TSA Reports Lease Accounting Changes; Raises Q1 Guidance

The Sports Authority Inc. on Thursday reported that the expected restatement of its earnings due to changes in lease accounting will decrease EPS by a penny per share in its fiscal fourth quarter ended January 29. For the year, EPS were reduced by two cents. The restatement adjustments also reduced net income for the 2003 fiscal year 2003 by by $100,000, or a penny per share.

TSA said its fiscal 2005 forecast, including the impact to lease accounting, is $1.85 to $1.92 per share, or a 3 cents to 5 cents impact to the bottom line, versus previous estimates of an 8 cents to 10 cents impact.

For Q1, the impact to EPS is now seen at a penny per share, compared to previous estimates of 2 cents to 3 cents per share. TSA's 2005 first quarter fiscal guidance including the impact of lease accounting adjustments is now 24 cents to 26 cents per diluted share.

Fiscal 2002 EPS will be reduced $200,000, or a penny per share, and 2001 will see a $300,000 impact, or two cents per share.

As previously released on March 10, 2005, the Company determined the need to restate its announced results for fiscal 2004 and its prior year financial statements to correct its lease accounting to be consistent with generally accepted accounting principles in the United States of America (“GAAP”) as clarified by the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) on February 7, 2005, in a letter to the American Institute of Certified Public Accountants (“AICPA”).

The adjustments to its method of accounting for leases decreased diluted earnings per share by $0.01 in the fourth fiscal quarter ended January 29, 2005, in line with the Company's previously announced estimate; it reduced diluted earnings per share by $0.02 for the 2004 fiscal year, compared with the Company's previously announced estimate of $0.08. Also, the adjustments resulted in charges for the restatement of periods prior to fiscal 2004 totaling $2.0 million, net of tax, compared to the Company's previously announced estimate of $3.9 million, net of tax.

The restatement adjustments reduced net income by $0.1 million or $0.01 per diluted share, $0.2 million or $0.01 per diluted share and $0.3 million or $0.02 per diluted share for fiscal years 2003, 2002 and 2001, respectively. The cumulative reduction to retained earnings as of the beginning of fiscal 2001 is $1.4 million.

The restatement adjustments increased total assets by $46.8 million, $26.1 million and $14.6 million at fiscal year end 2004, 2003 and 2002 respectively, and increased total liabilities by $49.5 million, $28.0 million, and $16.5 million at fiscal year end 2004, 2003, and 2002 respectively. The restatement adjustments do not have an effect on total net cash flows during any of the periods restated, however, reclassifications to the statements of cashflows are required to reflect tenant improvement allowances received within operating activities and to exclude these amounts from capital expenditures within investing activities.

The Company's previous fiscal 2005 guidance excluding the impact of lease accounting adjustments and option expense remains unchanged at $1.90 to $1.95 per diluted share. The revised estimated impact of the lease accounting corrections on fiscal 2005 is a reduction of diluted earnings per share of $0.03 to $0.05 as compared to the previously estimated reductions of $0.08 to $0.10. Given the SEC's recent decision to delay the compliance date of Financial Accounting Standards Board Statement No. 123R, the Company's previously provided estimate of $0.02 to $0.04 related to option expense will now have no impact on earnings for 2005. Therefore, the Company's fiscal 2005 guidance including the impact of lease accounting adjustments is $1.85 to $1.92 per diluted share. All 2005 results will be compared to the restated 2004 amounts.

The Company's previous first quarter of 2005 guidance excluding the impact of lease accounting adjustments remains unchanged at $0.25 to $0.27 per diluted share. The revised estimated impact of the lease accounting corrections on the first quarter of 2005 is a reduction of diluted earnings per share of $0.01 as compared to the previously estimated reduction of $0.02 to $0.03. Therefore, the Company's 2005 first quarter fiscal guidance including the impact of lease accounting adjustments is $0.24 to $0.26 per diluted share.

The Company's adjustments to its lease accounting policies and the related impacts to historical periods are more fully described in its amended Annual Report on Form 10-K/A for the fiscal year ended January 31, 2004 and the amended quarterly reports for each of the first three quarters of fiscal 2004.