Dick's Sporting Goods, Inc. 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2008
Commission File No.001-31463
DICKS SPORTING GOODS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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16-1241537 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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300 Industry Drive, RIDC Park West, Pittsburgh, Pennsylvania
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15275 |
(Address of principal executive offices)
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(Zip Code) |
(724) 273-3400
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of Each Exchange on which Registered |
Common Stock, $.01 par value
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The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) 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 for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Act (check one).
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)
Yes o No þ
The aggregate market value of the voting common equity held by non-affiliates of the registrant was
$2,409,973,070 as of August 4, 2007 based upon the closing price of the registrants common stock
on the New York Stock Exchange reported for August 4, 2007.
The number of shares of common stock and Class B common stock of the registrant outstanding as of
March 24, 2008 was 84,990,322 and
26,241,118, respectively.
Documents Incorporated by Reference: Part III of this Form 10-K incorporates certain information
from the registrants definitive proxy statement for its Annual Meeting of Stockholders to be held
on June 4, 2008 (the 2008
Proxy Statement).
Forward-Looking Statements
We caution that any forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) contained in this Annual Report on Form 10-K or made by
our management involve risks and uncertainties and are subject to change based on various important
factors, many of which may be beyond our control. Accordingly, our future performance and
financial results may differ materially from those expressed or implied in any such forward-looking
statements. Accordingly, investors should not place undue reliance on forward-looking statements
as a prediction of actual results. You can identify these statements as those that may predict,
forecast, indicate or imply future results, performance or advancements and by forward-looking
words such as believe, anticipate, expect, estimate, predict, intend, plan,
project, will, will be, will continue, will result, could, may, might or any
variations of such words or other words with similar meanings. Forward-looking statements address,
among other things, our expectations, our growth strategies, including our plans to open new
stores, our efforts to increase profit margins and return on invested capital, plans to grow our
private label business, projections of our future profitability, results of operations, capital
expenditures or our financial condition or other forward-looking information and includes
statements about revenues, earnings, spending, margins, liquidity, store openings and operations,
inventory, private label products, our actions, plans or strategies.
The following factors, among others, in some cases have affected and in the future could
affect our financial performance and actual results and could cause actual results for fiscal 2008
and beyond to differ materially from those expressed or implied in any forward-looking statements
included in this report or otherwise made by our management: the intense competition in the
sporting goods industry and actions by our competitors; the availability of retail store sites on
terms acceptable to us; the cost of real estate and other items related to our stores; our
inability to manage our growth, open new stores on a timely basis and expand successfully in new
and existing markets; changes in consumer demand; changes in general economic and business
conditions and in the specialty retail or sporting goods industry in particular including the
potential impact of natural disasters or national and international security concerns on us or the
retail environment; unauthorized disclosure of sensitive or confidential information; risks
relating to product liability claims and the availability of sufficient insurance coverage relating
to those claims and risks relating to the regulation of the products we sell, such as hunting
rifles and ammunition; our relationships with our suppliers, distributors and manufacturers and
their ability to provide us with sufficient quantities of products and risks associated with
relying on foreign sources of production; risks relating to problems with or disruption of our
current management information systems; any serious disruption at our distribution or return
facilities; the seasonality of our business; regional risks because our stores are generally
concentrated in the eastern half of the United States; the outcome of litigation or legal
actions against us; risks relating to operational and financial restrictions imposed by our Credit
Agreement; factors associated with our pursuit of strategic acquisitions and risks and
uncertainties associated with assimilating acquired companies; our ability to access adequate
capital; the loss of our key executives, especially Edward W. Stack, our Chairman, Chief Executive
Officer and President; our ability to meet our labor needs; risks related to the economic impact or
the effect on the U.S. retail environment relating to instability and conflict in the Middle East
or elsewhere; that we are controlled by our Chief Executive Officer and his relatives, whose
interests may differ from our stockholders; our quarterly operating results and comparable store
sales may fluctuate substantially; our current anti-takeover provisions could prevent or delay a
change-in-control of the Company; our ability to repay or make the cash payments under our senior
convertible notes; various risks associated with our exclusive brand offerings; changes in our
business strategies and other factors discussed in other reports or filings filed by us with the
Securities and Exchange Commission.
In addition, we operate in a highly competitive and rapidly changing environment; therefore,
new risk factors can arise, and it is not possible for management to predict all such risk factors,
nor to assess the impact of all such risk factors on our business or the extent to which any
individual risk factor, or combination of factors, may cause results to differ materially from
those contained in any forward-looking statement. We do not assume any obligation and do not
intend to update any forward-looking statements except as may be required by the securities laws.
On February 13, 2007, Dicks Sporting Goods, Inc. (Dicks) acquired Golf Galaxy, Inc. (Golf
Galaxy) which became a wholly owned subsidiary of Dicks by means of a merger of Dicks subsidiary
with and into Golf Galaxy. On November 30, 2007, Dicks acquired all of the outstanding stock of
Chicks Sporting Goods, Inc. (Chicks), which also became a wholly-owned subsidiary of Dicks.
Due to these acquisitions, additional risks and uncertainties arise that could affect our financial
performance and actual results and could cause actual results for fiscal 2008 and beyond to differ
materially from those expressed or implied in any forward-looking statements included in this
report or otherwise made by our management. Such risks, which are difficult to predict with a
level
of certainty and may be greater than expected, include, among others, risk associated with
combining businesses and/or with assimilating acquired companies.
3
PART I
ITEM 1. BUSINESS
General
Dicks Sporting Goods, Inc. (referred to as the Company or Dicks or in the first person
notations we, us, and our unless specified otherwise) is an authentic full-line sporting
goods retailer offering a broad assortment of brand name sporting goods equipment, apparel, and
footwear in a specialty store environment. Our core focus is to be an authentic sporting goods
retailer by offering a broad selection of high-quality, competitively-priced brand name sporting
goods equipment, apparel and footwear that enhances our customers performance and enjoyment of
their sports activities. Dicks was founded in 1948 when Richard Dick Stack, the father of
Edward W. Stack, our Chairman, Chief Executive Officer and President opened his original bait and
tackle store in Binghamton, New York. Edward W. Stack joined his fathers business full-time in
1977, and, upon his fathers retirement in 1984, became President and Chief Executive Officer of
the then two-store chain.
We were incorporated in 1948 in New York under the name Dicks Clothing and Sporting Goods,
Inc. In November 1997, we reincorporated as a Delaware corporation, and in April 1999 we changed
our name to Dicks Sporting Goods, Inc. Our executive office is located at 300 Industry Drive,
RIDC Park West, Pittsburgh, PA 15275 and our phone number is (724) 273-3400. Our website is located
at www.dickssportinggoods.com. The information on our website does not constitute a part of this
annual report. We include on our website, free of charge, copies of our prior annual and quarterly
reports filed on Forms 10-K and 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to the Securities Exchange Act of 1934, as amended.
Dicks, Dicks Sporting Goods, DicksSportingGoods.com, Galyans Trading Company, Inc., Golf
Galaxy, Chicks Sporting Goods, Northeast Outfitters, PowerBolt, Fitness Gear, Ativa, Walter
Hagen, DBX, Highland Games, Acuity, Field & Stream (footwear only) and Quest are our primary
trademarks. Each trademark, trade name or service mark of any other company appearing in this
annual report belongs to its holder.
As of February 2, 2008, the Company operated 340 Dicks Sporting Goods stores in 36 states, 79
Golf Galaxy stores in 29 states and 15 Chicks Sporting Goods stores in California.
Acquisition of Golf Galaxy
On February 13, 2007, the Company acquired Golf Galaxy by means of merger of our wholly owned
subsidiary with and into Golf Galaxy, with each Golf Galaxy shareholder receiving $18.82 per share
in cash, without interest and Golf Galaxy became a wholly owned subsidiary of the Company. The
Company recorded $112.6 million of goodwill as the excess of the purchase price of $227.0 million
over the fair value of the net amounts assigned to assets acquired and liabilities assumed. The
acquisition was financed using approximately $79 million of cash and cash equivalents and the
balance from borrowings under our revolving line of credit.
Acquisition of Chicks Sporting Goods
On November 30, 2007, the Company acquired all of the outstanding stock of Chicks. The
Company recorded $34.4 million of goodwill as the excess of the purchase price of $69.2 million
over the fair value of the amounts assigned to assets acquired and liabilities assumed.
Business Strategy
The key elements of our business strategy are:
Authentic Sporting Goods Retailer. Our history and core foundation is as a retailer of high
quality authentic athletic equipment, apparel and footwear, intended to enhance our customers
performance and enjoyment of athletic pursuits, rather than focusing our merchandise selection on
the latest fashion trend or style. We believe our customers seek genuine, deep product offerings,
and ultimately this merchandising approach positions us with advantages in the market, which we
believe will continue to benefit from new product offerings with enhanced technological features.
4
Competitive Pricing. We position ourselves to be competitive in price, but we do not attempt
to be a price leader. We maintain a policy of matching our competitors advertised prices. If a
customer finds a competitor with a lower price on an item, we will match the lower price.
Additionally, under our Right Price Promise, if within 30 days of purchasing an item from us, a
customer finds a lower advertised price by us or a competitor, we will refund the difference. We
seek to offer value to our customers and develop and maintain a reputation as a provider of value
at each price point.
Broad Assortment of Brand Name Merchandise. We carry a wide variety of well-known brands,
including Nike, North Face, Columbia, adidas, TaylorMade, Callaway and Under Armour, as well as
private label products sold under names such as Ativa and Walter Hagen and private brand products,
such as our exclusive lines of Nike ACG, Slazenger, Umbro, Field and Stream and adidas baseball
merchandise, which are available only in our stores. The breadth of our product selections in each
category of sporting goods offers our customers a wide range of price points and enables us to
address the needs of sporting goods consumers, from the beginner to the sport enthusiast.
Expertise and Service. We enhance our customers shopping experience by providing
knowledgeable and trained customer service professionals and value added services. For example, we
were the first full-line sporting goods retailer to have active members of the Professional
Golfers Association (PGA) and Ladies Professional Golf Association (LPGA) working in our
stores, and as of February 2, 2008 employed 387 PGA and LPGA professionals in our golf departments.
We also have 427 bike mechanics to sell and service bicycles and 309 certified fitness trainers
who provide advice on the best fitness equipment for our customers. All of our stores also provide
support services such as golf club grip replacement, bicycle repair and maintenance and home
delivery and assembly of fitness equipment.
Interactive Store-Within-A-Store. Our Dicks Sporting Goods stores typically contain five
stand-alone specialty stores. We seek to create a distinct look and feel for each specialty
department to heighten the customers interest in the products offered. A typical store has the
following in-store specialty shops: (i) the Pro Shop, a golf shop with a putting green and hitting
area and video monitors featuring golf tournaments and instruction on the Golf Channel or other
sources; (ii) the Footwear Center, featuring hardwood floors, a track for testing athletic shoes
and a bank of video monitors playing sporting events; (iii) the Cycle Shop, designed to sell and
service bikes, complete with a mechanics work area and equipment on the sales floor; (iv) the
Sportsmans Lodge for the hunting and fishing customer, designed to have the look of an authentic
bait and tackle shop; and (v) Total Sports, a seasonal sports area displaying sports equipment and
athletic apparel associated with specific seasonal sports, such as football and baseball. Our
stores provide interactive opportunities by allowing customers to test golf clubs in an indoor
driving range, shoot bows in our archery range, or run on our footwear track.
Our Golf Galaxy stores are designed to deliver on our Everything for the Game strategy and
create an exciting and interactive shopping environment that highlights our extensive product
assortments and value-added PGA and LPGA services. Interactive areas, such as an artificial bent
grass putting green and golf simulators, add to the entertainment value of the shopping experience.
Our store design and equipment displays encourage customers to test our products before making a
purchase decision. Our highly visible service areas reinforce the expertise available from our
staff.
Exclusive Brand Offerings. We offer our customers high-quality products at competitive prices
marketed under exclusive styles and brands. We have invested in a development and procurement
staff that continually sources performance-based products generally targeted to the sporting
enthusiast for sale under brands such as Ativa, Acuity, Walter Hagen, Northeast Outfitters,
PowerBolt, Fitness Gear, Highland Games, DBX, Field & Stream, Quest, Nike ACG, Slazenger, adidas
baseball merchandise and Umbro. Many of our products incorporate technical features such as
GORE-TEX® fabric, which is waterproof and breathable, and COOLMAX® fabric, which wicks moisture
away from the skin to the fabric where the moisture evaporates faster, that are typically available
only through well-known brand names. By using these exclusive styles and brands, we offer value
products to our customers at each price point and obtain higher gross margins than we obtain on
sales of comparable products.
Merchandising
We offer a full range of sporting goods and active apparel at each price point in order to
appeal to the beginner, intermediate and enthusiast sports consumer. The merchandise we carry
includes one or more of the leading manufacturers in each category. Our objective is not only to
carry leading brands, but a full range of products within each brand, including the premium items
for the sports enthusiast. As beginners and intermediates move to higher levels in their sports,
we expect to be prepared to meet their needs.
5
We believe that the range of the merchandise we offer, particularly for the enthusiast sports
consumer, distinguishes us from other large format sporting goods stores. We also believe that the
range of merchandise we offer allows us to compete effectively against all of our competitors, from
traditional independent sporting goods stores and specialty shops to other large format sporting
goods stores and mass merchant discount retailers.
The following table sets forth the approximate percentage of sales attributable to apparel,
footwear and hardlines for the periods presented:
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Fiscal Year |
Merchandise Category |
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2007 |
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2006 |
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2005 |
Apparel |
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28 |
% |
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26 |
% |
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26 |
% |
Footwear |
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17 |
% |
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17 |
% |
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17 |
% |
Hardlines (1) |
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55 |
% |
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57 |
% |
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57 |
% |
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Total |
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100 |
% |
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100 |
% |
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100 |
% |
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(1) |
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Includes items such as hunting and fishing gear, sporting goods equipment and golf equipment. |
Apparel: This category consists of athletic apparel, outerwear and sportswear designed for a
broad range of activities and performance levels as well as apparel designed and fabricated for
specific sports, in mens, womens and childrens assortments. Technical and performance specific
apparel includes offerings for sports such as golf, tennis, running, fitness, soccer, baseball,
football, hockey, swimming, cycling and licensed products. Basic sportswear includes T-shirts,
shorts, sweats and warm-ups.
Footwear: The Footwear Center, featuring hardwood floors and a track for testing athletic
shoes, offers a diverse selection of athletic shoes for running and walking, tennis, fitness and
cross training, basketball and hiking. In addition, we also carry specialty footwear including
casual footwear and a complete line of cleated shoes for baseball, football, soccer and golf.
Other important categories within the footwear department are boots, socks and accessories.
Hardlines:
Exercise and Team Sports. Our product lines include a diverse selection of fitness equipment
including treadmills, elliptical trainers, stationary bicycles, home gyms, free weights and weight
benches. A full range of equipment and accessories are available for team sports such as football,
baseball, basketball, hockey, soccer, bowling and lacrosse. Family recreation offerings include
lawn games and table games such as ping-pong, foosball and air hockey.
Outdoor Recreation. The Sportsmans Lodge, designed to have the look of an authentic bait and
tackle shop, caters to the outdoorsman and includes a diverse offering of equipment for hunting,
fishing, camping and water sports. Hunting products include rifles, shotguns, ammunition, global
positioning systems, hunting apparel, boots and optics including binoculars and scopes, knives and
cutlery, archery equipment and accessories. Fishing gear such as rods, reels, tackle and
accessories are offered along with camping equipment, including tents and sleeping bags. Equipment
offerings for marine and water sports include navigational electronics, water skis, rafts, kayaks,
canoes and accessories.
Golf. The Pro Shop, a golf shop with a putting green and indoor driving range, includes a
complete assortment of golf clubs and club sets, bags, balls, shoes, teaching aids and accessories.
We carry a full range of products featuring major golf suppliers such as TaylorMade, Callaway,
Titleist, Cleveland and Nike Golf as well as our exclusive brands, Walter Hagen, Slazenger and
Acuity.
Cycling. Our Cycle Shop, which is designed to sell and service bicycles, complete with a
mechanics work area, features a broad selection of BMX, all-terrain, freestyle, touring bicycles,
scooters and skateboards. In addition, we also offer a full range of cycling accessories including
helmets, bicycle carrier racks, gloves, water bottles and repair and maintenance parts.
6
Our Stores
Each of our Dicks stores typically contains five specialty stores. We believe our
store-within-a-store concept creates a unique shopping environment by combining the convenience,
broad assortment and competitive prices of large format stores with the brand names, deep product
selection and customer service of a specialty store. Our Golf Galaxy stores are designed to deliver
on our Everything for the Game strategy and create an exciting and interactive shopping
environment that highlights our extensive product assortments and value-added PGA and LPGA
services.
Store Design. We design our Dicks stores to create an exciting shopping environment with
distinct departments that can stand on their own as authentic sporting goods specialty shops. Our
primary prototype store is approximately 50,000 square feet. Signs and banners are located
throughout the store allowing customers to quickly locate the various departments. A wide aisle
through the middle of the store displays seasonal or special-buy merchandise. Video monitors
throughout the store provide a sense of entertainment with videos of championship games,
instructional sessions or live sports events. We also have another prototype two-level store of
approximately 75,000 square feet as a growth vehicle for those trade areas that have sufficient
in-profile customers to support it. Our Golf Galaxy store model is based on a prototype store,
which generally ranges from 13,000 to 18,000 selling square feet. The following table summarizes
store openings and closings for 2007 and 2006:
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Fiscal 2007 |
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Fiscal 2006 |
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Chicks Sporting |
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Dicks |
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Golf Galaxy |
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Goods |
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Total |
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Dicks |
Beginning stores |
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294 |
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65 |
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15 |
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374 |
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255 |
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New: |
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50,000 square foot prototype |
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43 |
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43 |
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37 |
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Two-level stores |
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3 |
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3 |
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2 |
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Golf Galaxy stores |
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16 |
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16 |
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Total new stores |
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46 |
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16 |
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62 |
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39 |
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Closed |
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(2 |
) |
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(2 |
) |
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Ending stores |
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340 |
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79 |
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15 |
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|
434 |
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294 |
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Relocated stores |
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1 |
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1 |
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2 |
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In most of our Dicks stores, approximately 82% of store space is used for selling and
approximately 18% is used for backroom storage of merchandise, receiving area and office space.
We seek to encourage cross-selling and impulse buying through the layout of our
departments. We provide a bright, open shopping environment through the use of glass, lights and
lower shelving which enables customers to see the array of merchandise offered throughout our
stores. We avoid the warehouse store look featured by some of our large format competitors.
Our Dicks stores are typically open seven days a week, generally from 9:00 a.m. to
9:30 p.m. Monday through Saturday, and 10:00 a.m. to 7:00 p.m. on Sunday. Our Golf Galaxy stores
are typically open seven days a week, generally from 10:00 a.m. to 9:00 p.m. Monday through Friday,
9:00 a.m. to 8:00 p.m. on Saturday, and 10:00 a.m. to 6:00 p.m. on Sunday.
New Store Openings. Future openings will depend upon several factors, including but not
limited to general economic conditions, consumer confidence in the economy, unemployment trends,
interest rates and inflation, the availability of retail store sites, real estate prices and the
availability of adequate capital. Because our new store openings rely on many factors, they are
subject to risks and uncertainties described below under Part I, Item 1A, Risks and
Uncertainties.
7
Store Associates. We strive to complement our merchandise selection and innovative store
design with superior customer service. We actively recruit sports enthusiasts to serve as sales
associates because we believe that they are more knowledgeable about the products they sell. For
example, Dicks currently employs PGA and LPGA golf professionals to work in our golf departments,
bike mechanics to sell and service bicycles and certified fitness trainers to provide advice on the
best fitness equipment for the individual. We believe that our associates enthusiasm and ability
to demonstrate and explain the advantages of the products lead to increased sales. We believe our
prompt, knowledgeable and enthusiastic service fosters the confidence and loyalty of our customers
and differentiates us from other large format sporting goods stores.
We emphasize product knowledge at both the hiring and training stages. We hire most of our
sales associates for a specific department or category. As part of our interview process, we test
each prospective sales associate for knowledge specific to the department or category in which he
or she is to work. We train new sales associates through a self-study and testing program that we
have developed for each of our categories. We also measure customers satisfaction with their most
recent purchase experience through an online satisfaction survey. Survey invitations are delivered
at the point-of-sale via cash register receipts which directs customers to a data collection
website. These results allow identification of improvement opportunities at various levels of the
store hierarchy and reinforce the impact associates have on the customer experience.
We typically staff our Dicks stores with a store manager, two sales managers, a sales support
manager, six sales leaders, and approximately 50 full-time and part-time sales associates for a
single-level store and proportionately more supervisory roles and associates for a two-level store,
depending on store volume and time of year. The operations of each store are supervised by one of
41 district managers, each of whom reports to one of six regional vice-presidents of store
operations who are located in the field. The vice president of field operations reports directly
to the senior vice president of operations.
Support Services. We believe that we further differentiate our stores from other
large-format sporting goods stores by offering support services for the products we sell. We offer
a complete range of expert golf services, from club repair, to re-gripping, to private lessons with
our PGA and LPGA professionals. Although we do not receive a share of income from these lessons,
allowing our PGA and LPGA professionals to offer lessons not only helps us in recruiting them to
work for us but also provides a benefit to our customers.
Our prototype Dicks stores feature bicycle maintenance and repair stations on the sales
floor, allowing our bicycle mechanics to service bicycles in addition to assisting customers. We
believe that these maintenance and repair stations are one of our most effective selling tools by
enhancing the credibility of our specialty store concept and giving assurance to our customers that
we can repair and tune the bicycles they purchase.
At our Dicks stores, we also string tennis rackets, sharpen ice skates, provide home delivery
and assembly of fitness equipment, provide scope mounting and bore sighting services, cut arrows,
sell hunting and fishing licenses and fill CO2 tanks for paintball.
Site Selection and Store Locations. We select geographic markets and store sites on the basis
of demographic information, quality and nature of neighboring tenants, store visibility and
accessibility. Key demographics include population density, household income, age and average
number of occupants per household. In addition to these demographics, golf participation rates are
considered in selecting sites for our Golf Galaxy stores. We seek to locate our Dicks stores in
primary retail centers with an emphasis on co-tenants including major discount retailers such as
Wal-Mart or Target, or specialty retailers from other categories such as Barnes & Noble, Best Buy
or Staples.
We seek to balance our expansion of Dicks stores between new and existing
markets. In our existing markets, we add stores as necessary to cover appropriate market areas.
By clustering stores, we seek to take advantage of economies of scale in advertising, promotion,
distribution and supervisory costs. We seek to locate stores within separate trade areas within
each metropolitan area, in order to establish long-term market penetration. We generally seek to
expand in geographically contiguous areas to build on our experience in the same or nearby regions.
We believe that local knowledge is an important part of success. In considering new markets, we
locate our stores in areas we believe are underserved. In addition to larger metropolitan markets,
we also target smaller population centers in which we locate single stores, generally in regional
shopping centers with a wide regional draw.
8
Marketing and Advertising
Our marketing program for Dicks stores is designed to promote our selection of brand name
products at competitive prices. The program is centered on newspaper advertising supplemented by
direct mail and seasonal use of local and national television and radio. The advertising strategy
is focused on national television and other national media campaigns, weekly newspaper advertising
utilizing multi-page, color inserts and standard run of press advertising, with emphasis on key
shopping periods, such as the Christmas season, Fathers Day, and back-to-school, and on specific
sales and promotional events, including our annual Golf-a-thon sale.
We cluster stores in major markets to enable us to employ our advertising strategy on a
cost-effective basis through the use of newspaper and local and national television and radio
advertising. We advertise in major metropolitan newspapers as well as in regional newspapers
circulated in areas surrounding our store locations. Our newspaper advertising typically consists
of weekly promotional advertisements with full-color inserts. Our television advertising is
generally concentrated during a promotional event or key shopping period. At other times, we
advertise on television and radio nationally to highlight seasonal sports initiatives. Radio
advertising is used primarily to publicize specific promotions in conjunction with newspaper
advertising or to announce a public relations promotion or grand opening. Vendor payments under
cooperative advertising arrangements with us, as well as vendor participation in sponsoring
sporting events and programs, have contributed to our advertising leverage.
Our advertising is designed to create an event in the stores and to drive customer traffic
with advertisements promoting a wide variety of merchandise values appropriate for the current
holiday or event.
We also sponsor professional sports teams, tournaments and amateur competitive events in an
effort to align ourselves with both the serious sports enthusiast and the community in general.
Our Scorecard loyalty program at our Dicks stores provides reward certificates to customers
based on purchases. After a customer registers, reward points build as a percentage of purchases.
Membership in our Scorecard loyalty program is free. These rewards are systematically tracked, and
once a customer reaches a minimum threshold purchase level of $300 within a program year, a
merchandise credit is mailed to the customers home. This database is then used in conjunction
with our direct marketing program. The direct marketing program consists of several direct mail
pieces sent during holidays throughout the year. Additionally, several customer focused mailings
are sent to members based on their past purchasing history.
Our Advantage Club customer loyalty program at our Golf Galaxy stores is designed to create
a direct relationship with our customers using advance notice of special in-store events, exclusive
offers and information. Membership in our Advantage Club is free. We target our direct mail
catalogs and e-mail offers to this group of customers who generate above average response rates,
thus enhancing our marketing efficiency.
Information Systems
Our Dicks stores use the JDA Merchandising System and a data warehouse that interfaces
with all Merchandising Systems. We also use the E-3 Replenishment and Arthur Allocation retail
software systems. These systems operate on a combination of IBM iSeries and Unix computers. We
utilize Fujitsu, NCR, IBM, HP and Dell point-of-sale hardware that incorporates scanning and price
look-up features that are supported by the RSA point-of-sale software. Our fully integrated
management information systems track purchasing, sales and inventory transfers down to the stock
keeping unit or SKU level and have allowed us to improve overall inventory management by
identifying individual SKU activity and projecting trends and replenishment needs on a timely
basis. We believe that these systems enable us to increase margins by reducing inventory
investment, strengthening in-stock positions, and creating store level perpetual inventories and
automatic inventory replenishment on basic items of merchandise.
The Dicks stores are supported by a merchandise planning and allocation system that optimizes
the distribution of most products to the stores through a combination of historical sales data and
forecasted data at an individual store and item level. We believe this minimizes markdowns taken
on merchandise and improves sales on these products. Our distribution centers utilize a suite of
products from Manhattan Associates which are fully integrated with our JDA systems. Our Dicks
store operations personnel in every location have online access to product signage, advertising
information and e-mail through our wide area network. PeopleSoft Software is used for Payroll,
Human Resource Management and Financial Systems.
9
Our Golf Galaxy point of sale system and core management information system is a fully
integrated solution from Retail Pro, a provider of inventory control/POS software for small to
mid-tier retailers. We have developed additional functionality utilizing information processing
tools from third party providers and have a third party database management relationship to support
our Advantage Club and automated special order processes.
Purchasing and Distribution
In addition to merchandise procurement, our buying staff is also responsible for determining
initial pricing and product marketing plans and working with our allocation and replenishment
groups to establish stock levels and product mix. Our buying staff also regularly communicates
with our store operations personnel to monitor shifts in consumer tastes and market trends.
Our planning, replenishment, allocation, and merchandise control groups are responsible for
merchandise allocation, inventory control, and automatic replenishment systems. These groups act
as the central processing intermediary between our buying staff and our stores. These groups also
coordinate the inventory levels necessary for each advertising promotion with our buying staff and
our advertising department, tracking the effectiveness of each advertisement to allow our buying
staff and our advertising department to determine the relative success of each promotional program.
In addition, these groups other duties include implementation of price changes, creation of
vendor purchase orders and determination of the adequate amount of inventory for each store.
We purchase merchandise from approximately 1,400 vendors, and we have no long-term purchase
commitments. During fiscal 2007, Nike, our largest vendor, represented approximately 12% of our
merchandise purchases. No other vendor represented 10% or more of our fiscal 2007 merchandise
purchases. We do not have long-term purchase contracts with any of our vendors and all of our
purchases from vendors are done on a short-term purchase order basis.
We operate a 601,000 square foot distribution center in Smithton, Pennsylvania and a 725,000
square foot distribution center in Plainfield, Indiana. Additionally, the Company is constructing
a 657,000 square foot distribution center near Atlanta, Georgia, which is expected to be complete
during fiscal 2008. Vendors directly ship merchandise, including price tickets, to these
distribution centers, where it is processed as necessary, before being shipped to the stores.
Our Golf Galaxy stores utilize a direct-to-store distribution model. Substantially all store
inventories are drop shipped directly from vendors to our Golf Galaxy stores.
We also have a 75,000 square foot return center in Conklin, New York. Damaged or defective
merchandise being returned to vendors is consolidated for cost efficient return at this return
center. Inventory arriving at our distribution center is allocated directly to our stores, to the
distribution center for temporary storage, or to both locations.
We have contracted with a dedicated fleet for the delivery of merchandise from our Smithton
distribution center to our stores within a 300-mile radius of Smithton. We contract with common
carriers to deliver merchandise from our Plainfield distribution center to our stores as well as
any store outside of a 300-mile radius from Smithton.
Competition
The market for sporting goods retailers is highly fragmented and intensely competitive. The
retail sporting goods industry comprises five principal categories of retailers:
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Sporting goods stores (large format stores); |
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Traditional sporting goods retailers; |
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Specialty retailers; |
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Mass merchants; and |
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Catalog and Internet retailers. |
Large Format Sporting Goods Stores. The large format stores generally range from
20,000 to 100,000 square feet and offer a broad selection of sporting goods merchandise. We
believe that our strong performance with the large format store in recent years is due in part to
our unique approach in blending the best attributes of a large format store with the best
attributes of a specialty shop.
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Traditional Sporting Goods Stores. These stores generally range in size from 5,000
square feet to 20,000 square feet and are frequently located in regional malls and multi-store
shopping centers. They typically carry a varied assortment of merchandise. Compared to our
stores, they offer a more limited product assortment. We believe these stores do not cater to the
sports enthusiast.
Specialty Stores. These stores generally range in size from approximately 2,000 to
20,000 square feet. These retailers typically focus on a specific category, such as athletic
footwear, or an activity, such as golf or skiing. While they may offer a deep selection of
products within their specialty, they lack the wide range of products that we offer. We believe
prices at these stores typically tend to be higher than prices at the large format sporting goods
stores and traditional sporting goods stores.
Mass Merchants. These stores generally range in size from approximately 50,000 to
over 200,000 square feet and are primarily located in shopping centers, freestanding sites or
regional malls. Sporting goods merchandise and apparel represent a small portion of the total
merchandise in these stores and the selection is often more limited than in other sporting goods
retailers. We believe that this limited selection, particularly with well-known brand names,
combined with the reduced service levels typical of a mass merchandiser, limit their ability to
meet the needs of sporting goods customers. However, Wal-Mart is currently the largest retailer of
sporting goods as measured by sales.
Catalog and Internet-Based Retailers. We believe that the relationships that we have
developed with our suppliers and customers through our retail stores provide us with a significant
advantage over catalog-based and Internet-only retailers. These retailers sell a full line of
sporting goods through the use of catalogs and/or the Internet.
Employees
As
of February 2, 2008, we had a total of approximately 10,400 full-time and approximately
16,000 part-time associates. Due to the seasonal nature of our business, total employment will
fluctuate during the year, which typically peaks in the fourth quarter. None of our associates are
covered by a collective bargaining agreement. We believe that our relations with our associates
are good.
Proprietary Rights
Each of Dicks, Dicks Sporting Goods, DicksSportingGoods.com, Golf Galaxy, Chicks
Sporting Goods, Walter Hagen, Northeast Outfitters, PowerBolt, Fitness Gear, Ativa,
Acuity, Highland Games, DBX, Field & Stream (footwear only) and Quest has been
registered as a service mark or trademark with the United States Patent and Trademark Office. In
addition, we have numerous pending applications for trademarks. We have entered into licensing
agreements for names that we do not own, which provide for exclusive rights to use names such as
Nike ACG, adidas (baseball only), Field & Stream (camping, hunting and fishing), Slazenger
and Umbro for specified product categories. The earliest that any of our licenses for these
private label products expires, including extensions, is 2016. These licenses contain customary
termination provisions at the option of the licensor including, in some cases, termination upon our
failure to sell a minimum volume of products covered by the license. Our licenses are also subject
to risks and uncertainties common to licensing arrangements that are described below under the
heading Risks and Uncertainties.
Governmental Regulation
We must comply with federal, state and local regulations, including the federal Brady Handgun
Violence Prevention Act, which require us, as a federal firearms licensee, to perform a pre-sale
background check of purchasers of long guns. We perform this background check using either the
FBI-managed National Instant Criminal Background Check System (NICS), or a state
government-managed system that relies on NICS and any additional information collected by the
state. These background check systems either confirm that a sale can be made, deny the sale, or
require that the sale be delayed for further review, and provide us with a transaction number for
the proposed sale. We are required to record the transaction number on Form 4473 of the Bureau of
Alcohol, Tobacco and Firearms and retain a copy for our records for five years for auditing
purposes for each denied sale. After all of these procedures are complete, we complete the sale.
In addition, many of our imported products are subject to existing or potential duties,
tariffs or quotas that may limit the quantity of products that we may import into the U.S. and
other countries or impact the cost of such products. To date, quotas in the operation of our
business have not restricted us, and customs duties have not comprised a material portion of the
total cost of our products.
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Executive Officers of the Company
The current executive officers of the Company, and their prior business experience, are as
follows:
Edward W. Stack, 53, has served as our Chairman and Chief Executive Officer since 1984 when
the founder and Edward Stacks father, Richard Dick Stack, retired from our then two store chain.
Mr. Stack has served us full-time since 1977 in a variety of positions, including President, Store
Manager and Merchandise Manager. Mr. Stack also received the title of President in February 2008.
William J. Colombo, 52, became our Vice Chairman of the Board in February 2008, after stepping
down as President and Chief Operating Officer, a position he held since 2002. From late in 1998 to
2000, Mr. Colombo served as President of dsports.com LLC, our Internet commerce subsidiary.
Mr. Colombo served as Chief Operating Officer and an Executive Vice President from 1995 to 1998.
Mr. Colombo joined us in 1988. From 1977 to 1988, he held various field and district positions
with J.C. Penney Company, Inc. (a retailing company listed on the NYSE). He is also on the board
of directors of Gibraltar Industries (a leading processor, manufacturer and distributor of products
for the building, industrial and vehicular markets listed on NASDAQ). Mr. Colombos term as a
Class A Director expires at the 2009 annual meeting.
Joseph H. Schmidt, 48, became our Executive Vice President and Chief Operating Officer in
2008, responsible for all aspects of Store Operations, Real Estate & Development, Distribution and
Transportation. Previously, Mr. Schmidt was our Executive Vice President Operations, and before
that Senior Vice President Store Operations, a position he held beginning in 2005. Mr. Schmidt
was Vice President Store Operations beginning in 2001. Mr. Schmidt joined us in 1990 and has
held various positions in store operations. From 1981 to 1990, he held various positions in store
operations for Ames Department Stores, Inc.
Timothy E. Kullman, 52, joined Dicks Sporting Goods as Senior Vice President and Chief
Financial Officer in April 2007 and was promoted to Executive Vice President Finance,
Administration and Chief Financial Officer in February 2008.
Prior to joining Dicks, Mr. Kullman served
as Chief Financial Officer of PetSmart, a specialty pet retailer listed on NASDAQ, since July 2002.
Before joining PetSmart, Mr. Kullman was Executive Vice President and CFO for Hagemeyer North America
Holdings, Inc., a wholly owned division of a global distribution company based in the Netherlands
and spent three years at Genuardis Family Markets. Prior to that, he was Senior Vice President,
CFO, Secretary and Treasurer for Delchamps, Inc., a major grocery chain in the southeastern United
States. Mr. Kullman also held senior financial positions with Farm Fresh Inc., Blue Cross Blue Shield of
Michigan, and Deloitte, Haskins & Sells.
Gwendolyn K. Manto, 53, joined us in January 2006 as our Executive Vice President and Chief
Merchandising Officer. Ms. Manto was employed by Sears Holding Co. (the nations third largest
broadline retailer listed on the NYSE), as Executive Vice President and General Merchandise
Manager, Apparel since February 2004. Prior to joining Sears, she was Vice Chairman/Chief
Merchandising Officer of Stein Mart (an off-price specialty retailer listed on NASDAQ). Prior to
that time she held senior management positions with Footlocker, Federated Department Stores and
Macys.
Jeffrey R. Hennion, 41, became our Executive Vice President and Chief Marketing Officer in
2008. Previously, Mr. Hennion was Senior Vice President and Chief Marketing Officer, a position he
held since 2005. Beginning in 2004, he served as our Senior Vice President Strategic Planning,
and prior to that was our Vice President Finance and Treasurer, a position he held since 2002.
Mr. Hennion started with us in 2000 as Vice President Treasurer. Prior to joining the Company,
he served Alcoa Inc. from 1989 to 2000 in various treasury and finance related functions, most
recently as Assistant Treasurer and as Director Investor Relations.
Diane E. Lazzaris, 41, became our Senior Vice President Legal, General Counsel and Corporate
Secretary in 2008. Prior to joining Dicks, Ms. Lazzaris was employed by Alcoa Inc. as Group
Counsel for a group of businesses with total revenues of approximately $10 billion, 23,000
employees and operations in North America, Europe and Asia. Previously she held various legal
positions up to and including Senior Counsel.
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ITEM 1A. RISK FACTORS
Risks and Uncertainties
Intense competition in the sporting goods industry could limit our growth and reduce our
profitability.
The market for sporting goods retailers is highly fragmented and intensely
competitive. Our current and prospective competitors include many large companies that have
substantially greater market presence, name recognition, and financial, marketing and other
resources than us. We compete directly or indirectly with the following categories of companies:
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large format sporting goods stores; |
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traditional sporting goods stores and chains; |
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specialty sporting goods shops and pro shops; |
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mass merchandisers, warehouse clubs, discount stores and department stores; and |
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catalog and Internet-based retailers. |
Pressure from our competitors could require us to reduce our prices or increase our
spending for advertising and promotion. Increased competition in markets in which we have stores
or the adoption by competitors of innovative store formats, aggressive pricing strategies and
retail sale methods, such as the Internet, could cause us to lose market share and could have a
material adverse effect on our business, financial condition, results of operations and cash flows.
Lack of available retail store sites on terms acceptable to us, rising real estate prices and
other costs and risks relating to new store openings could severely limit our growth
opportunities.
Our strategy includes opening stores in new and existing markets. We must
successfully choose store sites, execute favorable real estate transactions on terms that are
acceptable to us, hire competent personnel and effectively open and operate these new stores. Our
plans to increase the number of our retail stores will depend in part on the availability of
existing retail stores or store sites. Unavailability of financing on terms acceptable to real
estate developers or a tightening credit market may affect adversely the retail sites available to
us. We cannot assure you that stores or sites will be available to us, or that they will be
available on terms acceptable to us. If additional retail store sites are unavailable on
acceptable terms, we may not be able to carry out a significant part of our growth strategy.
Rising real estate costs and acquisition, construction and development costs could also inhibit our
ability to grow. If we fail to locate desirable sites, obtain lease rights to these sites on terms
acceptable to us, hire adequate personnel and open and effectively operate these new stores, our
financial performance could be adversely affected.
In addition, our expansion in new and existing markets may present competitive,
distribution and merchandising challenges that differ from our current challenges, including
competition among our stores, diminished novelty of our store design and concept, added strain on
our distribution centers, additional information to be processed by our management information
systems and diversion of management attention from operations, such as the control of inventory
levels in our existing stores, to the opening of new stores and markets. New stores in new
markets, where we are less familiar with the target customer and less well-known, may face
different or additional risks and increased costs compared to stores operated in existing markets,
or new stores in existing markets. Expansion into new markets could also bring us into direct
competition with retailers with whom we have no past experience as direct competitors. To the
extent that we become increasingly reliant on entry into new markets in order to grow, we may face
additional risks and our net income could suffer. To the extent that we are not able to meet these
new challenges, our sales could decrease and our operating costs could increase.
There also can be no assurance that our new stores will generate sales levels necessary to
achieve store-level profitability or profitability comparable to that of existing stores. New
stores also may face greater competition and have lower anticipated sales volumes relative to
previously opened stores during their comparable years of operation. We may not be able to
advertise cost-effectively in new or smaller markets in which we have less store density, which
could slow sales growth at such stores. We also cannot guarantee that we will be able to obtain
and distribute adequate product supplies to our stores or maintain adequate warehousing and
distribution capability at acceptable costs.
13
If we are unable to predict or react to changes in consumer demand, we may lose customers and our
sales may decline.
Our success depends in part on our ability to anticipate and respond in a timely
manner to changing consumer demand and preferences regarding sporting goods. Our products must
appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are
subject to change. We often make commitments to purchase products from our vendors several months
in advance of the proposed delivery. If we misjudge the market for our merchandise our sales may
decline significantly. We may overstock unpopular products and be forced to take significant
inventory markdowns or miss opportunities for other products, both of which could have a negative
impact on our profitability. Conversely, shortages of items that prove popular could reduce our
net sales. In addition, a major shift in consumer demand away from sporting goods or sport apparel
could also have a material adverse effect on our business, results of operations and financial
condition.
Our business is dependent on the general economic conditions in our markets.
In general, our sales depend on discretionary spending by our customers. A
deterioration of economic conditions or an economic downturn in any of our major markets or in
general could result in declines in sales and impair our growth. General economic conditions and
other factors that affect discretionary spending in the regions in which we operate are beyond our
control and are affected by:
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interest rates and inflation; |
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the impact of an economic recession; |
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the impact of natural disasters; |
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national and international security concerns; |
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consumer credit availability; |
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consumer debt levels; |
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consumer confidence in the economy; |
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gasoline and fuel prices; |
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tax rates and tax policy; |
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unemployment trends; and |
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other matters that influence consumer confidence and spending. |
Increasing volatility in financial markets may cause some of the above factors to
change with an even greater degree of frequency and magnitude.
Unauthorized disclosure of sensitive or confidential customer information could harm the Companys
business and standing with our customers.
The protection of our customer, employee and Company data is critical to us. The Company
relies on commercially available systems, software, tools and monitoring to provide security for
processing, transmission and storage of confidential customer information, such as payment card and
personal information. Despite the security measures the Company has in place, its facilities and
systems, and those of its third party service provider, may be vulnerable to security breaches,
acts of vandalism, computer viruses, misplaced or lost data, programming, human errors, or other
similar events. Any security breach involving the misappropriation, loss or other unauthorized
disclosure of confidential information, whether by the Company or its vendors, could damage our
reputation, expose us to risk of litigation and liability, disrupt our operations and harm our
business.
We may be subject to claims and our insurance may not be sufficient to cover damages related to
those claims.
We may be subject to lawsuits resulting from injuries associated with the use of sporting
goods equipment that we sell. In addition, although we do not sell hand guns, assault weapons or
automatic firearms, we do sell hunting rifles which are products that are associated with an
increased risk of injury and related lawsuits. We may also be subject to lawsuits relating to the
design, manufacture or distribution of our private label products. We may incur losses relating to
these claims or the defense of these claims. We may also incur losses due to lawsuits relating to
our performance of background checks on hunting rifle purchasers as mandated by state and federal
law or the improper use of hunting rifles sold by us, including lawsuits by municipalities or other
organizations attempting to recover costs from hunting rifle manufacturers and retailers relating
to the misuse of hunting rifles. In addition, in
the future there may be increased federal, state or local regulation, including taxation, on
the sale of hunting rifles in
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our current markets as well as future markets in which we may
operate. Commencement of these lawsuits against us or the establishment of new regulations could
reduce our sales and decrease our profitability. There is a risk that claims or liabilities will
exceed our insurance coverage. In addition, we may be unable to retain adequate liability insurance
in the future. Although we have entered into product liability indemnity agreements with many of
our vendors, we cannot assure you that we will be able to collect payments sufficient to offset
product liability losses or in the case of our private label products, collect anything at all. In
addition, we are subject to regulation by the Consumer Product Safety Commission and similar state
regulatory agencies. If we fail to comply with government and industry safety standards, we may be
subject to claims, lawsuits, fines and adverse publicity that could have a material adverse effect
on our business, results of operations and financial condition. In addition, any improper or
illegal use by our customers of ammunition or hunting rifles sold by us, could have a negative
impact on our reputation and business.
If our suppliers, distributors or manufacturers do not provide us with sufficient quantities of
products, our sales and profitability will suffer.
We purchase merchandise from approximately 1,400 vendors. In fiscal 2007, purchases from Nike
represented approximately 12% of our merchandise purchases. Although in fiscal 2007 purchases from
no other vendor represented more than 10% of our total purchases, our dependence on our principal
suppliers involves risk. If there is a disruption in supply from a principal supplier or
distributor, we may be unable to obtain the merchandise that we desire to sell and that consumers
desire to purchase. Moreover, many of our suppliers provide us with incentives, such as return
privileges, volume purchasing allowances and cooperative advertising. A decline or discontinuation
of these incentives could reduce our profits.
We believe that a significant portion of the products that we purchase, including those
purchased from domestic suppliers, is manufactured abroad in countries such as China, Taiwan and
South Korea. In addition, we believe most, if not all, of our private label merchandise is
manufactured abroad. Foreign imports subject us to the risks of changes in import duties, quotas,
loss of most favored nation or MFN status with the United States for a particular foreign
country, work stoppages, delays in shipment, shipping port
constraints, labor strikes, work stoppages or other disruptions, freight cost increases and economic uncertainties
(including the United States imposing antidumping or countervailing duty orders, safeguards,
remedies or compensation and retaliation due to illegal foreign trade practices). If any of these
or other factors were to cause a disruption of trade from the countries in which the suppliers of
our vendors are located, our inventory levels may be reduced or the cost of our products may
increase. In addition, to the extent that any foreign manufacturers from whom we purchase products
directly or indirectly utilize labor and other practices that vary from those commonly accepted in
the United States, we could be hurt by any resulting negative publicity or, in some cases, face
potential liability.
Historically, instability in the political and economic environments of the countries in
which our vendors or we obtain our products has not had a material adverse effect on our
operations. However, we cannot predict the effect that future changes in economic or political
conditions in such foreign countries may have on our operations. In the event of disruptions or
delays in supply due to economic or political conditions in foreign countries, such disruptions or
delays could adversely affect our results of operations unless and until alternative supply
arrangements could be made. In addition, merchandise purchased from alternative sources may be of
lesser quality or more expensive than the merchandise we currently purchase abroad.
Countries from which our vendors obtain these new products may, from time to time, impose new
or adjust prevailing quotas or other restrictions on exported products, and the United States may
impose new duties, quotas and other restrictions on imported products. The United States Congress
periodically considers other restrictions on the importation of products obtained by our vendors
and us. The cost of such products may increase for us if applicable duties are raised or if
exchange rates fluctuate, or if import quotas with respect to such products are imposed or made
more restrictive, we may not be able to obtain certain goods.
Problems with our information system software could disrupt our operations and negatively impact
our financial results and materially adversely affect our business operations.
Our Dicks stores utilize a suite of applications for our merchandise system that includes JDA
Merchandising and Arthur Allocation. Our Golf Galaxy stores utilize a fully integrated merchandise
system from Retail Pro. These systems, if not functioning properly, could disrupt our ability to
track, record and analyze the merchandise that we sell and cause disruptions of operations,
including, among others, an inability to process shipments of goods, process financial information
or credit card transactions, deliver products or engage in similar normal business activities,
particularly if there are any unforeseen interruptions after implementation. Any material
disruption, malfunction or other similar problems in or with these systems could negatively
impact our financial results and materially adversely affect our business operations.
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We rely on two distribution centers along with a smaller return facility, and if there is a
natural disaster or other serious disruption at one of these facilities, we may lose merchandise
and be unable to effectively deliver it to our stores.
We currently operate a 601,000 square foot distribution center in Smithton, Pennsylvania and a
725,000 square foot distribution center in Plainfield, Indiana. We also operate a 75,000 square
foot return center in Conklin, New York. Any natural disaster or other serious disruption to one
of these facilities due to fire, tornado or any other cause would damage a significant portion of
our inventory, could impair our ability to adequately stock our stores and process returns of
products to vendors and could negatively affect our sales and profitability. Our growth could
cause us to seek alternative facilities. Such expansion of the current facility or alternatives
could affect us in ways we cannot predict.
Our business is seasonal and our annual results are highly dependent on the success of our fourth
quarter sales.
Our business is highly seasonal in nature. Our highest sales and operating income
historically occur during the fourth fiscal quarter, which is due, in part, to the holiday selling
season and, in part, to our strong sales of cold weather sporting goods and apparel. The fourth
quarter generated approximately 31% of our net sales and approximately 47% of our net income for
fiscal 2007. Any decrease in our fourth quarter sales, whether because of a slow holiday selling
season, unseasonable weather conditions, economic conditions or otherwise, could have a material
adverse effect on our business, financial condition and operating results for the entire fiscal
year.
Because our Dicks stores are generally concentrated in the eastern half of the United States, we
are subject to regional risks.
Many of our Dicks stores are located primarily in the eastern half of the United States.
Because of this, we are subject to regional risks, such as the regional economy, weather
conditions, increasing costs of electricity, oil and natural gas, natural disasters, as well as
government regulations specific to the states in which we operate. If the region were to suffer an
economic downturn or other adverse regional event, our net sales and profitability could suffer.
Our results of operations may be harmed by unseasonably warm winter weather conditions. Many
of our stores are located in geographic areas that experience seasonably cold weather. We sell a
significant amount of winter merchandise. Abnormally warm weather conditions could reduce our
sales of these items and hurt our profitability. Additionally, abnormally wet or cold weather in
the spring or summer months could reduce our sales of golf or other merchandise and hurt our
profitability.
The Company may be subject to periodic litigation, including Fair Labor Standards Act and state
wage and hour lawsuits and other types of claims that may adversely affect the Companys business and financial performance.
From time to time the Company or its subsidiaries may be involved in lawsuits, including class
action lawsuits brought against the Company or its subsidiaries for alleged violations of the Fair
Labor Standards Act and state wage and hour laws, product liability,
consumer, employment, tort and other litigation. Due to the inherent uncertainties of litigation,
we cannot accurately predict the ultimate outcome of any such proceedings. We may incur losses
relating to these claims. In addition, these proceedings could cause us to incur costs and may
require us to devote resources to defend against these claims. For a description of current legal
proceedings, see Part II, Item 3, Legal Proceedings.
The terms of our senior secured revolving credit facility impose operating and financial
restrictions on us, which may impair our ability to respond to changing business and economic
conditions. This impairment could have a significant adverse impact on our business.
Our current senior secured revolving credit facility contains provisions which
restrict our ability to, among other things, incur additional indebtedness, issue additional shares
of capital stock in certain circumstances, make particular types of investments, incur certain
types of liens, pay cash dividends, redeem capital stock, consummate mergers and consolidations of
certain sizes, enter into transactions with affiliates or make substantial asset sales. In
addition, our obligations under the senior secured revolving credit facility are secured by
interests in substantially all of our personal property excluding store and distribution center
equipment and fixtures. In the event of our
insolvency, liquidation, dissolution or reorganization, the lenders under our senior secured
revolving credit facility would be entitled to payment in full from our assets before
distributions, if any, were made to our stockholders.
16
If we are unable to generate sufficient cash flows from operations in the future, we
may have to refinance all or a portion of our debt and/or obtain additional financing. We cannot
assure you that refinancing or additional financing on favorable terms could be obtained or that we
would be able to operate at a profit.
We may pursue strategic acquisitions, which could have an adverse impact on our business.
We may from time to time acquire complementary companies or businesses.
Acquisitions may result in difficulties in assimilating acquired companies, and may result in the
diversion of our capital and our managements attention from other business issues and
opportunities. We may not be able to successfully integrate operations that we acquire, including
their personnel, financial systems, distribution, operations and general store operating
procedures. If we fail to successfully integrate acquisitions, our business could suffer. In
addition, the integration of any acquired business, and their financial results, into ours may
adversely affect our operating results.
Our ability to expand our business will be dependent upon the availability of adequate
capital.
The rate of our expansion will also depend on the availability of adequate capital,
which in turn will depend in large part on cash flow generated by our business and the availability
of equity and debt capital. We cannot assure you that we will be able to obtain equity or debt
capital on acceptable terms or at all. Our current senior secured revolving credit facility
contains provisions which restrict our ability to incur additional indebtedness, to raise capital
through the issuance of equity or make substantial asset sales, which might otherwise be used to
finance our expansion. Our obligations under the senior secured revolving credit facility are
secured by interests in substantially all of our personal property excluding store and distribution
center equipment and fixtures, which may further limit our access to certain capital markets or
lending sources. Moreover, the actual availability under our credit facility is limited to the
lesser of 70% of our eligible inventory or 85% of our inventorys liquidation value, in each case
net of specified reserves and less any letters of credit outstanding, and opportunities for
increased cash flows from reduced inventories would be partially offset by reduced availability
through our senior secured revolving credit facility. As a result, we cannot assure you that we
will be able to finance our current plans for the opening of new retail stores.
The loss of our key executives, especially Edward W. Stack, our Chairman of the Board, Chief
Executive Officer and President could have a material adverse effect on our business due to the
loss of their experience and industry relationships.
Our success depends on the continued services of our senior management, particularly
Edward W. Stack, our Chairman of the Board, Chief Executive Officer and President. If we were to
lose any key senior executive, our business could be materially adversely affected.
Our business depends on our ability to meet our labor needs.
Our success depends on hiring and retaining quality managers and sales associates in
our stores. We plan to expand our employee base to manage our anticipated growth. Competition for
personnel, particularly for employees with retail expertise, is intense. Additionally, our ability
to maintain consistency in the quality of customer service in our stores is critical to our
success. Also, many of our store-level employees are in entry-level or part-time positions that
historically have high rates of turnover. We are also dependent on the employees who staff our
distribution and return centers, many of whom are skilled. We may be unable to meet our labor
needs and control our costs due to external factors such as unemployment levels, minimum wage
legislation and wage inflation. Although none of our employees are currently covered under
collective bargaining agreements, we cannot guarantee that our employees will not elect to be
represented by labor unions in the future. If we are unable to hire and retain sales associates
capable of providing a high level of customer service, our business could be materially adversely
affected.
Terrorist attacks or acts of war may seriously harm our business.
Among the chief uncertainties facing our nation and world and, as a result, our
business is the instability and conflict in the Middle East. Obviously, no one can predict with
certainty what the overall economic impact will be as a result of these circumstances. Clearly,
events or series of events in the Middle East or elsewhere could have a very serious adverse impact
on our business.
Terrorist attacks may cause damage or disruption to our Company, our employees, our
facilities and our customers, which could significantly impact our net sales, costs and expenses,
and financial condition. The potential for future terrorist attacks, the national and
international responses to terrorist attacks, and other acts of war or hostility may cause greater
uncertainty and cause our business to suffer in ways that we currently cannot predict.
17
Our
geographic focus in the eastern United States may make us more vulnerable to such uncertainties
than other comparable retailers who may not have a similar geographic focus.
We are controlled by our Chief Executive Officer and his relatives, whose interests may differ
from other stockholders.
We have two classes of common stock. The common stock has one vote per share and the Class B
common stock has 10 votes per share. As of February 2, 2008, Mr. Edward W. Stack, our Chairman,
Chief Executive Officer and President and his relatives controlled approximately 76% of the
combined voting power of our common stock and Class B common stock and would control the outcome of
any corporate transaction or other matter submitted to the stockholders for approval, including
mergers, consolidations and the sale of all or substantially all of our assets. Mr. Stack may also
acquire additional shares of common stock upon the exercise of stock options. The interests of Mr.
Stack and his relatives may differ from the interests of the other stockholders and they may take
actions with which you disagree.
Our quarterly operating results may fluctuate substantially, which may adversely affect our
business and the market price of our common stock.
Our net sales and results of operations have fluctuated in the past and may vary from quarter
to quarter in the future. These fluctuations may adversely affect our business, financial condition
and the market price of our common stock. A number of factors, many of which are outside our
control, may cause variations in our quarterly net sales and operating results, including:
|
|
|
changes in demand for the products that we offer in our stores; |
|
|
|
|
lockouts or strikes involving professional sports teams; |
|
|
|
|
retirement of sports superstars used in marketing various products; |
|
|
|
|
sports scandals; |
|
|
|
|
costs related to the closures of existing stores; |
|
|
|
|
litigation; |
|
|
|
|
pricing and other actions taken by our competitors; |
|
|
|
|
adverse weather conditions in our markets; and |
|
|
|
|
general economic conditions. |
Our comparable store sales will fluctuate and may not be a meaningful indicator of future
performance.
Changes in our comparable store sales results could affect the price of our common stock. A
number of factors have historically affected, and will continue to affect, our comparable store
sales results, including:
|
|
|
competition; |
|
|
|
|
our new store openings; |
|
|
|
|
general regional and national economic conditions; |
|
|
|
|
actions taken by our competitors; |
|
|
|
|
consumer trends and preferences; |
|
|
|
|
changes in the other tenants in the shopping centers in which we are located; |
|
|
|
|
new product introductions and changes in our product mix; |
|
|
|
|
timing and effectiveness of promotional events; |
|
|
|
|
lack of new product introductions to spur growth in the sale of various kinds of
sports equipment; and |
|
|
|
|
weather. |
We cannot assure you that comparable store sales will continue to increase at the rates
achieved in our last fiscal year. Moreover, our comparable store sales may decline. Our comparable
store sales may vary from quarter to quarter, and an unanticipated decline in revenues or
comparable store sales may cause the price of our common stock to fluctuate significantly.
18
The market price of our common stock is likely to be highly volatile as the stock market in
general can be highly volatile.
Factors that could cause fluctuation in the stock price may include, among other things:
|
|
|
general economic and market conditions; |
|
|
|
|
actual or anticipated variations in quarterly operating results; |
|
|
|
|
changes in financial estimates by securities analysts; |
|
|
|
|
our inability to meet or exceed securities analysts estimates or expectations; |
|
|
|
|
conditions or trends in our industry; |
|
|
|
|
changes in the market valuations of other retail companies; |
|
|
|
|
announcements by us or our competitors of significant acquisitions, strategic
partnerships, divestitures, joint ventures or other strategic initiatives; |
|
|
|
|
capital commitments; |
|
|
|
|
additions or departures of key personnel; and |
|
|
|
|
sales of common stock. |
Many of these factors are beyond our control. These factors may cause the market price of our
common stock to decline, regardless of our operating performance.
Our anti-takeover provisions could prevent or delay a change in control of our company, even if
such change of control would be beneficial to our stockholders.
Provisions of our Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws as well as provisions of Delaware law could discourage, delay or prevent a merger,
acquisition or other change in control of our Company, even if such change in control would be
beneficial to our stockholders. These provisions include: authorizing the issuance of Class B
common stock; classifying the board of directors such that only one-third of directors are elected
each year; authorizing the issuance of blank check preferred stock that could be issued by our
board of directors to increase the number of outstanding shares and thwart a takeover attempt;
prohibiting the use of cumulative voting for the election of directors; limiting the ability of
stockholders to call special meetings of stockholders; if our Class B common stock is no longer
outstanding, prohibiting stockholder action by partial written consent and requiring all
stockholder actions to be taken at a meeting of our stockholders or by unanimous written consent;
and establishing advance notice requirements for nominations for election to the board of directors
or for proposing matters that can be acted upon by stockholders at stockholder meetings.
In addition, the Delaware General Corporation Law, to which we are subject, prohibits, except
under specified circumstances, us from engaging in any mergers, significant sales of stock or
assets or business combinations with any stockholder or group of stockholders who own at least 15%
of our common stock.
We may not have the ability to purchase convertible notes at the option of the holders or upon a
change in control or to raise the funds necessary to finance the purchases.
On February 18, 2004, the Company completed a private offering of $172.5 million issue price
of senior unsecured convertible notes in transactions pursuant to Rule 144A under the Securities
Act of 1933, as amended.
The Companys common stock price has triggered an optional conversion right, whereby the
holders of the convertible notes may convert their convertible notes under certain circumstances.
However, it is possible that we would not have sufficient funds at that time to make the required
purchase of convertible notes or would otherwise be prohibited under our senior secured revolving
credit facility or other future debt instruments from making such payments in cash. We are required
to pay cash for each $1,000 of face amount of a note equal to the lesser of: (i) the accreted
principal amount (the sum of the initial issue price of $676.25 per $1,000 face amount and the
accrued original issue discount as of the conversion date (no original issue discount occurs until
2009)), and (ii) the product of (a) the number of shares of the Companys common stock into
which the note otherwise would have been converted if no cash payment were made by the Company
(i.e. 34.4044 shares per $1,000 face amount), multiplied by (b) the average of the closing per
share sale price on the fifteen consecutive trading days commencing on the fourth trading day after
the conversion date.
19
In addition, upon the occurrence of certain specific kinds of change in control events,
holders may require us to purchase for cash all or any portion of their convertible notes. However,
it is possible that, upon a change in control, we may not have sufficient funds at that time to
make the required purchase of convertible notes, and we may be unable to raise the funds necessary.
In addition, the issuance of our shares upon a conversion of convertible notes could result in a
default under our credit facility to the extent that the issuance creates a change of control event
under our senior secured revolving credit facility. Such a default under the senior secured
revolving credit facility could in turn create a cross default under the convertible notes.
The terms of our senior secured revolving credit facility and of any future indebtedness we
incur may also restrict our ability to fund the purchase of convertible notes upon a change in
control or if we are otherwise required to purchase convertible notes at the option of the holder.
If such restrictions exist, we would have to seek the consent of the lenders or repay those
borrowings. If we were unable to obtain the necessary consent or unable to repay those borrowings,
we would be unable to purchase the convertible notes and, as a result, would be in default under
the convertible notes.
Risks
associated with exclusive brand offerings.
We offer our customers high-quality products at competitive prices marketed under exclusive
brands. We expect to continue to grow our exclusive private label offerings and have entered into
several licensing agreements that grant us the right to sell and market certain products under
third-party brands. We have invested in our development and procurement resources and marketing
efforts related to these exclusive brand offerings. Although we believe that our private label
products offer value to our customers at each price point and provide us with higher gross margins
than comparable products we sell, the expansion of our exclusive brand offerings subjects us to
certain risks or increases the risk to our business. These risks, include, among others, risks
related to: our failure to comply with government and industry safety standards (e.g., the Consumer
Product Safety Commission and similar state regulatory agencies) related to our private label
products; mandatory or voluntary product recalls related to our exclusive brand offerings; being
subject to lawsuits resulting from injuries associated with the use of private label sporting goods
equipment that we sell; our ability to successfully protect our proprietary rights (e.g., defending
against counterfeit, knock offs, grey-market, infringing or otherwise unauthorized goods) of our
exclusive branded offerings; our ability to successfully navigate the proprietary rights of other
parties and avoid claims related to proprietary rights of others; our ability to successfully
administer and comply with third-party licenses and contractual commitments that we have with the
licensors of the brands, including in some instances certain sales minimums, which if not met in
some instances can cause us to lose the licensing rights or pay damages; risks associated with
overseas sourcing and manufacturing foreign laws and regulation, political unrest, disruptions
or delays in cross-border shipments, changes in economic conditions in countries, exchange rate
fluctuations and conducting activities with third-party manufacturers and those risks generally
encountered by entities that sell and market exclusive branded offerings for retail. Our failure
to adequately address some or all of these risks could have a material adverse effect on our
business, results of operations and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located at 300 Industry Drive, RIDC Park West, Pittsburgh, PA
15275, where we lease approximately 200,000 square feet of office space. The lease for this office
space is for a term of 20 years through 2024. Our Golf Galaxy operations are headquartered in Eden
Prairie, Minnesota, where we lease from an unaffiliated third party approximately 25,000 square
feet of office space, as well as approximately 23,000 square feet of warehouse space to support
Golf Galaxys eCommerce operations. The term of the lease ends in January 2010, subject to a
five-year renewal at our option.
We currently lease a 601,000 square foot distribution center in Smithton, Pennsylvania and a
725,000 square foot distribution center in Plainfield, Indiana. The term of these leases expire in
2019 and 2020, respectively. We also lease a 75,000 square foot return center in Conklin, New
York, which is utilized for freight consolidation and the handling of damaged and defective
merchandise. The term of this lease expires in 2009. During fiscal 2007, the Company executed a
lease agreement for a new 657,000 square foot distribution center near Atlanta, Georgia, which is
expected to be operational during fiscal 2008. The term of this lease expires in 2019.
Our recently acquired Chicks operations are headquartered in Covina, California, where we
lease approximately 11,500 square feet of office space, with the lease ending in May 2011. In
addition, Chicks operates a 12,500 square foot distribution center in San Dimas, California. The
term of this lease ends in September 2008,
subject to a two-year renewal at our option.
20
We lease all of our stores. Initial lease terms are generally for 10 to 25 years, and most
leases contain multiple five-year renewal options and rent escalation provisions. We believe that
our leases, when entered into, are at market rate rents. We generally select a new store site six
to 18 months before its opening. Our stores are primarily located in shopping centers in regional
shopping areas, as well as in freestanding locations and in malls. We currently have substantially
all of our leases signed for the stores planned to open in fiscal 2008 and five signed leases for
the stores planned to open in fiscal 2009.
As of February 2, 2008 we operated 434 stores in 40 states. The following table sets forth
the number of stores by state:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicks Sporting |
|
|
State |
|
Dicks |
|
Golf Galaxy |
|
Goods |
|
Total |
Alabama |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Arizona |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
3 |
|
California |
|
|
|
|
|
|
2 |
|
|
|
15 |
|
|
|
17 |
|
Colorado |
|
|
9 |
|
|
|
2 |
|
|
|
|
|
|
|
11 |
|
Connecticut |
|
|
8 |
|
|
|
1 |
|
|
|
|
|
|
|
9 |
|
Delaware |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
Florida |
|
|
7 |
|
|
|
1 |
|
|
|
|
|
|
|
8 |
|
Georgia |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Idaho |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Illinois |
|
|
19 |
|
|
|
7 |
|
|
|
|
|
|
|
26 |
|
Indiana |
|
|
15 |
|
|
|
1 |
|
|
|
|
|
|
|
16 |
|
Iowa |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
Kansas |
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
7 |
|
Kentucky |
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
7 |
|
Louisiana |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Maine |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Maryland |
|
|
9 |
|
|
|
2 |
|
|
|
|
|
|
|
11 |
|
Massachusetts |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Michigan |
|
|
15 |
|
|
|
1 |
|
|
|
|
|
|
|
16 |
|
Minnesota |
|
|
6 |
|
|
|
4 |
|
|
|
|
|
|
|
10 |
|
Missouri |
|
|
6 |
|
|
|
2 |
|
|
|
|
|
|
|
8 |
|
Nebraska |
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
Nevada |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
New Hampshire |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
New Jersey |
|
|
12 |
|
|
|
3 |
|
|
|
|
|
|
|
15 |
|
New York |
|
|
28 |
|
|
|
5 |
|
|
|
|
|
|
|
33 |
|
North Carolina |
|
|
21 |
|
|
|
5 |
|
|
|
|
|
|
|
26 |
|
Ohio |
|
|
35 |
|
|
|
9 |
|
|
|
|
|
|
|
44 |
|
Oklahoma |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Oregon |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Pennsylvania |
|
|
33 |
|
|
|
2 |
|
|
|
|
|
|
|
35 |
|
Rhode Island |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
South Carolina |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Tennessee |
|
|
11 |
|
|
|
1 |
|
|
|
|
|
|
|
12 |
|
Texas |
|
|
6 |
|
|
|
10 |
|
|
|
|
|
|
|
16 |
|
Utah |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
Vermont |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Virginia |
|
|
16 |
|
|
|
4 |
|
|
|
|
|
|
|
20 |
|
West Virginia |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Wisconsin |
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
340 |
|
|
|
79 |
|
|
|
15 |
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in two cases which make claims concerning alleged failures to pay
overtime wages as required by the Fair Labor Standards Act (FLSA) and applicable state labor law.
The cases were filed in May and November of 2005 in the U.S. District Court for the Western
District of New York (Tamara Barrus v. Dicks Sporting Goods, Inc. and Galyans Trading Company,
Inc. (Barrus) and Daniel Parks v. Dicks Sporting Goods, Inc. (Parks)). In September and
October 2006, respectively, a magistrate judge for the U.S. District Court for the Western District
of New York conditionally certified classes for notice purposes under the FLSA in the Barrus and
Parks cases, which the U.S. District Judge upheld. In the Barrus case, the parties and the Court
agreed to stay the litigation pending an attempt to resolve all claims through mediation. Mediation
sessions were held in April and August 2007. The parties to the Barrus case have continued to work
through the mediators office and independently in an effort to determine whether the matter can be
resolved through settlement. In the Parks case, the parties and the Court have also agreed to stay
the litigation pending an attempt to resolve all claims through mediation. A mediation session was
held in March 2008 and the parties have agreed to continue discussions to determine whether this
matter can be resolved through settlement.
We currently believe that none of these cases properly represent class actions, and we plan to
vigorously defend these cases. Our management believes that the final resolution of these matters
would not have a material effect on our consolidated financial position or liquidity or results of
operations.
In addition to the above matters, various claims and lawsuits arising in the normal course of
business are pending against us. The subject matter of these proceedings primarily includes
commercial, intellectual property and lease disputes and employment issues. The results of those
other proceedings are not expected to have a material adverse effect on our consolidated financial
position, liquidity or results of operations.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of fiscal
year 2007 through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The shares of Dicks Sporting Goods, Inc. common stock are listed and traded on the New York
Stock Exchange (NYSE) under the symbol DKS. The shares of the Companys Class B common stock
are neither listed nor traded on any stock exchange or other market. These shares of Class B
common stock can be converted to common stock at the holders option and are automatically
convertible upon other events. Our common stock began trading on October 16, 2002, following the
Companys initial public offering. Set forth below, for the applicable periods indicated, are the
high and low closing sales prices per share of the Companys common stock as reported by the NYSE.
The closing prices below have been adjusted to reflect the two-for-one stock split in the form of a
stock dividend distributed on October 19, 2007 to the Companys stockholders of record as of
September 28, 2007.
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended |
|
High |
|
Low |
May 5, 2007 |
|
$ |
29.54 |
|
|
$ |
24.67 |
|
August 4, 2007 |
|
$ |
29.53 |
|
|
$ |
25.11 |
|
November 3, 2007 |
|
$ |
35.84 |
|
|
$ |
26.36 |
|
February 2, 2008 |
|
$ |
32.93 |
|
|
$ |
25.74 |
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended |
|
High |
|
Low |
April 29, 2006 |
|
$ |
21.13 |
|
|
$ |
17.83 |
|
July 29, 2006 |
|
$ |
22.02 |
|
|
$ |
17.62 |
|
October 28, 2006 |
|
$ |
24.75 |
|
|
$ |
18.13 |
|
February 3, 2007 |
|
$ |
27.90 |
|
|
$ |
24.12 |
|
22
The number of holders of record of shares of the Companys common stock and Class B common
stock as of March 19, 2008 was 200 and 9, respectively.
We currently intend to retain our earnings for the development of our business. We have never
paid any cash dividends since our inception, and we do not anticipate paying any cash dividends in
the future.
The information set forth under Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters is incorporated herein.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated financial data for fiscal years 2007, 2006, 2005, 2004 and
2003 presented below under the captions Statement of Income Data, Earnings per Common Share,
Other Data and Balance Sheet Data have been derived from our consolidated financial statements
for those periods. The following selected consolidated financial data for fiscal years 2007, 2006,
2005, 2004 and 2003 presented below under the caption Store Data have been derived from internal
records of our operations.
Our fiscal year consists of 52 or 53 weeks, ends on the Saturday nearest to the last day in
January and is named for the calendar year ending closest to that date. All fiscal years presented
include 52 weeks of operations except fiscal 2006, which includes 53 weeks. You should read the
information set forth below in conjunction with other sections of this report, including
Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2007 (1) |
|
|
2006 (1) |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(Dollars in thousands, except per share and sales per square foot data) |
|
Statement of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
3,888,422 |
|
|
$ |
3,114,162 |
|
|
$ |
2,624,987 |
|
|
$ |
2,109,399 |
|
|
$ |
1,470,845 |
|
Cost of goods sold (2) |
|
|
2,730,359 |
|
|
|
2,217,463 |
|
|
|
1,887,347 |
|
|
|
1,522,873 |
|
|
|
1,062,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,158,063 |
|
|
|
896,699 |
|
|
|
737,640 |
|
|
|
586,526 |
|
|
|
408,025 |
|
Selling, general and administrative expenses |
|
|
870,415 |
|
|
|
682,625 |
|
|
|
556,320 |
|
|
|
443,776 |
|
|
|
314,885 |
|
Merger integration and store closing costs |
|
|
|
|
|
|
|
|
|
|
37,790 |
|
|
|
20,336 |
|
|
|
|
|
Pre-opening expenses |
|
|
18,831 |
|
|
|
16,364 |
|
|
|
10,781 |
|
|
|
11,545 |
|
|
|
7,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
268,817 |
|
|
|
197,710 |
|
|
|
132,749 |
|
|
|
110,869 |
|
|
|
85,641 |
|
Gain on sale of non-cash investment (3) |
|
|
|
|
|
|
|
|
|
|
(1,844 |
) |
|
|
(10,981 |
) |
|
|
(3,536 |
) |
Interest expense, net |
|
|
11,290 |
|
|
|
10,025 |
|
|
|
12,959 |
|
|
|
8,009 |
|
|
|
1,831 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
257,527 |
|
|
|
187,685 |
|
|
|
121,634 |
|
|
|
114,841 |
|
|
|
87,346 |
|
Provision for income taxes |
|
|
102,491 |
|
|
|
75,074 |
|
|
|
48,654 |
|
|
|
45,936 |
|
|
|
34,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
155,036 |
|
|
$ |
112,611 |
|
|
$ |
72,980 |
|
|
$ |
68,905 |
|
|
$ |
52,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share Basic |
|
$ |
1.42 |
|
|
$ |
1.10 |
|
|
$ |
0.73 |
|
|
$ |
0.72 |
|
|
$ |
0.59 |
|
Net income per common share Diluted |
|
$ |
1.33 |
|
|
$ |
1.02 |
|
|
$ |
0.68 |
|
|
$ |
0.65 |
|
|
$ |
0.52 |
|
Weighted average number of common shares
outstanding (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
109,383 |
|
|
|
102,512 |
|
|
|
99,584 |
|
|
|
95,956 |
|
|
|
89,548 |
|
Diluted |
|
|
116,504 |
|
|
|
110,790 |
|
|
|
107,958 |
|
|
|
105,842 |
|
|
|
100,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable store net sales increase (5) |
|
|
2.4 |
% |
|
|
6.0 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.1 |
% |
Number of stores at end of period (6) |
|
|
434 |
|
|
|
294 |
|
|
|
255 |
|
|
|
234 |
|
|
|
163 |
|
Total square feet at end of period (6) |
|
|
21,084,292 |
|
|
|
16,724,171 |
|
|
|
14,650,459 |
|
|
|
13,514,869 |
|
|
|
7,919,138 |
|
Net sales per square foot (7) |
|
$ |
196 |
|
|
$ |
197 |
|
|
$ |
188 |
|
|
$ |
195 |
|
|
$ |
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
|
29.8 |
% |
|
|
28.8 |
% |
|
|
28.1 |
% |
|
|
27.8 |
% |
|
|
27.7 |
% |
Selling, general and administrative percentage
of net sales |
|
|
22.4 |
% |
|
|
21.9 |
% |
|
|
21.2 |
% |
|
|
21.0 |
% |
|
|
21.4 |
% |
Operating margin |
|
|
6.9 |
% |
|
|
6.3 |
% |
|
|
5.1 |
% |
|
|
5.3 |
% |
|
|
5.8 |
% |
Inventory turnover (8) |
|
|
3.22 |
x |
|
|
3.34 |
x |
|
|
3.42 |
x |
|
|
3.56 |
x |
|
|
3.69 |
x |
Depreciation and amortization |
|
$ |
75,052 |
|
|
$ |
54,929 |
|
|
$ |
49,861 |
|
|
$ |
37,621 |
|
|
$ |
17,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
887,364 |
|
|
$ |
641,464 |
|
|
$ |
535,698 |
|
|
$ |
457,618 |
|
|
$ |
254,360 |
|
Working capital (9) |
|
$ |
307,746 |
|
|
$ |
304,796 |
|
|
$ |
142,748 |
|
|
$ |
128,388 |
|
|
$ |
136,679 |
|
Total assets |
|
$ |
2,035,635 |
|
|
$ |
1,524,265 |
|
|
$ |
1,187,789 |
|
|
$ |
1,085,048 |
|
|
$ |
543,360 |
|
Total debt including capital lease obligations |
|
$ |
181,435 |
|
|
$ |
181,017 |
|
|
$ |
181,201 |
|
|
$ |
258,004 |
|
|
$ |
3,916 |
|
Retained earnings |
|
$ |
468,974 |
|
|
$ |
315,453 |
|
|
$ |
202,842 |
|
|
$ |
129,862 |
|
|
$ |
60,957 |
|
Total stockholders equity |
|
$ |
888,520 |
|
|
$ |
620,550 |
|
|
$ |
414,793 |
|
|
$ |
313,667 |
|
|
$ |
240,894 |
|
|
|
|
(1) |
|
In the first quarter of fiscal 2006, we adopted the fair value recognition provisions
of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payment (123(R)), requiring us to recognize expense related to the fair value of our
stock-based compensation awards. We elected the modified prospective transition method as
permitted by SFAS No. 123(R) and, accordingly, financial results for years prior to fiscal
2006 have not been restated. Pre-tax stock-based compensation expense in fiscal 2007 and
2006 was $29.0 million and $24.3 million, respectively. |
|
(2) |
|
Cost of goods sold includes the cost of merchandise, occupancy, freight and
distribution costs, and shrink expense. |
24
|
|
|
(3) |
|
Gain on sale of investment resulted from the sale of a portion of the Companys
non-cash investment in its third-party Internet commerce service provider for Dicks. We
converted to an equity ownership in that provider in lieu of royalties until Internet sales
reached a predefined amount that resulted in this non-cash investment. |
|
(4) |
|
Earnings per share data gives effect to two-for-one stock splits affected in October
2007 and April 2004. |
|
(5) |
|
Comparable store sales begin in a stores 14th full month of operations
after its grand opening. Comparable store sales are for stores that opened at least 13
months prior to the beginning of the period noted. Stores that were closed or relocated
during the applicable period have been excluded from comparable store sales. Each
relocated store is returned to the comparable store base after its 14th full
month of operations. The Golf Galaxy stores will be included in the full year comparable
store base beginning in fiscal 2008. |
|
(6) |
|
The store count and square footage amounts include Golf Galaxy and Chicks for fiscal
2007. |
|
(7) |
|
Calculated using net sales and gross square footage of all stores open at both the
beginning and the end of the period. Gross square footage includes the storage, receiving
and office space that generally occupies approximately 18% of total store space in our
Dicks stores. |
|
(8) |
|
Calculated as cost of goods sold divided by the average monthly ending inventories of
the last 13 months. |
|
(9) |
|
Defined as current assets less current liabilities. |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with Selected Consolidated
Financial and Other Data and our consolidated financial statements and related notes appearing
elsewhere in this report. This Annual Report on Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. See PART I- Forward
Looking Statements and PART I-Item 1A, Risks and Uncertainties.
Overview
Dicks is an authentic full-line sporting goods retailer offering a broad assortment of
brand-name sporting goods equipment, apparel and footwear in a specialty store environment. On
February 13, 2007, the Company acquired Golf Galaxy by means of merger of our wholly owned
subsidiary with and into Golf Galaxy. On November 30, 2007, the Company completed its acquisition
of Chicks Sporting Goods, Inc. The Consolidated Statements of Income include the results of Golf
Galaxy and Chicks for fiscal 2007 from their respective dates of acquisition.
As of February 2, 2008 we operated 340 Dicks stores, 79 Golf Galaxy stores and 15 Chicks
stores, with approximately 21.1 million square feet, in 40 states, the majority of which are
located throughout the eastern half of the United States. On September 12, 2007, the Companys
board of directors approved a two-for-one stock split of the Companys common stock and Class B
common stock in the form of a stock dividend. The split was affected by issuing our stockholders of
record as of September 28, 2007 one additional share of common stock for every share of common
stock held, and one additional share of Class B common stock for every share of Class B common
stock held. The applicable share and per-share data for periods prior to fiscal 2007 included
herein have been restated to give effect to this stock split.
Executive Summary
The Company reported net income for the year ended February 2, 2008 of $155.0 million or $1.33
per diluted share as compared to net income of $112.6 million and earnings per diluted share of $1.02 in 2006. The
increase in earnings was attributable to an increase in sales as a result of a 2.4% increase in
comparable store sales, new store sales and an increase in gross profit margins partially offset by
an increase in selling, general and administrative expenses as a percentage of sales.
Net sales increased 25% to $3,888 million in 2007 from $3,114 million in 2006. This increase
includes a comparable store sales increase of 2.4%, or $66.4 million on a 52 week to 52 week basis.
The remaining increase results from the net addition of new Dicks stores in the last five quarters
which are not included in the comparable store base and the inclusion of Golf Galaxy and Chicks
during fiscal 2007 from their respective acquisition dates, partially offset by the inclusion of a
53rd week of sales in fiscal 2006.
25
Income from operations increased 36% to $268.8 million in 2007 from $197.7 million in 2006 due
primarily to the increase in sales and gross profit margin, partially offset by an increase in
selling, general and administrative costs.
As a percentage of net sales, gross profit increased to 29.78% in 2007 from 28.79% in 2006.
The gross profit percentage increased primarily due to an increase in the merchandise margin
percentage, lower freight and distribution costs as a percentage of sales and lower inventory
shrink costs as a percentage of sales.
Selling, general and administrative expenses increased by 46 basis points. The increase as a
percentage of sales was due primarily to recording higher payroll and fringe related expenses
related to bonus payments made to employees, an increase in net advertising expense and last year
including a 53rd week of sales to offset fixed costs included in selling, general and
administrative expense.
We ended the year with no borrowings on our line of credit and excess borrowing availability
totaled $333.2 million as of February 2, 2008.
Results of Operations
The following table presents for the periods indicated selected items in the Consolidated
Statements of Income as a percentage of the Companys net sales, as well as the basis point change
in percentage of net sales from the prior years period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Point |
|
|
Basis Point |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
Increase / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) in |
|
|
(Decrease) in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
Net Sales |
|
|
|
Fiscal Year |
|
|
from Prior Year |
|
|
from Prior Year |
|
|
|
2007A |
|
|
2006A |
|
|
2005A |
|
|
2006-2007A |
|
|
2005-2006A |
|
Net sales (1) |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Cost of goods sold, including occupancy
and distribution costs (2) |
|
|
70.22 |
|
|
|
71.21 |
|
|
|
71.90 |
|
|
|
(99 |
) |
|
|
(69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
29.78 |
|
|
|
28.79 |
|
|
|
28.10 |
|
|
|
99 |
|
|
|
69 |
|
Selling, general and administrative expenses (3) |
|
|
22.38 |
|
|
|
21.92 |
|
|
|
21.19 |
|
|
|
46 |
|
|
|
73 |
|
Merger integration and store closing costs (4) |
|
|
|
|
|
|
|
|
|
|
1.44 |
|
|
|
|
|
|
|
(144 |
) |
Pre-opening expenses (5) |
|
|
0.48 |
|
|
|
0.53 |
|
|
|
0.41 |
|
|
|
(5 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
6.91 |
|
|
|
6.35 |
|
|
|
5.06 |
|
|
|
56 |
|
|
|
129 |
|
Gain on sale of investment (6) |
|
|
|
|
|
|
|
|
|
|
(0.07 |
) |
|
|
|
|
|
|
7 |
|
Interest expense, net (7) |
|
|
0.29 |
|
|
|
0.32 |
|
|
|
0.49 |
|
|
|
(3 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6.62 |
|
|
|
6.03 |
|
|
|
4.63 |
|
|
|
59 |
|
|
|
140 |
|
Provision for income taxes |
|
|
2.64 |
|
|
|
2.41 |
|
|
|
1.85 |
|
|
|
23 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
3.99 |
% |
|
|
3.62 |
% |
|
|
2.78 |
% |
|
|
37 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A: Column does not add due to rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revenue from retail sales is recognized at the point of sale, net of sales tax. A
provision for anticipated merchandise returns is provided through a reduction of sales and cost of
sales in the period that the related sales are recorded. Revenue from gift cards and returned
merchandise credits (collectively the cards), are deferred and recognized upon the redemption of
the cards. These cards have no expiration date. Income from unredeemed cards is recognized in the
Consolidated Statements of Income in selling, general and administrative expenses at the point at
which redemption becomes remote. The Company performs an evaluation of the aging of the unredeemed
cards, based on the elapsed time from the date of original issuance, to determine when redemption
is remote. Revenue from layaway sales is recognized upon receipt of final payment from the
customer. |
|
(2) |
|
Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight,
distribution and store occupancy costs. Store occupancy costs include rent, common area
maintenance charges, real estate and other asset based taxes, store maintenance, utilities,
depreciation, fixture lease expenses and certain insurance expenses. |
|
(3) |
|
Selling, general and administrative expenses include store and field support payroll and
fringe benefits, advertising, bank card charges, information systems, marketing, legal, accounting,
other store expenses and all expenses associated with operating the Companys corporate
headquarters. |
26
|
|
|
(4) |
|
Merger integration and store closing costs all pertain to the Galyans acquisition and
include the expense of closing Dicks stores in overlapping markets, advertising the re-branding of
Galyans stores, duplicative administrative costs, recruiting and system conversion costs.
Beginning in the third quarter of 2005, the balance of the merger integration and store closing
costs, which relate primarily to accretion of discounted cash flows on future lease payments on
closed stores, was included in rent expense. |
|
(5) |
|
Pre-opening expenses consist primarily of rent, marketing, payroll and recruiting costs
incurred prior to a new store opening. |
|
(6) |
|
Gain on sale of investment resulted from the sale of a portion of the Companys non-cash
investment in its third-party Internet commerce provider. |
|
(7) |
|
Interest expense, net, results primarily from interest on our senior convertible notes
and Credit Agreement borrowings partially offset by interest income. |
Fiscal 2007 (52 weeks) Compared to Fiscal 2006 (53 weeks)
Net Income
Net income increased to $155.0 million in 2007 from $112.6 million in 2006. This represented
an increase in diluted earnings per share of $0.31, or 30% to $1.33 from $1.02. The increase in
earnings was attributable to an increase in net sales and gross profit margin percentage, partially
offset by an increase in selling, general and administrative expenses as a percentage of sales.
Net Sales
Net sales increased 25% to $3,888 million in 2007 from $3,114 million in 2006. This increase
includes a comparable store sales increase of 2.4%, or $66.4 million on a 52 week to 52 week basis.
The remaining increase results from the net addition of new Dicks stores in the last five
quarters which are not included in the comparable store base and the inclusion of Golf Galaxy and
Chicks during fiscal 2007 from their respective acquisition dates, partially offset by the
inclusion of a 53rd week of sales in fiscal 2006.
The increase in comparable store sales is mostly attributable to sales increases in higher
margin categories including outerwear, outerwear accessories, mens and womens athletic apparel
and licensed merchandise, partially offset by lower sales of exercise equipment and kids athletic
footwear driven by the Companys decision to exit the Heelys wheeled shoe business in 2007.
Store Count
During 2007, we acquired 65 Golf Galaxy stores and 15 Chicks Sporting Goods stores. In
addition, we opened 46 Dicks stores and 16 Golf Galaxy stores, relocated one Dicks store, and
closed two Golf Galaxy stores, resulting in an ending store count of 434 stores, with approximately
21.1 million square feet, in 40 states.
Income from Operations
Income from operations increased 36% to $268.8 million in 2007 from $197.7 million in 2006 due
primarily to the increase in sales and gross profit margin, partially offset by an increase in
selling, general and administrative costs.
Gross profit increased 29% to $1,158.1 million in 2007 from $896.7 million in 2006. As a
percentage of net sales, gross profit increased to 29.78% in 2007 from 28.79% in 2006. The gross
profit percentage increased primarily due to improved merchandise margins in the majority of the
Companys product categories and lower freight and distributions costs as a percentage of sales (38
basis points) due to cost minimization practices at our distribution centers offset by higher
occupancy costs as a percentage of sales (35 basis points) due to the leverage from higher sales in
fiscal 2006 due to the 53rd week of sales.
Selling, general and administrative expenses increased to $870.4 million in 2007 from $682.6
million in 2006 due primarily to an increase in store count and continued investment in corporate
and store infrastructure.
27
The 46 basis point increase over last year was due primarily to higher payroll and fringe
related expenses related to bonus payments to employees (40 basis points), an increase in net
advertising expense (3 basis points), and fiscal 2006 including a 53rd week of sales to
offset fixed costs included in selling, general and administrative expense.
Pre-opening expenses increased by $2.4 million to $18.8 million in 2007 from $16.4 million in
2006. Pre-opening expenses were for the opening of 46 new Dicks stores and 16 Golf Galaxy stores,
as well as the relocation of one Dicks store in 2007 compared to the opening of 39 new stores and
relocation of two stores in 2006. Pre-opening expenses in any year fluctuate depending on the
timing and number of store openings and relocations.
Interest Expense, net
Interest expense, net, increased by $1.3 million to $11.3 million in 2007 from $10.0 million
in 2006 due primarily to costs related to the financing of both the Golf Galaxy and Chicks
acquisitions during 2007. The Company ended fiscal 2007 with no outstanding borrowings under its
senior secured revolving credit facility.
Fiscal 2006 (53 weeks) Compared to Fiscal 2005 (52 weeks)
Net Income
Net income increased to $112.6 million in 2006 from $73.0 million in 2005. This represented
an increase in diluted earnings per share of $0.34, or 50% to $1.02 from $0.68. The increase in
earnings was attributable to an increase in net sales and gross profit margin percentage, partially
offset by an increase in selling, general and administrative expenses as a percentage of sales.
Net Sales
Net sales increased 19% to $3,114 million in 2006 from $2,625 million in 2005. This increase
resulted primarily from a comparable store sales increase of 6.0%, or $105.9 million on a 52 week
to 52 week basis, and $383.1 million from the net addition of new stores in the last five quarters
which are not included in the comparable store base and the inclusion of a 53rd week of
sales.
The increase in comparable store sales is mostly attributable to sales increases in mens and
womens apparel, kids, athletic and casual footwear, licensed merchandise, baseball, hunting,
camping and guns, partially offset by lower sales of bikes, boots, snow sports and outerwear
accessories.
Store Count
During 2006, we opened 39 stores and relocated two stores. As of February 3, 2007 we operated
294 stores, with approximately 16.7 million square feet, in 34 states.
Income from Operations
Income from operations increased 49% to $197.7 million in 2006 from $132.7 million in 2005 due
primarily to the increase in gross profit, partially offset by an increase in selling, general and
administrative costs.
Gross profit increased 22% to $896.7 million in 2006 from $737.6 million in 2005. As a
percentage of net sales, gross profit increased to 28.79% in 2006 from 28.10% in 2005. The gross
profit percentage increased primarily due to improved merchandise margins in the majority of the
Companys product categories, lower freight and distributions costs as a percentage of sales (14
basis points) due to cost minimization practices at our distribution centers and lower occupancy
costs as a percentage of sales (14 basis points) due to the leverage from higher sales.
Selling, general and administrative expenses increased to $682.6 million in 2006 from $556.3
million in 2005 due primarily to an increase in store count and continued investment in corporate
and store infrastructure.
The 73 basis point increase over fiscal 2005 was due primarily to an increase in net
advertising expense (29 basis points), the recording of stock compensation expense in fiscal 2006,
due to the Companys adoption of FAS 123R (78 basis points) and higher bonus expense (19 basis
points) partially offset by a decrease in store payroll (40 basis points) due to the leverage from
higher sales.
28
Merger integration and store closing costs associated with the purchase of Galyans of $37.8
million were recognized in 2005. The cost relates primarily to closing Dicks stores in
overlapping markets and advertising the re-branding and re-grand opening of the former Galyans
stores.
Pre-opening expenses increased by $5.6 million to $16.4 million in 2006 from $10.8 million in
2005. Pre-opening expenses were for the opening of 39 new stores and relocation of two stores in
2006 compared to the opening of 26 new stores and relocation of four stores in 2005. Pre-opening
expenses in any year fluctuate depending on the timing and number of store openings and
relocations.
Gain on Sale of Investment
Gain on sale of investment was $1.8 million in 2005. The gain resulted from the sale of a
portion of the Companys non-cash investment in its third-party Internet commerce provider.
Interest Expense, net
Interest expense, net, decreased by $3.0 million to $10.0 million in 2006 from $13.0 million
in 2005 due primarily to lower average borrowings on the Companys senior secured revolving credit
facility.
Liquidity and Capital Resources
The following discussion has been updated to reflect the effects of the corrections to the
Companys fiscal 2006 and 2005 Consolidated Statements of Cash Flows described in Note 2 to the
consolidated financial statements appearing in Item 8 herein.
Our primary capital requirements are for working capital, capital improvements and to support
expansion plans, as well as for various investments in store remodeling, store fixtures and ongoing
infrastructure improvements.
The change in cash and cash equivalents is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
February 2, |
|
|
February 3, |
|
|
January 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net cash provided by operating activities |
|
$ |
262,834 |
|
|
$ |
139,609 |
|
|
$ |
168,481 |
|
Net cash used in investing activities |
|
|
(435,296 |
) |
|
|
(130,486 |
) |
|
|
(109,870 |
) |
Net cash provided by (used in) financing activities |
|
|
86,693 |
|
|
|
90,255 |
|
|
|
(40,933 |
) |
Effect of exchange rate changes on cash |
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(85,635 |
) |
|
$ |
99,378 |
|
|
$ |
17,678 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Cash flow from operations is seasonal in our business. Typically, we use cash flow from
operations to increase inventory in advance of peak selling seasons, with the pre-Christmas
inventory increase being the largest. In the fourth quarter, inventory levels are reduced in
connection with Christmas sales and this inventory reduction, combined with proportionately higher
net income, typically produces significantly positive cash flow.
Cash provided by operating activities increased by $123.2 million in 2007 to $262.8 million,
which consists primarily of higher net income of $42.4 million and an increase in the change in
assets and liabilities of $82.6 million primarily due to lower income tax payments made in 2007
compared to 2006.
Changes in Assets and Liabilities
The primary factors contributing to the increase in the change in assets and liabilities were
the change in income taxes payable and deferred construction allowances, partially offset by an
increase in the change in inventory.
The increase in the change in income taxes payable was primarily due to lower income tax
payments made during 2007 compared to 2006 due to the timing of estimated tax payments made in
fiscal 2007. The Company will make a larger tax payment in fiscal 2008 relating to fiscal 2007 than
in previous years. The increase in deferred
29
construction allowances is primarily related to
higher tenant allowances associated with our 2007 stores compared to 2006. The increase in the
change in inventory was primarily due to higher store count.
The cash flows from operating the Companys stores is a significant source of liquidity, and
we expect will continue to be used in fiscal 2008 primarily to purchase inventory, make capital
improvements and open new stores.
Investing Activities
Cash used in investing activities increased by $304.8 million, to $435.3 million, primarily
reflecting the payment for the purchase of Golf Galaxy of $222.2 million, net of $4.9 million cash
acquired, and the payment for purchase of Chicks Sporting Goods of $69.2 million. Gross capital
expenditures used $172.4 million and sale-leaseback transactions generated proceeds of $28.4
million.
Purchases of property and equipment were $172.4 million in fiscal 2007, $163.0 million in
fiscal 2006 and $149.7 million in fiscal 2005. Capital expenditures in fiscal 2007 relate primarily
to the opening of new stores, information systems and administrative and distribution facilities.
The Company generated proceeds from the sale and leaseback of property and equipment totaling $28.4
million, $32.5 million and $37.9 million in fiscal 2007, 2006 and 2005, respectively.
During 2007, we opened 46 Dicks stores and 16 Golf Galaxy stores, as well as relocated one
Dicks store, compared to opening 39 stores and the relocation of two stores during 2006.
Sale-leaseback transactions covering store fixtures, buildings and information technology assets
also have the effect of returning to the Company cash previously invested in these assets. There
were no building sale-leasebacks during 2007, 2006 and 2005.
Financing Activities
Cash provided by financing activities decreased by $3.6 million to $86.7 million. Financing
activities consisted of proceeds from construction allowances received prior to the completion of
construction for stores where the Company is deemed the owner during the construction period,
transactions in the Companys common stock and the excess tax benefit from stock-based
compensation. As stock option grants are exercised, the Company will continue to receive proceeds
and a tax deduction; however, the amounts and the timing cannot be predicted.
On July 27, 2007, the Company entered into a Fourth Amendment to its Second Amended and
Restated Credit Agreement (the Credit Agreement) that, among other things, extended the maturity
of the Credit Agreement from July 2008 to July 2012, increased the potential Aggregate Revolving
Credit Commitment, as defined in the Credit Agreement, from $350 million to a potential commitment
of $450 million and reduced certain applicable interest rates and fees charged under the Credit
Agreement.
The Companys liquidity and capital needs have generally been met by cash from operating
activities, the proceeds from the convertible notes and borrowings under the Credit Agreement,
including up to $75 million in the form of letters of credit. Borrowing availability under the
Credit Agreement is generally limited to the lesser of 70% of the Companys eligible inventory or
85% of the Companys inventorys liquidation value, in each case net of specified reserves and less
any letters of credit outstanding. Interest on outstanding indebtedness under the Credit Agreement
currently accrues, at the Companys option, at a rate based on either (i) the prime corporate
lending rate or (ii) the LIBOR rate plus 0.75% to 1.50% based on the level of total borrowings
during the prior three months. The Credit Agreements term expires July 27, 2012.
There were no outstanding borrowings under the Credit Agreement as of February 2, 2008 or
February 3, 2007. Total remaining borrowing capacity, after subtracting letters of credit as of
February 2, 2008 and February 3, 2007 was $333.2 million and $333.5 million, respectively.
The Credit Agreement contains restrictions regarding the Companys and related subsidiaries
ability, among other things, to merge, consolidate or acquire non-subsidiary entities, to incur
certain specified types of indebtedness or liens in excess of certain specified amounts, to pay
cash dividends or make distributions on the Companys stock, to make certain investments or loans
to other parties, or to engage in certain lending, borrowing or other commercial transactions with
subsidiaries, affiliates or employees. Under the Credit Agreement, the Company may be obligated to
maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 in certain
circumstances. The obligations of the Company under the Credit Agreement are secured by
interests in substantially all of the Companys personal property excluding store and distribution
center equipment and fixtures. As of February 2, 2008, the Company was in compliance with the
terms of the Credit Agreement.
Cash requirements in 2008, other than normal operating expenses, are expected to consist
primarily of capital expenditures related to the addition of new stores, remodeling of existing
stores, enhanced information
30
technology and improved distribution infrastructure, including our
Atlanta distribution center. Currently, the Company plans to open 46 new Dicks stores, ten new
Golf Galaxy stores, and relocate one Dicks store during fiscal 2008. While there can be no
assurance that current expectations will be realized, the Company expects capital expenditures, net
of deferred construction allowances and proceeds from sale leaseback transactions, to be
approximately $145 million in 2008, including Golf Galaxy and Chicks capital expenditure
requirements.
The Company believes that cash flows generated from operations and funds available under our
Credit Agreement will be sufficient to satisfy our capital requirements through fiscal 2008. Other
new business opportunities or store expansion rates substantially in excess of those presently
planned may require additional funding.
In February 2004, the Company completed a private offering of $172.5 million issue price of
senior unsecured convertible notes due 2024 (notes). The notes bear interest at an annual rate of
2.375% of the issue price payable semi-annually on August 18th and February 18th of each year until
February 18, 2009. After February 18, 2009, the notes do not pay cash interest, but the initial
principal amount of the notes will accrete daily at an original issue discount rate of 2.625% per
year, until maturity on February 18, 2024, when a holder will receive $1,000 per note. Subject to
the Companys obligations to pay cash for a certain portion of the notes and its right, if it
elects, to pay all amounts due under the notes in cash as more fully described below, the notes are
convertible into the Companys common stock (upon the occurrence of certain events) at the election
of the holder in each of the first 20 fiscal quarters following their issuance when the price per
share of the Companys common stock (calculated for a certain period of time) exceeds $23.59 per
share. This conversion threshold trigger price permitting the notes to be converted by the holders
has been met and the notes are eligible and will remain convertible for so long as they remain
outstanding.
Upon conversion of a note, the Company is obligated to pay cash for each $1,000 of face amount
of a note equal to the lesser of: (i) the accreted principal amount (the sum of the initial issue
price of $676.25 per $1,000 face amount and the accrued original issue discount as of the
conversion date (no original issue discount occurs until 2009)), and (ii) the product of (a) the
number of shares of the Companys common stock into which the note otherwise would have been
converted if no cash payment were made by the Company (i.e. 34.4044 shares per $1,000 face amount),
multiplied by (b) the average of the closing per share sale price on the fifteen consecutive
trading days commencing on the fourth trading day after the conversion date. In addition, the
Company at its election has the ability to pay cash or deliver shares for any balance shares due
under the notes. The number of balance shares is equal to the number of shares of common stock
into which a note otherwise would be converted if no cash payment were made by the Company, less
the accreted principal amount (the sum of the initial issue price of $676.25 and the accrued
original issue discount as of the conversion date of), divided by the average sale price (the
average of the closing per share sale price on the fifteen consecutive trading days commencing on
the fourth trading day after the conversion date) of a share of common stock. All such
calculations are controlled by and governed by the promissory note under which the notes are issued
and the indenture, as amended, governing the notes. If the number of balance shares is a positive
number, the Company has the option to deliver cash or a combination of cash and shares of common
stock for the balance shares by electing for each full balance share for which the Company has
chosen to deliver cash to pay cash in an amount equal to the average sale price of a share of
common stock.
The notes will mature on February 18, 2024, unless earlier converted or repurchased. The
Company may redeem the notes at any time on or after February 18, 2009, at its option, at a
redemption price equal to the sum of the issue price, accreted original issue discount and any
accrued cash interest, if any.
Concurrently, with the sale of the notes, the Company purchased a bond hedge designed to
mitigate the potential dilution to stockholders from the conversion of the notes. Under the five
year term of the bond hedge, one of the initial purchasers (the counterparty) will deliver to the
Company upon a conversion of the bonds a number of shares of common stock based on the extent to
which the then market price exceeds $19.66 per share. The aggregate number of shares that the
Company could be obligated to issue upon conversion of the notes is 8,776,048 shares of common
stock. The cost of the purchased bond hedge was partially offset by the sale of warrants to
acquire up to 17,551,896 shares of the common stock to the counterparty with whom the Company
entered into the bond hedge. The warrants are exercisable by the counterparty in year five at a
price of $28.08 per share. The warrants may be settled at the Companys option through a net share
settlement or a net cash settlement, either of which would be based on the extent to which the then
market price exceeds $28.08 per share. The net effect of the bond hedge and the warrants is to
reduce the potential dilution from the conversion of the notes if the Company elects a net share
settlement. There would be dilution impact from the conversion of the notes to the extent that the
then market price per share of the common stock exceeds $28.08 per share at the time of
conversion.
31
The Companys common stock price has triggered an optional conversion right with respect to
the notes. Based on the current price of the Companys common stock, the Company believes that if
the notes were currently converted there would not be any dilutive effect on the Companys
estimated outstanding number of shares as a result of the notes or the warrants. However, as the
convertible notes remain outstanding in the future, depending on the price of the Companys common
stock, the notes may have dilutive effect and increase the number of shares of common stock
outstanding beyond that which we estimate or may estimate in the future. If the trading price in
our common stock exceeds $28.08 per share, we may incur dilution as a result of the notes and/or
the warrants and further increases in our common stock price may cause us to have to increase the
number of shares outstanding and impact our earnings per share calculation. At this time, we would
not anticipate that the outstanding notes will be converted currently and believe that our current
estimate of outstanding shares for 2007 adequately addresses any impact of the notes and warrants
during 2007. However, the estimate of the number of shares outstanding and the estimates of the
dilutive impact of the notes and warrants is based on current circumstances and is forward-looking
and only a prediction. We also believe that to the extent the notes convertibility feature remains
in-the-money, a holder would elect to convert at some point in the future or at redemption. In
addition, because a certain portion of the notes must be paid in cash and we may elect to pay for
all amounts due under the notes in cash and we cannot predict the timing of such conversions, the
timing of the conversions may impact our future liquidity.
Off-Balance Sheet Arrangements
The Companys off-balance sheet contractual obligations and commercial commitments as of
February 2, 2008 relate to operating lease obligations, future minimum guaranteed contractual
payments and letters of credit. The Company has excluded these items from the balance sheet in
accordance with generally accepted accounting principles.
32
Contractual Obligations and Other Commercial Commitments
The following table summarizes the Companys material contractual obligations, including both
on- and off-balance sheet arrangements in effect at February 2, 2008, and the timing and effect
that such commitments are expected to have on the Companys liquidity and capital requirements in
future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
|
|
(Dollars in thousands) |
|
Contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior convertible notes (see Note 9) |
|
$ |
255,085 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
255,085 |
|
Capital lease obligations (see Note 9) |
|
|
7,721 |
|
|
|
133 |
|
|
|
435 |
|
|
|
499 |
|
|
|
6,654 |
|
Other long-term debt (see Note 9) |
|
|
1,214 |
|
|
|
117 |
|
|
|
243 |
|
|
|
195 |
|
|
|
659 |
|
Interest payments |
|
|
12,577 |
|
|
|
4,910 |
|
|
|
1,568 |
|
|
|
1,469 |
|
|
|
4,630 |
|
Operating lease obligations (see Note 10), (b) |
|
|
3,613,641 |
|
|
|
330,857 |
|
|
|
687,704 |
|
|
|
644,473 |
|
|
|
1,950,607 |
|
Unrecognized tax benefits (a) |
|
|
5,701 |
|
|
|
5,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Naming rights and other marketing
commitments (see Note 17) |
|
|
70,491 |
|
|
|
12,562 |
|
|
|
15,692 |
|
|
|
4,513 |
|
|
|
37,724 |
|
Future minimum guaranteed contractual
payments (see Note 17) |
|
|
95,988 |
|
|
|
8,048 |
|
|
|
20,246 |
|
|
|
27,050 |
|
|
|
40,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
4,062,418 |
|
|
$ |
362,368 |
|
|
$ |
725,888 |
|
|
$ |
678,199 |
|
|
$ |
2,296,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes $6,134 of accrued liability for unrecognized tax benefits as we can not reasonably
estimate the timing of settlement. |
|
(b) |
|
Amounts include the direct lease obligations, excluding any taxes, insurance and other related
expenses. |
The note references above are to the Notes to Consolidated Financial Statements.
The following table summarizes the Companys other commercial commitments, including both
on-and off-balance sheet arrangements, in effect at February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
Total |
|
|
1 year |
|
|
|
(Dollars in thousands) |
|
Other commercial commitments: |
|
|
|
|
|
|
|
|
Documentary letters of credit |
|
$ |
1,173 |
|
|
$ |
1,173 |
|
Standby letters of credit |
|
|
15,618 |
|
|
|
15,618 |
|
|
|
|
|
|
|
|
Total other commercial commitments |
|
$ |
16,791 |
|
|
$ |
16,791 |
|
|
|
|
|
|
|
|
The Company expects to fund these commitments primarily with operating cash flows generated in
the normal course of business.
33
OUTLOOK
Full Year 2008 Comparisons to Fiscal 2007
|
|
|
Based on an estimated 121 million diluted shares outstanding, the Company anticipates
reporting consolidated earnings per diluted share of approximately $1.49 1.54. This
represents an approximate 12 16% increase over earnings per diluted share for the full
year 2007 of $1.33. |
|
|
|
|
Comparable store sales, which include Dicks Sporting Goods and Golf Galaxy stores, are
expected to be approximately flat to an increase of 1%. The Golf
Galaxy stores will be included
in the comparable store sales calculation beginning in the first quarter of 2008. The
comparable store sales calculation excludes the Chicks Sporting Goods stores. |
|
|
|
|
The Company expects to open approximately 46 new Dicks Sporting Goods stores, ten new
Golf Galaxy stores and relocate one Dicks store in 2008. |
Newly Issued Accounting Standards
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 141 (revised 2007), Business Combinations (SFAS
141R). SFAS 141R significantly changes the accounting for business combinations in a number of
areas, including the treatment of contingent consideration, preacquisition contingencies,
transaction costs, in-process research and development and restructuring costs. In addition, under
SFAS 141R, changes in an acquired entitys deferred tax assets and uncertain tax positions after
the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years
beginning after December 15, 2008. We will adopt SFAS 141R beginning in the first quarter of
fiscal 2009. This standard will change our accounting treatment for business combinations on a
prospective basis, including the treatment of any income tax adjustments related to past
acquisitions.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements; however, SFAS 157 does not require any new fair value measurements.
The requirements of SFAS 157 are first effective as of the beginning of our 2008 fiscal year.
However, in February 2008 the FASB decided that an entity need not apply this standard to
nonrecurring nonfinancial assets and liabilities until the subsequent year. Accordingly, our
adoption of SFAS 157 is limited to financial assets and liabilities. We do not believe that the
initial adoption of SFAS 157 will have a material impact on our financial statements. However, we
are still in the process of evaluating this standard with respect to its effect on nonrecurring
nonfinancial assets and liabilities and therefore have not yet determined the impact that it will
have on our financial statements upon full adoption.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal
years beginning after November 15, 2007. We do not believe that the adoption of SFAS 159 will have
a material impact on our financial statements.
Critical Accounting Policies and Use of Estimates
The Companys significant accounting policies are described in Note 1 of the Consolidated
Financial Statements, which were prepared in accordance with accounting principles generally
accepted in the United States of America. Critical accounting policies are those that the Company
believes are both most important to the portrayal of the Companys financial condition and results
of operations, and require the Companys most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are inherently uncertain.
Judgments and uncertainties affecting the application of those policies may result in materially
different amounts being reported under different conditions or using different assumptions.
The Company considers the following policies to be the most critical in understanding the
judgments that are involved in preparing its consolidated financial statements.
Inventory Valuation
The Company values inventory using the lower of weighted average cost or market method.
Market price is generally based on the current selling price of the merchandise. The Company
regularly reviews inventories to determine if the carrying value of the
inventory exceeds market value and the Company records a reserve to reduce the carrying value
to its market price, as necessary. Historically, the Company has rarely experienced significant
34
occurrences of obsolescence or slow moving inventory. However, future changes, such as customer
merchandise preference, unseasonable weather patterns, economic conditions or business trends could
cause the Companys inventory to be exposed to obsolescence or slow moving merchandise.
Shrink expense is accrued as a percentage of merchandise sales based on historical shrink
trends. The Company performs physical inventories at the stores and distribution centers
throughout the year. The reserve for shrink represents an estimate for shrink for each of the
Companys locations since the last physical inventory date through the reporting date. Estimates
by location and in the aggregate are impacted by internal and external factors and may vary
significantly from actual results.
Vendor Allowances
Vendor allowances include allowances, rebates and cooperative advertising funds received from
vendors. These funds are determined for each fiscal year and the majority are based on various
quantitative contract terms. Amounts expected to be received from vendors relating to the purchase
of merchandise inventories are treated as a reduction of inventory and reduce cost of goods sold as
the merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as
advertising, are recorded as a reduction to the related expense in the period that the related
expense is incurred. The Company records an estimate of earned allowances based on the latest
projected purchase volumes and advertising forecasts. On an annual basis at the end of the year,
the Company confirms earned allowances with vendors to ensure the amounts are recorded in
accordance with the terms of the contract.
Business Combinations
In accounting for business combinations, we allocate the purchase price of an acquired
business to its identifiable assets and liabilities based on estimated fair values and the excess
of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded
as goodwill. The determination of fair value involves the use of estimates and assumptions which we
believe provides a reasonable basis for determining fair value. Accordingly, we typically engage
outside appraisal firms to assist in the fair value determination of inventory, identifiable
intangible assets such as tradenames, and any other significant assets or liabilities. We adjust
the preliminary purchase price allocation, as necessary, up to one year after the acquisition
closing date as we obtain more information regarding asset valuations and liabilities assumed.
Goodwill and Intangible Assets
Goodwill, indefinite-lived and other finite-lived intangible assets are tested for impairment on an annual
basis. Additional impairment assessments may be performed on an interim basis if the Company deems
it necessary. Our evaluation for impairment requires accounting judgments and financial estimates
in determining the fair value of the reporting unit. If these judgments or estimates change in the
future, we may be required to record impairment charges for these assets.
Impairment of Long-Lived Assets and Closed Store Reserves
The Company reviews long-lived assets whenever events and circumstances indicate that the
carrying value of these assets may not be recoverable based on estimated undiscounted future cash
flows. Assets are reviewed at the lowest level for which cash flows can be identified, which is
the store level. In determining future cash flows, significant estimates are made by the Company
with respect to future operating results of each store over its remaining lease term. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Based on an analysis of current and future store performance, management periodically
evaluates the need to close underperforming stores. Reserves are established when the Company
ceases to use the location for the present value of any remaining operating lease obligations, net
of estimated sublease income, as prescribed by SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. If the timing or amount of actual sublease income differs from
estimated amounts, this could result in an increase or decrease in the related reserves.
35
Self-Insurance
The Company is self-insured for certain losses related to health, workers compensation and
general liability insurance, although we maintain stop-loss coverage with third-party insurers to
limit our liability exposure. Liabilities associated with these losses are estimated in part by
considering historical claims experience, industry factors, severity factors and other actuarial
assumptions.
Stock-Based Compensation
Beginning in fiscal 2006, the Company accounts for stock-based compensation in accordance with
the fair value recognition provisions of SFAS 123R. The Company uses the Black-Scholes
option-pricing model which requires the input of assumptions. These assumptions include estimating
the length of time employees will retain their vested stock options before exercising them
(expected term), the estimated volatility of the Companys common stock price over the expected
term and the number of options that will ultimately not complete their vesting requirements
(forfeitures). Changes in the assumptions can materially affect the estimate of fair value of
stock-based compensation and consequently, the related amount recognized in the Consolidated
Statements of Income.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with FIN 48. The application of income
tax law is inherently complex. Laws and regulations in this area are voluminous and are often
ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our
income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations
change over time. As such, changes in our subjective assumptions and judgments can materially
affect amounts recognized in the Consolidated Balance Sheets and Statements of Income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Companys net exposure to interest rate risk will consist primarily of borrowings under
the senior secured revolving credit facility. The Companys senior secured revolving credit
facility bears interest at rates that are benchmarked either to U.S. short-term floating rate
interest rates or one-month LIBOR rates, at the Companys election. There were no borrowings
outstanding under the senior secured revolving credit facility as of February 2, 2008 and February
3, 2007. The impact on the Companys annual net income of a hypothetical one percentage point
interest rate change on the average outstanding balances under the senior secured revolving credit
facility would be approximately $0.9 million based upon fiscal 2007 average borrowings.
Credit Risk
In February 2004, the Company sold $172.5 million issue price of senior unsecured convertible
notes due 2024 (convertible notes). In conjunction with the issuance of these convertible notes,
we also entered into a five-year convertible bond hedge and a five-year separate warrant
transaction with one of the initial purchasers (the counterparty) and/or certain of its
affiliates. Subject to the movement in our common stock price, we could be exposed to credit risk
arising out of net settlement of the convertible bond hedge and separate warrant transaction in our
favor. Based on our review of the possible net settlements and the credit strength of the
counterparty and its affiliates, we believe that we do not have a material exposure to credit risk
as a result of these share option transactions.
Impact of Inflation
The Company does not believe that operating results have been materially affected by inflation
during the preceding three fiscal years. There can be no assurance, however, that operating
results will not be adversely affected by inflation in the future.
Tax Matters
Presently, the Company does not believe that there are any tax matters that could materially
affect the consolidated financial statements.
36
Seasonality and Quarterly Results
The Companys business is subject to seasonal fluctuations. Significant portions of the
Companys net sales and profits are realized during the fourth quarter of the Companys fiscal
year, which is due, in part, to the holiday selling season and, in part, to our sales of cold
weather sporting goods and apparel. Any decrease in fiscal fourth quarter sales, whether because
of a slow holiday selling season, unseasonable weather conditions, or otherwise, could have a
material adverse effect on our business, financial condition and operating results for the entire
fiscal year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required to be filed hereunder are set forth on pages 42 through 69
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
37
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including the chief executive officer and the chief financial officer, of the
effectiveness of the design and operation of the disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Based upon that evaluation, the Companys chief executive officer and chief financial
officer concluded that the Companys disclosure controls and procedures are effective, as of the
end of the period covered by this Report (February 2, 2008), in ensuring that material information
relating to the Company, including its consolidated subsidiaries, required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded, processed,
summarized, accumulated, communicated and reported within the time periods specified in the SEC
rules and forms. There were no changes in the Companys internal control over financial reporting
during the quarter ended February 2, 2008, that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is a process to provide reasonable
assurance regarding the reliability of our financial reporting for external purposes in accordance
with accounting principles generally accepted in the United States of America. Internal control
over financial reporting includes maintaining records that in reasonable detail accurately and
fairly reflect our transactions; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements; providing reasonable assurance that receipts
and expenditures of company assets are made in accordance with management authorization; and
providing reasonable assurance that unauthorized acquisition, use or disposition of company assets
that could have a material effect on our financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal control over financial reporting is
not intended to provide absolute assurance that a misstatement of our financial statements would be
prevented or detected.
Our management conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework and criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. This evaluation included review of the documentation of controls, evaluation of the
design effectiveness of controls, testing of the operating effectiveness of controls and a
conclusion on this evaluation. Based on this evaluation, management concluded that the Companys
internal control over financial reporting was effective as of February 2, 2008.
The scope of managements assessment of the effectiveness of internal control over financial
reporting includes all of the Companys businesses except for Golf Galaxy, Inc. and Chicks
Sporting Goods, Inc., acquired on February 13, 2007 and November 30, 2007, respectively. Golf
Galaxy, Inc. and Chicks Sporting Goods, Inc. represented
approximately 11% of total assets and 9% of total revenues as of and
for the period ended
February 2, 2008.
Deloitte & Touche LLP, an independent registered public accounting firm, has issued an
attestation report on the Companys internal control over financial reporting included in Item 9A
of this document.
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dicks Sporting Goods, Inc.
Pittsburgh, Pennsylvania
We have audited the internal control over financial reporting of Dicks Sporting Goods, Inc. and
subsidiaries (the Company) as of February 2, 2008, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As described in the Report of Management on Internal Control Over Financial Reporting,
management excluded from its assessment the internal control over financial reporting at Golf
Galaxy, Inc, which was acquired on February 13, 2007, and Chicks Sporting Goods, Inc, which was
acquired on November 30, 2007. Golf Galaxy, Inc. and Chicks Sporting Goods, Inc. constitute
approximately 11% of total assets and 9% of total revenues as of and for the period ended February
2, 2008. Accordingly, our audit did not include the internal control over financial reporting at
Golf Galaxy, Inc and Chicks Sporting Goods, Inc. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Report of
Management on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of February 2, 2008, based on the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the fiscal year ended
February 2, 2008 of the Company and our report dated March 27, 2008 expressed an unqualified
opinion on those financial statements and included an explanatory paragraph regarding the Companys
adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, on February 4, 2007.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 27, 2008
39
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item other than the following information concerning the
Companys code of ethics is included under Item 1 Business Executive Officers of the Company
in this Form 10-K, and is incorporated by reference to the information under the captions Election
of Directors- Directors Standing for Election, Election of Directors Other Directors Not
Standing for Election at this Meeting, Election of Directors- What committees has the board
established, Election of Directors How does the Board select nominees for the Board,
Election of Directors- Does the Company Have a Code of Ethics and Section 16(a) Beneficial
Ownership Reporting Compliance in the Companys 2008 Proxy Statement.
The Company adopted a Code of Business Conduct and Ethics applicable to its associates,
officers and directors, which is a code of ethics as defined by applicable rules of the
Securities and Exchange Commission. The Company has also adopted charters for its audit committee,
compensation committee and governance and nominating committee, as well as corporate governance
guidelines. The code of ethics, committee charters and corporate governance guidelines are publicly
available on the Companys website at
http://www.dickssportinggoods.com/ and are available in
print, free of charge, to any stockholder who requests it. If the Company makes any amendments to
this code other than technical, administrative, or other non-substantive amendments, or grants any
waivers, including implicit waivers, from a provision of this code applicable to the Companys
principal executive officers, principal financial officer, principal accounting officer or
controller or persons performing similar functions, the Company will disclose the nature of the
amendment or waiver, its effective date and to whom it applies on its website or in a report on
Form 8-K filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the information under
the captions Executive Compensation- Compensation Committee Report, Executive Compensation -
Compensation Discussion and Analysis, Summary Compensation Table, Grants of Plan-Based
Awards, Understanding Our Summary Compensation and Grants of Plan-Based Awards Tables,
Outstanding Equity Awards at Fiscal Year End, Option Exercises and Stock Vested, Nonqualified
Deferred Compensation, Potential Payments Upon Termination or Change-in-Control and
Compensation Committee Interlocks and Insider Participation in the Companys 2008 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
Part of the information required by this Item is incorporated by reference to the information
under the caption Stock Ownership in the Companys 2008 Proxy Statement. The following table
summarizes information, as of February 2, 2008, relating to equity compensation plans of the
Company pursuant to which grants of options, restricted stock, restricted stock units or other
rights to acquire shares may be granted from time to time.
40
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
|
Remaining Available |
|
|
|
Number of Securities |
|
|
|
|
|
|
for Future Issuance |
|
|
|
to be Issued Upon |
|
|
Weighted Average |
|
|
Under Equity |
|
|
|
Exercise of |
|
|
Exercise Price of |
|
|
Compensation Plans |
|
|
|
Outstanding Options, |
|
|
Outstanding Options, |
|
|
(Excluding Securities |
|
|
|
Warrants and Rights |
|
|
Warrants and Rights |
|
|
Reflected in Column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation plans
approved by security holders (1) |
|
|
19,276,445 |
(2) |
|
$ |
14.66 |
|
|
|
14,326,589 |
(2) |
Equity compensation plans
not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
19,276,445 |
|
|
|
|
|
|
|
14,326,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the 1992 Stock Plan, 2002 Stock Plan, Employee Stock Purchase Plan, Golf Galaxy, Inc.
1996 Stock Option and Incentive Plan and Golf Galaxy, Inc. 2004 Stock Incentive Plan. |
|
(2) |
|
Represents shares of common stock. Under the 2002 Stock Plan and the Employee Stock Purchase
Plan, no options have been granted that are exerciseable for Class B common stock. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the information under
the caption Certain Relationships and Transactions with Related Persons and How does the Board
determine which directors are considered independent? in the Companys 2008 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the information under
the caption Audit and Non-Audit Fees and Independent Public Accountants in the Companys 2008
Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements. The Financial Statements required to be filed hereunder are listed in
the Index to Consolidated Financial Statements on page 42 of this Form 10-K.
(2) Financial Statement Schedules. The consolidated financial statement schedule to be filed
hereunder is included on page 72 of this
Form 10-K.
(3) Exhibits. The Exhibits listed in the Index to Exhibits, which appears on pages 73 to 77 and is
incorporated herein by reference, are filed as part of this Form 10-K. Certain Exhibits are
incorporated by reference from documents previously filed by the Company with the SEC pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, as amended.
41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
49-69 |
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dicks Sporting Goods, Inc.
Pittsburgh, Pennsylvania
We have audited the accompanying consolidated balance sheets of Dicks Sporting Goods, Inc. and
subsidiaries (the Company) as of February 2, 2008 and February 3, 2007, and the related
consolidated statements of income, comprehensive income, changes in stockholders equity, and cash
flows for each of the three fiscal years in the period ended February 2, 2008. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Dicks Sporting Goods, Inc. and subsidiaries as of February 2, 2008 and
February 3, 2007, and the results of their operations and their cash flows for each of the three
fiscal years in the period ended February 2, 2008, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, on February 4, 2007, the Company
adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, and on January 29, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of February 2,
2008, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 27,
2008 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 27, 2008
43
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
February 2, |
|
|
February 3, |
|
|
January 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
3,888,422 |
|
|
$ |
3,114,162 |
|
|
$ |
2,624,987 |
|
Cost of goods sold, including occupancy and
distribution costs |
|
|
2,730,359 |
|
|
|
2,217,463 |
|
|
|
1,887,347 |
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
1,158,063 |
|
|
|
896,699 |
|
|
|
737,640 |
|
Selling, general and administrative expenses |
|
|
870,415 |
|
|
|
682,625 |
|
|
|
556,320 |
|
Merger integration and store closing costs |
|
|
|
|
|
|
|
|
|
|
37,790 |
|
Pre-opening expenses |
|
|
18,831 |
|
|
|
16,364 |
|
|
|
10,781 |
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
|
268,817 |
|
|
|
197,710 |
|
|
|
132,749 |
|
Gain on sale of investment |
|
|
|
|
|
|
|
|
|
|
(1,844 |
) |
Interest expense, net |
|
|
11,290 |
|
|
|
10,025 |
|
|
|
12,959 |
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
257,527 |
|
|
|
187,685 |
|
|
|
121,634 |
|
Provision for income taxes |
|
|
102,491 |
|
|
|
75,074 |
|
|
|
48,654 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
155,036 |
|
|
$ |
112,611 |
|
|
$ |
72,980 |
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.42 |
|
|
$ |
1.10 |
|
|
$ |
0.73 |
|
Diluted |
|
$ |
1.33 |
|
|
$ |
1.02 |
|
|
$ |
0.68 |
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
109,383 |
|
|
|
102,512 |
|
|
|
99,584 |
|
Diluted |
|
|
116,504 |
|
|
|
110,790 |
|
|
|
107,958 |
|
See notes to consolidated financial statements.
44
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
February 2, |
|
|
February 3, |
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
50,307 |
|
|
$ |
135,942 |
|
Accounts receivable, net |
|
|
62,035 |
|
|
|
39,687 |
|
Income tax receivable |
|
|
|
|
|
|
15,671 |
|
Inventories, net |
|
|
887,364 |
|
|
|
641,464 |
|
Prepaid expenses and other current assets |
|
|
50,274 |
|
|
|
37,015 |
|
Deferred income taxes |
|
|
19,714 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,069,694 |
|
|
|
869,779 |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
531,779 |
|
|
|
433,071 |
|
CONSTRUCTION IN PROGRESS LEASED FACILITIES |
|
|
23,744 |
|
|
|
13,087 |
|
INTANGIBLE ASSETS, NET |
|
|
80,038 |
|
|
|
9,374 |
|
GOODWILL |
|
|
304,366 |
|
|
|
156,628 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
6,366 |
|
|
|
17,440 |
|
Investments |
|
|
3,225 |
|
|
|
3,008 |
|
Other |
|
|
16,423 |
|
|
|
21,878 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
26,014 |
|
|
|
42,326 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,035,635 |
|
|
$ |
1,524,265 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
365,750 |
|
|
$ |
286,668 |
|
Accrued expenses |
|
|
228,816 |
|
|
|
190,365 |
|
Deferred revenue and other liabilities |
|
|
104,549 |
|
|
|
87,798 |
|
Income taxes payable |
|
|
62,583 |
|
|
|
|
|
Current portion of other long-term debt and capital leases |
|
|
250 |
|
|
|
152 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
761,948 |
|
|
|
564,983 |
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
Senior convertible notes |
|
|
172,500 |
|
|
|
172,500 |
|
Revolving credit borrowings |
|
|
|
|
|
|
|
|
Other long-term debt and capital leases |
|
|
8,685 |
|
|
|
8,365 |
|
Non-cash obligations for construction in progress leased facilities |
|
|
23,744 |
|
|
|
13,087 |
|
Deferred revenue and other liabilities |
|
|
180,238 |
|
|
|
144,780 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
385,167 |
|
|
|
338,732 |
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES |
|
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Preferred stock, par value $.01 per share, authorized shares 5,000,000; none issued and outstanding |
|
|
|
|
|
|
|
|
Common
stock, par value $.01 per share, authorized shares 200,000,000; issued and outstanding
shares 84,837,642 and 79,382,554, at February 2, 2008 and February 3, 2007, respectively |
|
|
848 |
|
|
|
794 |
|
Class B
common stock, par value, $.01 per share, authorized shares 40,000,000; issued and
outstanding shares 26,307,480 and 26,787,680, at February 2, 2008 and February 3, 2007, respectively |
|
|
263 |
|
|
|
268 |
|
Additional paid-in capital |
|
|
416,423 |
|
|
|
302,235 |
|
Retained earnings |
|
|
468,974 |
|
|
|
315,453 |
|
Accumulated other comprehensive income |
|
|
2,012 |
|
|
|
1,800 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
888,520 |
|
|
|
620,550 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
2,035,635 |
|
|
$ |
1,524,265 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
45
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
February 2, |
|
|
February 3, |
|
|
January 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
NET INCOME |
|
$ |
155,036 |
|
|
$ |
112,611 |
|
|
$ |
72,980 |
|
OTHER COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities
available-for-sale, net of tax |
|
|
78 |
|
|
|
(123 |
) |
|
|
1,126 |
|
Reclassification adjustment for gains
realized in net income due to the sale
of available-for-sale securities, net of tax |
|
|
|
|
|
|
|
|
|
|
(1,199 |
) |
Foreign currency translation adjustment, net
of tax |
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME |
|
$ |
155,248 |
|
|
$ |
112,488 |
|
|
$ |
72,907 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
46
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
|
Dollars |
|
|
Shares |
|
|
Dollars |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
BALANCE, January 29, 2005 |
|
|
69,580,716 |
|
|
$ |
696 |
|
|
|
28,079,058 |
|
|
$ |
280 |
|
|
$ |
180,833 |
|
|
$ |
129,862 |
|
|
$ |
1,996 |
|
|
$ |
313,667 |
|
Exchange of Class B
common stock for
common stock |
|
|
617,168 |
|
|
|
6 |
|
|
|
(617,168 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
under stock plans |
|
|
251,978 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
3,674 |
|
|
|
|
|
|
|
|
|
|
|
3,676 |
|
Exercise of stock
options, including
tax benefit of $14,678 |
|
|
2,640,802 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
22,065 |
|
|
|
|
|
|
|
|
|
|
|
22,091 |
|
Tax benefit on convertible
note bond hedge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,452 |
|
|
|
|
|
|
|
|
|
|
|
2,452 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,980 |
|
|
|
|
|
|
|
72,980 |
|
Unrealized gain on securities
available-for-sale, net of
taxes of $606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,126 |
|
|
|
1,126 |
|
Reclassification adjustment
for gains realized in net
income due to the sale
of securities available-for-
sale, net of taxes of $645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,199 |
) |
|
|
(1,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, January 28, 2006 |
|
|
73,090,664 |
|
|
$ |
730 |
|
|
|
27,461,890 |
|
|
$ |
274 |
|
|
$ |
209,024 |
|
|
$ |
202,842 |
|
|
$ |
1,923 |
|
|
$ |
414,793 |
|
Exchange of Class B
common stock for
common stock |
|
|
674,210 |
|
|
|
6 |
|
|
|
(674,210 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
under stock plans |
|
|
245,964 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
3,730 |
|
|
|
|
|
|
|
|
|
|
|
3,734 |
|
Exercise of stock options |
|
|
5,371,716 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
22,988 |
|
|
|
|
|
|
|
|
|
|
|
23,042 |
|
Tax benefit on convertible
note bond hedge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,686 |
|
|
|
|
|
|
|
|
|
|
|
2,686 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,611 |
|
|
|
|
|
|
|
112,611 |
|
Stock -based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,303 |
|
|
|
|
|
|
|
|
|
|
|
24,303 |
|
Total tax benefit from exercise
of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,504 |
|
|
|
|
|
|
|
|
|
|
|
39,504 |
|
Unrealized loss on securities
available-for-sale, net of
taxes of $66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123 |
) |
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, February 3, 2007 |
|
|
79,382,554 |
|
|
$ |
794 |
|
|
|
26,787,680 |
|
|
$ |
268 |
|
|
$ |
302,235 |
|
|
$ |
315,453 |
|
|
$ |
1,800 |
|
|
$ |
620,550 |
|
Cumulative effect of
adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,515 |
) |
|
|
|
|
|
|
(1,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTED BALANCE,
February 3, 2007 |
|
|
79,382,554 |
|
|
$ |
794 |
|
|
|
26,787,680 |
|
|
$ |
268 |
|
|
$ |
302,235 |
|
|
$ |
313,938 |
|
|
$ |
1,800 |
|
|
$ |
619,035 |
|
Exchange of Class B
common stock for
common stock |
|
|
480,200 |
|
|
|
5 |
|
|
|
(480,200 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options issued for
acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,117 |
|
|
|
|
|
|
|
|
|
|
|
9,117 |
|
Sale of common stock under
stock plan |
|
|
204,955 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
4,505 |
|
|
|
|
|
|
|
|
|
|
|
4,507 |
|
Exercise of stock options |
|
|
4,769,933 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
30,212 |
|
|
|
|
|
|
|
|
|
|
|
30,259 |
|
Tax benefit on convertible note
bond hedge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,811 |
|
|
|
|
|
|
|
|
|
|
|
2,811 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,036 |
|
|
|
|
|
|
|
155,036 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,039 |
|
|
|
|
|
|
|
|
|
|
|
29,039 |
|
Total tax benefit from exercise
of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,504 |
|
|
|
|
|
|
|
|
|
|
|
38,504 |
|
Foreign currency translation adjustment,
net of taxes of $87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134 |
|
|
|
134 |
|
Unrealized gain on securities
available-for-sale, net of taxes
of $46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, February 2, 2008 |
|
|
84,837,642 |
|
|
$ |
848 |
|
|
|
26,307,480 |
|
|
$ |
263 |
|
|
$ |
416,423 |
|
|
$ |
468,974 |
|
|
$ |
2,012 |
|
|
$ |
888,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
47
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
February 2, |
|
|
February 3, |
|
|
January 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
See Note 2 |
|
|
See Note 2 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
155,036 |
|
|
$ |
112,611 |
|
|
$ |
72,980 |
|
Adjustments to reconcile net income
to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
75,052 |
|
|
|
54,929 |
|
|
|
49,861 |
|
Deferred income taxes |
|
|
(32,696 |
) |
|
|
(1,110 |
) |
|
|
1,559 |
|
Stock based compensation |
|
|
29,039 |
|
|
|
24,303 |
|
|
|
|
|
Excess tax benefit from stock-based compensation |
|
|
(34,918 |
) |
|
|
(36,932 |
) |
|
|
|
|
Tax benefit from exercise of stock options |
|
|
5,396 |
|
|
|
2,572 |
|
|
|
14,678 |
|
Gain on sale of investment |
|
|
|
|
|
|
|
|
|
|
(1,844 |
) |
Other non-cash items |
|
|
2,811 |
|
|
|
2,686 |
|
|
|
2,452 |
|
Changes in assets and liabilities, net of acquired assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(10,982 |
) |
|
|
(2,142 |
) |
|
|
13,331 |
|
Inventories |
|
|
(127,027 |
) |
|
|
(105,766 |
) |
|
|
(77,872 |
) |
Prepaid expenses and other assets |
|
|
(4,267 |
) |
|
|
(29,039 |
) |
|
|
(2,589 |
) |
Accounts payable |
|
|
12,337 |
|
|
|
24,444 |
|
|
|
35,119 |
|
Accrued expenses |
|
|
26,222 |
|
|
|
42,479 |
|
|
|
(193 |
) |
Income taxes payable / receivable |
|
|
114,706 |
|
|
|
4,750 |
|
|
|
19,144 |
|
Deferred construction allowances |
|
|
22,256 |
|
|
|
19,264 |
|
|
|
12,654 |
|
Deferred revenue and other liabilities |
|
|
29,869 |
|
|
|
26,560 |
|
|
|
29,201 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
262,834 |
|
|
|
139,609 |
|
|
|
168,481 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(172,366 |
) |
|
|
(162,995 |
) |
|
|
(149,659 |
) |
Proceeds from sale-leaseback transactions |
|
|
28,440 |
|
|
|
32,509 |
|
|
|
37,867 |
|
Payment for the purchase of Golf Galaxy, net of $4,859 cash acquired |
|
|
(222,170 |
) |
|
|
|
|
|
|
|
|
Payment for the purchase of Chicks Sporting Goods |
|
|
(69,200 |
) |
|
|
|
|
|
|
|
|
Proceeds from sale of investment |
|
|
|
|
|
|
|
|
|
|
1,922 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(435,296 |
) |
|
|
(130,486 |
) |
|
|
(109,870 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit (payments) borrowings, net |
|
|
|
|
|
|
|
|
|
|
(76,094 |
) |
Construction allowance receipts |
|
|
13,282 |
|
|
|
17,902 |
|
|
|
17,201 |
|
Payments on long-term debt and capital leases |
|
|
(1,058 |
) |
|
|
(184 |
) |
|
|
(560 |
) |
Proceeds from sale of common stock under employee stock purchase plan |
|
|
4,507 |
|
|
|
3,734 |
|
|
|
3,676 |
|
Proceeds from exercise of stock options |
|
|
30,259 |
|
|
|
23,042 |
|
|
|
7,413 |
|
Excess tax benefit from stock-based compensation |
|
|
34,918 |
|
|
|
36,932 |
|
|
|
|
|
Increase in bank overdraft |
|
|
4,785 |
|
|
|
8,829 |
|
|
|
7,431 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used in) by financing activities |
|
|
86,693 |
|
|
|
90,255 |
|
|
|
(40,933 |
) |
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS |
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(85,635 |
) |
|
|
99,378 |
|
|
|
17,678 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
135,942 |
|
|
|
36,564 |
|
|
|
18,886 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
50,307 |
|
|
$ |
135,942 |
|
|
$ |
36,564 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress leased facilities |
|
$ |
10,657 |
|
|
$ |
5,749 |
|
|
$ |
(7,895 |
) |
Accrued property and equipment |
|
$ |
(6,928 |
) |
|
$ |
11,475 |
|
|
$ |
(4,969 |
) |
Cash paid during the year for interest |
|
$ |
12,314 |
|
|
$ |
9,286 |
|
|
$ |
12,345 |
|
Cash paid during the year for income taxes |
|
$ |
17,832 |
|
|
$ |
68,483 |
|
|
$ |
4,569 |
|
Stock options issued for acquisition (net of $1,810 tax benefit upon exercise) |
|
$ |
7,307 |
|
|
$ |
|
|
|
$ |
|
|
See notes to consolidated financial statements.
48
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
1. Basis of Presentation and Summary of Significant Accounting Policies
Operations Dicks Sporting Goods, Inc. (together with its subsidiaries, the Company) is a
specialty retailer selling sporting goods, footwear and apparel through its 434 stores, the
majority of which are located throughout the eastern half of the United States. On February 13,
2007, the Company acquired Golf Galaxy, Inc. (Golf Galaxy) by means of merger of our wholly owned
subsidiary with and into Golf Galaxy. On November 30, 2007, the Company acquired all of the
outstanding stock of Chicks Sporting Goods, Inc. (Chicks). The Consolidated Statements of
Income include the operations of Golf Galaxy and Chicks from their dates of acquisition forward
for fiscal 2007.
Fiscal Year The Companys fiscal year ends on the Saturday closest to the end of January.
Fiscal years 2007, 2006 and 2005 ended on February 2, 2008, February 3, 2007 and January 28, 2006,
respectively. All fiscal years presented include 52 weeks of operations except fiscal 2006, which
includes 53 weeks.
Principles of Consolidation The consolidated financial statements include Dicks Sporting
Goods, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and all highly
liquid instruments purchased with a maturity of three months or less at the date of purchase.
Interest income was $1.6 million, $0.8 million and $0.2 million for fiscal 2007, 2006 and 2005,
respectively.
Cash Management The Companys cash management system provides for the reimbursement of all
major bank disbursement accounts on a daily basis. Accounts payable at February 2, 2008 and
February 3, 2007 include $84.7 million and $76.8 million, respectively, of checks drawn in excess
of cash balances not yet presented for payment.
Accounts Receivable Accounts receivable consists principally of amounts receivable from
vendors and landlords. The allowance for doubtful accounts totaled
$2.9 million and $2.0 million,
as of February 2, 2008 and February 3, 2007, respectively.
Inventories Inventories are stated at the lower of weighted average cost or market.
Inventory cost consists of the direct cost of merchandise including freight. Inventories are net
of shrinkage, obsolescence, other valuations and vendor allowances totaling $72.8 million and $52.3
million at February 2, 2008 and February 3, 2007, respectively.
Property and Equipment Property and equipment are recorded at cost and include capitalized
leases. For financial reporting purposes, depreciation and amortization are computed using the
straight-line method over the following estimated useful lives:
|
|
|
|
|
Buildings |
|
40 years |
Leasehold improvements |
|
10-25 years |
Furniture, fixtures and equipment |
|
3-7 years |
Vehicles |
|
5 years |
For leasehold improvements and property and equipment under capital lease agreements,
depreciation and amortization are calculated using the straight-line method over the shorter of the
estimated useful lives of the assets or the lease term. Depreciation expense was $75.2 million,
$54.0 million and $49.3 million for fiscal 2007, 2006 and 2005, respectively.
Renewals and betterments are capitalized and repairs and maintenance are expensed as incurred.
49
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Impairment of Long-Lived Assets and Costs Associated with Exit Activities The Company
periodically evaluates its long-lived assets to assess whether the carrying values have been
impaired, using the provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment loss is recognized
when the estimated undiscounted cash flows expected to result from the use of the asset plus
eventual net proceeds expected from disposition of the asset (if any) are less than the carrying
value of the asset. When an impairment loss is recognized, the carrying amount of the asset is
reduced to its estimated fair value as determined based on quoted market prices or through the use
of other valuation techniques.
A liability is recognized for costs associated with location closings, primarily future lease
costs (net of estimated sublease income), and is charged to income when the Company ceases to use
the location.
Goodwill and Intangible Assets Goodwill represents the excess of acquisition cost over the
fair value of the net assets of acquired entities. In accordance with SFAS No. 142, Accounting for
Goodwill and Other Intangible Assets, the Company will continue to assess on an annual basis
whether goodwill and indefinite-lived intangible assets are impaired, utilizing a fair value
approach at the reporting unit level. A reporting unit is the operating segment, or a business unit
one level below that operating segment, for which discrete financial information is prepared and
regularly reviewed by segment management. Finite-lived intangible assets are amortized over their
estimated useful economic lives and are reviewed for impairment when factors indicate that an
impairment may have occurred. No impairment of goodwill or intangible assets was recorded during
fiscal 2007, 2006 or 2005.
Investments Investments consist of shares of unregistered common stock and is carried at
fair value within other assets in accordance with SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. Fair value at the acquisition date was based upon the publicly
quoted equity price of GSI Commerce Inc. (GSI) stock, less a discount resulting from the
unregistered character of the stock. This discount was based on an independent appraisal obtained
by the Company. Unrealized holding gains and losses on the stock are included in other
comprehensive income and are shown as a component of stockholders equity as of the end of each
fiscal year (see Note 15).
Deferred Revenue and Other Liabilities Deferred revenue and other liabilities is primarily
comprised of gift cards, deferred rent, which represents the difference between rent paid and the
amounts expensed for operating leases, deferred liabilities related to construction allowances,
unamortized capitalized rent during construction that was previously capitalized prior to the
adoption of FSP 13-1, amounts deferred relating to the investment in GSI (see Note 15) and advance
payments under the terms of building sale-leaseback agreements. Deferred liabilities related to
construction allowances and capitalized rent, net of related amortization, was $102.8 million at
February 2, 2008 and $90.5 million at February 3, 2007. Deferred revenue related to gift cards at
February 2, 2008 and February 3, 2007 was $96.6 million and $72.3 million, respectively. Deferred
rent, including deferred pre-opening rent, at February 2, 2008 and February 3, 2007 was $34.9
million and $25.6 million, respectively.
Self-Insurance The Company is self-insured for certain losses related to health, workers
compensation and general liability insurance, although we maintain stop-loss coverage with
third-party insurers to limit our liability exposure. Liabilities associated with these losses are
estimated in part by considering historical claims experience, industry factors, severity factors
and other actuarial assumptions.
Pre-opening Expenses Pre-opening expenses, which consist primarily of rent, marketing,
payroll and recruiting costs, are expensed as incurred.
Stock Split On September 12, 2007, the Companys Board of Directors declared a two-for-one
stock split, in the form of a stock dividend, of the Companys common shares for stockholders of
record on September 28, 2007. The split became effective on October 19, 2007 by issuing our
stockholders of record one additional share of common stock for every share of common stock held,
and one additional share of Class B common stock for every share of Class B common stock held. Par
value of the stock remains at $.01 per share. Accordingly, an immaterial reclassification was made
from additional paid-in capital to common stock for the cumulative number of shares issued as of
February 2, 2008. The capital accounts, share data, and earnings per share data in this report
give effect to the stock split, applied retroactively, to all periods presented. The applicable
share and per-share data for all periods included herein have been restated to give effect to this
stock split.
50
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Merger Integration and Store Closing Costs Merger integration and store closing costs
include the expense of closing Dicks stores in connection with the Galyans acquisition,
advertising the re-branding of Galyans stores, duplicative administrative costs, recruiting and
system conversion costs. These costs were $37.8 million for fiscal 2005.
Earnings
Per Share The computation of basic earnings per share is based on the weighted
average number of shares outstanding during the period. The computation of diluted earnings per
share is based on the weighted average number of shares outstanding plus the incremental shares
that would be outstanding assuming the exercise of dilutive stock options and warrants, calculated
by applying the treasury stock method.
Stock-Based
Compensation The Company has the availability to grant stock options to purchase
common stock under Dicks Sporting Goods, Inc. 2002 Stock Option Plan and the Golf Galaxy, Inc.
2004 Incentive Plan (the Plans). The Company also has an employee stock purchase plan (ESPP)
which provides for eligible employees to purchase shares of the Companys common stock.
Prior to the January 29, 2006 adoption of the Financial Accounting Standards Board (FASB)
Statement No. 123(R), Share-Based Payment (SFAS 123R), the Company accounted for stock-based
compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees and related interpretations.
Accordingly, because the exercise price of the option was equal to or greater than the market value
of the underlying common stock on the date of grant, and any purchase discounts under the Companys
ESPP plan were within statutory limits, no compensation expense was recognized by the Company for
stock-based compensation. As permitted by SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123), stock-based compensation was included as a proforma disclosure in the notes to the
consolidated financial statements.
Effective January 29, 2006, the Company adopted the fair value recognition provisions of SFAS
123R, using the modified-prospective transition method. Under this transition method, stock-based
compensation expense was recognized in the consolidated financial statements for granted, modified,
or settled stock options and for expense related to the ESPP, since the related purchase discount
exceeded the amount allowed under SFAS 123R for non-compensatory treatment. The provisions of SFAS
123R apply to new stock options and stock options outstanding, but not yet vested, on the effective
date of January 29, 2006. Results for prior periods have not been restated, as provided for under
the modified-prospective transition method.
Total pre-tax stock-based compensation expense recognized for the year ended February 2, 2008
and February 3, 2007 was $29.0 million and $24.3 million, respectively. Total stock-based
compensation expense consisted of stock option expense of $27.5 million and $23.1 million and
employee stock purchase plan (ESPP) expense of $1.5 million and $1.2 million, respectively. The
expense was recorded in selling, general and administrative expenses in the Consolidated Statements
of Income. The related total tax benefit was $11.0 million and $9.3 million for the year ended
February 2, 2008 and February 3, 2007, respectively.
Prior to the adoption of SFAS 123R, the Company presented all tax benefits resulting from the
exercise of stock options as operating cash inflows in the Consolidated Statements of Cash Flows,
in accordance with the provisions of the Emerging Issues Task Force (EITF) Issue No 00-15,
Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon
Exercise of a Nonqualified Employee Stock Option. SFAS 123R requires the benefits of tax
deductions in excess of the compensation cost recognized for those options to be classified as
financing cash inflows rather than operating cash inflows, on a prospective basis. This amount is
shown as Excess tax benefit from stock-based compensation on the Consolidated Statements of Cash
Flows.
In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards (FSP 123R-3). The
Company has elected to adopt the alternative transition method provided in FSP 123R-3 for
calculating the tax effects of stock-based compensation under SFAS 123R. The alternative transition
method includes simplified methods to establish the beginning balance of the additional paid-in
capital pool (APIC pool) related to the tax effects of stock-based compensation, and for
determining the impact on the APIC pool and Consolidated Statements of Cash Flows of the tax
effects of stock-based compensation awards that are outstanding upon adoption of SFAS 123R.
51
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table illustrates the effect on the net income and net income per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation (see Note 11) (dollars in thousands, except per share data):
|
|
|
|
|
|
|
2005 |
|
Net income, as reported |
|
$ |
72,980 |
|
Deduct: stock-based compensation expense, net of tax |
|
|
(13,484 |
) |
|
|
|
|
Proforma net income |
|
$ |
59,496 |
|
|
|
|
|
|
|
|
|
|
Net income
per common share basic: |
|
As reported |
|
$ |
0.73 |
|
Deduct: stock-based compensation expense, net of tax |
|
|
(0.14 |
) |
|
|
|
|
Proforma |
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted: |
|
|
|
|
As reported |
|
$ |
0.68 |
|
Deduct: stock-based compensation expense, net of tax |
|
|
(0.12 |
) |
|
|
|
|
Proforma |
|
$ |
0.56 |
|
|
|
|
|
Disclosures for 2007 and 2006 are not presented because the amounts are recognized in the
Consolidated Statements of Income.
The fair value of stock-based awards to employees is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Options |
|
Employee Stock Purchase Plan |
Black - Scholes Valuation Assumptions (1) |
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
Expected life (years) (2) |
|
|
5.29 |
|
|
|
5.29 |
|
|
|
5.29 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Expected volatility (3) |
|
|
36.08% - 37.39% |
|
|
|
37% - 39% |
|
|
|
39% - 41% |
|
|
|
25.66% - 39.19% |
|
|
|
24% - 32% |
|
|
|
27% - 40% |
|
Weighted average volatility |
|
|
36.96% |
|
|
|
38.79% |
|
|
|
40.53% |
|
|
|
34.29% |
|
|
|
28.44% |
|
|
|
35.10% |
|
Risk-free interest rate (4) |
|
|
3.39% - 4.94% |
|
|
|
4.44% - 4.97% |
|
|
|
3.63% - 4.44% |
|
|
|
3.32% - 5.02% |
|
|
|
5.09% - 5.31% |
|
|
|
3.38% - 4.40% |
|
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair values |
|
|
$11.45 |
|
|
|
$8.34 |
|
|
|
$7.63 |
|
|
|
$6.87 |
|
|
|
$5.12 |
|
|
|
$4.15 |
|
|
|
|
(1) |
|
This table excludes valuation assumptions related to the assumption of outstanding Golf
Galaxy options by Dicks in conjunction with the acquisition of Golf Galaxy on February 13,
2007. |
|
(2) |
|
The expected life of the options represents the estimated period of time until exercise
and is based on historical experience of the similar awards. |
|
(3) |
|
Beginning on the date of adoption of Financial Accounting Standards Board (FASB)
Statement No. 123(R), Share-Based Payment (SFAS 123R), expected volatility is based on
the historical volatility of the Companys common stock since the inception of the
Companys shares being publicly traded in October 2002; prior to the date of adoption of
SFAS 123R, expected volatility was estimated using the Companys historical volatility and
volatility of other publicly-traded retailers. |
|
(4) |
|
The risk-free interest rate is based on the implied yield available on U.S. Treasury
constant maturity interest rates whose term is consistent with the expected life of the
stock options. |
The assumptions used to calculate the fair value of options granted are evaluated and revised,
as necessary, to reflect market conditions and experience. See Note 11 for additional details regarding
stock-based compensation.
52
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Income Taxes The Company utilizes the asset and liability method of accounting for income
taxes under the provisions of SFAS No. 109, Accounting for Income Taxes, and provides deferred
income taxes for temporary differences between the amounts reported for assets and liabilities for
financial statement purposes and for income tax reporting purposes.
The Company adopted the provisions of Financial Standards Accounting Board Interpretation No.
48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement
No. 109 (SFAS 109), on February 4, 2007. As a result of the implementation of FIN 48, the
Company recognized no material adjustment in the liability for unrecognized income tax benefits.
At the adoption date of February 4, 2007, the Company recorded a decrease to retained earnings of
$1.5 million. Also at the date of adoption, the Company had $12.0 million of unrecognized tax
benefits, of which approximately $9.1 million would affect our effective tax rate if recognized.
Revenue Recognition Revenue from retail sales is recognized at the point of sale, net of
sales tax. A provision for anticipated merchandise returns is provided through a reduction of
sales and cost of sales in the period that the related sales are recorded. Revenue from gift cards
and returned merchandise credits (collectively the cards), are deferred and recognized upon the
redemption of the cards. These cards have no expiration date. Income from unredeemed cards is
recognized in the Consolidated Statements of Income in selling, general and administrative expenses
at the point at which redemption becomes remote. The Company performs an evaluation of the aging of
the unredeemed cards, based on the elapsed time from the date of original issuance, to determine
when redemption is remote. Revenue from layaway sales is recognized upon receipt of final payment
from the customer.
Cost of Goods Sold Cost of goods sold includes the cost of merchandise, inventory shrinkage,
freight, distribution and store occupancy costs. Store occupancy costs include rent, common area
maintenance charges, real estate and other asset based taxes, store maintenance, utilities,
depreciation, fixture lease expenses and certain insurance expenses.
Selling, General and Administrative Expense Selling, general and administrative expenses
include store and field support payroll and fringe benefits, advertising, bank card charges,
information systems, marketing, legal, accounting, other store expenses and all expenses associated
with operating the Companys corporate headquarters.
Advertising Costs Production costs of advertising and the costs to run the advertisements
are expensed the first time the advertisement takes place. Advertising expense, net of cooperative
advertising was $152.4 million, $122.9 million and $96.1 million for fiscal 2007, 2006 and 2005,
respectively.
Vendor Allowances Vendor allowances include allowances, rebates and cooperative advertising
funds received from vendors. These funds are determined for each fiscal year and the majority are
based on various quantitative contract terms. Amounts expected to be received from vendors
relating to the purchase of merchandise inventories are recognized as a reduction of cost of goods sold as the merchandise is sold.
Amounts that represent a reimbursement of costs incurred, such as advertising, are recorded as a
reduction to the related expense in the period that the related expense is incurred. The Company
records an estimate of earned allowances based on the latest projected purchase volumes and advertising forecasts. On an annual basis at the end of the fiscal
year, the Company confirms earned allowances with vendors to determine that the amounts are
recorded in accordance with the terms of the contract.
Fair Value of Financial Instruments The Company has financial instruments, which include
long-term debt and revolving debt. The carrying amounts of the Companys debt instruments
approximate their fair value, estimated using the Companys current incremental borrowing rates for
similar types of borrowing arrangements.
Reclassifications Certain reclassifications have been made to the fiscal 2006 Consolidated
Balance Sheet to conform to the fiscal 2007 presentation.
53
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Segment Information The Company is a specialty retailer that offers a broad range of
products in its specialty retail stores primarily in the eastern United States. Given the economic
characteristics of the store formats, the similar nature of the products sold, the type of
customer, and method of distribution, the Companys operating segments are aggregated within one
reportable segment. The following table sets forth the approximate amount of net sales
attributable to hardlines, apparel and footwear for the periods presented (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
Merchandise Category |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Hardlines |
|
$ |
2,163 |
|
|
$ |
1,768 |
|
|
$ |
1,497 |
|
Apparel |
|
|
1,077 |
|
|
|
811 |
|
|
|
672 |
|
Footwear |
|
|
648 |
|
|
|
535 |
|
|
|
456 |
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
3,888 |
|
|
$ |
3,114 |
|
|
$ |
2,625 |
|
|
|
|
|
|
|
|
|
|
|
Newly
Issued Accounting Pronouncements In December 2007, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (revised 2007),
Business Combinations (SFAS 141R). SFAS 141R significantly changes the accounting for business
combinations in a number of areas including the treatment of contingent consideration,
preacquisition contingencies, transaction costs, in-process research and development and
restructuring costs. In addition, under SFAS 141R, changes in an acquired entitys deferred tax
assets and uncertain tax positions after the measurement period will impact income tax expense.
SFAS 141R is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS 141R
beginning in the first quarter of fiscal 2009. This standard will change our accounting treatment
for business combinations on a prospective basis, including the treatment of any income tax
adjustments related to past acquisitions.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements; however, SFAS 157 does not require any new fair value measurements.
The requirements of SFAS 157 are first effective as of the beginning of our 2008 fiscal year.
However, in February 2008 the FASB decided that an entity need not apply this standard to
nonrecurring nonfinancial assets and liabilities until the subsequent year. Accordingly, our
adoption of SFAS 157 is limited to financial assets and liabilities. We do not believe that the
initial adoption of SFAS 157 will have a material impact on our financial statements. However, we
are still in the process of evaluating this standard with respect to its effect on nonrecurring
nonfinancial assets and liabilities and therefore have not yet determined the impact that it will
have on our financial statements upon full adoption.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal
years beginning after November 15, 2007. We do not believe that the adoption of SFAS 159 will have
a material impact on our financial statements.
2. Correction to Previously Reported Amounts
Certain corrections have been made for the reporting of the Companys cash flows related to
the receipt of construction allowances. Our Consolidated Statements of Cash Flows for the fiscal
years ended February 3, 2007 and January 28, 2006 have been revised to correct an immaterial error
in our accounting for the receipt of construction allowances, which should have been presented as
financing activities when such construction allowances related to stores where the Company is
considered the owner at the time of receipt, rather than as operating or investing activities, as
previously reported. The effect of this correction for the year ended February 3, 2007 was to
decrease cash provided by operating activities by $3.0 million, increase cash used in investing
activities by $14.9 million and increase cash provided by financing activities by $17.9 million.
The effect of this correction for the year ended January 28, 2006 was to increase cash provided by
operating activities by $7.1 million, increase cash used in investing activities by $24.3 million
and decrease cash used in financing activities by $17.2 million. The correction did not affect the
previously reported results of operations of the Company nor did it change the amount of total cash
flows for the Company.
54
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006 |
|
Fiscal 2005 |
|
|
As previously reported |
|
Correction |
|
As corrected |
|
As previously reported |
|
Correction |
|
As corrected |
|
|
(In thousands) |
|
(In thousands) |
Net cash provided by operating activities
|
|
$ |
142,568 |
|
|
$ |
(2,959 |
) |
|
$ |
139,609 |
|
|
$ |
161,427 |
|
|
$ |
7,054 |
|
|
$ |
168,481 |
|
Net cash used in investing activities
|
|
|
(115,543 |
) |
|
|
(14,943 |
) |
|
|
(130,486 |
) |
|
|
(85,615 |
) |
|
|
(24,255 |
) |
|
|
(109,870 |
) |
Net
cash provided by (used in) financing activities
|
|
$ |
72,353 |
|
|
$ |
17,902 |
|
|
$ |
90,255 |
|
|
$ |
(58,134 |
) |
|
$ |
17,201 |
|
|
$ |
(40,933 |
) |
|
Construction Allowances The Company conducts a substantial portion of its business in leased
properties. The Company may receive reimbursement from a landlord for some of the cost of the
structure, subject to satisfactory fulfillment of applicable lease provisions. These reimbursements
may be referred to as tenant allowances, construction allowances, or landlord reimbursements
(construction allowances).
The Companys accounting for construction allowances differs if a store lease is accounted for
under the provisions of EITF 97-10, The Effect of Lessee Involvement in Asset Construction. Some
of the Companys leases have a cap on the construction allowance which places the Company at risk
for cost overruns and causes the Company to be deemed the owner during the construction period. In
cases where the Company is deemed to be the owner during the construction period, a sale and
leaseback of the asset occurs when construction of the asset is complete and the lease term begins,
if relevant sale-leaseback accounting criteria are met. Any gain or loss from the transaction is
deferred and amortized as rent expense on a straight-line basis over the base term of the lease.
The Company reports the amount of cash received for the construction allowance as Construction
Allowance Receipts within the financing activities section of its Consolidated Statements of Cash
Flows when such allowances are received prior to completion of the sale-leaseback transaction. The
Company reports the amount of cash received from construction allowances as Proceeds from sale
leaseback transactions within the investing activities section of its Consolidated Statements of
Cash Flows when such amounts are received after the sale-leaseback accounting criteria have been
achieved.
In instances where the Company is not deemed to be the owner during the construction period,
reimbursement from a landlord for tenant improvements is classified as an incentive and included in
deferred revenue and other liabilities on the consolidated balance sheets. The deferred rent credit
is amortized as rent expense on a straight-line basis over the base term of the lease. Landlord
reimbursements from these transactions are included in cash flows from operating activities as a
change in Deferred construction allowances.
3. Acquisition
On February 13, 2007, the Company acquired Golf Galaxy, Inc. (Golf Galaxy), which became a
wholly owned subsidiary of Dicks by means of a merger of Dicks subsidiary with and into Golf
Galaxy. The Company paid $227.0 million which was financed using approximately $79 million of cash
and cash equivalents and the balance from borrowings under our Second Amended and Restated Credit
Agreement, as amended to date (the Credit Agreement).
The acquisition is being accounted for using the purchase method in accordance with Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations, with Dicks as the
accounting acquirer. Accordingly, the purchase price has been allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values at the date of the acquisition. The excess of the purchase price over the fair value of net
assets acquired was recorded as goodwill. Goodwill and identifiable intangible assets recorded in
the acquisition will be tested for impairment as required by SFAS No. 142, Goodwill and Other
Intangible Assets. Based upon the purchase price allocation, the Company has recorded $112.6
million of goodwill as a result of the acquisition. None of the goodwill is deductible for tax
purposes. The Company received an independent appraisal for certain assets to determine their fair
value. The purchase price allocation is final, except for any potential income tax changes that may arise. The following table summarizes the fair
values of the assets acquired and liabilities assumed (in thousands):
55
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
Inventory |
|
$ |
70,711 |
|
Other current assets (including cash) |
|
|
19,685 |
|
Property and equipment, net |
|
|
47,875 |
|
Other long-term assets, excluding goodwill and intangible assets |
|
|
246 |
|
Trade name |
|
|
65,749 |
|
Customer list and other intangibles |
|
|
5,659 |
|
Goodwill |
|
|
112,614 |
|
Accounts payable |
|
|
(34,000 |
) |
Accrued expenses |
|
|
(14,063 |
) |
Other current liabilities |
|
|
(9,759 |
) |
Other long-term liabilities |
|
|
(30,381 |
) |
|
|
|
|
|
Fair value of net assets acquired, including intangibles |
|
$ |
234,336 |
|
|
|
|
|
The customer list will be amortized over 12 years. In addition, the trade name is an
indefinite-lived intangible asset, which will not be amortized. The amortization of intangible
assets is included in selling, general and administrative expenses.
The following unaudited proforma summary presents information as if Golf Galaxy had been
acquired at the beginning of the period presented. The proforma amounts include certain
reclassifications to Golf Galaxys amounts to conform them to the Companys reporting calendar and
an increase in pre-tax interest expense of $11.8 million for the year ended February 3, 2007, to
reflect the increase in borrowings under the Credit Agreement to finance the acquisition as if it
had occurred at the beginning of the period. In addition, the proforma net income
excludes $1.4 million of pre-tax merger related expenses. The proforma amounts do not reflect any
benefits from economies which might be achieved from combining the operations.
The proforma information does not necessarily reflect the actual results that would have
occurred had the companies been combined during the period presented, nor is it necessarily
indicative of the future results of operations of the combined companies.
|
|
|
|
|
|
|
Year Ended |
|
|
|
February 3, |
|
|
|
2007 |
|
|
(Unaudited, in thousands, except per share amounts) |
Net sales |
|
$ |
3,388,837 |
|
Net income |
|
$ |
111,958 |
|
Basic earnings per share |
|
$ |
1.09 |
|
Diluted earnings per share |
|
$ |
1.01 |
|
On November 30, 2007, the Company acquired all of the outstanding stock of Chicks Sporting
Goods, Inc. for approximately $69.2 million. In addition, Chicks shareholders have the opportunity
to earn up to $5 million in additional consideration, upon satisfaction by Chicks of certain
specified performance criteria through June 2008.
The acquisition is being accounted for using the purchase method in accordance with SFAS
No. 141, Business Combinations. Accordingly, we recorded the net assets at their estimated fair
values, and included operating results in our Consolidated Statements of Income from the date of
acquisition. We allocated the purchase price on a preliminary basis using information currently
available. The Company is in the process of obtaining an independent appraisal for certain assets,
including intangibles not yet identified, and refining its internal fair value estimates;
therefore, the allocation of the purchase price is preliminary and the final allocation will likely
differ.
56
DICKS
SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Based on the preliminary purchase price allocation, the Company has recorded $34.4 million of
goodwill as a result of the acquisition. None of the goodwill is deductible for tax purposes.
4. Integration Activities and Facility Closures
In connection with the Companys acquisitions, we have incurred restructuring costs associated
with the termination of employees, facility consolidations and other costs directly related to the
restructuring initiatives implemented. For these specific restructuring costs recognized in
conjunction with the cost from the Companys acquisitions, we have accounted for these costs in
accordance with EITF 95-3, Recognition of Liabilities Assumed in Connection with a Purchase
Business Combination and therefore are recognized as liabilities in connection with the
acquisition and charged to goodwill. Costs incurred in connection with all other business
integration activities have been recognized in the Consolidated Statements of Income.
The following table summarizes the activity in fiscal 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
Associate Severance, |
|
|
Liabilities Established |
|
|
Reserve |
|
|
|
|
|
|
Retention and |
|
|
for the Closing |
|
|
for Discontinued |
|
|
|
|
|
|
Relocation |
|
|
of Acquired Locations |
|
|
Merchandise |
|
|
Total |
|
Balance at January 29, 2005 |
|
$ |
3,620 |
|
|
$ |
3,673 |
|
|
$ |
6,310 |
|
|
$ |
13,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (net of sublease receipts) |
|
|
(3,284 |
) |
|
|
(4,242 |
) |
|
|
|
|
|
|
(7,526 |
) |
Adjustments to the estimate |
|
|
(216 |
) |
|
|
|
|
|
|
|
|
|
|
(216 |
) |
Clearance of discontinued Galyans
merchandise |
|
|
|
|
|
|
|
|
|
|
(6,310 |
) |
|
|
(6,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 28, 2006 |
|
$ |
120 |
|
|
$ |
(569 |
) |
|
$ |
|
|
|
$ |
(449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (net of sublease receipts) |
|
|
(120 |
) |
|
|
(85 |
) |
|
|
|
|
|
|
(205 |
) |
Adjustments to the estimate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clearance of discontinued Galyans
merchandise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 3, 2007 |
|
$ |
|
|
|
$ |
(654 |
) |
|
$ |
|
|
|
$ |
(654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (net of sublease receipts) |
|
|
|
|
|
|
121 |
|
|
|
|
|
|
|
121 |
|
Adjustments to the estimate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store closing reserves established
in conjuction with the Golf Galaxy
acquisition |
|
|
|
|
|
|
2,059 |
|
|
|
|
|
|
|
2,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008 |
|
$ |
|
|
|
$ |
1,526 |
|
|
$ |
|
|
|
$ |
1,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $6.3 million of inventory reserve utilized for the clearance of discontinued Galyans
merchandise in fiscal 2005 was recorded as a reduction of cost of sales.
As of February 2, 2008, the Company had a sublease receivable of $3.3 million as our projected
sublease cash flows exceed our anticipated rent payments for one of the closed former Galyans
stores.
5. Goodwill and Other Intangible Assets
As
of February 2, 2008 and February 3, 2007, the Company had goodwill of $304.4 million and
$156.6 million, respectively. During fiscal year 2007, the Company acquired goodwill totaling
approximately $147.0 million in connection with the acquisitions of Golf Galaxy and Chicks.
The Company acquired intangible assets totaling approximately $71.4 million during fiscal
2007, consisting primarily of a trade name and customer list resulting from the Companys Golf
Galaxy acquisition. As of February 2, 2008 and February 3, 2007, the Company had indefinite-lived
and finite-lived intangible assets of $69.9 million and $4.2 million, and $10.1 million and $5.2
million, respectively.
57
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The components of intangible assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Trade name |
|
$ |
65,749 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Trademarks |
|
|
4,219 |
|
|
|
|
|
|
|
4,219 |
|
|
|
|
|
Customer list |
|
|
5,153 |
|
|
|
(429 |
) |
|
|
|
|
|
|
|
|
Favorable leases and other |
|
|
5,849 |
|
|
|
(503 |
) |
|
|
5,349 |
|
|
|
(194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
80,970 |
|
|
$ |
(932 |
) |
|
$ |
9,568 |
|
|
$ |
(194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for these intangible assets was $0.7 million, $0.1 million and $0.1
million for fiscal 2007, 2006 and 2005, respectively. The estimated weighted average economic
useful life is 12 years. The annual amortization expense of the finite-lived intangible assets
recorded as of February 2, 2008 is expected to be as follows (in thousands):
|
|
|
|
|
|
|
Estimated |
|
Fiscal |
|
Amortization |
|
Years |
|
Expense |
|
2008 |
|
|
856 |
|
2009 |
|
|
913 |
|
2010 |
|
|
1,044 |
|
2011 |
|
|
1,136 |
|
2012 |
|
|
1,161 |
|
Thereafter |
|
|
4,960 |
|
|
|
|
|
Total |
|
$ |
10,070 |
|
|
|
|
|
6. Store and Corporate Office Closings
At a stores closing or relocation date, estimated lease termination and other costs to close
or relocate a store are recorded in cost of goods sold, including occupancy and distribution costs
on the Consolidated Statements of Income. The calculation of accrued lease termination and other
costs primarily includes future minimum lease payments, maintenance costs and taxes from the date
of closure or relocation to the end of the remaining lease term, net of contractual or estimated
sublease income. The liability is discounted using a credit-adjusted risk-free rate of
interest. The assumptions used in the calculation of the accrued lease termination and other costs
are evaluated each quarter.
The following table summarizes the activity of the store closing reserves established due to
Dicks store closings as a result of the Galyans acquisition, relocations, and other store
closings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Accrued store closing and relocation reserves, beginning of period |
|
$ |
19,903 |
|
|
$ |
20,181 |
|
Expense charged to earnings |
|
|
2,043 |
|
|
|
4,328 |
|
Cash payments |
|
|
(6,781 |
) |
|
|
(4,867 |
) |
Interest accretion and other changes in assumptions |
|
|
6,717 |
|
|
|
261 |
|
|
|
|
|
|
|
|
Accrued store closing and relocation reserves, end of period |
|
|
21,882 |
|
|
|
19,903 |
|
Less current portion of accrued store closing and relocation reserves |
|
|
(7,284 |
) |
|
|
(6,135 |
) |
|
|
|
|
|
|
|
Long-term portion of accrued store closing and relocation reserves |
|
$ |
14,598 |
|
|
$ |
13,768 |
|
|
|
|
|
|
|
|
58
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The current portion of accrued store
closing and relocation reserves is recorded in accrued expenses and the long-term portion is
recorded in long-term deferred revenue and other liabilities in the Consolidated Balance Sheets.
7. Property and Equipment
Property and equipment are recorded at cost and consist of the following as of the end of the
fiscal periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Buildings and land |
|
$ |
34,003 |
|
|
$ |
31,820 |
|
Leasehold improvements |
|
|
452,723 |
|
|
|
374,879 |
|
Furniture, fixtures and equipment |
|
|
425,522 |
|
|
|
330,757 |
|
|
|
|
|
|
|
|
|
|
|
912,248 |
|
|
|
737,456 |
|
Less: accumulated depreciation and amortization |
|
|
(380,469 |
) |
|
|
(304,385 |
) |
|
|
|
|
|
|
|
Net property and equipment |
|
$ |
531,779 |
|
|
$ |
433,071 |
|
|
|
|
|
|
|
|
The amounts above include construction in progress of $66.9 million and $34.2 million for
fiscal 2007 and 2006, respectively.
8. Accrued Expenses
Accrued expenses consist of the following as of the end of the fiscal periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Accrued payroll, withholdings and benefits |
|
$ |
74,495 |
|
|
$ |
52,988 |
|
Accrued property and equipment |
|
|
33,200 |
|
|
|
34,537 |
|
Other accrued expenses |
|
|
121,121 |
|
|
|
102,840 |
|
|
|
|
|
|
|
|
Total accrued expenses |
|
$ |
228,816 |
|
|
$ |
190,365 |
|
|
|
|
|
|
|
|
9. Debt
The Companys outstanding debt at February 2, 2008 and February 3, 2007 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Senior convertible notes |
|
$ |
172,500 |
|
|
$ |
172,500 |
|
Revolving line of credit |
|
|
|
|
|
|
|
|
Capital leases |
|
|
7,721 |
|
|
|
7,809 |
|
Third-party debt |
|
|
1,214 |
|
|
|
708 |
|
|
|
|
|
|
|
|
Total debt |
|
|
181,435 |
|
|
|
181,017 |
|
Less: current portion |
|
|
(250 |
) |
|
|
(152 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
181,185 |
|
|
$ |
180,865 |
|
|
|
|
|
|
|
|
59
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Senior Convertible Notes In February 2004, the Company completed a private offering of
$172.5 million issue price of senior unsecured convertible notes due 2024 (notes). The notes bear
interest at an annual rate of 2.375% of the issue price payable semi-annually on August 18th and
February 18th of each year until February 18, 2009. After February 18, 2009, the notes do not pay
cash interest, but the initial principal amount of the notes will accrete daily at an original
issue discount rate of 2.625% per year, until maturity on February 18, 2024, when a holder will
receive $1,000 per note. Subject to the Companys obligations to pay cash for a certain portion of
the notes and its right, if it elects, to pay all amounts due under the notes in cash as more fully
described below, the notes are convertible into the Companys common stock (upon the occurrence of
certain events) at the election of the holder in each of the first 20 fiscal quarters following
their issuance when the price per share of the Companys common stock (calculated for a certain
period of time) exceeds $23.59 per share. This conversion threshold trigger price permitting the
notes to be converted by the holders has been met and the notes are eligible and will remain
convertible for so long as they remain outstanding.
Upon conversion of a note, the Company is obligated to pay cash for each $1,000 of face amount
of a note equal to the lesser of: (i) the accreted principal amount (the sum of the initial issue
price of $676.25 per $1,000 face amount and the accrued original issue discount as of the
conversion date (no original issue discount occurs until 2009)), and (ii) the product of (a) the
number of shares of the Companys common stock into which the note otherwise would have been
converted if no cash payment were made by the Company (i.e. 34.4044 shares per $1,000 face amount),
multiplied by (b) the average of the closing per share sale price on the fifteen consecutive
trading days commencing on the fourth trading day after the conversion date. In addition, the
Company at its election has the ability to pay cash or deliver shares for any balance shares due
under the notes. The number of balance shares is equal to the number of shares of common stock
into which a note otherwise would be converted if no cash payment were made by the Company, less
the accreted principal amount (the sum of the initial issue price of $676.25 and the accrued
original issue discount as of the conversion date of), divided by the average sale price (the
average of the closing per share sale price on the fifteen consecutive trading days commencing on
the fourth trading day after the conversion date) of a share of common stock. All such
calculations are controlled by and governed by the promissory note under which the notes are issued
and the indenture, as amended, governing the notes. If the number of balance shares is a positive
number, the Company has the option to deliver cash or a combination of cash and shares of common
stock for the balance shares by electing for each full balance share for which the Company has
chosen to deliver cash to pay cash in an amount equal to the average sale price of a share of
common stock.
The notes will mature on February 18, 2024, unless earlier converted or repurchased. The
Company may redeem the notes at any time on or after February 18, 2009, at its option, at a
redemption price equal to the sum of the issue price, accreted original issue discount and any
accrued cash interest, if any.
Concurrently, with the sale of the notes, the Company purchased a bond hedge designed to
mitigate the potential dilution to stockholders from the conversion of the notes. Under the five
year term of the bond hedge, one of the initial purchasers (the counterparty) will deliver to the
Company upon a conversion of the bonds a number of shares of common stock based on the extent to
which the then market price exceeds $19.66 per share. The aggregate number of shares that the
Company could be obligated to issue upon conversion of the notes is 8,776,048 shares of common
stock. The cost of the purchased bond hedge was partially offset by the sale of warrants to
acquire up to 17,551,896 shares of the common stock to the counterparty with whom the Company
entered into the bond hedge. The warrants are exercisable by the counterparty in year five at a
price of $28.08 per share. The warrants may be settled at the Companys option through a net share
settlement or a net cash settlement, either of which would be based on the extent to which the then
market price exceeds $28.08 per share. The net effect of the bond hedge and the warrants is to
reduce the potential dilution from the conversion of the notes if the Company elects a net share
settlement. There would be dilution impact from the conversion of the notes to the extent that the
then market price per share of the common stock exceeds $28.08 per share at the time of conversion.
The Companys common stock price has triggered an optional conversion right with respect to
the notes. Based on the current price of the Companys common stock, the Company believes that if
the notes were currently converted there would not be any dilutive effect on the Companys
estimated outstanding number of shares as a result of the notes or the warrants. However, as the
convertible notes remain outstanding in the future, depending on the price of the Companys common
stock, the notes may have dilutive effect and increase the number of shares of common stock
outstanding beyond that which we estimate or may estimate in the future. As the trading price in
our common stock exceeds $28.08 per share, we may incur dilution as a result of the notes and/or
the warrants and further increases in our common stock price may cause us to have to increase the
number of shares outstanding and
60
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
impact our earnings per share calculation. At this time, we would
not anticipate that the outstanding notes will be
converted currently and believe that our current estimate of outstanding shares for 2007
adequately addresses any impact of the notes and warrants during 2007. However, the estimate of the
number of shares outstanding and the estimates of the dilutive impact of the notes and warrants is
based on current circumstances and is forward-looking and only a prediction. We also believe that
to the extent the notes convertibility feature remains in-the-money, a holder would elect to
convert at some point in the future or at redemption. In addition, because a certain portion of the
notes must be paid in cash and we may elect to pay for all amounts due under the notes in cash and
we cannot predict the timing of such conversions, the timing of the conversions may impact our
future liquidity.
Revolving Credit Agreement On July 27, 2007, the Company entered into a Fourth Amendment to
its Second Amended and Restated Credit Agreement (the Credit Agreement) that, among other things,
extended the maturity of the Credit Agreement from July 2008 to July 2012, increased the potential
Aggregate Revolving Credit Commitment, as defined in the Credit Agreement, from $350 million to a
potential commitment of $450 million and reduced certain applicable interest rates and fees charged
under the Credit Agreement, including up to $75 million in the form of letters of credit. The
Credit Agreements term was extended to July 27, 2012.
As of February 2, 2008 and February 3, 2007, the Companys total remaining borrowing capacity,
after subtracting letters of credit, under the Credit Agreement was $333.2 million and $333.5
million, respectively. Borrowing availability under the Companys Credit Agreement is generally
limited to the lesser of 70% of the Companys eligible inventory or 85% of the Companys
inventorys liquidation value, in each case net of specified reserves and less any letters of
credit outstanding. Interest on outstanding indebtedness under the Credit Agreement is based upon
a formula at either (a) the prime corporate lending rate or
(b) the London Interbank Offering Rate (LIBOR), plus the applicable margin of 0.75% to 1.50% based on the level of total
borrowings during the prior three months. Borrowings are collateralized by the assets of the
Company, excluding store and distribution center equipment and fixtures that have a net carrying
value of $177.2 million as of February 2, 2008.
At February 2, 2008 and February 3, 2007, the prime rate was 6.00% and 8.25%, respectively,
and LIBOR was 3.14% and 5.32%, respectively. There were no outstanding borrowings under the Credit
Agreement at February 2, 2008 and February 3, 2007.
The Credit Agreement contains restrictive covenants including the maintenance of a certain
fixed charge coverage ratio of not less than 1.0 to 1.0 in certain circumstances and prohibits
payment of any dividends. As of February 2, 2008, the Company was in compliance with the terms of
the Credit Agreement.
The Credit Agreement provides for letters of credit not to exceed the lesser of (a) $75
million, (b) $350 million less the outstanding loan balance and (c) the borrowing base minus the
outstanding loan balance. As of February 2, 2008 and February 3, 2007, the Company had outstanding
letters of credit totaling $16.8 million and $16.5 million, respectively.
The following table provides information about the Credit Agreement borrowings as of and for
the periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Balance, fiscal period end |
|
$ |
|
|
|
$ |
|
|
Average interest rate |
|
|
6.50 |
% |
|
|
6.57 |
% |
Maximum outstanding during the year |
|
$ |
210,208 |
|
|
$ |
169,981 |
|
Average outstanding during the year |
|
$ |
94,185 |
|
|
$ |
57,138 |
|
61
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Other Debt Other debt, exclusive of capital lease obligations, consists of the following as
of the end of the fiscal periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Third-Party: |
|
|
|
|
|
|
|
|
Note payable, due in monthly installments of approximately
$4, including interest at 4%, through 2020 |
|
$ |
662 |
|
|
$ |
708 |
|
Note payable, due in monthly installments of approximately
$5, including interest at 11%, through 2018 |
|
|
378 |
|
|
|
|
|
Other |
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt |
|
|
1,214 |
|
|
|
708 |
|
Less current portion: |
|
|
(117 |
) |
|
|
(46 |
) |
|
|
|
|
|
|
|
Total Other Long-Term Debt |
|
$ |
1,097 |
|
|
$ |
662 |
|
|
|
|
|
|
|
|
Certain of the agreements pertaining to long-term debt contain financial and other restrictive
covenants, none of which are more restrictive than those of the Credit Agreement as discussed
herein.
Scheduled principal payments on other long-term debt as of February 2, 2008 are as follows (in
thousands):
|
|
|
|
|
Fiscal Year |
|
|
|
|
2008 |
|
$ |
117 |
|
2009 |
|
|
124 |
|
2010 |
|
|
119 |
|
2011 |
|
|
107 |
|
2012 |
|
|
88 |
|
Thereafter |
|
|
659 |
|
|
|
|
|
|
|
$ |
1,214 |
|
|
|
|
|
Capital Lease Obligations The Company leases two buildings from the estate of a former
stockholder, who is related to current stockholders of the Company, under a capital lease entered
into May 1, 1986 which expires in April 2021. In addition, the Company has a capital lease for a
store location with a fixed interest rate of 10.6% that matures in 2024. The gross and net carrying values of assets under capital leases are
approximately $8.2 million and $3.8 million, respectively, as of February 2, 2008 and $8.2 million
and $4.2 million, respectively, as of February 3, 2007.
Scheduled lease payments under capital lease obligations as of February 2, 2008 are as follows
(in thousands):
|
|
|
|
|
Fiscal Year |
|
|
|
|
2008 |
|
$ |
905 |
|
2009 |
|
|
975 |
|
2010 |
|
|
953 |
|
2011 |
|
|
953 |
|
2012 |
|
|
953 |
|
Thereafter |
|
|
11,204 |
|
|
|
|
|
|
|
|
15,943 |
|
Less: amounts representing interest |
|
|
(8,222 |
) |
|
|
|
|
Present value of net scheduled lease payments |
|
|
7,721 |
|
Less: amounts due in one year |
|
|
(133 |
) |
|
|
|
|
|
|
$ |
7,588 |
|
|
|
|
|
62
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Operating Leases
The Company leases substantially all of its stores, office facilities, distribution centers
and equipment, under noncancelable operating leases that expire at various dates through 2028.
Certain of the store lease agreements contain renewal options for additional periods of five-to-ten
years and contain certain rent escalation clauses. The lease agreements provide primarily for the
payment of minimum annual rentals, costs of utilities, property taxes, maintenance, common areas
and insurance, and in some cases contingent rent stated as a percentage of gross sales over certain
base amounts. Rent expense under these operating leases was approximately $267.5 million, $205.8
million and $196.3 million for fiscal 2007, 2006 and 2005, respectively. The Company entered into
sale-leaseback transactions related to store fixtures, buildings and equipment that resulted in
cash receipts of $28.4 million, $32.5 million and $37.9 million for fiscal 2007, 2006 and 2005,
respectively.
Scheduled lease payments due (including lease commitments for 52 stores not yet opened at
February 2, 2008) under noncancelable operating leases as of February 2, 2008 are as follows (in
thousands):
|
|
|
|
|
Fiscal Year |
|
|
|
|
2008 |
|
$ |
330,857 |
|
2009 |
|
|
346,068 |
|
2010 |
|
|
341,636 |
|
2011 |
|
|
328,490 |
|
2012 |
|
|
315,983 |
|
Thereafter |
|
|
1,950,607 |
|
|
|
|
|
|
|
$ |
3,613,641 |
|
|
|
|
|
The Company has subleases related to certain of its operating lease agreements. The Company
recognized sublease rental income of $1.1 million,
$1.2 million and $1.0 million for fiscal 2007, 2006 and 2005,
respectively.
11. Stock-Based Compensation and Employee Stock Plans
Stock Option Plans The Company grants stock options to purchase common stock under the
Plans. Stock options generally vest over four years in 25% increments from the date of grant and
expire 10 years from date of grant. As of February 2, 2008, there were 12,895,754 shares of common
stock available for issuance pursuant to future stock option grants. The stock option activity
during the year is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
Shares |
|
Exercise |
|
Contractual |
|
Aggregate |
|
|
Subject to |
|
Price per |
|
Life |
|
Intrinsic Value |
|
|
Options |
|
Share |
|
(Years) |
|
(in thousands) |
Outstanding,
January 29, 2005 |
|
|
24,208,820 |
|
|
$ |
6.24 |
|
|
|
5.91 |
|
|
$ |
259,398 |
|
Granted |
|
|
2,487,888 |
|
|
|
17.90 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,640,802 |
) |
|
|
2.83 |
|
|
|
|
|
|
|
|
|
Forfeited / Expired |
|
|
(777,132 |
) |
|
|
12.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 28, 2006 |
|
|
23,278,774 |
|
|
$ |
7.66 |
|
|
|
8.72 |
|
|
$ |
249,432 |
|
Granted |
|
|
2,756,916 |
|
|
|
19.61 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(5,371,716 |
) |
|
|
4.30 |
|
|
|
|
|
|
|
|
|
Forfeited / Expired |
|
|
(1,031,146 |
) |
|
|
14.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
February 3, 2007 |
|
|
19,632,828 |
|
|
$ |
9.88 |
|
|
|
6.64 |
|
|
$ |
324,610 |
|
Granted |
|
|
5,324,866 |
|
|
|
25.86 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4,769,933 |
) |
|
|
6.34 |
|
|
|
|
|
|
|
|
|
Forfeited / Expired |
|
|
(911,316 |
) |
|
|
20.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
February 2, 2008 |
|
|
19,276,445 |
|
|
$ |
14.66 |
|
|
|
6.35 |
|
|
$ |
352,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
February 2, 2008 |
|
|
12,200,666 |
|
|
$ |
8.97 |
|
|
|
5.35 |
|
|
$ |
292,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The aggregate intrinsic value in the table above is based on the Companys closing stock
prices for the last business day of the period indicated. The total intrinsic value for stock
options exercised for 2007, 2006 and 2005 was $107.0 million, $106.9 million and $40.2 million,
respectively. The total fair value of options vested for 2007, 2006 and 2005 was $38.1 million,
$26.2 million and $8.4 million, respectively. The nonvested stock option activity for the year ended February 2, 2008 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Fair |
|
|
|
Shares |
|
|
Value |
|
Nonvested, February 3, 2007 |
|
|
8,578,460 |
|
|
$ |
6.87 |
|
Granted |
|
|
5,324,866 |
|
|
|
11.45 |
|
Vested |
|
|
(5,925,811 |
) |
|
|
6.45 |
|
Forfeited |
|
|
(901,736 |
) |
|
|
8.98 |
|
|
|
|
|
|
|
|
Nonvested, February 2, 2008 |
|
|
7,075,779 |
|
|
$ |
10.40 |
|
|
|
|
|
|
|
|
As of February 2, 2008, total unrecognized stock-based compensation expense related to
nonvested stock options was approximately $57.6 million, which is expected to be recognized over a
weighted average period of approximately 2.72 years.
The Company issues new shares of common stock upon exercise of stock options.
Additional information regarding options outstanding as of February 2, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Average |
|
Range of |
|
|
|
|
|
Contractual |
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
Exercise Prices |
|
Shares |
|
|
Life (Years) |
|
|
Price |
|
|
Shares |
|
|
Price |
|
$0.54 - $1.08 |
|
|
889,989 |
|
|
2.80 |
|
|
$ |
0.90 |
|
|
|
889,989 |
|
|
$ |
0.90 |
|
$3.00 - $7.65 |
|
|
3,650,780 |
|
|
4.69 |
|
|
|
3.24 |
|
|
|
3,650,780 |
|
|
|
3.24 |
|
$8.17 - $11.44 |
|
|
4,833,318 |
|
|
5.53 |
|
|
|
10.90 |
|
|
|
4,773,005 |
|
|
|
10.91 |
|
$12.53 - $18.14 |
|
|
3,474,828 |
|
|
6.65 |
|
|
|
15.44 |
|
|
|
2,365,276 |
|
|
|
14.38 |
|
$18.95 - $28.23 |
|
|
5,901,304 |
|
|
8.12 |
|
|
|
24.87 |
|
|
|
521,616 |
|
|
|
20.37 |
|
$29.08 - $33.40 |
|
|
526,226 |
|
|
9.53 |
|
|
|
31.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.54 - $33.40 |
|
|
19,276,445 |
|
|
6.35 |
|
|
$ |
14.66 |
|
|
|
12,200,666 |
|
|
$ |
8.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock On February 13, 2007, the Company granted 300,000 shares of restricted
stock to certain executives of Golf Galaxy under the Companys 2002 Stock Option Plan. One half of
these restricted stock awards vest on the third anniversary of the date of grant, and one-half vest
if and to the extent that certain defined performance targets are achieved by the recipient of the
restricted stock award upon the third anniversary from the date of grant. The weighted average fair
value of these awards is $26.01, which represents the market price of the Companys common
stock on the date of grant. As of February 2, 2008 all of the shares of restricted stock were
outstanding and total unrecognized stock-based compensation expense related to nonvested shares of
restricted stock was approximately $7.8 million, before income taxes, which is expected to be
recognized over a weighted average period of approximately 2.03 years.
Employee Stock Purchase Plan The Company has an employee stock purchase plan, which
provides that eligible employees may purchase shares of the Companys common stock. There are two
offering periods in a fiscal year, one ending on June 30 and the other on December 31, or as
otherwise determined by the Companys compensation committee. The employees purchase price is 85%
of the lesser of the fair market value of the stock on the first business day or the last business
day of the semi-annual offering period. Employees may purchase shares having a fair market value
of up to $25,000 for all purchases ending within the same calendar year. The total
64
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
number of
shares issuable under the plan is 4,620,000. There were 204,955 and 245,964 shares issued under
the plan during fiscal 2007 and 2006, respectively, leaving 1,430,835 shares available for future
issuance. The fiscal 2007 shares were issued at an average price of $21.99.
Common
Stock, Class B Common Stock and Preferred Stock
During fiscal 2004, the Company
filed an amendment to its Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of our common stock, par value $0.01 per share from
100,000,000 to 200,000,000 and Class B common stock, par value
$0.01 per share from 20,000,000 to
40,000,000. In addition, the Companys corporate
charter provides for the authorization of the issuance of up to 5,000,000 shares of preferred
stock.
The holders of common stock generally have rights identical to holders of Class B common
stock, except that holders of common stock are entitled to one vote per share and holders of Class
B common stock are entitled to ten votes per share. A related party and relatives of the related
party hold all of the Class B common stock. These shares can only be held by members of this group
and are not publicly tradable. Class B common stock can be converted to common stock at the
holders option.
12. Income Taxes
The components of the provision for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
118,305 |
|
|
$ |
62,573 |
|
|
$ |
41,961 |
|
State |
|
|
16,882 |
|
|
|
11,247 |
|
|
|
7,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,187 |
|
|
|
73,820 |
|
|
|
49,256 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(28,983 |
) |
|
|
631 |
|
|
|
(928 |
) |
State |
|
|
(3,713 |
) |
|
|
623 |
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,696 |
) |
|
|
1,254 |
|
|
|
(602 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision |
|
$ |
102,491 |
|
|
$ |
75,074 |
|
|
$ |
48,654 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amounts computed by applying the federal
statutory rate as follows for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State tax, net of federal benefit |
|
|
3.6 |
% |
|
|
4.2 |
% |
|
|
4.6 |
% |
Other permanent items |
|
|
1.2 |
% |
|
|
0.8 |
% |
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
39.8 |
% |
|
|
40.0 |
% |
|
|
40.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
65
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Components of deferred tax assets (liabilities) consist of the following as of the fiscal
periods ended (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Store closing expense |
|
$ |
10,605 |
|
|
$ |
7,772 |
|
Stock based compensation |
|
|
15,760 |
|
|
|
7,455 |
|
Employee benefits |
|
|
6,527 |
|
|
|
8,273 |
|
Other accrued expenses not currently deductible for
tax purposes |
|
|
2,252 |
|
|
|
|
|
Deferred rent |
|
|
16,117 |
|
|
|
10,732 |
|
Insurance |
|
|
2,753 |
|
|
|
3,595 |
|
Gift cards |
|
|
5,704 |
|
|
|
3,997 |
|
Deferred revenue currently taxable |
|
|
4,148 |
|
|
|
4,716 |
|
Non-Income based tax reserves |
|
|
2,787 |
|
|
|
1,919 |
|
Uncertain income tax positions |
|
|
3,896 |
|
|
|
|
|
Property and equipment |
|
|
279 |
|
|
|
|
|
Net operating loss carryforwards |
|
|
1,740 |
|
|
|
2,931 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
72,568 |
|
|
|
51,390 |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
|
|
|
|
(10,089 |
) |
Inventory |
|
|
(17,525 |
) |
|
|
(29,911 |
) |
Intangibles |
|
|
(28,963 |
) |
|
|
(2,192 |
) |
Other accrued expenses not currently deductible for
tax purposes |
|
|
|
|
|
|
(503 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(46,488 |
) |
|
|
(42,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
26,080 |
|
|
$ |
8,695 |
|
|
|
|
|
|
|
|
The deferred tax asset from tax loss carryforwards of $1.7 million represents approximately
$34.5 million of state net operating loss carryforwards, of which $5.5 million expires in the next
ten years. The remaining $29.0 million expires between 2018 and 2026. In 2007, of the $26.1
million net deferred tax asset, $19.7 million is recorded in current assets and $6.4 million is
recorded in other long-term assets in the Consolidated Balance Sheets. In 2006, of the $8.7
million net deferred tax asset, $17.4 million is recorded in other long-term assets and $8.7
million is recorded in deferred revenue and other current liabilities in the Consolidated Balance
Sheets.
As of February 2, 2008, the total liability for uncertain tax positions, including related
interest and penalties, was approximately $11.8 million. The following table represents a
reconciliation of the Companys total unrecognized tax benefits balances, excluding interest and
penalties for the year ended February 2, 2008 (in thousands):
|
|
|
|
|
|
|
2007 |
|
Beginning of year |
|
$ |
10,342 |
|
Increases as a result of tax positions taken in a prior period |
|
|
1,721 |
|
Decreases as a result of tax positions taken in a prior period |
|
|
(1,527 |
) |
Increases as a result of tax positions taken in the current period |
|
|
1,473 |
|
Decreases as a result of settlements during the current period |
|
|
(2,190 |
) |
Reductions as a result of a lapse of statute of limitations during
the current period |
|
|
(104 |
) |
|
|
|
|
End of year |
|
$ |
9,715 |
|
|
|
|
|
Of the above $9.7 million in unrecognized tax benefits, excluding interest and penalties, $7.8
million would impact our effective tax rate if recognized. The Company recognizes accrued interest
and penalties related to unrecognized tax benefits in income tax expense.
As of February 2, 2008, the liability for uncertain tax positions included $2.1 million for
the accrual of interest and penalties. During the year ended February 2, 2008, the Company recorded
$0.9 million for the accrual
66
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
of interest and penalties in its Consolidated Statements of Income.
The Company has federal, state and local examinations currently ongoing. It is possible that these
examinations may be resolved within 12 months. Due to the potential for resolution of these
examinations, and the expiration of various statutes of limitation, it is reasonably possible that
$5.7 million of the Companys gross unrecognized tax benefits at February 2, 2008 could be
recognized within the next 12 months. The Company does not anticipate that changes in its
unrecognized tax benefits will have a material impact on the Consolidated Statements of Income
during fiscal 2008.
The tax years 2003 2006 remain open to examination by the major taxing jurisdictions to
which we are subject.
13. Interest Expense, net
Interest expense, net is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Interest expense |
|
$ |
12,856 |
|
|
$ |
10,836 |
|
|
$ |
13,196 |
|
Interest income |
|
|
(1,566 |
) |
|
|
(811 |
) |
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
11,290 |
|
|
$ |
10,025 |
|
|
$ |
12,959 |
|
|
|
|
|
|
|
|
|
|
|
14. Earnings per Common Share
The computation of basic earnings per share is based on the number of weighted average common
shares outstanding during the period. The computation of diluted earnings per share is based upon
the weighted average number of shares outstanding plus the incremental shares that would be
outstanding assuming exercise of dilutive stock options. The number of incremental shares from the
assumed exercise of stock options is calculated by applying the treasury stock method. The
aggregate number of shares, totaling 8,776,048, that the Company could be obligated to issue upon
conversion of our $172.5 million issue price of senior convertible notes was excluded from the
calculations for fiscal 2007, 2006 and 2005. The computations for basic and diluted earnings per
share are as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Earnings per common share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
155,036 |
|
|
$ |
112,611 |
|
|
$ |
72,980 |
|
Weighted average common shares outstanding |
|
|
109,383 |
|
|
|
102,512 |
|
|
|
99,584 |
|
Earnings per common share |
|
$ |
1.42 |
|
|
$ |
1.10 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
155,036 |
|
|
$ |
112,611 |
|
|
$ |
72,980 |
|
Weighted average common shares outstanding basic |
|
|
109,383 |
|
|
|
102,512 |
|
|
|
99,584 |
|
Stock options, restricted stock and warrants |
|
|
7,121 |
|
|
|
8,278 |
|
|
|
8,374 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
diluted |
|
|
116,504 |
|
|
|
110,790 |
|
|
|
107,958 |
|
Earnings per common share |
|
$ |
1.33 |
|
|
$ |
1.02 |
|
|
$ |
0.68 |
|
Potential dilutive shares are excluded from the computation of earnings per share if their
effect is anti-dilutive. Anti-dilutive options totaled 4.5 million and 0.4 million for fiscal 2007 and 2006,
respectively. There were no anti-dilutive options in fiscal 2005.
67
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
15. Investments
In April 2001, the Company entered into an Internet commerce agreement with GSI. Under the
terms of this 10-year agreement, GSI is responsible for all financial and operational aspects of
the Internet site, which operates under the domain name DicksSportingGoods.com, which name has
been licensed to GSI by the Company. The Company and GSI entered into a royalty arrangement that
permitted the Company, at its election, to purchase an equity ownership in GSI at a price that was
less than the GSI market value per share in lieu of royalties until Internet sales reached a
predefined amount. The equity ownership consists of unregistered common stock of GSI and warrants
to purchase unregistered common stock of GSI (see Note 1). The Company recognized the difference
between the fair value of the GSI stock and its cost as deferred revenue to be amortized over the
10-year term of the agreement. Deferred revenue at February 2, 2008 and February 3, 2007 was $1.5
million and $1.9 million, respectively. In total, the number of shares the Company holds
represents less than 5% of GSIs outstanding common stock.
During fiscal 2005, the Company realized a pre-tax gain of $1.8 million resulting from the
sale of a portion of the Companys investment in GSI.
16. Retirement Savings Plans
The Companys retirement savings plan, established pursuant to Section 401(k) of the Internal
Revenue Code, covers regular status full-time hourly and salaried employees as of their date of
hire and part-time regular employees once they work 1,000 hours or more in a year and have attained
21 years of age. Under the terms of the retirement savings plan, the Company provides a matching
contribution equal to 50% of each participants contribution up to 10% of the participants
compensation, and may make a discretionary matching contribution. Total expense recorded under the
plan was $5.0 million, $3.0 million and $2.6 million for fiscal 2007, 2006 and 2005, respectively.
We have non-qualified deferred compensation plans for highly compensated employees whose
contributions are limited under qualified defined contribution plans. Amounts contributed and
deferred under the deferred compensation plans are credited or charged with the performance of
investment options offered under the plans and elected by the participants. In the event of
bankruptcy, the assets of these plans are available to satisfy the claims of general creditors. The
liability for compensation deferred under the Companys plans was $1.8 million and $0.4 million at
February 2, 2008, and February 3, 2007, respectively, and is included in long-term liabilities.
Total expense recorded under these plans was $5.5 million and $0.1 million for fiscal 2007 and
2006, respectively. There was no expense for these plans during fiscal 2005.
17. Commitments and Contingencies
The Company enters into licensing agreements for the exclusive rights to use certain
trademarks extending through 2020. Under specific agreements, the Company is obligated to pay an
annual guaranteed minimum royalty. The aggregate amount of required payments at February 2, 2008
is as follows (in thousands):
|
|
|
|
|
Fiscal Year |
|
|
|
|
2008 |
|
$ |
8,048 |
|
2009 |
|
|
9,456 |
|
2010 |
|
|
10,790 |
|
2011 |
|
|
12,115 |
|
2012 |
|
|
14,935 |
|
Thereafter |
|
|
40,644 |
|
|
|
|
|
|
|
$ |
95,988 |
|
|
|
|
|
In addition, certain agreements require the Company to pay additional royalties if the
qualified purchases are in excess of the guaranteed minimum. The Company paid $1.9 million and
$0.7 million under agreements requiring minimum guaranteed contractual amounts during fiscal 2007
and 2006, respectively. There were no payments made during fiscal 2005.
68
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Company also has certain naming rights and other marketing commitments extending through
2026 of $70.5 million. Payments under these commitments are scheduled to be made as follows: 2008,
$12.6 million; 2009, $12.9 million; 2010, $2.8 million; 2011, $2.2 million; 2012, $2.3 million;
thereafter, $37.7 million.
The Company is involved in legal proceedings incidental to the normal conduct of its business.
Although the outcome of any pending legal proceedings cannot be predicted with certainty,
management believes that adequate insurance coverage is maintained and that the ultimate resolution
of these matters will not have a material adverse effect on the Companys liquidity, financial
position or results of operations.
18. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information in fiscal years 2007 and 2006 is as follows (in
thousands, except earnings per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter (1) |
Net sales (2) |
|
$ |
823,553 |
|
|
$ |
1,013,421 |
|
|
$ |
838,831 |
|
|
$ |
1,212,615 |
|
|
$ |
645,498 |
|
|
$ |
734,047 |
|
|
$ |
708,343 |
|
|
$ |
1,026,275 |
|
Gross profit |
|
|
244,419 |
|
|
|
298,660 |
|
|
|
238,663 |
|
|
|
376,320 |
|
|
|
177,665 |
|
|
|
207,397 |
|
|
|
191,335 |
|
|
|
320,302 |
|
Income from operations
(2) |
|
|
39,291 |
|
|
|
83,194 |
|
|
|
21,682 |
|
|
|
124,650 |
|
|
|
21,279 |
|
|
|
45,707 |
|
|
|
15,609 |
|
|
|
115,116 |
|
Net income (2) |
|
|
21,701 |
|
|
|
47,930 |
|
|
|
12,233 |
|
|
|
73,171 |
|
|
|
11,418 |
|
|
|
25,681 |
|
|
|
7,795 |
|
|
|
67,718 |
|
Net earnings
per diluted share (2) |
|
$ |
0.19 |
|
|
$ |
0.41 |
|
|
$ |
0.10 |
|
|
$ |
0.62 |
|
|
$ |
0.10 |
|
|
$ |
0.23 |
|
|
$ |
0.07 |
|
|
$ |
0.60 |
|
|
|
|
(1) |
|
Fourth quarter of fiscal 2006 represents a 14 week period, as fiscal 2006 includes 53 weeks. |
|
(2) |
|
Quarterly results for fiscal 2007 and 2006 do not add to full year results due to
rounding. |
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DICKS SPORTING GOODS, INC.
(Registrant)
By: /s/ TIMOTHY E. KULLMAN
Timothy E. Kullman
Executive Vice President Finance, Administration and Chief Financial Officer
Date: March 27, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
date indicated.
|
|
|
|
|
SIGNATURE |
|
CAPACITY |
|
DATE |
|
|
|
|
|
/s/ EDWARD W. STACK
|
|
Chairman and Chief Executive
|
|
March 27, 2008 |
Edward W. Stack
|
|
Officer, President and Director |
|
|
|
|
|
|
|
/s/ TIMOTHY E. KULLMAN
|
|
Executive Vice President
|
|
March 27, 2008 |
Timothy E. Kullman
|
|
Finance, Administration and
Chief Financial Officer
(principal financial and
accounting officer) |
|
|
|
|
|
|
|
/s/ WILLIAM J. COLOMBO
|
|
Vice Chairman and Director
|
|
March 27, 2008 |
William J. Colombo |
|
|
|
|
|
|
|
|
|
/s/ EMANUEL CHIRICO
|
|
Director
|
|
March 27, 2008 |
Emanuel Chirico |
|
|
|
|
|
|
|
|
|
/s/ DAVID I. FUENTE
|
|
Director
|
|
March 27, 2008 |
David I. Fuente |
|
|
|
|
|
|
|
|
|
/s/ WALTER ROSSI
|
|
Director
|
|
March 27, 2008 |
Walter Rossi |
|
|
|
|
|
|
|
|
|
/s/ LAWRENCE J. SCHORR
|
|
Director
|
|
March 27, 2008 |
Lawrence J. Schorr |
|
|
|
|
|
|
|
|
|
/s/ BRIAN J. DUNN
|
|
Director
|
|
March 27, 2008 |
Brian J. Dunn |
|
|
|
|
|
|
|
|
|
/s/ LARRY D. STONE
|
|
Director
|
|
March 27, 2008 |
Larry D. Stone |
|
|
|
|
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dicks Sporting Goods, Inc.
Pittsburgh, Pennsylvania
We have audited the consolidated financial statements of Dicks Sporting Goods, Inc. and
subsidiaries (the Company) as of February 2, 2008 and February 3, 2007 and for each of the three
fiscal years in the period ended February 2, 2008 (which report on the consolidated financial
statements expresses an unqualified opinion and includes an explanatory paragraph regarding the
Companys adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on February 4, 2007, and Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment, on January 29, 2006), and the Companys internal control over
financial reporting as of February 2, 2008, and have issued our
reports thereon dated March 27,
2008; such reports are included herein. Our audits also included the consolidated financial
statement schedule of the Company listed in Item 15 of Part IV. This consolidated financial
statement schedule is the responsibility of the Companys management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 27, 2008
71
DICKS SPORTING GOODS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Charged to |
|
Other - |
|
|
|
|
|
Balance at |
|
|
Beginning |
|
Costs and |
|
Acquisition |
|
|
|
|
|
End |
|
|
of Period |
|
Expenses |
|
Related |
|
Deductions |
|
of Period |
Fiscal 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve |
|
$ |
4,396 |
|
|
$ |
5,835 |
|
|
$ |
|
|
|
$ |
(900 |
) |
|
$ |
9,331 |
|
Allowance for
doubtful accounts |
|
|
4,805 |
|
|
|
1,215 |
|
|
|
(2,995 |
) |
|
|
(1,125 |
) |
|
|
1,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve |
|
$ |
9,331 |
|
|
$ |
10,545 |
|
|
$ |
|
|
|
$ |
(3,980 |
) |
|
$ |
15,896 |
|
Allowance for
doubtful accounts |
|
|
1,900 |
|
|
|
925 |
|
|
|
|
|
|
|
(794 |
) |
|
|
2,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve |
|
$ |
15,896 |
|
|
$ |
6,973 |
|
|
$ |
1,327 |
|
|
$ |
(4,981 |
) |
|
$ |
19,215 |
|
Allowance for
doubtful accounts |
|
|
2,031 |
|
|
|
3,459 |
|
|
|
212 |
|
|
|
(2,817 |
) |
|
|
2,885 |
|
72
Index to Exhibits
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Method of Filing |
2.1
|
|
Agreement and Plan of Merger, dated as of June
21, 2004, by and among the Registrant,
Diamondback Acquisition, Inc. and Galyans
Trading Company, Inc.
|
|
Incorporated by reference to Exhibit 2.1 to the
Registrants Form 8-K, File No. 001-31463, filed
on June 22, 2004. |
|
|
|
|
|
2.2
|
|
Agreement and Plan of Merger dated as of
November 13, 2006
|
|
Incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K, File No. 001-31463, filed
on November 14, 2006 |
|
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation
|
|
Incorporated by reference to Exhibit 3.1 to the
Registrants Registration Statement on Form S-8,
File No. 333-100656, filed on October 21, 2002 |
|
|
|
|
|
3.2
|
|
Amendment to the Amended and Restated
Certificate of Incorporation, dated as of June
10, 2004
|
|
Incorporated by reference to Exhibit 3.1 to the
Registrants Form 10-Q, File No. 001-31463, filed
on September 9, 2004 |
|
|
|
|
|
3.3
|
|
Form of Amended and Restated Bylaws
|
|
Incorporated by reference to Exhibit 3.4 to the
Registrants Statement on Form S-1, File No.
333-96587, filed on July 17, 2002 |
|
|
|
|
|
4.1
|
|
Second Amended and Restated Credit Agreement
dated as of July 28, 2004 among Dicks Sporting
Goods, Inc., the Lenders Party thereto and
General Electric Capital Corporation
|
|
Incorporated by reference to Exhibit 4.1 to the
Registrants Statement on Form 8-K, File No.
001-31463, filed on July 29, 2004 |
|
|
|
|
|
4.2
|
|
Form of Stock Certificate
|
|
Incorporated by reference to Exhibit 4.1 to the
Registrants Statement on Form S-1, File No.
333-96587, filed on July 17, 2002 |
|
|
|
|
|
4.3
|
|
Indenture dated as of February 18, 2004 between
the Registrant and Wachovia Bank, National
Association, as Trustee
|
|
Incorporated by reference to Exhibit 10.3 to the
Registrants Form 8-K, File No. 001-31463, filed
on February 23, 2004 |
|
|
|
|
|
4.4
|
|
Registration Rights Agreement among the
Registrant, Merrill Lynch, Pierce, Fenner Smith
Incorporated, Banc of America Securities LLC and
UBS Securities LLC dated as of February 18, 2004
|
|
Incorporated by reference to Exhibit 10.2 to the
Registrants Form 8-K, File No. 001-31463, filed
on February 23, 2004 |
|
|
|
|
|
4.5
|
|
Form of Confirmation of OTC Warrant Transaction,
Amended and Restated as of February 13, 2004
|
|
Incorporated by reference to Exhibit 10.7 to the
Registrants Form 8-K, File No. 001-31463, filed
on February 23, 2004 |
|
|
|
|
|
4.6
|
|
Senior Convertible Notes due 2024, Purchase Agreement among Dicks Sporting Goods, Inc.,
Merrill Lynch, Pierce, Fenner Smith Incorporated, Banc of America LLC and UBS Securities
LLC, dated as of February 11, 2004
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
February 23, 2004 |
|
|
|
|
|
4.7
|
|
First Supplemental Indenture, dated as of December 22, 2004, between the Registrant and
Wachovia Bank, National Association, as Trustee
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
December 23, 2004. |
|
|
|
|
|
4.8
|
|
Consent to Second Amended and Restated Credit Agreement, dated as of December 23, 2004,
between the Registrant and General Electric Capital Corporation
|
|
Incorporated by
reference to
Exhibit 10.2 to the
Registrants Form
8-K, File No.
001-31463, filed on
December 23, 2004. |
73
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Method of Filing |
10.1
|
|
Associate Savings and Retirement Plan
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants
Statement on Form
S-1, File No.
333-96587, filed on
July 17, 2002 |
|
|
|
|
|
10.2
|
|
Registrants 1992 Stock Option Plan
|
|
Incorporated by
reference to
Exhibit 10.4 to the
Registrants
Statement on Form
S-1, File No.
333-96587, filed on
July 17, 2002 |
|
|
|
|
|
10.3
|
|
Registrants 2002 Stock Plan, as amended
|
|
Incorporated by
reference to
Exhibit 4.1 to the
Registrants
Registration
Statement on Form
S-8, File No.
333-102385, filed
on January 7, 2003 |
|
|
|
|
|
10.4
|
|
Dicks Sporting Goods, Inc. (successor in interest to Dicks Acquisition Corp.)
12% Subordinated Debenture, dated May 1, 1986 issued to Richard J. Stack
|
|
Incorporated by
reference to
Exhibit 10.7 to the
Registrants
Statement on Form
S-1, File No.
333-96587, filed on
July 17, 2002 |
|
|
|
|
|
10.5
|
|
Lease Agreement, dated November 3, 1999, for 75,000 square foot distribution
center in Conklin, NY
|
|
Incorporated by
reference to
Exhibit 10.9 to the
Registrants
Statement on Form
S-1, File No.
333-96587, filed on
July 17, 2002 |
|
|
|
|
|
10.6
|
|
Form of Agreement entered into between Dicks Sporting Goods, Inc. and various
executive officers, which sets forth form of severance
|
|
Incorporated by
reference to
Exhibit 10.10 to
the Registrants
Statement on Form
S-1, File No.
333-96587, filed on
July 17, 2002 |
|
|
|
|
|
10.7
|
|
Form of Option Award entered into between Dicks Sporting Goods, Inc. and
various executive officers, directors and employees
|
|
Incorporated by
reference to
Exhibit 10.9 to the
Registrants Form
10-K, File No.
001-31463, filed on
April 8, 2004 |
|
|
|
|
|
10.8
|
|
Option Agreement between the Company and William R. Newlin, Chief
Administrative Officer and Executive Vice President
|
|
Incorporated by
reference to
Exhibit 10.10 to
the Registrants
Form 10-K, File No.
001-31463, filed on
April 8, 2004 |
|
|
|
|
|
10.9
|
|
Option Agreement between Dicks Sporting Goods, Inc. and Edward W. Stack
|
|
Incorporated by
reference to
Exhibit 10.12 to
the Registrants
Statement on Form
S-1, File No.
333-96587, filed on
July 17, 2002 |
|
|
|
|
|
10.10
|
|
Option Agreement between Dicks Sporting Goods, Inc. and Edward W. Stack
|
|
Incorporated by
reference to
Exhibit 10.12 to
the Registrants
Form 10-K, File No.
001-31463, filed on
April 8, 2004 |
|
|
|
|
|
10.11
|
|
Offer Letter between the Company and William R. Newlin, Chief Administrative
Officer and Executive Vice President
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
10-Q, File No.
001-31463, filed on
December 9, 2003 |
|
|
|
|
|
10.12
|
|
Form of Confirmation of OTC Convertible Note Hedge, Amended and Restated as of
February 13, 2004
|
|
Incorporated by
reference to
Exhibit 10.6 to the
Registrants Form
8-K, File No.
001-31463, filed on
February 23, 2004 |
|
|
|
|
|
10.13
|
|
Amended and Restated Lease Agreement, originally dated February 4, 1999, for
distribution center located in Smithton, Pennsylvania, effective as of May 5,
2004
|
|
Incorporated by
reference to
Exhibit 10.5 to the
Registrants Form
10-Q, File No.
001-31463, filed on
September 9, 2004. |
|
|
|
|
|
10.14
|
|
Description of Compensation Payable to Non-Management Directors
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
March 8, 2005. |
74
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Method of Filing |
10.15
|
|
Consent and Waiver to the Amended and Restated Credit Agreement, dated as of June 14, 2004,
among Dicks Sporting Goods, Inc., the lending party thereto and General Electric Capital
Corporation, as agent for the lenders
|
|
Incorporated by
reference to
Exhibit 10.2 to the
Registrants Form
8-K, File No.
001-31463, filed on
June 22, 2004 |
|
|
|
|
|
10.16
|
|
Waiver of Confirmation of OTC Convertible Note Hedge Agreement entered into among the
Registrant and Merrill Lynch International on February 13, 2004
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
December 9, 2004. |
|
|
|
|
|
10.17
|
|
Amended and Restated Lease Agreement originally dated August 31, 1999, for distribution
center located in Plainfield, Indiana, effective as of November 30, 2005, between CP Gal
Plainfield, LLC and Dicks Sporting Goods, Inc.
|
|
Incorporated by
reference to
Exhibit 10.22 to
Registrants Form
10-K, File No.
001-31463, filed on
March 23, 2006 |
|
|
|
|
|
10.18
|
|
Offer Letter between the Company and Gwen K. Manto, Executive Vice President
and Chief Merchandising Officer
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
December 9, 2005 |
|
|
|
|
|
10.19
|
|
Aircraft Sublease Agreement, dated February 13, 2006, for the business use of
an aircraft, between Dicks Sporting Goods, Inc. and Corporate Air, LLC
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
February 14, 2006 |
|
|
|
|
|
10.20
|
|
Dicks Sporting Goods Supplemental Smart Savings Plan
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
July 6, 2006 |
|
|
|
|
|
10.21
|
|
First Amendment to the Second Amended and Restated Credit Agreement dated as of
November 13, 2006
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
November 14, 2006 |
|
|
|
|
|
10.22
|
|
Second Amendment to Second Amended and Restated Credit Agreement dated as of
February 13, 2007
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
February 13, 2007 |
|
|
|
|
|
10.23
|
|
Cover Letter and Second Amended and Restated Employment Agreement, dated
February 13, 2007
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
February 13, 2007 |
|
|
|
|
|
10.24
|
|
Stock Option Agreement, dated February 13, 2007
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
February 13, 2007 |
|
|
|
|
|
10.25
|
|
Restricted Stock Award Agreement, dated February 13, 2007
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
February 13, 2007 |
|
|
|
|
|
10.26
|
|
Third Amendment to Second Amended and Restated Credit Agreement dated as of
February 28, 2007
|
|
Incorporated by
reference to
Exhibit 10.33 to
the Registrants
Form 10-K, File No.
001-31463, filed on
March 23, 2007 |
|
|
|
|
|
10.27
|
|
Golf Galaxy, Inc. Amended and Restated 1996 Stock Option and Incentive Plan
|
|
Incorporated by
reference to
Exhibit 4.1 to the
Registrants
Statement on Form
S-8, File No.
333-140713, filed
on February 14,
2007 |
|
|
|
|
|
10.28
|
|
Golf Galaxy, Inc. 2004 Stock Incentive Plan
|
|
Incorporated by
reference to
Exhibit 4.2 to the
Registrants
Statement on Form
S-8, File No.
333-140713, filed
on February 14,
2007 |
75
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Method of Filing |
10.29
|
|
Amended and Restated Employee Stock Purchase Plan
|
|
Incorporated by
reference to Annex
A to the
Registrants
Definitive Proxy
Statement, File No.
001-31463, filed on
May 3, 2007 |
|
|
|
|
|
10.30
|
|
Offer Letter between Dicks Sporting Goods, Inc. and Timothy E. Kullman, dated
February 5, 2007, as amended by letter dated February 9, 2007
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
March 16, 2007 |
|
|
|
|
|
10.31
|
|
Amendment to Dicks Sporting Goods Supplemental Smart Savings Plan
|
|
Incorporated by
reference to
Exhibit 10.7 to the
Registrants Form
10-Q, File No.
001-31463, filed on
June 6, 2007 |
|
|
|
|
|
10.32
|
|
Fourth Amendment to the Second Amended and Restated Credit Agreement, dated
July 27, 2007
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
August 2, 2007 |
|
|
|
|
|
10.33
|
|
Amendment dated June 22, 2007 to Confirmation of OTC Convertible Note Hedge,
Amended and Restated as of February 13, 2004
|
|
Incorporated by
reference to
Exhibit 10.2 to the
Registrants Form
10-Q, File No.
001-31463, filed on
August 28, 2007 |
|
|
|
|
|
10.34
|
|
Fifth Amendment to the Second Amended and Restated Credit Agreement, dated as
of November 20, 2007
|
|
Incorporated by
reference to
Exhibit 10.1 to the
Registrants Form
8-K, File No.
001-31463, filed on
December 6, 2007 |
|
|
|
|
|
10.35
|
|
Amended and Restated Officers Supplemental Savings Plan, dated December 12,
2007
|
|
Filed herewith |
|
|
|
|
|
10.36
|
|
First Amendment to Amended and Restated Officers
Supplemental Savings Plan, dated March 27, 2008
|
|
Filed herewith |
|
|
|
|
|
10.37
|
|
Sixth Amendment to the Second Amended and Restated Credit Agreement, dated as
of January 24, 2008
|
|
Filed herewith |
|
|
|
|
|
10.38
|
|
Written description of performance
incentive awards
|
|
Filed herewith |
|
|
|
|
|
10.39
|
|
Form of Restricted Stock Award
|
|
File herewith |
|
|
|
|
|
12
|
|
Computation of Ratio of Earnings to Fixed Charges
|
|
Filed herewith |
|
|
|
|
|
21
|
|
Subsidiaries
|
|
Filed herewith |
|
|
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP
|
|
Filed herewith |
|
|
|
|
|
31.1
|
|
Certification of Edward W. Stack, Chairman, Chief Executive Officer and
President, dated as of March 27, 2008 and made pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended.
|
|
Filed herewith |
|
|
|
|
|
31.2
|
|
Certification of Timothy E. Kullman, Executive Vice President Finance,
Administration and Chief Financial Officer, dated as of March 27, 2008 and made
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
Filed herewith |
|
|
|
|
|
32.1
|
|
Certification of Edward W. Stack, Chairman, Chief Executive Officer and
President, dated as of March 27, 2008 and made pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
76
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Method of Filing |
32.2
|
|
Certification of Timothy E. Kullman, Executive Vice President Finance,
Administration and Chief Financial Officer, dated as of March 27, 2008 and made
pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
77