SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 7, 2001
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Gart Sports Company
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(Exact name of Registrant as specified in charter)
Delaware
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(State or other jurisdiction of incorporation)
000-23515 84-1242802
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(Commission File Number) (IRS Employee
Identification No.)
1001 Lincoln Avenue, Denver, Colorado 80203
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 861-1122
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Not Applicable
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On June 7, 2001, Gart Sports Company ("Gart Sports") announced that it
had completed the acquisition of Houston-based Oshman's Sporting Goods, Inc.
("Oshman's"). The acquisition was accomplished pursuant to a merger of Oshman's
with and into GSC Acquisition Corp. ("GSC"), a wholly owned subsidiary of
Gart Sports, whereby GSC was the surviving corporation in the merger. GSC then
changed its name to Oshman's Sporting Goods, Inc. Stockholders of Oshman's
received $7.00 in cash and 0.55 shares of Gart Sports common stock for each
share of Oshman's common stock, resulting in the issuance of approximately 3.2
million shares of Gart Sports common stock. The transaction was valued at
approximately $99 million based on the closing price of Gart Sports common stock
on June 7, 2001. A copy of the press release issued by Gart Sports on June 7,
2001, announcing the completion of the acquisition of Oshman's, is attached
hereto as Exhibit 99.1. In conjunction with the acquisition, Gart Sports
increased its revolving line of credit from $175 million to $300 million. The
CIT Group/Business Credit Inc. acted as the agent for the four-year facility. A
copy of the financing agreement and related documents are attached hereto as
Exhibits 99.2 through 99.6.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements:
Consolidated balance sheets of Oshman's Sporting Goods,
Inc. and Subsidiaries as of February 3, 2001 and January
29, 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each
of the three years in the period ended February 3, 2001
are incorporated by reference to Oshman's Sporting Goods,
Inc.'s Report on Form 10K/A for the period ended February
3, 2001, File No. 001-11493.
(b) Pro Forma Financial Information:
Gart Sports Company unaudited pro forma combined condensed
balance sheet as of February 3, 2001 and the unaudited pro
forma combined condensed statement of operations for the
53 weeks ended February 3, 2001 reflecting the acquisition
of Oshman's are included herein.
(c) Exhibits:
23.1 Consent of Grant Thornton LLP, independent accountants
99.1 Press Release entitled "Gart Sports Company Completes
Acquisition of Oshman's Sporting Goods," dated June 7,
2001.
99.2 Financing Agreement among the CIT Group/Business Credit,
Inc. and Gart Bros. Sporting Goods Company, Sportmart,
Inc., Oshman's Sporting Goods, Inc. and Subsidiaries of
Oshman's Sporting Goods, Inc. that are signatories
thereto.
99.3 General Continuing Guarantee among the CIT Group/Business
Credit, Inc. and Gart Bros. Sporting Goods Company,
Sportmart, Inc., Oshman's Sporting Goods, Inc. and
Subsidiaries of Oshman's Sporting Goods, Inc. that are
signatories thereto.
99.4 Stock Pledge Agreement among the CIT Group/Business
Credit, Inc. and Gart Bros. Sporting Goods Company,
Sportmart, Inc., Oshman's Sporting Goods, Inc. and
Subsidiaries of Oshman's Sporting Goods, Inc. that are
signatories thereto.
99.5 Stock Pledge Agreement among the CIT Group/Business
Credit, Inc. and Gart Sports Company.
99.6 Fee Letter addressed to The CIT Group/Business Credit from
Gart Bros. Sporting Goods Company, Sportmart, Inc.,
Oshman's Sporting Goods, Inc. and Subsidiaries of Oshman's
Sporting Goods, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined condensed balance sheet as of
February 3, 2001 reflects the financial position of Gart as if the acquisition
of Oshman's Sporting Goods, Inc. (the "Acquisition") had occurred on February
3, 2001.
The accompanying unaudited pro forma combined condensed statement of
operations for the 53 weeks ended February 3, 2001 presents the combined
condensed statement of operations of Gart as if the Acquisition had occurred on
January 30, 2000.
The unaudited pro forma combined condensed financial statements reflect the
Acquisition using the purchase method of accounting. The total cost of the
Acquisition has been allocated to the tangible and intangible assets acquired
and liabilities assumed based on their respective fair values. The allocation
of the purchase price assumed in the unaudited pro forma combined condensed
financial statements is preliminary. The actual allocation of the purchase
price and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein. These statements do
not purport to be indicative of the results of operations or financial position
of Gart that would have been achieved had the Acquisition actually occurred as
of the assumed dates and for the periods presented. The unaudited pro forma
combined condensed financial statements are based on the assumptions set forth
in the notes and should be read in conjunction with the separate historical
consolidated financial statements of Gart and Oshman's and related notes
thereto.
GART'S UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
Historical
53 Weeks Ended
February 3, 2001
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Reclass Pro Forma Pro Forma
Gart Oshman's Adjustments Adjustments Combined
--------- --------- ----------- ----------- ----------
Net sales............... $ 751,124 $ 330,470 $ -- $ -- $1,081,594
Cost of goods sold...... 559,778 215,913 25,164 G 1,043 D 801,898
--------- --------- -------- ---------- ----------
Gross profit............ 191,346 114,557 (25,164) (1,043) 279,696
Operating expenses...... 164,830 93,401 (25,164)G 566 E 233,633
--------- --------- -------- ---------- ----------
Operating income........ 26,516 21,156 -- (1,609) 46,063
Interest expense........ (11,071) (1,920) -- (5,632)F (18,623)
Other income............ 246 -- -- -- 246
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Income from continuing
operations before
income taxes........... 15,691 19,236 -- (7,241) 27,686
Income tax benefit
(expense) 7,405 795 -- 2,824 H 11,024
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Income from continuing
operations............. $ 23,096 $ 20,031 $ -- $ (4,417) $ 38,710
========= ========= ======== ========== ==========
Earnings per share
Basic earnings per
share................ $ 3.13 $ 3.47 $ 3.66
========= ========= ==========
Diluted earnings per
share................ $ 2.99 $ 3.30 $ 3.54
========= ========= ==========
Weighted average shares
of common stock
outstanding:
Basic................. 7,380,529 5,770,000 (2,560,250)B 10,590,279
========= ========= ========== ==========
Diluted............... 7,729,601 6,063,000 (2,853,250)B 10,939,351
========= ========= ========== ==========
GART'S UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
(dollars in thousands)
Historical February 3, 2001
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Reclass Pro Forma Pro Forma
GART OSHMAN'S Adjustments Adjustments Combined
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ASSETS
Cash and equivalents.... $ 8,107 $ 356 $ -- $ -- $ 8,463
Accounts receivable,
net.................... 6,273 1,072 -- -- 7,345
Note receivable......... 181 -- 76 G -- 257
Inventories............. 230,800 81,412 -- -- 312,212
Prepaid expenses and
other assets........... 7,474 3,819 (2,243)G (364)A 8,686
Deferred income taxes... 2,033 -- 2,167 G 5,777 A 9,977
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Total current assets.... 254,868 86,659 -- 5,413 346,940
Property and equipment.. 59,298 32,764 -- (6,059)A 86,003
Favorable leases
acquired, net.......... -- -- -- 12,000 A 12,000
Asset held for sale..... 1,671 -- -- -- 1,671
Deferred income taxes... 13,208 -- -- (2,317)A 10,891
Goodwill................ -- -- -- 54,235 A 54,235
Other assets, net....... 6,083 20 -- 2,250 C 8,353
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Total assets............ $ 335,128 $ 119,443 $ -- $ 65,522 $520,093
============= ============= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable........ $ 105,395 $ 32,277 $ -- $ -- $137,672
Current portion of long
term obligations....... 470 461 -- -- 931
Accrued expenses........ 35,679 20,071 -- 3,569 A 59,319
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Total current
liabilities............ 141,544 52,809 -- 3,569 197,922
Long-term debt.......... 95,900 557 (557)G 62,580 A 158,480
Capital lease
obligations, less
current................ 1,805 -- 557 G -- 2,362
Deferred rent and other
long term liabilities.. 6,993 8,476 -- -- 15,469
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Total liabilities....... 246,242 61,842 -- 66,149 374,233
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Stockholders' equity
Preferred stock........ -- -- -- -- --
Common stock........... 77 5,913 -- (5,881)B 109
Additional paid-in
capital............... 57,014 4,575 -- 52,367 B 113,956
Unamortized restricted
stock compensation.... (2,055) -- -- -- (2,055)
Accumulated other
comprehensive loss.... (226) -- -- -- (226)
Retained earnings...... 36,489 47,349 -- (47,349)B 36,489
Treasury stock......... (2,413) (236) -- 236 B (2,413)
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Total stockholders'
equity................. 88,886 57,601 -- ( 627) 145,860
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Total liabilities and
stockholders' equity... $ 335,128 $ 119,443 $ -- $ 65,522 $520,093
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands)
(A)
To record the acquisition of Oshman's, the purchase price and purchase price
allocation are summarized as follows:
Common stock (3,209,750 shares at $17.75)......................... $ 56,973
Cash consideration ($7.00 per share, 5,835,909 shares)............ 40,851
Cash paid for stock option buy out................................ 14,221
Less: stock option proceeds....................................... (3,341)
Direct costs of acquisition....................................... 8,600
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Total purchase consideration...................................... $117,304
Allocated to:
Historical book value of Oshman's assets and liabilities as of
February 3, 2001................................................. $ 57,601
Adjust Oshman's assets and liabilities to fair value and record
liabilities for store closings, severance, and relocation:
Prepaid expenses.................................................. (364)
Favorable leases acquired......................................... 12,000
Property and equipment............................................ (6,059)
Accrued expenses.................................................. (3,569)
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Total adjustments................................................. 2,008
Total allocation.................................................. $ 59,609
Less: Net current deferred income tax assets (calculated at a rate
of 39%).......................................................... (5,777)
Add: Net long term deferred income tax liability (calculated at a
rate of 39%)..................................................... 2,317
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Goodwill.......................................................... $ 54,235
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(B)
To reflect the elimination of Oshman's stockholders' equity and to reflect
the Gart common stock issued as partial consideration for the purchase.
(C)
To reflect the capitalization of deferred financing costs for borrowings
under the new line of credit to finance the Acquisition.
(D)
To reflect favorable lease amortization over the remaining terms of the
leases, ranging from 8 to 15 years, totaling $1,043.
(E)
To reflect the increase in goodwill amortization, offset by decreases in
fixed assets depreciation and compensation expense.
Goodwill amortization was calculated on a straight-line basis over 30 years,
totaling $1,808 per year. The decrease in fixed assets depreciation is due to
the write-off of certain Oshman's fixed assets that will be abandoned by Gart.
The useful lives of these assets range from 3 to 20 years, and therefore the
write-off will result in a decrease in depreciation of $905 per year. The
decrease in compensation expense reflects the impact of the compensation
agreements entered into as a result of the Acquisition, amounting to $575 less
compensation paid to these individuals by Oshman during 2000 totaling $912.
(F)
To reflect an increase in interest expense due to an increase in the line of
credit to finance the Acquisition. Interest expense was estimated using 8.5%.
In addition, interest expense was increased due to the amortization of the
deferred financing costs described in Note C.
(G)
To reflect adjustments to Oshman's balances to conform them to Gart's
presentation and adjustments to reclassify certain occupancy, procurement and
warehousing costs from operating expenses to cost of goods sold.
(H)
To record the tax effect on the net pro forma adjustments to a statutory
rate of 39%.
GENERAL:
. Oshman's records its inventory on the first-in first-out (FIFO) method
of accounting for inventory. This methodology is contrary to Gart's
method of recording inventory on the last-in first-out (LIFO) method
of accounting. The cumulative effect of this change is not presented
because it is not determinable.
. Additional adjustments to inventories will be necessary at the
Acquisition effective date to adjust inventories to fair value, based
upon an estimated selling price less selling costs and a normal profit
margin thereon. Due to uncertainty concerning this item, no adjustment
has been presented in the pro forma financial statements.
. The pro forma adjustments also do not include any adjustments related
to the estimated stock- based compensation that may arise as a part of
the Acquisition.
SIGNATURE
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 hereunto duly authorized.
Gart Sports Company
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(Registrant)
Date: June 18, 2001 By: /s/ THOMAS T. HENDRICKSON
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Thomas T. Hendrickson
Executive Vice President, Chief Financial
Officer and Treasurer (Principal Financial and
Accounting Officer)