SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended: November 3, 2001

Commission File Number:  000-23515

GART SPORTS COMPANY
(Exact name of registrant as specified in its charter)

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

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

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

        Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter period that the registrant was required to file such reports).

Yes x No o

        Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days.

Yes x No o

        As of December 12, 2001, there were outstanding 10,684,660 shares of the registrant's common stock, $.01 par value, and the aggregate market value of the shares (based upon the closing price on that date of the shares on the NASDAQ National Market) held by non-affiliates was approximately $106,244,000.

GART SPORTS COMPANY
AND SUBSIDIARIES

QUARTERLY PERIOD ENDED NOVEMBER 3, 2001

INDEX

PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Stockholders' Equity
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures and Market Risk
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 6.	Exhibits and Reports on Form 8-K
SIGNATURES

		November 3, 2001			February 3, 2001
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$  12,857			$    8,107
Accounts receivable, net of allowance for doubtful accounts of $1,018 and $606,                respectively		11,496			6,273
Inventories		400,339			230,800
Prepaid expenses and other assets		10,611			7,655
Deferred income taxes		20,760			2,033
Total current assets		456,063			254,868
Property and equipment, net		86,830			59,298
Favorable leases acquired, net of accumulated amortization of $713 at November 3,      2001		12,848			—
Goodwill, net of accumulated amortization of $625 at November 3, 2001		66,297			—
Assets held for sale		—			1,671
Deferred tax asset		6,983			13,208
Other assets, net of accumulated amortization of $3,462 and $2,912, respectively		8,600			6,083
Total assets		$637,621			$335,128
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$225,347			$105,395
Current portion of capital lease obligations		620			470
Accrued expenses and other current liabilities		57,733			35,679
Total current liabilities		283,700			141,544
Long-term debt		193,786			95,900
Capital lease obligations, less current portion		2,082			1,805
Deferred rent and other long-term liabilities		10,392			6,993
Total liabilities		489,960			246,242
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value. 3,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value. 22,000,000 shares authorized; 11,292,172 and                7,739,203 shares issued and 10,680,817 and 7,357,064 shares outstanding at                November 3, 2001 and February 3, 2001, respectively.		113			77
Additional paid-in capital		119,459			57,014
Unamortized restricted stock compensation		(2,860	)		(2,055	)
Accumulated other comprehensive loss		(621	)		(226	)
Retained earnings		37,093			36,489
		153,184			91,299
Treasury stock, 611,355 and 382,139 common shares, respectively, at cost		(5,523	)		(2,413	)
Total stockholders’ equity		147,661			88,886
Total liabilities and stockholders’ equity		$637,621			$335,128

		Thirteen weeks ended								Thirty-nine weeks ended
		November 3, 2001				October 28, 2000				November 3, 2001				October 28, 2000
Net sales		$	219,142			$	166,128			$	619,722			$	519,477
Cost of goods sold, buying, distribution and    occupancy			164,704				124,907				466,636				391,740
Gross profit			54,438				41,221				153,086				127,737
Operating expenses			52,316				38,379				139,192				114,689
Merger integration costs			3,603				—				7,080				—
Operating income (loss)			(1,481	)			2,842				6,814				13,048
Non operating income (expense):
Interest expense, net			(2,590	)			(2,813	)			(7,313	)			(8,326	)
Other income			962				204				1,488				367
Income (loss) before income taxes			(3,109	)			233				989				5,089
Income tax (expense) benefit			1,213				—				(385	)			6,318
Net income (loss)		$	(1,896	)		$	233			$	604			$	11,407
Earnings (loss) per share:
Basic		$	(0.18	)		$	0.03			$	0.07			$	1.54
Diluted		$	(0.18	)		$	0.03			$	0.06			$	1.49
Weighted average shares of common    stock outstanding:
Basic			10,803,273				7,355,744				9,232,749				7,391,744
Diluted			10,803,273				7,855,009				9,913,102				7,643,934

 

		Common stock		Additional paid-in capital		Unamortized restricted stock compensation			Accumulated other comprehensive gain (loss)			Retained earnings		Comprehensive income				Treasury stock			Total Stockholders’ equity
BALANCES AT     FEBRUARY 3, 2001		$  77		$  57,014		$(2,055	)		$(226	)		$36,489						$(2,413	)		$  88,886
Net income		—		—		—			—			604			$  604			—			604
Unrealized gain on equity     securities, net of tax		—		—		—			292			—			292			—			292
Unrealized loss on interest     rate swap, net of tax		—		—		—			(687	)		—			(687	)		—			(687	)
Comprehensive income															$  209
Purchase of treasury     stock		—		—		—			—			—						(3,110	)		(3,110	)
Issuance of common stock     for acquisition		34		59,443		—			—			—						—			59,477
Issuance of common     stock		—		69		—			—			—						—			69
Issuance of restricted     stock		—		1,266		(1,266	)		—			—						—			—
Exercise of stock     options		2		1,667		—			—			—						—			1,669
Amortization of restricted     stock		—		—		461			—			—						—			461
BALANCES AT     NOVEMBER 3, 2001		$113		$119,459		$(2,860	)		$(621	)		$37,093						$(5,523	)		$147,661

GART SPORTS COMPANY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, Dollars in Thousands)

	Thirty-nine weeks ended
	November 3, 2001				October 28, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	604			$	11,407
Adjustments to reconcile net income to net cash and cash
equivalents used in operating activities:
Depreciation and amortization		14,685				11,101
Loss on sale of assets		412				83
Deferred taxes		385				(6,318	)
Increase (decrease) in deferred rent		(3,488	)			1,147
Deferred compensation		69				34
Changes in operating assets and liabilities:
Accounts receivable, net		(4,783	)			(783	)
Inventories		(101,931	)			(42,121	)
Prepaid expenses and other current assets		(1,166	)			(75	)
Other assets		(3,033	)			237
Accounts payments		86,002				6,904
Accrued expenses and other current
liabilities		(8,292	)			(653	)
Income taxes payable		(185	)
Net cash used in operating activities		(20,721	)			(19,037	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment		(17,990	)			(9,829	)
Proceeds from the sale of property and equipment		7,834				—
Sale of marketable securities		300
Payment of notes receivable		229				—
Acquisition of Oshman's net of cash acquired		(49,538	)			—
Net cash used in investing activities		(59,165	)			(9,829	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from long-term debt		266,846				171,568
Principal payments on long-term debt		(180,483	)			(143,668	)
Principal payments on capital lease
obligations		(287	)			(309	)
Purchase of treasury stock		(3,110	)			(1,190	)
Payment of notes receivable		—				122
Proceeds from sale of common stock
under option plans		1,670				95
Net cash provided by financing activities		84,636				26,618
Increase in cash and cash equivalents		4,750				(2,248	)
Cash and cash equivalents at beginning of period		8,107				7,843
Cash and cash equivalents at end of period	$	12,857			$	5,595
Supplemental disclosures of cash flow information:
Cash paid during the period for interest, net	$	7,406			$	8,269
Cash paid (received) during the period for income taxes	$	153			$	(396	)

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	BASIS OF PRESENTATION
	The accompanying unaudited consolidated financial statements do not include all information and footnotes necessary for the annual presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America, and should be read in conjunction with the Company's 2000 Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the statement of financial position and the results of operations for the interim periods have been included. The results for the thirteen and thirty-nine week periods ended November 3, 2001 are not necessarily indicative of the results to be expected for the full year.
	Reclassification
	Certain prior period amounts have been reclassified to conform to the current period presentation.
2.	ACQUlSITlON
	On June 7, 2001, Gart Sports Company completed its acquisition of Oshman's Sporting Goods, Inc. ("Oshman's"). The consideration consisted of approximately 3.4 million shares of Gart Sports Company common stock valued at approximately $59.5 million and approximately $50.2 million in cash. Oshman's operates as a wholly owned subsidiary of the Company. At the time of the acquisition, Oshman's operated 58 sporting goods specialty stores, including 43 SuperSports USA stores and 15 traditional stores. The acquisition was accounted for under the purchase method of accounting, and accordingly, the statement of operations includes the results of Oshman's since the date of the acquisition.
	The total cost of the acquisition has been allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values. The allocation of the purchase price is preliminary and the final allocation may differ. Goodwill will be amortized over forty years, for the remainder of this fiscal year. In compliance with Financial Accounting Standards Board ("FASB") Statement No. 142, the Company will no longer amortize goodwill beginning in its fiscal year 2001. The preliminary allocation of the purchase price is as follows:

Inventory	67,594
Other current assets	19,848
Property and equipment, net	28,213
Favorable leases and other long term assets, excluding goodwill	13,663
Goodwill	66,922
Current liabilities	(68,237	)
Long term debt	(12,128	)
Other long term liabilities	(6,184	)
Book value of net assets acquired, including intangibles	109,691

The following unaudited pro forma combined financial information presents the combined consolidated results of operations of Gart Sports Company and Oshman's as if the acquisition had occurred as of the beginning of fiscal 2001 and 2000, after giving effect to certain adjustments, including amortization of favorable leases and goodwill, interest expense, depreciation expense, and related income tax effects. No adjustments have been made to the pro forma statement of operations to conform accounting policies and practices or to recognize anticipated cost savings and synergies. The pro forma combined consolidated financial information does not necessarily reflect the results of operations that would have occurred had Gart Sports Company and Oshman's constituted a single entity during such periods.

			Thirteen weeks ended			Thirty-nine weeks ended
			Oct 28, 2000			November 3, 2001				October 28, 2000
	(Unaudited in thousands except per share amounts)
	Net Sales		238,267			721,194				744,563
	Net Income (loss)		1,193			(4,163	)	(1)(2)		21,996	(3)(4)
	Basic earnings (loss) per share		0.11			(0.39	)	(1)(2)		1.96	(3)(4)
	Diluted earnings per share		0.11							1.91	(3)(4)

	(1)  Includes $7.1 million, before taxes, of integration costs, due to the acquisition of Oshman's.
	(2)  Includes $5.2 million, before taxes, of severance expense accrued by Oshman's as part of the acquisition.
	(3)  Includes one-time tax benefit recognized by Gart of $8.2 million.
	(4)  Includes gain on sale of real estate owned by Oshman's of $6.8 million, before taxes.

 

3.	NEW ACCOUNTING PRONOUNCEMENTS
	In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement, as amended, became effective in the first quarter of fiscal year 2001. The new statement requires that every derivative instrument be recorded on the balance sheet as either an asset or liability, measured at its fair value, and requires that changes in the derivative's fair value be recognized currently in earnings, unless specific hedge accounting criteria are met. The Company adopted this statement on February 4, 2001 and there was not a material impact on results of operations or financial position.
	In June 2001, FASB issued Statement No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other Intangible Assets." FASB Statement No. 141 requires that the purchase method of accounting be used for all business combinations consummated after June 30, 200l and establishes criteria for recognizing intangible assets separately from goodwill The adoption of FASB Statement No. 141 will not have a material impact on our consolidated financial statements.
	FASB Statement No. 142 requires that upon adoption, amortization of goodwill and intangible assets deemed to have indefinite lives will cease and instead, the carrying value of goodwill and these intangibles will be evaluated for impairment on an annual basis or more frequently should certain factors be present. Other intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." FASB Statement No. 142 is effective for fiscal years beginning after December 15, 2001. The Company will adopt FASB Statement No. 142 on February 3, 2002, the beginning of its fiscal year. Application of the non-amortization provisions of the statement is expected to result in a decrease in amortization of $1.6 million per year. Goodwill acquired in business combinations completed prior to July 1, 200l will continue to be amortized until February 2, 2002. Our initial evaluation of impairment of existing goodwill is required to be completed no later than August 3, 2002.
	In August 2001, FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." FASB Statement No. 144 is effective for fiscal years beginning after December 15, 200l. The adoption of FASB Statement No. 144 is not expected to have a material impact on our consolidated financial statements.

4.	EARNINGS (LOSS) PER SHARE
	The following table sets forth the computations of basic and diluted earnings (loss) per share (in thousands, except share and per share amounts):
			Thirteen weeks ended						Thirty-nine weeks ended
			November 3, 2001			October 28, 2000			November 3, 2001			October 28, 2000
		Net income (loss) available to common     stockholders	$	(1,896)		$	233		$	604		$	11,407
		Weight average shares of common stock     outstanding – basic		10,803,273			7,335,744			9,232,749			7,391,744
		Basic earnings (loss) per share	$	(0.18)		$	0.03		$	0.07		$	1.54
		Number of shares used for diluted     earnings per share:
		Weighted average shares of common     stock outstanding – basic		10,803,273			7,335,744			9,232,749			7,391,744
		Dilutive securities – stock options and      restricted stock		0			519,265			680,353			252,190
		Weighted average shares of common     stock outstanding – diluted		10,803,273			7,855,009			9,913,102			7,643,934
		Diluted earnings (loss) per share	$	(0.18)		$	0.03		$	0.06		$	1.49
5.	CONTINGENCIES
	Tax Contingency
	Under the terms of the Company's tax sharing agreement with its former parent, the Company is responsible for its share, on a separate return basis, of any tax payments associated with proposed deficiencies or adjustments, and related interest and penalties charged to the controlled group which may arise as a result of an assessment by the IRS.
	On July 24, 1997, the IRS proposed adjustments to the Company's and its former parent's 1992 and 1993 federal income tax returns in conjunction with the former parent's IRS examination. The proposed adjustments related to the manner in which LIFO inventories were characterized on such returns. The IRS has asserted that this basis difference should have been reflected in taxable income in 1992 and 1993. The Company has taken the position that the inventory acquired in connection with the acquisition of its former parent was appropriately allocated to its inventory pools. The IRS has asserted the inventory was acquired at a bargain purchase price and should be allocated to a separate pool and liquidated as inventory turns. Based on management's discussions with the Company's former parent, the Company believes the potential accelerated tax liability, which could have a negative effect on liquidity in the near term, ranges from approximately $2,500,000 to $9,700,000. The Company recorded approximately $9,700,000 as a long-term net deferred tax liability for the tax effect of the LIFO inventory basis difference. The range of loss from possible assessed interest charges resulting from the proposed adjustments range from approximately $200,000 to $3,300,000. The Company has accrued approximately $1.2 million for estimated interest charges in the consolidated financial statements. No penalties are expected to be assessed relating to this matter. At November 3, 2001, the LIFO inventory and other associated temporary differences continue to be classified as long-term net deferred tax liabilities since final settlement terms have not been negotiated.
	The Company has reviewed the various matters that are under consideration and believes that it has adequately provided for any liability that may result from this matter. In the opinion of management, any additional liability beyond the amounts recorded that may arise as a result of the IRS examination will not have a material adverse effect on the Company's consolidated financial condition, results of operations, or liquidity.
	In addition, the Company is currently under examination for the fiscal tax years ended September 1997 and 1998. No adjustments have been proposed at this time.

Legal Proceedings
	In June 2000, a former employee of Sportmart brought two class action complaints in California against the Company, alleging certain wage and hour claims in violation of the California Labor Code, California Business and Professional Code section 17200 and other related matters. One complaint alleges that the Company classified certain managers in its California stores as exempt from overtime pay when they would have been classified as non-exempt and paid overtime, The second complaint alleges that the Company failed to pay hourly employees in its California stores for all hours worked. In March 2001, a third class action complaint was filed in the same court in California alleging the same wage and hour violations regarding classification of certain managers as exempt from overtime pay. More recently, in July 2001, a fourth complaint was filed alleging that store managers should also not be classified as employees exempt from overtime pay. All the complaints seek compensatory damages, punitive damages and penalties. The amount of damages sought is unspecified. Although the court has denied motions to dismiss the first two complaints, the Company intends to vigorously defend these matters and at this time, the Company has not ascertained the future liability, if any, as a result of these complaints.
	The Company is a party to various other legal proceedings and claims arising in the ordinary course of business. Management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity.
6.	SALE OF ASSETS HELD FOR SALE
	The Company sold certain assets classified as Held for Sale, resulting in a realized gain of approximately $200,000 on July 16, 2001. The Assets Held for Sale consisted of land and buildings in Edmonton, Alberta, Canada acquired as part of the Sportmart acquisition on January 9, 1998.
7.	FINANCIAL INSTRUMENTS
	Interest Rate Instruments
	The Company entered into an interest rate swap agreement on June 28, 2001, which expires on June 30, 2004, to minimize the risks and costs associated with its financing activities. Under the swap agreement, the Company pays fixed rate interest and receives variable LIBOR interest rate payments periodically over the life of the instrument. The notional interest rate swap amount is $20.0 million and is used to measure interest to be paid or received and does not represent the exposure due to credit loss.
	The Company's interest rate swap is designated as a cash flow hedge, qualifies for the short cut method of assessing effectiveness and is considered highly effective, as defined by FASB Statement No. 133. Under the short cut method there is no need to measure effectiveness of the hedge and there is no charge to earnings for changes in the fair value of the swap agreement. Payments or receipts on the swap agreement are recorded as interest expense. At November 3, 2001 the fair value of the swap was a loss of $687,000, net of the related tax benefit. The unrealized loss from this interest rate swap is included in other comprehensive income and is shown as a component of stockholders' equity.
8.	E-COMMERCE AGREEMENT
	On June 28, 2001, the Company entered into a long-term agreement with Global Sports Interactive, Inc. ("Global"). Under the terms of the agreement, Global developed and is currently operating three online sporting goods stores at www.gartsport.com, www.sportmart.com, and www.oshmans.com. The Company receives royalty payments from Global based on a certain percent of sales from these sites, which are recorded as a component of Net Sales in the statement of operations. In connection with the e-commerce agreement, Global granted the Company a warrant to purchase 60,000 shares of common stock of Global. A similar warrant for 30,000 Global shares was acquired from Oshman's at the time of the acquisition. The Company sold 60,000 of these warrants in October 2001, and recognized a gain of $195,000. The remaining warrant to purchase 30,000 shares was exercised on November 2, 2001, and the shares acquired upon exercise of the warrant are classified as available-for-sale marketable equity securities and have an aggregate fair value of $0.4 million at November 3, 2001.

		Thirteen weeks ended														Thirty-nine weeks ended
		November 3, 2001 Dollars				%			October 28, 2000 Dollars				%			November 3, 2001 Dollars				%			October 28, 2000 Dollars				%
Net sales		$	219.1			100.0	%		$	166.1			100.0	%		$	619.7			100.0	%		$	519.4			100.0	%
Cost of goods sold, buying, distribution     and occupancy			(164.7	)		(75.2	)			(124.9	)		(75.2	)			(466.6	)		(75.3	)			(391.7	)		(75.4	)
Gross profit			54.4			24.8				41.2			24.8				153.1			24.7				127.7			24.6
Operating expenses			(52.3	)		(23.9	)			(38.4	)		(23.1	)			(139.2	)		(22.5	)			(114.7	)		(22.1	)
Merger integration costs			(3.6	)		(1.6	)			—			—				(7.1	)		(1.1	)			—			—
Operating income (loss)			(1.5	)		(0.7	)			2.8			1.7				6.8			1.1				13.0			2.5
Interest expense, net			(2.6	)		(1.1	)			(2.8	)		(1.7	)			(7.3	)		(1.2	)			(8.3	)		(1.6	)
Other income			1.0			0.4				0.2			0.1				1.5			0.3				0.4			0.1
Income (loss) before income tax			(3.1	)		(1.4	)			0.2			0.1				1.0			0.2				5.1			1.0
Income tax (expense) benefit			1.2			0.5				0.0			0.0				(0.4	)		(0.1	)			6.3			1.2
Net income (loss)		$	(1.9	)		(0.9	)%		$	0.2			0.1	%		$	0.6			0.1	%		$	11.4			2.2	%
Number of stores at end of period			177							123							177							123
Pro-forma FY 2001 results excluding the  effect of the one time merger integration     costs associated with the acquisition of Oshman’s:
Income before income taxes		$	0.5			0.2	%									$	8.1			1.3	%
Income tax expense		$	(0.2	)		(0.1	)										(3.1	)		(0.5	)
Net income		$	0.3			0.1	%									$	4.9			0.8	%
Earnings per share:
Basic		$	0.03													$	0.53
Diluted		$	0.03													$	0.50
Basic weighted average shares     outstanding			10,803,273														9,232,749
Diluted weighted average shares     outstanding			11,450,548														9,913,102
Pro-forma FY 2000 results excluding the effect of the significant tax benefit     and  utilizing statutory tax rates:
Income before income taxes									$	0.2			0.2	%										5.1			1.0	%
Income tax expense										(0.1	)		(0.1	)									$	(2.0	)		(0.4	)
Net income									$	0.1			0.1	%									$	3.1			0.6	%
Earnings per share:
Basic									$	0.02													$	0.42
Diluted									$	0.02													$	0.41
Basic weighted average shares     outstanding										7,355,744														7,391,744
Diluted weighted average shares     outstanding										7,855,009														7,643,934

THIRTEEN WEEKS ENDED NOVEMBER 3, 2001 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER 28, 2000

        Net Sales.  Net sales for the thirteen weeks ended November 3, 2001 were $219.1 million compared to $166.1 million for the thirteen weeks ended October 28, 2000. The acquisition of the 56 Oshman's stores increased the Company's sales by $62.2 million for the quarter. Comparable store sales during the quarter, excluding the Oshman stores, decreased 5.0% versus the prior year's comparable quarter. This comparable sales performance was due to the impact of the September 11 terrorist attacks, last year's strong third-quarter scooter sales, and a change in the retail calendar.

        Gross Profit.  Gross profit for the thirteen weeks ended November 3, 2001 was $54.4 million, or 24.8% of net sales, for the thirteen weeks ended October 28, 2000. As a percent of sales, gross profit remained constant, but included improved merchandise margins due to impact of continued inventory management processes offset by increased occupancy costs as a percent of sales.

        Operating Expenses.   Operating expenses for the thirteen weeks ended November 3, 2001 were $52.3 million, or 23.8% of net sales, compared to $38.4 million, or 23.1% of net sales, for the period ended October 28, 2000. The rate increase is due to the fact that the Company was unable to leverage fixed costs due to lower sales levels delivered in the quarter and an increase in depreciation and amortization of $2.1 million, primarily due to increased capital spending and the amortization of the favorable lease and goodwill assets related to the Oshman acquisition.

        Merger Integration Costs.  Merger integration costs for the thirteen weeks ended November 3, 2001 were $3.6 million, or 1.6% of net sales. These costs consist primarily of $2.3 million of duplicative costs to operate two corporate offices, advertising and personnel integration, $0.7 million of costs associated with consolidating corporate offices, $0.5 million of consulting fees, and $0.1 million of relocation expenses. The Company expects to incur approximately $4.5 to $5.0 million in additional merger integration costs during the remainder of the 2001 fiscal year.

        Operating Income.  As a result of the factors described above, the Company recorded an operating loss for the thirteen weeks ended November 3, 2001 of $1.5 million compared to operating income of $2.8 million for the thirteen weeks ended October 28, 2000. Operating income excluding integration costs was $2.1 million for the thirteen weeks ended November 3, 2001, a decrease of $0.7 million versus the year ago quarter.

        Interest Expense, Net.  Interest expense, net for the thirteen weeks ended November 3, 2001 decreased to $2.6 million, or 1.2% of net sales, from $2.8 million, or 1.7% of net sales, in the thirteen weeks ended October 26, 2000. The decrease is primarily due to the favorable interest rate environment, offset by an increase in the level of borrowings as a result of the Oshman's acquisition.

        Other Income.  Other income was $1.0 million for the thirteen weeks ended November 3, 2001 compared to $0.2 million for the thirteen weeks ended October 28, 2000. The increase in other income is primarily due to $0.5 million of income related to a consulting services agreement and $0.2 million of income recognized on the sale of marketable securities.

        Income Taxes.  The Company's income tax benefit for the thirteen weeks ended November 3, 2001 was $1.2 million compared to no income tax benefit or expense for the thirteen weeks ended October 28, 2000. The Company's estimated effective tax rate remained at 39.0% for the thirty-nine weeks ended November 3, 2001.

THIRTY-NINE WEEKS ENDED NOVEMBER 3, 2001 COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000

        Net Sales.  Net sales for the thirty-nine weeks ended November 3, 2001 were $619.7 million compared to $519.5 million for the thirty-nine weeks ended October 28, 2000. The acquisition of the 58 Oshman's stores increased the Company's sales by $113.4 million. Comparable store sales for the period, excluding the Oshman's stores, decreased 1.5% versus the prior year's comparable period. This comparable period sales performance was due to strong footwear sales driven by the Company's remodeling program offset by the impact of the September 11 terrorist attacks and last year's strong scooter sales.

        Gross Profit. Gross Profit for the thirty-nine weeks ended November 3, 2001 was $153.1 million, or 24.7% of net sales, compared to $127.7 million, or 24.6% of net sales, for the thirty-nine weeks ended October 28, 2000. The slight increase as a percent of sales was primarily due to continued improvement in the replenishment and allocation of merchandise to the Company's stores offset by increased occupancy costs as a percent of sales.

        Operating Expenses. Operating expenses for the thirty-nine weeks ended November 3, 2001 were $139.2 million, or 22.5% of net sales, compared to $114.7 million, or 22.1% of net sales, for the period ended October 28, 2000. The rate increase is due to the fact that the Company was unable to leverage fixed costs due to lower sales levels and an increase in depreciation and amortization of $3.6 million, primarily due to increased capital spending and the amortization of the favorable lease and goodwill assets related to the Oshman acquisition.

        Merger Integration Costs. Merger integration costs for the thirty-nine weeks ended November 3, 2001 were $7.1 million, or 1.1% of net sales. These costs consist primarily of $4.9 million of duplicative costs to operate two corporate offices, employee training, advertising and personnel integration, $1.2 million of consulting fees, $0.7 million of costs associated with consolidating corporate offices and $0.3 million of relocation expenses. The Company expects to incur approximately $4.5 to $5.0 million in additional merger integration costs during the remainder of the 2001 fiscal year.

        Operating Income. As a result of the factors described above, the Company recorded operating income for the thirty-nine weeks ended November 3, 2001 of $6.8 million compared to operating income of $13.0 million for the thirty-nine weeks ended October 28, 2000. Operating income excluding integration costs was $13.9 million for the thirty-nine weeks ended November 3, 2001, an increase of $0.9 million versus the year ago period.

        Interest Expense, Net. Interest expense, net for the thirty-nine weeks ended November 3, 2001 decreased to $7.3 million, or 1.2% of net sales, from $8.3 million, or 1.6% of net sales, in the thirty-nine weeks ended October 28, 2000. The decrease is primarily due to a decrease in the effective borrowing rate, offset by an increase in the level of borrowings as a result of the Oshman's acquisition.

        Other Income. Other income was $1.5 million for the thirty-nine weeks ended November 3, 2001 compared to $0.4 million for the thirty-nine weeks ended October 28, 2000. The increase in other income is due to $0.7 million of income related to a consulting services agreement, $0.2 million of income recognized on the sale of marketable securities and $0.2 million of income generated by the sale of certain assets held in Edmonton, Alberta, Canada.

        Income Taxes. The Company's income tax expense for the thirty-nine weeks ended November 3, 2001 was $0.4 million compared to an income tax benefit of $6.3 million for the thirty-nine weeks ended October 28, 2000. The Company's estimated effective tax rate remained at 39.0% for the thirteen weeks ended November 3, 2001. The income tax benefit in the prior year reflected the reversal of valuation allowances, which had offset previously generated net operating losses, the majority of which were acquired in the purchase of Sportmart during January 1998.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Analysis

		Thirty-nine weeks ended
		November 3, 2001			October 28, 2000
	Cash used in operating activities	$	(20,721	)	$	(19,037	)
	Cash used in investing activities		(59,165	)		(9,829	)
	Cash provided by financing activities		84,636			26,618
	Capital expenditures	$	17,990		$	9,829
	Long-term debt (at end of period)		193,786			133,800
	Working capital (at end of period)		172,363			139,247
	Current ratio (at end of period)		1.61			1.84
	Debt to equity ratio (at end of period)		1.31			1.75

        The Company's primary capital requirements are for inventory, capital improvements, and pre-opening expenses to support the Company's expansion plans, as well as for various investments in store remodeling, store fixtures and ongoing infrastructure improvements.

        Cash used in operating activities in the first nine months of fiscal 2001 was primarily the result of inventory purchases offset by increased accounts payable and net income adjusted for non-cash charges.

       Cash used in investing activities in the first nine months of fiscal 2001 was primarily for the acquisition of Oshman's and capital expenditures. These uses were partially offset by cash received in the sale of the assets held for sale and the sale of an Oshman's store location. The capital expenditures were primarily for store remodeling, store fixtures, and the purchase or enchancement of certain information systems.

        Cash provided by financing activities in the first nine months of fiscal 2001 primarily represents net proceeds from borrowings on the Company's revolving line of credit and proceeds from the sale of common stock upon the exercise of stock options, offset by payments for the purchase of treasury stock.

        The Company's liquidity and capital needs have been met by cash from operations and borrowings under a revolving line of credit with CIT/ Business Credit, Inc., as agent ("CIT"). In connection with the Oshman's acquisition, the Company increased its revolving line of credit from $175 million to $300 million. The long-term debt currently consists of the Credit Agreement, which allows the Company to borrow up to 70% of its eligible inventories (as defined in the Credit Agreement) during the year and up to 75% of its eligible inventories for two consecutive 90 day periods in the first loan year. Borrowings are limited to the lesser of $300 million or the amount calculated in accordance with the borrowing base, and are secured by substantially all inventories, trade receivables, equipment, and intangible assets. The lenders may not demand repayment of principal, absent an occurrence of default under the Credit Agreement, prior to June 7, 2005. The Credit Agreement contains certain covenants, including financial covenants that require the Company to maintain a specified minimum level of tangible net worth at all times, specified earnings before income taxes, depreciation and amortization to interest ratios, and restrict the Company's ability to pay dividends. At November 3, 2001, the Company was in compliance with all covenants of the Credit Agreement.

        Under the terms of the revolving credit facility loan interest is payable monthly at Chase Manhattan Bank's prime rate plus a margin rate that cannot exceed 0.25% or, at the option of the Company, at Chase Manhattan Bank's LIBOR rate plus a margin that cannot exceed 2.25%. The Company's current margin rates for the first loan year are 0.0% on prime and 2.0% on LIBOR borrowings. Beginning June 7, 2002, the margin rate on LIBOR borrowings may be reduced to as low as 1.50% if certain earnings levels are achieved. There was $70.0 million available for borrowing at November 3, 2001. The Company entered into an interest rate swap agreement on June 28, 2001 to minimize the risks and costs associated with its financing activities. The notional interest rate swap amount is $20.0 million and the agreement terminates on June 30, 2004. Under the swap agreement, the Company pays fixed rate interest and receives variable interest rate payments periodically over the life of the instrument. See note 7 to the Consolidated Financial Statements.

        The Internal Revenue Service has proposed adjustments to the 1992 and 1993 consolidated federal income tax returns of the Company and its former parent, now Thrifty PayLess Holdings, Inc., a subsidiary of RiteAid Corporation, due to the manner in which LIFO inventories were characterized on such returns. Based on management's discussion with the Company's former parent, the Company believes the potential accelerated tax liability, which could have a negative effect on liquidity in the near term, ranges from approximately $2,500,000 to $9,700,000. See note 5 to the Consolidated Financial Statements.

        Capital expenditures are projected to be approximately $22 million in fiscal 2001. These capital expenditures are for new store openings, store remodeling, store fixtures, relocating the corporate office, information systems, and improvements to distribution center facilities. The Company leases all of its store locations and intends to continue to finance its new stores with long-term operating leases. Based upon historical data, newly constructed superstores require a cash investment for inventory net of payables, leasehold improvements and fixtures, of approximately $1.8 million for a 40,000 square foot store and $1.5 million for a 33,000 square foot store. The level of capital improvements will be affected by the mix of new construction versus renovation of existing retail space.

        The Company believes that cash generated from operations, combined with funds available under the Credit Agreement, will be sufficient to fund projected capital expenditures and other working capital requirements for the next twelve months. The Company intends to utilize borrowings under the Credit Agreement to meet seasonal fluctuations in cash flow requirements.

SEASONALITY AND INFLATION

        The fourth quarter has historically been the strongest quarter for the Company. The Company believes that two primary factors contribute to this seasonality. First, the Company experiences increased sales of cold weather sporting goods, including sales of ski and snowboard merchandise during the quarter, which corresponds with much of the ski and snowboard season. Second, holiday sales contribute significantly to the Company's operating results. As a result of these factors, inventory levels, which gradually increase beginning in April, generally reach their peak in November and then decline to their lowest level following the December holiday season. Any decrease in sales for the fourth quarter, whether due to a slow holiday selling season, poor snowfall in ski areas near the Company's markets or otherwise, could have a material adverse effect on the Company's business, financial condition and operating results for the entire fiscal year.

        Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has a material impact on the Company's results of operations. The Company believes that it is generally able to pass along any inflationary increases in costs to its customer.

NEW ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement, as amended, became effective in the first quarter of fiscal year 2001. The new statement requires that every derivative instrument be recorded on the balance sheet as either an asset or liability, measured at its fair value, and requires that changes in the derivative's fair value be recognized currently in earnings, unless specific hedge accounting criteria are met. The Company adopted this statement on February 4, 2001 and there was not a material impact on results of operations or financial position.

        In June 2001, FASB issued Statement No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other Intangible Assets". FASB Statement No. 141 requires that the purchase method of accounting be used for all business combinations consummated after June 30, 2001 and establishes criteria for recognizing intangible assets separately from goodwill. The adoption of FASB Statement No. 141 will not have a material impact on our consolidated financial statements.

        FASB Statement No. 142 requires that upon adoption, amortization of goodwill and intangible assets deemed to have indefinite lives will cease and instead, the carrying value of goodwill and these intangibles will be evaluated for impairment on an annual basis or more frequently should certain factors be present. Other intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". FASB Statement No. 142 is effective for fiscal years beginning after December 15, 2001. The Company will adopt FASB Statement No. 142 on February 3, 2002, the beginning of its fiscal year. Application of the non-amortization provisions of the statement is expected to result in a decrease in amortization of $1.6 million per year. Goodwill acquired in business combinations completed prior to July 1, 2001 will continue to be amortized until February 2, 2002. Our initial evaluation of impairment of existing goodwill is required to be completed no later than August 3, 2002.

        In August 2001, FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." FASB Statement No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of FASB Statement No. 144 is not expected to have a material impact on our consolidated financial statements.

ITEM 3.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company's primary interest rate risk exposure results from the Company's long-term debt agreement. The Company's long-term debt bears interest at variable rates that are tied to either the U.S. prime rate or LIBOR at the time of the borrowing. At the end of each 90-day period, the interest rates on the Company's outstanding borrowings are changed to reflect current prime or LIBOR rates. Therefore, the Company's interest expense changes as prime or LIBOR change. During the second quarter of fiscal 2001, the Company entered into an interest rate swap instrument, designated as a cash flow hedge as shown in the following table:

Rate paid		Rate received		Notional amount		Fair value at 11/3/01
5.35%		3-mo. US Libor		$ 20,000.000		$(687,000	)

        Based on the Company's overall interest rate exposure at November 3, 2001, a hypothetical instantaneous increase or decrease of one percentage point in interest rates applied to borrowings under the credit facility would change the Company's after-tax earnings by approximately $1.1 million over a 12- month period.

        The Company's exposure to foreign currency exchange rates is limited because the Company does not operate any stores outside of the United States. In connection with the acquisition of Sportmart, the Company acquired one store in Canada, which Sportmart had closed prior to the acquisition. The Company sold this store during the second quarter of fiscal 2001. The Company does not consider the market risk exposure relating to foreign currency exchange to be material. Foreign currency fluctuations did not have a material impact on the Company during the third quarter or year to date periods in fiscal 2001 or 2000.

        The fair value of the Company's investments in marketable equity securities at November 3, 2001 was $800,000. The fair value of these investments will fluctuate as the quoted market prices of such securities fluctuate. As of November 3, 2001, the fair value of the Company's investments in marketable equity securities was $162,000 greater than the adjusted basis of those investments. Such unrealized holding gain has not been recognized in the Company's consolidated statement of operations, but rather has been recorded as a component of stockholders' equity in other comprehensive gain (loss) . The actual gain or loss that the Company will realize when such investments are sold will depend on the fair value of such securities at the time of sale. Based on the Company's marketable equity securities portfolio and quoted market prices at November 3, 2001, a 50% increase or decrease in the market price of such securities would result in an increase or decrease of approximately $400,000 in the fair value of the marketable equity securities portfolio. Although changes in quoted market prices may affect the fair value of the marketable equities securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold or determined to have a decline in value which is other than temporary.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

        The information discussed herein includes "forward-looking statements" within the meaning of the federal securities laws. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, the Company's actual results could differ materially as a result of certain factors, including, but not limited to: the Company's ability to manage its expansion efforts in existing and new markets, risks associated with the acquisition of companies, availability of suitable new store locations at acceptable terms, general economic conditions, and retail and sporting goods business conditions, specifically, availability of merchandise to meet fluctuating consumer demands, fluctuating sales margins, increasing competition in sporting goods and apparel retailing, as well as other factors described from time to time in the Company's periodic reports, including the Annual Report of the Company on Form 10-K for its year ended February 3, 2001, filed with the Securities and Exchange Commission.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

As previously disclosed, a former employee of Sportmart brought two class action complaints in California against the Company, alleging certain wage and hour claims in violation of the California Labor Code, California Business and Professional Code section 17200 and other related matters. One complaint alleges that the Company classified certain managers in its California stores as exempt from overtime pay when they would have been classified as non-exempt and paid overtime. The second complaint alleges that the Company failed to pay hourly employees in its California stores for all hours worked. In March 2001, a third class action complaint was filed in the same court in California alleging the same wage and hour violations regarding classification of certain managers as exempt from overtime pay. More recently, in July 2001, a fourth complaint was filed alleging that store managers should also not be classified as employees exempt from overtime pay. All the complaints seek compensatory damages, punitive damages and penalties. The amount of damages sought is unspecified. Although the court has denied motions to dismiss the first two complaints, the Company intends to vigorously defend these matters and at this time, the Company has not ascertained the future liability, if any, as a result of these complaints.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A. EXHIBITS.

B. REPORTS ON FORM 8-K.

The Company filed no reports on Form 8-K during the quarter ended November 3, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on December 18, 2001 on its behalf by the undersigned thereunto duly authorized.

	GART SPORTS COMPANY
	By:	/s/ JOHN DOUGLAS MORTON John Douglas Morton, Chairman of the Board of Directors, President and Chief Executive Officer
	By:	/s/ THOMAS T. HENDRICKSON Thomas T. Hendrickson, Executive Vice President, Chief Financial Officer and Treasurer