Dick's Sporting Goods 2003 Annual Report Download - page 30

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INVESTING ACTIVITIES
Cash used in investing activities increased by $10.8 million in 2003, or 47.8%, to $33.4 million, primarily reflecting an
increase in net capital expenditures. We use cash in investing activities to build new stores and remodel or relocate
existing stores. Furthermore, net cash used in investing activities includes purchases of information technology assets
and expenditures for distribution facilities and corporate headquarters. During 2003, 2002 and 2001, the Company
opened 22, 16 and 20 new stores, respectively, and remodeled or relocated one, three and one store(s), respectively.
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. During 2003, the Company completed two building
sale-leasebacks. One of the sale-leasebacks generated proceeds of $5.0 million for which the capital expenditures were
incurred in 2002. Additionally, the Company incurred building costs of $15.2 million in 2003 that will be reimbursed in
2004 under the terms of sale-leaseback agreements. The Company also generated $4.2 million in proceeds from the
sale of a portion of the Company’s non-cash investment in its third-party Internet commerce service provider during 2003.
In accordance with Emerging Issues Task Force No. 97-10 (“Issue 97-10”), “The Effect of Lessee Involvement in Asset
Construction,” the Company is considered to be the owner of certain buildings during the construction period, for
accounting purposes only. Accordingly, the Company has recognized a non-cash asset and related non-cash obligation
of $10.9 million as of January 31, 2004. At the conclusion of the construction period, the asset and related liability will be
removed from the balance sheet in a manner similar to a sale-leaseback transaction if certain conditions are met. The
application of Issue 97-10 has no impact to cash balances, net cash flow, the statement of operations or cash obligations.
FINANCING ACTIVITIES
Cash provided by financing activities increased by $65.8 million in 2003, or 181.0%, to $29.4 million, primarily reflecting
a decrease in the change in the balance of the senior secured revolving credit facility partially offset by the proceeds
from the initial public offering in 2002 and the proceeds from the exercise of stock options in 2003. Financing activities
consist primarily of borrowings and repayments under the senior secured revolving credit facility, net proceeds from the
initial public offering, and proceeds from transactions in the Company’s common stock. During 2003, the Company
received proceeds of $15.9 million from the exercise of employee stock options and purchases of common stock under
the employee stock purchase plan. Future stock option activity cannot be predicted. During 2002, the Company
completed an initial public offering of 16,762,640 shares of common stock, including the underwriters’ over-allotment,
of which 5,544,000 were sold by the Company and 11,218,640 were sold by certain of the Company’s stockholders.
Proceeds to the Company, net of $2.8 million in transaction costs, were $28.1 million. The proceeds were used to repay
outstanding borrowings under the senior secured revolving credit facility. During 2001, stock options representing
5,724,748 shares were exercised in exchange for a $6.2 million note receivable due from a related party. Proceeds from
the payment on the note were received in 2002.
The Company’s liquidity and capital needs have been met by cash from operations and borrowings under the senior
secured revolving credit facility. This senior secured revolving credit facility provides for borrowings in an aggregate
outstanding principal amount of up to $180 million, including up to $50 million in the form of letters of credit. The actual
availability under the senior secured revolving credit facility is limited to the lesser of 70% of the Company’s eligible
inventory or 85% of the Company’s inventory’s liquidation value, in each case net of specified reserves and less any
letters of credit outstanding. There were no outstanding borrowings on the senior secured revolving credit facility as
of January 31, 2004 and February 1, 2003 and borrowings of $77.1 million as of February 2, 2002. Total remaining
borrowing capacity, after subtracting letters of credit as of January 31, 2004, February 1, 2003 and February 2, 2002
was $154.3 million, $143.8 million and $52.9 million, respectively. Interest on outstanding indebtedness under the senior
secured revolving credit facility currently accrues at the lender’s prime commercial lending rate or, if the Company
elects, at the one-month LIBOR plus 1.25% based on the Company’s current interest coverage ratio. The Company’s
obligations under the senior secured revolving credit facility are secured by interests in substantially all of the
Company’s personal property excluding store and distribution center equipment and fixtures. The senior secured
revolving credit facility matures on May 30, 2006. The Company has used the senior secured revolving credit facility to
meet seasonal working capital requirements and to support the Company’s growth.
The senior secured revolving credit facility contains restrictions regarding the Company’s and related subsidiary’s ability,
among other things, to merge, consolidate or acquire non-subsidiary entities, to incur indebtedness or liens, to pay
dividends or make distributions on the Company’s stock, to make investments or loans, or to engage in transactions
with affiliates. The Company is obligated to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0.
Obligations under the senior secured revolving credit facility are secured under various collateral documents (including a
security agreement, pledge agreement, blocked account agreements, concentration account agreement, disbursement