Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [  ].

             Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X   No

This document contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please refer to pages 23-2732-38 of Form 10-K for a discussion of factors that could cause actual results to differ from expectations.

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $94,733,649$76,290,358 as of April 1,August 2, 2002 based upon the closing price of the registrant’s common stock on the Nasdaq National Market reported for April 1,August 2, 2002. The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $81,773,710 as of March 27, 2003 based upon the closing price of the registrant’s common stock on the Nasdaq National Market reported for March 27, 2003. Shares of voting stock held by each executive officer and director and by each person who, as of such date, may be deemed to have beneficially owned more than 5% of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates under certain circumstances.excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.

17,035,708             17,085,716 shares of the registrant’s common stock were outstanding on April 1, 2002.March 27, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates certain information from the Registrant’s definitive proxy statement for its Annual Meeting of Shareholders to be held on May 29, 200215, 2003 (the “2002“2003 Proxy Statement”).

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TABLE OF CONTENTS

Item              Description                                                                                Pages



Item
Description
Page
 
 
 
 
 
 
 
PART I
 
 
 
 
 1.
Business
3 
 2.
Properties
12 
 3.
Legal Proceedings
14 
 4.
Submission of Matters to a Vote of Security Holders
14 
 
 
 
 
PART II
 
 
 
 5.
Market for Registrant's Common Equity and Related Stockholder Matters
14 
 6.
Selected Financial Data
16 
 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
19 
 7A.
Quantitative and Qualitative Disclosures about Market Risk
38 
 8.
Financial Statements and Supplementary Data
39 
 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
39 
 
 
 
 
PART III
 
 
 
10.
Directors and Executive Officers of the Registrant
39 
11.
Executive Compensation
39 
12.
Security Ownership of Certain Beneficial Owners and Management and Related Matters
39 
13.
Certain Relationships and Related Transactions
39 
14.
Controls and Procedures
39 
 
 
 
 
PART IV
 
 
 
15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
40 

2
PART I
1.       Business                                                                                    3-102.       Properties                                                                                 10-113.       Legal Proceedings                                                                             114.       Submission
Forward-Looking Statements
             We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of Matters to a Vote of Security Holders                                           11PART II5.       Market for Registrant's Common Equity and Related Stockholder Matters                      11-126.       Selected Financial Data                                                                    12-147.       Management's Discussion and Analysis of Financial Condition and Results of Operations      15-277A.       Quantitative and Qualitative Disclosures about Market Risk                                    278.       Consolidated Financial Statements and Supplementary Data                               27, 29-509.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure          27PART III10.       Directors and Executive Officers of the Registrant                                            2711.       Executive Compensation                                                                        2712.       Security Ownership of Certain Beneficial Owners and Management                                2813.       Certain Relationships and Related Transactions                                                28PART IV14.       Financial Statement Schedules, Reports on Form 8-K and Exhibits                        28, 51-52          Signatures                                                                                    53

PART I

Forward-Looking Statements
Certain statements1995) contained or incorporated by reference in this Form 10-K constitute forward-looking statements,or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which reflectmay be beyond our management’s current view ofcontrol. Accordingly, our future eventsperformance and financial performance.results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. 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 those described at the end of Item 7 of this Report. 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. The Company doesWe do not undertake to publicly update or revise itsour forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

Item 1.          BUSINESS

General

Galyan’s Trading Company, Inc. (referred to herein as the “Company” or in the first person notations “we”, “us” and “our”) is a specialty retailer that offers a broad range of outdoor and athletic equipment, apparel, footwear and accessories, as well as casual apparel and footwear. Our storesstore format and our merchandising strategy are targeted to appeal to consumers with active lifestyles, from the casual consumer to the serious sports enthusiast. We currently operate 2836 stores in 1417 states, including two stores that we opened in March and April 20022003 (after the end of fiscal 2001)2002). We operate on a 52 or 53 week fiscal year ending on the Saturday closest to January 31. Our 20012002 fiscal year (52 weeks) ended on February 2, 2002.1, 2003. For further information, concerning the revenues, incomesee “Management’s Discussion and assets attributable to our operations, see our consolidated financial statements which are included as partAnalysis of this Annual Report on Form 10-K.Financial Condition and Results of Operations” under Item 7 hereof.

We commenced business more than 40 years ago when the Galyan family opened its first outdoor store in the greater Indianapolis market, and our current corporate entity was organized in Indiana in 1980. Limited Brands, Inc. (formerly known as The Limited, Inc. (hereafter, “The Limited”and hereafter, “Limited Brands”) purchased all of our stock from the Galyan family in 1995, and FS Equity Partners IV, L.P. (hereafter, “Freeman Spogli”) purchased a majority interest in us from The Limited Brands in 1999. OnIn July 2, 2001, we completed anour initial public offering of 6.5 million shares of common stock at $19.00 per share, and received approximately $112.0 million in net proceeds frombecame a publicly traded company on the offering.NASDAQ National Market.

Business Strategy

We are focused on being the premier active lifestyle retailer in the United States and the primary outdoor and athletic equipment, apparel, footwear and accessory destination for the entire family. The key elements of our strategy are:

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Rapidly Expand Our Store Base.Base. We believe our retail concept has broad national appeal and that we have significant new store expansion opportunities in new and existing markets. We have rapidly expanded our store base, having opened twelve14 stores in the past threetwo fiscal years. In additionWe plan to open an additional nine stores in fiscal 2003, including the two stores we have already opened this year, we plan to open seven additional stores in fiscal 2002.March. We have successfully implemented our store format in multiple venues, including freestanding stores, power strip shopping centers, malls and lifestyle centers. Power strip centers are large, open airopen-air shopping centers primarily comprised of large tenants with stores greater than 20,000 square feet. Lifestyle centers are large open-air complexes usually comprised of a combination of retailers, restaurants, movie theaters and interactive entertainment facilities.

Feature an Innovative and Appealing Store Environment.Environment. The large size, open layout and interactive environment of our typical store creates a distinctive atmosphere that we believe is appealing to both the casual consumer and the serious sports enthusiast and makes us a destination for the entire family. We organize our typical store into over 40 distinct specialty departments, each focusing on a particular activity or product

category. The large size and modular design of our typical store provide us with the flexibility to expand and contract our departments in response to seasonal needs and important merchandise trends.

Employ A Differentiated and Disciplined Merchandising Strategy.Strategy. We provide a product assortment that emphasizes middle to high endhigh-end merchandise. In addition to the widely recognized brands typically sold in traditional sporting goods stores, we emphasize higher quality and more technically advanced products often confined to more narrowly focused specialty retailers, and we offer private label merchandise which serves to complement our branded product offerings. Our broad and expansive product range enables us to demonstrate the advantages of our high endhigh-end merchandise to the customer, which we believe increases our sales of these higher priced products. Our merchandising strategy features stable, every day value pricing and we generally strive to avoid temporary product mark downsmarkdowns and run promotions primarily to clear merchandise as seasons or fashions change.

Provide Superior Customer Service and Product Knowledge.Knowledge. We seek to distinguish ourselves from our competitors by emphasizing customer service and product knowledge. We strive to hire sales associates who are experienced, enthusiastic and knowledgeable about one or more activities or sports. In addition, during their first several months with us, we provide our new sales associates with approximately 45an average of 56 hours of training focusing on our products, operations and customer service culture. We emphasize training because we believe experienced, enthusiastic and knowledgeable sales associates have greater credibility with our customers and a greater ability to influence their purchasing decisions. As part of our commitment to customer service, we also provide our customers with specialized pro shop services such as tennis racquet stringing, a full service bicycle and ski shop, ice skate sharpening, basketball goal installation, golf club re-gripping, team uniforms and hunting and fishing equipment setup, repairs and licenses.

Enhance Our Image and Extend Our Reach.Reach. We seek to build and enhance the recognition, appeal and reach of the Galyan’s image through our marketing efforts, every day value pricing, superior customer service, private label products and community commitment campaign. Our marketing efforts include magazine style newspaper inserts, anddirect mail, radio and

television advertising. We have also created a preferred customer program designed to build customer loyalty by rewarding significant purchasing activity, which enables us to specifically target our mailings to the interests of our preferred customers. In addition, through participation in numerous community level events, primarily focused on athletic and outdoor activities, we strive to increase our visibility in the local community and further enhance our image as an active lifestyle retailer and a destination for the entire family.

Our Stores

Our typical store has two shopping levels, ranges in size from approximately 80,000 to 100,000 gross square feet, and features an open, airy atmosphere with a fifty five foot high interior atrium, metal appointments and interactive elements, such as rock climbing walls and putting greens, that are designed to create an enjoyable and interactive shopping experience appealing to both the casual consumer and the serious sports enthusiast. We organize our typical store into over 40 distinct specialty departments, each focusing on a particular activity or product category, creating an environment similar to a collection of specialty shops under one roof. In addition, the large size and modular design of our typical store provide us with the flexibility to expand and contract our departments in response to seasonal needs and important merchandise trends.

We currently expect to open nine new stores in fiscal 2002,2003, including the stores already opened this fiscal year in Chicago, Illinois (in Village Crossing,Orland Park Place, located in Niles, Illinois in March 2002)Orland Park, Illinois) and Denver, Colorado (in Park Meadows Mall,The Shoppes at Grand Prairie, located in Littleton, Colorado in April 2002)Peoria, Illinois). The Peoria, Illinois store represents a test of a one-level 65,000 square foot new design prototype. The remaining seven stores scheduled to open in fiscal 2002,2003, for which we have fully executed leases, are located in Colorado, Illinois, Massachusetts, Michigan, Missouri, NevadaIndiana, Nebraska, New York, New Jersey, Virginia, Ohio and Texas.Illinois. Expansion in future years will depend on, among other

things, general economic and business conditions affecting consumer confidence and spending and, in particular, the level of consumer demand for our products, the availability of adequate capital, desirable locations at acceptable terms, and qualified management personnel, our ability to manage the operational aspects of our growth and comparable store performance.

Merchandising

We strive to provide a broad product range and selection that emphasize our strategy of brand tiering our merchandise assortments. We offer a range of brands at different price points to attract shoppers at every income, interest and skill level. We carry a broad range of products for men, women, boys and girls, including overapproximately 90,000 merchandise items in our typical store.

             Our product offerings include the following product lines and merchandise categories:

5

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 2001:2002:

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 1,100approximately 1,300 vendors, of which the top twenty vendors accounted for 35.4%35.0% of our total purchases in fiscal 2001.2002.

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

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, Dallas and the Washington, D.C. markets to accommodate the earlier season while waiting until April in markets such as Minneapolis and Buffalo.

6

Marketing
We emphasize

             Our marketing strategy reflects our strategic positioning of Galyan’s as an active lifestyle retailer. Our active lifestyle brand image is emphasized in each and every day value pricing strategy through print,marketing message we create, from newspaper, direct mail, magazine, radio and television advertising, as well as preferred customer direct mailto our in-store visual presentation and our support of national and local events and community activities. All of our marketing efforts are designedintended to emphasizepromote, enhance and build the brand while reinforcing our five point commitment to “Selection, Quality, Value, Servicecompetitive strengths and Community.”price/value message.

Our marketing effort consistsintegrates the broad reach of print campaigns, primarilynewspaper supplements, television, and strategic national magazine style newspaper inserts, supplemented with periodictargeted direct mail vehicles, event-based radio advertising and television advertising emphasizing our active lifestyle imagee-mail campaigns. We use this integrated and every day value pricing.balanced media mix to reach each of the three customer segments that we target: recreational, enthusiast and avid customers.

             In addition, we have established aour preferred customer program has a rapidly expanding database of loyal shoppers who are rewarded for ongoing purchases and are rapidly building a database that we use to reward those customersencouraged through special offers 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 highlighthighlighting brands, products, promotions and events relatingrelated to their particular areas of interest.

Another key component of our marketing initiativestrategy is our event marketing campaigns. We combine our strategic media partnerships and strong vendor relationships with regional community commitment program through whichefforts to build major company-wide events, differentiating us from our competitors.

             Through local activities, events and organizations, we prominently participate in the activities that are importantpursue relationships with local organizations and groups related to our customersbusiness to develop loyalty and impact at the community level 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.all markets. 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.retailer.

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 and expect these areas to be our primary focus in the next few years, we have successfully opened and operated stores in Atlanta, Dallas and Las Vegas and believe there arecontinue to be significant expansion opportunities for us to exploit in areas with less marked seasonal variation.

After we identify potential sites,markets, 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

7

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.

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 fifteen15 to twenty20 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. In fiscal 2003, we will receive developer financing for six of our nine stores. As more fully described in the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for those stores where we receive developer financing, we anticipate receiving similar relative levels of developer financing in fiscal 20022003 as we received in fiscal 2001,2002, although we can make no assurances that this type of financing will continue to be available on terms that are favorable to the Company.us.

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, if we own it, the land, and enter into a capital or operating lease covering boththe building and, if we own it, 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 current 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 AprilJuly 1, 2002, we received a three month extension for repayment ofpaid all amounts due under the construction loan for ourthe 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. All amounts outstanding under the construction loan for the Rochester, New York store are due May 1, 2003 and will be paid with funds available under our revolving credit facility.

8

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, Missouri, 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 fivefour greater Indianapolis market stores. Merchandise not distributed through the distribution center is shipped directly to the stores.

The substantial majority             Approximately 45% of our 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 stores. Due to the efficiencies cross-docking creates, we require many of our vendors to pre-package their products to increase the percentage of merchandise that we cross-dock. The remaining 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

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, human resource, payroll 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.JDA, which was installed in December 2002. Also, during fiscal 2002, we expect to installinstalled sales audit and loss prevention systems from Datavantage as well as the PeopleSoft Human Resource module.human resource and payroll modules. 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             We believe 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.expansion.

Store Management and Operations

We manage our stores through national, regional and store based personnel. Our directorSenior Vice President Director of store operationsStores has general oversight responsibility for all of our stores. We employ territory directors who oversee stores in several states and report directly to the directorSenior Vice President Director of store operations.Stores. 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 Each store manager has at least one assistant store manager reporting to them who assists in the management of eachthe

9

selling departments, store into athletics, outdoors,operations and administration and operations, each of which is headed by an assistant store manager who reports directly to the store manager. We alsoother administrative functions. Additionally, we employ several department managers who report directly to the store manager or assistant store managers.manager. 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

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, footwearathletic specialty stores and mass merchandisers. We compete on the basis of selection, customer service, style, price and quality.

Sporting Goods Stores.Stores. Stores in this category include large format sporting goods stores, such as The Sports Authority, Inc., and Gart Sports Company, who have announced their intention to merge their businesses, and Dick’s Sporting Goods, Inc., whichInc.. These stores 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.,

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 and deeper merchandise selection.

Outdoor Specialty Stores.Stores. Stores in this category include specialty stores and pro shops such as Golf Galaxy,Cabela's, 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,hunting, fishing or backpacking equipment.

Casual Apparel Retailers.Retailers. Companies in this category include national outdoor apparel retailers such as L.L. Bean, Inc., Lands End, Inc., Abercrombie & Fitch (owned by Sears, Roebuck and 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 and athletic equipment.

Footwear Specialty.Athletic Specialty Stores. Stores in this category include The Athlete’sAthlete's Foot Stores, Inc., Finish Line, Inc., Foot Locker, Inc, Golf Galaxy, Inc., and Foot Locker,Nevada Bob's Golf, Inc. These stores typically range in size from 1,000 to 10,000 square feet and 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.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”, “Galyan’s Sports and Outdoor Adventure” 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-ownedwholly owned subsidiary, we own several other trademarks and servicemarks involving advertising slogans and other names and phrases used in our business.

Governmental Regulation

We mustare a licensed retail firearms dealer in each jurisdiction in which we do business. As such we are required to comply with federal, state and local regulations includinggoverning the handling and transfer of firearms. At the federal Brady Handgun Violence Preventionlevel, these include The Gun Control Act which require us,of 1968, Title 18, Chapter 44, United States Code, as a federal firearms licensee, to perform a pre-sale background check of purchasers of firearms. We perform this background check using eitheramended; and 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.Act, Title 26, Chapter 53, United States Code, as amended.

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.

Employees
On April 1, 2002,March 27, 2003, we operated 36 stores and had approximately 5,0005,500 employees, of whom approximately 2,1002,300 worked full time, approximately 1,9002,200 worked part time and approximately 1,000 were full1,000werefull time and part time seasonal employees. During our fiscal fourth fiscal quarter, the number of our employees increases significantly. For example, on December 31, 2001,January 1, 2003, we operated 34 stores and had approximately 5,6006,200 employees of whichwhom approximately 2,1002,400 worked full time, approximately 2,1002,400 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 2001,2002, our sales trendedresults were as follows: 18.2%19.0% in the first quarter, 23.8% in the second quarter, 21.8%21.7% in the third quarter and 36.2%35.5% in the fourth quarter. We have significantly higher cash outlays in the fiscal fourth fiscal quarter due to higher purchase volumes and increased staffing.

11

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.

Galyan’s Website and Access to Filings

             We post all of our periodic reports on Form 10-K and 10-Q, and current reports on Form 8-K, on our website atwww.galyans.com as soon as reasonably practical after the reports are filed with or furnished to the Securities and Exchange Commission. Access to these reports is free of charge.

Item 2.          PROPERTIES

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, Missouri, 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. While we believe our executive offices are in good condition and are suitable for our business needs over the next 12 to 18 months, we are currently exploring alternative executive office facilities to accommodate our anticipated future growth.

The following table describes each of our 2836 stores in the order in which they were opened, starting with the most recent:

Market                     Location                   Opening Date    Square Feet
Denver                     Park Meadows Mall          
Market
Location
Opening Date
Gross Square Feet
Chicago
Orland Park Place
Orland Park, IL
March 2003
  97,548
Peoria
The Shoppes at Grand Prairie
Peoria, IL
March 2003
  65,084
Boston
Danvers, MA
November 2002
  78,500
Las Vegas
Galleria at Sunset Mall
Henderson, NV
October 2002
  84,266
St. Louis
West County Mall
Des Peres, MO
September 2002
  83,135
Chicago
Geneva Commons
Geneva, IL
September 2002
  80,041
Dallas
The Parks at Arlington Mall
Arlington, TX
August 2002
  84,717
Colorado Springs
First & Main Town Center
Colorado Springs, CO
August 2002
  82,932

12
Lansing
Meridian Mall
Okemos, MI
July 2002
  82,088
Denver
Park Meadows Mall
Littleton, CO
April 2002
  81,899
Chicago
Village Crossing
Niles, IL
March 2002
111,969
Salt Lake City
The Gateway
Salt Lake City, UT
November 2001
  91,146
Louisville
Oxmoor Centre
Louisville, KY
October 2001
  80,355
Detroit
Fountain Walk Center
Novi, MI
October 2001
  83,281
Rochester
Marketplace Mall
Henrietta, NY
July 2001
  83,578
Dallas
Stonebriar Centre
Frisco, TX
May 2001
  79,391
Grand Rapids
Rivertown Crossing Mall
Grandville, MI
September 2000
  91,471
Denver
Flatiron Crossing Mall
Broomfield, CO
August 2000
  97,241
Buffalo
Walden Galleria Mall
Buffalo, NY
April 2000
  80,118
Atlanta
Mall of Georgia
Buford, GA
August 1999
  83,391
Atlanta
Lenox Town Center
Atlanta, GA
July 1999
122,494
Atlanta
Town Center Commons
Kennesaw, GA
March 1999
  76,505
Chicago
Fountain Square
Lombard, IL
February 1999
  89,917
Indianapolis
Castleton Square Mall
Indianapolis, IN
October 1998
  76,108
Chicago
Streets of Woodfield
Schaumburg, IL
October 1998
170,521
Washington, D.C
Washingtonian Center
Gaithersburg, MD
July 1998
100,584
Washington, D.C
Fairlakes
Fairfax, VA
July 1998
104,236
Minneapolis/St. Paul
Richfield, MN
September 1997
101,270
Columbus
Easton Marketplace
Columbus, OH
September 1997
  83,638

13
Minneapolis/St. Paul
Tamarack Village Center
Woodbury, MN
October 1996
  81,019
Minneapolis/St. Paul
West Ridge Market
Minnetonka, MN
October 1996
  99,445
Kansas City
Leawood Town Center
Leawood, KS
September 1996
100,945
Indianapolis
Village Park Plaza
Carmel, IN
March 1995
  65,520
Columbus
Dublin, OH
September 1994
  74,636
Indianapolis
Pike Plaza
Indianapolis, IN
February 1989
  33,642
Indianapolis
Plainfield, IN
January 1960
  47,806
             In September of 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                    Mallour store in Greenwood, Indiana, which opened in 1985 and had 42,189 gross square feet, was destroyed by a tornado. We currently intend to reopen this store in 2003 and operate it as a clearance center through the expiration 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

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, INthe lease term in January 1960       47,806

Currently, we lease the land and building improvements for 2533 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.

Item 3.          LEGAL PROCEEDINGS

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.

Item 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

Item 5.          MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
                      MATTERS

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$13.04 on April 1, 2002.March 27, 2003. 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

14

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 analystanalysts expectations, changes in stock market analysts’ recommendations regarding us, other retail companies or the retail

industry in general, and domestic and international market and economic conditions.

STOCKHOLDERS
Stockholders

The number of our common stockholders of record as of April 1, 2002March 27, 2003 was 122.129. This number excludes stockholders whose stock is held in nominee or street name by brokers.

Dividend Policy

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

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, 20021, 2003 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 SECURITIESRecent Sales of Unregistered Securities

             None.

15

Item 6.          SELECTED FINANCIAL DATA

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.Report. The selected statement of operations data for fiscal 2002, 2001 2000 and 19992000 and selected balance sheet data for fiscal 20012002 and 20002001 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.

Fiscal Year (1)

Selected Financial Data                                           2001        2000        1999        1998        1997
 
Fiscal Year (1)
2002
2001
2000
1999
1998
 
(dollars in thousands, except per share and square footage data)
 
Consolidated Statement of Operations Data:
 
 
 
 
 
 
Net sales
 
$     597,745
 
$      482,528
 
$     421,662
 
$    328,121
 
$    219,597
 
Gross profit(2)
 
181,515
 
144,575
 
126,451
 
94,371
 
61,315
 
Selling, general and administrative expenses(3)
 
148,357
 
118,070
 
105,935
 
81,377
 
57,319
 
Corporate allocation from Limited Brands(4)
 
--
 
--
 
--
 
3,600
 
4,930
 
Costs of recapitalization(5)
 
--
 
--
 
--
 
1,085
 
--
 
Operating income(loss)
 
33,158
 
26,505
 
20,516
 
8,309
 
(934
)
Interest expense, net(6)
 
1,796
 
6,723
 
13,891
 
5,384
 
159
 
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
 
31,362
 
19,782
 
2,004
 
2,925
 
(1,093
)
Income tax expense (benefit)
 
12,642
 
8,340
 
1,641
 
1,708
 
(107
)
Income (loss) before extraordinary loss and
 
 
 
 
 
 
 
 
 
 
 
           cumulative effect of change in accounting
 
 
 
 
 
 
 
 
 
 
 
           principle
 
18,720
 
11,442
 
363
 
1,217
 
(986
)
Extraordinary loss, net of income tax expense(7)
 
--
 
(6,810
)
--
 
--
 
--
 
Cumulative effect of change in accounting
 
 
 
 
 
 
 
 
 
 
 
           principle, net of income tax expense(8)
 
--
 
--
 
--
 
(1,067
)
--
 
Net income (loss)
 
$       18,720
 
$          4,632
 
$            363
 
$           150
 
$         (986
)
Earnings (loss) per share (7)(8)(9)
 
 
 
 
 
 
 
 
 
 
 
           Basic
 
$           1.10
 
$            0.32
 
$           0.03
 
$          0.02
 
$        (0.27
)
           Diluted
 
$           1.09
 
$            0.32
 
$           0.03
 
$          0.02
 
$        (0.27
)
Weighted average shares outstanding(9)
 
           Basic
 
17,044,902
 
14,445,401
 
10,419,021
 
6,226,220
 
3,600,000
 
           Diluted
 
17,178,342
 
14,688,800
 
10,573,261
 
6,226,220
 
3,600,000
 
Cash dividend declared per share(10)
 
--
 
--
 
--
 
$          2.60
 
--
 
 
Selected Store Data:
 
Number of stores open (at fiscal year end)
 
34
 
26
 
21
 
18
 
14
 
Comparable store sales increase(11)(12)
 
0.5
%
0.2
%
10.2
%
8.4
%
4.8
%
Average net sales per store(13)
 
$       20,459
 
$        20,796
 
$       21,142
 
$      19,524
 
$      16,716
 
Total gross square footage (at fiscal year end)
 
2,967,805
 
2,240,447
 
1,822,696
 
1,553,866
 
1,181,559
 
Average gross square footage per store
 
 
 
 
 
 
 
 
 
 
 
           (at fiscal year end )(14)
 
87,288
 
86,171
 
86,795
 
86,326
 
84,397
 
Net sales per gross square foot(15)
 
$            233
 
$             240
 
$            245
 
$           231
 
$           229
 
Net sales per selling square foot(16)
 
$            298
 
$             302
 
$            308
 
$           292
 
$           287
 
 
Other Selected Operating Data:
 
Capital expenditures
 
$       59,453
 
$        37,252
 
$       20,413
 
$      24,318
 
$      21,077
 
Depreciation and amortization of non-financing
 
           intangibles
 
$       17,537
 
$        13,749
 
$       11,504
 
$      10,671
 
$        6,984
 
17
(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

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

18

Item 7.           MANAGEMENT’SMANAGEMENTS'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 1, 2003, February 2, 2002 and 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.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 2836 stores in 1417 states, including two stores opened during the first quarter of fiscal 2002.2003.

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 representaddresses the more critical accounting policies used in the preparation of our consolidated financial statements.statements and require management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

19

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

Long-Lived Assets: We review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable and annually when no such event has occurred. We review assets held and used on a store basis, which is the lowest level of assets for which there are identifiable cash flows. An impairment of long-lived assets exists when the undiscounted cash flows estimated to be generated by those assets is less than the carrying value of those assets. If any impairment is determined as a result of our assessment, the impairment loss is recorded in selling, general and administrative expenses. During fiscal 2002, 2001 and 2000, no impairment was recorded as a result of our assessment. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated, may affect the carrying value of long-lived assets and could result in an impairment charge.

Income Taxes: The Company follows SFAS No. 109,Accounting for Income Taxes, which requires the use of the liability method in accounting for income taxes. Deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying value of existing assets and liabilities and their respective tax bases. Inherent in the measurement of these deferred balances are certain judgments and interpretations of existing tax law and other published guidance as applied to our operations. No valuation allowance has been provided for deferred tax assets, since we fully anticipate that full amount of these assets should be realized in the future. Our effective tax rate considers our judgment of expected tax liabilities in the various taxing jurisdictions within which we are subject to tax.

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:

• 
  

  20

  ---

  During fiscal 2002, we recognized net insurance proceeds of $1.1 million related to the Greenwood, Indiana store location that was destroyed by a tornado.

  
  

  On July 2, 2001, we consummated our initial public offering of 6,500,000 shares of common shares at $19.00 per share. Upon the closing of ourthe 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 2002, 2001 and 2000, we recorded compensation expense of $368,000, $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 additionalthe remaining compensation expense relating thereto of $115,000 in fiscal 2002 and 2003 of $165,000 and $115,000, respectively.

2003.




• 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,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.

• 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, newnon-comparable stores and non-comparablenew 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 and related benefits 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 and related employee benefits (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, employee relocation, 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.us.

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 construction loans, as well as the amortization of financing intangibles.

Cumulative Effect of Change in Accounting Principle
Effective January 31, 1999, we changed our method of accounting for store pre-opening costs Fiscal 2001 and 2000 also include non-cash pay-in-kind interest relating 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.subordinated and junior subordinated notes.

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)
22
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 2002 (52 weeks) compared to Fiscal Year 2001 (52 weeks)

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.

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.

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Interest expense,Expense, net

Interest expense, net of interest 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

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 2001,2002, these capital and liquidity requirements were primarily funded by cash and cash equivalents on hand at the proceedsbeginning of our initial public offeringthe year and by net cash provided by operating activities. We also used our revolving credit facility to fund seasonal working capital needs during fiscal 2002.

Net cash provided by operating activities was $24.8$45.8 million for fiscal 20012002 compared to $17.8$23.4 million for fiscal 2000.2001. The increase from fiscal 2000 was2001was due primarily to (a) higher net income before extraordinary items (loss on early extinguishment of debt) and (b) deferred income taxes, which wasan increase in accounts payable and accrued expenses, partially offset by an increase in inventory due primarily 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.new stores opened during fiscal 2002.

Net cash used in investing activities was $27.9$66.6 million for fiscal 20012002 compared to $16.0$26.6 million for the same period last year. The increase was due primarily to capital expenditures associated with the addition of fivenine new stores in fiscal 20012002 compared to threefive in fiscal 2000.2001.

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Net cash used in financing activities was $4.0 million for fiscal 2002 compared to net cash provided by financing activities wasof $36.2 million for fiscal 2001 compared to net cash used in investing activities of $754,000 in fiscal 2000.2001. The increasedecrease was due primarily to the net proceeds during fiscal 2001 of approximately $112 million from the sale of 6.5 million6,500,000 shares of common stock in an initial public offering for net proceeds to us of approximately $112 million. We usedpartially offset by $62.8 million used to extinguish the subordinated and junior subordinated notes, including related accrued interest and unamortized discount. We used $48.0During fiscal 2002, we paid $5.3 million to repayfor all remaining principal and interest outstanding under the outstanding borrowings underconstruction loan with a bank for our revolving credit facility at the time of the offering. We invested the remaining proceedsstore building in cash equivalents.Buffalo, New York.

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 noAs of March 27, 2003, we had $20.0 million in outstanding borrowings and an availability of $68.8 million, net of $5.6 million used in support of letters of credit, under theour revolving credit facility as of April 1, 2002.facility.

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 hassubsidiaries have guaranteed, and any future subsidiaries will be required to guarantee, our obligations under the revolving credit facility.

Also, on             On March 27, 2003, JPMorgan Chase Bank committed to structure, arrange and syndicate a senior revolving credit facility in an aggregate amount of up to $250.0 million, of which up to $30.0 million may be used for the issuance of letters of credit. The new senior revolving credit facility, which will replace the revolving credit facility that expires May 25,3, 2004, is expected to have a five year maturity from the date of closing and will be secured primarily by inventory, accounts receivable, cash and general intangibles. Although there can be no assurances that the transaction will be completed, we anticipate the new revolving credit facility to be in place no later than June 30, 2003 when the commitment from JPMorgan Chase Bank expires.

             During fiscal 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, 2002March 27, 2003 of 3.81%3.3%. Outstanding advances as of April 1, 2002March 27, 2003 were $5.6$6.0 million. AllPayment of 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 loan2003 and 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 lenderexpected 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 amountsbe funded using borrowings under our existing credit facility to retire these construction loans.facility.

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Our net working capital at February 2, 20021, 2003 was $52.1$54.3 million, compared to $47.9$52.1 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 termlong-term debt). The increase in working capital resulted primarily from an increaseincreases in merchandise inventories and receivables for landlord construction contributions related to new stores, mostly offset by higher trade accounts payables and from deferredfederal and state income taxes and other current assets, which includes supply inventory, prepaid expenses and real estate escrows of insurance and property taxes.tax payables.

Our typical new store, if leased with a landlord construction contribution adequate to cover the cost of construction of 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.year and the extent of landlord construction contributions received. For fiscal 2002,2003, we currently estimate our total capital expenditures to range between $60$85.0 to $65$90.0 million, net of agreed-upon landlord construction contributions. In addition to this capital expenditures estimate, we currently anticipate approximately $5.0$5.2 to $6.0$5.6 million of non-capitalizable pre-opening costs for new stores. The capital expenditures estimate contemplates $55$64.0 to $59$68.0 million for nine new stores that we intend to open during fiscal 2002,2003, including the two stores we opened in March and April 2002, which2003. The total capital expenditure estimate also includes an estimated increase in construction-in-progress disbursements for anticipated fiscal 2003 openings and which2004 openings. The capital expenditures estimate also reflects the fact that onethree of our planned nine store openings for fiscal 2002 does2003 do not have any landlord construction contribution. Potentialcontributions as compared to eight of nine new stores in fiscal 2002 which had landlord construction contributions. Three of our fiscal 2003 new stores and some potential store locations that we seek to develop in the future may not have landlord construction contributions available. The expectedtotal capital expendituresexpenditure estimate for fiscal 20022003 also includes approximately $5.0$3.0 to $6.0$4.0 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 existing revolving credit facility will be sufficient to satisfy our current capital requirements for the stores we plan to open in the next 12 months.months, although our growth in fiscal 2004 could be restricted if we do not complete the new senior revolving credit facility as planned.

             We have entered into agreements that create contractual obligations and commercial commitments. These obligations and commitments will have an impact on future liquidity and capital resources. The tables set forth below present a summary of these obligations and commitments as of February 1, 2003.

             During June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or embedded derivatives.Disposal Activities, which nullifies Emerging Issues Task Force Issue No. 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. The adoption of this statement did not have a material effect on the consolidated financial statements.

             In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which, among other things, changes the way gains and losses from the extinguishment of debt are reported.

On February 3, 2002, we adopted SFAS No. 142,144,GoodwillAccounting for Impairment or Disposal of Long-Lived Assets and Other Intangible Assets.for Long-Lived Assets to be Disposed Of, Under SFAS No. 142, goodwill is no longer amortized. We are also required to complete an initial goodwillwhich addresses financial accounting and reporting for the impairment assessment in the yearor disposal 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 thelong-lived assets. The adoption of SFAS No. 142.this statement did not have an effect on the consolidated financial statements.

During June 2001, the Financial Accounting Standards Board issuesissued 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 orof 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,The adoption of this new standardstatement is not expected to have an effect on the consolidated financial statements.

During October 2001, the Financial Accounting Standards Board issued             On February 3, 2002, we adopted SFAS No. 144,142,Accounting for the Impairment or Disposal of Long-Lived AssetsGoodwill and for Long-Lived Assets to be Disposed Of,Other Intangible Assets. which is effective for us beginning February 3, 2002.Under SFAS No. 144 addresses financial accounting142, assets with indefinite useful lives are no longer amortized. Our goodwill has an indefinite useful life. We are required to complete an initial goodwill impairment assessment in the year of adoption and reporting for theat least annually thereafter or as impairment indicators arise. Annual goodwill amortization of $783,000 ceased upon adoption. An impairment assessment was completed upon adoption and then again as of February 1, 2003. No impairment was recognized upon adoption or disposal of long-lived assets. Management has not yet quantified the effect, if any, of this new standard on the consolidated financial statements.at February 1, 2003.

Cautionary Note Regarding Forward-Looking Statements
Certain

             We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained or incorporated by reference in this Form 10-K constitute forward-looking statements,or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which reflectmay be beyond our management’s current view ofcontrol. Accordingly, our future eventsperformance and financial performance.results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. 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, new store site selection, financing and performance, interest rates, bankruptcy filings, credit markets, and general United States economic conditions, international geo-political uncertainties and normal business uncertainty.uncertainties. 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 itsour 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 noveltyimpact of our store design and concept, added strain on our distribution center, additional information to be processed by our

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, geo-political uncertainties and conflicts, 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.

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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 2836 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. There are inherent risks in new store site selection and there can be no assurance that new stores will achieve their projected sales and profitability. 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 outdoorapparel and sports merchandise. Winter outerwear, rugged footwear and ski equipment, representedparticularly in the fourth quarter. Cold weather categories typically account for approximately 14.5%one-third of our sales in fiscal 2001.fourth quarter sales. 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 2001,2002, we generated 36.2%35.5% of our annual sales and 80.7%85.8% 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.staffing in our stores. 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.

34

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 (such as the tornado that destroyed our Greenwood, Indiana store in September 2002) 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. Also, two of our larger competitors, Gart Sports Company and The Sports Authority, Inc., have announced plans to merge. 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 2001.2002. 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 fourfive 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.management. We do not have employment agreements with any of our key executives other than with Robert B. Mang, our chief executive officerChief Executive Officer and chairmanChairman of our companyCompany and with C. David Zoba, our executive vice presidentExecutive Vice President and general counsel.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 2001,2002, our largest vendor, Nike, Inc., represented 7.9%8.0% of our purchases, and our second largest vendor, Columbia Sportswear Company, represented 6.6%5.6% of our purchases. Our twenty largest vendors collectively accounted for 35.4%35.0% 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

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, merchandising 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 installinstalled an inventory and merchandise management system provided by JDA, as well asa sales audit and loss prevention systems from Datavantage.Datavantage, and a payroll and human resource system from PeopleSoft, Inc. 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.
conditions.

             Our revolving credit facility expires May 3, 2004, although we have signed a commitment letter for a new revolving credit facility that we anticipate will close no later than June 30, 2003. The terms of our current 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. We expect the terms of our new facility to impose operating and financial restrictions on us, including, among other things, restrictions on our ability to incur indebtedness. 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 Brands as long as they collectively own a majority of our common stock, and they may make decisions with which other shareholders disagree.
disagree.

As of February 2, 2002,1, 2003, FS Equity Partners IV, L.P., a fund managed by Freeman Spogli & Co. LLC, which we refer to as Freeman Spogli, and The Limited Brands, collectively owned approximately 57.8%57.6% of the outstanding shares of our common stock. As a result, Freeman Spogli and The Limited Brands 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

The actual or potential sale by Freeman Spogli and/or The Limited Brands of their holdings of our stock could cause the market price of our stock to decline significantly.

As of February 2, 2002,1, 2003, Freeman Spogli owned 5,694,500 shares of our common stock, and The Limited Brands owned 4,150,500 shares of our common stock and hadhas a currently exercisable warrant to purchase 1,350,000 additional shares of our common stock.stock (exercise price of $32.01 at February 1, 2003). Neither Freeman Spogli nor The Limited Brands 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 Brands of a large interest in us could cause the market price of our stock to decline significantly. As active, controlling shareholders, with representation on the board of directors, Freeman Spogli and Limited Brands also have significant access to information about the Company and its short and long term business prospects. Although we have a policy which requires all executive officers and directors to provide pre-notification to the Company prior to any trading in the Company’s securities, Freeman Spogli and Limited Brands are not required to be bound by this policy and they have each declined to be bound by it voluntarily.

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 provisionsAlthough our board of directors has no intention to do so at the present time, our second amended and restated articles of incorporation permit our board of directors to issue “blank check” preferred stock. Blank check preferred stock allows the board to establish the rights (including voting rights), preferences and limitations of a series of preferred stock without shareholder approval. This 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.

In addition, our second amended and restated bylaws do not permit cumulative voting in the election of directors, and therefore allow the holders of a majority of our outstanding voting stock to control the election of all directors.

             Our second amended and restated bylaws provide that only our board of directors, and not our shareholders, may adopt, alter, amend and repeal our bylaws. Our second amended and restated bylaws also provide that nominations of persons for election to our board of directors and the proposal of business to be considered at a shareholders meeting may be made only in the notice of the meeting, by our board of directors or by a shareholder who is entitled to vote at the meeting and has complied with the advance notice procedures of our bylaws.

             Indiana law provides several limitations that may discourage potential acquirers from purchasing our common stock. A purchase of our common stock beyond threshholds established by Indiana law causes a shareholder to automatically lose the right to vote the acquired shares unless the holders of a majority of the disinterested shares vote to grant the acquired shares voting rights. In addition, Indiana law prohibits business combinations with a person who acquires 10% or more of our common stock during the five year period beginning with the acquisition unless, prior to the acquisition, our board of directors has approved the acquisition of shares or the proposed business combination.

             These and other provisions of Indiana law or our second amended and restated articles of incorporation and second amended and restated bylaws 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.

Item 7A:        Quantitative and Qualitative Disclosures about Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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-termshort-

term variable rates. The aggregate balances outstanding under our revolving credit facility and our construction loans as of February 1, 2003 and February 2, 2002 totaled $6.0 million and $10.9 million, respectively. No borrowings were outstanding under our revolving credit facility as of February 1, 2003 and February 3, 2001 totaled $10.9 million and $25.2 million, respectively.2, 2002. As of April 1, 2002,March 27, 2003, the aggregate balances outstanding under our revolving credit facility and our construction loans totaled $10.9$26.0 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 DataFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements required to be filed hereunder are set forth on pages 2942 through 5065 of this Report.

Item 9.          Changes in and Disagreements with Accountants on Accounting and Financial DisclosureCHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                      AND FINANCIAL DISCLOSURE

             None.

PART III

Item 10.        Directors and Executive Officers of the RegistrantDIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is incorporated by reference from the Proxy Statement.

Item 11.        Executive CompensationEXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from the Proxy Statement.

Item 12.        Security Ownership of Certain Beneficial Owners and ManagementSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                      MANAGEMENT AND RELATED MATTERS

The information required by this Item is incorporated by reference from the Proxy Statement.

Item 13.        Certain Relationships and Related TransactionsCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference from the Proxy Statement.

Item 14.        CONTROLS AND PROCEDURES

             Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within required time periods. Within

39

90 days prior to the date of this report (the “Evaluation Date”), we carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.

             Subsequent to the Evaluation Date, there have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form15.        EXHIBITS, FINANCIAL STATEMENTS 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 41of this Report.

             (b)    On December 16, 2002, we filed a current report on Form 8-K, dated the same day, reporting a Regulation FD Disclosure relating to a certification of our Principal Executive Officer and Principal Financial Officer as to matters required by Section 906 of the Sarbanes-Oxley Act of 2002.

             (c)    Exhibits required to be filed hereunder are listed in the exhibit index included herein at page 68.

             (d)    Consolidated financial statement schedule included herein at page 67.

40

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Pages
41
Independent Auditors' Report                                                   30Consolidated Balance Sheets as of February 2, 2002 and February 3, 2001        31Consolidated Statements of Operations for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000                        32Consolidated Statements of Shareholders’ Equity for the Fiscal
Years Ended February 2, 2002, February 3, 2001 and January 29, 2000            33Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000                        34Notes to Consolidated Financial Statements for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000                     35-50

INDEPENDENT AUDITORS'AUDITORS’ REPORT

As discussed in Note 1 to the consolidated financial statements, effective January 31, 1999,February 3, 2002, the Company changed its methodadopted the provisions of accounting for store pre-opening costs.



Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets.

/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 15, 200214, 2003

42
Galyan'sGalyan’s Trading Company, Inc.
Consolidated Balance Sheets                                                                         Fiscal Year
(
As of February 2, 20021, 2003 and February 3, 2001)2, 2002
(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
 
Fiscal Year
 
 
2002
 
2001
 
Assets
 
 
 
Current assets:
 
 
 
 
 
      Cash and cash equivalents
 
$           11,890
 
$           36,770
 
      Receivables, net
 
7,726
 
3,219
 
      Merchandise inventories
 
138,993
 
111,815
 
      Deferred income taxes
 
1,969
 
2,172
 
      Other current assets
 
5,010
 
6,619
 
              Total current assets
 
165,588
 
160,595
 
 
 
 
 
 
 
Property and equipment, net
 
136,421
 
94,572
 
Deferred income taxes
 
--
 
718
 
Goodwill, net
 
18,334
 
18,334
 
Other assets, net
 
878
 
1,521
 
              Total assets
 
$         321,221
 
$         275,740
 
 
Liabilities and Shareholders' Equity
 
Current liabilities:
 
 
 
 
 
      Accounts payable
 
$           56,804
 
$           39,248
 
      Accrued expenses
 
42,579
 
32,438
 
      Current portion of long-term debt
 
6,103
 
5,368
 
              Total current liabilities
 
105,486
 
77,054
 
Long-term liabilities:
 
      Debt, net of current portion
 
186
 
5,932
 
      Deferred income taxes
 
1,334
 
--
 
      Other long-term liabilities
 
6,938
 
5,533
 
              Total long-term liabilities
 
8,458
 
11,465
 
 
Commitments and contingencies
 
--
 
--
 
 
Shareholders' equity:
 
      Preferred stock, no par value
 
 
 
 
 
          5,000,000 shares authorized; no shares issued or outstanding
 
--
 
--
 
      Common stock and paid-in capital, no par value
 
          50,000,000 shares authorized, 17,084,716 and 17,033,708 shares issued
 
          and outstanding, respectively
 
191,802
 
191,134
 
      Notes receivable from shareholders
 
(948
)
(1,451
)
      Unearned compensation
 
(115
)
(280
)
      Warrants
 
1,461
 
1,461
 
      Retained earnings (deficit)
 
15,077
 
(3,643
)
              Total shareholders' equity
 
207,277
 
187,221
 
              Total liabilities and shareholders' equity
 
$         321,221
 
$         275,740
 
The accompanying notes are an integral part of these consolidated financial statements.

Galyan's Trading Company, Inc.
Consolidated Statements of Operations                                                                      Fiscal Year
(
For the Fiscal Years Ended February 1, 2003, 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
 
Fiscal Year
 
2002
 
2001
 
2000
 
Net sales
 
$        597,745
 
$        482,528
 
$          421,662
 
Cost of sales
 
416,230
 
337,953
 
295,211
 
Gross profit
 
181,515
 
144,575
 
126,451
 
Selling, general and administrative expenses
 
148,357
 
118,070
 
105,935
 
Operating income
 
33,158
 
26,505
 
20,516
 
Interest expense
 
2,053
 
7,095
 
14,065
 
Loss on investment in MVP.com
 
--
 
--
 
4,621
 
Interest income
 
(257
)
(372
)
(174
)
Income before income tax expense and extraordinary item
 
31,362
 
19,782
 
2,004
 
Income tax expense
 
12,642
 
8,340
 
1,641
 
Income before extraordinary item
 
18,720
 
11,442
 
363
 
Extraordinary loss on early extinguishment of debt (net of income tax
 
   benefit of $3,625)
 
--
 
(6,810
)
--
 
Net income
 
$           18,720
 
$            4,632
 
$                 363
 
 
Basic earnings per share:
 
   Earnings per share before extraordinary item
 
$               1.10
 
$              0.79
 
$                0.03
 
   Per share extraordinary loss
 
--
 
(0.47
)
--
 
Basic earnings per share
 
$               1.10
 
$              0.32
 
$                0.03
 
 
Diluted earnings per share:
 
   Earnings per share before extraordinary item
 
$               1.09
 
$              0.78
 
$                0.03
 
   Per share extraordinary loss
 
--
 
(0.46
)
--
 
Diluted earnings per share
 
$               1.09
 
$              0.32
 
$                0.03
 
The accompanying notes are an integral part of these consolidated financial statements.

Galyan'sGalyan’s Trading Company, Inc.
Consolidated Statements of Shareholders'Shareholders’ Equity
(
For the Fiscal Years Ended February 1, 2003, 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

 
Common Stock
 
Shares
 
Paid-in
Capital
 
Notes
Receivable
from
Shareholders
Unearned
Compen-
sation
Warrants
Retained
Earnings
(Deficit)
Total
 
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 Limited Brands
 
--
 
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
 
6,550,001
 
112,797
 
(285
)
--
 
--
 
--
 
112,512
 
Exercise of stock warrants
 
720,000
 
7,200
 
--
 
--
 
(7,193
)
--
 
7
 
Stock compensation expense
 
--
 
--
 
--
 
165
 
--
 
--
 
165
 
Payments on notes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   receivable from shareholders
 
--
 
--
 
325
 
--
 
--
 
--
 
325
 
Service contributed from
 
   Limited Brands
 
--
 
541
 
--
 
--
 
--
 
--
 
541
 
Net income
 
--
 
--
 
--
 
--
 
--
 
4,632
 
4,632
 
 
Balance, February 2, 2002
 
17,033,70
8
191,134
 
(1,451
)
(280
)
1,461
 
(3,643
)
187,221
 
Issuance of common stock
 
20,800
 
208
 
--
 
--
 
--
 
--
 
208
 
Employee stock purchase plan
 
30,208
 
257
 
--
 
--
 
--
 
--
 
257
 
Issuance of stock options
 
--
 
203
 
--
 
--
 
--
 
--
 
203
 
Stock compensation expense
 
--
 
--
 
--
 
165
 
--
 
--
 
165
 
Payments on notes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   receivable from shareholders
 
--
 
--
 
503
 
--
 
--
 
--
 
503
 
Net income
 
--
 
--
 
--
 
--
 
--
 
18,720
 
18,720
 
 
Balance, February 1, 2003
 
17,084,71
6
$ 191,802
 
$       (948
)
$       (115
)
$     1,461
 
$   15,077
 
$ 207,277
 
 
The accompanying notes are an integral part of these consolidated financial statements.

Galyan'sGalyan’s Trading Company, Inc.
Consolidated Statements of Cash Flows                                                                   Fiscal Year
(
For the Fiscal Years Ended February 1, 2003, 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
 
Fiscal Year
 
2002
 
2001
 
2000
 
Cash flows from operating activities:
 
 
 
 
     Net income
 
$   18,720
 
$     4,632
 
$       363
 
     Adjustments to reconcile net income to net cash from operating activities:
 
         Depreciation and amortization
 
17,537
 
13,749
 
11,504
 
         Amortization of financing intangible and discount on subordinated notes to
 
             Freeman Spogli and Limited Brands
 
535
 
1,222
 
2,491
 
         Loss on early extinguishment of debt
 
--
 
10,435
 
--
 
         Loss on investment in MVP.com
 
--
 
--
 
4,621
 
         Deferred income taxes
 
2,255
 
1,258
 
(4,630
)
         Interest converted to subordinated debt
 
--
 
3,647
 
6,649
 
         Loss on disposal of property and equipment
 
223
 
282
 
1,155
 
         Deferred rent and other non-cash expense
 
2,136
 
2,651
 
2,753
 
         Changes in certain assets and liabilities:
 
 
 
 
 
 
 
             Accounts receivable
 
(608
)
(648
)
270
 
             Merchandise inventories
 
(27,178
)
(20,320
)
(17,971
)
             Other assets
 
1,561
 
(3,574
)
(561
)
             Accounts payable and accrued expenses
 
30,616
 
10,046
 
14,783
 
                   Net cash provided by operating activities
 
45,797
 
23,380
 
21,427
 
Cash flows from investing activities:
 
 
 
 
 
 
 
     Capital expenditures
 
(59,453
)
(37,252
)
(20,413
)
     Increase (decrease) in net accounts payable for capital expenditures
 
(7,181
)
10,701
 
834
 
                   Net cash used in investing activities
 
(66,634
)
(26,551
)
(19,579
)
Cash flows from financing activities:
 
 
 
 
 
 
 
     Net payments on revolving line of credit
 
--
 
(19,950
)
(3,900
)
     Proceeds from long-term debt
 
350
 
5,650
 
3,423
 
     Principal payments on long-term debt
 
(5,361
)
(60,892
)
(1,157
)
     Payments on notes receivable from shareholders
 
503
 
325
 
300
 
     Proceeds from sale of common stock
 
465
 
124,067
 
682
 
     Payment of financing costs
 
--
 
(1,467
)
--
 
     Transaction costs for initial public offering
 
--
 
(11,548
)
--
 
     Repurchase of common stock
 
--
 
--
 
(102
)
                   Net cash provided by (used in) financing activities
 
(4,043
)
36,185
 
(754
)
Net increase (decrease) in cash and cash equivalents
 
(24,880
)
33,014
 
1,094
 
Cash and cash equivalents, beginning of year
 
36,770
 
3,756
 
2,662
 
Cash and cash equivalents, end of year
 
$   11,890
 
$   36,770
 
$     3,756
 
The accompanying notes are an integral part of these consolidated financial statements.

GALYAN'SGALYAN’S TRADING COMPANY, INC.

Notes to Consolidated Financial Statements

For the Fiscal Years Ended February 1, 2003, February 2, 2002 and 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 2634 stores in 1417 states that offersoffer 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 million6,500,000 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”Freeman Spogli”), a fund managed by Freeman Spogli & Co. LLC; G Trademark, Inc. (“G Trademark”), a wholly owned subsidiary of The Limited Brands, Inc. (“The Limited”Limited Brands”); Benchmark Capital Partners IV, L.P. (“Benchmark”); management and a director.directors. From July 1995 until August 1999, the Company was a wholly owned subsidiary of The Limited.

Limited Brands.

Fiscal Year
The Company’s

             Our fiscal year ends on the Saturday closest to January 31. Fiscal years ended February 1, 2003, February 2, 2002 and February 3, 2001 and January 29, 2000 are referred to as fiscal 2002, 2001, and 2000, respectively. Fiscal 2002 and 1999, respectively.2001 include 52 weeks. 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,subsidiaries, Galyan’s Nevada, Inc. (“Nevada”) and Galyan’s of Virginia, Inc. (“Virginia”). Virginia was incorporated in fiscal 2002 to centralize the ownership and administration of gift certificate and gift card liabilities. 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

             We consider 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.

Goodwill

Goodwill
Goodwill is             Prior to fiscal 2002, goodwill was amortized on a straight-line basis over 30 years. Amortization expense of goodwill for fiscal 2001 2000, and 19992000 was $783,000 $783,000 and $808,000, respectively.

each year.

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,primarily building and leasehold improvements, 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

             We recognize 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 Companywe no longer permitspermitted 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 2002, 2001 and 2000 and 1999 was $17.8 million, $12.2 million and $9.7 million respectively.

             Non-capital expenditures, such as payroll, store set-up costs, training of new store employees and $7.3travel, incurred prior to the opening of a new store are charged to expense in the period they are incurred. Pre-opening costs for fiscal 2002, 2001, and 2000 were $4.9 million, $2.8 million and $1.8 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’sour basic and diluted weighted average common shares as required by Statement of Financial Accounting Standards (“SFAS”) No. 128,Earnings Per Share: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