Dick's Sporting Goods 2003 Annual Report Download - page 34

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dks 03ar 32
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk The Company’s net exposure to interest rate risk will consist primarily of borrowings under the
senior secured revolving credit facility. The Company’s 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 Company’s
election. There were no borrowings outstanding under the senior secured revolving credit facility as of January 31, 2004
and February 1, 2003. The impact on the Company’s 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 $0.2 million based upon fiscal 2003 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.
Seasonality and Quarterly Results The Company’s business is subject to seasonal fluctuations. Significant portions
of the Company’s net sales and profits are realized during the fourth quarter of the Company’s 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.