FISCAL 2007 ANNUAL REPORT
corporate profile
The Forzani Group Ltd. (“FGL”) is Canada’s largest national retailer of sports / lifestyle footwear,
apparel and equipment. FGL operates 479 stores under four corporate banners: Sport Chek,
Sport Mart, Coast Mountain Sports and National Sports; and ten franchise banners: Sports
Experts, Intersport, RnR, Econosports, Atmosphere, Tech Shop, Pegasus, Hockey Experts, Nevada
Bob’s Golf and Fitness Source. FGL’s banners are strategically customized to serve the needs of
a wide range of demographic groups with specific product and sport preferences, at varying price
points, from coast to coast.
All stores offer brand-name sports / lifestyle products, as well as a number of private brands.
Several private brands are FGL’s best sellers in their categories. The Company employs over
10,000 people in communities across Canada. The Forzani Group Ltd. trades on the Toronto Stock
Exchange under the symbol “FGL”.
annual general meeting
contents
The Annual General and Special Meeting of Shareholders will take place on Tuesday,
June 5th, 2007 at 10:00 a.m. (MST) in the Turner Valley Room at the Fairmont Palliser
Hotel, 133 – 9th Avenue S.W., Calgary, Alberta. All Shareholders are encouraged to
attend; however, if unable to attend, the Meeting will be webcast on the Company’s
website at www.forzanigroup.com .
2
4
9
18
19
20
23
46
Copies of the Annual Information Form and Management Proxy Circular are available
upon request or can be found on the Company’s website at www.forzanigroup.com
financial highlights
message to our shareholders
review of operations
the forzani group foundation
the power of sport for kids
the board of directors
management’s discussion & analysis
financial statements & notes
financial
highlights
operating results
Q1
Q2
Q3
Q4
$280,434
$283,996
$346,349
$353,176
$1,263,955
$12,828
$16,075
$31,416
$46,941
$107,260
4.6%
5.7%
9.1%
13.3%
8.5%
Same store sales growth (Corporate)
12.2%
5.4%
6.6%
1.1%
5.9%
Same store sales growth (Franchise)
6.0%
6.9%
9.9%
(2.9%)
4.4%
Net earnings ($000’s)
$294
$1,948
$11,878
$21,097
$35,217
$10,231
$11,791
$23,068
$32,339
$77,429
$0.31
$0.36
$0.70
$0.97
$2.34
$6,722
$11,062
$5,435
$8,629
$31,848
Earnings per share
$0.01
$0.06
$0.36
$0.63
$1.06
Diluted earnings per share
$0.01
$0.06
$0.35
$0.62
$1.04
Revenues ($000’s)
EBITA ($000’s)
EBITA Margin
Cash flow from operations ($000’s)
Cash flow per share (basic)
Net capital expenditures ($000’s)
Full Year
2007
$758,257
$923,795
$968,078
$985,054
$1,129,404
$1,263,955
$579,196
$715,003
$732,880
$718,820
$856,149
$925,443
$297,238
$338,446
$374,723
$389,466
$454,322
$491,300
revenues ($000)
corporate retail sales ($000)
franchise retail sales ($000)
3
F02
F03
F04
F05
F06
F07
F02
F03
F04
F05
F06
F07
F02
F03
F04
F05
F06
F07
message to our
shareholders
This past year saw your Company achieve record earnings, shed debt and generate free cash flow
-- the first time as a public company. It was, by all measures, a very successful year. Impressively, it
was accomplished despite record warm temperatures in Eastern Canada. The unseasonable weather
from mid-November through to mid-January dampened demand for ski, snowboard and outerwear
products. Coming off two years of declining profitability, this “turnaround” surprised many outside the
Company. It did not, however, surprise our management team.
The rationale underlying our expectation was simple. The fundamentals of the sector were strong, the
strategic positioning of our various businesses sound, and we were firm in our resolve to solve the
problems, both in tactics and execution, plaguing our corporate store business.
4
The sporting goods sector grew 5.8%, to $7.4 billion in size. More importantly, the consolidation of the
sector continued and our Canadian market share grew to 19.1%. We dealt with tactical issues plaguing our Sport Chek and Sport Mart businesses and, in a short period of time, effectively “repositioned”
them. You will read more on that in our operational review. All our retail and wholesale businesses did
their part, contributing record - or near record - performances. It took a tremendous effort by many to
achieve the milestones we realized this year. I believe we experienced success because of the passion, energy and capacity for change displayed by our people. I believe we achieved success because
of our repositioning of Sport Chek and Sport Mart.
Of equal importance, I believe, we saw success by continuing to pursue our strategic agenda, undeterred by the short-term adversity we faced. We continued to invest in, and grow, our store base. We
further developed new formats in our franchise business. We continued to consolidate the market
through acquisition. We grew our wholesale businesses in three ways: increased selection of private brands, our licensed business and our opportunistic buys. We invested, again, in supply chain
and technology. We sought the best talent we could find to help us continue growing our business in
the future.
5
FOCUSED
“we saw
success
by continuing to pursue our
strategic agenda”
In other words,we did not pull back. To do so would have prolonged the time it took for us to achieve this record performance.
We invested because our strategy was sound – be a dominating and highly profitable retail presence in the sector, with 479 corporate and franchise stores from coast to coast, and a growing and rapidly diversifying wholesale business that is beginning to make inroads in sales outside of our traditional Canadian-based operations.
And, we retained an obsessive focus on competitive agility through state-of-the-art supply chain management
and technology.
Our ability to invest during the period of declining profits in fiscal ’05 and fiscal ’06 was made possible by a
strong balance sheet and ample liquidity, key for a retailer of seasonal goods.
Our results this year were great, and our future performance promises to be better still, driven by a solid strategic agenda, constant reinvestment in our business and an uncompromising focus on the long-term success
of our various business initiatives.
Short-term adversity in a cyclical, seasonal business is periodically expected. How management deals with
that adversity separates the long-term winners from the others - that and an unwavering focus on executing
against a sound, longer term strategic agenda.
[ signed ]
Bob Sartor
Chief Executive Officer
7
STRATEGY
great ,
our future performance
“our results this year were
promises to be better”
review of operations
Overview
Fiscal 2007 was, by any measure, a very significant year for The Forzani Group Ltd.
Not only did the Company achieve record profits, shed debt and generate strong
cash flow, but it did so while optimizing same store inventories and inventory
turns. Additionally, FGL continued to invest in key business initiatives such as
franchise specialty retailing, brand marketing and precision retailing. Again, key
technology and supply chain initiatives were delivered that will improve profitability
and provide continued scalability in our business to support future growth. We are pleased to provide
to our shareholders the following operational update.
FGL’s corporate business
Metrics Summary
Total corporate store sales increased 8.1% for the year. On a same store basis, sales increased 5.9%. Retail margins increased 250 basis points. A total of five new stores
were opened and 34 were renovated. Corporate store contribution, expressed as a
pre-tax percentage of retail sales, increased 520 basis points .
9
“invest in
key training and
development initiatives
key fiscal ’07 initiatives
10
During the year, the Company implemented various initiatives to improve future operating performance.
Additional visual merchandising resources were added and in-store fixtures were upgraded. Our brand-building
marketing campaign entered its second phase and successfully built on efforts initiated in late fiscal ’06. We rolled out
an e-learning platform that will be critically important to achieving our aspirations for long-term, high-level customer
service. Our Sport Chek sales management function was reorganized to further focus our energy, pinpoint storelevel performance and initiatives, and further bolster our management bench strength in the currently under-stored
Ontario market. Additional work refining the Sport Mart assortment strategy as well as in-store and external customer
communication strategies was undertaken. National Sports benefited from renovations and a new marketing
campaign entitled “Raise Your Game.”
• continued renovations and visual merchandising
• focus on long-term, high-level customer service
• new brand-building marketing campaigns
• management recognition
and begin planning the
store of the future”
looking ahead
The coming year promises to be a busy one with 11 new corporate stores and up to four renovations in existing stores.
We will also continue to expand and grow the brands that our stores feature. At Sport Chek, we will re-work our
fixturing and displays of footwear to drive same store sales. We will continue to invest in key training and development
initiatives, and begin planning the store of the future – the next generation of retail marketing.
Our Coast Mountain Sports banner will continue positioning itself under the “Find New Ground” theme, continue
upgrading its brand offering and will launch the Coast Mountain Sports website. Sport Mart will test its new
communication strategy, both in-store and in all external communications and, after some fine tuning, will roll it out.
And, National Sports will focus on improving its basic product replenishment and store renovation program.
Finally, we will continue to drive our precision retailing initiatives. Precision Retailing is concerned with optimizing
the planning, allocation and replenishment of what we buy. As a result, we are already seeing the results of this in
our margins and inventory turns. In the coming year, we will continue to do so with two new projects: fine tuning the
replenishment of inventory category attributes and an initiative to refine our size profiling.
11
STEADFAST
“the franchise business
again delivered record
operating results”
FGL’s franchise business
Metrics Summary
For the year, total franchise retail system sales increased 8.1% to $491.3 million.
Wholesale sales to franchisees increased 14.8% to $262.3 million. Same store sales increased
4.4% despite unseasonable winter weather in Eastern Canada. The franchise division benefited
from a margin rate increase of 40 basis points on the increased sales. The franchise business again
delivered record operating results this year as 25 new stores were added and 4 were renovated.
13
key fiscal ’07 initiatives
While we undertook several projects in our larger, more established banners (Sports Experts, Intersport and
Atmosphere) in 2007 our greatest focus, was on retail initiatives in the specialty retailing side of the franchise
business. We refined and improved the already successful Hockey Experts, prepared the recently acquired Fitness
Source stores for franchising and spent considerable time on the product assortment and pricing strategy for Nevada
Bob’s Golf and on developing a new marketing approach for that business that will be rolled out in fiscal 2008.
We also further expanded the training and development programs offered to franchisees by our in-house Forzani
Academy and rolled out state-of-the-art purchasing technology – wireless systems that improve and expedite the
franchisees purchasing decisions at buying shows.
• expanded training and development programs
• product assortment and pricing strategy
• focus on retail initatives
• developing a new marketing approach
14
looking ahead
We have a full slate of projects in the coming year. We will be franchising the Fitness Source stores, acquired in
2006, and will be introducing a new fitness concept store unlike any we have seen anywhere. We will open 37 new
stores and renovate 8 stores. We plan to significantly increase our presence in the golf business and expect to gain
meaningful market share. We will begin the migration of current systems to new merchandising technology which,
in the long run, will improve the profitability of our Company.
FGL’s wholesale businesses
Intersport North America (“INA”)
INA is FGL’s private-brand business. It supplies products to our corporate and franchise stores and is vertically
integrated. This year, sales in our private-brand business increased 17.9%, achieving record profitability.
We believe the continued growth in this business is the direct result of an obsessive focus, by the INA team, on
product quality and technical features that combine with excellent sourcing, to continue driving down product cost. INA
currently supplies its FGL customers with over 2,000 different products covering every major category carried in our
stores. Over the past three years, growth has been a stunning 50.7%.
Looking ahead, this business will continue to improve its quality proposition to corporate and franchise stores. It will
expand its sourcing base and, with the benefit of our recent Fitness Source acquisition, will work with Fitness Source
resources to improve our private-brand fitness offerings as well.
15
FGL Wholesale business (formerly known as gen-x sports)
It was a spectacular year at FGL Wholesale. Total sales increased 59.6%, with 62.9% of sales occurring outside
of Canada and fulfilling a key objective of that business – to diversify in a low-risk way. Profitability increased an
astounding 1,660%. From a sales mix point of view, 53.3% of sales were done in the opportunity or close-out side of
the business, while 46.7% came from the licensed brands we sell in the footwear, golf and action sports categories.
Next year, we expect this business to continue to grow and post record results as we further grow our close-out
sourcing capabilities in the U.S. and as we add at least one new product licence to our business.
16
FGL’s business support functions
While several initiatives already mentioned involved the centralization of business support functions during the past
year, two projects stand out. Our move into a new distribution centre in Calgary increased our square footage by
51.7% and dramatically improved our capacity to service our Western-based stores. The transition was seamless,
reaching desired levels of productivity in the first month. The second initiative, the Gemini project, involved installing
a new warehouse management system, a new case-pack technology, a new allocation system and new integration
layer technology that standardizes and simplifies company-wide system interfaces. It was a busy year indeed on the
support side of the business.
Next year will, again, be one of investment and intense activity on the business support side with several new initiatives
to improve technology, business processes and supply chain management.
“the business is poised
for
consistent growth
”
and pro itability
conclusion
17
We are very pleased to have delivered this record performance to our shareholders. We also believe the business
is poised for consistent growth in sales and profitability. The competitive landscape is favourable, our resources
considerable, and our balance sheet and cash generation are strong.
[ signed ]
Bill Gregson
President & Chief Operating Officer
[ signed ]
Tom Quinn
President & Chief Operating Officer
Franchise Retail Division
forzani group foundation
The Forzani Group Foundation was created in 2000 as a separate charitable foundation to take over a number of fund-raising activities historically
sponsored and organized by The Forzani Group Ltd. The Foundation provides financial support to other registered charities, Canadian amateur
athletic associations and other qualified donees whose activities involve the promotion of physical fitness, health and wellness, the prevention and
relief of sickness and disability, or the participation and education in sports across Canada.
The Foundation is a non-profit corporation with an independent Board of Directors.
18
Funding for the Foundation is provided through annual events such as The Forzani Group Foundation Mother’s Day Run and Walk, The Forzani
Ironman Golf Invitational, The Calgary Stampeder Golf Tournament, Christmas Gift Box Campaign along with a number of in-store fundraising
initiatives and general donations.
The Forzani Group Foundation continues to grow its commitment to health, wellness and sports in Canada.
The Forzani Group Foundation was pleased to be able to support the following Organizations in 2006:
• Calgary Health Trust (Calgary)
• Calgary Fire Department (Calgary)
• Alberta Adolescent Recovery Centre (Calgary)
• Leucan (Montreal)
• Canadian Special Olympics (Canada)
• Stollery Children’s Hospital Foundation (Edmonton)
• St. Vincent’s & Holy Family Health Care Foundation (Vancouver)
• Dr. Paul Schwann Applied Health & Research Centre (Regina)
• Kids Cancer Care Foundation (Calgary)
• Vernon Jubilee Hospital Foundation (Vernon)
• Canadian Cancer Society (Calgary)
• Canadian National Institute for the Blind (Canada)
• Southern Alberta Amateur Sports (Calgary)
For more information on The Forzani Group Foundation and its funding guidelines, please visit www.forzanigroup.com or email foundation@forzani.com.
“everyday we witness the
positive impact
that sport has”
the power of sport for kids
In addition to The Forzani Group Foundation, Sport Chek launched The Power of Sport for Kids Program in October 2005. This program is
committed to providing new sports equipment to organizations that help kids in need and foster the healthy physical, social and emotional
development of children and youth across Canada.
Everyday we witness the positive impact sport has on children; children affected by mental, physical or emotional conditions, family violence,
poverty, addiction or young people at risk. The donation of equipment has helped support various organizations and their athletic programs, weekly
football and basketball games, skateboarding clinics and more.
In 2006, new fundraising initiatives began at staff level in both stores and head office with 6,000 Sport Chek employees across the country rallying
around this program and helping with fundraising efforts. The program continues to light up the faces of thousands of kids across the country. To
date, The Power of Sport for Kids has raised over $225,000 and provided sports equipment to over 450,000 kids and youth. Sport Chek is proud to
give back to our communities, and be a part of something as special as giving new sports equipment to kids who need it most.
For more information on The Power of Sport for Kids please visit www.sportchek.ca.
19
board of directors
at january 28, 2007
john m. forzani
John M. Forzani is the founder and Chairman of the Board of The Forzani Group Ltd. He has served as one of our
directors since 1974. At the end of fiscal 2007, he retired from senior management of the Company. John has a
business degree from Utah State University and is a former Calgary Stampeder. He opened the first location in 1974,
a single 1,200 square foot store specializing in athletic and recreational footwear. John is former Chairman of the
Canadian Sporting Goods Association and is the current Chairman of Intersport International Corporation. He is also
very involved in charitable fundraising events, on a major scale, across Canada.
bob sartor
Bob Sartor is the Chief Executive Officer of the Company and has served as a member of the Board since February,
2003. Prior to 2003, Bob held the position of President, Business Support and Chief Financial Officer of The Forzani
Group Ltd. from February 1997 to January 2003. He is a Chartered Accountant and graduate of Concordia and McGill
Universities. Bob’s background prior to joining the company was primarily in the food business; he has held positions in
treasury, financial planning and mergers and acquisitions in addition to core finance functions with Kraft General Foods
of Glenview, Illinois and The Oshawa Group Limited of Toronto.
20
albrecht w.a. bellstedt, qc
Albrecht W.A. Bellstedt, QC, has served as one of our directors since 1993 and has been the Board’s lead
director since 1995. Mr. Bellstedt retired in February 2007 as the Executive Vice-President, Law and Corporate Counsel
of TransCanada Corporation having held senior executive positions at TransCanada since 1999. Mr. Bellstedt was
previously a partner with the law firm of Fraser Milner Casgrain where he specialized in transactional work including
securities law, mergers and acquisitions, banking and venture capital investments. Mr. Bellstedt is also a director of a
major bank and a director of various private companies. Mr. Bellstedt is a member of the Governance Committee.
roman doroniuk, ca
Roman Doroniuk, CA, has served as one of our directors since 1997. He was Executive Vice-President of Magna
International Inc. and Chief Operating Officer of Magna Entertainment Corp., from January 2003 through October
2003. Prior to this, Mr. Doroniuk was the President of Lions Gate Entertainment from October 1998 to April 2000
and was Chief Financial Officer of Alliance Communications Corporation from October 1995 to September 1998.
Mr. Doroniuk serves as a trustee and a director and chairs the Audit Committee of another publicly traded entity.
Mr. Doroniuk is Chairman of the Company’s Audit Committee.
henri drouin
Henri Drouin has served as one of our directors since 2002. Mr. Drouin was Chairman of the Board of RONA Inc. from
1981 to 2002. From 1966 to date, Mr. Drouin has been involved in the retail sector, owning a sporting goods store, a
supermarket and a full-service home centre store. Mr. Drouin is a member of the Company’s Audit Committee.
william d. grace, fca
William D. Grace, FCA, is a graduate of the University of Alberta and a Fellow Chartered Accountant. During his
business career, he served as the Chief Financial Officer with several Alberta corporations. From 1988 to 1994, he
was a managing partner in the Edmonton office of Price Waterhouse. Mr. Grace is the recipient of several awards
including the Alberta Achievement Award from the Province of Alberta, the Lifetime Achievement Award from the
Alberta Institute of Chartered Accountants and the University of Alberta Alumni Award of Excellence. He currently
holds a number of corporate directorships in addition to The Forzani Group Ltd., including BioMS Medical Corp.,
Melcor Developments Ltd., Stantec Inc., and a number of private companies. He is also the independent Chairman of the
Edmonton Pipe Industry Pension Trust and Health & Welfare Funds, a director of the Mutual Fund Dealers Association
of Canada, and a public council member of the Association of Professional Engineers, Geologists and Geophysicists
of Alberta. Mr. Grace is a Past President of both the Alberta and Canadian Institutes of Chartered Accountants, and
has been active over the past 25 years in numerous community and professional organizations. Mr. Grace is a member
of the Company’s Audit Committee.
paul s. walters
Paul S. Walters has served as one of our directors since 2005. Mr. Walters brings extensive experience in the retail
industry, having served as past Chairman, President and CEO of Sears Canada Inc. In addition, Mr. Walters held a
number of executive management positions with Hudson’s Bay Company. He is also a past Director of the Richard
Ivey School of Business at the University of Western Ontario, as well as being a past director of the University of British
Columbia, the Retail Council of Canada, The International Mass Retail Association and The Conference Board of
Canada. Mr. Walters is Chairman of the Company’s Governance Committee.
don watt
Don Watt has served as one of our directors since 1997. He is Chairman & CEO of DW+Partners, a consulting firm
based in Toronto, specializing in retail planning, design, marketing and communications. Mr. Watt was Founder
and former Chairman of Watt International. He has been responsible for retail brands and facilities worldwide. He
serves on the boards of many corporations and organizations. Mr. Watt is a member of the Company’s Governance
Committee.
21
THE NUMBERS
22
inancial reporting
management’s discussion & analysis
As at March 22, 2007
23
The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”). All references to dollars are in Canadian funds unless otherwise indicated. The
Annual Report and other related documents can be found at www.sedar.com.
Management’s discussion and analysis (the “MD&A”) provides an overview of the performance of The Forzani Group
Ltd. (“FGL” or the “Company”), and its subsidiaries, for the 13-week fourth quarter and 52-week period ended January
28, 2007 (“fiscal 2007”), compared to the 13-week fourth quarter and 52-week period ending January 29, 2006 (“fiscal
2006”).
In recent years, the MD&A has evolved to become a document that is intended to be able to stand on its own, separate
and distinct from the Company’s financial statements and notes thereto. This requirement to stand alone is contained
in National Instrument 51-102. As a result, the MD&A contains, along with information pertinent to the operation of
the Company’s businesses, considerable duplication of the information contained in the notes to the Company’s consolidated financial statements. This duplication is intentional as it is necessary and required under current regulations
pertaining to the preparation of an MD&A.
review of operations
Overview
FGL is the largest sporting goods retailer in Canada. The Company operates 270 corporate stores under the banners:
Sport Chek, Sport Mart, Coast Mountain Sports, National Sports and Fitness Source. In addition, the Company
wholesales to 209 franchisees/licensees that operate stores under the banners: Sports Experts, Intersport, RnR,
Econosports, Atmosphere, Tech Shop, Pegasus, Hockey Experts and Nevada Bob’s Golf.
Commanding the largest share of the Canadian sporting goods market, FGL’s retail system sales1 have increased at a
cumulative annual growth rate of approximately 12.3% over the last five years, translating into a market share of 19.1%.
This growth is particularly noteworthy, as the sporting goods market has grown at an average annual rate of 3.6% over
the same period. FGL is the dominant player in the Canadian sporting goods market.
25
24
% Increase
20
18.7
15.9
19.1
FGL Market Share
Market Growth
16.1
15
10
0
5.8
5.4
5
1
16.4
2.1
2.0
1.6
2003
2004
2005
Source: Market Size from Trendex North America
2002
2006
Retail system sales are retail sales from corporate and franchise stores and are not a recognized performance measure under GAAP. Management believes that this measure is useful
supplemental information which provides the reader with an indication of the Company’s total retail sales, but may not be comparable to measures used by other companies.
Retail system sales, and same store sales, for the fourth quarters and years ended January 28, 2007 and
January 29, 2006 are shown in the tables below:
($ In millions)
(unaudited)
Quarter 4
F07
F06
$
$
Corporate
293.0
287.8
Franchise
147.2
Total
440.2
Fiscal Year
% Chg
F07
F06
% Chg
$
$
1.8
925.4
856.2
8.1
150.2
-2.0
491.3
454.3
8.1
438.0
0.5
1,416.7
1,310.5
8.1
Retail System Sales
25
Same Store Sales
Corporate
268.4
265.6
1.1
845.6
798.3
5.9
Franchise
138.5
142.6
-2.9
440.5
422.1
4.4
Total
406.9
408.2
-0.3
1,286.1
1,220.4
5.4
For the 13 weeks ended January 28, 2007 and January 29, 2006
Retail system sales for the quarter ended January 28, 2007 were $440.2 million, a $2.2 million increase from sales for
the quarter ended January 29, 2006 of $438.0 million. Revenue, consisting of corporate store sales, wholesale sales,
service income, equipment rentals, franchise fees and franchise royalties, was $353.2 million, an $11.0 million, or 3.2%
increase over the 13-week period last year. These figures include sales stemming from the acquisition of The Fitness
Source Inc. (“Fitness Source”) on January 31, 2006. Excluding the impact of this new banner, retail system sales for
the fourth quarter were $433.6 million, a 1.0% decrease from sales in the same period last year; revenues were $346.6
million or 1.3% over last year’s fourth quarter.
Corporate revenues, at $293.0 million, were 1.8% above last year’s revenues of $287.8 million. Corporate same store
sales for the fourth quarter increased 1.1%, as strong sales in Western Canada were offset by decreases in Easternbased stores which were impacted by unseasonably warm weather.
Wholesale revenues for the quarter were $60.2 million, up 10.7% from the prior year. Franchise same store sales, in
predominantly Eastern-based stores, were down 2.9% on weakness in winter hardgoods and softgoods categories.
26
The Company’s margins for the quarter were 41.2%, up 330 basis points from the prior year mark of 37.9%. This was
due primarily to the strength of improved corporate store results, particularly in the hockey equipment, ski equipment,
athletic/casual/outdoor clothing, and footwear categories. In absolute dollars, combined gross margin increased $15.6
million to $145.4 million compared to $129.8 million in the 13-week period last year.
Store operating expenses, as a percent of retail revenue, were 21.8% this year versus 21.5% in the prior year.
Same store operating costs were 20.9% of retail revenues versus 20.4% last year. Same store costs in absolute
dollars increased $1.9 million or 3.5%. The overall store operating expense increase reflects the addition of the 9
Fitness Source stores coupled with the opening, in the past year, of 1 corporate store (net of closings).
General and administrative expenses were 9.8% of total revenue at $34.6 million. In absolute dollars, general
and administrative expenses increased $5.7 million, due to increased accruals for year end performance based
compensation ($9.5 million) and the addition of the Fitness Source infrastructure ($1.1 million). Reduced year over year
marketing expenses ($5.4 million) offset some of the impact of these expense increases.
Earnings, before interest, taxes, and amortization (“EBITA”)1, were $46.9 million compared to $38.9 million for the
same period last year. As a percent of revenue, EBITA increased 190 basis points to 13.3%, compared to 11.4% for
the quarter, in the prior year.
Net earnings for the quarter were $21.1 million, or 6.0% of revenues versus $17.0 million or 5.1% in the prior year. Basic
earnings per share for the 13-week period ended January 28, 2007 were $0.63 compared to $0.52 in the prior year. Diluted
earnings per share were $0.62, a record fourth quarter for the Company, versus $0.51 in the fourth quarter of fiscal
2006. Cash flow from operations2 increased to $32.3 million from $27.4 million. On a per share basis, cash flow
increased to $0.97 from $0.83 in the prior year.
During the quarter, the Company opened 3 Sport Chek stores and acquired 7 Nevada Bob’s Golf stores from a former
licensee. In addition, the Company closed 1 National Sports store and 1 corporately owned Golf Experts store. In the
franchise division, 5 stores were opened (1 Nevada Bob’s Golf, 1 Sports Experts, 1 Atmosphere and 2 Intersport). As
noted above, 7 Nevada Bob’s Golf stores became corporate stores and 3 new buying members were recruited. As a
result, at the end of the fourth quarter, the Company had 270 corporate stores and 209 franchise locations. This was a
net increase of 95,916 square feet of retail selling space, a 1.7% increase versus the previous quarter. The Company
now has 479 stores from coast to coast (January 29, 2006 – 464 stores).
1
Earnings before interest, taxes, and amortization (EBITA) is not a recognized performance measure under GAAP. See Consolidated Statement of Operations and Retained Earnings and
line item entitled “Operating Earnings before undernoted items”. Management believes that, in addition to net earnings, this measure is useful supplemental information, which provides the
reader with an indication of operating earnings prior to amortization, debt service and provision for income taxes. This may not be comparable to measures used by other companies.
2
Cash flow from operations and cash flow per share from operations are not recognized measures under GAAP. Cash flow per share is defined to be cash from operating activities
before non-cash changes in working capital divided by the weighted average shares outstanding. Management believes that cash flow per share is a key measure, as it demonstrates the
Company’s ability to generate cash flow necessary to fund future growth. This may not be comparable to measures used by other companies.
27
quarterly data
(unaudited)
(In thousands, except per share data)
28
Revenue
EBITA
Net Earnings
Diluted EPS
EPS
$
$
$
$
$
May 2, 2004
228,627
10,955
863
0.03
0.03
August 1, 2004
216,369
14,715
1,959
0.06
0.06
October 31, 2004
265,726
20,044
6,043
0.18
0.18
January 30, 2005
274,332
30,755
12,680
0.39
0.39
Total
985,054
76,469
21,545
0.66
0.66
May 1, 2005
238,202
19
(7,417)
(0.23)
(0.23)
July 31, 2005
243,630
8,590
(2,323)
(0.07)
(0.07)
October 30, 2005
305,388
21,669
6,529
0.20
0.20
January 29, 2006
342,184
38,875
16,968
0.51
0.52
1,129,404
69,153
13,757
0.42
0.42
April 30, 2006
280,434
12,828
294
0.01
0.01
July 30, 2006
283,996
16,075
1,948
0.06
0.06
October 29, 2006
346,349
31,416
11,878
0.35
0.36
January 28, 2007
353,176
46,941
21,097
0.62
0.63
1,263,955
107,260
35,217
1.04
1.06
Total
Total
For the 52 weeks ended January 28, 2007 and January 29, 2006
Retail system sales for the 52 weeks ended January 28, 2007 were $1,416.7 million, a $106.2 million increase from sales for the 52 weeks ended
January 29, 2006. As mentioned above, this is partially the result of the acquisition of Fitness Source in the first quarter of fiscal 2007. Excluding the
impact of this new banner, retail system sales for fiscal 2007 were $1,396.0 million, a 6.5% increase over sales in the prior year.
Same store sales in corporate stores increased 5.9%, while franchise stores increased 4.4%, with total same store retail system sales increasing 5.4%.
Revenue was $1,264.0 million, a $134.6 million, or 11.9% increase over the 52-week period last year. Exclusive of the impact of Fitness Source,
revenue increased to $1,243.3 million, or 10.1% over the prior year. Combined gross margin for the 52 weeks ended January 28, 2007 was 35.7% of
revenue, up from 33.9% the prior year. In absolute dollars, the combined gross margin increased $68.5 million, to $451.6 million, from the 52-week
period last year.
Store operating expenses, as a percent of retail revenue, were 25.6% versus 26.3% in the prior year. On a same store basis, store operating
expenses were down 41 basis points as a percent of retail revenue. General and administrative expenses were $107.5 million, or 8.5% of total
revenue, versus $88.7 million or 7.9% in the prior year. The increase in absolute dollars of $18.8 million was a result of the net change in year
over year departmental expenses ($0.9 million), addition of Fitness Source infrastructure ($3.4 million) and the accrual for performance-based
compensation ($21.4 million) partially offset by marketing expense reductions of $6.9 million during the year.
EBITA was $107.3 million, or 8.5% of total revenue, compared to 6.1% for the same period last year. Net earnings for the 52 weeks ended January
28, 2007 were a record $35.2 million compared to $13.8 million for the 52-week period in the prior year.
Basic and diluted earnings per share for the 52-week period ended January 28, 2007 were $1.06 and $1.04 respectively, compared to $0.42 in
the prior year. Cash flow from operations increased to $77.4 million from $47.8 million. On a per share basis, cash flow increased 61.4% to $2.34
compared to $1.45 the prior year.
As indicated by the quarterly diluted EPS data on page 30, the increase in earnings, over the prior year, was the result of stronger quarterly
performances in each quarter of the year. In the first half of the year, fully diluted EPS increased $0.37 to a profit of $0.07 per share versus a loss
of $0.30 per share in fiscal 2006. In the second half of the year, fully diluted EPS increased $0.26 to $0.97 versus $0.71in the prior year, despite the
negative impact of unseasonably warm weather in Eastern Canada through much of the fourth quarter.
29
annual data
(In thousands except per share data)
January 28, 2007
January 29, 2006
January 30, 2005
Revenue
$
1,263,955
$
1,129,404
$
985,054
EBITA
$
107,260
$
69,153
$
76,469
Net earnings
$
35,217
$
13,757
$
21,545
Earnings per share
$
1.06
$
0.42
$
0.66
Diluted earnings per share
$
1.04
$
0.42
$
0.66
Cash flow from operations, per share (basic)
$
2.34
$
1.45
$
1.74
Weighted average number of shares outstanding (basic)
30
33,145
32,899
32,572
Total assets
$
683,510
$
653,206
$
608,154
Total long-term debt (excluding current portion)
$
58,303
$
58,805
$
40,278
geographic representation
The Company continues to expand its corporate store base, opening 71,510 square feet (net of closings) in fiscal
2007. The most aggressive store expansion was in Ontario, where 52,146 square feet (net of closings) were added,
primarily due to the acquisition of Fitness Source – 9 stores and 39,808 square feet. In the franchise division, the
company continues to expand adding 33,725 square feet (net of closings and conversions) in fiscal 2007. The most
aggressive expansion was in Quebec, where 108,485 square feet (net of closings) were added, primarily through the
opening of Sports Experts (1), Intersport (5), Atmosphere (3), Hockey Experts (4) Nevada Bob’s Golf (2) and Buying
Members (2), net of the closure of an Econosport.
number of stores
January 28, 2007
Corporate
Franchise
Total
January 29, 2006
Corporate
Franchise
Total
Western Canada
122
38
160
120
50
170
Ontario
136
15
151
127
14
141
Quebec
-
147
147
1
131
132
12
9
21
12
9
21
270
209
479
260
204
464
Atlantic & Northern
Total
retail square footage
January 28, 2007
Corporate
Franchise
Total
January 29, 2006
Corporate
Franchise
Total
Western Canada
1,824,173
196,219
2,020,392
1,798,237
265,887
2,064,124
Ontario
2,143,688
95,354
2,239,042
2,091,542
97,304
2,188,846
Quebec
-
1,349,558
1,349,558
6,687
1,241,073
1,247,760
210,004
38,432
248,436
209,889
41,574
251,463
4,177,865
1,679,563
5,857,428
4,106,355
1,645,838
5,752,193
Atlantic & Northern
Total
31
retail system sales
Retail system sales from corporate and franchise locations were $1,416.7 million, an increase of 8.1% over fiscal 2006.
January 28, 2007
January 29, 2006
Corporate
Franchise
Total
Corporate
Franchise
Total
$
$
$
$
$
$
Western Canada
451,007
79,308
530,315
409,796
79,435
489,231
Ontario
425,526
31,673
457,199
400,336
21,798
422,134
Quebec
169
367,231
367,400
177
341,755
341,932
48,741
13,088
61,829
45,840
11,334
57,174
925,443
491,300
1,416,743
856,149
454,322
1,310,471
(In thousands)
Atlantic & Northern
Total
Same Store Sales
A summary of same store sales changes, by quarter, is set out below.
32
January 28, 2007
(percent)
January 29, 2006
Corporate
Franchise
Total
Corporate
Franchise
Total
Q1
12.2
6.0
10.0
(4.3)
9.4
0.3
Q2
5.4
6.9
6.0
0.2
4.6
1.8
Q3
6.6
9.9
7.7
3.2
8.1
4.7
Q4
1.1
(2.9)
(0.3)
10.1
5.3
8.3
5.9
4.4
5.4
3.8
6.5
4.7
The same store sales increases in the corporate division evidenced the continuation of the trend set in motion by the fiscal 2006 revitalization in the
Company’s main banner, Sport Chek, as well as the impact of the Precision Retailing initiative which has resulted in an improved in-stock position,
hence improved sales.
The increase in franchise same store sales is a result of growth in the footwear, summer/winter clothing and athletic clothing, hockey and fitness
equipment categories. Sales in the franchise division are driven primarily by the Province of Quebec (74.8% of total franchise sales).
revenue and margins
Revenue from the Company’s retail and wholesale divisions increased $134.6 million, or 11.9%, over fiscal 2006,
to $1,264.0 million. Gross margin, on a combined basis, from retail and wholesale sales was up at 35.7% compared
to fiscal 2006 at 33.9%.
Retail Revenue
Retail revenue consists of merchandise sales, income from service shops and equipment rental in corporate stores.
In fiscal 2007, retail revenues increased 8.1% to $925.4 million due to the addition of square footage, via acquisition,
expansion and renovations.
corporate store changes by banner
Store count increased by a net of 10 stores or 3.8%, with a square footage increase of 1.7%.
Sport Chek
Sport Mart
Coast
National
Other*
Total
122
95
20
21
2
260
Opened
4
1
-
-
-
5
Closed
(2)
(7)
-
(1)
(3)
(13)
Converted
-
-
-
-
9
9
Acquired
-
-
-
-
9
9
124
89
20
20
17
270
Balance, opening
Balance, closing
* includes the conversion of 7 Nevada Bob’s Golf stores from franchise and the acquisition of 9 Fitness Source stores, which are expected to be franchised.
corporate square footage changes by banner
Sport Chek
Sport Mart
Coast
National
Other
Total
2,548,398
755,349
273,859
516,811
11,938
4,106,355
Opened
90,600
7,500
-
-
-
98,100
Remodeled/expanded
37,379
(100)
(12,079)
(3,661)
-
21,539
Closed
(34,878)
(54,062)
-
(55,196)
(16,096)
(160,232)
Balance, opening
Converted
-
-
-
-
66,464
66,464
Acquired
-
-
-
-
45,639
45,639
2,641,499
708,687
261,780
457,954
107,945
4,177,865
Balance, closing
33
revenue by category
In general, the Company has three sales departments: footwear, hardgoods (equipment) and softgoods (clothing and
outerwear). Sales, in terms of absolute dollars, increased in all categories. The shift between categories in terms of
percentage of revenue was due mainly to the addition of Fitness Source which sells almost exclusively hardgoods.
(percent)
January 28, 2007
January 29, 2006
January 30, 2005
Footwear
29.1
28.6
27.0
Hardgoods
35.2
34.7
34.7
Softgoods
35.7
36.7
38.3
100.0
100.0
100.0
Total
Wholesale Revenue
Wholesale revenue consists of wholesale sales to franchisees and third parties and income from royalties and
administrative fees. In fiscal 2007, revenues increased 23.9%, over the previous year, to $338.5 million, driven
primarily by the addition of 5 new franchise stores (net of closings/conversions).
34
franchise store changes by banner
In fiscal 2007, 25 new franchise locations were opened: 2 Sports Experts, 5 Intersport, 3 Atmosphere, 7 Nevada
Bob’s Golf, 3 Buying Members, 1 Pegasus, and 4 Hockey Experts. The net reduction in the Nevada Bob’s Golf banner
reflects the purchase of 7 stores of a former licensee by the corporate division, these stores are included in the
corporate store count.
Sports
Experts
Balance, opening
Intersport Atmosphere Econosports
RnR
Tech Shop /
Nevada
Pegasus
Bob’s Golf
Hockey
Experts
Buying
Members
Total
69
61
16
3
12
3
32
1
7
204
Opened
2
5
3
-
-
1
7
4
3
25
Closed
-
(6)
-
(1)
-
-
(6)
-
-
(13)
Converted
(1)
2
-
-
-
-
(7)
-
(1)
(7)
Balance, closing
70
62
19
2
12
4
26
5
9
209
franchise square footage changes by banner
Total retail selling space in the franchise division increased 2.0% to 1,679,563 square feet. The development of the Pegasus and Hockey Experts
banners gives the Company two excellent vehicles to expand its share of the technical running and hockey markets. The reduction in square footage
in the Nevada Bob’s Golf stores reflects the current “corporate” store status of 7 former licensee’s stores pending re-franchising.
Sports
Experts
Balance, opening
Opened
Remodeled
Closed
Converted
Balance, closing
Intersport
Atmosphere Econosports
RnR
Tech Shop /
Nevada
Pegasus
Bob’s Golf
Hockey
Experts
Buying
Members
Total
882,360
292,010
155,382
28,613
34,686
9,360
206,042
7,146
30,239
1,645,838
25,026
42,310
14,500
-
-
2,330
38,892
24,050
10,500
157,608
2,693
3,409
500
-
-
21
(750)
-
-
5,873
-
(21,992)
-
-
-
(29,042)
-
-
(61,682)
(6,098)
6,687
-
-
-
-
(56,306)
-
(12,357)
(68,074)
903,981
322,424
170,382
17,965
34,686
11,711
158,836
31,196
28,382
1,679,563
(10,648)
Gross Margin
Gross margin, on a combined basis, from retail and wholesale sales, was 35.7% up 180 basis points compared to last year at 33.9%. In absolute dollars,
the combined gross margin increased $68.5 million to $451.6 million, compared to $383.1 million in fiscal 2006.
35
operating and administrative expenses
Store Operating
Store operating expenses include all costs incurred to operate corporate stores, plus the cost of store supervision.
In fiscal 2007, store operating costs, as a percentage of retail revenue, decreased to 25.6% from 26.3%. On a same
store basis, store operating costs decreased 41 bp as a percentage of retail revenue to 24.5%. In absolute dollars,
same store operating costs increased 4.2%.
General and Administrative
General and administrative expenses were $107.5 million, or 8.5% of total revenue, 60 basis points over fiscal 2006.
General and administrative expenses increased, in absolute dollars, by $18.8 million. This was due to expenses
related to the net change in year over year departmental expenses ($0.9 million), the operations of Fitness Source ($3.4
million), and the impact of the increase in performance based compensation expense ($21.4 million) partially offset by
reduced marketing expenses ($6.9 million).
operating earnings
EBITA
36
EBITA increased $38.1 million, or 55.1%, to $107.3 million compared to $69.2 million in fiscal 2006. EBITA margin
was 8.5% of revenue, an increase of 240 basis points from fiscal 2006.
financial condition
At the end of fiscal 2007, the Company’s financial position continues to be strong. The following table highlights key liquidity and debt ratios for the
Company.
January 28, 2007
January 29, 2006
January 30, 2005
Working capital ratio
1.69
1.48
1.53
Accounts receivable days outstanding
119
112
117
62.8%
70.4%
70.7%
2.80
2.68
2.42
10.3%
13.8%
5.7%
Accounts payable coverage of inventory and accounts receivable
Inventory turns1
Net total debt to capitalization2
As at January 28, 2007, the Company had a working capital surplus of $160.1 million, compared to $119.4 million in the prior year. Accounts receivable
have decreased, in spite of growth in the franchise network, reflecting improvements in collection and days outstanding. Inventory increases are the
result of increased corporate store square footage and an increase in inventory intensity3 of 5.9% to $72 versus the prior year of $68. Accounts
payable financing of inventory and receivables from franchisees, was 62.8% versus 70.4% in the prior year as the Company made increasing use of
early payment discounts. Net total debt to capitalization decreased due to retirement of long-term debt (Calgary mortgage and Sport Mart vendor
take-back loan) from cash flow during the year.
1
Calculated as the ratio of Cost of Goods Sold to average inventory.
2
Calculated as the ratio of average net debt (long-term debt plus current portion of long-term debt less cash) to average net debt plus average shareholders’ equity.
3
Defined as inventory on hand, at cost, per square foot of retail space.
37
liquidity and capital resources
The Company’s principal capital requirements are to fund working capital needs, develop private-label brands and open new stores in connection
with its expansion strategy. These capital requirements have generally been satisfied by a combination of cash flow from operations and borrowings
under its credit facility and term loans (more fully described in Note 6 to the consolidated financial statements) and the periodic issuance of shares.
For fiscal 2007, these sources of capital included: cash generated from operating activities, before changes in non-cash working capital elements,
of $77.4 million, an increase of $29.6 million when compared to the prior year; and a credit facility with GE Canada Finance Holding Company,
National Bank of Canada and The Royal Bank of Canada.
On June 30, 2005 the Company extended its previous credit agreement to June 30, 2008. The amended and restated credit agreement increased the
previous $175 million facility to $235 million, comprised of a $185 million (2006 - $185 million) revolving loan and a $50 million term loan (2006 - $50
million), repayable at maturity. Under the terms of the credit agreement, the interest rate payable on both the revolving and term loans is based on the
Company’s financial performance as determined by its interest coverage ratio. The facility is collateralized by general security agreements against
all existing and future acquired assets of the Company. As at January 28, 2007, the Company is in compliance with all covenants. Based on current
operating levels and available funds, there will be sufficient means to satisfy the Company’s working capital needs, debt-service requirements and
expansion strategies for the coming fiscal year.
The company is committed, at January 28, 2007, to minimum payments under long-term real property, and data processing equipment and software
leases for the next five years, as follows:
payments due by period
38
Contractual Obligations
Total
1 Year
2-3 Years
4- 5 Years
Beyond
$
$
$
$
$
451,656
87,349
142,890
113,324
108,093
In addition, the Company may be obligated to pay percentage rent under certain of the real property leases.
As at January 28, 2007, the Company had open letters of credit for purchases of inventory of approximately $6,936,000 (2006 - $4,579,000).
Acquisitions
Effective January 31, 2005, the Company acquired 100% of the outstanding shares of National Gym Clothing Ltd.
The acquisition is accounted for using the purchase method and accordingly the consolidated financial statements for
the 52 weeks ended January 29, 2006 and January 28, 2007 include the results of operations since the date of the
acquisition. The consideration for the transaction was $13,026,000 in cash for all the outstanding common shares and
the allocation of the purchase price is provided in Note 14 to the consolidated financial statements.
Effective January 31, 2006, the Company acquired 100% of the outstanding shares of The Fitness Source Inc. The
acquisition is accounted for using the purchase method and accordingly the consolidated statements for the 52 weeks
ended January 28, 2007 include the results of operations since the date of acquisition. The consideration for the
transaction was $6,650,000 comprised of $3,108,000 in cash and a vendor take back loan of $3,542,000. The allocation
of the purchase price is provided in Note 14 to the consolidated financial statements.
On November 7, 2006, the Company acquired select net assets of JKL Golf Corp Inc. and JKL Golf Inc.
(a Nevada Bob’s Golf licensee), for consideration of $8,801,000 in cash. The acquisition is accounted for using the
purchase method as net assets acquired encompass the necessary inputs, processes and outputs to sustain the
business thereby meeting the definition of a business (as per CICA section 1580 and EIC 124). Accordingly the
consolidated financial statements for the 52 weeks ended January 28, 2007 include the results of operations since the
date of acquisition. The allocation of the purchase price is provided in Note 14 to the consolidated financial statements.
These 7 Nevada Bob’s Golf locations are currently being operated as corporate stores pending sale to franchisees.
39
Capital Expenditures
January 28, 2007
January 29, 2006
January 30, 2005
$
$
$
Capital expenditures (net of disposals)
37,997
50,837
45,726
Less: Lease inducements
(6,149)
(9,368)
(13,402)
Net capital expenditures
31,848
41,469
32,324
Capital expenditures, net of lease inducements and disposals, were $31.8 million in fiscal 2007, a decrease of $9.6
million over the previous year as a result of the completion of the revitalization of the Sport Chek banner in the
prior year, reduced new store openings and the completion of major IT initiatives in the merchandise and warehouse
management areas.
Financing
The Company is exposed to credit risk on its accounts receivable from franchisees. The accounts receivables are net
of applicable allowances for doubtful accounts, which are established based on the specific credit risks associated
with individual franchisees, and other relevant information. Concentration of credit risk with respect to receivables is
limited due to the large number of franchisees, which are generally profitable operations, secured by inventory.
The Company purchases a portion of its inventory from foreign vendors with payment terms in foreign currencies.
To manage the foreign exchange risk associated with these purchases, the Company hedges its exposure to foreign
currency by purchasing foreign exchange options and forward contracts to fix exchange rates and protect planned
margins. The Company had United States dollar contracts outstanding at January 28, 2007 ($1,786,000) and January
29, 2006 ($2,386,000).
The Company has included $1,231,000 of net exchange gains (2006 - $201,000 net exchange loss) in net income. As
at January 28, 2007, the outstanding contracts had unrealized gains of $65,000 (2006 - $37,000 unrealized losses).
Foreign exchange contracts outstanding in fiscal 2007 decreased due to the timing of payment of the associated
merchandise purchased in foreign currencies.
The Company is exposed to interest rate risk on its credit facility and term loan. Interest rate risk reflects the
sensitivity of the Company’s financial condition to movements in the interest rates. For fiscal year 2007, a 1% change
in interest rates would change interest expense by $1,204,000 (2006 - $1,449,000).
40
Share Capital
The Company has authorized an unlimited number of Class A shares and an unlimited number of Preferred shares,
issuable in series. The Class A shares of the Company are publicly traded on the Toronto Stock Exchange under the
symbol “FGL”.
During the year, there were no Class A shares purchased pursuant to the Company’s Normal Course Issuer Bid, which
expired July 25, 2006.
The Company has 33,696,389 shares outstanding and has not issued any Preferred Shares. At the end of the year the
Company had 412,000 options that were exercisable.
retail risks and uncertainties
Traditionally, the retail industry is influenced by a number of external factors that are difficult to actively manage. These include the overall economy,
consumer spending and debt levels. Other factors, such as retail competition, seasonality, changes in fashion trends and adverse movements in
foreign exchange and interest rates, can be managed.
The key elements of the Company’s strategy for minimizing these risks are as follows:
Retail Competition
The Company competes with independent specialty retailers, on a regional basis, in all major markets across Canada and with department
stores and mass merchants on a national basis. The Company analyzes competitive effects in its markets, particularly its performance relative
to competitors. This analysis permits a determination of the degree of competitiveness within a market or business segment and allows for the
necessary steps to be taken to protect market share. Due to the Company’s large network of stores, its competitive risks are reduced.
Seasonality
The Company strives to minimize the seasonality of the business by altering its merchandise mix at certain times of the year, to reflect consumer
demand.
Fashion Trends
Fashion trends in the sports apparel industry shift quickly and the Company’s success in this area is largely dependent on its ability to gauge
consumer preferences and to deliver merchandise in a timely fashion to satisfy consumer trends. The Company minimizes its exposure to changes
in fashion trends by actively managing its inventory and aggressively marking down slow-moving inventory.
Foreign Exchange Risk
In fiscal 2007, total foreign exchange exposure was approximately $69.7 million, or 8.3% of the Company’s purchases. The Company uses options
and forward contracts to fix exchange rates and protect planned margins. As at January 28, 2007, the Company had $1.8 million in foreign exchange
contracts outstanding.
Operations Sensitivity Analysis
The following table illustrates the impact a 1% increase in sales, and a 1% improvement in margins, has on the Company’s gross margin dollars.
Sales shift of 1%
Margin increase of 1%
January 28, 2007
January 29, 2006
January 30, 2005
$
$
$
4,516
3,831
3,339
12,640
11,294
9,888
41
related party transactions
An officer of the Company holds an interest in franchise store operations. During the year, the franchise operations transacted business, in the
normal course and at fair market value, with the Company, purchasing product in the amount of $7,999,000 (2006 - $5,608,000). At the end of the
year, accounts receivable from the franchise operation were $1,325,000 (2006 – $888,000).
In 2006, the Company had an interest in a trademark licensing company in which an employee, employed by a subsidiary, holds a partial interest.
During that year, the Company, in the normal course of operations on similar terms and conditions to transactions entered into with unrelated parties,
paid royalties of $346,000. At January 28, 2007 no such relationship existed.
In 2006, the Company purchased real estate valued at $215,000 from an officer of the Company in the normal course of operations and on similar
terms and conditions to transactions entered into with unrelated parties. No similar transactions occurred in 2007.
In 2006, the Company entered into a contract to obtain services and paid $44,000 to a company owned by a director of the Company in the normal
course of operations and on similar terms and conditions to transactions entered into with unrelated parties. No such contract existed in 2007.
legal proceedings
Claims and suits have been brought against the Company in the ordinary course of business. In the opinion of management, all such claims
and suits are adequately covered by insurance or, if not so covered, the results are not expected to materially affect the Company’s financial
position. Any costs to the Company arising from these claims and suits will be charged to earnings in the year in which they occur.
42
disclosure controls and procedures
Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and
communicated to the Company’s management in order to allow timely decisions regarding required disclosure. The Company’s Chief Executive
Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by the annual filings, that
the Company’s disclosure controls and procedures, as of the end of such period, are effective and provide reasonable assurance that material
information related to the Company, including its consolidated subsidiaries, is made known to them by others within those entities.
internal control over financial reporting
The Chief Executive Officer and Chief Financial Officer of the Company are responsible for the design of internal controls over financial reporting,
or causing them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with Canadian GAAP.
The Company has completed its assessment of the design of the internal controls over financial reporting and determined that a number of the
information systems are subject to general control deficiencies which may result in a more than remote likelihood that a material misstatement may
not be prevented or detected. Control deficiencies exist in the following areas:
•
•
Change Control
Security Access
•
Segregation of Duties
While the controls are not directly compensated, the Company considers the risks inherent in these weaknesses to be compensated for by manual
controls including, but not limited to, management’s review of results against budgets and prior years.
The Company realizes the significance of these control weaknesses and is actively pursuing a remediation process.
It should be noted that, while the Company’s Chief Executive Officer and Chief Financial Officer believe that the Company’s controls and procedures
provide a reasonable level of assurance that they are effective (except as noted above), they do not expect that the controls and procedures will
prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met.
subsequent event
The Company expects to announce, on March 23, 2007, that it has received approval from the Toronto Stock Exchange to make a normal course
issuer bid for its common shares. For the twelve-month period commencing March 27, 2007 and ending March 26, 2008 the Company may purchase, on the Toronto Stock Exchange, up to 2,313,000 or 10% of the Company’s public float. The price the Company will pay for any such shares
purchased will be the market price at the time of acquisition and the purchased common shares will be cancelled. The actual number of common
shares purchased, and the timing of any such purchases, will be determined by the Company.
future events and trends
The Company anticipates continued consolidation in the sporting-goods retail industry. This will create opportunities for the Company to further
increase its market share. As independent retailers continue to see reductions in their profit margins, and as buying groups weaken, this will
create opportunities for the franchise division to attract quality independents. Furthermore, as less productive retailers exit the market, it will create
opportunities for further corporate expansion. In fiscal 2008, the Company plans to focus on driving up existing corporate store sales per door, while
continuing to expand its corporate store base by 11 stores and its franchise store base by approximately 37 stores.
This document may contain forward-looking statements relating to the future performance of The Forzani Group Ltd. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and
uncertainties, and actual results may differ materially. The Company, in compliance with the reporting requirements of the various securities commissions, details these risks and uncertainties from time to time. Consequently, readers should
not place any undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they were made. The Company disclaims any intention or obligation to update or revise any forwardlooking statement, whether as a result of new information, future events or otherwise.
43
management’s responsibilities for financial reporting
The Annual Report, including the consolidated financial statements, is the responsibility of the management of
the Company. The consolidated financial statements were prepared by management in accordance with generally
accepted accounting principles. The significant accounting policies used are described in Note 2 to the consolidated
financial statements. The integrity of the information presented in the financial statements, including estimates and
judgments relating to matters not concluded by year-end, is the responsibility of management. Financial information
presented elsewhere in this Annual Report has been prepared by management and is consistent with the information
in the consolidated financial statements.
44
Management is responsible for the development and maintenance of systems of internal accounting and
administrative controls. Such systems are designed to provide reasonable assurance that the financial information
is accurate, relevant and reliable, and that the Company’s assets are appropriately accounted for and adequately
safeguarded (except as noted on pages 44 and 45 under “internal control over financial reporting”). The Board
of Directors is responsible for ensuring that management fulfills its responsibilities for final approval of the
annual consolidated financial statements. The Board appoints an Audit Committee consisting of three directors,
none of whom is an officer or employee of the Company or its subsidiaries. The Audit Committee meets at least
four times each year to discharge its responsibilities under a written mandate from the Board of Directors. The
Audit Committee meets with management and with the independent auditors to satisfy itself that they are properly
discharging their responsibilities, reviews the consolidated financial statements and the Auditors’ Report, and
examines other auditing, accounting and financial reporting matters. The consolidated financial statements have
been reviewed by the Audit Committee and approved by the Board of Directors of The Forzani Group Ltd. The
consolidated financial statements have been examined by the shareholders’ auditors, Ernst & Young, LLP, Chartered
Accountants. The Auditors’ Report outlines the nature of their examination and their opinion on the consolidated financial
statements of the Company. The independent auditors have full and unrestricted access to the Audit Committee, with
and without management present.
[ signed ]
Bob Sartor
Cheif Executive Officer
[ signed ]
Richard Burnet, CA
Vice-President & Chief Financial Officer
auditors’ report
To the Shareholders of The Forzani Group Ltd.
We have audited the consolidated balance sheets of The Forzani Group Ltd. as at January 28, 2007 and January 29,
2006 and the consolidated statements of operations and retained earnings and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of
the Company as at January 28, 2007 and January 29, 2006 and results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
45
Calgary, Alberta
March 22, 2007
Ernst & Young, LLP
Chartered Accountants
the forzani group ltd.
Consolidated Balance Sheets
(in thousands)
As at
ASSETS
Current
Cash
Accounts receivable
Inventory
Prepaid expenses
January 28, 2007
$
22,758
65,543
302,207
2,688
393,196
191,146
90,238
8,930
-
$
19,266
68,927
278,002
2,647
368,842
193,594
75,805
10,080
4,885
$
683,510
$
653,206
$
230,977
2,082
233,059
58,303
58,543
5,737
55
$
244,293
5,135
249,428
58,805
62,883
3,810
-
Capital assets (Note 3)
Goodwill and other intangibles (Note 4)
Other assets (Note 5)
Future income tax asset (Note 9)
46
LIABILITIES
Current
Accounts payable and accrued liabilities
Current portion of long-term debt (Note 6)
Long-term debt (Note 6)
Deferred lease inducements
Deferred rent liability
Future income tax liability (Note 9)
SHAREHOLDERS’ EQUITY
Share capital (Note 8)
Contributed surplus
Retained earnings
$
355,697
374,926
148,424
8,294
171,095
138,131
4,271
135,878
327,813
278,280
683,510
See accompanying notes to the consolidated financial statements
Approved on behalf of the Board:
[ signed ]
Roman Doroniuk, CA
January 29, 2006
[ signed ]
John M. Forzani
$
653,206
the forzani group ltd.
Consolidated Statements of Operations and Retained Earnings
(in thousands, except share data)
For the 52 weeks ended
January 28, 2007
Revenue
Retail
Wholesale
$
Cost of sales
Gross margin
Operating and administrative expenses
Store operating
General and administrative
925,443
338,512
1,263,955
812,363
451,592
For the 52 weeks ended
January 29, 2006
$
856,149
273,255
1,129,404
746,313
383,091
236,870
107,462
344,332
225,218
88,720
313,938
107,260
69,153
Amortization
Interest
43,410
7,354
50,764
41,343
6,145
47,488
Earnings before income taxes
56,496
21,665
19,897
1,382
21,279
8,784
(876)
7,908
35,217
13,757
$
122,121
135,878
Operating earnings before undernoted items
Provision for income taxes (Note 9)
Current
Future
Net earnings
Retained earnings, opening
Retained earnings, closing
$
135,878
171,095
Earnings per share (note 8(c))
$
1.06
$
0.42
Diluted earnings per share (note 8(c))
$
1.04
$
0.42
See accompanying notes to the consolidated financial statements
47
the forzani group ltd.
Consolidated Statements of Cash Flows
(in thousands)
For the 52 weeks ended
January 28, 2007
Cash provided by (used in) operating activities
Net earnings
Items not involving cash
Amortization
Amortization of deferred finance charges
Amortization of deferred lease inducements
Rent expense (Note 7)
Stock-based compensation (note 8(d))
Future income tax expense
$
Changes in non-cash elements of working capital (Note 7)
48
Cash provided by (used in) financing activities
Net proceeds from issuance of share capital
Increase in long-term debt
Debt assumed on acquisition (Note 14)
Proceeds from deferred lease inducements
Changes in non-cash elements of financing activities (Note 7)
Cash (used in) investing activities
Net addition of capital assets
Net addition of other assets
Acquisition of wholly-owned subsidiaries (note 14)
Changes in non-cash elements of investing activities (Note 7)
Increase (decrease) in cash
Net cash position, opening
Net cash position, closing
See accompanying notes to the consolidated financial statements
$
35,217
For the 52 weeks ended
January 29, 2006
$
13,757
43,410
580
(10,549)
2,659
4,730
1,382
77,429
(28,016)
49,413
41,343
637
(10,661)
2,281
1,356
(876)
47,837
(1,979)
45,858
9,586
(7,429)
(105)
6,149
8,201
(927)
7,274
320
23,573
(17,922)
9,368
15,339
(2,450)
12,889
(37,997)
(538)
(15,448)
(53,983)
788
(53,195)
(50,837)
(3,751)
(12,428)
(67,016)
1,517
(65,499)
3,492
19,266
(6,752)
26,018
22,758
$
19,266
the forzani group ltd.
notes to consolidated financial statements
(tabular amounts in the thousands)
1.
Nature of Operations
The Forzani Group Ltd. “FGL” or “the Company” is Canada’s largest sporting goods retailer. FGL currently
operates 270 corporate stores under the banners: Sport Chek, Sport Mart, Coast Mountain Sports, National Sports
and Fitness Source. The Company is also the franchisor/licensor of 209 stores under the banners: Sports Experts,
Intersport, RnR, Econosports, Atmosphere, Tech Shop/Pegasus, Nevada Bob’s Golf, and Hockey Experts.
2.
Significant Accounting Policies
The consolidated financial statements have been prepared by management in accordance with Canadian generally
accepted accounting principles (“GAAP”). The financial statements have, in management’s opinion, been prepared
within reasonable limits of materiality and within the framework of the accounting policies summarized below:
(a)
Organization
The consolidated financial statements include the accounts of The Forzani Group Ltd. and its subsidiaries, all of which
are wholly owned.
(b)
Inventory
Inventory is valued at the lower of laid-down cost and net realizable value. Laid-down cost is determined using the
weighted average cost method and includes invoice cost, duties, freight, and distribution costs. Net realizable value is
defined as the expected selling price.
Volume rebates and other supplier discounts are included in income when earned. Volume rebates are accounted for
as a reduction of the cost of the related inventory and are “earned” when the inventory is sold. All other rebates and
discounts are “earned” when the related expense is incurred.
49
(c)
Capital assets
Capital assets are recorded at cost and are amortized using the following methods and rates:
Building
• 4% declining-balance basis
Building on leased land
• straight-line basis over the lesser of the length of the lease and
estimated useful life of the building, not exceeding 20 years
Furniture, fixtures, equipment, software
and automotive
Leasehold improvements
• straight-line basis over 3-8 years
• straight-line basis over the lesser of the length of the lease and
estimated useful life of the improvements, not exceeding 10 years
The carrying value of long-lived assets are reviewed at least annually or whenever events indicate a potential
impairment has occurred. An impairment loss is recorded if and when a long-lived asset’s carrying value exceeds the
sum of the undiscounted cash flows expected from its use and eventual disposition. The impairment loss is measured
as the amount by which the carrying value exceeds its fair value.
(d)
50
Variable Interest Entities
Variable interest entities (“VIE”) are consolidated by the Company if and when the Company is the primary beneficiary
of the VIE, as described in CICA Accounting Guideline 15 “Consolidation of Variable Interest Entities”.
(e)
Goodwill and other intangibles
Goodwill represents the excess of the purchase price of entities acquired over the fair market value of the identifiable
net assets acquired.
Goodwill and other intangible assets with indefinite lives are not amortized, but tested for impairment at year end and,
if required, asset values reduced accordingly. The method used to assess impairment is a review of the fair value of
the asset based on its earnings and a market earnings multiple.
Non-competition agreement costs are amortized, on a straight-line basis, over the life of the agreements, not exceeding
five years.
(f)
Other assets
Other assets include deferred financing charges, system and interactive development costs, long-term receivables
and a long-term investment in a trademark licensing company.
Financing charges represent fees incurred in establishing and renegotiating the Company’s credit facilities. These
costs are being amortized over the term of the facilities.
System development costs relate to the implementation of computer software. Upon activation, costs are amortized
over the estimated useful lives of the systems (3 – 8 years).
Interactive development costs relate to the development of the sportchek.ca interactive web site, designed as a part
of the Company’s multi-channel retailing and branding strategy. These costs were amortized over five years following
the commencement of the web site’s operations in June, 2001 and have been fully amortized at year end.
Long-term receivables are carried at cost less a valuation allowance, if applicable.
Long-term investments are carried at cost and periodically reviewed for impairment based on the market value of the
shares.
(g)
Deferred lease inducements and property leases
Deferred lease inducements represent cash and non-cash benefits that the Company has received from landlords
pursuant to store lease agreements. These lease inducements are amortized against rent expense over the term of
the lease.
The Company capitalizes any rent expense during a related fixturing period as a cost of leasehold improvements. Such
expense is recognized on a straight-line basis over the life of the lease.
(h)
Revenue recognition
Revenue includes sales to customers through corporate stores operated by the Company and sales to, and service
fees from, franchise stores and others. Sales to customers through corporate stores operated by the Company are
recognized at the point of sale, net of an estimated allowance for sales returns. Sales of merchandise to franchise
stores and others are recognized at the time of shipment. Royalties and administration fees are recognized when
earned, in accordance with the terms of the franchise/license agreements.
51
(i)
Store opening expenses
Operating costs incurred prior to the opening of new stores, other than rent incurred during the fixturing period, are
expensed as incurred.
(j)
Fiscal year
The Company’s fiscal year follows a retail calendar. The fiscal years for the consolidated financial statements
presented are the 52-week periods ended January 28, 2007 and January 29, 2006.
(k)
Foreign currency translation
Foreign currency accounts are translated to Canadian dollars. At the transaction date, each asset, liability, revenue
or expense is translated into Canadian dollars using the exchange rate in effect at that date. At the year-end date,
monetary assets and liabilities are translated into Canadian dollars using the exchange rate in effect at that date, or by
rates fixed by forward exchange contracts, and the resulting foreign exchange gains and losses are included in income
in the current period, to the extent that the amount is not hedged.
52
(l)
Financial instruments
Accounts receivable, long term receivables, accounts payable, long-term debt and derivative transactions, constitute
financial instruments. In the normal course of business the Company also enters into leases in respect of real estate
and certain point-of-sale equipment.
The Company enters into forward foreign currency contracts and options, with financial institutions, as hedges
of other financial transactions and not for speculative purposes. The Company’s policies do not allow leveraged
transactions and are designed to minimize foreign currency risk. The Company’s policies require all hedges be linked
with specific liabilities on the balance sheet and be formally assessed, both at inception, and on an ongoing basis, as to
their effectiveness in offsetting changes in the fair values of the hedged liabilities.
(m)
Measurement uncertainty
The preparation of the financial statements, in conformity with GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from these estimates. Estimates are used when accounting for
items such as product warranties, inventory provisions, amortization, uncollectible receivables and the liability for the
Company’s loyalty program.
(n)
Stock-based compensation
The Company accounts for stock-based compensation using the fair-value method. The fair value of the options
granted are estimated at the date of grant using the Black-Scholes valuation model and recognized as an expense
over the option-vesting period.
(o)
Income taxes
The Company follows the liability method under which future income tax assets and obligations are determined
based on differences between the financial reporting and tax basis of assets and liabilities, measured using tax rates
substantively enacted at the balance sheet date.
Changes in tax rates are reflected in the consolidated statements of operations in the period in which they are
substantively enacted.
(p)
Asset retirement obligations
The Company recognizes asset retirement obligations in the period in which a reasonable estimate of the fair value
can be determined. The liability is measured at fair value and is adjusted to its present value in subsequent periods
through accretion expense. The associated asset retirement costs are capitalized as part of the carrying value of the
related asset and amortized over its useful life.
(q)
Comparative figures
Certain 2006 comparative figures have been reclassified to conform with the presentation adopted for the current year
ending January 28, 2007.
53
3.
Capital Assets
2007
Cost
Land
$
3,173
2006
Accumulated
Amortization
$
-
Net Book
Value
$
3,173
Cost
$
3,173
Accumulated
Amortization
$
-
Net Book
Value
$
3,173
20,699
3,943
16,756
20,007
3,197
16,810
4,583
2,588
1,995
4,564
2,330
2,234
Furniture, fixtures, equipment,
software and automotive
197,993
125,676
72,317
173,868
104,254
69,614
Leasehold improvements
221,043
125,942
95,101
204,595
106,595
98,000
Construction in progress
1,804
-
1,804
3,763
-
3,763
$ 449,295
$ 258,149
$ 191,146
$ 409,970
$ 216,376
$ 193,594
Buildings
Building on leased land
4.
Goodwill and Other Intangibles
2007
54
Accumulated
Amortization
Net Book
Value
Cost
Accumulated
Amortization
Net Book
Value
$ 61,730
$ 1,178
$ 60,552
$ 47,809
$ 1,178
$ 46,631
30,140
930
29,210
28,693
626
28,067
4,000
3,524
476
4,000
2,893
1,107
$ 95,870
$ 5,632
$ 90,238
$ 80,502
$ 4,697
$ 75,805
Cost
Goodwill
Trademarks/Tradenames
Non-competition agreements
2006
5.
Other Assets
2007
Cost
Accumulated
Amortization
$ 2,649
$ 2,649
Deferred financing charges
1,847
System development
Other deferred charges
Interactive development
2006
Net Book
Value
Cost
Accumulated
Amortization
-
$ 2,649
$ 2,649
911
936
1,660
286
1,374
1,641
1,595
46
1,569
1,407
162
3,251
1,086
2,165
3,030
853
2,177
$ 9,388
$ 6,241
$ 3,147
$ 8,908
$ 5,195
$ 3,713
$
Net Book
Value
$
-
55
2007
Depreciable other assets net book value (see above)
$ 3,147
2006
$
3,713
Long-term receivables (at interest rates of prime plus 1%
and expiring between September 2009 and July 2010)
2,695
3,279
Investment in a trademark licensing company
3,088
3,088
$ 8,930
$ 10,080
6.
Long-term Debt
2007
G.E. term loan
2006
$ 50,000
$ 50,000
-
4,606
Mortgage with monthly payments of $58,000 and an interest rate of 6.2%
compounded semi-annually, secured by land and building, expiring October 2009
(fifteen year amortization). A mortgage with a December 2006 maturity date was
retired in Fiscal 2007.
6,133
9,078
Vendor take-back, unsecured with implied interest rate of 4.8% due March 2007,
March 2008 and March 2009 (see note 14 (b) )
3,711
-
Asset retirement obligation
106
97
Other
435
159
60,385
63,940
2,082
5,135
$ 58,303
$ 58,805
Vendor take-back, unsecured with interest rate of prime plus 1% due August 2006
56
Less current portion
Principal payments on the above, due in the next five years, are as follows:
2008
$
2,082
2009
$ 51,400
2010
$
1,366
2011
$
392
2012
$
4,694
Effective June 30, 2005, the Company extended its existing credit agreement to June 30, 2008. The amended and
restated agreement with GE Canada Finance Holding Company, National Bank of Canada and Royal Bank of Canada
increased the $175 million credit facility to $235 million, comprised of a $185 million revolving loan (2006 - $185
million), and a $50 million term loan (2006 - $50 million) repayable at maturity. Under the terms of the credit
agreement, the interest rate payable on both the revolving and term loans is based on the Company’s financial
performance as determined by its interest coverage ratio. As at January 28, 2007, the interest rate paid was bank
prime less 0.45%. The facility is collateralized by general security agreements against all existing and future acquired
assets of the Company. As at January 28, 2007, the Company is in compliance with all covenants.
Based on estimated interest rates currently available to the Company for mortgages with similar terms and maturities,
the fair value of the mortgage at January 28, 2007 amounted to approximately $5,417,000 (2006 remaining mortgage
- $6,074,000; 2006 all mortgages - $8,553,000). Interest costs incurred for the 52-week period ended January 28,
2007 on long-term debt amounted to $3,348,000 (2006 - $2,318,000). The fair value of the other long-term debt
components above approximates book value given their short terms to maturity and floating interest rates.
57
7.
Supplementary Cash Flow Information
2007
2006
Rent expense
Straight-line rent expense
$
1,822
$
1,484
837
Non-cash free rent
797
$
2,659
$
8,200
$ (10,038)
(15,832)
24,544
265
1,140
(19,951)
(17,761)
(698)
136
$
2,281
Changes in non-cash elements of working capital
Accounts receivable
Inventory
Prepaid and other expenses
Accounts payable and accrued liabilities
58
Non-cash free rent
$
(28,016)
$
(927)
$
(2,450)
$
(927)
$
(2,450)
$
788
$
1,517
$
788
$
1,517
Net cash interest paid
$
6,773
$
6,133
Net cash taxes paid
$
5,811
$
7,285
$
(1,979)
Changes in non-cash elements of financing activities
Non-cash lease inducements
Changes in non-cash elements of investing activities
Non-cash capital asset additions
8.
Share Capital
(a)
Authorized
An unlimited number of Class A shares (no par value)
An unlimited number of Preferred shares, issuable in series
(b)
Issued
Class A shares
Number
Balance, January 30, 2005
Shares issued upon employees exercising stock options
Balance, January 29, 2006
Shares issued upon employees exercising stock options
32,875
(c)
$
137,811
47
32,922
320
$
774
138,131
9,586
-
Stock-based compensation related to options exercised
Balance, January 28, 2007
Consideration
33,696
707
$
148,424
59
Earnings Per Share
Basic
Diluted
2007
$ 1.06
$ 1.04
2006
$ 0.42
$ 0.42
The Company uses the treasury stock method to calculate diluted earnings per share. Under the treasury stock method, the numerator remains
unchanged from the basic earnings per share calculation, as the assumed exercise of the Company’s stock options does not result in an adjustment
to earnings. Diluted calculations assume that options under the stock option plan have been exercised at the later of the beginning of the year or
date of issuance, and that the funds derived therefrom would have been used to repurchase shares at the average market value of the Company’s
stock, 2007 – $16.31 (2006 - $12.41). Anti-dilutive options, 2007 – 134,000 (2006 - 749,000) are excluded from the effect of dilutive securities.
The reconciliation of the denominator in calculating diluted earnings per share is as follows:
Weighted average number of class A shares outstanding (basic)
Effect of dilutive options
Weighted average number of common shares outstanding (diluted)
2007
2006
33,145
32,899
738
248
33,883
33,147
(d)
Stock Option Plans
The Company has granted stock options to directors, officers and employees to purchase Class A shares at prices between $10.25 and $19.19 per
share. These options expire on dates between February 2008 and December 2011.
The Company has two stock option plans. The first plan has the following general terms: options vest over a period ranging from 2 to 5 years
and the maximum term of the options granted is 5 years. During the year, 110,000 options (2006 – 250,000 options) were issued under this plan.
The related stock-based compensation was $1,364,000 (2006 - $1,356,000). The second plan has the following general terms: options vest over
a period ranging from 3 to 5 years dependent on the Company achieving certain performance targets (in 2007 these targets were met thereby
causing options to become fully vested by the first quarter of the subsequent year), and the maximum term of the options granted is 5 years.
During the year, 465,000 options (2006 – 525,000 options) were issued under this plan. The related stock-based compensation in 2007 was
$3,366,000 (2006-nil) as the Company met the targets in the current year. The total number of shares authorized for option grants under both option
plans is 3,262,800.
During the 52-weeks ended January 28, 2007, the following options were granted:
60
Options issued
Weighted average
fair value per option
Weighted average
risk-free rate
Weighted average
expected option life
Weighted average
expected volatility
Weighted average
expected dividend yield
575,000
4.12
4.13%
4.30
22.81%
-
A summary of the status of the Company’s stock option plans as of January 28, 2007 and January 29, 2006, and any changes during the year
ending on those dates is presented below:
2007
2006
Options
Weighted Average
Exercise Price
Options
Weighted Average
Exercise Price
2,787
$ 11.88
2,159
$ 12.13
Granted
575
15.72
775
12.15
Exercised
774
12.37
47
6.85
Forfeited
431
11.35
100
19.19
2,157
$ 12.85
2,787
$ 11.88
Stock Options
Outstanding, beginning of year
Outstanding, end of year
Options exercisable at year end
412
755
The following table summarizes information about stock options outstanding at January 28, 2007:
Options Outstanding
Options Exercisable
Number
Outstanding
Weighted Average
Remaining Contractual Life
Weighted Average
Exercise Price
Number
of Shares Exercisable
Weighted Average
Exercise Price
$10.25 – $12.77
1,145
3.14
$ 10.66
73
$ 10.25
$13.05 – $19.19
1,012
3.26
15.34
339
15.65
2,157
3.20
$ 12.85
412
$ 14.69
Range of Exercise Prices
9.
Income Taxes
The components of the future income tax liability (asset) amounts as at January 28, 2007 and January 29, 2006, are as follows:
2007
Current assets
$
Capital and other assets
3,610
Non-capital loss carry forward
3,353
15,842
(39)
(166)
(19,250)
(22,122)
(611)
(1,792)
55
$ (4,885)
$
Future income tax liability (asset)
$
16,345
Tax benefit of share issuance and financing costs
Deferred lease inducements
2006
A reconciliation of income taxes, at the combined statutory federal and provincial tax rate to the actual income tax rate, is as follows:
2007
Federal and provincial income taxes
$
2006
20,921
37.0%
Effect of substantively enacted tax rate changes
376
0.7%
Other, net
(18)
0.0%
21,279
37.7%
$
8,044
37.1%
(68)
(0.3)%
(68)
(0.3)%
7,908
36.5%
Increase (decrease) resulting from:
Provision for income taxes
$
$
Federal Part I.3 tax and provincial capital tax expense in the amount of $1,035,000 (2006 - $952,000) is included in operating expenses.
The Company has non-capital losses being carried forward of $1,812,000 expiring in 2026.
61
10.
Commitments
(a)
The Company is committed, at January 28, 2007, to minimum payments under long-term real property and
data processing hardware and software equipment leases, for the next five years, as follows:
Gross
2008
$87,349
2009
$77,312
2010
$65,578
2011
$62,603
2012
$50,721
In addition, the Company may be obligated to pay percentage rent under certain of the leases.
(b)
As at January 28, 2007, the Company has open letters of credit for purchases of inventory of approximately
$6,936,000 ( 2006 - $4,579,000).
11.
Employee Benefit Plans
62
The Company has a defined contribution plan and a deferred profit sharing plan. Deferred profit sharing contributions
are paid to a Trustee for the purchase of shares of the Company and are distributed to participating employees on a
predetermined basis, upon retirement from the Company. Contributions are subject to board approval and recognized
as an expense when incurred. Defined contributions are paid to employee retirement savings plans and are expensed
when incurred.
The Company has accrued $207,000 (2006 - $100,000) to the employee deferred profit sharing plan and $943,000
(2006 - $807,000) to the defined contribution plan.
12.
Contingencies and Guarantees
In the normal course of business, the Company enters into numerous agreements that may contain features that meet the Accounting Guideline
(“AG”)14 definition of a guarantee. AG-14 defines a guarantee to be a contract (including an indemnity) that contingently requires the Company to
make payments to the guaranteed party based on (i) changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument,
index or other variable, that is related to an asset, a liability or an equity security of the counterparty, (ii) failure of another party to perform under an
obligating agreement or (iii) failure of a third party to pay its indebtedness when due.
The Company has provided the following guarantees to third parties:
(a)
The Company has provided guarantees to franchisees’ banks pursuant to which it has agreed to buy back inventory from the franchisee
in the event that the bank realizes on the related security. The Company has provided securitization guarantees for certain franchisees
to repay equity loans in the event of franchisee default. The terms of the guarantees range from less than a year to the lifetime of the
particular underlying franchise agreement, with an average guarantee term of 4 years. Should a franchisee default on its bank loan, the
Company would be required to purchase between 50% – 100%, with a weighted average of 64%, of the franchisee’s inventory up to the
value of the franchisee’s bank indebtedness. As at January 28, 2007, the Company’s maximum exposure is $36,766,000 (2006 - $32,034,000).
Should the Company be required to purchase the inventory of a specific franchisee, it is expected that the full value of the inventory would be
recovered. Historically, the Company has not had to repurchase significant inventory from franchisees pursuant to these guarantees. The
Company has not recognized the guarantee in its financial statements.
(b)
In the ordinary course of business, the Company has agreed to indemnify its lenders under its credit facilities against certain costs or losses
resulting from changes in laws and regulations and from any legal action brought against the lenders related to the use, by the Company, of
the loan proceeds, or to the lenders having extended credit thereunder. These indemnifications extend for the term of the credit facilities and
do not provide any limit on the maximum potential liability. Historically, the Company has not made any indemnification payments under such
agreements and no amount has been accrued in the financial statements with respect to these indemnification agreements.
(c)
In the ordinary course of business, the Company has provided indemnification commitments to certain counterparties in matters such as
real estate leasing transactions, securitization agreements, director and officer indemnification agreements and certain purchases of assets
(not inventory in the normal course). These indemnification agreements generally require the Company to compensate the counterparties for
costs or losses resulting from any legal action brought against the counterparties related to the actions of the Company or any of the obligors
under any of the aforementioned matters or failure of the obligors under any of the aforementioned matters to fulfill contractual obligations
thereunder. The terms of these indemnification agreements will vary based on the contract and generally do not provide any limit on the
maximum potential liability. Historically, the Company has not made any payments under such indemnifications and no amount has been
accrued in the financial statements with respect to these indemnification commitments.
(d)
Claims and suits have been brought against the Company in the ordinary course of business. In the opinion of management, all such
claims and suits are adequately covered by insurance, or if not so covered, the results are not expected to materially affect the Company’s
financial position.
63
13.
Financial Instruments
The Company is exposed to credit risk on its accounts receivable from franchisees. The accounts receivable are net of
applicable allowances for doubtful accounts, which are established based on the specific credit risks associated with
individual franchisees and other relevant information. Concentration of credit risk with respect to receivables is limited,
due to the large number of franchisees.
The Company purchases a portion of its inventory from foreign vendors with payment terms in foreign currencies.
To manage the foreign exchange risk associated with these purchases, the Company hedges its exposure to foreign
currency by purchasing foreign exchange options and forward contracts to fix exchange rates and protect planned
margins. The Company has United States dollar contracts of $1,786,000 (2006 - $2,386,000) outstanding.
The Company has included $1,231,000 of net exchange gain (2006 - $201,000 of net exchange losses) in net income.
No other amounts have been recognized in the consolidated financial statements. As at January 28, 2007, these
instruments had $65,000 of unrealized gains (2006 - $37,000 unrealized losses).
The Company is exposed to interest rate risk on its credit facility and term loan. Interest rate risk reflects the
sensitivity of the Company’s financial condition to movements in interest rates. For fiscal year 2007, a 1% change in
interest rates would change interest expense by $1,204,000 (2006 - $1,449,000).
64
14.
Acquisitions
(a)
Effective January 31, 2005, the Company acquired 100% of the outstanding shares of National Gym Clothing
Ltd. The acquisition was accounted for using the purchase method and accordingly the consolidated financial
statements include the results of operations since the date of the acquisition.
The consideration for the transaction was $13,026,000 in cash for all the outstanding common shares.
The assigned fair values of the underlying assets and liabilities acquired by the Company as at January 31,
2005 are summarized as follows:
Cash
Accounts receivable
Inventory
Prepaid expenses
$
598
313
23,915
765
Trademarks
2,535
Fixed assets
2,261
Goodwill
21,848
Future income tax asset
4,393
Total assets acquired
56,628
Secured indebtedness
17,922
Accounts payable
23,815
Long-term debt
189
Deferred rent libility
113
Deferred lease inducements
Total liabilities acquired
Cash consideration
1,563
43,602
$13,026
65
(b)
Effective January 31, 2006, at the beginning of the fiscal 2007 year, the Company acquired 100% of the
outstanding shares of The Fitness Source Inc. The acquisition is accounted for using the purchase method and
accordingly the consolidated financial statements for the 52 weeks ended January 28, 2007 include the results
of operations since the date of the acquisition.
The purchase of all outstanding common shares was made for consideration of $6,650,000 comprised of
$3,108,000 in cash and a vendor take back loan of $3,542,000. The loan is payable on March 31, 2007
($1,603,000), March 31, 2008 ($990,000) and March 31, 2009 ($949,000). The payments reflect an implied
interest rate of 4.80% on the loan.
The assigned fair values of the underlying assets and liabilities acquired by the Company as at January 31,
2006, are summarized as follows:
Accounts receivable
$
Inventory
5,059
Prepaid expenses
167
Trademarks
816
Goodwill
9,944
805
Future income tax asset
66
453
Total assets acquired
$ 17,244
Secured indebtedness
$
105
Accounts payable
6,450
Long-term debt
3,874
Deferred lease inducements
60
105
Deferred rent liability
Total liabilities acquired
$ 10,594
Total consideration
$
6,650
(c)
Effective November 7, 2006, the Company acquired select net assets of JKL Golf Corp Inc. and JKL Golf
Inc. (Nevada Bob’s Golf licensee). The acquisition is accounted for using the purchase method as net assets
acquired encompass the necessary inputs, processes and outputs to sustain the business, thereby meeting
the definition of a business (as per CICA section 1580 and EIC 124) and accordingly the consolidated financial
statements for the 52 weeks ended January 28, 2007 include the results of operations since the date of the
acquisition.
The consideration for the transaction was $8,801,000 in cash.
The assigned fair values of the underlying assets and liabilities acquired by the Company as at November 7, 2006,
are summarized as follows:
Cash
$
Inventory
3
3,315
Prepaid expenses
139
Capital Assets
1,105
Goodwill
4,424
Total assets acquired
$
8,986
67
Accounts Payable
$
185
Total liabilities acquired
$
185
Total consideration
$
8,801
15.
Segmented Financial Information
The Company operates principally in two business segments: corporately-owned and operated retail stores and as a
wholesale business selling to franchisees and others. Amortization and interest expense are not disclosed by segment
as they are substantially retail in nature.
In determining the reportable segments, the Company considered the distinct business models of the Retail and
Wholesale operations, the division of responsibilities, and the reporting to the Board of Directors.
2007
Revenues:
Retail
Wholesale
$
Operating Profit:
Retail
Wholesale
68
Non-segment specific administrative expenses
Operating activities before under-noted items
Amortization
Interest expense
Earnings before income taxes
Income tax expense
Net earnings
$
925,443
338,512
2006
$
856,149
273,255
1,263,955
1,129,404
139,476
32,469
171,945
98,750
23,550
122,300
64,685
53,147
107,260
69,153
43,410
7,354
41,343
6,145
50,764
47,488
56,496
21,279
21,665
7,908
35,217
$
13,757
As at
January 28, 2007
January 29, 2006
Accounts Receivable
Retail
$
Wholesale
Non-segment specific
1,830
$
2,391
63,372
59,085
341
7,451
$
65,543
$
68,927
$
168,676
$
173,371
Capital Assets
Retail
Wholesale
Non-segment specific
19,080
16,814
3,390
3,409
$
191,146
$
193,594
$
66,257
$
60,922
Goodwill/Other Assets
Retail
Wholesale
15,940
16,358
Non-segment specific
16,971
8,605
$
99,168
$
85,885
$
531,512
$
491,170
Total Assets
Retail
Wholesale
Non-segment specific
$
130,984
118,242
21,014
43,794
683,510
$
653,206
69
16.
Related Party Transaction
An officer of the Company holds an interest in franchise store operations. During the year, the franchise operations
transacted business, in the normal course and at fair market value, with the Company, purchasing product in the
amount of $7,999,000 (2006 - $5,608,000). At the end of the year, accounts receivable from the franchise operation
were $1,325,000 (2006 – $888,000).
In 2006, the Company had an interest in a trademark licensing company in which an employee, employed by a
subsidiary, held a partial interest. During that year, the Company, in the normal course of operations on similar terms
and conditions to transactions entered into with unrelated parties, paid royalties of $346,000. At January 28, 2007 no
such relationship existed.
In 2006, the Company purchased real estate valued at $215,000 from an officer of the Company in the normal
course of operations and on similar terms and conditions to transactions entered into with unrelated parties. No similar
transactions occurred in 2007.
In 2006, the Company entered into a contract to obtain services and paid $44,000 to a company, owned by a director
of the Company, in the normal course of operations and on similar terms and conditions to transactions entered into
with unrelated parties. No such contract existed 2007.
70
17.
Variable Interest Entities
At January 28, 2007, the Company had a long-term receivable due from an entity which is considered a variable
interest entity (VIE) under CICA Accounting Guideline 15. The entity operates several franchise stores. The long-term
receivable has been outstanding since July 2003 and the Company has received guarantees for the full amount of the
receivable from the shareholders of the entity. The Company has concluded that it is not the primary beneficiary of
the VIE and that it is not required to consolidate this VIE in its consolidated financial statements. The Company has
no exposure to loss related to the long-term receivable.
F2007
F2006
F20052
F20042
F20033
F2002
(52-week year)
(52-week year)
(52-week year)
(restated)
(52-week year)
(restated)
(53-week year)
(restated)
(52-week year)
Corporate Retail System Sales ($000’s)
$925,443
$856,149
$718,820
$732,880
$715,003
$579,196
Franchise Retail System Sales ($000’s)
$491,300
$454,322
$389,466
$374,723
$338,446
$297,238
$1,263,955
$1,129,404
$985,054
$968,078
$923,795
$758,257
$107,260
$69,153
$76,469
$82,316
$82,441
$62,496
EBITA Margin
8.5%
6.1%
7.8%
8.5%
8.9%
8.2%
Same Store Sales Growth (Corporate)
5.9%
3.8%
(5.1%)
(3.0%)
4.9%
9.6%
Same Store Sales Growth (Franchise)
4.4%
6.5%
2.2%
3.9%
11.5%
8.4%
Net Earnings ($000’s)
$35,217
$13,757
$21,545
$28,099
$29,985
$20,629
Cash Flow from Operations ($000’s)
$77,429
$47,837
$56,781
$54,354
$48,313
$44,948
$2.34
$1.45
$1.74
$1.74
$1.61
$1.66
$31,828
$41,469
$32,324
$39,704
$35,414
$28,885
Earnings per Share
$1.06
$0.42
$0.66
$0.90
$1.00
$0.76
Diluted Earnings per Share
$1.04
$0.42
$0.66
$0.87
$0.95
$0.74
1.69
1.48
1.53
1.51
1.42
1.23
Return on Average Equity
11.6%
5.1%
8.7%
12.9%
18.1%
17.0%
Net Debt to Total Capitalization
10.3%
13.8%
5.7%
6.0%
24.2%
25.7%
5.2%
2.1%
3.5%
5.1%
5.9%
4.7%
33,145,014
32,899,252
32,572,408
31,215,081
30,082,408
27,085,234
Number of Corporate Stores at year end
270
260
232
217
215
190
Number of Franchise Stores at year end
209
204
195
174
161
155
Total Square Footage (Corporate) at year end
4,177,865
4,106,355
3,477,692
3,284,337
3,122,289
2,626,972
Total Square Footage (Franchise) at year end
1,679,563
1,645,838
1,538,908
1,364,783
1,199,561
984,143
OPERATING RESULTS
Revenues ($000’s)1
EBITA ($000’s)
Cash Flow per Share (basic)
Net Capital Expenditures ($000’s)
Financial Position
Working Capital Ratios
Return on Net Assets
Weighted Average Number of Shares
1
Includes Corporate Retail Sales and Wholesale Sales to Franchise stores and others.
2
Restated in Fiscal 2005 to reflect the change in accounting for certain lease costs and for EIC-144.
3
Restated in Fiscal 2004 to reflect the adoption of stock-based compensation.
71
F2007
Q1
Q2
F20061
Q3
Q4
Q1
Q2
F20052
Q3
Q4
(restated) (restated) (restated)
Q1
Q2
Q3
Q4
(restated) (restated) (restated) (restated)
OPERATING RESULTS
Revenues ($000’s)
EBITA ($000’s)
$280,434 $283,996 $346,349 $353,176
$238,202 $243,630 $305,388 $342,184
$228,627 $216,369 $265,726 $274,332
$12,828
$16,075
$31,416
$46,941
$19
$8,590
$21,669
$38,875
$10,955
$14,715
$20,044
$30,755
4.6%
5.7%
9.1%
13.3%
0.0%
3.5%
7.1%
11.4%
4.8%
6.8%
7.5%
11.2%
Same Store Sales Growth (Corporate)
12.2%
5.4%
6.6%
1.1%
(4.3%)
0.2%
3.2%
10.1%
(2.1%)
(4.6%)
(4.4%)
(7.7%)
Same Store Sales Growth (Franchise)
6.0%
6.9%
9.9%
(2.9%)
9.4%
4.6%
8.1%
5.3%
(1.0%)
(4.1%)
0.0%
7.1%
Net Earnings ($000’s)
$294
$1,948
$11,878
$21,097
($7,417)
($2,323)
$6,529
$16,968
$863
$1,959
$6,043
$12,680
$10,231
$11,791
$23,068
$32,339
$1,979
$5,648
$12,809
$27,401
$8,451
$11,387
$16,424
$20,519
$0.31
$0.36
$0.70
$0.97
$0.06
$0.17
$0.39
$0.83
$0.26
$0.35
$0.50
$0.63
$6,722
$11,062
$5,435
$8,629
$5,992
$15,365
$7,050
$13,062
$6,170
$9,662
$7,202
$9,290
Basic Earnings per Share
$0.01
$0.06
$0.36
$0.63
($0.23)
($0.07)
$0.20
$0.52
$0.03
$0.06
$0.18
$0.39
Diluted Earnings per Share
$0.01
$0.06
$0.35
$0.62
($0.23)
($0.07)
$0.20
$0.51
$0.03
$0.06
$0.18
$0.39
EBITA Margin
Cash Flow from Operations ($000’s)
72
Cash Flow per Share (basic)
Net Capital Expenditures ($000’s)
1
Quarter 1, 2 and 3 Fiscal 2006 Consolidated Statement of Cash Flows restated to conform with the presentation adopted for the year ended January 29, 2006.
2
Restated in Fiscal 2005 to reflect the change in accounting for certain lease costs and for EIC-144.
3
Restated in Fiscal 2004 to reflect the adoption of stock-based compensation.
F20042
Q1
Q2
F20033
Q3
Q4
Q1
Q2
F2002
Q3
Q4
(restated) (restated) (restated) (restated)
(restated) (restated) (restated) (restated)
$221,305 $215,706 $250,164 $280,903
$196,677 $199,374 $243,921 $283,823
Q1
Q2
Q3
Q4
OPERATING RESULTS
Revenues ($000’s)
EBITA ($000’s)
$152,032 $152,377 $208,205 $245,643
$12,221
$16,215
$18,771
$35,109
$12,088
$13,775
$23,716
$32,862
$8,057
$10,312
$16,756
$27,371
5.5%
7.5%
7.5%
12.5%
6.1%
6.9%
9.7%
11.6%
5.3%
6.8%
8.0%
11.1%
Same Store Sales Growth (Corporate)
(1.6%)
(1.5%)
(2.4%)
(4.1%)
8.5%
7.0%
4.5%
2.7%
15.0%
9.2%
8.9%
8.8%
Same Store Sales Growth (Franchise)
11.1%
3.0%
2.6%
(3.1%)
8.3%
3.4%
9.8%
18.2%
6.6%
10.9%
11.1%
7.2%
Net Earnings ($000’s)
$1,860
$4,226
$5,886
$16,127
$2,681
$3,494
$9,933
$13,877
$1,547
$2,540
$5,559
$10,983
Cash Flow from Operations ($000’s)
$8,104
$10,680
$9,535
$26,035
$7,545
$8,561
$11,604
$20,603
$5,699
$7,782
$13,641
$17,826
EBITA Margin
73
Cash Flow per Share (basic)
$0.26
$0.34
$0.30
$0.83
$0.26
$0.28
$0.38
$0.67
$0.21
$0.29
$0.51
$0.65
$3,866
$10,979
$11,029
$13,830
$2,247
$8,199
$9,920
$15,048
$10,282
$5,943
$9,357
$3,303
Basic Earnings per Share
$0.06
$0.14
$0.19
$0.51
$0.09
$0.11
$0.33
$0.45
$0.06
$0.09
$0.21
$0.40
Diluted Earnings per Share
$0.06
$0.13
$0.18
$0.50
$0.09
$0.11
$0.31
$0.43
$0.06
$0.09
$0.20
$0.39
Net Capital Expenditures ($000’s)
company information
corporate head office
executive officers
corporate
824 – 41st Avenue N.E.
Calgary, Alberta T2E 3R3
Telephone:
(403) 717-1400
Facsimile:
(403) 717-1490
Bob Sartor
Chief Executive Officer
Keith Lambert
Vice-President, Supply Chain
Bill Gregson
President and Chief Operating Officer
Kenneth MacDonald
Vice-President, Merchandise Systems
Richard Burnet, CA
Vice-President and Chief Financial Officer
Ilona Meditskos
Vice-President, Precision Retailing
Alan Goldberg
Senior Vice-President, Precision Retailing
& Store Operations
Tom Sampson
Vice-President, Intersport North America
Matthew Handford
Senior Vice-President, Human Resources
Doug Stone
Vice-President, Real Estate
Hubert Wat
Vice-President, Marketing
franchise office
4855 Louis B. Mayer
Laval, Quebec H7P 6C8
Telephone:
(450) 687-5200
Facsimile:
(450) 687-6347
national sports office
#252-260, 145 Renfrew Drive
Markham, Ontario L3R 9R6
Telephone:
(905) 946-5500
Facsimilie:
(905) 946-5502
74
FGL wholesale
25 Vanley Crescent
Toronto, Ontario M3J 2B6
Telephone:
(416) 636-9993
Facsimilie:
(416) 636-7373
Doug Hayes
Senior Vice-President & President, National Sports
John Hould
Senior Vice-President & President, Sport Mart
Thomas G. Quinn
President & Chief Operating Officer Franchise Division
Karen Wiwchar
Vice-President, Law, General Counsel
& Corporate Secretary
sport mart
Project Manager | Claudia Jordan,
The Forzani Group Ltd.
Art Director | Dinno Espiritu,
The Forzani Group Ltd.
Design | Geminesse Marukot,
The Forzani Group Ltd.
Printing | McAra Printing
Photography | Gary Campbell
Rob Hillier
Vice-President, Sport Mart
Eastern Store Operations
Keith Hunt
Vice-President, Sport Mart
Western Store Operations
FGL wholesale (formerly gen-x sports)
Rick White
Senior Vice-President
franchise division
Mona Carrière
Vice-President, Purchasing
and Marketing,Franchise Division
Jean-Stèphane Tremblay
Vice-President, Operations, Franchise Division
sport chek / coast mountain sports
Chad McKinnon
Vice-President, Operations
national sports
Stephen Clements
Senior Vice-President, Operations
investor information
Internet
Shareholders are encouraged to visit The Forzani Group Ltd.’s corporate website at www.forzanigroup.com for updated information and
copies of all shareholder communication. As well, the Company operates product information and e-commerce sites at www.sportchek.ca,
www.sportmart.ca , www.sportsexperts.ca , www.nationalsports.ca and www.fitnesssource.ca .
Auditors
Principal Lender
Ernst & Young, LLP | Calgary, Alberta
GE Canada Finance Holding Company
Stock Exchange Listing
Transfer Agent
The Toronto Stock Exchange (“TSX”)
Symbol: FGL
Computershare Investor Services | Calgary, Alberta
75
Investor Relations
Claudia M. Jordan
Manager, Investor Relations
& Corporate Communications
the forzani group ltd.
824 – 41st Avenue N.E.
Calgary, Alberta T2E 3R3
Telephone:
403.717.1412
Facsimile:
403.717.1493
Email:
cjordan@forzani.com
forward-looking statements
The information herein may contain forward-looking statements relating to the future
performance of The Forzani Group Ltd. Forward-looking statements, specifically those
concerning future performance, are subject to certain risks and uncertainties, and actual
results may differ materially. The Company, in its filings with the appropriate securities
commissions, details these risks and uncertainties from time to time.
our mission statement
Our mission is to provide the best customer shopping experience; to have the largest
market share and buying power; to always remain the lowest cost competitor in any
retail business that we participate in; and to offer branded and private-branded products
in a manner that is unique, maintaining our Company’s continued position as the most
profitable sports / lifestyle retailer in Canada.
share information
fiscal
volume
FGL share activity fiscal 2007
high
low
close
$20
2007
30.081,400
$19.49
$13.70
$18.75
2006
25,355,448
$14.50
$10.10
$14.30
2005
29,449,377
$17.05
$10.02
$12.30
2004
29,582,930
$20.65
$14.40
$15.89
2003
25,153,061
$25.50
$14.30
$16.95
2002
20,022,050
$15.80
$ 4.05
$14.78
2001
11,929,347
$ 5.10
$ 3.60
$ 4.25
2000
9,593,293
$ 5.10
$ 2.85
$ 4.45
1999
4,509,495
$ 4.15
$ 2.50
$ 3.00
1998
3,450,119
$ 4.50
$ 1.20
$ 3.80
1997
5,204,157
$ 4.50
$ 1.20
$ 1.90
1996
1,149,058
$ 8.50
$ 5.25
$ 5.50
1995
2,491,178
$12.87
$ 5.50
$ 8.12
1994
1,370,030
$11.87
$ 5.87
$11.87
$15
$10
It has been said that great strategy, planning, teamwork
and commitment is the formula for sucess. A formula
found in both sports and business. The Company’s roots
lie deep within this winning mentality. Founded by football
players, The Forzani Group Ltd. finds continued success in
the strength of its team.