the
last Saturday closest to January 31 and generally results in a 52 week fiscal
year. However, every five or six years, our fiscal year is 53 weeks. Fiscal 2000
included 53 weeks. For purposes of annual comparisons, unless otherwise noted,
we have not adjusted for this difference.
Net Sales
Net sales increased by
14.4%, or $60.9 million to $482.5 million in fiscal 2001 from $421.7 in fiscal
2000. When comparing fiscal 2001 to the first fifty-two weeks of fiscal 2000,
net sales increased by $45.8 million from five new stores opened during fiscal
2001, by $22.3 million from three stores opened during fiscal 2000 and by 0.2%,
or $676,600 in comparable stores. These increases were offset by net sales of
$5.1 million in the fifty-third week of fiscal 2000. The increase in comparable
store sales in fiscal 2001 was primarily attributable to higher sales in
athletic and casual footwear and apparel, team and family sports, golf, and
fitness categories, largely offset by lower sales of cold weather related
categories due to unseasonably warm weather in the fourth quarter. Fiscal 2000
net sales also includes $2.8 million in sales made to MVP.com, which did not
recur in fiscal 2001.
Gross Profit
Gross profit, which is net sales less cost of
sales, increased by 14.3%, or $18.1 million, to $144.6 million in fiscal 2001
from $126.5 million in fiscal 2000. Gross profit as a percentage of net sales
was 30.0% in each of fiscal 2001 and fiscal 2000. Compared to fiscal 2000, gross
profit was favorably impacted by lower product costs as a percentage of net
sales and negatively impacted by higher markdowns.
18
Selling, General and Administrative Expenses
Selling, general and
administrative expenses increased by 11.5%, or $12.1 million, to $118.1 million
in fiscal 2001 from $105.9 million in fiscal 2000. Selling, general, and
administrative expenses were 24.5% of net sales in fiscal 2001, compared to
25.1% in fiscal 2000. The decrease as a percentage of net sales was due
primarily to lower costs associated with supplies, recruiting and payroll.
Selling, general and administrative costs were also favorably impacted in fiscal
2001 by a bad debt recovery of approximately $600,000 related to MVP.com and
adversely impacted by an accounting charge of approximately $900,000 associated
with termination costs for the former President and Chief Operating Officer.
Operating Income
Operating income increased 29.2%, or $6.0 million, to $26.5
million in fiscal 2001 from $20.5 million in fiscal 2000. Operating income was
5.5% of net sales in fiscal 2001, compared with 4.9% in fiscal 2000. The
increase was largely due to the increase in net sales and the decrease in
selling, general and administrative costs as a percent of net sales.
Interest expense, net
Interest expense, net of income of $372,000, was $6.7 million in
fiscal 2001. Interest expense primarily consisted of interest of $3.2 million on
subordinated and junior subordinated notes, interest of $2.4 million related to
our revolving credit facility and amortization of $1.1 million of financing
intangibles.
Income Taxes
The effective income tax
rate for fiscal 2001 and fiscal 2000 is greater than the statutory rate because
a portion of both the interest on the subordinated and the junior subordinated
notes and the amortization of goodwill are not deductible for income tax
purposes. We extinguished the subordinated and junior subordinated notes on July
2, 2001, which eliminated the non-deductible interest expense relating to these
notes for all subsequent periods.
Extraordinary Loss on Early Extinguishment of
Debt
During the second quarter of fiscal 2001, we paid all the outstanding
amounts due under our subordinated and junior subordinated notes. We incurred an
extraordinary loss, net of income taxes, of $5.2 million, related to the
write-off of the unamortized discount and the deferred financing cost associated
with these notes. In addition, we refinanced our revolving credit facility
during the first quarter of fiscal 2001 which resulted in a charge, net of
income taxes, of $1.6 million related to the write-off of the remaining deferred
financing costs associated with the prior revolving credit facility.
Net Income
As a result of the foregoing, net income increased by $4.3 million to $4.6
million in fiscal 2001 from $363,000 in fiscal 2000.
Fiscal Year 2000 (53 weeks)
compared to Fiscal Year 1999 (52 weeks)
Extra Week in Fiscal 2000
Our fiscal year ends on the
last Saturday closest to January 31 and generally results in a 52 week fiscal
year. However, every five or six years, our fiscal year is 53 weeks. Fiscal 2000
included 53 weeks. For purposes of annual comparisons, unless otherwise noted,
we have not adjusted for this difference.
Net Sales
Net sales increased by
28.5%, or $93.5 million, to $421.7 million in fiscal 2000 from $328.1 million in
fiscal 1999. The increase resulted from new store sales of $38.3 million, an
increase in comparable store sales of $32.7 million, and an increase of $19.7
million in sales associated with four stores opened during fiscal 1999. The
increase also reflected sales of $2.8 million in sales made at our merchandise
cost to MVP.com in fiscal 2000. We opened three new stores in fiscal 2000.
Comparable store sales increased 8.8% when comparing the first fifty-two weeks
of fiscal 2000 with fiscal 1999. The increase in comparable store sales was
19
primarily attributable to higher
sales in the outdoor apparel category, due in
part to colder weather than the previous year. To a lesser extent, the increase
was attributable to higher sales of women’s casual and athletic apparel,
men’s casual apparel and golf apparel.
Gross Profit
Gross profit, which is
net sales less cost of sales, increased by 34.0%, or $32.1 million, to $126.5
million in fiscal 2000 from $94.4 million in fiscal 1999. Gross profit was 30.0%
of net sales in fiscal 2000 compared to 28.8% in fiscal 1999. The increase was
due primarily to increased sales of apparel items, which historically have
higher margins than our average, and to a lesser extent by lower markdowns in
fiscal 2000 compared to fiscal 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by 30.2%, or
$24.6 million, to $105.9 million in fiscal 2000 from $81.4 million in fiscal
1999. Selling, general and administrative expenses were 25.1% of net sales in
fiscal 2000, compared to 24.8% in fiscal 1999. The majority of the increase was
due to higher payroll and related employee benefits resulting from additional
stores, an increase in performance bonuses resulting from strong fiscal 2000
results, and expenses relating to a loss on disposal of equipment as we upgraded
our store and warehouse systems during fiscal 2001. Selling, general and
administrative expenses also include a $1.2 million write off of accounts
receivable from MVP.com, $855,000 related to the recruiting and hiring of our
chief executive officer, and $480,000 related to the sale of shares and the
issuance of stock options to management and a director at prices below fair
value.
Operating Income
Operating income increased by 146.9%, or $12.2 million,
to $20.5 million in fiscal 2000 from $8.3 million in fiscal 1999. Operating
income was 4.9% of net sales in fiscal 2000, compared with 2.5% in fiscal 1999.
The increase in operating income margin was due primarily to increases in
comparable store sales and improvements in gross margin in fiscal 2000, as well
as the impact in fiscal 1999 of the non-recurring costs of recapitalization and
the corporate allocation from The Limited, Inc.
Interest Expense, net
Interest
expense, net of interest income of $174,000, was $13.9 million in fiscal 2000.
Interest expense primarily consisted of non-cash pay-in-kind interest of $6.9
million on subordinated and junior subordinated notes, interest of $4.4 million
related to the revolving credit facility and amortization of $2.1 million of
financing intangibles.
Loss on Investment in MVP.com
In fiscal 2000, the Company
wrote off its $4.6 million investment in MVP.com.
Income Taxes
The effective income tax
rate for fiscal 2000 and fiscal 1999 was greater than the statutory rate because
a portion of the interest on our subordinated and junior subordinated notes and
the amortization of goodwill were not deductible for income tax purposes.
Net Income
As a result of the foregoing, net income increased by $213,000 to
$363,000 in fiscal 2000 from $150,000 in fiscal 1999.
Liquidity and Capital Resources
Our primary liquidity and capital requirements have been to fund new
store construction, working capital and general corporate needs. For fiscal
2001, these capital and liquidity requirements were primarily funded by the
proceeds of our initial public offering and by net cash provided by operating
activities.
20
Net cash provided by operating activities was $24.8 million for
fiscal 2001 compared to $17.8 million for fiscal 2000. The increase from fiscal
2000 was due primarily to (a) higher net income before extraordinary items (loss
on early extinguishment of debt) and (b) deferred income taxes, which was due to
book to tax timing differences of interest associated with the subordinated
notes, changes in deferred rent and book to tax timing differences related to
fixed assets.
Net cash used in investing
activities was $27.9 million for fiscal 2001 compared to $16.0 for the same
period last year. The increase was due to capital expenditures associated with
the addition of five new stores in fiscal 2001 compared to three in fiscal 2000.
Net cash provided by financing activities was $36.2 million for fiscal 2001
compared to net cash used in investing activities of $754,000 in fiscal 2000.
The increase was due primarily to the sale of 6.5 million shares of common stock
in an initial public offering for net proceeds to us of approximately $112
million. We used $62.8 million to extinguish the subordinated and junior
subordinated notes, including related accrued interest and unamortized discount.
We used $48.0 million to repay the outstanding borrowings under our revolving
credit facility at the time of the offering. We invested the remaining proceeds
in cash equivalents.
On May 3, 2001, we entered
into a revolving credit facility agreement with a syndicate led by JP Morgan
Chase & Co., as administrative agent, which matures on May 3, 2004. The
revolving credit facility allows for borrowings of up to $160.0 million, a
portion of which may be used to issue letters of credit. The revolving credit
facility bears interest, at our election, at either an adjusted prime rate or an
adjusted LIBOR, in each case plus additional interest which varies depending on
the ratio of our average outstanding debt to cash flow. We pay an annual
commitment fee on the unused portions of the revolving credit facility in an
amount equal to 0.50% of the unused amounts. There were no outstanding
borrowings under the revolving credit facility as of April 1, 2002.
The
revolving credit facility contains financial and other covenants, including
covenants that require us to maintain various financial ratios, restrict our
ability to incur indebtedness or to create various liens, and restrict the
amount of capital expenditures that we may incur. The revolving credit facility
also restricts our ability to engage in mergers or acquisitions, sell assets,
enter into certain capital leases or make junior payments, including cash
dividends. As of the date of this Report, we were in compliance with all
required covenants. The revolving credit facility is secured by a first priority
security interest in substantially all of our assets. Our sole subsidiary has
guaranteed, and any future subsidiaries will be required to guarantee, our
obligations under the revolving credit facility.
Also, on May 25, 2001, we
entered into a $6.0 million line of credit agreement to finance the construction
of a new store building in Rochester, New York. Advances under the line of
credit agreement are secured by the building, and the agreement requires monthly
payment of interest under several interest rate options, with a rate on April 1,
2002 of 3.81%. Outstanding advances as of April 1, 2002 were $5.6 million. All
unpaid principal and interest is due May 1, 2003.
We also have an outstanding
construction loan on our store in Buffalo, New York of $5.3 million. The loan is
secured by a mortgage on the store building and originally came due on April 1,
2002. On April 1, 2002, we entered into an agreement with the lender to extend
the Buffalo construction loan due date by three months to July 1, 2002. The interest rate on this
facility is 30 day LIBOR plus 1.6%.
To retire these and future construction
loans, we may seek alternative financing transactions, which might include
sale-leaseback transactions under which we sell our ownership interests in the
store building and land, and enter into a lease covering both the land and the
building, or we may seek to do longer term mortgage financing on the building,
to which our lenders must consent. We may also choose to borrow amounts under
our existing credit facility to retire these construction loans.
21
Our net working
capital at February 2, 2002 was $52.1 million, compared to $47.9 at the end of
the prior fiscal year. Net working capital is calculated as the difference
between current assets (excluding cash) and current liabilities (excluding
current portion of long term debt). The increase in working capital resulted
primarily from an increase in merchandise inventories related to new stores, and
from deferred income taxes and other current assets, which includes supply
inventory, prepaid expenses and real estate escrows of insurance and property
taxes.
Our typical new store, if
leased with a landlord construction contribution adequate to cover the building,
requires capital expenditures between $4.0 to $5.0 million for interior finish
and fixtures, and an inventory investment between $3.0 to $4.0 million, net of
vendor payables. Pre-opening expense, consisting primarily of store set-up
costs, training of new store employees, and travel expenses, averages
approximately $600,000 and is expensed as incurred.
Our future capital
requirements will depend primarily on the number of new stores that we open and
the timing of those openings within a given year. For fiscal 2002, we currently
estimate our total capital expenditures to range between $60 to $65 million, net
of agreed-upon landlord construction contributions. In addition to this capital
expenditures estimate, we currently anticipate approximately $5.0 to $6.0
million of non-capitalizable pre-opening costs for new stores. The capital
expenditures estimate contemplates $55 to $59 million for nine new stores that
we intend to open during fiscal 2002, including the two stores we opened in
March and April 2002, which includes an estimated increase in
construction-in-progress disbursements for anticipated fiscal 2003 openings and
which also reflects the fact that one of our planned nine store openings for
fiscal 2002 does not have any landlord construction contribution. Potential
store locations that we seek to develop in the future may not have landlord
construction contributions available. The expected capital expenditures estimate
for fiscal 2002 also includes approximately $5.0 to $6.0 million for remodeling and
maintenance relating to our existing stores, technology upgrades and corporate
capital expenditures. We believe that developer or real estate investment
company financing, longer term mortgage financing, cash flows from operations
and funds available under our revolving credit facility will be sufficient to
satisfy our current capital requirements for the next 12 months.
New Accounting Pronouncements
On February 4, 2001, we
adopted Statement of Financial Accounting Standards (“SFAS”) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that all
derivatives, including those embedded in other contracts, be recognized as
either assets or liabilities and that those financial instruments be measured at
fair value. The accounting for changes in the fair value of derivatives depends
on their intended use and designation. Our policy is not to use free-standing
derivatives and not to enter into contracts with terms that cannot be designated
as normal purchases and sales. Management reviewed the requirements of SFAS No.
133, as amended, and determined that we do not have any free-standing or
embedded derivatives.
On February 3, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is no longer amortized. We are also required
to complete an initial goodwill impairment assessment in the year of adoption and at least annually thereafter. Annual goodwill amortization of $783,000
ceased upon adoption. We have determined that no impairment charge will result from the adoption of SFAS No. 142.
22
During June 2001, the Financial Accounting Standards Board issues SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for us
beginning February 2, 2003. SFAS No. 143 addresses financial accounting and reporting or obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Management has not yet quantified the effect, if any, of this new standard on the consolidated financial
statements.
During October 2001, the
Financial Accounting Standards Board issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, which is effective for us beginning February 3, 2002. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. Management has not yet quantified the effect, if any, of this
new standard on the consolidated financial statements.
Cautionary Note Regarding Forward-Looking Statements
Certain statements
contained or incorporated by reference in this Form 10-K constitute
forward-looking statements, which reflect our management’s current view of
future events and financial performance. For these statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Any such forward-looking
statements are subject to risks and uncertainties, including competitive changes
in conditions in the retail industry, changes in consumer confidence and
spending, interest rates, bankruptcy filings, credit markets and general United
States economic conditions and normal business uncertainty. If any of these
risks or uncertainties actually occur, our business, financial condition or
operating results could be materially and adversely affected, and the trading
price of our common stock could decline. We do not undertake to publicly update
or revise its forward-looking statements even if experience or future changes
make it clear that any projected results expressed or implied therein will not
be realized.
If we are unable to
successfully implement our growth strategies or manage our growing business, our
future operating results will suffer.
Our strategy includes opening stores in
new and existing markets. We must successfully choose store sites, execute
favorable real estate transactions, hire competent personnel, and open and
operate new stores. Failure to do so could impair our ability to successfully
implement our growth strategy and our future operating results. In particular,
we must locate attractive store sites in malls, lifestyle centers, which are
large open-air complexes comprised of retailers, restaurants, movie theatres and
interactive entertainment facilities, and power strip centers, which are large,
open air shopping centers primarily comprised of large tenants with stores
greater than 20,000 square feet, because the developer financing that we believe
is often available in malls, lifestyle centers and power strip centers is a very
important element of our new store growth plan. If we fail to locate desirable
mall, lifestyle center and power strip center sites or we are unable to secure
developer financing, we will not be able to open new stores as planned and our
sales growth and operating results will suffer. In addition, if we do not locate
desirable sites with access to financing, we may seek to grow by obtaining
alternative sources of financing, including construction financing,
sale-leaseback transactions, long-term mortgages and borrowings under our credit
facility. If market conditions are not favorable, we may not be able to obtain
such alternative financing on desirable terms, if at all, which may increase our
costs, cause us to limit the number of new store openings and impair our future
operating results.
In addition, our expansion in new and existing markets may
present competitive, distribution and merchandising challenges that differ from
our current challenges, including competition among our stores, diminished
novelty of our store design and concept, added strain on our distribution
center, additional information to be processed by our
23
management information
systems and diversion of management attention from operations, such as the
control of inventory levels in our existing stores, to the opening of new stores
and markets. To the extent that we are not able to meet these new challenges,
our sales could decrease and our operating costs could increase.
A downturn in
the economy may affect consumer purchases of discretionary items, which could
reduce our sales.
In general, our sales
represent discretionary spending by our customers. Discretionary spending is
affected by many factors, including, among others, general business conditions,
interest rates, the availability of consumer credit, taxation and consumer
confidence in future economic conditions. Our customers’ purchases of
discretionary items, including our products, could decline during periods when
disposable income is lower or periods of actual or perceived unfavorable
economic conditions. If this occurs, our revenue and profitably will decline.
Our results achieved by our
relatively small store base and prior to our recapitalization may not be
indicative of our future operating results.
We currently operate 28 stores and
have a limited history of opening and operating new stores, particularly in
malls and lifestyle centers. We opened our first mall store in October 1998. The
results achieved to date by our relatively small store base may not be
indicative of the results that may be achieved by a larger number of stores. If
any new stores are unprofitable or any existing store experiences a decline in
profitability, the effect on our results of operations could be more significant
than if we had a larger store base. In addition, as we continue to increase our
store base and seek to implement our growth strategies, our comparable store
sales may vary from period to period. The comparable store sales we have
achieved to date may not be indicative of our comparable store sales growth in
the future.
Our results of operations may be harmed by unseasonably warm winter
weather conditions.
Many of our stores are
located in geographic areas that experience seasonably cold winters. We sell a
significant amount of winter outdoor and sports merchandise. Winter outerwear,
rugged footwear and ski equipment represented approximately 14.5% of our sales
in fiscal 2001. Abnormally warm weather conditions could reduce our sales of
these items and cause us to have significant excess inventory, which would lower
our profitability.
Our inability to anticipate changes in consumer demands and
preferences in a timely manner could reduce our sales.
Our products appeal to a
broad range of consumers whose preferences cannot be predicted with certainty
and are subject to rapid change. Our success depends on our ability to identify
product trends as well as to anticipate, gauge and react to changing consumer
demands in a timely manner. If we misjudge the market for our products, our
sales may decline significantly and we may be faced with significant excess
inventory of some products and missed opportunities for other products, which
would decrease our profitability.
Our operating results are subject to seasonal
fluctuations, which could cause the market price of our common stock to decline.
We experience substantial seasonal fluctuations in our sales and operating
results. In fiscal 2001, we generated 36.2% of our annual sales and 80.7% of our
operating income in our fourth fiscal quarter, which includes the Christmas
holiday and the peak winter ski season months of November, December and January.
As a result, we incur significant additional expenses in the fourth fiscal
quarter due to higher purchase volumes and increased staffing. If, for any
reason, we miscalculate the demand for our products generally or for our product
mix during the fourth fiscal quarter, our sales could decline resulting in
significant excess inventory and a significant shortfall in expected fourth
quarter sales, which could cause our annual operating results to suffer and our
stock price to decline significantly.
24
We rely on a single
distribution center and if there is a natural disaster or other serious
disruption at the facility, we may lose merchandise and be unable to deliver it
effectively to our stores.
We rely on a single
distribution center in Plainfield, Indiana. Any natural disaster or other serious disruption to this
facility due to fire, tornado or any other cause would damage a significant
portion of our inventory and could impair our ability to adequately stock our
stores and reduce our sales and profitability.
Pressure from our competitors may
force us to reduce our prices or increase our spending, which would lower our
revenue and profitability.
We face competition in the
markets in which we operate. Some of our competitors have a larger number of
stores and greater financial, distribution, marketing and other resources than
we have. In addition, many of our competitors employ price discounting policies
that, if intensified, may make it difficult for us to reach our sales goals
without reducing our prices. As a result of this competition, we may also need
to spend more on advertising and promotion than we anticipate. If we do not
compete successfully, our operating results will suffer.
We may incur costs from
litigation or increased regulation relating to the firearms we
sell.
Sales of
firearms represented approximately 2.8% of our sales in fiscal 2001. We may
incur losses due to lawsuits relating to our performance of background checks on
firearms purchases as mandated by state and federal law or the improper use of
firearms sold by us, including lawsuits by municipalities or other organizations
attempting to recover costs from firearms manufacturers and retailers relating
to the misuse of firearms. In the last four years, we were subject to one claim
from a private party, which we settled, relating to our alleged failure to
properly perform a background check. In addition, in the future there may be
increased federal, state or local regulation, including taxation, of the sale of
firearms in both our current markets as well as future markets in which we may
operate. Commencement of these lawsuits against us or the establishment of new
regulations could reduce our sales and decrease our profitability.
If we lose key management
or are unable to attract and retain the talent required for our business, our
operating results could suffer.
Our performance depends largely on the efforts
and abilities of our senior management, who have worked together for a
relatively short time. We do not have employment agreements with any of our key
executives other than with Robert B. Mang, our chief executive officer and
chairman of our company and with C. David Zoba, our executive vice president and
general counsel. If we lose the services of one or more of our key executives,
we may not be able to successfully manage our business or achieve our growth
objectives. As our business grows, we will need to attract and retain additional
qualified personnel in a timely manner and develop, train and manage an
increasing number of management level sales and other employees. Our expansion
strategy will depend on our ability to hire capable store managers and other
store level personnel. We cannot assure you that we will be able to attract and
retain personnel as needed in the future. If we are not able to hire capable
store managers and other store level personnel, we will not be able to open new
stores as planned and our revenue growth and operating results will suffer.
If any of our key vendors
fail to supply us with merchandise, we may not be able to meet the demand of our
customers and our sales could decline.
For fiscal 2001, our largest vendor,
Nike, Inc., represented 7.9% of our purchases, and our second largest vendor,
Columbia Sportswear Company, represented 6.6% of our purchases. Our twenty
largest vendors collectively accounted for 35.4% of our total purchases. The
loss of any key vendor or key vendor support could limit our ability to provide
products that our customers want to purchase. In addition, we believe many of
our vendors source their products from China, Taiwan
25
and other foreign
countries. A vendor could discontinue selling to us products manufactured in
foreign countries at any time for reasons that may or may not be in our control,
including foreign government regulations, political unrest, war, disruption or
delays in shipments, changes in local economic conditions and trade issues. Our
sales and profitability could decline if we are unable to promptly replace a
vendor who is unwilling or unable to satisfy our requirements with a vendor
providing equally appealing products.
We have upgraded and plan to continue to
upgrade our management information systems; failure to successfully implement
and install new systems could cause interruptions to our business and impair our
future growth.
We need quality and scalable management information systems to
efficiently operate our stores and to successfully implement our new store
growth strategy. Our systems include integrated merchandising, point of sale,
warehouse and financial systems. We have recently replaced and are in the
process of replacing many of our key information systems. If we experience
problems with our new systems, we may incur significant costs and interruptions
to our business, which could adversely affect our operations. In July 2001, we
replaced our financial software system with a financial package from PeopleSoft,
Inc. that includes general ledger, accounts payable, fixed assets and expense
control functions, among others. We installed a new warehouse management system
from Retek, Inc. in January 2001. During 2002, we plan to install an inventory
and merchandise management system provided by JDA, as well as sales audit and
loss prevention systems from Datavantage. Failure to smoothly transition to the
new software could impair our ability to track key financial and inventory
information and manage our costs.
The terms of our revolving credit facility
impose operating and financial restrictions on us, which may impair our ability
to respond to changing business and economic conditions.
The terms of our revolving
credit facility impose operating and financial restrictions on us, including,
among other things, restrictions on our ability to incur indebtedness and make
capital expenditures. As a result, our ability to respond to changing business
and economic conditions and to secure additional financing, if needed, may be
significantly restricted, and we may be prevented from engaging in transactions
that might further our growth strategy or otherwise benefit us. In addition, our
revolving credit facility is secured by a first priority security interest in
substantially all of our assets. In the event of our insolvency, liquidation,
dissolution or reorganization, the lenders under our revolving credit facility
would be entitled to payment in full from our assets before distributions, if
any, were made to our shareholders.
We will be controlled by Freeman Spogli and
The Limited as long as they collectively own a majority of our common stock, and
they may make decisions with which other shareholders disagree.
As of February 2, 2002, FS
Equity Partners IV, L.P., a fund managed by Freeman Spogli & Co. LLC which
we refer to as Freeman Spogli, and The Limited collectively owned approximately
57.8% of the outstanding shares of our common stock. As a result, Freeman Spogli
and The Limited together control all matters affecting us, including the
election of the directors and other major decisions that may be put to a vote of
our shareholders.
In addition, conflicts of interest may arise in areas relating
to their continued collective controlling interest in us. We may not be able to
resolve any potential conflicts, and even if we do, the resolution may be less
favorable than if we were dealing with unaffiliated parties. These conflicts may
include the structure and timing of transfers by Freeman
26
Spogli and/or The
Limited of all or any portion of its ownership interest in us, and the ability
of Freeman Spogli and The Limited to control our management and affairs.
The
actual or potential sale by Freeman Spogli and/or The Limited of their holdings
of our stock could cause the market price of our stock to decline significantly.
As of February 2, 2002,
Freeman Spogli owned 5,694,500 shares of our common stock, and The Limited owned
4,150,500 shares of our common stock and had a currently exercisable warrant to
purchase 1,350,000 additional shares of our common stock. Neither Freeman Spogli
nor The Limited is contractually prohibited from transferring our common stock
to an unaffiliated third party. The significant increase in the volume of our
freely tradable shares upon the sale by Freeman Spogli or The Limited of a large
interest in us could cause the market price of our stock to decline
significantly.
Provisions in our Second
Amended and Restated Articles of Incorporation, Second Amended and Restated
Bylaws and Indiana law may delay or prevent an acquisition of us by a third
party.
Our second amended and
restated articles of incorporation, our second amended and restated bylaws and
Indiana law contain provisions that make it more difficult for a third party to
acquire us without the consent of our board of directors. These provisions could
also discourage proxy contests and make it more difficult for you and other
shareholders to elect directors and take other corporate actions. Accordingly,
these provisions could have the effect of delaying, deferring or preventing a
transaction or a change in control that might involve a premium price for our
common stock or otherwise be in the best interest of our shareholders.
Interest Rate Risk
Our exposure to interest
rate risk consists primarily of borrowings under our revolving credit facility
and our construction loans which are benchmarked to U.S. and European short-term
variable rates. The aggregate balances outstanding under our revolving credit
facility and our construction loans as of February 2, 2002 and February 3, 2001
totaled $10.9 million and $25.2 million, respectively. As of April 1, 2002, the
aggregate balances outstanding under our revolving credit facility and our
construction loans totaled $10.9 million. The impact on our annual results of
operations of a one percentage point change in the interest rate would not be
significant.
Item 8. Financial Statements
and Supplementary Data
The financial
statements required to be filed hereunder are set forth on pages 29 through 50
of this Report.
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive
Officers of the Registrant
The information required by this Item is
incorporated by reference from the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference
from the Proxy Statement.
27
Item 12. Security Ownership
of Certain Beneficial Owners and Management
The information required by this Item is incorporated by
reference from the Proxy Statement.
Item 13. Certain Relationships
and Related Transactions
The information required by this Item is incorporated by reference
from the Proxy Statement.
PART IV
Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K
The following documents are
filed as part of this Report:
|
(a) |
The Financial Statements required to be
filed hereunder are listed in the Index to Financial Statements on page 29 of
this Report. |
|
|
|
|
(b) |
The Registrant did not file any reports
on Form 8-K during the
last quarter of the period covered by this Report. |
|
|
|
|
(c) |
Exhibits required to be filed hereunder are listed in the exhibit index included herein at page 54.
|
|
|
|
|
(d)
|
Consolidated financial statement schedule
included herein at
page 52. |
28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Independent Auditors' Report 30
Consolidated Balance Sheets as of February 2, 2002 and February 3, 2001 31
Consolidated Statements of Operations for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000 32
Consolidated Statements of Shareholders’ Equity for the Fiscal
Years Ended February 2, 2002, February 3, 2001 and January 29, 2000 33
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000 34
Notes to Consolidated Financial Statements for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000 35-50
29
To the Shareholders and Board
of Directors
Galyan's Trading Company, Inc.
Plainfield, Indiana
We have audited the
accompanying consolidated balance sheets of Galyan’s Trading Company, Inc.
and its subsidiary (the “Company”) as of February 2, 2002 and February
3, 2001, and the related consolidated statements of operations,
shareholders’ equity and cash flows for each of the three fiscal years in
the period ended February 2, 2002. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such
consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of February 2, 2002 and
February 3, 2001, and the results of its operations and its cash flows for each
of the three fiscal years in the period ended February 2, 2002 in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective
January 31, 1999, the Company changed its method of accounting for store
pre-opening costs.
Indianapolis, Indiana
March 15, 2002
30
Galyan's Trading Company, Inc.
Consolidated Balance Sheets Fiscal Year
(As of February 2, 2002 and February 3, 2001)
(dollars in thousands, except share data) 2001 2000
Assets
Current Assets:
Cash and cash equivalents $ 36,770 $ 3,756
Receivables, net 3,219 3,963
Merchandise inventories 111,815 91,495
Deferred income taxes 2,172 1,375
Other current assets 6,619 3,401
Total current assets 160,595 103,990
Property and equipment, net 94,572 70,568
Deferred income taxes 718 2,773
Goodwill, net 18,334 19,117
Other assets, net 1,521 4,641
Total assets $275,740 $201,089
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 39,248 $ 20,852
Accrued expenses 32,438 31,479
Current portion of long-term debt 5,368 136
Total current liabilities 77,054 52,467
Long-term liabilities:
Debt, net of current portion 5,932 25,529
Subordinated debt - 50,466
Other long-term liabilities 5,533 3,588
Total long-term liabilities 11,465 79,583
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, no par value
5,000,000 shares authorized (2001); no shares issued or outstanding - -
2,000,000 shares authorized (2000); no shares issued or outstanding - -
Common stock and paid-in capital, no par value
50,000,000 shares authorized, 17,033,708 shares issued and outstanding 191,134 -
Class A voting common stock and paid in capital, no par value
20,000,000 shares authorized, 9,763,707 shares issued and outstanding - 70,596
Class B non-voting common stock, no par value
1,350,000 shares authorized, no shares issued and outstanding - -
Notes receivable from shareholders (1,451) (1,491)
Unearned compensation (280) (445)
Warrants 1,461 8,654
Accumulated deficit (3,643) (8,275)
Total shareholders' equity 187,221 69,039
Total liabilities and shareholders' equity $275,740 $201,089
The accompanying notes are an integral part of these consolidated financial statements.
31
Galyan's Trading Company, Inc.
Consolidated Statements of Operations Fiscal Year
(For the Fiscal Years Ended February 2, 2002 and February 3, 2001 and January 29, 2000)
(dollars in thousands, except per share data) 2001 2000 1999
Net sales $482,528 $421,662 $328,121
Cost of sales 337,953 295,211 233,750
Gross profit 144,575 126,451 94,371
Selling, general and administrative expenses 118,070 105,935 81,377
Corporate allocation from The Limited, Inc. - - 3,600
Costs of recapitalization - - 1,085
Operating income 26,505 20,516 8,309
Interest expense 7,095 14,065 5,602
Loss on investment in MVP.com - 4,621 -
Interest income (372) (174) (218)
Income before income tax expense, extraordinary item and cumulative effect of change in
accounting principle 19,782 2,004 2,925
Income tax expense 8,340 1,641 1,708
Income before extraordinary item and cumulative effect of change in accounting principle 11,442 363 1,217
Extraordinary loss on early extinguishment of debt (net of income tax benefit of $3,625) (6,810) - -
Cumulative effect of change in accounting principle (net of income tax benefit of $711) - - (1,067)
Net income $ 4,632 $ 363 $ 150
Basic earnings per share:
Earnings per share before extraordinary item and cumulative effect of change in
accounting principle $ 0.79 $ 0.03 $ 0.19
Per share extraordinary loss (0.47) - -
Per share cumulative effect of change in accounting principle - - (0.17)
Basic earnings per share $ 0.32 $ 0.03 $ 0.02
Diluted earnings per share:
Earnings per share before extraordinary item and cumulative effect of change in
accounting principle $ 0.78 $ 0.03 $ 0.19
Per share extraordinary loss (0.46) - -
Per share cumulative effect of change in accounting principle - - (0.17)
Diluted earnings per share $ 0.32 $ 0.03 $ 0.02
The accompanying notes are an integral part of these consolidated financial statements.
32
Galyan's Trading Company, Inc.
Consolidated Statements of Shareholders' Equity
(For the Fiscal Years Ended February 2, 2002 and February 3, 2001 and January 29, 2000)
(dollars in thousands, except share data)
Common Stock Notes
---------------------- Receivable
Paid-in from Unearned Accumulated
Shares Capital Shareholders Compensation Warrants Deficit Total
Balance, January 30, 1999 3,600,000 $ 18,452 $ - $ - $ - $(8,788) $ 9,664
Dividend in the form of a stock warrant - (1,461) - - 1,461 - -
Cash dividend paid - (9,344) - - - - (9,344)
Issuance of common stock,
net of issuance costs of $1,023 6,069,544 59,673 (1,431) - - - 58,242
Issuance of stock warrants - - - - 7,193 - 7,193
Services contributed from The Limited, Inc. - 357 - - - - 357
Forgiveness of amounts due to The Limited, Inc. - 652 - - - - 652
Net income - - - - - 150 150
Balance, January 29, 2000 9,669,544 68,329 (1,431) - 8,654 (8,638) 66,914
Issuance of common stock 109,663 1,527 (415) - - - 1,112
Repurchase of common stock (15,500) (157) 55 - - - (102)
Issuance of stock options - 495 - (495) - - -
Stock compensation expense - - - 50 - - 50
Payments on notes receivable from shareholders - - 300 - - - 300
Services contributed from The Limited, Inc. - 402 - - - - 402
Net income - - - - - 363 363
Balance, February 3, 2001 9,763,707 70,596 (1,491) (445) 8,654 (8,275) 69,039
Issuance of common stock,
net of issuance costs of $11,548 7,270,001 112,797 (285) - - - 112,512
Exercise of stock warrants - 7,200 - - (7,193) - 7
Stock compensation expense - - - 165 - - 165
Payments on notes receivable from shareholders - - 325 - - - 325
Service contributed from The Limited, Inc. - 541 - - - - 541
Net income - - - - - 4,632 4,632
Balance, February 2, 2002 17,033,708 $191,134 $(1,451) $(280) $ 1,461 $(3,643) $187,221
The accompanying notes are an integral part of these consolidated financial statements.
33
Galyan's Trading Company, Inc.
Consolidated Statements of Cash Flows Fiscal Year
(For the Fiscal Years Ended February 2, 2002 and February 3, 2001 and January 29, 2000)
(dollars in thousands) 2001 2000 1999
Cash flows from operating activities:
Net income $ 4,632 $ 363 $ 150
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 13,749 11,504 10,671
Amortization of financing intangible and discount on subordinated notes to FS 1,222 2,491 1,006
Cumulative effect of change in accounting principle - - 1,778
Loss on early extinguishment of debt 10,435 - -
Loss on investment in MVP.com - 4,621 -
Deferred income taxes 1,258 (4,630) 97
Interest converted to subordinated debt 3,647 6,649 531
Loss on disposal of property and equipment 282 1,155 -
Deferred rent and other non-cash expense 2,651 2,753 1,292
Changes in certain assets and liabilities:
Accounts receivable 744 (3,333) (446)
Merchandise inventories (20,320) (17,971) (12,548)
Other assets (3,574) (561) (1,105)
Accounts payable and accrued expenses 10,046 14,783 7,761
Net cash provided by operating activities 24,772 17,824 9,187
Cash flows from investing activities:
Capital expenditures (37,252) (20,413) (24,318)
Increase in accounts payable for capital expenditures 9,309 4,437 616
Investment in MVP.com - - (4,465)
Net cash used in investing activities (27,943) (15,976) (28,167)
Cash flows from financing activities:
Net (payments) borrowings from revolving line of credit (19,950) (3,900) 23,850
Proceeds from long-term debt 5,650 3,423 2,012
Principal payments on long-term debt (60,892) (1,157) (82)
Payments on notes receivable from shareholders 325 300 -
Issuance of subordinated notes to FS - - 30,000
Borrowings on note payable to FS - - 4,000
Payments of note payable to FS - - (4,000)
Decrease of accounts payable to The Limited, Inc., net - - (78,063)
Proceeds from sale of common stock 124,067 682 58,242
Dividends - - (9,344)
Payments of financing costs (1,467) - (7,384)
Transaction costs for initial public offering (11,548) - -
Repurchase of common stock - (102) -
Net cash provided by (used in) financing activities 36,185 (754) 19,231
Net increase in cash 33,014 1,094 251
Cash and cash equivalents, beginning of year 3,756 2,662 2,411
Cash and cash equivalents, end of year $ 36,770 $ 3,756 $ 2,662
The accompanying notes are an integral part of these consolidated financial statements.
34
GALYAN'S TRADING COMPANY, INC.
Notes to Consolidated Financial Statements
For the Fiscal Years Ended February 2, 2002, February 3, 2001 and January 29,
2000
Organization and Summary of Significant
Accounting Policies
1. Organization
Galyan’s Trading
Company, Inc. (the “Company”), an Indiana corporation, is a specialty
retailer with 26 stores in 14 states that offers a broad range of products that
appeal to consumers with active lifestyles. On July 2, 2001, the Company
completed an initial public offering of 6.5 million shares of common stock at
$19.00 per share. The Company received approximately $112.0 million in net
proceeds from the offering. Prior to the initial public offering, the
Company’s shareholders were FS Equity Partners IV, L.P. (“FS”), a
fund managed by Freeman Spogli & Co. LLC; G Trademark, Inc. (“G
Trademark”), a wholly owned subsidiary of The Limited, Inc. (“The
Limited”); Benchmark Capital Partners IV, L.P. (“Benchmark”);
management and a director. From July 1995 until August 1999, the Company was a
wholly owned subsidiary of The Limited.
Fiscal Year
The Company’s fiscal
year ends on the Saturday closest to January 31. Fiscal years ended February 2,
2002, February 3, 2001 and January 29, 2000 are referred to as fiscal 2001, 2000
and 1999, respectively. Fiscal 2000 includes 53 weeks. Fiscal 2001 and 1999
include 52 weeks.
Basis of Presentation
The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, Galyan’s Nevada, Inc. (“Nevada”). Nevada
was incorporated during fiscal 2000 to centralize the ownership, management and
protection of all intellectual property of the Company. All significant
intercompany accounts and transactions have been eliminated.
In July 1999, G Trademark contributed certain assets to the Company, consisting primarily of
trademarks and amounts due from the Company for royalties. G Trademark was
incorporated as an intangible holding company and received royalties from the
Company for its use of trademarks. The transaction was treated in a manner
similar to a pooling of interests. As such, all assets and liabilities
contributed were transferred at historical cost and all operations were
combined.
Cash and Cash Equivalents
The Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
Inventories
Merchandise inventories are stated at the lower of
cost or market, on a first-in, first-out basis, utilizing the retail method.
Property and Equipment
Property and equipment is
stated at cost. Depreciation and amortization of property and equipment is
computed on a straight-line basis over the estimated useful lives of the related
assets, which range from 10 to 30 years for buildings and leasehold improvements
and 4 to 10 years for furniture, fixtures and store equipment. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
term of the lease. Routine repairs and maintenance are charged to expense as
incurred. The cost of assets sold or retired and the related accumulated
depreciation are removed from the accounts, with any resulting gain or loss
included in net income.
35
Goodwill
Goodwill is amortized on a straight-line basis
over 30 years. Amortization expense of goodwill for fiscal 2001, 2000, and 1999
was $783,000, $783,000 and $808,000, respectively.
Other Assets
Other assets include
deferred financing costs that are being amortized over the terms of the related
debt agreements, which range from 2 to 3 years.
Long-lived Assets
Long-lived assets, including
goodwill, are reviewed for impairment whenever events or
changes in circumstances indicate that full recoverability is questionable.
Factors used in the evaluation include, but are not limited to,
management’s plans for future operations, recent operating results and
projected cash flows. Impaired assets are written down to estimated fair value
with fair value generally being determined based on discounted expected future
cash flows. No impairment charges have been recorded.
Revenue Recognition
The Company recognizes
retail sales upon the purchase of merchandise by the customer, net of returns
and allowances, which are based upon historical customer returns experience.
Markdowns associated with the preferred customer programs are recognized upon
redemption in conjunction with a qualifying purchase. Revenue from the sale of
gift cards and store credits is recognized upon redemption of the gift cards or
store credits by the customer. Revenue from layaway sales is recognized upon
receipt of final payment from the customer. As of February 2, 2002, the Company
no longer permits customers to use layaway sales to purchase merchandise.
Cost of Sales
Cost of sales includes the cost of merchandise, inventory markdowns,
inventory shrinkage, inbound freight, distribution and warehousing, payroll for
buying personnel, and store occupancy costs. Store occupancy costs include rent,
contingent rents, common area maintenance, real estate and personal property
taxes, utilities, and repairs and maintenance.
Advertising Expense
Advertising costs are
expensed in the period in which the advertising occurs. The Company participates
in various advertising and marketing cooperative programs with its vendors, who,
under these programs, reimburse the Company for certain costs incurred.
Advertising expense, net of vendor reimbursement, for fiscal 2001, 2000 and 1999
was $12.2 million, $9.7 million and $7.3 million respectively.
Earnings Per Share
Earnings per share of
common stock is based on the weighted average number of shares outstanding
during the year. Basic and diluted earnings per share for fiscal 2000 and 1999
included 720,000 warrants, which were exercisable for nominal cash
consideration. The following table presents a reconciliation of the
Company’s basic and diluted weighted average common shares as required by
Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings
Per Share:
Fiscal Year
2001 2000 1999
Basic earnings per share:
Weighted average
common shares 14,445,401 10,419,021 6,226,220
Diluted earnings per share:
Weighted average
common shares 14,445,401 10,419,021 6,226,220
Dilutive effect of stock
options and warrants 243,399 154,240 -
Weighted average common
and incremental shares 14,688,800 10,573,261 6,226,220
36
Options to purchase
773,500, 492,500 and 405,500 shares of common stock were outstanding at the end
of fiscal 2001, 2000 and 1999, respectively, but were not included in the
computation of diluted shares because the options’ exercise prices were
greater than the fair value. In addition, a warrant to purchase 1,350,000 shares
of Class B common stock was outstanding at the end of fiscal 2001, 2000 and
1999, but was not included in the computation of diluted shares because the
warrant’s exercise price was greater than fair value.
Segment Information
The Company is a specialty
retailer with 26 stores that offers a broad range of products that appeal to
consumers with active lifestyles. Given the economic characteristics of the
store formats, the similar nature of the products sold, and the type of customer
and method of distribution, the operations of the Company are aggregated into
one reportable segment.
Accounting Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Change in Accounting Principle
Effective January 31, 1999,
the Company changed its method of accounting for store pre-opening costs in
conformity with the American Institute of Certified Public Accountant’s
Statement of Position (“SOP”) 98-5, Reporting on the Costs of Start-Up
Activities. Previously, certain non capital expenditures associated with the
opening of new stores were capitalized and charged to expense over the first 12
months of store operations. SOP 98-5 requires the Company to expense such costs
as incurred.
New Accounting Pronouncements
On February 4, 2001, the
Company adopted Statement of Financial Accounting Standards (“SFAS”)
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that all derivatives, including those embedded in other contracts, be recognized
as either assets or liabilities and that those financial instruments be measured
at fair value. The accounting for changes in the fair value of derivatives
depends on their intended use and designation. The Company’s policy is not
to use free-standing derivatives and not to enter into contracts with terms that
cannot be designated as normal purchases and sales. Management reviewed the
requirements of SFAS No. 133, as amended, and determined that the Company does
not have any free-standing or embedded derivatives.
37
On February 3, 2002, the
Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS
No. 142, goodwill is no longer amortized. The Company is also required to
complete an initial goodwill impairment assessment in the year of adoption and
at least annually thereafter. Annual goodwill amortization of $783,000 ceased
upon adoption. The Company has determined that no impairment charge will result
from the adoption of SFAS No. 142.
During June 2001, the Financial Accounting
Standards Board issues SFAS No. 143, Accounting for Asset Retirement
Obligations, which is effective for the Company beginning February 2, 2003. SFAS
No. 143 addresses financial accounting and reporting or obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. Management has not yet quantified the effect, if any, of this
new standard on the consolidated financial statements.
During October 2001, the
Financial Accounting Standards Board issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, which is effective for the Company beginning February 3, 2002. SFAS
No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. Management has not yet quantified the effect, if
any, of this new standard on the consolidated financial statements.
2. Recapitalization of the Company
From July 1995 through
August 31, 1999, the Company was a wholly owned subsidiary of The Limited. The
Company entered into a transaction agreement dated May 3, 1999 and a
modification agreement dated August 31, 1999 (collectively, the
“Agreement”), with The Limited and FS.
Pursuant to the Agreement
and effective August 31, 1999, FS acquired a controlling interest in the Company
by purchasing 5,000,000 shares of Class A common stock of the Company for an
aggregate price of $50 million (the “Recapitalization”). In connection
with the Recapitalization, the Company issued $15 million of 12.0% subordinated
notes due August 31, 2009, $15 million of 13.5% junior subordinated notes due
August 31, 2009, warrants to purchase 432,000 shares of common stock to FS; and
the Company also issued $10 million of 12.0% subordinated notes due August 31,
2009, $10 million of 13.5% junior subordinated notes and warrants to purchase
288,000 shares of common stock to The Limited. All of the FS and The Limited
warrants were exercised at $0.01 per share during fiscal 2001. In addition, the
Company secured a $150 million revolving credit facility expiring August 31,
2002 with variable rates of interest. This credit facility was subsequently
replaced with a $160 million revolving credit facility expiring May 3, 2004.
The Company declared a
dividend in the form of a stock warrant to G Trademark to purchase 1,350,000
shares of Class B common stock. (See Note 9)
Costs of $9,492,000
incurred during fiscal 1999 in connection with the Recapitalization have been
reflected as follows: (i) $7,384,000 as deferred financing costs, (ii)
$1,023,000 as stock issuance costs and (iii) $1,085,000 as expense.
The Company recorded
$652,000 during fiscal 1999 as an increase in paid-in capital for the
forgiveness of amounts due to The Limited.
38
3. Receivables
Receivables consist of the
following (in thousands):
Fiscal Year
2001 2000
Construction allowance receivables $2,211 $3,603
Third party financing receivables 441 56
Other 707 605
Total receivables 3,359 4,264
Less allowance for doubtful accounts (140) (301)
Receivables, net $3,219 $3,963
4. Property and Equipment
Property and equipment
consists of the following (in thousands):
Fiscal Year
2001 2000
Building and leasehold improvements $ 59,341 $ 41,281
Furniture, fixtures and equipment 72,106 51,910
Construction in progress 7,979 9,333
Total property and equipment 139,426 102,524
Less accumulated depreciation and amortization (44,854) (31,956)
Property and equipment, net $ 94,572 $ 70,568
Depreciation and
amortization expense for fiscal 2001, 2000 and 1999 was $12,966,000, $10,721,000
and $9,863,000, respectively.
In November 2000, the Company upgraded its point
of sale software and hardware system in all of its stores. As a result, the
Company wrote off cash registers with a carrying value of $855,000. Loss on
disposal of this equipment was $833,000 and is included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations.
In December 2000, the
Company substantially completed the expansion of its distribution center. As a
result, the Company wrote off a conveyor system and computer equipment
previously used in its distribution center with carrying values of $196,000 and
$126,000, respectively. Loss on disposal of the
conveyor system and computer equipment was $196,000 and $126,000, respectively,
and is included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
5. Other Assets
Other assets consist of the following
(in thousands):
Fiscal Year
2001 2000
Deferred financing costs $1,610 $7,549
Other 428 109
Total other assets 2,038 7,658
Less accumulated amortization (517) (3,017)
Total other assets, net $1,521 $4,641
Amortization expense of
deferred financing costs for fiscal 2001, 2000 and 1999 was $1,060,000,
$2,143,000 and $874,000, respectively.
6. Accrued Expenses
Accrued expenses consist of
the following (in thousands):
Fiscal Year
2001 2000
Accrued payroll, withholdings and benefits $ 7,601 $ 7,143
Gift certificates and store credits 9,351 6,699
Income taxes payable 2,463 5,882
Real and personal property taxes 3,065 2,332
Other 9,958 9,423
Total accrued expenses $32,438 $31,479
39
7. Long-Term Debt
Long-term debt consists of
the following (in thousands):
Fiscal Year
2001 2000
Bank and other:
Revolving line of credit $ - $19,950
Construction loans 10,900 5,250
Other 400 465
Total bank and other debt 11,300 25,665
Less current maturities (5,368) (136)
Total bank and other debt,
net of current maturities 5,932 25,529
Subordinated notes:
Subordinated notes, to shareholders - 28,371
Junior subordinated notes, to shareholders - 28,809
Total subordinated notes - 57,180
Less unamortized discount - (6,714)
Total subordinated notes,
net of unamortized discount - 50,466
Total long-term debt,
net of current maturities $ 5,932 $75,995
Revolving Line of Credit
On May 3, 2001, the Company
refinanced its revolving credit facility to allow borrowings up to $160 million
of which $15 million is allocated for the issuance of letters of credit. Under
the revolving line of credit, the Company may borrow under several interest rate
options. Borrowings under the revolving credit facility, which expires May 3,
2004, are secured by substantially all the Company’s assets. As of February
2, 2002, no amounts were outstanding under the revolving line of credit and
$5,887,000 was committed for outstanding standby and import letters of credit.
The Company incurred an extraordinary loss (net of an income tax benefit of
$1,048,000) of $1,572,000 to expense the remaining deferred financing costs
associated with the previous revolving credit facility.
The Credit Agreement
contains certain restrictive covenants including limitations on capital
expenditures, and maintenance of certain minimum financial ratios including a
debt flow coverage ratio and debt leverage ratio. The Credit Agreement also
prohibits the Company from declaring or paying cash dividends.
Construction Loans
On May 25, 2001, the Company
entered into a $6,000,000 line of credit
agreement with a bank to be used for the construction of a new store building.
Advances under the line of credit agreement are secured by the building, and the
agreement requires monthly payments of interest under several interest rate
options (3.81% as of February 2, 2002). Outstanding advances as of February 2,
2002 were $5,650,000. All unpaid principal and interest is due May 1, 2003.
On October 29, 1999, the
Company entered into a line of credit agreement with a bank in the amount of
$5,250,000 to be used for the construction of, and secured by, a new store
building. Outstanding advances require monthly payments of interest at LIBOR
plus 160 basis points (3.475% as of February 2, 2002). All unpaid principal and
interest is due April 1, 2002.
Subordinated and Junior
Subordinated Notes
The Company entered into a
security purchase agreement (the “Security Agreement”), dated August
31, 1999, to issue $25 million of subordinated notes and $25 million of junior
subordinated notes (collectively, the “Notes”). In connection with the
issuance of the Notes, the Company issued warrants to purchase 720,000 shares of
Class A common stock. The fair value of the
warrants of $7,193,000 was recorded as an increase to shareholders’ equity
and as a reduction to the related subordinated notes. The debt discount was
amortized using the effective interest method into interest expense over the
term of the subordinated notes. During fiscal 2001, 2000 and 1999, $162,000, and
$348,000 and $131,000, respectively, has been amortized as interest expense.
40
On August 31, 1999, the
Company issued $25 million of 12.0% subordinated notes, due August 31, 2009, to
shareholders of the Company. The subordinated notes require semi-annual interest
payments on September 30 and March 31. On any interest date on or prior to
September 30, 2004, the Company may, in lieu of making the interest payment,
increase the principal amount of the subordinated notes by the amount of such
interest payment. In lieu of paying the fiscal 2001, 2000 and 1999 interest
payments, the Company elected to increase the principal by $1,702,000,
$3,121,000 and $250,000 respectively.
On August 31, 1999, the
Company issued $25 million of 13.5% junior subordinated notes, due August 31,
2009, to shareholders of the Company. The junior subordinated notes require
semi-annual interest payments on September 30 and March 31. On any interest date
on or prior to September 30, 2004, the Company may, in lieu of making the
interest payment, increase the principal amount of the junior subordinated notes
by the amount of such interest payment. Subsequent to September 30, 2004, the
Company may, in lieu of making the interest payment, increase the principal
amount of the notes by the junior subordinated amount of such interest due
computed at a rate of 15.5%. In lieu of paying the fiscal 2001, 2000 and 1999
interest payments, the Company elected to increase the principal by $1,945,000,
$3,528,000 and $281,000, respectively.
On July 2, 2001, the
Company paid all the outstanding principal and interest due under its
subordinated and junior subordinated notes. The Company incurred an
extraordinary loss (net of an income tax benefit of $2,577,000) of $5,238,000 to
expense the remaining unamortized discount and deferred financing costs
associated with these notes.
Future minimum principal
payments on long-term debt as of February 2, 2002 are as follows (in
thousands):
Fiscal Year
2002 $ 5,368
2003 5,739
2004 77
2005 68
2006 48
Total payments $11,300
8. Shareholders' Equity
On July 2, 2001, the
Company consummated its initial public offering of 6.5 million shares of common
shares at $19.00 per share. Immediately prior to the initial public offering,
the Company’s articles of incorporation were amended to combine all classes
of common stock into one single class and to authorize the issuance of up to
50.0 million shares of common stock. All Class A common stock automatically
converted into the same number of shares of common stock. In addition, all
securities convertible or exercisable into shares of Class A common stock or
Class B common stock automatically became convertible or exercisable into the
same number of shares of common stock. As of February 2, 2002, the Company had
17,033,708 shares issued and outstanding and 2,202,475 shares reserved for
future issuance.
On July 27, 1999, the
Company amended its articles of incorporation authorizing 23,350,000 shares of
capital stock consisting of 20,000,000 shares of no par value, Class A voting
common stock; 1,350,000 shares of no par value, Class B non-voting common stock
and 2,000,000 shares of no par value, preferred stock.
41
In connection with the
Recapitalization, the following occurred during 1999:
- The Company declared a stock split (35,999:1) in the form of a dividend;
- G Trademark received a dividend in the form of a stock warrant to purchase 1,350,000 shares of Class B
common stock of the Company (see Note 9);
- The Company paid a cash dividend of $9,344,000 to G Trademark;
- 5,000,000 shares of Class A common stock were issued to FS for $50 million;
- Amounts due to The Limited of $652,000 were forgiven;
- FS advanced the Company
$4,000,000, bearing interest at an annual rate of 7.5% and due 60 days from the
date of issuance, to be used as a bridge loan to fund the stock subscription
plan. All amounts outstanding under the bridge loan were repaid during fiscal
1999; and
- The Company granted
warrants to purchase 720,000 shares of Class A common stock at $.01 per share to
the holders of the subordinated and junior subordinated notes. The fair value of
the warrants of $7,193,000 was recorded as debt discount and a corresponding
increase to paid-in capital.
Stock Subscription
Plan
The Company adopted a stock
subscription plan (the “1999 Stock Plan”) in October 1999. The 1999
Stock Plan provides for the issuance and sale of shares of common stock to
certain directors, officers, employees and consultants. The maximum number of
shares which may be issued under the 1999 Stock Plan is 1,000,000. Common stock
issued under the stock subscription plan for fiscal 2001, 2000 and 1999 is as
follows:
Number of Weighted Weighted
Shares Average Issue Average Fair
Outstanding Price Value
Shares issued in fiscal 1999 and
Outstanding at January 29, 2000 501,860 $10.00 $10.00
Shares issued 92,000 10.00 14.67
Shares repurchased (15,500) - -
Outstanding shares, February 3, 2001 578,360 - -
Shares issued 40,000 18.63 18.63
Outstanding shares, February 2, 2002 618,360 - -
During fiscal 2000, the
Company issued 84,000 shares of Class A common stock to directors and employees
at prices below the fair value of the stock. As a result, the Company recorded
compensation expense of $430,000 with a corresponding increase to paid-in
capital.
In connection with the 1999
Stock Plan, certain directors, officers, employees and consultants entered into
stock pledge agreements. The agreements require annual payments of interest at
7.5% and expire in October, 2004. Shareholder notes receivable relating to the
pledge agreements are $1,451,000, $1,491,000 and $1,431,000 at February 2, 2002,
February 3, 2001 and January 29, 2000, respectively.
Stock Purchase
Agreement
The Company entered into a
stock purchase agreement with Benchmark Capital Partners IV, L.P., effective
November 12, 1999, whereby Benchmark acquired 567,684 shares of Class A common
stock for $5,677,000.
Other
Services contributed from
The Limited totaled $541,000, $402,000 and $357,000 in fiscal 2001, 2000 and
1999, respectively (see Note 11).
42
9. Stock Options and Warrants
Employee Stock Option Plan
The Company adopted a stock
option plan (the “Stock Option Plan”) in October 1999, which provides
options for employees, directors and officers of the Company to purchase up to
2,000,000 shares of common stock. Options granted generally vest over a period
of three years and expire seven years after the grant date.
A summary of option activity for fiscal 2001, 2000 and 1999 is as
follows:
Fiscal Year
2001 2000 1999
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Options outstanding, beginning of year 1,207,504 $14.08 955,000 $14.25 - -
Exercised (10,001) 10.00 (17,663) 10.00 - -
Granted 344,000 17.58 286,500 13.04 955,000 $14.25
Cancelled (40,002) 13.50 (16,333) 10.00 - -
Options outstanding, end of year 1,501,501 $14.92 1,207,504 $14.08 955,000 $14.25
Total exercisable, end of year 669,953 $14.33 301,223 $14.62 - -
The following table
summarizes information about stock options outstanding at February 2, 2002:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
$ 8.00 - $10.00 719,001 5.0 $ 9.94 379,951 $10.00
$10.01 - $12.00 9,000 6.8 10.74 - -
$16.01 - $18.00 17,500 6.0 17.50 - -
$18.01 - $20.00 756,000 5.4 19.66 290,002 20.00
1,501,501 5.2 $14.92 669,953 $14.33
43
The Company applies Accounting Principles Board (“APB”) No. 25,
Accounting for Stock Issued to Employees, and related interpretations
in accounting for stock options. During 2000, the Company issued 96,000 options to purchase common stock to officers, employees and a
director at prices below fair value. Compensation expense related to the options issued is calculated as the excess of the fair value
of the Company’s stock at the date of issuance over the option price and is recognized on a straight line basis over the period the
options vest. As a result, compensation expense of $165,000 and $50,000 has been recorded during fiscal 2001 and 2000, respectively.
No compensation expense has been recognized for options granted at prices equal to or greater than
fair value at the grant date. Had compensation expense for the options been determined based on the fair value at the grant dates for
awards consistent with the fair value method of SFAS No. 123, Accounting for Stock Based Compensation, the pro forma net income and
pro forma net income per share would have been reported as
follows:
Fiscal Years
2001 2000 1999
(dollars in thousands, except per share data)
Basic Diluted Basic Diluted Basic Diluted
Net earnings earnings Net earnings earnings Net earnings earnings
income per share per share income per share per share income per share per share
As reported $4,632 $0.32 $0.32 $363 $0.03 $0.03 $150 $0.02 $0.02
Pro forma 4,200 0.29 0.29 158 0.02 0.01 90 0.01 0.01
The pro forma amounts are
not representative of the effects on reported earnings for future years.
The weighted average fair value
of options granted was $5.10, $2.92 and $0.95 in fiscal 2001, 2000 and 1999,
respectively. The fair value of the option grants are estimated using the Black
Scholes option pricing model with the following assumptions: for the period of
fiscal 2001 subsequent to the initial public offering - no dividend yield;
risk-free interest rates ranging from 3.38% to 4.68%; volatility rate of 60%;
and an expected life of three years. For the period of fiscal 2001 prior to the
initial public offering - no dividend yield; risk-free interest rates ranging
from 4.58% to 4.65%; no volatility rate; and an expected life of three years.
For fiscal 2000 - no dividend yield; risk-free interest rates ranging from 4.77%
to 6.77%; no volatility rate; and an expected life of three years. For fiscal
1999 - no dividend yield; risk-free interest rate of 6.00%; no volatility rate;
and an expected life of three years.
Warrants
In connection with the
issuance of subordinated notes as discussed in Note 2, the Company granted
720,000 warrants to purchase shares of Class A common stock to holders of the
subordinated notes. The warrants were exercisable at $0.01 per share through
July 30, 2009. The fair value of warrants issued was $9.99 per warrant, or
$7,193,000 in fiscal 1999. The fair value of the warrants was estimated using
the Black Scholes option pricing model with the following assumptions: no
dividend yield; risk-free interest rate of 6%; volatility rate of 50%; and an
expected life of 10 years.
On September 6, 2001,
432,000 shares of common stock were issued pursuant to the exercise of 432,000
warrants at the exercise price of $0.01 per share. On August 23, 2001, 288,000
shares of common stock were issued pursuant to the exercise of 288,000 warrants
at the exercise price of $0.01 per share.
44
In connection with the
Recapitalization agreement, the Company declared a dividend in the form of a
stock warrant to G Trademark to purchase 1,350,000 shares of Class B common
stock. The initial exercise price per share was $10.00. On the first day of each
month from and including October 1999 to and including September 2000, the
exercise price increases by an amount equal to 3 1/3% of the initial exercise
price. On the first day of each month thereafter, the exercise price increases
by an amount equal to 3 1/3% of the exercise price in effect on the preceding
September 1. The warrants became exercisable on the date of the Company’s
initial public offering, a “triggering event” as defined in the
Security Agreement. The fair value of the warrant of $1,461,000 was determined
using the Black Scholes option pricing model and was recorded as an increase in
warrants with a corresponding decrease in paid-in capital, included in the
consolidated statements of shareholders’ equity. The fair value of the
warrant is estimated using the following assumptions: no dividend yield;
risk-free interest rate of 6%; volatility rate of 50%; and an expected life of
four years. In determining the expected life of the warrant, management
estimated that the life of the warrant was equal to the earliest determinable
exercise date, which was four years from the date of issuance. As of February 2,
2002, the warrants have an exercise price of $22.85 and a weighted average
contractual life of 7.5 years.
Options Granted to Employees based on Stock of The Limited
The Company’s
employees participated in The Limited stock option plan during the period when
the Company was a wholly owned subsidiary of The Limited. Options granted
generally vest over a four year period and expire ten years after the grant
date. In connection with the Recapitalization in August 1999, certain of these
Limited stock option awards were amended to provide that options would continue
to vest through February 28, 2001, and any options not vested as of such date
would be forfeited. In addition, the amendment provided that all vested but
unexercised options would expire on May 31, 2001. The amendment did not provide
for any acceleration of vesting provisions. No compensation expense was
recognized in connection with the amendment to these Limited options.
A summary of activity for
options granted to employees based on stock of The Limited for fiscal 2001, 2000
and 1999 is as follows:
Fiscal Year
2001 2000 1999
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Options outstanding, beginning of year 392,393 $11.56 478,123 $11.31 470,642 $10.17
Exercised - - (85,730) 10.23 (71,768) 9.20
Granted - - - - 79,249 16.23
Cancelled (392,393) 11.56 - - - -
Options outstanding, end of year - - 392,393 $11.56 478,123 $11.32
Total exercisable, end of year - - 146,217 $11.13 - -
45
The Company applies APB No.
25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for stock options issued to employees based on stock of The Limited.
No compensation expense has been recognized for options granted since the
exercise price of the options is equal to or greater than fair value at the
grant date. Had compensation expense for the options been determined based on
the fair value at the grant dates for awards consistent with the fair value
method of SFAS No. 123, Accounting for Stock Based Compensation, the pro forma
net income and pro forma net income per share would have been reported as
follows:
Fiscal Year
2000 1999
(dollars in thousands, except per share data)
Basic Diluted Basic Diluted
Net earnings earnings Net earnings (loss) earnings (loss)
income per share per share income (loss) per share per share
As reported $363 $0.03 $0.03 $ 150 $ 0.02 $ 0.02
Pro forma $110 $0.01 $0.01 $(113) $(0.02) $(0.02)
The pro forma amounts are
not representative of the effects on reported earnings for future years.
The weighted average fair value
of options granted was $5.49 for fiscal 1999; no options were granted in fiscal
2001 or 2000. The fair value of the option grants are estimated using the Black
Scholes option pricing model with the following assumptions: no dividend yield;
risk-free interest rate of 7.0%; volatility rate of 32.0%; and expected life of
5.2 years.
10. Income Taxes
The provision for income taxes is comprised of the following
(in thousands):
Fiscal Year
2001 2000 1999
Current:
Federal 2,953 $ 5,302 $ 695
State 504 969 205
Deferred 1,258 (4,630) 97
Income tax expense 4,715 1,641 997
Extraordinary loss on early
extinguishment of debt 3,625 - -
Cumulative effect of change in
accounting principle - - 711
Provision for income taxes, including
extraordinary loss on early extinguishment
of debt and cumulative effect of
change in accounting principle $8,340 $ 1,641 $1,708
46
A reconciliation of the
federal statutory rate to the Company’s effective tax rate is as follows:
Fiscal Year
2001 2000 1999
Federal statutory rate 34.0% 34.0% 34.0%
State and local taxes, net of federal
tax benefit 5.0 6.5 4.6
Non-deductible goodwill 1.1 13.3 9.4
Non-deductible interest 3.2 21.5 5.8
Other permanent differences (1.1) 6.6 4.6
Total 42.2% 81.9% 58.4%
Deferred tax assets and liabilities
are computed based on the differences between the financial statement and income
tax bases of assets and liabilities using the enacted tax rate. Deferred income
tax expense or benefit is based on the change in assets and liabilities from
period to period, subject to an ongoing assessment of realization.
Items giving rise to deferred tax assets are as follows (in thousands):
Fiscal Year
2001 2000
Current deferred tax assets:
Accrued expenses $1,074 $ 614
Inventory basis 682 397
Returns reserve 305 274
Other, net 111 90
Current deferred tax assets, net 2,172 1,375
Long-term deferred assets (liabilities):
Deferred rent 2,071 1,340
Capital loss carryforward 1,845 1,828
Depreciation (3,535) (3,646)
Interest - 3,282
Other 337 (31)
Long-term deferred tax assets, net 718 2,773
Net deferred tax assets $2,890 $4,148
As of February 2, 2002, the
Company has unused capital loss carryforwards of $4.6 million expiring primarily
in fiscal 2005.
11. Related Party Transactions
Prior to the
Recapitalization, The Limited charged the Company for services they provided to
the Company including tax, treasury, legal, audit, leasing, corporate
development, risk management, benefit plan administration and other services.
The costs of these services are charged to the Company based on a percentage of
its sales to The Limited total sales. Corporate allocation from The Limited to
the Company for fiscal 1999 totaled $3,600,000. The prices charged to the
Company for services provided by The Limited may have been higher or lower than
prices that would have been charged by third parties. It is not practicable to
estimate what these costs would have been if The Limited had not provided these
services and the Company was required to purchase these services from third
parties or develop internal expertise. Management believes that the allocations
described above were reasonable. The following table summarizes the related
party transactions between the Company and The Limited for fiscal 1999 prior to
the completion of the Recapitalization (in thousands):
Corporate services and centrally managed functions $ 3,600
Store planning, leasing, construction and capital expenditures 10,200
Total $13,800
The Company entered into a
services agreement, dated August 31, 1999, whereby The Limited continued to
provide real estate and store planning services, importing services and benefits
services to the Company at rates determined in the agreement. The agreement
terminated 90 days after the completion of the initial public offering. The
Company does not anticipate that costs incurred to replace the services
currently provided by The Limited will have a material adverse impact on its
financial condition or results of operations. Costs for importing and benefit
services represent The Limited’s direct costs of importing related to the
Company’s overseas purchases and direct costs of claims and administration
for the Company’s
47
associates participating in The Limited’s plans and
programs. The Company paid
$226,000 for importing and benefits services during fiscal 1999. No such
services were performed and no amounts were paid for these services for fiscal
2001 or 2000.
Real estate and store
planning services included the initial design of space, production of
architectural and mechanical drawings of the store design, construction of store
to drawing specifications, purchasing, shipment and installation of materials,
project management and accumulation of capital costs. Costs for real estate and
store planning services represented The Limited’s direct costs including
salary and benefit costs for employee’s of The Limited allocated based on
the amount of time dedicated to provide these services to the Company. During
each year of the agreement, The Limited agreed to contribute up to the first
$1,000,000 of services. If the agreement were terminated during the year, the
$1,000,000 was to be prorated over the portion of the year that the agreement
was in effect. During fiscal 2001, 2000 and 1999, The Limited contributed
services totaling $541,000, $402,000 and $357,000, respectively, which were
recorded as selling, general and administrative expenses and paid-in capital.
The Limited is a guarantor
of the Company’s obligations under the leases for eight of the
Company’s stores. The Company has agreed to reimburse The Limited for any
amounts paid by them under these guarantees. No amounts were paid under these
guarantees in fiscal 2001, 2000 or 1999.
In connection with the
Recapitalization, $900,000 and $600,000, respectively, of facility fees were
paid to FS and The Limited in fiscal 1999 relating to the subordinated and
junior subordinated notes (see Note 7). Such costs have been recorded as
deferred financing costs in the accompanying consolidated balance sheets. Also,
FS received an equity commitment fee of $749,000 in fiscal 1999 relating to its
commitment to invest $50.0 million to obtain a controlling interest in the
Company. This commitment fee was included in costs of recapitalization in the
accompanying consolidated statements of operations. The remaining unamortized
balances for these fees were expensed during fiscal 2001 and were included in
extraordinary loss on early extinguishment of debt (See Note 7).
The Company recorded
$3,178,000, $7,280,000 and $2,810,000 of interest expense during fiscal 2001,
2000 and 1999, respectively, in connection with the subordinated and junior
subordinated notes payable to FS and The Limited.
During 1999, the Company
purchased 4,453,125 shares of Series B Preferred Stock in MVP.com, Inc.
(“MVP.com”), an internet based retailer. The Series B Preferred Stock
was convertible into common shares of MVP.com at the option of the Company and
was accounted for at cost. During January 2001, MVP.com ceased operations and
entered into a voluntary liquidation program and the Company determined that its
investment was permanently impaired and decreased the value of its investment to
zero. Net sales and cost of sales for fiscal 2000 included $2,762,000 of sales
to MVP.com at historical cost. Selling, general and administrative expenses in
fiscal 2000 included bad debt expense of $1,172,000 related to uncollectible
accounts receivable from MVP.com. During fiscal 2001, the Company reduced
selling, general and administrative expenses for a bad debt recovery of $601,000
related to MVP.com.
Pursuant to a stockholders
agreement, Freeman Spogli, The Limited and Benchmark Capital have agreed to vote
all of their shares in the election of directors in favor of the following
persons: four board nominees designated by Freeman Spogli, two board nominees
designated by The Limited, our then current chief executive officer, our then
current chairman of the board, and one or more additional nominees upon whom
Freeman Spogli and The Limited shall agree. The number of board nominees that
Freeman Spogli and The Limited are entitled to nominate under the agreement,
both before and after the initial public offering, decreases if the number of
shares held by such party falls below certain thresholds set forth in the
stockholders agreement. In addition,
48
until one year after the date on which any
person other than Freeman Spogli and The Limited and their respective affiliates
own 20% or more of the Company’s shares, The Limited and Benchmark Capital
have agreed to vote against any combination of the Company unless Freeman Spogli
consents to the combination.
In fiscal 2001, the Company
agreed to pay The Limited $150,000 for recruiting costs associated with its
search for a replacement for C. David Zoba, whom the Company hired from The
Limited as the Company’s Executive Vice President, General Counsel and
Secretary.
The Company has verbal
consulting agreements with two members of the board of directors to provide real
estate, marketing and other general consulting services. Either party can
terminate the agreements at any time. The Company recognized expense of
$182,000, $150,000 and $38,000 in fiscal 2001, 2000 and 1999, respectively, for
these consulting services.
12. Fair Value of Financial Instruments
The fair value of a
financial instrument is defined as the amount at which the instrument could be
exchanged in an arm’s length transaction between knowledgeable, willing
parties. The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash, Accounts Receivable, Accounts Payable
The carrying amounts
approximate the fair value because of the short maturity of those
instruments.
Long-term Debt
The fair value is estimated
based on discounting expected cash flows at the rates currently offered to the
Company for debt of the same remaining maturities. As of February 2, 2002 and
February 3, 2001, the carrying value of the long-term debt approximates its fair
value.
13. Commitments
The Company is involved in
various legal proceedings that are incidental to the conduct of the business.
Although the amount of any liability with respect to these proceedings cannot be
determined, in the opinion of management, after consultation with legal counsel,
any such liability will not have a material adverse effect on the financial
position or results of operations of the Company.
The Company has
non-cancelable operating leases for office facilities, warehouse facilities,
real estate and equipment. Store rent consists of a fixed amount, plus
contingent rent based on a percentage of sales exceeding a specific amount.
Certain leases provide for future rent escalations and renewal options which are
accounted for on a straight-line basis. In addition to basic rent, store leases
provide for payment of common area maintenance, taxes and other expenses. Rent
expense for fiscal 2001, 2000, and 1999 was $22,466,000, $19,822,000 and
$15,837,000, respectively and includes contingent rental expense of $3,000,
$41,000, and $29,000, respectively.
Future minimum lease
payments under non-cancelable lease agreements with an initial or remaining term
of at least one year at February 2, 2002 are as follows (in thousands):
Fiscal Year
2002 $ 26,050
2003 29,126
2004 29,641
2005 29,125
2006 28,913
Thereafter 313,286
$ 456,141
49
14. Retirement Plan
The Company sponsors a qualified defined contribution savings and retirement plan. Participation in the qualified plan is available to
all associates who have attained the age of 21. Eligible employees participating in the plan may contribute between 1% and 15% of
their eligible compensation. The Company will make matching contributions to eligible participants who have completed one year of
service, in which they have worked at least 1,000 hours. The Company will make a matching contribution to these participants of 50% of
the first 3% of the employees' eligible compensation contributed to the plan. The Company made matching contributions for fiscal 2001,
2000 and 1999 of $380,000, $334,000 and $175,000, respectively.
15. Supplemental Disclosure of Cash Flow Information
The Company paid cash for interest totaling $4,886,000, $4,423,000 and $1,813,000 in fiscal 2001, 2000 and 1999, respectively. The
Company paid cash for income taxes during fiscal 2001, 2000 and 1999 of $6,575,000, $182,000 and $3,033,000, respectively.
Notes receivable totaling $285,000, $415,000 and $1,431,000 were received from management to purchase common stock during fiscal 2001,
2000 and 1999, respectively.
Warrants with a fair value of $7,193,000 were issued to holders of subordinated notes during fiscal 1999 and exercised during fiscal
2001.
The Company issued 1,350,000 warrants, with a fair value of $1,461,000, to a shareholder during fiscal 1999.
During fiscal 1999, the Company issued $10 million of subordinated notes and $10 million of junior subordinated notes to The Limited
in lieu payment for accounts payable to The Limited (see Note 7). The subordinated and junior subordinated notes held by The Limited
were extinguished during fiscal 2001.
Interest capitalized into construction in progress during fiscal 2001 and 2000 was $291,000 and $225,000, respectively. No amounts
were capitalized during fiscal 1999.
50
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE
To the Shareholders and Board of Directors of
Galyan's Trading Company, Inc.
Plainfield, Indiana
We have audited the consolidated financial statements of Galyan's Trading Company, Inc. as of February 2, 2002 and February 3, 2001,
and for each of the three years in the period ended February 2, 2002, and have issued our report thereon dated March 15, 2002 (which
report expressed an unqualified opinion and includes an explanatory paragraph referring to a change in method of accounting for store
pre-opening costs, effective January 31, 1999 and described in Note 1 to the consolidated financial statements); such report is
included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Galyan's Trading
Company, Inc., listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Indianapolis, Indiana
March 15, 2002
51
Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
(For the Fiscal Years Ended February 2, 2002, February 3, 2001 and January 29, 2000)
Balance at Charged to Balance at
beginning costs and end
of period expenses Deductions of period
Fiscal 1999
Reserve for sales returns and allowances $ 460,083 $35,669,181 $ 35,505,683 $ 623,581
Inventory reserves 1,499,100 31,527 - 1,530,627
Allowance for doubtful accounts 391,000 429,630 (427,630) 393,000
Fiscal 2000
Reserve for sales returns and allowances $ 623,581 $44,917,924 $(44,856,860) $ 684,645
Inventory reserves 1,530,627 - (425,607) 1,105,020
Allowance for doubtful accounts 393,000 207,570 (299,619) 300,951
Fiscal 2001
Reserve for sales returns and allowances $ 684,645 $52,406,362 $(52,330,130) $ 760,877
Inventory reserves 1,105,020 401,720 - 1,506,740
Allowance for doubtful accounts 300,951 100,565 (261,405) 140,111
52
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Act of 1934, the
registrant has duly caused this annual report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
GALYAN'S TRADING COMPANY, INC.
By:
/s/ EDWARD S. WOZNIAK
|
|
Edward S. Wozniak
|
|
Senior Vice President, Chief Financial Officer
|
|
(Principal Financial Officer and Principal Accounting Officer)
Date: April 24, 2002
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signature Title Date
/s/ ROBERT B. MANG Chief Executive Officer and April 24, 2002
- ----------------------- Chairman of the Company
Robert B. Mang and Director
(Principal Executive Officer)
* Director April 24, 2002
- -----------------------
Norman S. Matthews
* Director April 24, 2002
- -----------------------
Byron E. Allumbaugh
* Director April 24, 2002
- -----------------------
Frank J. Belatti
* Director April 24, 2002
- -----------------------
Stuart B. Burgdoerfer
* Director April 24, 2002
- -----------------------
Timothy J. Faber
* Director April 24, 2002
- -----------------------
Todd W. Halloran
* Director April 24, 2002
- -----------------------
George M. Mrkonic, Jr.
* Director April 24, 2002
- -----------------------
John M. Roth
* Director April 24, 2002
- -----------------------
Stephanie M. Shern
* Director April 24, 2002
- -----------------------
Ronald P. Spogli
* Director April 24, 2002
- -----------------------
Peter Starrett
* By: /s/ EDWARD S. WOZNIAK
- ---------------------------
Edward S. Wozniak
As Attorney-In-Fact
53
EXHIBIT INDEX
Exhibit
Number |
Description of Document
|
3.1* |
Second Amended and Restated Articles of Incorporation
|
3.2* |
Second Amended and Restated Bylaws
|
4.1* |
Stockholders Agreement, dated August 31, 1999,
among Galyan’s Trading Company, Inc. and certain
shareholders of Galyan’s Trading Company, Inc.
|
4.2* |
Amendment No. 1 to Stockholders Agreement, dated
September 29, 2000, among Galyan’s Trading Company,
Inc. and certain shareholders of Galyan’s Trading Company, Inc.
|
4.3* |
Second Amendment to Stockholders Agreement, dated
May 24, 2001, among Galyan’s Trading Company, Inc.
and certain shareholders of Galyan’s Trading Company, Inc.
|
4.4** |
Amendment to Stockholders Agreement, dated
August 25, 2001, Galyan’s Trading Company, Inc. and
certain shareholders of Galyan’s Trading Company, Inc.
|
4.5* |
Agreement to be Bound, dated November 29, 1999,
by Benchmark Capital Partners IV, L.P.
|
4.6* |
Amended and Restated Registration Rights Agreement,
dated November 12, 1999, among Galyan’s Trading
Company, Inc., FS Equity Partners IV, L.P., The Limited, Inc. and Benchmark Capital Partners IV, L.P.
|
10.1* |
Employment Agreement, dated September 29, 2000, between
Robert B. Mang and Galyan’s Trading Company,
Inc.
|
10.2* |
Employment Agreement, dated May 21, 2001, between
C. David Zoba and Galyan’s Trading Company, Inc.
|
10.3 |
Resignation and General Release Agreement, dated
March 6, 2002, between Joel L. Silverman and
Galyan’s Trading Company, Inc.
|
10.4* |
Galyan’s Trading Company, Inc. 1999 Stock
Option Plan, as amended.
|
10.5* |
Form of 1999 Stock Option Agreement, as currently in effect.
|
10.6* |
Galyan’s Trading Company, Inc. 1999 Stock
Subscription Agreement, as amended.
|
10.7* |
Form of 1999 Stock Subscription Agreement,
as currently in effect.
|
10.8* |
Warrant issued to The Limited, Inc. to
purchase 1,350,000 shares of common stock.
|
10.9* |
Building Loan Agreement, dated October
29, 1999, between Keybank National Association and Galyan’s
Trading Company, Inc.
|
10.10 |
First
Modification of Mortgage Note, Assignment of Rents and Security Agreement, and
Loan Agreement, 10.10 dated April 1, 2002, between Keybank National Association
and Galyan’s Trading Company, Inc.
|
10.11* |
Building Loan Agreement, dated May 25, 2001,
between Keybank National Association and Galyan’s Trading Company, Inc.
|
10.12* |
Credit Agreement, dated as of May 3, 2001,
among Galyan’s Trading Company, Inc., as borrower, the
lenders party thereto and The Chase Manhattan Bank, as administrative agent.
|
10.13* |
Lease Agreement, dated August 31, 1999, between CP Gal Plainfield, LLC and
Galyan’s Trading Company, Inc.
|
10.14* |
Amendment No. 1 to First Amendment to Lease
Agreement, dated December 21, 2000, between CP Gal
Plainfield, LLC and Galyan’s Trading Company, Inc.
|
21* |
List of Subsidiaries.
|
23 |
Consent of Deloitte & Touche LLP
|
24 |
Power of Attorney
|
* Incorporated
by reference to the
Registration Statement on Form S-1 as declared effective on June 26,
2001 (File No. 333-57848).
** Incorporated by reference to the Quarterly
Report on Form 10-Q, as amended, for the quarter ended August
4, 2001.
54