Mail Stop 0803
June 16, 2005
Randall K. Zanatta
President, Chief Executive Officer and Chairman
Golf Galaxy, Inc.
7275 Flying Cloud Drive
Eden Prairie, MN 55344
Re: Golf Galaxy, Inc.
Registration Statement on Form S-1
Filed May 17, 2005
File No. 333-125007
Dear Mr. Zanatta:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Prospectus Cover Page
1. We note a number of blank spaces on your prospectus cover page
and
throughout your document for information that you are not entitled
to
omit under Rule 430A, such as the anticipated price range. Please
include this information in your amended filing and note that we
may
have additional comments once you have provided this disclosure.
2. Also, please eliminate the label "joint book-running manager"
and
"joint lead manger" above the named underwriters since it is not
necessary for an investment decision.
Summary, page 1
3. Please provide us with the basis of your statement that you are
"a
leading golf specialty retailer." Also, please provide us with
copies of the National Golf Foundation
and Golf Datatech 2004 reports that you rely on for data in your
prospectus.
4. A summary should only highlight material information concerning
you and your offering. Please shorten your summary.
5. Also, if you choose to highlight your strengths in the summary,
please balance that disclosure with a discussion of the principal
challenges or risks facing you.
Other Financial Data, page 7
6. We note your presentation of "Store contribution" and "Store
contribution margin." These appear to be prohibited non-GAAP
measures
since they eliminate general and administrative expenses and pre-
opening costs. Please revise your document to remove these
measures
or tell us why a revision is unnecessary. Refer to Item
10(e)(1)(ii)(B) of Regulation S-K.
Risk Factors, page 9
7. Some of your risk factor subheadings are vague and some of your
risk factors are generic. In general, please present risk factor
subheadings and risk factors in more concrete terms tailored to
the
risks you face so the reader can better assess the magnitude of
the
risks. For example, the following risk factor subheadings are
vague:
* Our success depends on the continued popularity of golf..., page
9
* We rely on a limited number of key suppliers..., page 9
* Our operating results are subject to seasonal fluctuations...,
page
10
The following risk factors are generic:
* Our growth strategy presents increased risk...page 11
* A downturn in the economy may affect consumer purchases...page
12
* If our system security is breached, our reputation could
suffer...,
page 4
Please note these are examples only. Review your entire risk
factor
section and revise as necessary.
8. Please include a risk factor that addresses the one time items
that positively impacted your results for 2004 and 2005.
We rely heavily on our management information and other
systems...page 13
9. Currently, it appears that you are including more than one risk
factor under this subheading. For example, you appear to discuss
the
risk that you rely on your management information system to manage
your business and also the risk that your eCommerce operations are
dependent on the secure transmission of confidential information.
Please avoid bundling risk and if a risk is material, provide it
with
its own descriptive subheading.
Use of Proceeds, page 22
10. Please expand your store opening discussion to provide the
amount
that will be used to open new stores.
11. Also, please indicate whether you have identified any
potential
acquisitions of business or product or intend to do so. If so,
include disclosure of material information.
Selected Financial Information, page 28
12. We note your presentation of the non-GAAP performance measure
EBITDA. Please rename this measure, here and elsewhere it is
presented, to avoid confusing readers, since EBITDA is widely used
and defined as earnings before interest, taxes, deprecation and
amortization rather than your definition of it.
Fiscal Year Ended February 26, 2005 (52 weeks) compared to Fiscal
Year Ended February 29, 2004 (52 weeks), page 37
13. Where you identify intermediate causes of changes in your
operating results, also describe the reasons underlying the
intermediate causes. For example, where you indicate that the
increase in comparable store sales is primarily attributable to
increased sales of clubs, apparel and golf balls, expand your
explanations to describe how and/or why you achieved the increased
sales in these product groups. For example, if the changes are
the
result of new product lines or pricing changes, please state so.
Refer to Item 303(a) of Regulation S-K and SEC Release No. 33-
8350.
14. Please expand your discussion of the changes in financial
statement line items to indicate whether the changes represent
trends
expected to continue into the future. For example, you should
indicate whether you expect your gross margin to continue to
improve
in fiscal 2006 and thereafter and why or why not.
15. We note on page 33 that sales of pre-owned clubs provide
higher
margins than new club sales. To the extent that the sales
fluctuations in sales of pre-owned clubs materially changes gross
margin, please quantify and discuss these changes in Management`s
Discussion and Analysis.
16. Please expand your discussion of changes in the general and
administrative expenses line item to indicate the specific factors
driving the decline in rate of general and administrative expense
to
sales. Your explanation that the reduction is primarily
attributable
to the slower growth in general and administrative expenditures
relative to the growth in sales is not a sufficient explanation.
Additionally, discuss and quantify the reasons for the absolute
dollar change in this line item.
Liquidity and Capital Resources, page 43
17. We note in your discussion concerning your future liquidity
and
capital needs you do not mention this offering as a source of
capital. If as a result of the use of the proceeds from the
offering
results in little or no capital being raised for your use, that
information needs to be clearly stated throughout your prospectus.
Contractual Obligations, page 46
18. Please include a narrative following the table to provide
context
for the reader to understand the impact of your executory costs,
including real estate taxes, insurance and maintenance charges, on
your total operating lease obligations. This can be achieved
through
disclosure of the total dollar amount of these costs incurred for
the
most recent fiscal year or by disclosing the percentage that these
costs typically represent as a percentage of annual operating
lease
obligations. Refer to Item 303(a)(5) of Regulation S-K.
19. Please revise your table of contractual obligations to include
any material employment agreements.
Growth Strategy, page 53
20. We note your disclosure concerning your plan to open 14 to 16
new
stores in your current fiscal year. If you have identified the
stores you plan to open, please disclose this information.
Clubs, page 55
21. Please expand your disclosure to explain why having a deep
club
in-stock position is a "significant competitive strength."
Principal and Selling Shareholders, page 79
22. Please disclose the person that has the voting or investment
control over the shares held by William Blair Capital Partners V,
LLC, Primus Capital Fund IV L.P., Primus Executive Fund L.P., FdG
Capital Partners LLC, FdG - Chase Capital Partners LLC and Best
Buy
Co., Inc. Please see I.60 of the Division of Corporation
Finance`s
Manual of Telephone Interpretations Manual (July 1997) and 4S of
the
Regulation S-K section of March 1999 supplement to the manual.
Underwriting, page 91
23. Please revise to disclose all material information related to
the
underwriting. For example, your references to "certain
conditions"
and "certain exceptions" are only informative to someone already
familiar with the terms of the transaction.
24. Also, please provide more information concerning the terms and
the distribution of your reserved shares. For example, please
disclose how individuals will be selected to participate.
Financial Statements, page F-1
25. Please update the financial statements and related financial
information included in the filing as required by Rule 3-12 of
Regulation S-X.
26. Your "Capitalization" portion of your prospectus indicates
that
you will have a reverse common stock split. Please revise your
financial statements to give effect to the common stock split and
ensure that all amounts disclosed in the registration statement
are
on a post-split basis to avoid confusing readers.
Statements of Operations, page F-4
27. We note that depreciation expense is excluded from cost of
sales.
Please update your cost of sales item on the face of your
statements
of operations to indicate that cost of sales excludes
depreciation.
Also ensure that your selected financial data and summary
financial
data are appropriately updated. Refer to SAB Topic 11:B.
28. Please separately state interest income and interest expense
either here or in the footnotes. Refer to paragraphs 7-8 to Rule
5-
03 of Regulation S-X and also SFAS 34, which requires separate
disclosure of total interest expense. To the extent that changes
in
interest income and/or interest expenses are significant, please
discuss the changes in Management`s Discussion and Analysis.
Notes to Financial Statements, Page F-7
29. Please tell us more about the in-store events and exclusive
offers given to members of your Advantage Club customer loyalty
program. To the extent that you offer customers sales incentives
like discounts, coupons, rebates, free products or services or
other
types of consideration, please disclose your accounting policy for
these arrangements. Refer to EITF 01-09.
30. Please tell us the amounts recorded in cost of sales and the
amounts of store credits issued under your golf club trade-in
program
for each of the three years in the period ended February 26, 2005.
Revenue Recognition, page F-9
31. Please disclose how you account for gift cards and in-store
credits that are never redeemed. To the extent that your gift
card
and/or in-store credits have expiration dates, please disclose
this
information.
Operating Leases, page F-9
32. Your disclosure indicates that rent expense is recorded on a
straight-line basis over the initial lease term, excluding any
lease
renewal option periods. Please tell us and revise your disclosure
to
indicate whether you have included any of your store leases with
contingent rent in your calculation of straight-line rent where
the
achievement of the stipulated targets is deemed probable in
accordance with paragraph 8 of EITF 98-09. If you have not
included
these contingent rents, please explain why not.
Advertising Costs, page F-10
33. For all periods presented, please disclose the amount of
vendor
allowances received that are recorded as a reduction of
advertising
expense. Additionally, to the extent that you have material
vendor
reimbursement agreements, please disclose the following:
a. The number of material vendor agreements.
b. The significant terms and conditions of the agreements,
including
the duration of each material agreement.
c. Whether or not you will incur the same level of advertising
expense if vendors discontinued their reimbursements.
d. If you will not incur similar levels of advertising
expenditures
absent these vendor reimbursements, discuss in Management`s
Discussion and Analysis, the potential effects that a reduction in
advertising expenditures will have on net sales.
34. Please expand your disclose to describe the specific types of
costs that you consider "external preparation or production costs"
and specify why some of these costs are expensed at the time of
initial showing and why some are expensed when delivered.
Net Income (Loss) Per Share, page F-11
35. Please disclose the number of additional shares that could
potentially dilute basic earnings per share in the future that
were
not included in the computation of diluted earnings per share
because
they were anti-dilutive. Refer to paragraph 40(c) of SFAS 128.
Recently Issued Accounting Standards, page F-12
36. Please reconcile and revise your disclosures related to your
disparate conclusions on the adoption of SFAS No. 123(R). We note
that your conclusions as disclosed here appear to contradict your
disclosures included in your risk factors on page 14. Your risk
factor disclosure conveys that an estimate of financial impact was
calculated and will result in a substantial non-cash compensation
charge upon adoption of SFAS No. 123(R), while your footnote
indicates that an estimate cannot yet be determined.
9. Redeemable Convertible Preferred Stock, page F-16
37. To ensure that a reader has a complete understanding of the
conversion expected to occur upon closing of this offering, please
disclose the terms of the conversion agreement that you entered
into
on May 16, 2005 with the holders of the outstanding shares of
preferred stock.
38. Please detail for us the following for each series of
preferred
stock outstanding at February 26, 2005:
a. The date of issuance, the number of shares issued, conversion
price per share, fair market value of common shares on the date of
issuance.
b. How the fair value of the common stock was determined at each
date
of preferred stock issuance.
c. Whether the conversion rate for each series of preferred stock
issued has adjusted or is subject to adjustment in any case except
a
stock split.
10. Common Stock, page F-18
39. Please provide us with a schedule showing, in chronological
order
from February 29, 2004 to the most recent practicable date, the
following information for each issuance of common stock, preferred
stock, common stock options, warrants and any other instrument
that
is convertible into common stock.
a. The date of each issuance, the instrument issued, the number of
shares/options issued, the exercise terms, the fair value of an
underlying share of your common stock on each issuance date.
b. How you determined the fair value of the underlying share on
each date and the amount of compensation expense recorded in your
financial statements associated with each issuance.
c. If your expected IPO price is more than your estimated fair
value
on which compensation expense was measured, explain in detail, the
rationale supporting your estimate of fair value.
d. Discuss and quantify the intervening events that occurred
between
the issuance date and the date you filed your registration
statement
that increased the fair value of your stock. You may also want to
provide us with details of any independent appraisals.
e. Furthermore, please tell us the first date you began
discussions
with any underwriter in which possible ranges of company value
were
discussed and provide us with those ranges and the related dates.
We
may have further comments after we review your response. We will
not
review any response until you provide us with your anticipated IPO
price range.
Exhibits
40. Please file all required exhibits, such as the underwriting
agreement and the legal opinion, in a timely manner so that we may
have time to review them before you request that your registration
statement become effective.
Schedule II, Valuation and Qualifying Accounts, page II-5
41. Please present the gross activity of your customer returns and
allowances in this schedule. To the extent that changes are
material
to an understanding of your results of operations or financial
condition, revise your Management`s Discussion and Analysis
accordingly. Refer to Rules 5-04 and 12-09 of Regulation S-K.
*****
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Yong Kim, Staff Accountant at (202) 551-
3323
or William Choi, Accounting Branch Chief at (202) 551- 3716 if you
have questions regarding comments on the financial statements and
related matters. Please contact Scott Anderegg, Staff Attorney at
(202) 551-3342 or me at (202) 551- 3720 with any other questions.
Sincerely,
H. Christopher Owings
Assistant Director
cc: John R. Houston
Robins, Kaplan, Miller & Ciresi L.L.P.
Via Fax (612) 339-4181
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Randall K. Zanatta
Golf Galaxy, Inc.
June 16, 2005
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