UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 2002
2, 2003
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
_____to _____
Commission File No. 000-32911
GALYAN’S TRADING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Indiana | 35-1529720 | ||||
(State or other jurisdiction of | |||||
| incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
2437 East Main Street
Plainfield, Indiana 46168
(Address of principal executive offices) (Zip Code)
(317) 612-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)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 whether the Registrant is an accelerated filer as defined in Exchange Act Rule 12b-2. Yes X No ___
Number of shares of Common Stock outstanding at September 1, 2002: 17,042,508August 29, 2003: 17,195,533
1
GALYAN’S TRADING COMPANY, INC.
Index to Form 10-Q
For the three and six month periods ended August 2, 2003
Page Number | ||
PART I. FINANCIAL INFORMATION | ||
Item 1. | Financial Statements (Unaudited) | |
3 | ||
Condensed Consolidated Balance Sheets – August 2, 2003 and February 1, 2003 | 4 | |
5 | ||
6-9 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10-17 |
Item 3. | 17 | |
Item 4. | 18 | |
PART II. OTHER INFORMATION | ||
Item 4. | 18 | |
Item 6. | 19 | |
20 | ||
2
INDEX TO FORM 10-Q
Page NumbersPartPART I. FINANCIAL INFORMATIONItem 1.
ConsolidatedFinancial Statements(Unaudited):Galyan’s Trading Company, Inc.
Condensed Consolidated Statements of Operations4
For the Three and Six Month Periods Ended August 2, 2003 and August 3, 2002
(dollars in thousands, except per share data)
Three Month Periods Ended
Six Month Periods Ended
August 2, 2003
August 3, 2002
August 2, 2003
August 3, 2002
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Net sales
$
163,662
$
142,275
$
293,226
$
255,732
Cost of sales
119,215
99,459
215,135
181,410
Gross profit
44,447
42,816
78,091
74,322
Selling, general and administrative expenses
44,067
35,810
81,543
67,621
Operating income (loss)
380
7,006
(3,452
)
6,701
Interest expense
707
465
1,174
971
Interest income
(18
)
(32
)
(40
)
(153
)
(Loss) income before income tax (benefit) provision
(309
)
6,573
(4,586
)
5,883
Income tax (benefit) provision
(123
)
2,688
(1,834
)
2,412
Net (loss) income
$
(186
)
$
3,885
$
(2,752
)
$
3,471
Basic (loss) earnings per share
$
(0.01
)
$
0.23
$
(0.16
)
$
0.20
Diluted (loss) earnings per share
$
(0.01
)
$
0.22
$
(0.16
)
$
0.20
Weighted average shares used in calculating (loss) earnings per common share:
Basic
17,153,084
17,040,316
17,121,268
17,037,737
Diluted
17,153,084
17,421,936
17,121,268
17,354,728
See accompanying Notes to Condensed Consolidated Financial Statements.
3
Galyan’s Trading Company, Inc.
Condensed Consolidated Balance Sheets5
As of August 2, 2003 and February 1, 2003
(dollars in thousands, except share data)
August 2, 2003
February 1, 2003
(Unaudited)
(Note 1)
Assets
Current assets:
Cash and cash equivalents
$
10,818
$
11,890
Receivables, net
10,573
7,726
Merchandise inventories
171,793
138,993
Deferred income taxes
2,523
1,969
Other current assets
5,260
5,010
Total current assets
200,967
165,588
Property and equipment, net
165,307
136,421
Goodwill, net
18,334
18,334
Other assets, net
2,043
878
Total assets
$
386,651
$
321,221
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$
90,718
$
56,804
Accrued expenses
34,377
42,579
Current portion of long-term debt
87
6,103
Total current liabilities
125,182
105,486
Long-term liabilities:
Debt, net of current portion
47,587
186
Deferred income taxes
80
1,334
Other long-term liabilities
7,779
6,938
Total long-term liabilities
55,446
8,458
Shareholders’ equity:
Common stock and paid-in capital, no par value; 50,000,000 shares authorized; 17,195,533 and 17,084,716 shares issued and outstanding
193,031
191,802
Notes receivable from shareholders
(761
)
(948
)
Unearned compensation
(33
)
(115
)
Warrants
1,461
1,461
Retained earnings
12,325
15,077
Total shareholders’ equity
206,023
207,277
Total liabilities and shareholders’ equity
$
386,651
$
321,221
See accompanying Notes to Condensed Consolidated Financial Statements.
4
Galyan’s Trading Company, Inc.
Condensed Consolidated Statements of Cash Flows6
For the Six Month Periods Ended August 2, 2003 and August 3, 2002
(dollars in thousands)
August 2, 2003
August 3, 2002
(Unaudited)
(Unaudited)
Cash flows from operating activities:
Net (loss) income
$
(2,752
)
$
3,471
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization
11,681
7,924
Amortization of financing intangibles
240
278
Deferred income taxes
(1,808
)
(640
)
Loss on disposal of property and equipment
9
—
Deferred rent and other non-cash expense
923
925
Changes in certain assets and liabilities:
Accounts receivable
543
349
Merchandise inventories
(32,800
)
(32,604
)
Other assets
(250
)
(1,281
)
Accounts payable and accrued expenses
24,208
30,280
Net cash (used in) provided by operating activities
(6
)
8,702
Cash flows from investing activities:
Capital expenditures
(40,498
)
(29,189
)
Decrease in net accounts payable for capital expenditures
(1,741
)
(11,542
)
Net cash used in investing activities
(42,239
)
(40,731
)
Cash flows from financing activities:
Net borrowings from revolving line of credit
47,439
9,000
Proceeds from long-term debt
—
365
Principal payments on long-term debt and other obligations
(6,054
)
(5,314
)
Payments on notes receivable from shareholders
187
358
Proceeds from sale of common stock
1,084
88
Payments of financing costs
(1,483
)
—
Net cash provided by financing activities
41,173
4,497
Net decrease in cash and cash equivalents
(1,072
)
(27,532
)
Cash and cash equivalents, beginning of period
11,890
36,770
Cash and cash equivalents, end of period
$
10,818
$
9,238
Supplemental disclosures of cash flow information:
Cash paid for:
Interest
$
1,189
$
692
Income taxes
$
7,298
$
3,552
See accompanying Notes to Condensed Consolidated Financial
Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure about Market Risk 15 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18
5
2
Safe HarborNote 1: Organization and Significant Accounting Policies
Description of Business
Galyan’s Trading Company, Inc. 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 store format and our merchandising strategy are targeted to appeal to consumers with active lifestyles, from the casual consumer to the serious sports enthusiast. As of August 2, 2003, we operated 38 stores in 18 states and one clearance center. The clearance center location is not included in our store count above as it is not part of our long-term strategy.
Basis of Presentation
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements reflect all adjustments that are necessary for a fair presentation of the results of operations for the periods shown. All such adjustments are of a normal recurring nature. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.
The balance sheet at February 1, 2003 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
This Report should be read in conjunction with our Annual Report on Form 10-K for the year ended February 1, 2003, as filed with the Securities and Exchange Commission (“SEC”).
Certain amounts in the fiscal 2002 condensed consolidated financial statements have been reclassified to conform to the fiscal 2003 presentation.
(Loss) Earnings Per Share
(Loss) earnings per share of common stock is based on the weighted average number of shares outstanding during the related periods. Since we had a (loss) from operations for the three and six month periods ended August 2, 2003, 120,511 and 89,169, incremental shares, respectively, relating to the dilutive effect of stock options were excluded from the calculation of diluted (loss) per share due to their anti-dilutive effect. Diluted earnings per share for the three and six month periods ended August 3, 2002, included 381,620 and 316,991 incremental shares, respectively, relating to the dilutive effect of stock options.
Stock Compensation
In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 148 Accounting for Stock-Based Compensation – Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation, we will continue to account for stock-based employee compensation under the provisions of APB Opinion No. 25 and related interpretations.
The following illustrates the pro forma effect on net (loss) earnings and (loss) earnings per share if we had applied the fair value recognition provisions of SFAS No. 123:
6
GALYAN’S TRADING COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Note 1: Organization and Significant Accounting Policies (continued)
|
| Three Month Periods Ended |
| Six Month Periods Ended |
| ||||||||
|
| August 2, |
| August 3, |
| August 2, |
| August 3, |
| ||||
|
|
|
|
|
| ||||||||
|
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
Net (loss) earnings as reported |
| $ | (186 | ) | $ | 3,885 |
| $ | (2,752 | ) | $ | 3,471 |
|
Add: Stock-based compensation expense included in reported net (loss) earnings, net of related tax effects |
|
| 25 |
|
| 25 |
|
| 50 |
|
| 171 |
|
|
|
|
|
|
| ||||||||
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects |
|
| (400 | ) |
| (278 | ) |
| (716 | ) |
| (1,032 | ) |
|
|
|
|
|
| ||||||||
Pro forma net (loss) earnings |
| $ | (561 | ) | $ | 3,632 |
| $ | (3,418 | ) | $ | 2,610 |
|
|
|
|
|
|
| ||||||||
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, as reported |
| $ | (0.01 | ) | $ | 0.23 |
| $ | (0.16 | ) | $ | 0.20 |
|
Basic, pro forma |
| $ | (0.03 | ) | $ | 0.21 |
| $ | (0.20 | ) | $ | 0.15 |
|
Diluted, as reported | �� | $ | (0.01 | ) | $ | 0.22 |
| $ | (0.16 | ) | $ | 0.20 |
|
Diluted, pro forma |
| $ | (0.03 | ) | $ | 0.21 |
| $ | (0.20 | ) | $ | 0.15 |
|
The pro forma amounts are not representative of the effects on reported earnings for future periods.
The weighted average fair value of options granted for the three and six month periods ended August 2, 2003 were $6.74 and $6.71, respectively. The weighted average fair value of options granted for the three and six month periods ended August 3, 2002 were $10.50 and $8.50, respectively. The weighted average fair value of the options calculated in accordance with SFAS No. 123 were determined using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
| Three Month Periods Ended |
| Six Month Periods Ended |
| ||||||||
|
| August 2, |
| August 3, |
| August 2, |
| August 3, |
| ||||
|
|
|
|
|
| ||||||||
Expected dividend yield |
|
| 0 | % |
| 0 | % |
| 0 | % |
| 0 | % |
Expected stock price volatility |
|
| 63 | % |
| 62 | % |
| 63 | % |
| 62 | % |
Risk-free interest rate range |
|
| 1.94 | % |
| 4.15% - 4.28 | % |
| 1.94% -2.38 | % |
| 3.89% - 4.28 | % |
Expected life of options |
|
| 4 |
|
| 4 |
|
| 4 |
|
| 4 |
|
7
GALYAN’S TRADING COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Note 2: Long-Term Debt
On April 25, 2003, we entered into an amended and restated credit agreement with JPMorgan Chase Bank, as administrative agent, for the syndication of participating banks, which matures on April 24, 2008. Under this agreement, our revolving credit facility maximum borrowing capacity is $250.0 million of which $30.0 million may be used for the issuance of letters of credit. The Private Securities Litigation Reform Act Of 1995revolving credit facility is an asset based loan with a borrowing base calculated on certain percentages of eligible inventory, eligible accounts receivables, and certain real property as defined in the agreement. 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 our availability level or EBITDA measured at each quarter end. Availability is defined as the lesser of the monthly borrowing base or $250.0 million; minus the total borrowings, including letters of credit. We pay an annual commitment fee on the unused portions of the revolving credit facility at a variable amount based on utilization of the total facility. As of August 2, 2003, the commitment fee rate was 0.425%. We will not be subject to any financial covenants, provided we maintain a minimum of $35.0 million of availability. If availability is less than $35.0 million for more than five consecutive days we will be subject to a minimum EBITDA covenant. The revolving credit facility contains certain other covenants, including covenants that restrict our ability to incur indebtedness or to create various liens, and restrict our ability to engage in mergers or acquisitions, sell assets, 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 our cash, inventory, intellectual property, and certain real estate if the real estate is included in the borrowing base. Our subsidiaries have guaranteed, and any future subsidiaries will be required to guarantee, our obligations under the revolving credit facility.
During fiscal 2001, we entered into a $6.0 million line of credit agreement with a bank to be used for the construction of a new store building. On May 1, 2003, we paid all remaining outstanding principal and interest on this loan.
Long-term debt consists of the following at August 2, 2003 and February 1, 2003 (in thousands):
|
| August 2, 2003 |
| February 1, 2003 |
| ||
|
|
|
| ||||
|
| (Unaudited) |
| (Note 1) |
| ||
Bank and other: |
|
|
|
|
|
|
|
Revolving line of credit |
| $ | 47,439 |
| $ | — |
|
Construction loan |
|
| — |
|
| 6,000 |
|
Capital lease obligations |
|
| 235 |
|
| 289 |
|
|
|
|
| ||||
Total long-term debt |
|
| 47,674 |
|
| 6,289 |
|
Less current maturities |
|
| (87 | ) |
| (6,103 | ) |
|
|
|
| ||||
Total long-term debt, net of current maturities |
| $ | 47,587 |
| $ | 186 |
|
|
|
|
| ||||
Note 3: Shareholders’ Equity
During the second quarter of fiscal 2003, we issued options to purchase 434,000 shares of common stock under our 1999 Stock Option Plan at $13.66 per share to certain employees and directors. These options vest over a three year period and expire seven years after the grant date.
8
GALYAN’S TRADING COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Note 4: New Accounting Pronouncements
On January 1, 2003, we adopted Emerging Issues Task Force (“EITF”) 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor. This EITF addresses the classification of cash consideration received from vendors in a reseller’s consolidated financial statements. The guidance related to income statement classification is to be applied in annual and interim financial statements for agreements entered into, or modifications of existing agreements, after January 1, 2003. The consensus of the EITF establishes an overall presumption that cash received from vendors is a reduction in the price of vendor’s products and should be recognized accordingly as a reduction in cost of sales at the time the related inventory is sold. Some consideration could be characterized as a reduction of expense if the cash received represents a reimbursement of specific, incremental, identifiable costs incurred by the retailer to sell the vendor’s products. For the three and six month periods ended August 2, 2003, the adoption of this statement increased our operating loss by $340,000 ($203,000 net of income taxes or $0.01 per share on a fully diluted basis) and $810,000 ($486,000 net of income taxes or $0.03 per share on a fully diluted basis), respectively.
On February 2, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this statement did not have an effect on the consolidated financial statements.
On February 2, 2003, we adopted the recognition and measurement provisions of Financial Accounting Standards Board Interpretation No. 45 (“FIN No. 45”) Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of SFAS No. 5, 57, and 107 and the rescission of FASB Interpretation No. 34, was issued. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure requirements in this interpretation were adopted in fiscal 2002. We had no guarantees that were required to be disclosed in the consolidated financial statements. The adoption of this statement did not have an effect on the consolidated financial statements.
On June 1, 2003, we adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of this statement did not have a material impact on the consolidated financial statements.
Note 5: Subsequent Event
On August 8, 2003 we sold our interest in buildings and leasehold improvements for three store locations, for approximately $21.0 million to CPA®:15, a member of the W.P. Carey Group and simultaneously entered into lease agreements for these three store locations. The sale included our store locations in Buffalo, New York, and Greenwood, Indiana, as well as a future store location in Freehold, New Jersey that is scheduled to open in the summer of 2004. Approximately $9.0 million of the $21.0 million total is attributable to the future store location in Freehold, New Jersey, and will not be funded fully until that store opens. The net proceeds from this transaction were used to repay current borrowings under our revolving credit facility.
9
Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
Galyan’s Trading Company, Inc. (referred to herein as the “Company” or in 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 store format and our merchandising strategy are targeted to appeal to consumers with active lifestyles, from the casual consumer to the serious sports enthusiast. A 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. As of August 2, 2003, we operated 38 stores in 18 states and one clearance center. The clearance center location is not included in our store count above as it is not part of our long-term strategy.
Critical Accounting Policies
Our critical accounting policies are summarized below.
Revenue recognition: We recognize retail sales upon the purchase of the merchandise by our customers, net of returns and allowances, which are based on estimates determined using historical customer returns experience. We use gift cards and store credits, the revenue of which is recognized upon redemption by the customer. We recognize markdowns associated with our preferred customer and private label credit card programs upon redemption in conjunction with a qualifying purchase.
Inventories: We state inventories at the lower of cost or market, on a first-in, first-out basis, utilizing the retail inventory method. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including among others, markups, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. The methodologies utilized by us in applying the retail inventory method are consistent for all periods presented. Such methodologies include the development of the cost-to-retail ratios, development of shrinkage reserves and the accounting for price changes. We review our inventory levels to identify merchandise that may not sell at its currently ticketed price for reasons such as style, seasonal adaptation or competition and generally use markdowns to clear merchandise.
Property and Equipment: Our property and equipment is stated at cost. We compute depreciation and amortization of property and equipment on a straight-line basis over the estimated useful lives of the related assets. We amortize leasehold improvements over the shorter of the estimated useful life or term of the lease.
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 the six month periods ended August 2, 2003 and August 3, 2002, 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.
10
Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED |
Critical Accounting Policies (continued)
Income Taxes: We follow 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 anticipate that the 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.
Results of Operations
The following table sets forth our statement of operations data as a percentage of net sales for the periods indicated.
|
| Three month periods ended (1) |
| Six month periods ended (1) |
| ||||||||
|
| August 2, |
| August 3, |
| August 2, |
| August 3, |
| ||||
|
|
|
|
|
| ||||||||
Net sales |
|
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Cost of sales |
|
| 72.8 |
|
| 69.9 |
|
| 73.4 |
|
| 70.9 |
|
|
|
|
|
|
| ||||||||
Gross profit |
|
| 27.2 |
|
| 30.1 |
|
| 26.6 |
|
| 29.1 |
|
Selling, general and administrative expenses |
|
| 26.9 |
|
| 25.2 |
|
| 27.8 |
|
| 26.4 |
|
|
|
|
|
|
| ||||||||
Operating (loss) income |
|
| 0.2 |
|
| 4.9 |
|
| (1.2 | ) |
| 2.6 |
|
Interest expense, net |
|
| 0.4 |
|
| 0.3 |
|
| 0.4 |
|
| 0.3 |
|
|
|
|
|
|
| ||||||||
(Loss) earnings before income tax (benefit) provision |
|
| (0.2 | ) |
| 4.6 |
|
| (1.6 | ) |
| 2.3 |
|
Income tax (benefit) provision |
|
| (0.1 | ) |
| 1.9 |
|
| (0.6 | ) |
| 0.9 |
|
|
|
|
|
|
| ||||||||
Net (loss) earnings |
|
| (0.1 | )% |
| 2.7 | % |
| (0.9 | )% |
| 1.4 | % |
|
|
|
|
|
| ||||||||
(1) due to rounding, columns may not add
Net Sales
Net sales increased by 15.0%, or $21.4 million, to $163.7 million for the second quarter of fiscal 2003 from $142.3 million in the same quarter last year. When comparing the second quarter of fiscal 2003 with the same quarter last year, net sales decreased by $10.5 million, or 7.7%, at comparable stores, increased by $12.6 million at the four stores opened during fiscal 2003 and increased by $19.3 million at stores opened during fiscal 2002 that had not yet entered the comparable store sales base. Increased comparable store sales in outerwear, hunting, and bicycles were more than offset by decreases in camping, water sports, fishing, casual apparel, and swimwear categories. In addition, we believe a weak economy, a highly promotional retail environment, and unseasonable weather in our East and Midwest markets may have negatively impacted store sales in the second quarter of fiscal 2003.
Net sales for the six month period ended August 2, 2003 increased by 14.7%, or $37.5 million, to $293.2 from $255.7 million in the same period last year. When comparing the six month period ended August 2, 2003 with the same period last year, net sales decreased by $17.3 million, or 7.1%, at comparable stores, increased by $16.2 million at the four stores opened during fiscal 2003 and increased by $38.6 million at stores opened during fiscal 2002 that had not yet entered the comparable store sales base. Increased comparable store sales in hunting, footwear, and team sports were more than offset by decreases in casual apparel, outerwear, and camping categories. In addition, we believe the continued sluggish economy, the impact of the war, a highly promotional retail environment, and unseasonable weather in our East and Midwest markets may have negatively impacted stores sales for the six month period ended August 2, 2003.
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Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED |
Net Sales (continued)
Our former Greenwood, Indiana location was closed on September 20, 2002 as a result of a tornado. For purposes of comparison to the current fiscal period, we have treated net sales for the second quarter and first six months of fiscal 2002 at that location as non-comparable store sales. On April 25, 2003, we reopened our former Greenwood, Indiana location as a clearance center. Because the clearance center is not part of our long-term strategy, we have included sales at this location as non-comparable store sales.
Gross Profit
Gross profit increased by 3.8%, or $1.6 million, to $44.4 million in the second quarter of fiscal 2003 from $42.8 million in the same quarter last year. Gross profit as a percentage of net sales was 27.2% in the second quarter of fiscal 2003 compared to 30.1% for the same quarter last year. This decrease as a percentage of net sales was primarily the result of higher markdowns and higher store occupancy costs.
Gross profit for the six month period ended August 2, 2003 increased by 5.1%, or $3.8 million, to $78.1 million from $74.3 million in the same period last year. Gross profit as a percentage of net sales was 26.6% for the six month period ended August 2, 2003 compared to 29.1% for the same period last year. This decrease as a percentage of net sales was primarily the result of higher markdowns and higher store occupancy costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by 23.1%, or $8.3 million, to $44.1 million in the second quarter of fiscal 2003 from $35.8 million in the same quarter last year. Selling, general and administrative expenses for the second quarter of fiscal 2003 increased to 26.9% of net sales compared to 25.2% for the same quarter last year. The percentage increase of net sales was due primarily to higher expenses for depreciation and higher expenses for marketing primarily resulting from the adoption of EITF 02-16.
Selling, general and administrative expenses for the six month period ended August 2, 2003 increased by 20.6%, or $13.9 million, to $81.5 million from $67.6 million in the same period last year. Selling, general and administrative expenses for the six month period ended August 2, 2003 increased to 27.8% of net sales compared to 26.4% for the same period last year. The percentage increase of net sales was due primarily to higher expenses for depreciation and higher expenses for marketing primarily resulting from the adoption of EITF 02-16.
Operating (Loss) Income
Our operating income for the second quarter of fiscal 2003 was $380,000, compared to operating income of $7.0 million for the same quarter last year. The negative impact on operating results for the second quarter of fiscal 2003 compared to the same quarter last year was the result of higher markdowns, higher store occupancy costs, higher expenses for depreciation, and to higher expenses for marketing primarily resulting from the adoption of EITF 02-16.
Our operating (loss) for the six month period ended August 2, 2003 was ($3.5) million, compared to operating income of $6.7 million for the same period last year. The negative impact on operating results for the second quarter of fiscal 2003 compared to the same quarter last year was the result of higher markdowns, higher store occupancy costs, higher expenses for depreciation, and to higher expenses for marketing primarily resulting from the adoption of EITF 02-16.
Interest Expense
Interest expense, net of interest income of $18,000, was $689,000 for the second quarter of fiscal 2003, compared to the same quarter last year interest expense, net of interest income of $32,000, was $433,000. This increase was due primarily to higher average outstanding balances on our revolving line of credit.
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Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED |
Interest Expense (continued)
Interest expense, net of interest income of $40,000, was $1.1 million for the six month period ended August 2, 2003, compared to the same period last year interest expense, net of interest income of $153,000, was $818,000. This increase was due primarily to higher average outstanding balances on our revolving line of credit.
Income Taxes
Our effective income tax rate was 40% for the three and six month periods ended August 2, 2003. This rate reflects the effect of the anticipated federal tax rate and aggregated state tax rates based on the expected mix of net sales in the various states in which we conduct business.
Net (Loss) Income
As a result of the foregoing factors, our net (loss) for the second quarter of fiscal 2003 was ($186,000), compared to a net income of $3.9 million for the same quarter last year.
As a result of the foregoing factors, the net (loss) for the six month period ended August 2, 2003 was ($2.8) million compared to net income of $3.5 million for the same period last year.
Liquidity and Capital Resources
Our principal liquidity and capital requirements have been to fund new store construction, working capital and general corporate needs. For the six month period ended August 2, 2003, these capital and liquidity requirements were primarily funded from funds available under our revolving credit facility, and cash and cash equivalents on hand at the beginning of the period. Cash flows from operating, investing and financing activities for the six month period ended August 2, 2003 and August 3, 2002 are summarized below.
Net cash used in operating activities was $6,000 for the six month period ended August 2, 2003, compared to cash provided by operating activities of $8.7 million for the same period last year. The increase in cash used in operating activities was due primarily to our net loss and changes in working capital, partially offset by higher depreciation and amortization expense.
Net cash used in investing activities was $42.2 million for the six month period ended August 2, 2003, compared to $40.7 million for the same period last year. The increase was due primarily to an increase in capital expenditures, partially offset by a decrease in related net accounts payable for capital expenditures used primarily for new store construction and fixturing.
Net cash provided by financing activities was $41.2 million for the six month period ended August 2, 2003, compared to $4.5 million for the same period last year. The increase was due primarily to an increase in net borrowings from the revolving credit facility and an increase in proceeds from the sale of common stock through the exercise of related options, partially offset by payments of financing costs.
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Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED |
Liquidity and Capital Resources (continued)
On April 25, 2003, we entered into an amended and restated credit agreement with JPMorgan Chase Bank, as administrative agent, for the syndication of participating banks, which matures on April 24, 2008. Under this agreement, our revolving credit facility maximum borrowing capacity is $250.0 million of which $30.0 million may be used for the issuance of letters of credit. The revolving credit facility is an asset based loan with a borrowing base calculated on certain percentages of eligible inventory, eligible accounts receivables, and certain real property as defined in the agreement. 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 our availability level or EBITDA measured at each quarter end. Availability is defined as the lesser of the monthly borrowing base or $250.0 million; minus the total borrowings, including letters of credit. We pay an annual commitment fee on the unused portions of the revolving credit facility at a variable amount based on utilization of the total facility. As of August 2, 2003, the commitment fee rate was 0.425%. We will not be subject to any financial covenants, provided we maintain a minimum of $35.0 million of availability. If availability is less than $35.0 million for more than five consecutive days we will be subject to a minimum EBITDA covenant. The revolving credit facility contains certain other covenants, including covenants that restrict our ability to incur indebtedness or to create various liens, and restrict our ability to engage in mergers or acquisitions, sell assets, 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 our cash, inventory, intellectual property, and certain real estate if the real estate is included in the borrowing base. Our subsidiaries have guaranteed, and any future subsidiaries will be required to guarantee, our obligations under the revolving credit facility.
During fiscal 2001, we entered into a $6.0 million line of credit agreement with a bank to be used for the construction of a new store building. On May 1, 2003, we paid all remaining outstanding principal and interest on this loan.
On August 8, 2003 we sold our interest in buildings and leasehold improvements for three store locations, for approximately $21.0 million to CPA®:15, a member of the W.P. Carey Group and simultaneously entered into lease agreements for these three store locations. The sale included our store locations in Buffalo, New York, and Greenwood, Indiana, as well as a future store location in Freehold, New Jersey that is scheduled to open in the summer of 2004. Approximately $9.0 million of the $21.0 million total is attributable to the future store location in Freehold, New Jersey, and will not be funded fully until that store opens. The net proceeds from this transaction were used to repay current borrowings under our revolving credit facility.
Our net working capital at August 2, 2003 was $65.1 million, compared to $54.3 million at February 1, 2003. Net working capital is calculated as the difference between current assets (excluding cash) and current liabilities (excluding current portion of long-term debt). The increase in working capital for the six month period ended August 2, 2003 was due primarily to an increase in merchandise inventories for new store openings during fiscal 2003, a decrease in accrued expenses, and an increase in construction allowance receivables, partially offset by an increase in accounts payable. As of August 2, 2003, we had $47.4 million in outstanding borrowings and a remaining availability of $55.3 million net of $7.6 million used in support of letters of credit under our revolving credit facility.
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 per store and is expensed as incurred.
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Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED |
Liquidity and Capital Resources (continued)
Our future capital requirements will depend on the number of new stores we open, the timing of those openings within a given year and the extent of landlord construction contributions received. For fiscal 2003, we currently estimate our total capital expenditures to range between $85.0 to $90.0 million, net of agreed-upon landlord construction contributions. The capital expenditures estimate contemplates $62.0 to $65.0 million for nine new stores that we intend to open during fiscal 2003, including the four stores we opened in the first six months of fiscal 2003. The total capital expenditure estimate also includes an estimate for construction-in-progress disbursements for anticipated fiscal 2004 openings. The capital expenditures estimate also reflects the fact that three of our planned nine store openings for fiscal 2003 do not have any landlord construction contributions as compared to eight of nine new stores in fiscal 2002 which had landlord construction contributions. Some potential store locations that we seek to develop in the future may not have landlord construction contributions available. The capital expenditure estimate for fiscal 2003 also includes approximately $8.0 to $9.0 million for remodeling and maintenance relating to our existing stores. The total capital expenditure estimate, includes an estimate for technology upgrades and corporate capital expenditures. In addition to this capital expenditures estimate, we currently anticipate approximately $5.2 to $5.5 million of non-capitalizable pre-opening costs for new stores.
We believe that developer or real estate investment company financing, longer term mortgage financing, funds available under our revolving credit facility and cash flows from operations will be sufficient to fund working capital and to finance capital expenditures requirements over the next twelve months.
New Accounting Pronouncements
On January 1, 2003, we adopted Emerging Issues Task Force (“EITF”) 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor. This EITF addresses the classification of cash consideration received from vendors in a reseller’s consolidated financial statements. The guidance related to income statement classification is to be applied in annual and interim financial statements for agreements entered into, or modifications of existing agreements, after January 1, 2003. The consensus of the EITF establishes an overall presumption that cash received from vendors is a reduction in the price of vendor’s products and should be recognized accordingly as a reduction in cost of sales at the time the related inventory is sold. Some consideration could be characterized as a reduction of expense if the cash received represents a reimbursement of specific, incremental, identifiable costs incurred by the retailer to sell the vendor’s products. For the three and six month periods ended August 2, 2003, the adoption of this statement increased our operating loss by $340,000 ($203,000 net of income taxes or $0.01 per share on a fully diluted basis) and $810,000 ($486,000 net of income taxes or $0.03 per share on a fully diluted basis), respectively.
On February 2, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this statement did not have an effect on the consolidated financial statements.
On February 2, 2003, we adopted the recognition and measurement provisions of Financial Accounting Standards Board Interpretation No. 45 (“FIN No. 45”) Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of SFAS No. 5, 57, and 107 and the rescission of FASB Interpretation No. 34, was issued. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure requirements in this interpretation were adopted in fiscal 2002. We had no guarantees that were required to be disclosed in the consolidated financial statements. The adoption of this statement did not have an effect on the consolidated financial statements.
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Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED |
New Accounting Pronouncements (continued)
On June 1, 2003, we adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of this statement did not have a material impact on the consolidated financial statements.
Seasonality and Inflation
Our business cycle is seasonal, with higher sales and profits generally occurring in the second and fourth fiscal quarters. In fiscal 2002, our sales results were as follows: 19.0% in the first quarter, 23.8% in the second quarter, 21.7% in the third quarter and 35.5% in the fourth quarter. In addition, we have higher seasonal cash outlays in the fourth quarter for purchase volumes, staffing and marketing costs.
We do not believe inflation had a material effect on the unaudited 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.
Cautionary Note Regarding Forward-Looking Statements
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 Quarterly Report on Form 10-Q (“Report”) or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial 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. The following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results for 20022003 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this Report or otherwise made by our management:
• | risks associated with our ability to implement our growth strategies or manage our growing business, including the availability of suitable store locations on appropriate financing and other terms and the availability of adequate financing sources and our limited history of opening and operating new stores; | |
• | the impact of increased competition and pricing and expenses associated with advertising and promotion in response thereto; | |
• | changes in consumer confidence, preferences and spending patterns and overall economic conditions; | |
• | risks relating to the level of markdowns necessary to clear aged inventory; | |
• | risks associated with the seasonality of the retail industry, the retail sporting goods industry and our business; |
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Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED |
Cautionary Note Regarding Forward-Looking Statements (continued) | ||
• | the potential impact of natural disasters or national and international security concerns on the retail environment; | |
• | risks relating to the regulation of the products we sell, including firearms; | |
• | risks associated with the possible inability of our vendors to deliver products in a timely manner; | |
• | risks associated with relying on foreign sources of production; | |
• | risks relating to changes in our management information systems; | |
• | risks relating to operational and financial restrictions imposed by our revolving credit facility; and | |
• | other risk factors described from time to time in reports filed by the Company with the Securities and Exchange Commission | |
Other risks, associated withuncertainties and factors could cause our abilityactual results to implement our growth strategies or manage our growing business, includingdiffer materially from those projected in any forward-looking statements we make. The list of factors that may affect future performance and the availabilityaccuracy of suitable store locations on appropriate financing and other terms; the impact of competition and pricing; risks associated with our limited history of opening and operating new stores; risks associatedforward-looking statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the receiptunderstanding of product into a central distribution center, as well as the risks associated with the movement of product from a central distribution center to the store locations; changes in weather patterns; changes in consumer demands, preferences and spending patterns and overall economic conditions; risks associated with the seasonality of the retail industry, the retail sporting goods industry and our business; the potential impact of natural disasters or national and international security concerns on the retail environment; risks relating to the regulation of the products we sell, including firearms; the ability to retain, hire and train key personnel; risks associated with the possible inability of our vendors to deliver products in a timely manner; risks associated with relying on foreign sources of production; risks relating to changes in our management information systems and risks relating to operational and financial restrictions imposed by our revolving credit facility. See our Annual Report on Form 10-K for the year ended February 2, 2002, as filed with the Securities and Exchange Commission, for a more detailed discussion of these matters and other risk factors.their inherent uncertainty. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
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Part I. FINANCIAL INFORMATION Item 1. Financial Statements
Galyan’s Trading Company, Inc.Website and Access to FilingsConsolidated StatementsWe post all of OperationsFor the Three and Six Month Periods Ended August 3, 2002 and August 4, 2001(dollars in thousands, except per share data)
For the three month For the six monthperiods ended periods ended----------------------------- ------------------------------August 3, August 4, August 3, August 4, 2002 2001 2002 2001----------- ----------- ----------- ----------- (unaudited) (unaudited) Net sales $ 142,275 $ 114,993 $ 255,732 $ 202,871 Cost of sales 99,459 81,143 181,410 145,192 ----------- ----------- ----------- ----------- Gross profit 42,816 33,850 74,322 57,679 Selling, general and administrative expenses 35,810 28,341 67,621 52,734 ----------- ----------- ----------- ----------- Operating income 7,006 5,509 6,701 4,945 Interest expense 465 2,410 971 5,941 Interest income (32) (42) (153) (71) ----------- ----------- ----------- ----------- Income (loss) before extraordinary loss and income tax provision 6,573 3,141 5,883 (925) Income tax provision 2,688 1,495 2,412 224 ----------- ----------- ----------- ----------- Income (loss) before extraordinary loss 3,885 1,646 3,471 (1,149) Extraordinary loss on early extinguishment of debt (net of income tax benefit of $2,576 and $3,625) - (5,238) - (6,810) ----------- ----------- ----------- ----------- Net income (loss) $ 3,885 $ (3,592) $ 3,471 $ (7,959) =========== =========== =========== =========== Basic earnings (loss) per share: Earnings (loss) per share before extraordinary loss $ 0.23 $ 0.12 $ 0.20 $ (0.10) Per share extraordinary loss - (0.39) - (0.57) ----------- ----------- ----------- ----------- Basic earnings (loss) per share $ 0.23 $ (0.27) $ 0.20 $ (0.67) =========== =========== =========== =========== Diluted earnings (loss) per share: Earnings (loss) per share before extraordinary loss $ 0.22 $ 0.12 $ 0.20 $ (0.10) Per share extraordinary loss - (0.39) - (0.57) ----------- ----------- ----------- ----------- Diluted earnings (loss) per share $ 0.22 $ (0.27) $ 0.20 $ (0.67) =========== =========== =========== =========== Weighted average shares used in calculating earnings (loss) per common share: Basic 17,040,316 13,230,081 17,037,737 11,861,289 =========== =========== =========== =========== Diluted 17,421,936 13,544,956 17,354,728 11,861,289 =========== =========== =========== ===========
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Galyan’s Trading Company, Inc.Consolidated Balance SheetsAs of August 3, 2002 and February 2, 2002(dollars in thousands, except share data)
August 3, 2002 February 2, 2002-------------- ---------------- (unaudited)AssetsCurrent assets Cash and cash equivalents $ 9,238 $ 36,770 Receivables, net 7,674 3,219 Merchandise inventories 144,419 111,815 Refundable and deferred income taxes 2,571 2,172 Other current assets 7,900 6,619 ------------- -------------- Total current assets 171,802 160,595 Property and equipment, net 115,915 94,572 Deferred income taxes 959 718 Goodwill, net 18,334 18,334 Other assets, net 1,165 1,521 ------------- -------------- Total assets $ 308,175 $ 275,740 ============= ==============Liabilities and Shareholders' EquityCurrent liabilities Accounts payable $ 64,527 $ 39,248 Accrued expenses 30,701 32,438 Current portion of long-term debt 6,069 5,368 ------------- -------------- Total current liabilities 101,297 77,054 Long-term liabilities Debt, net of current portion 9,282 5,932 Other long-term liabilities 6,174 5,533 ------------- -------------- Total long-term liabilities 15,456 11,465 Shareholders' Equity Common stock and paid-in capital, no par value; 50,000,000 191,425 191,134 shares authorized; 17,042,508 and 17,033,708 shares issued and outstanding, respectively Notes receivable from shareholders (1,094) (1,451) Unearned compensation (198) (280) Warrants 1,461 1,461 Accumulated deficit (172) (3,643) ------------- -------------- Total shareholders' equity 191,422 187,221 ------------- -------------- Total liabilities and shareholders' equity $ 308,175 $ 275,740 ============= ==============
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Galyan’s Trading Company, Inc.Consolidated Statements of Cash FlowsFor the Six Months Ended August 3, 2002 and August 4, 2001(dollars in thousands)
August 3, 2002 August 4, 2001-------------- -------------- (unaudited) Cash flows from operating activities: Net income (loss) $ 3,471 $ (7,959) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 7,924 6,402 Amortization of financing intangibles and discount on subordinated notes 278 903 Loss on early extinguishment of debt - 10,397 Refundable and deferred income taxes (640) (3,852) Interest converted to subordinated debt - 3,647 Deferred rent and other non-cash expense 925 1,350 Changes in certain assets and liabilities: Accounts receivable (4,455) (3,160) Merchandise inventories (32,604) (18,652) Other assets (1,281) (2,596) Accounts payable and accrued expenses 30,280 (3,640) ----------- ----------- Net cash provided by (used in) operating activities 3,898 (17,160) ----------- ----------- Cash flows from investing activities: Capital expenditures (29,189) (12,776) Increase (decrease) in accounts payable for capital expenditures (6,738) 2,112 ----------- ----------- Net cash used in investing activities (35,927) (10,664) ----------- ----------- Cash flows from financing activities: Net borrowings (payments) from revolving line of credit 9,000 (19,950) Proceeds from long-term debt 365 3,179 Principal payments on long-term debt (5,314) (60,829) Payments on notes receivable from shareholders 358 200 Proceeds from sale of common stock 88 123,960 Payment of financing costs - (1,379) Transaction cost for initial public offering - (10,360) ----------- ----------- Net cash provided by financing activities 4,497 34,821 ----------- ----------- Net increase (decrease) in cash and cash equivalents (27,532) 6,997 Cash and cash equivalents, beginning of period 36,770 3,756 ----------- ----------- Cash and cash equivalents, end of period $ 9,238 $ 10,753 =========== =========== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 692 $ 4,040 =========== =========== Income taxes $ 3,552 $ 6,334 =========== ===========
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GALYAN’S TRADING COMPANY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Significant Accounting PoliciesBasis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with our Annual Reportperiodic reports on Form 10-K forand 10-Q, and current reports on Form 8-K, on our website at www.galyans.com as soon as reasonably practical after the fiscal year ended February 2, 2002. In our opinion, the unaudited consolidated financial statements for the interim periods presented reflect all adjustments necessary for fair presentation of the consolidated financial position and results of operations and cash flows as of and for such periods indicated. The balance sheet at February 2, 2002, as presented, has been derived from our audited financial statements for the fiscal year then ended.
Results of operations for the interim periods presented hereinreports are not necessarily indicative of the results that may be reported for any other interim periodfiled with or for the entire fiscal year.
Earnings (Loss) Per Share
Earnings (loss) per share of common stock is based on the weighted average number of shares outstanding during the related periods. Diluted earnings per share for the three and six month periods ended August 3, 2002, included 381,620 and 316,991 incremental shares, respectively, relatingfurnished to the dilutive effectSecurities and Exchange Commission. Access to these reports is free of stock options. Basic and diluted loss per share for the three and six month periods ended August 4, 2001, included 720,000 warrants which were exercisable for nominal cash consideration. Diluted earnings per share for the three month period ended August 4, 2001, included 314,875 incremental shares relating to the dilutive effect of stock options. Since we had a loss from operations for the six month period ended August 4, 2001, 340,738 incremental shares relating to the diluted effect of stock options were excluded from the calculation of diluted loss per share due to their anti-dilutive effect.charge.Note 2: Long-Term Debt On July 1, 2002, we paid $5.3 million for all remaining principal and interest outstanding under the construction loan with a bank, for our store building in Buffalo, New York, dated October 29, 1999. Long-term debt consists of the following at August 3, 2002:
Bank and other: Construction loans $ 6,000 Revolving line of credit 9,000 Other 351 --------- Total bank and other debt 15,351 Less current maturities (6,069) --------- Total long-term debt, net of current maturities $ 9,282 =========
Item 3: |
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GALYAN’S TRADING COMPANY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Note 3: Shareholder’s Equity
During the second quarter of fiscal 2002, we issued options to purchase 336,800 shares of common stock under our 1999 Stock Option Plan at prices of $20.64 to $21.75 per share to certain employees. These options vest over a three-year period and expire seven years after the grant date.Note 4: New Accounting Pronouncements On February 3, 2002, we adopted Statement of Financial Accounting Standard (“SFAS”) No. 142,Goodwill and Other Intangible Assets, which changes the accounting for goodwill from an amortization method to an impairment-only approach. Effective with the adoption, we no longer amortize goodwill, but evaluate it on an annual basis to determine whether there has been an impairment of goodwill. There was no impairment charge resulting from the adoption of this standard. Goodwill amortization expense was approximately $196,000 and $392,000 for the three and six month periods ended August 4, 2001. No goodwill amortization was expensed for the three and six month periods ended August 3, 2002. During June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143,Accounting for Asset Retirement Obligations, which is effective for the Company beginning February 2, 2003. SFAS No. 143 addresses financial accounting and reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We have not yet quantified the effect, if any, of this new standard on the consolidated financial statements. On February 3, 2002, we adopted SFAS No. 144,Accounting for Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of this statement did not have an effect on the consolidated financial statements. In April 2002, the Financial Accounting Standards Board 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. Previously, all gains and losses from the extinguishment of debt were required to be reported as an extraordinary item, net of related tax effect. Under SFAS No.145, gains and losses from the extinguishment of debt should be reported as part of on-going operations, unless the extinguishment of debt meets the criteria of both unusual and infrequent as established in APB No.30. SFAS No. 145 is effective for all fiscal years beginning after May 15, 2002, including all prior period presentations. We will adopt SFAS No. 145 no later than the first quarter of 2003, at which time the extraordinary loss on early extinguishment of debt will be reclassified in the comparative financial statements to be included within earnings (loss) from operations before income taxes. During June 2002, the Financial Accounting Standards Board issued SFAS No. 146,Accounting for Costs Associated with Exit or 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. We have not yet quantified the effect, if any, of this new standard on the consolidated financial statements.
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GALYAN’S TRADING COMPANY, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
Overview Galyan’s Trading Company, Inc. is a rapidly growing specialty retailer that offers a broad range of products that appeal 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 our signature rock climbing wall. We operated 29 stores in 14 states as of August 3, 2002.Critical Accounting Policies The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We believe the application of our accounting policies, and the estimates inherently required therein, are appropriate. We believe that the following represents the more critical accounting policies used in the preparation of the consolidated financial statements:Revenue recognition: We recognize retail sales upon the purchase of the merchandise by our customer, net of returns and allowances, which are based on estimates, determined using historical customer returns experience. We use gift cards and store credits, the revenue of which is recognized upon redemption by the customer. Markdowns associated with our preferred customer programs are recognized upon redemption in conjunction with a qualifying purchase.Inventories: Inventories are stated at the lower of cost or market, on a first-in, first-out basis, utilizing the retail method. We make certain assumptions to adjust inventory based on historical experience and current information in order to assess that inventory is recorded properly at the lower of cost or market.Property and Equipment: Our property and equipment is stated at cost. Depreciation and amortization of property and equipment is computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the estimated useful life or term of the lease.
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GALYAN’S TRADING COMPANY, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS - continued
Results of Operations
For the three For the six month periods ended (1) month periods ended (1) --------------------------------- ---------------------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 ------------- ------------- ------------- -------------- Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 69.9 70.6 70.9 71.6 ------------- ------------- ------------- -------------- Gross profit 30.1 29.4 29.1 28.4 Selling, general and administrative expenses 25.2 24.6 26.4 26.0 ------------- ------------- ------------- -------------- Operating income 4.9 4.8 2.6 2.4 Interest expense, net 0.3 2.1 0.3 2.9 ------------- ------------- ------------- -------------- Income (loss) before income tax provision and extraordinary loss 4.6 2.7 2.3 (0.5) Income tax provision 1.9 1.3 0.9 0.1 ------------- ------------- ------------- -------------- Income (loss) before extraordinary loss 2.7 1.4 1.4 (0.6) Extraordinary loss on early extinguishment of debt, net of income tax benefit (4.6) (3.4) ------------- ------------- ------------- -------------- Net income (loss) 2.7 % (3.1)% 1.4 % (3.9)% ============= ============= ============= ==============
Net Sales Net sales increased by 23.7%, or $27.3 million, to $142.3 million in the second quarter of fiscal 2002 from $115.0 million in the same quarter last year. When comparing the second quarter of fiscal 2002 with the same quarter last year, net sales increased by $2.3 million, or 2.1%, at comparable stores, by $16.1 million at stores opened during fiscal 2001 but not qualifying as comparable stores and by $8.9 million at three stores opened during fiscal 2002. The comparable store sales increase in the second quarter of fiscal 2002 as compared with the same quarter last year was due primarily to higher sales in the athletic apparel and athletic footwear categories. Net sales in the six month period ended August 3, 2002 increased by 26.1%, or $52.8 million, to $255.7 million from $202.9 million in the same period last year. When comparing the six month period of fiscal 2002 with the same period last year, net sales increased by $6.8 million, or 3.4%, at comparable stores, by $34.7 million at stores opened during fiscal 2001 but not qualifying as comparable stores and by $11.3 million at three stores opened during fiscal 2002. The comparable store sales increase in the six month period ended August 3, 2002 as compared with the same period last year was due primarily to higher sales in the athletic apparel and athletic footwear categories.
Gross Profit Gross profit increased by 26.5%, or $9.0 million, to $42.8 million in the second quarter of fiscal 2002 from $33.8 in the same quarter last year. Gross profit as a percentage of net sales was 30.1% in the quarter as compared to 29.4% in the same quarter last year due primarily to improved merchandise margins and the leveraging of occupancy, buying and distribution expenses.
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GALYAN’S TRADING COMPANY, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS - continued
Gross Profit, continued Gross profit in the six month period ended August 3, 2002 increased by 28.9%, or $16.6 million, to $74.3 million from $57.7 million in the same period last year. Gross profit as a percentage of net sales was 29.1% in the six month period as compared to 28.4% in the same period last year due primarily to the leveraging of occupancy, buying and distribution expenses.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by 26.4%, or $7.5 million, to $35.8 million in the second quarter of fiscal 2002 from $28.3 million in the same quarter last year. Selling, general and administrative expenses, as a percentage of net sales, increased in the quarter to 25.2% from 24.6% due primarily to higher health insurance costs and the impact of a bad debt recovery in the quarter last year. Selling, general and administrative expenses in the six month period ended August 3, 2002, increased by 28.2%, or $14.9 million, to $67.6 million for the six month period ended August 3, 2002 from $52.7 million in the same period last year. Selling, general and administrative expenses, as a percentage of net sales, increased in the six month period to 26.4% from 26.0% due primarily to higher marketing, as well as pre-opening expenses and the impact of a bad debt recovery last year.
Operating Income Operating income increased by 27.2%, or $1.5 million, in the second quarter of fiscal 2002, to income of $7.0 million from income of $5.5 million in the same quarter last year. The increase was due to higher net sales and gross profit, partially offset by higher selling, general and administrative expenses. Operating income in the six month period ended August 3, 2002 increased by 35.5%, or $1.8 million, to $6.7 million from $4.9 million in the same period last year. The increase was due to higher net sales and gross profit, partially offset by higher selling, general and administrative expenses.
Interest Expense, Net Interest expense, net of interest income, was $433,000 in the second quarter of fiscal 2002 as compared to interest expense, net of interest income, of $2.4 million in the same period last year. The decrease was due primarily to the extinguishment of subordinated and junior subordinated notes with the proceeds from our initial public offering during the second quarter last year, as well as a reduction in the average outstanding borrowings under our revolving credit facility. Interest expense, net of interest income, in the six month period ended August 3, 2002 was $818,000 as compared to interest expense, net of interest income, of $5.9 million in the same period last year. The decrease was due primarily to the extinguishment of subordinated and junior subordinated notes with the proceeds from our initial public offering during the second quarter last year, as well as a reduction in the average outstanding borrowings under our revolving credit facility.
Income Taxes Our effective income tax rate was 41% in the six month period ended August 3, 2002. This rate reflects the effect of the anticipated federal tax rate and aggregated state tax rates based on the expected mix of net sales in the various states in which we currently conduct business.
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GALYAN’S TRADING COMPANY, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS - continued
Extraordinary Loss on Early Extinguishment of Debt During the second quarter of fiscal 2001, we paid all of the outstanding amounts due under our subordinated and junior subordinated notes. We incurred an extraordinary loss (net of income tax benefit) of $5.2 million, relating to the write-off of the remaining unamortized discount and deferred financing costs associated with these notes. During the first quarter of fiscal 2001, we refinanced our revolving credit facility and incurred an extraordinary loss (net of income tax benefit) of $1.6 million, relating to the write-off of the remaining unamortized deferred financing costs associated with the prior revolving credit facility.
Net Income (Loss) As a result of the foregoing factors, net income increased by $2.3 million, to $3.9 million, or 2.7% of net sales, in the second quarter of fiscal 2002 as compared to net income before the extraordinary loss on early extinguishment of debt of $1.6 million, or 1.4% of net sales, for the same period last year. As a result of the foregoing factors, net income increased by $4.6 million, to $3.5 million, or 1.4% of net sales, in the six month period ended August 3, 2002 as compared to a net loss before the extraordinary loss on early extinguishment of debt of $1.1 million, or 0.6% of net sales in the same period last year.
Liquidity and Capital Resources Our principal liquidity and capital requirements have been to fund new store construction, working capital and general corporate needs. For the six months ended August 3, 2002, these capital and liquidity requirements were primarily funded from cash and cash equivalents on hand at the beginning of the period, net cash provided by operations and borrowings under the revolving credit facility. Cash flows from operating, investing and financing activities for the six months ended August 3, 2002 and August 4, 2001 are summarized below. Net cash provided by operations was $3.9 million for the six months ended August 3, 2002, compared to cash used in operations of $17.2 million for the same period last year. The increase in net cash from operations wasprimarily the result of an increase in accounts payable and higher net income, partially offset by an increase in merchandise inventories for new stores. Net cash used in investing activities was $36.0 million for the six months ended August 3, 2002, compared to $10.7 million for the same period last year. The increase was the result of an increase in capital expenditures and a decrease in accounts payable for capital expenditures, which related primarily to new store construction and fixturing. We expect to open nine new stores in fiscal 2002 compared to five stores opened in fiscal 2001. Net cash provided by financing activities was $4.5 million for the six month period ended August 3, 2002, compared to $34.8 million for the same period last year. The decrease was due primarily to the net proceeds during the second quarter last year of approximately $112.0 million from the sale of 6.5 million shares of common stock partially offset by $62.8 million used last year to extinguish outstanding subordinated and junior subordinated notes. We had $9.0 million in net borrowings under the revolving credit facility during the six months ended August 3, 2002, compared to net payments of $20.0 million during the same period last year.
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GALYAN’S TRADING COMPANY, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS - continued
Liquidity and Capital Resources, continued 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. As of August 3, 2002, we had $9.0 million in outstanding borrowings and availability of $67.9 million, net of $5.7 million used in support of letters of credit, under our revolving credit 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 has guaranteed, and any future subsidiaries will be required to guarantee, our obligations under the revolving credit facility. Also, on May 25, 2001, we entered into a $6.0 million line of credit agreement to finance the construction of a new store building in Rochester, New York. Advances under the line of credit agreement are secured by the building, and the agreement requires monthly payment of interest under several interest rate options, with a rate on September 1, 2002 of 3.77%. Outstanding advances as of September 1, 2002 were $6.0 million. All unpaid principal and interest is due May 1, 2003. To retire this construction loan and any future construction loans, we may use our existing credit facility or 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. On July 1, 2002, we paid $5.3 million for all remaining principal and interest outstanding under the construction loan with a bank, for our store building in Buffalo, New York, dated October 29, 1999. Our net working capital at August 3, 2002 was $67.3 million, compared to $52.1 million at February 2, 2002. Net working capital is calculated as the difference between current assets (excluding cash) and current liabilities (excluding current portion of long term debt). The increase in working capital resulted primarily from an increase in merchandise inventories for new stores opened and expected to open in fiscal 2002, a seasonal increase in merchandise inventories, and higher receivables from landlords. These increases were partially offset by an increase in accounts payable. We had $9.2 million in cash and cash equivalents as of August 3, 2002. Our typical new store, if leased with a landlord construction contribution adequate to cover the building, requires capital expenditures of between $4.0 to $5.0 million for interior finish and fixtures, and an inventory investment of 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 capital requirements depend primarily on the number of new stores that we open, the timing of those openings within a given year and the amount of landlord construction contribution. For fiscal 2002, we currently estimate our total capital expenditures to range between $63.0 to $68.0 million, net of agreed-upon landlord construction contributions. The capital expenditures
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GALYAN’S TRADING COMPANY, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS - continued
Liquidity and Capital Resources, continuedestimate contemplates $58.0 to $62.0 million for nine new stores that we intend to open during fiscal 2002, including the three stores opened during the six month period ended August 3, 2002, and takes into account estimates of construction-in-progress disbursements for anticipated fiscal 2003 openings. The capital expenditures estimate for fiscal 2002 also includes approximately $5.0 to $6.0 million for remodeling and maintenance relating to our existing stores, technology upgrades and corporate capital expenditures. In addition to this capital expenditures estimate, we currently anticipate that we will incur approximately $5.0 to $6.0 million of non-capitalizable pre-opening costs for the nine new stores we expect to open during fiscal 2002. We believe that developer or real estate investment company financing, longer term mortgage financing, cash flows from operations and borrowings available under our revolving credit facility will be sufficient to fund our working capital and finance capital expenditures over the next twelve months.
New Accounting Pronouncements On February 3, 2002, we adopted Statement of Financial Accounting Standard (“SFAS”) No. 142,Goodwill and Other Intangible Assets,which changes the accounting for goodwill from an amortization method to an impairment-only approach. Effective with the adoption, we will no longer amortize goodwill, but will evaluate it on an annual basis to determine whether there has been an impairment of goodwill. There was no impairment charge resulting from the adoption of this standard. Goodwill amortization expense was approximately $196,000 and $392,000 for the three and six month periods ended August 4, 2001. No goodwill amortization was expensed for the three and six month periods ended August 3, 2002. During June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143,Accounting for Asset Retirement Obligations, which is effective for the Company beginning February 2, 2003. SFAS No. 143 addresses financial accounting and reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We have not yet quantified the effect, if any, of this new standard on our consolidated financial statements. On February 3, 2002, we adopted SFAS No. 144,Accounting for Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of this statement did not have an effect on our 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. Previously, all gains and losses from the extinguishment of debt were required to be reported as an extraordinary item, net of related tax effect. Under SFAS No.145, gains and losses from the extinguishment of debt should be reported as part of on-going operations, unless the extinguishment of debt meets the criteria of both unusual and infrequent as established in APB No.30. SFAS No. 145 is effective for all fiscal years beginning after May 15, 2002, including all prior period presentations. We will adopt SFAS No. 145 no later than the first quarter of 2003, at which time the extraordinary loss on early extinguishment of debt will be reclassified in the comparative financial statements to be included within earnings (loss) from operations before income taxes. During June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities, which nullifies Emerging Issues Task Force Issue No. 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit anActivity (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
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GALYAN’S TRADING COMPANY, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS - continued
New Accounting Pronouncements, continuedinitiated after December 31, 2002. We have not yet quantified the effect, if any, of this new standard on our consolidated financial statements.
Seasonality and Inflation Our annual business cycle is seasonal. In fiscal 2001, our sales trended as follows: 18.2% in the first quarter, 23.8% in the second quarter, 21.8% in the third quarter and 36.2% in the fourth quarter. We typically have higher profits occurring in the second and fourth quarters. We do not believe inflation had a material effect on the unaudited 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.Item 3.
QUANTITATIVE 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 line of credit used for the construction loansof a new store which are benchmarked to U.S. and European short-term variable rates. The aggregate balanceOn May 1, 2003, we paid all remaining outstanding principal and interest on our line of credit used for the construction of a new store. Borrowings outstanding on our line of credit agreement used for the construction of a new store as of February 1, 2003 were $6.0 million. Borrowings outstanding under our revolving credit facility and construction loans as of August 3, 20022, 2003 and February 2, 2002 totaled $15.01, 2003 were $47.4 million and $10.9 million,$0, respectively. The impactAs of aAugust 29, 2003, borrowings outstanding under our revolving credit facility were $40.0 million. A hypothetical one percentage point interest rate change on our results of operations forfrom those in effect during the periodsix month periods ended August 2, 2003 and August 3, 2002 would nothave resulted in interest expense fluctuating by approximately $190,000 and $60,000, respectively.
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Item 4: |
Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(c)) as of August 2, 2003, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting our management to material information required to be significant.
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Part II. OTHER INFORMATION
Item 4: |
An annual meeting of our shareholders was held on May 15, 2003. The only matter voted on at the meeting was for the election of directors. The results of the voting were as follows:
Robert B. Mang, Norman S. Matthews, Byron E. Allumbaugh, Frank J. Belatti, Stuart B. Burgdoerfer, Timothy J. Faber, Michael Goldstein, Todd W. Halloran, George R. Mrkonic, Jr., John M. Roth, Ronald P. Spogli and Peter Starrett were elected to serve on the Board of Directors until the annual meeting of shareholders in 2004 or until his or her successor is elected and qualified. Of the 16,281,962 shares present in person or represented by proxy at the meeting, the number of shares voted for and the number of shares as to which authority to vote in the election was withheld were as follows, with respect to each of the nominees:
Name |
|
| Shares Voted |
|
| Shares as to Which |
|
|
|
|
|
| |||
Robert B. Mang |
|
| 16,062,624 |
|
| 219,338 |
|
Norman S. Matthews |
|
| 15,796,801 |
|
| 485,161 |
|
Byron E. Allumbaugh |
|
| 16,085,124 |
|
| 196,838 |
|
Frank J. Belatti |
|
| 16,029,539 |
|
| 252,423 |
|
Stuart B. Burgdoerfer |
|
| 16,016,839 |
|
| 265,123 |
|
Timothy J. Faber |
|
| 16,016,839 |
|
| 265,123 |
|
Michael Goldstein |
|
| 16,085,024 |
|
| 196,938 |
|
Todd W. Halloran |
|
| 16,070,724 |
|
| 211,238 |
|
George R. Mrkonic, Jr. |
|
| 16,085,124 |
|
| 196,838 |
|
John M. Roth |
|
| 16,057,585 |
|
| 224,377 |
|
Ronald P. Spogli |
|
| 16,055,685 |
|
| 226,277 |
|
Peter Starrett |
|
| 15,746,166 |
|
| 535,796 |
|
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Part II. OTHER INFORMATION
Item 6: |
(a) Exhibits:
Exhibit Number | Description | |
Exhibit 10.15 | Restricted Stock Agreement, dated as of September 3, 2003, by and between Registrant and Edwin Holman. | |
Exhibit 10.16 | Stock Option Agreement, dated as of September 3, 2003, by and between Registrant and Edwin Holman. | |
Exhibit 10.17 | Employment Agreement, dated as of July 1, 2003, by and between Registrant and Robert B. Mang. | |
Exhibit 10.18 | Amended Employment Agreement, dated as of August 29, 2003, by and between Registrant and Edwin Holman. | |
Exhibit 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) Reports on Form 8-K:
On May 8, 2003, we filed on Form 8-K an announcement containing net sales and comparable store sales results for the first quarter of fiscal 2003, revised guidance for first quarter 2003 earnings per share, and other information included therein.
On May 23, 2003, we filed on Form 8-K an announcement containing the results of our first quarter of fiscal 2003, and other information included therein, including the consolidated statements of operations, consolidated balance sheets, and the consolidated statements of cash flows for the first quarter of fiscal 2003.
On July 10, 2003, we filed on Form 8-K an announcement containing updated guidance ranges for second quarter 2003 net sales, fully diluted earning per share and comparable store sales.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
GALYAN’S TRADING COMPANY, INC.
Part II. OTHER INFORMATION
Shares Shares as to Which Voted for Voting Authority Name Election Withheld ---- --------- ------------------ Robert B. Mang 15,447,430 1,078,721 Norman S. Matthews 16,314,992 211,159 Byron E. Allumbaugh 16,435,577 90,574 Frank J. Belatti 16,328,877 197,274 Stuart B. Burgdoerfer 16,231,377 294,774 Timothy J. Faber 16,181,210 344,941 Todd W. Halloran 16,337,260 188,891 George R. Mrkonic, Jr. 16,226,477 299,674 John M. Roth 16,264,760 261,391 Stephanie M. Shern 16,121,427 404,724 Ronald P. Spogli 16,337,177 188,974 Peter Starrett 16,264,727 261,424
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GALYAN’S TRADING COMPANY, INC.
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GALYAN’S TRADING COMPANY, INC.SIGNATURES
| Date: September | By: /s/ Edward S. Wozniak | |
| Edward S. Wozniak | ||
| Senior Vice President and | ||
| Chief Financial Officer | ||
| (signing on behalf of the registrant and as principal financial officer) |
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GALYAN’S TRADING COMPANY, INC.CERTIFICATIONS
I, Robert B. Mang, certify that:1. I have reviewed this quarterly report on Form 10-Q of Galyan’s Trading Company, Inc.;2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
I, Edward S. Wozniak, certify that:1. I have reviewed this quarterly report on Form 10-Q of Galyan’s Trading Company, Inc.;2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
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