Dick's Sporting Goods 2003 Annual Report Download - page 51

16. SUBSEQUENT EVENTS
On February 10, 2004, the Company’s Board of Directors declared a two-for-one stock split of the Company’s common
shares. The split will be effected by issuing 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 on the record
date of March 19, 2004. The applicable share and per-share data for all periods included herein have been restated to
give effect to this stock split.
On February 18, 2004, the Company completed a private offering of $172.5 million issue price of senior unsecured
convertible notes due 2024 (“convertible notes”) in transactions pursuant to Rule 144A under the Securities Act of 1933,
as amended. Net proceeds to the Company of $145.7 million are after the net cost of a convertible bond hedge and a
separate warrant transaction. The hedge and warrant transactions effectively increase the conversion premium
associated with the senior convertible notes during the term of these transactions from 40% to 100%, or from $39.31
to $56.16 per share, thereby reducing the potential dilutive effect upon conversion.
The initial offering of $155.0 million issue price of convertible notes were sold on February 11, 2004 in a private,
unregistered offering to “qualified institutional buyers,” along with the subsequent exercise by the initial purchasers of
such offering of their option to purchase an additional $17.5 million issue price of convertible notes for a total issue
price of $172.5 million. The transactions closed on February 18, 2004. Net proceeds of $145.7 million to the Company
are net of estimated transaction costs associated with the offering of $6.1 million, and the net payment for the bond
hedge and warrant transactions described below. The convertible 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, with the first
interest payment to be made on August 18, 2004. After February 18, 2009, the notes will not pay cash interest but the
initial principal amount of the notes will accrete daily at an original issue discount rate of 2.625%, until maturity on
February 18, 2024, when a holder will receive $1,000 per note. The convertible notes are convertible into the Company’s
common stock (the “common stock”) at an initial conversion price in each of the first 20 fiscal quarters following
issuance of the notes of $39.31 per share, upon the occurrence of certain events. Thereafter, the conversion price per
share of common stock increases each fiscal quarter by the accreted original issue discount for the quarter. Upon
conversion of a note, unless the Company is in default, the Company is obligated to pay cash in lieu of issuing some or
all of the shares of common stock, in an amount up to the accreted principal amount of the note, and whether any
shares of common stock are issuable in addition to this cash payment would depend upon the then market price of the
Company’s common stock. The convertible 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, accrued original discount and any accrued cash interest, if any. The total face amount of the
convertible notes was $255.1 million prior to the original discount of $82.6 million.
Concurrently with the sale of the convertible notes, the Company purchased a bond hedge designed to mitigate the
potential dilution from the conversion of the convertible notes. Under the five year terms 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 $39.31 per share. The aggregate number
of shares that the Company could be obligated to issue upon conversion of the convertible notes is 4,388,024 shares.
The cost of the purchased bond hedge was partially offset by the sale of warrants (the “warrants”) to acquire up to
8,775,948 shares of the common stock to the counterparty with whom the Company entered into the bond hedge. The
warrants are exercisable in year five at a price of $56.16 per share. The warrants may be settled at the Company’s
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 $56.16 per share.
The net effect of the purchased bond hedge and the warrants is to either reduce the potential dilution from the
conversion of the convertible notes if the Company elects a net share settlement or to increase the net cash proceeds
of the offering if a net cash settlement is elected if the convertible notes are converted at a time when the market price
of the common stock exceeds $39.31 per share. There would be dilution from the conversion of the convertible note to
the extent that the then market price per share of the common stock exceeds $56.16 at the time of conversion.
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