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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A
Amendment No. 1

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended: July 31, 2004

Commission File Number: 001-31746

THE SPORTS AUTHORITY, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
  84-1242802
(I.R.S. Employer Identification No.)

1050 West Hampden Avenue, Englewood, Colorado 80110
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code:
(303) 200-5050

        Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter period that the registrant was required to file such reports). Yes ý    No o

        Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days. Yes ý    No o

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

        As of August 26, 2004, there were 25,809,150 outstanding shares of the registrant's common stock, $.01 par value.





EXPLANATORY NOTE

        This Amendment to The Sports Authority, Inc. (the "Company") Quarterly Report on Form 10-Q/A for the quarterly period ended July 31, 2004 is being filed in order to correct its previously issued quarterly consolidated financial statements for the thirteen and twenty-six weeks ended July 31, 2004 and August 2, 2003. The corrections are to change the accounting for leases to be consistent with generally accepted accounting principles in the United States of America ("GAAP") as clarified by the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") on February 7, 2005 in a letter to the American Institute of Certified Public Accountants ("AICPA"). See Note 2 to the Company's consolidated financial statements for additional discussion.

        For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety. However, this Form 10-Q/A only amends and restates Items 1, 2 and 4 of Part I of the Original Filing, in each case, solely as a result of, and to reflect, the Restatement, and no other information in the original filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to contain currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as exhibits 31.1, 31.2, 32.1 and 32.2, respectively.



PART I—Financial Information

ITEM 1. Financial Statements

THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)

 
  July 31, 2004
(As restated,
see Note 2)

  January 31, 2004
 
 
  (Unaudited)

   
 
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 30,535   $ 28,009  
  Accounts receivable, net     40,298     52,717  
  Inventories     771,444     687,215  
  Prepaid expenses and other assets     27,551     23,616  
  Deferred income taxes     97,243     89,066  
   
 
 
    Total current assets     967,071     880,623  
Property and equipment, net     244,312     211,411  
Favorable leases, net of accumulated amortization of $8,367 and $6,173, respectively     21,211     22,428  
Deferred income taxes     45,091     42,967  
Goodwill, net of accumulated amortization of $734     150,448     132,734  
Other assets, net of accumulated amortization of $12,121 and $9,189, respectively     70,327     75,464  
   
 
 
    Total assets   $ 1,498,460   $ 1,365,627  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
  Accounts payable   $ 349,612   $ 326,198  
  Current portion of capital lease obligations     317     302  
  Accrued expenses and other current liabilities     177,920     175,214  
   
 
 
    Total current liabilities     527,849     501,714  
Long-term debt     389,815     317,321  
Capital lease obligations, less current portion     674     837  
Store closing reserve, deferred rent and other liabilities     119,612     108,458  
   
 
 
    Total liabilities     1,037,950     928,330  
   
 
 
Commitments and contingencies              
Stockholders' equity:              
  Preferred stock, $.01 par value. 10,000,000 shares authorized; none issued          
  Common stock, $.01 par value. 75,000,000 shares authorized; 27,368,056 and 26,781,727 shares issued; 25,795,302 and 25,208,973 shares outstanding     274     268  
  Additional paid-in capital     403,268     394,218  
  Unamortized restricted stock compensation     (12,084 )   (15,274 )
  Accumulated other comprehensive loss     (712 )   (759 )
  Retained earnings     93,240     82,320  
  Treasury stock, 1,572,754 common shares, at cost     (23,476 )   (23,476 )
   
 
 
    Total stockholders' equity     460,510     437,297  
   
 
 
    Total liabilities and stockholders' equity   $ 1,498,460   $ 1,365,627  
   
 
 

See accompanying notes to consolidated financial statements.

2



THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in Thousands, Except Share and Per Share Amounts)

 
  Thirteen weeks ended
  Twenty-six weeks ended
 
 
  July 31, 2004
  Aug 2, 2003
  July 31, 2004
  Aug 2, 2003
 
 
  (As restated,
see Note 2)

  (As restated,
see Note 2)

  (As restated,
see Note 2)

  (As restated,
see Note 2)

 
Net sales   $ 605,025   $ 267,514   $ 1,177,065   $ 495,946  
Cost of goods sold, buying, distribution and occupancy     436,707     196,673     849,442     367,453  
   
 
 
 
 
    Gross profit     168,318     70,841     327,623     128,493  
Operating expenses     143,636     58,498     282,881     111,737  
Merger integration costs     8,419     1,676     16,977     1,676  
Pre-opening expenses     758     556     1,681     654  
   
 
 
 
 
    Operating income     15,505     10,111     26,084     14,426  
Non operating income (expense):                          
  Interest expense     (4,838 )   (2,134 )   (9,126 )   (4,149 )
  Other income, net     423     478     944     2,519  
   
 
 
 
 
    Income before income taxes     11,090     8,455     17,902     12,796  
Income tax expense     (4,325 )   (3,289 )   (6,982 )   (3,286 )
   
 
 
 
 
    Net income   $ 6,765   $ 5,166   $ 10,920   $ 9,510  
   
 
 
 
 
Earnings per share:                          
    Basic   $ 0.26   $ 0.43   $ 0.43   $ 0.80  
   
 
 
 
 
    Diluted   $ 0.26   $ 0.41   $ 0.41   $ 0.76  
   
 
 
 
 
Weighted average shares of common stock outstanding:                          
    Basic     25,696,137     11,900,165     25,548,588     11,885,250  
   
 
 
 
 
    Diluted     26,469,345     12,621,076     26,435,375     12,538,241  
   
 
 
 
 

See accompanying notes to consolidated financial statements.

3



THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Unaudited, in Thousands, Except Share Amounts)

 
  Common stock
   
  Unamortized
restricted
stock
compensation

  Accumulated
other
comprehensive
loss

   
   
  Treasury stock
   
 
 
  Additional
paid-in
capital

  Retained
earnings

  Comprehensive
income

  Total
stockholders'
equity

 
 
  Shares
  Amount
  Shares
  Amount
 
BALANCES AT JANUARY 31, 2004   25,208,973   $ 268   $ 394,218   $ (15,274 ) $ (759 ) $ 82,320         1,572,754   $ (23,476 ) $ 437,297  
Net income (as restated, see Note 2)                       10,920   $ 10,920           10,920  
Unrealized gain on interest rate swaps                   47         47           47  
                                     
                 
Comprehensive income (as restated, see Note 2)                                     $ 10,967                  
                                     
                 
Exercise of stock options, including tax benefit of $2,083   322,855     3     8,475                             8,478  
Restricted stock grant           1,311     (1,311 )                        
Cancellation of Restricted Stock           (91 )   91                          
Restricted stock vesting and repurchase   263,474     3     (645 )                           (642 )
Amortization of restricted stock               4,410                         4,410  
   
 
 
 
 
 
       
 
 
 
BALANCES AT JULY 31, 2004 (as restated, see Note 2)   25,795,302   $ 274   $ 403,268   $ (12,084 ) $ (712 ) $ 93,240         1,572,754   $ (23,476 ) $ 460,510  
   
 
 
 
 
 
       
 
 
 

See accompanying notes to consolidated financial statements.

4



THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in Thousands)

 
  Twenty-six weeks ended
 
 
  July 31, 2004
  August 2, 2003
 
 
  (As restated,
see Note 2)

  (As restated,
see Note 2)

 
CASH FLOWS FROM OPERATING ACTIVITIES:              
  Net income   $ 10,920   $ 9,510  
  Adjustments to reconcile net income to net cash used in operating activities:              
    Depreciation and amortization     29,700     12,426  
    Amortization of loan acquisition costs     1,164     427  
    Deferred income taxes     6,982     3,286  
    (Gain)/Loss on disposition of assets     (26 )   157  
    Change in operating assets and liabilities:              
      Accounts receivable, net     963     (1,812 )
      Inventories     (85,817 )   (21,818 )
      Prepaid expenses and other current assets     (3,966 )   (2,598 )
      Other assets     (124 )   (334 )
      Accounts payable     23,254     (1,669 )
      Accrued expenses and other current liabilities     (13,382 )   (3,035 )
      Other long term liabilities     (4,264 )   7,775  
   
 
 
        Net cash used in operating activities     (34,596 )   2,315  
   
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:              
  Purchases of property and equipment     (64,715 )   (29,077 )
  Proceeds from sale of property and equipment     20,246      
  Proceeds from mortgage notes     3,088      
  Other investing activities, net     (238 )   (2,577 )
   
 
 
        Net cash used in investing activities     (41,619 )   (31,654 )
   
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Proceeds from long-term debt     581,112     174,785  
  Principal payments on long-term debt     (508,618 )   (141,011 )
  Principal payments on capital lease obligations     (148 )   (343 )
  Proceeds from the sale of common stock under option plans     6,395     602  
   
 
 
        Net cash provided by financing activities     78,741     34,033  
   
 
 
Increase in cash and cash equivalents     2,526     4,694  
Cash and cash equivalents at beginning of period     28,009     10,156  
   
 
 
Cash and cash equivalents at end of period   $ 30,535   $ 14,850  
   
 
 
Supplemental disclosures of cash flow information:              
  Cash paid during the period for interest   $ 6,540   $ 3,159  
   
 
 
  Cash paid during the period for income taxes   $ 264   $ 13  
   
 
 

See accompanying notes to consolidated financial statements.

5



THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(As restated, see Note 2)

1.     Company

        On August 4, 2003, a wholly owned subsidiary of Gart Sports Company completed a merger with The Sports Authority, Inc. In connection with the merger, Gart Sports Company ("Gart") was renamed The Sports Authority, Inc. The references made to the entities herein refer to The Sports Authority, Inc. (formerly Gart Sports Company, which is also referred to as "Sports Authority" or "Company"). "TSA" refers to TSA Stores, Inc., (formerly known as The Sports Authority, Inc.). The statements of income for the thirteen and the twenty-six weeks ended July 31, 2004 reflect the results of the combined company, while results for the thirteen and twenty-six weeks ended August 2, 2003 include the former Gart Sports Company on a stand-alone basis. In the merger, the TSA shareholders received 0.37 shares of Sports Authority common stock for each share of TSA stock they owned. The combined company operated 386 retail sporting goods stores in 45 states as of July 31, 2004.

        Under license and e-commerce agreements with GSI Commerce Inc. ("GSI"), GSI operates sporting goods retail websites at www.thesportsauthority.com, www.gartsports.com, www.sportmart.com, and www.oshmans.com. Under these agreements, GSI owns certain content and technology related to the website, purchases and owns the merchandise sold on the websites, and hosts, maintains, fulfills orders and furnishes all other "back-end" operations required to operate the websites. GSI receives all revenue generated from the websites and pays the Company a royalty based on a certain percentage of sales from these sites.

        Mega Sports Co., Ltd. ("Mega Sports"), a joint venture between the Company and AEON Co., Ltd. ("AEON"), operates The Sports Authority stores in Japan pursuant to a license agreement with the Company. Under the agreement, Mega Sports pays a royalty based on its gross sales, in exchange for use of trademarks and other intangible property owned by the Company and for merchandising assistance provided by the Company. In April 2004, the license agreement was amended to, among other things, extend the term of the agreement from 2005 to 2014 and to revise the royalty payable by Mega Sports. TSA Stores has a 19.9% ownership interest in Mega Sports. AEON is a major Japanese retailer that owns 4.5% of the Company's outstanding stock.

2.     Restatement of Financial Statements

        On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") issued a letter to the American Institute of Certified Public Accountants regarding certain operating lease-related accounting issues and their application under generally accepted accounting principles in the United States of America ("GAAP"). As a result of this letter, the Company's management initiated a thorough review of its accounting for leases and has concluded that its accounting was not in accordance with generally accepted accounting principles. The Company has corrected its accounting for tenant improvement allowances and to reflect the recognition of rent expense on a straight-line basis, including consideration of rent holidays and applicable rent escalations. For purposes of determination of the term of the lease, the Company considers the commencement date of the lease term to be the earlier of the date when the Company becomes legally obligated for the rent payments or the date when it takes possession of the building for purposes of constructing the build-out. As a result, the Company restated its consolidated financial statements for each of the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002 and for the first three quarters of fiscal 2004. The consolidated financial statements included in this Form 10-Q/A have been restated to reflect the adjustments described above.

        The Company had historically accounted for tenant improvement allowances as reductions to the related leasehold improvement asset on the consolidated balance sheets and capital expenditures in investing activities on the consolidated statements of cash flows. Management has determined that

6



these allowances should be recorded as deferred rent liabilities on the consolidated balance sheets and as a component of operating activities on the consolidated statements of cash flows.

        The Company had historically recognized straight-line rent expense for leases beginning on the earlier of the store opening date or lease commencement date, which had the effect of excluding the build-out period (or rent holiday period) of its stores from the calculation of the period over which it expensed rent. The Company has determined that it should have included the build-out period in its calculation of straight line rent expense in accordance with Financial Accounting Standards Board Technical Bulletin No. 85-3, "Accounting for Operating Leases with Scheduled Rent Increases" and has corrected its straight line rent accrual and deferred lease credits accordingly. Straight-line rent recorded during the build-out period is capitalized as a component of the historical cost of leasehold improvements included in property and equipment. The capitalized rent is amortized over the useful life of the related asset or the lease term, whichever is shorter. Straight-line rent recorded during our pre-opening period (completion of build-out through store open date) is recorded as a pre-opening expense. The correction of this accounting requires the Company to record additional deferred rent in "Other long-term liabilities", increase "Property and equipment, net" and to adjust "Retained earnings" on the consolidated balance sheets. This restatement to previously issued consolidated financial statements does not have an effect on total net cash flows during any of the periods restated. Certain reclassifications have been reflected in the statement of cash flows to include tenant improvement allowances within operating activities and exclude them as a component of capital expenditures within investing activities.

        Following is a summary of the significant effects of these corrections on the Company's consolidated balance sheet as of July 31, 2004, as well as the effects of these corrections on the Company's consolidated statements of income and cash flows for the thirteen and twenty-six weeks ended July 31, 2004 and August 2, 2003 (in thousands, except share data):

 
  Consolidated Statements of Income
 
 
  As previously
reported

  Adjustments
  As restated
 
Thirteen weeks ended July 31, 2004                    
Cost of goods sold, buying, distribution and occupancy   $ 436,864   $ (157 ) $ 436,707  
Gross profit     168,161     157     168,318  
Operating expenses     143,627     9     143,636  
Pre-opening expenses     636     122     758  
Operating income     15,479     26     15,505  
Income before income taxes     11,064     26     11,090  
Income tax expense     (4,316 )   (9 )   (4,325 )
Net income     6,748     17     6,765  
Earnings per common share—basic     0.26         0.26  
Earnings per common share—diluted     0.25     0.01     0.26  

Thirteen weeks ended August 2, 2003

 

 

 

 

 

 

 

 

 

 
Cost of goods sold, buying, distribution and occupancy     196,822     (149 )   196,673  
Gross profit     70,692     149     70,841  
Operating Expenses     58,277     221     58,498  
Pre-opening expenses     475     81     556  
Operating income     10,264     (153 )   10,111  
Income before income taxes     8,608     (153 )   8,455  
Income tax expense     (3,348 )   59     (3,289 )
Net income     5,260     (94 )   5,166  
Earnings per common share—basic     0.44     (0.01 )   0.43  
Earnings per common share—diluted     0.42     (0.01 )   0.41  
                     

7



Twenty-six weeks ended July 31, 2004

 

 

 

 

 

 

 

 

 

 
Cost of goods sold, buying, distribution and occupancy     849,924     (482 )   849,442  
Gross profit     327,141     482     327,623  
Operating Expenses     282,863     18     282,881  
Pre-opening expenses     1,386     295     1,681  
Operating income     25,915     169     26,084  
Income before income taxes     17,733     169     17,902  
Income tax expense     (6,917 )   (65 )   (6,982 )
Net income     10,816     104     10,920  
Earnings per common share—basic     0.42     0.01     0.43  
Earnings per common share—diluted     0.41         0.41  

Twenty-six weeks ended August 2, 2003

 

 

 

 

 

 

 

 

 

 
Cost of goods sold, buying, distribution and occupancy     367,673     (220 )   367,453  
Gross profit     128,273     220     128,493  
Operating Expenses     111,700     37     111,737  
Pre-opening expenses     570     84     654  
Operating income     14,327     99     14,426  
Income before income taxes     12,697     99     12,796  
Income tax expense     (3,248 )   (38 )   (3,286 )
Net income     9,449     61     9,510  
Earnings per common share—basic     0.80         0.80  
Earnings per common share—diluted     0.75     0.01     0.76  

 


 

Consolidated Balance Sheets

 
  As previously reported
  Adjustments
  As restated
As of July 31, 2004                  
Property and equipment, net   $ 208,657   $ 35,655   $ 244,312
Deferred income taxes     43,923     1,168     45,091
Total assets     1,461,637     36,823     1,498,460
Other long-term liabilities     80,924     38,688     119,612
Total liabilities     999,262     38,688     1,037,950
Retained Earnings     95,105     (1,865 )   93,240
Total Stockholders' equity     462,375     (1,865 )   460,510
Total liabilities and stockholders' equity     1,461,637     36,823     1,498,460

 


 

Consolidated Statements of Cash Flows


 
 
  As previously reported
  Adjustments
  As restated
 
Net cash provided by operating activities   $ (45,517 ) $ 10,921   $ (34,596 )
Net cash used in investing activities     (30,698 )   (10,921 )   (41,619 )
Twenty-six weeks ended August 2, 2003                    
Net cash provided by operating activities     (4,815 )   7,130     2,315  
Net cash used in investing activities     (24,524 )   (7,130 )   (31,654 )

8


3.     Basis of Presentation

        The accompanying unaudited consolidated financial statements do not include all information and footnotes necessary for the annual presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America, and should be read in conjunction with The Sports Authority, Inc. Annual Report on Form 10-K/A for the period ended January 31, 2004. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the statement of financial position and the results of operations for the interim periods have been included. The results for the thirteen and twenty-six week periods ended July 31, 2004 are not necessarily indicative of the results to be expected for the full year.

4.     Merger

        On August 4, 2003, TSA was merged with a subsidiary of Gart Sports Company, at which time Gart Sports Company became the owner of 100 percent of the outstanding common stock of TSA and was renamed The Sports Authority, Inc. Pursuant to the Financial Accounting Standards Board ("FASB") Statement No. 141, "Business Combinations," the transaction is being accounted for using the purchase method of accounting with Gart as the accounting acquirer. Accordingly, the assets and liabilities of TSA were adjusted to their fair values and the excess of the purchase price over the fair value of TSA assets acquired were recorded as goodwill. The allocation of the purchase price to specific assets and liabilities is based on a combination of independent appraisals and internal analyses including future cash flows and may be further adjusted during the allocation period as defined SFAS No. 141 "Business Combinations". During the quarter ended May 1, 2004, the Company finalized its identification of TSA stores targeted for closure as a result of the merger and adjusted the purchase price allocation accordingly. During the quarter ended July 31, 2004, the Company finalized its evaluation of certain litigation matters and a contractual obligation and adjusted the purchase price allocation accordingly. The Company is still in the process of evaluating additional information regarding the fair value of certain assumed contractual obligations assumed at the merger date. Accordingly, the purchase price allocation is subject to further adjustment. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at August 4, 2003.

 
  (Unaudited)
 
Inventory   $ 306,026  
Other current assets     46,594  
Property and equipment, net     81,717  
Favorable leases and other long term assets, excluding goodwill     75,805  
Deferred tax assets     124,814  
Goodwill     104,269  
Current liabilities     (340,970 )
Long term debt     (122,985 )
Other long term liabilities     (74,086 )
   
 
Fair value of net assets acquired, including intangibles   $ 201,184  
   
 

        The accompanying statements of income reflect the results of the combined company for the thirteen and twenty-six week periods ended July 31, 2004, while the results for the thirteen and twenty-six week periods ended August 2, 2003 reflect the former Gart Sports Company on a stand-alone basis.

        The following unaudited pro forma summary presents information as if TSA had been acquired at the beginning of the prior year period. The pro forma amounts include certain adjustments, including recognition of depreciation and amortization based on the allocated purchase price of property and equipment acquired, amortization of favorable leases, amortization of other finite lived intangible assets

9



acquired, interest expense, and cessation of the amortization of certain lease acquisition costs. The pro forma amounts do not reflect any benefits from economies that might be achieved from combining the operations. No adjustments have been made to the pro forma summary to conform accounting policies and practices. For the thirteen weeks ended August 2, 2003, no adjustments have been made to eliminate the after-tax effect of $0.4 million of merger related costs recorded by TSA prior to the merger date of August 4, 2003. In addition, no adjustments have been made to eliminate the after-tax effect of certain items included in the amounts for the twenty-six weeks ended August 2, 2003 below as follows: $0.9 million of costs to settle two wage and hour lawsuits; $0.9 million of merger related costs recorded by TSA prior to the merger date; and $1.1 million of interest income and a $1.7 million tax benefit, both related to the settlement of a tax dispute involving the Company's former parent.

        The pro forma information does not necessarily reflect the actual results that would have occurred had the companies been combined during the period presented, nor is it necessarily indicative of the future results of operations of the combined companies.

(Pro forma unaudited, in thousands except per share amounts)

  Thirteen weeks ended August 2, 2003
  Twenty-six weeks ended August 2, 2003
Net sales   $ 627,269   $ 1,195,928
   
 
Net income   $ 6,843   $ 14,380
   
 
Basic earnings per share   $ 0.27   $ 0.56
   
 
Diluted earnings per share   $ 0.26   $ 0.54
   
 

5.     New Accounting Pronouncements

        In November 2002, the Emerging Issues Task Force ("EITF") issued consensus No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16"), which generally provides that cash consideration received by a reseller from a vendor is presumed to be a reduction of cost of sales when recognized in the reseller's income statement. This presumption is overcome when the consideration is a reimbursement for specific, incremental, identifiable costs incurred by the reseller to sell the vendor's products, in which case the cash consideration should be characterized as a reduction of that cost when recognized in the reseller's income statement.

        The Company has historically treated certain vendor entitlements as a reduction of inventory costs, while cooperative advertising reimbursements have been reflected as a reduction of selling, general and administrative expense. For the thirteen and twenty-six weeks ended July 31, 2004, the Company recharacterized $1.5 million and $5.2 million, respectively, of vendor entitlements from a reduction of advertising expense to a reduction of cost of inventory purchased. During the thirteen and twenty-six weeks ended July 31, 2004, $1.9 million and $3.2 million, respectively, was recognized as a reduction of cost of goods sold. The net impact of EITF 02-16, after taxes, was an increase/(decrease) in net income of $0.2 million and $(1.2) million, or $0.01 and $(0.05) per diluted share, for the thirteen and twenty-six weeks ended July 31, 2004, respectively. The impact of EITF 02-16 for the thirteen weeks and twenty-six weeks ended August 2, 2003 was immaterial.

6.     Stock-Based Compensation

        The Company accounts for stock compensation issued to employees using the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations. Under APB 25, no compensation cost is reflected in net income for stock options granted as all such options had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company records compensation expense related to

10



its grants of restricted stock units based on the fair value of the common stock on the date of the grant, amortized on a straight-line basis over the vesting period. The following table illustrates the effect on net income and earnings per share had the Company applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation (in thousands, except per share amounts):

 
  Thirteen weeks ended
  Twenty-six weeks ended
 
 
  July 31, 2004
  August 2,
2003

  July 31, 2004
  August 2,
2003

 
Net income, as reported   $ 6,765   $ 5,166   $ 10,920   $ 9,510  
Add: Stock-based compensation expense included in net income, net of related tax effects     1,056     149     2,790     277  
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects     (1,750 )   (379 )   (4,163 )   (737 )
   
 
 
 
 
Pro forma net income   $ 6,071   $ 4,936   $ 9,547   $ 9,050  
   
 
 
 
 
Earnings per share:                          
  Basic—as reported   $ 0.26   $ 0.43   $ 0.43   $ 0.80  
   
 
 
 
 
  Basic—pro forma   $ 0.24   $ 0.41   $ 0.37   $ 0.76  
   
 
 
 
 
  Diluted—as reported   $ 0.26   $ 0.41   $ 0.41   $ 0.76  
   
 
 
 
 
  Diluted—pro forma   $ 0.23   $ 0.39   $ 0.36   $ 0.72  
   
 
 
 
 

7.     Goodwill and Intangible Assets

        The carrying amount of intangible assets is as follows (in thousands):

 
  As of July 31, 2004
  As of January 31, 2004
 
 
  Gross Carrying Amount
  Accumulated Amortization
  Gross Carrying Amount
  Accumulated Amortization
 
Goodwill   $ 151,182   $ (734 ) $ 133,468   $ (734 )
Trademark     40,604         40,604      
Favorable leases     29,578     (8,367 )   28,601     (6,173 )
License agreement     11,957     (1,296 )   11,957     (575 )
Loan origination fees     10,489     (5,089 )   10,478     (3,925 )
Lease acquisition costs     4,601     (1,155 )   4,253     (951 )
   
 
 
 
 
  Total   $ 248,411   $ (16,641 ) $ 229,361   $ (12,358 )
   
 
 
 
 

        The changes in the net carrying amount of goodwill for the twenty-six weeks ended July 31, 2004 relate primarily to changes in estimated liabilities for TSA stores targeted for closure due to the merger and estimated amounts for assumed contractual obligations of TSA at the merger date and are as follows:

 
  Carrying
Amount

Goodwill, net at January 31, 2004   $ 132,734
TSA purchase accounting fair value adjustments     17,714
   
Goodwill, net at July 31, 2004   $ 150,448
   

11


8.     Earnings Per Share

        Basic earnings per share ("EPS") is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in earnings. The computation of diluted EPS excludes the effect of anti-dilutive stock options outstanding, aggregating 227,118 and 27,500 for the thirteen weeks ended July 31, 2004 and August 2, 2003, respectively, and 30,688 and 27,500 in the twenty-six weeks ended July 31, 2004 and August 2, 2003, respectively. The following table sets forth the computations of basic and diluted earnings per share (in thousands, except share and per share amounts):

 
  Thirteen weeks ended
  Twenty-six weeks ended
 
  July 31, 2004
  August 2, 2003
  July 31, 2004
  August 2, 2003
Net income   $ 6,765   $ 5,166   $ 10,920   $ 9,510
Weighted average shares of common stock outstanding—basic     25,696,137     11,900,165     25,548,588     11,885,250
   
 
 
 
Basic earnings per share   $ 0.26   $ 0.43   $ 0.43   $ 0.80
   
 
 
 
Number of shares used for diluted earnings per share:                        
  Weighted average shares of common stock outstanding—basic     25,696,137     11,900,165     25,548,588     11,885,250
  Dilutive securities—stock options and unvested restricted stock     773,208     720,911     886,787     652,991
   
 
 
 
Weighted average shares of common stock outstanding—diluted     26,469,345     12,621,076     26,435,375     12,538,241
   
 
 
 
Diluted earnings per share   $ 0.26   $ 0.41   $ 0.41   $ 0.76
   
 
 
 

9.     Store Closing Costs

        Management identified a total of 30 stores and the TSA corporate office for closure as a result of the merger. In the twenty-six weeks ended July 31, 2004, the Company recorded additional exit reserves related to the TSA store closures of $11.4 million. Management based its decision to close certain of the TSA stores due principally to their location in overlapping Gart markets, or due to historical underperformance.

12



        Following is a summary of activity in the store exit reserves for the twenty-six weeks ended July 31, 2004 (in thousands):

 
  Total
 
Balance, January 31, 2004   $ 75,519  
Increase recorded as a component of purchase accounting—TSA merger     11,402  
Increase recorded in operating expenses:        
  Consolidation of distribution centers due to TSA merger     600  
  Other adjustments of existing reserves     861  
   
 
    Subtotal-operating expenses     1,461  
   
 
Cash receipts (payments):        
  Sublease receipts     1,409  
  Payments     (16,699 )
   
 
    Subtotal-cash receipts (payments)     (15,290 )
   
 
Balance, July 31, 2004(1)   $ 73,092  
   
 

(1)
At July 31, 2004, the ending reserve balance is comprised of $71.6 million of remaining reserves established as a component of purchase accounting in connection with the Company's merger and acquisitions. The remaining balance of $1.5 million represents remaining reserves established in connection with routine store closing activities unrelated to the Company's merger or acquisitions.

10.   Revolving Credit Facility

        Following consummation of the merger, the Company entered into a new credit financing agreement with CIT/Business Credit, Inc. ("CIT"), as agent, that allows the combined company to borrow up to $600 million, limited to an amount equal to 70% of eligible inventory or 85% of the appraised net orderly liquidation value of eligible inventory. The Company is also entitled to seasonal increases (seasonal advances) in the inventory advance rate for up to 120 days during any calendar year as designated by the Company for the lesser of 80% of eligible inventory or 90% of appraised net orderly liquidation value. Loan interest will be payable monthly at Chase Manhattan Bank's prime rate plus a margin rate ranging from 0% to 0.50% or, at the option of the Company, at Chase Manhattan Bank's LIBOR rate plus a margin rate ranging from 1.50% to 2.50%.

11.   Contingencies

Legal Proceedings

        The Company is, from time to time, involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the outcome of all such pending legal proceedings to which the Company is a party will not, in the aggregate, have a material adverse effect on the Company's business, financial condition, or operating results.

        In June 2000, a former employee of Sportmart brought two class action complaints in California against the Company, alleging certain wage and hour claims in violation of the California Labor Code, California Business and Professional Code section 17200 and other related matters. One complaint alleges that the Company classified certain managers in its California stores as exempt from overtime pay when they would have been classified as non-exempt and paid overtime. The second complaint alleges that the Company failed to pay hourly employees in its California stores for all hours worked. In March 2001, a third class action complaint was filed in the same court in California alleging the same wage and hour violations regarding classification of certain managers as exempt from overtime pay. In July 2001, a fourth complaint was filed alleging that store managers should also not be classified as employees exempt from overtime pay. All the complaints seek compensatory damages, punitive

13



damages and penalties. The amount of damages sought is unspecified. The Company has entered into a settlement agreement relating to the first two complaints that were filed, which received preliminary approval by the court in February 2004. With the settlement of the first two complaints, the named plaintiffs in the third and fourth actions will be included in the settlement class although they may opt to proceed with their lawsuits on an individual basis. In June 2004, the settlement agreement received final approval from the court and distributions have been made to the class members who did not opt out of the class. During the second quarter of 2004, the Company settled this lawsuit for a total of $1.3 million, including attorney fees and expenses.

        TSA Stores is one of thirty-three named defendants, including firearm manufacturers and retailers, in City of Chicago and County of Cook v. Beretta U.S.A. Corp. et al., Circuit Court of Cook County, Illinois. This suit was served on TSA Stores in November 1998. The original complaint was based on legal theories of public nuisance and negligent entrustment of firearms and alleged that the defendants created a public nuisance by distributing, marketing and selling firearms in the portion of Cook County outside Chicago knowing or recklessly disregarding that these guns would be illegally transferred and used in Chicago to commit crimes. The complaint sought damages allocated among the defendants exceeding $433 million to compensate the City of Chicago and Cook County for their alleged costs resulting from the alleged public nuisance. The complaint also sought punitive damages and injunctive relief imposing additional regulations on the methods the defendants use to distribute, market and sell firearms in Cook County. In February 2000, the Court dismissed the complaint's negligent entrustment count. The plaintiffs filed an amended complaint with the Court's permission in March 2000, which contained both the public nuisance and negligent entrustment counts. In September 2000, the Court granted the motions of the defendants to dismiss the amended complaint, in its entirety, with prejudice.

        In October 2000, the plaintiffs appealed to the Appellate Court of Illinois, First Judicial District. On November 4, 2002, the Appellate Court reversed the dismissal of the amended complaint and remanded the case to the trial court for further proceedings on the public nuisance issue. On November 25, 2002, TSA Stores filed a petition for rehearing with the Appellate Court which was denied on March 7, 2003. On March 27, 2003, TSA Stores joined in the petition by the other defendants for leave to appeal to the Illinois Supreme Court of the Appellate Court's decision reversing the trial court's dismissal of the public nuisance claim, which was granted on April 8, 2003. The Illinois Supreme Court heard oral arguments by the parties on September 10, 2003 and has yet to render a decision. The Company is currently unable to predict the outcome of this case.

12.   Financial Instruments and Risk Management

Interest Rate Instruments

        The Company entered into an interest rate swap agreement on June 28, 2001 for a notional amount of $20 million, which expired on June 30, 2004. The Company entered into an interest rate swap agreement on December 11, 2002 for a notional amount of $40 million, expiring on May 31, 2005, and entered into a second interest rate swap agreement on June 23, 2004 for a notional amount of $75 million, beginning July 7, 2004 and expiring on June 29, 2007, to minimize the risks and costs associated with its financing activities in general and to minimize its exposure to variable cash flows in particular. Under the swap agreements, the Company pays fixed rate interest and receives variable LIBOR interest rate payments periodically over the life of the instrument. The total notional interest rate swap amounts are $115 million and are used to measure interest to be paid or received and do not represent the exposure due to credit loss.

        The Company's interest rate swaps are each designated as a cash flow hedge, and are considered highly effective as defined by FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." Accordingly, there is no charge to earnings for changes in the fair value of the swap agreements. Cash settlements on the swap agreements are recorded as interest expense. At July 31, 2004 and January 31, 2004, the fair value of the swaps was a loss of approximately $0.7 million and $0.8 million, respectively, net of the related tax benefit. The unrealized losses from these interest rate swaps are included in other comprehensive income and are shown as a component of stockholders' equity.

14



ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere within this report and The Sports Authority, Inc. Annual Report on Form 10-K/A for the period ended January 31, 2004. This discussion and analysis contains forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those currently anticipated, including risks and uncertainties discussed in The Sports Authority's filings with the Securities and Exchange Commission. Those risks include, among other things, the competitive environment in the sporting goods industry in general and in the Company's specific market areas, consumer confidence, changes in discretionary consumer spending, changes in costs of goods and services and economic conditions in general and in the Company's specific market areas, unseasonable weather and those risks generally associated with the integration of the two companies. The Company assumes no obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements as a result of new information or future events or developments.

Restatement of Financial Statements

        On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") issued a letter to the American Institute of Certified Public Accountants regarding certain operating lease-related accounting issues and their application under generally accepted accounting principles in the United States of America ("GAAP"). As a result of this letter, the Company's management initiated a thorough review of our accounting for leases and has concluded that our accounting was not in accordance with generally accepted accounting principles. We have corrected our accounting for tenant improvement allowances and to reflect the recognition of rent expense on a straight-line basis, including consideration of rent holidays and applicable rent escalations. For purposes of determination of the term of the lease, we consider the commencement date of the lease term to be the earlier of the date when we become legally obligated for the rent payments or the date when we take possession of the building for purposes of constructing the build-out. Consequently, we restated our consolidated financial statements for each of the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002 and for the first three quarters of fiscal 2004. The consolidated financial statements included in this Form 10-Q/A have been restated to reflect the adjustments described above.

        We had historically accounted for tenant improvement allowances as reductions to the related leasehold improvement asset on the consolidated balance sheets and capital expenditures in investing activities on the consolidated statements of cash flows. We have determined that these allowances should be recorded as deferred rent liabilities on the consolidated balance sheets and as a component of operating activities on the consolidated statements of cash flows.

        We had historically recognized straight-line rent expense for leases beginning on the earlier of the store opening date or lease commencement date, which had the effect of excluding the build-out period (or rent holiday period) of our stores from the calculation of the period over which we expensed rent. We have determined that we should have included the build-out period in the calculation of straight line rent expense in accordance with Financial Accounting Standards Board Technical Bulletin No. 85-3, "Accounting for Operating Leases with Scheduled Rent Increases" and have corrected the straight line rent accrual and deferred lease credits accordingly. Straight-line rent recorded during the build-out period is capitalized as a component of the historical cost of leasehold improvements included in property and equipment. The capitalized rent is amortized over the useful life of the related asset or the lease term, whichever is shorter. Straight-line rent recorded during our pre-opening period (completion of build-out through store open date) is recorded as a pre-opening expense. The correction of this accounting requires us to record additional deferred rent in "Other long-term liabilities", increase "Property and equipment, net" and to adjust "Retained earnings" on the consolidated balance sheets. This restatement to previously issued consolidated financial statements does not have an effect

15



on total net cash flows during any of the periods restated. Certain reclassifications have been reflected in the statement of cash flows to include tenant improvement allowances within operating activities and exclude them as a component of capital expenditures within investing activities.

Overview

        On August 4, 2003, a wholly-owned subsidiary of Gart Sports Company completed a merger with The Sports Authority, Inc., and Gart Sports Company was renamed The Sports Authority, Inc. The references made to the entities herein refer to The Sports Authority, Inc. (formerly Gart Sports Company which includes "Sports Authority" or "Company" or "we" or "our" or "us") and its subsidiaries. "TSA" refers to TSA Stores Inc. (formerly known as The Sports Authority, Inc.). The merger was accounted for under the purchase method of accounting with Gart Sports Company as the acquirer. Accordingly, the results of operations below include the results of TSA for the thirteen and twenty-six week periods ended July 31, 2004, while the results for the thirteen and twenty-six week periods ended August 2, 2003 include the former Gart Sports Company on a stand-alone basis. The combined company is headquartered in Englewood, Colorado and is listed on the New York Stock Exchange under the ticker symbol "TSA."

        Following the TSA merger, we are the nation's largest publicly traded full-line sporting goods retailer, with a presence in most major markets across the United States. At July 31, 2004, we operated 386 stores in 45 states under the Sports Authority, Gart Sports, Oshman's and Sportmart brand names. We also have a licensing agreement with Mega Sports Co. Ltd., a joint venture between the Company and AEON Co., Ltd., to operate stores in Japan under the Sports Authority name. We believe that our geographic dispersion will benefit top-line sales due to sales of licensed apparel in a broader number of professional team markets, and balancing of seasonal fluctuations, among other factors.

        With our major financial and retail systems integrated by the end of fiscal 2003, the first twenty-six weeks of 2004 was dedicated to continued integration of processes and merchandise assortments. To ensure that we get the right merchandise to the right store at the right time, we retrofitted the TSA Burlington, New Jersey distribution center to conform to consistent company-wide systems, and also commenced operations in our new 616,000 square foot distribution center in Fontana, California late in the first quarter. As of the end of the second quarter, we have completed 27 TSA store remodels since the merger. In addition, we have completed the installation of 22 new "Golf Day" shops for a total of 41, company-wide. Finally, we now have our full service "Statement Shoe Walls" in approximately 220 stores company-wide. From a merchandise assortment perspective, our enhanced product offerings are substantially complete with the exception of: the fitness category due to longer product lead times; our private label programs; and the expansion of winter sports products into the TSA markets, all of which are scheduled to be completed during the second half of this year.

        Our comparable store sales for the 2004 second fiscal quarter on a combined basis decreased 3.8%. We believe that several factors contributed to this performance. During the second fiscal quarter, our more seasonal outdoor categories under-performed expectations due to unusually cool and wet weather in many of our key markets. Also, we experienced weak sales of fitness equipment, which represents a significant part of our business. We expect fitness sales to improve as we complete our new merchandise assortments in this category. Additionally, we reassigned responsibilities within the merchandising group, which resulted in some short-term disruption in placement and allocation of product orders. Finally, we believe changes we will be implementing will improve the effectiveness of our advertising by implementing a number of personnel and procedural changes.

        Given the economic characteristics of our store formats, the similar nature of the products sold, the type of customer and method of distribution, our operations are aggregated in one reportable segment as defined by Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information."

16



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 in this Quarterly Report on Form 10-Q/A 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. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. You can identify these statements as those that may predict, forecast, indicate or imply future results, performance or advancements and by forward-looking words such as "believe," "anticipate," "expect," "estimate," "predict," "intend," "plan," "project," "will," "will be," "will continue," "will result," "could," "may," "might" or any variations of such words or other words with similar meanings. Forward-looking statements address, among other things, our expectations, our growth strategies, including our plans to open new stores, our efforts to increase profit margins and return on invested capital, plans to grow our private label business, projections of our future profitability, results of operations, capital expenditures or our financial condition or other "forward-looking" information and includes statements about revenues, earnings, spending, margins, liquidity, store openings and operations, inventory, private label products, our actions, plans or strategies.

        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 2004 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: the intense competition in the sporting goods industry and actions by our competitors; our inability to manage our growth, open new stores on a timely basis and expand successfully in new and existing markets; the availability of retail store sites on terms acceptable to us; the cost of real estate and other items related to our stores; changes in consumer demand; risks relating to product liability claims and the availability of sufficient insurance coverage relating to those claims; our relationships with our suppliers, distributors or manufacturers and their ability to provide us with sufficient quantities of products; any serious disruption at our distribution or return facility; the seasonality of our business; the potential impact of natural disasters or national and international security concerns on us or the retail environment; risks related to the economic impact or the effect on the U.S. retail environment relating to instability and conflict in the Middle East or elsewhere; risks relating to the regulation of the products we sell, such as firearms; risks associated with relying on foreign sources of production; risks relating to our pursuit of strategic acquisitions; our ability to meet our labor needs; changes in general economic and business conditions and in the specialty retail or sporting goods industry in particular; and other factors discussed in further detail under the caption "Risks and Uncertainties" in our Annual Report on Form 10-K/A for the period ended January 31, 2004, as well as other reports or filings filed by us with the Securities and Exchange Commission.

        In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. We do not assume any obligation and do not intend to update any forward-looking statements.

17



Results of Operations

        The following table sets forth statement of income data expressed as a percentage of net sales, and the number of stores open at the end of each period presented (dollars rounded to millions, except per share amounts):

 
  Thirteen weeks ended
July 31, 2004

  Thirteen weeks ended August 2, 2003
  Twenty-six weeks ended July 31, 2004
  Twenty-six weeks ended August 2, 2003
 
Net Sales   $ 605.0   100.0 % $ 267.5   100.0 % $ 1,177.1   100.0 % $ 495.9   100.0 %

Cost of goods sold, buying distribution and occupancy

 

 

(436.7

)

(72.2

)

 

(196.7

)

(73.5

)

 

(849.4

)

(72.2

)

 

(367.5

)

(74.1

)
   
 
 
 
 
 
 
 
 
 
Gross profit

 

 

168.3

 

27.8

 

 

70.8

 

26.5

 

 

327.6

 

27.8

 

 

128.5

 

25.9

 
Operating Expenses     (143.6 ) (23.7 )   (58.5 ) (21.9 )   (282.9 ) (24.0 )   (111.7 )(2) (22.5 )
Merger integration costs(1)     (8.4 ) (1.4 )   (1.7 ) (0.6 )   (17.0 ) (1.4 )   (1.7 ) (0.3 )
Pre-opening expenses     (0.8 ) (0.1 )   (0.6 ) (0.2 )   (1.7 ) (0.1 )   (0.7 ) (0.1 )
   
 
 
 
 
 
 
 
 
  Operating Income     15.5   2.6     10.1   3.8     26.1   2.2     14.4   2.9  

Interest Expense

 

 

(4.8

)

(0.8

)

 

(2.1

)

(0.8

)

 

(9.1

)

(0.8

)

 

(4.1

)

(0.8

)
Other Income, net     0.4   0.1     0.5   0.2     0.9   0.1     2.5 (3) 0.5  
   
 
 
 
 
 
 
 
 
 
Income before income taxes

 

 

11.1

 

1.8

 

 

8.5

 

3.2

 

 

17.9

 

1.5

 

 

12.8

 

2.6

 
Income tax expense     (4.3 ) (0.7 )   (3.3 ) (1.2 )   (7.0 ) (0.6 )   (3.3 )(4) (0.7 )
   
 
 
 
 
 
 
 
 
  Net Income   $ 6.8   1.1 % $ 5.2   1.9 % $ 10.9   0.9 % $ 9.5 (5) 1.9 %
   
 
 
 
 
 
 
 
 
Number of stores at the end of period     386         184         386         184      
   
     
     
     
     

(1)
Represents merger integration costs associated with the TSA merger.

(2)
Includes a non-recurring expense of $1.5 million, including attorneys' fees expenses, related to the proposed settlement of two wage and hour class action lawsuits in California.

(3)
Includes non-recurring interest income of $1.9 million related to the settlement of a tax dispute involving our former parent.

(4)
Includes a non-recurring tax benefit of $1.7 million related to the settlement of a tax dispute involving our former parent.

(5)
Includes $1.9 million of non-recurring income, after tax, associated with the non-recurring settlements described above in footnotes 2, 3, and 4.

        Newly opened stores enter the comparable store sales base at the beginning of their 14th full month of operation. TSA stores meeting the criteria were included in the comparable sales store sales base beginning on August 4, 2003.

        We consider cost of goods sold to include the direct cost of merchandise, plus certain costs associated with procurement, warehousing, handling and distribution. In addition to the full cost of inventory, cost of goods sold includes related occupancy costs and depreciation and amortization of leasehold improvements, rental equipment and favorable leases.

18



        Operating expenses include controllable and non-controllable store expenses (except occupancy), non-store expenses and depreciation and amortization not associated with cost of goods sold.

Critical Accounting Policies

        Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make significant judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K/A for the period ending January 31, 2004, in Note 3 of the Notes to the Consolidated Financial Statements, and in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

Thirteen Weeks Ended July 31, 2004 Compared to Thirteen Weeks Ended August 2, 2003

        Net Sales.    Net sales for the thirteen weeks ended July 31, 2004 were $605.0 million compared to $267.5 million for the thirteen weeks ended August 2, 2003. Of the $337.5 million increase, $329.1 million is due to the inclusion of sales from TSA stores acquired in the merger. The remaining increase of $8.4 million is attributable primarily to sales from new store openings of $22.6 million, offset by a decrease in comparable store sales. On a combined basis, comparable store sales were down 3.8%. During the second fiscal quarter, our more seasonal outdoor categories under-performed expectations due to unusually cool and wet weather in many of our key markets. Also, we experienced weak sales of fitness equipment, which represents a significant part of our business. Additionally, we reassigned responsibilities within the merchandising group, which resulted in some short-term disruption in placement and allocation of product orders.

        Gross Profit.    Gross profit for the thirteen weeks ended July 31, 2004 was $168.3 million, or 27.8% of net sales, as compared to $70.8 million, or 26.5% of net sales, for the thirteen weeks ended August 2, 2003. 110 of the 130 basis point improvement in gross margin is related to an increase in merchandise margins resulting primarily from lower inventory costs due to the increased buying power of the combined company offset primarily by increases in occupancy and distribution costs. Additionally, the application of EITF 02-16 produced an increase in gross margin of $1.9 million, or 30 basis points, for vendor entitlements recognized as a reduction of cost of goods sold which would historically have been treated as a reduction of advertising expense.

        Operating Expenses.    Operating expenses for the thirteen weeks ended July 31, 2004 were $143.6 million, or 23.7% of net sales, compared to $58.5 million, or 21.9% of net sales, for the thirteen weeks ended August 2, 2003. These increases are due primarily to the higher operating costs associated with the acquired TSA stores. TSA's operating expense structure historically trended higher than Gart's, as evidenced by operating expenses as a percent of sales of 26.0% and 25.5% in fiscal 2002 and 2001, respectively, compared to Gart operating expenses of 21.8% of sales for both years. Additionally, operating expenses increased as a percentage of sales due to the decrease in comparable store sales. Operating expenses also increased as a result of the application of EITF 02-16, which resulted in the recharacterization of $1.5 million in vendor entitlements from a reduction of advertising expense to a reduction of cost of inventory purchased.

        Merger Integration Costs.    Merger integration costs relate to the merger with TSA and were $8.4 million, or 1.4% of net sales for the thirteen weeks ended July 31, 2004, compared to $1.7 million, or 0.6% of net sales, for the thirteen weeks ended August 2, 2003. These costs for the thirteen weeks ended July 31, 2004 include $4.3 million of severance and duplicative payroll and benefits, $2.4 million for consulting fees related to integrating the two companies, $0.7 million in advertising, $0.5 million in relocation and travel expenses, and $0.4 million related to a Gart store closing due to an overlapping

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market. For the thirteen weeks ended August 2, 2003, these costs consisted primarily of consulting fees and costs incurred for travel and severance.

        Operating Income.    As a result of the factors described above, operating income for the thirteen weeks ended July 31, 2004 was $15.5 million compared to operating income of $10.1 million for the thirteen weeks ended August 2, 2003.

        Interest Expense.    Interest expense for the thirteen weeks ended July 31, 2004 increased to $4.8 million, or 0.8% of net sales, from $2.1 million, or 0.8% of net sales, for the thirteen weeks ended August 2, 2003. The increase in interest expense is primarily related to increased debt levels due to the assumption of TSA debt upon completion of the merger, financing increased inventory levels due to negative comparative store sales, and funding of merger and integration costs.

        Other Income.    Other income was $0.4 million for the thirteen weeks ended July 31, 2004 compared to $0.5 million for the thirteen weeks ended August 2, 2003.

        Income Taxes.    Income tax expense was $4.3 million for the thirteen weeks ended July 31, 2004 compared to an income tax expense of $3.3 million for the thirteen weeks ended August 2, 2003. Our effective rate was approximately 39% for the 13 weeks ended July 31, 2004 and August 2, 2003.

Twenty-six Weeks Ended July 31, 2004 Compared to Twenty-six Weeks Ended August 2, 2003

        Net Sales.    Net sales for the twenty-six weeks ended July 31, 2004 were $1.18 billion compared to $495.9 million for the twenty-six weeks ended August 2, 2003. Of the $681.2 million increase, $642.7 million is due to the inclusion of sales from TSA stores acquired in the merger. The remaining increase of $38.5 million is attributable primarily to sales from new store openings of $44.9 million, offset by lower comparable store sales. On a combined basis, comparable store sales were down 1.9%, primarily due to the 3.8% decrease in the second fiscal quarter of 2004. During the second fiscal quarter, our more seasonal outdoor categories under-performed expectations due to unusually cool and wet weather in many of our key markets. Also, we experienced weak sales of fitness equipment, which represents a significant part of our business. Additionally, we reassigned responsibilities within the merchandising group, which resulted in some short-term disruption in placement and allocation of product orders.

        Gross Profit.    Gross profit for the twenty-six weeks ended July 31, 2004 was $327.6 million, or 27.8% of net sales, as compared to $128.5 million, or 25.9% of net sales, for the twenty-six weeks ended August 2, 2003. 150 of the 190 basis point improvement in gross margin is related to an increase in merchandise margins resulting primarily from lower inventory costs due to the increased buying power of the combined company offset primarily by increases in occupancy and distribution costs. Additionally, the application of EITF 02-16 produced an increase in gross margin of $3.2 million, or 30 basis points, for vendor entitlements recognized as a reduction of cost of goods sold which would historically have been treated as a reduction of advertising expense.

        Operating Expenses.    Operating expenses for the twenty-six weeks ended July 31, 2004 were $282.9 million, or 24.0% of net sales, compared to $111.7 million, or 22.5% of net sales, for the period ended August 2, 2003. These increases are primarily due to the higher operating costs associated with the acquired TSA stores. TSA's operating expense structure historically trended higher than Gart's, as evidenced by operating expenses as a percent of sales of 26.0% and 25.5% in fiscal 2002 and 2001, respectively, compared to Gart results of 21.8% of sales for both years. Additionally, operating expenses increased as a percentage of sales due to the decrease in comparable store sales. Operating expenses also increased as a result of the application of EITF 02-16, which resulted in the recharacterization of $5.2 million in vendor entitlements from a reduction of advertising expense to a reduction of cost of inventory purchased.

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        Merger Integration Costs.    Merger integration costs relate to the merger with TSA and were $17.0 million, or 1.4% of net sales for the twenty-six weeks ended July 31, 2004, compared to $1.7 million, or 0.3% of net sales, for the period ended August 2, 2003. These costs for the twenty-six weeks ended July 31, 2004 include $8.9 million of severance and duplicative payroll and benefits, $4.6 million for consulting fees related to integrating the two companies, $1.2 million related to closing the operations of the former TSA corporate office and closure of a Gart distribution center, $1.3 million in relocation and travel expenses, and $0.9 million in advertising expense. For the twenty-six weeks ended August 2, 2003, these costs consisted primarily of consulting fees and costs incurred for travel and severance.

        Operating Income.    As a result of the factors described above, operating income for the twenty-six weeks ended July 31, 2004 was $26.1 million compared to operating income of $14.4 million for the twenty-six weeks ended August 2, 2003.

        Interest Expense.    Interest expense for the twenty-six weeks ended July 31, 2004 increased to $9.1 million, or 0.8% of net sales, from $4.1 million, or 0.8% of net sales, for the twenty-six weeks ended August 2, 2003. The increase in interest expense is primarily related to increased debt levels due to the assumption of TSA debt upon completion of the merger, financing increased inventory levels due to negative comparative store sales and funding of merger and integration costs.

        Other Income.    Other income was $0.9 million for the twenty-six weeks ended July 31, 2004 compared to $2.5 million for the twenty-six weeks ended August 2, 2003. The prior year's period included $1.9 million in interest income associated with the settlement of a tax dispute involving Gart's former parent.

        Income Taxes.    Income tax expense was $7.0 million for the twenty-six weeks ended July 31, 2004 compared to $3.3 million for the twenty-six weeks ended August 2, 2003. The prior year's period included a tax benefit of $1.7 million related to the settlement of the tax dispute discussed above. This one-time benefit had the effect of reducing the effective tax rate, which would otherwise have been approximately 39% to 25.7%, compared to approximately 39% for the first twenty-six weeks of 2004.

Liquidity and Capital Resources

        Our primary capital requirements are for inventory and other seasonal working capital needs, capital improvements, including investments in new stores, store remodeling and distribution centers,

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store fixtures and ongoing infrastructure improvements, and pre-opening expenses to support our expansion plans.

 
  Twenty-six weeks ended
 
 
  July 31, 2004
  August 2, 2003
 
 
  (in thousands, except ratios)

 
Cash used in operating activities   $ (34,596 ) $ 2,315  
Cash used in investing activities     (41,619 )   (31,654 )
Cash provided by financing activities     78,741     34,033  
Capital expenditures     64,715     29,077  
 
  As of
 
  July 31, 2004
  August 2, 2003
Long-term debt   $ 389,815   $ 154,921
Working capital     439,222     209,396
Current ratio     1.83     2.05
Long-term debt to equity ratio     0.85     0.75


Cash Flow Analysis

        Cash used in operating activities was $36.9 million higher in the first twenty-six weeks of 2004 for the combined company versus Gart on a stand-alone basis for the same period of the prior year. Although net income adjusted to exclude depreciation and amortization increased by $19.4 million, this increase was offset by an increase in inventory purchases net of accounts payable of $39.1 million in the twenty-six weeks of 2004. In addition, accrued expenses and other long term liabilities were reduced by $17.7 million during the 2004 twenty-six week period, compared to an increase of $4.7 million for the same period of the prior year. The 2004 period reflected the payment of year-end accruals that were higher than historical amounts as a result of the merger, including store exit, advertising, bonus and severance accruals.

        Cash used in investing activities increased $10.0 million in the first twenty-six weeks of 2004 for the combined company versus Gart on a stand-alone basis for the same period of the prior year. Capital expenditures increased from $29.1 million in the first twenty-six weeks of 2003 to $64.7 million excluding $10.9 million of tenant improvement allowances received from landlords classified as operating cash flows, in 2004, reflecting the increased remodel spending on acquired TSA stores and 9 new stores opened in the period. Capital expenditures reduced by tenant improvement allowances received is $53.8 million in the first twenty-six weeks of 2004, which was used to fund various capital projects, including: $11.7 million for remodeling TSA stores; $7.5 million for 12 store openings; $7.3 million for apparel fixturing; $6.7 million for installation of "Golf Day", "Statement Shoe Walls", and miscellaneous store improvements; $2.1 million for remodeling Gart stores; and $2.0 million for information systems upgrades. We are expecting to spend approximately $85 million in capital expenditures net of tenant improvement allowances during fiscal year 2004 primarily related to 48 TSA store remodels and 22 new store openings. Cash used in investing activities was partially offset by proceeds from the sale (including one sale-leaseback) of three owned TSA store sites and a sale-leaseback of equipment at one distribution center, totaling $20.2 million as follows: the sale-leaseback of one store site was completed in January 2004, while the proceeds of $10.9 million were received on the first business day of February 2004; the other two store sites were closed prior to this year as a result of the merger, and were sold for net proceeds of $4.5 million; and the sale-leaseback of the distribution center equipment resulted in net proceeds of $4.9 million. We also received $3.1 million principal amount in full satisfaction of mortgage notes related to a property as a result of the landlord-borrower(s) refinancing or disposing of the underlying property.

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        Cash provided by financing activities, which typically consists of net borrowing or payments under our revolving credit facility, increased $44.7 million in the first twenty-six weeks of 2004 for the combined company versus Gart on a stand-alone basis for the same period of the prior year. The increase reflects additional borrowings required to finance increased inventory levels for the combined company and merger-related expenditures, including store exit and merger integration costs and the impact of the sales shortfall. Proceeds from stock option exercises were $6.4 million in the first twenty-six weeks of 2004, compared to essentially zero in the 2003 period, which is consistent with both the increase in options outstanding and the accelerated vesting of TSA options as a result of the merger.

        Working capital increased $229.8 million, from $209.4 million at August 2, 2003 to $439.2 million at July 31, 2004. The increase is due principally to an increase in inventories net of accounts payable of $206.8 million, reflecting the higher levels of inventory for the combined company versus Gart on a stand-alone basis and increased inventory levels due to negative comparable store sales.

        Our liquidity and capital needs have principally been met by operating cash flows and by borrowings under a revolving credit facility with CIT/Business Credit, Inc. ("CIT"), as agent. Upon consummation of the merger, we entered into a new credit financing agreement (the "Credit Agreement") with CIT, as agent, that allows the combined company to borrow up to $600,000,000, generally limited to an amount equal to 70% of eligible inventory or 85% of the appraised net orderly liquidation value of eligible inventory (as defined in the agreement), but with seasonal increases in the advance rate permitted. At July 31, 2004, borrowings under the credit facility were $389.8 million, and $95.4 million was available for borrowing.

        We believe that cash generated from operations on an annual basis, combined with funds available under the Credit Agreement, will be sufficient to fund projected capital expenditures, future common share purchases, if any, and other working capital requirements for the foreseeable future. We intend to utilize the revolving credit facility to meet seasonal fluctuations in cash flow requirements. We are currently negotiating with our lenders to extend the maturity of our current credit facility in addition to increasing the amount available to borrow under our revolving credit facility.

Seasonality and Inflation

        Our fourth quarter has historically been the strongest quarter, which we attribute to two primary factors: (i) increases in sales of winter sports and cold weather merchandise; and (ii) holiday sales contribute significantly to our operating results. As a result of these factors, inventory levels, which gradually increase beginning in April, generally reach their peak in November and then decline to their lowest level following the December holiday season. Any decrease in sales for the fourth quarter, whether due to a slow holiday selling season, poor snowfall in ski areas near our markets or otherwise, could have a material adverse effect on our business, financial condition and operating results for the entire fiscal year.

        Although our operations are influenced by general economic conditions, we do not believe that inflation has a material impact on our results of operations. We believe that we are generally able to pass along any inflationary increases in costs to our customers.

New Accounting Pronouncements

        In November 2002, the Emerging Issues Task Force ("EITF") issued consensus No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor ("EITF 02-16"), which generally provides that cash consideration received by a reseller from a vendor is presumed to be a reduction of cost of sales when recognized in the reseller's income statement. This presumption is overcome when the consideration is a reimbursement for specific, incremental, identifiable costs incurred by the reseller to sell the vendor's products, in which case the cash

23



consideration should be characterized as a reduction of that cost when recognized in the reseller's income statement.

        The Company has historically treated certain vendor entitlements as a reduction of inventory costs, while cooperative advertising reimbursements have been reflected as a reduction of selling, general and administrative expense. For the thirteen and twenty-six weeks ended July 31, 2004, the Company recharacterized $1.5 million and $5.2 million, respectively, of vendor entitlements from a reduction of advertising expense to a reduction of cost of inventory purchased. During the thirteen and twenty-six weeks ended July 31, 2004, $1.9 million and $3.2 million, respectively, was recognized as a reduction of cost of goods sold. The net impact of EITF 02-16, after taxes, was an increase/(decrease) in net income of $0.2 million and $(1.2) million, or $0.01 and $(0.05) per diluted share, for the thirteen and twenty-six weeks ended July 31, 2004, respectively. The impact of EITF 02-16 for the thirteen and twenty-six weeks ended August 2, 2003 was immaterial.


ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

        At July 31, 2004, there had not been any material changes in our market risk information as disclosed in our Annual Report on Form 10-K/A for the year ended January 31, 2004. More detailed information concerning market risk can be found under the caption "Quantitative and Qualitative Disclosures about Market Risks" in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K/A for the year ended January 31, 2004.


ITEM 4. Controls and Procedures

        Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report (the "Evaluation Date"). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to us required to be included in our reports filed or submitted under the Exchange Act.

        In connection with the restatement and the filing of this Form 10-Q/A, management, with the participation of our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

        In concluding that our disclosure controls and procedures were effective as of July 31, 2004, our management considered, among other things, the circumstances that resulted in the restatement of our previously issued financial statements. We also considered the materiality of the restatement adjustments on our consolidated balance sheet and statement of operations (as more fully set forth in the section entitled "Restatement of Financial Statements" in Management's Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-Q/A and in Note 2, "Restatement of Financial Statements," to the accompanying consolidated financial statements) and that these non-cash adjustments have no effect on historical or future cash flows or the timing of payments under our operating leases.

        There was no change in our internal control over financial reporting during the thirteen weeks ended July 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

        We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. We believe that the outcome of all such pending legal proceedings to which we are a party will not, in the aggregate, have a material adverse effect on our business, financial condition, or operating results.

        In June 2000, a former employee of Sportmart brought two class action complaints in California against us, alleging certain wage and hour claims in violation of the California Labor Code, California Business and Professional Code section 17200 and other related matters. One complaint alleges that we classified certain managers in its California stores as exempt from overtime pay when they would have been classified as non-exempt and paid overtime. The second complaint alleges that we failed to pay hourly employees in our California stores for all hours worked. In March 2001, a third class action complaint was filed in the same court in California alleging the same wage and hour violations regarding classification of certain managers as exempt from overtime pay. In July 2001, a fourth complaint was filed alleging that store managers should also not be classified as employees exempt from overtime pay. All the complaints seek compensatory damages, punitive damages and penalties. The amount of damages sought is unspecified. We have entered into a settlement agreement relating to the first two complaints that were filed, which received preliminary approval by the court in February 2004. With the settlement of the first two complaints, the named plaintiffs in the third and fourth actions will be included in the settlement class although they may opt to proceed with their lawsuits on an individual basis. In June 2004, the settlement agreement received final approval from the court and distributions have been made to the class members who did not opt out of the class. During the second quarter of 2004, we settled this lawsuit for a total of $1.3 million, including attorney fees and expenses.

        TSA Stores is one of thirty-three named defendants, including firearm manufacturers and retailers, in City of Chicago and County of Cook v. Beretta U.S.A. Corp. et al., Circuit Court of Cook County, Illinois. This suit was served on TSA Stores in November 1998. The original complaint was based on legal theories of public nuisance and negligent entrustment of firearms and alleged that the defendants created a public nuisance by distributing, marketing and selling firearms in the portion of Cook County outside Chicago knowing or recklessly disregarding that these guns would be illegally transferred and used in Chicago to commit crimes. The complaint sought damages allocated among the defendants exceeding $433 million to compensate the City of Chicago and Cook County for their alleged costs resulting from the alleged public nuisance. The complaint also sought punitive damages and injunctive relief imposing additional regulations on the methods the defendants use to distribute, market and sell firearms in Cook County. In February 2000, the Court dismissed the complaint's negligent entrustment count. The plaintiffs filed an amended complaint with the Court's permission in March 2000, which contained both the public nuisance and negligent entrustment counts. In September 2000, the Court granted the motions of the defendants to dismiss the amended complaint, in its entirety, with prejudice. In October 2000, the plaintiffs appealed to the Appellate Court of Illinois, First Judicial District. On November 4, 2002, the Appellate Court reversed the dismissal of the amended complaint and remanded the case to the trial court for further proceedings on the public nuisance issue. On November 25, 2002, TSA Stores filed a petition for rehearing with the Appellate Court which was denied on March 7, 2003. On March 27, 2003, TSA Stores joined in the petition by the other defendants for leave to appeal to the Illinois Supreme Court of the Appellate Court's decision reversing the trial court's dismissal of the public nuisance claim, which was granted on April 8, 2003. The Illinois Supreme Court heard oral arguments by the parties on September 10, 2003 and has yet to render a decision. The Company is currently unable to predict the outcome of this case.

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ITEM 4. Submission of Matters to a Vote of Security Holders

        At the Annual Meeting of Stockholders held on June 5th, 2004, the stockholders of the Company elected the following nominees to the Board of Directors until the next annual stockholder meeting or until their successors are qualified, with votes cast as follows:

 
  Number of votes
Director Nominees

  For
  Authority Withheld
Gordon D. Barker   23,400,994   868,290
Peter R. Formanek   23,600,919   668,365
John Douglas Morton   23,085,414   1,183,870
Mary Elizabeth Burton   23,135,474   1,133,810
Martin Hanaka   22,487,430   1,781,854
Cynthia Cohen   23,423,555   845,729
Johnathan D. Sokoloff   22,247,252   2,022,032
Kevin McGovern   23,752,958   516,326

        There were no abstentions or broker non-votes applicable to the election of directors.

        The stockholders ratified the appointment of Deloitte & Touche LLP as independent auditors of The Sports Authority, Inc. for the fiscal year ending January 29th, 2005, with votes cast as follows:

FOR:   23,692,501
AGAINST:   558,270
ABSTAINED:   18,513

        Abstentions had the effect of votes "against" this proposal. Broker non-votes were not counted as votes "for" or "against" this proposal and therefore had no impact on the outcome.


ITEM 6. Exhibits and Reports on Form 8-K

a.     Exhibits.

Exhibit Number

  Description
31.1   Certification of Chief Executive Officer, pursuant to Rule 13(a)-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2

 

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

b.     Reports on Form 8-K

        We filed a Current Report on Form 8-K with the Commission dated July 23, 2004 to report, under Item 9 that we issued a news release revising our earnings guidance for the second quarter ending July 31, 2004.

        We filed a Current Report on Form 8-K with the Commission dated May 25, 2004, to report under Item 5 that we issued a news release to report the resignation of Elliott Kerbis, our President and Chief Merchandising Officer.

        We filed a Current Report on Form 8-K with the Commission dated May 25, 2004, to report under Item 12 that we issued a news release to report our earnings for the fiscal quarter ended May 1, 2004.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on April 14, 2005 on its behalf by the undersigned thereunto duly authorized.

    THE SPORTS AUTHORITY, INC.

 

 

By:

/s/  
JOHN DOUGLAS MORTON      
John Douglas Morton
Chairman of the Board of Directors, Chief Executive Officer and President

 

 

By:

/s/  
THOMAS T. HENDRICKSON      
Thomas T. Hendrickson
Chief Financial Officer, Chief Administrative Officer and Treasurer

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QuickLinks

EXPLANATORY NOTE
PART I—Financial Information
THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts)
THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in Thousands, Except Share and Per Share Amounts)
THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Unaudited, in Thousands, Except Share Amounts)
THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in Thousands)
THE SPORTS AUTHORITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(As restated, see Note 2)
Cash Flow Analysis
PART II—OTHER INFORMATION
SIGNATURES