Dick's Sporting Goods 2006 Annual Report Download

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2006 ANNUAL REPORT

Table of contents

  • Page 1
    2006 ANNUAL REPORT

  • Page 2
    ...-opening expenses Merger integration and store closing costs Income from operations Net Income Adjusted Net Income 2 Diluted earnings per common share Adjusted Diluted earnings per common share 2 Diluted weighted average shares outstanding (in thousands) Total stockholders' equity Return on invested...

  • Page 3
    ... operational performance, making Dick's the largest and most profitable publicly held full-line sporting goods retailer in the nation, as well as one of the largest chains of our kind in the United States with 294 stores in 34 states. Our success has also enabled us to build powerful momentum that...

  • Page 4
    ... to manage changing market conditions and capitalize on promising growth opportunities. 1 Results exclude merger integration and store closing costs, gain on sale of investment, and are adjusted for the effect of expensing stock options as if we had applied SFAS 123, "Accounting for Stock...

  • Page 5
    ... the size of our chain in our existing footprint and to expand our reach across the nation, increasing the total size of our store network to at least 800 stores over time. In 2006, we opened 39 new Dick's Sporting Goods stores, introducing us to seven new markets, while increasing our presence...

  • Page 6
    ... initiatives include a Sunday circular program supported by direct mailings, interactive in-store events and sponsorship of community sports activities. We also work to build our national presence through our Every Season Starts at Dick's advertising campaign on ESPN and The Golf Channel, as well as...

  • Page 7
    ... 39 new Dick's Sporting Goods stores that positioned us in seven new markets and increased our presence in several key markets, including Chicago, Atlanta, Minneapolis and Denver Acquired Golf Galaxy, a leading specialty golf retailer with 65 stores in 24 states and sales of $275 million in 2006...

  • Page 8

  • Page 9
    ... sales assistance and value-added services of a highly specialized sports store with the "one-stop" convenience, access to new products and exceptional purchasing power of a best-in-class retail chain. The results are outstanding: Dick's Sporting Goods is a destination for athletes and outdoor...

  • Page 10
    E V E RY S E A S O N S TART S AT DICK'S AUTHENTIC MERCHANDISE

  • Page 11
    ... drives us to offer the latest selection of authentic sporting goods all throughout the year. As a result, our customers know that Every Season Starts at Dick's, where they can get the equipment, apparel and footwear they need to excel in the sports and outdoor activities they love. PREMIUM BRANDS

  • Page 12

  • Page 13
    ...in-store driving ranges and putting greens. Dick's Pro Shop's are staffed by PGA golf professionals who can offer our customers informed product advice, demonstrate techniques and even arrange private golf lessons. HIGHLIGHTS Our assortment includes the top names in golf, like Taylor Made, Callaway...

  • Page 14

  • Page 15
    ... Old Town Canoe and Kayak, as well as our Field & Stream and Quest private-label brands. We are a true outdoor destination store where sportsmen can test our products in our on-site archery lane, purchase hunting and fishing licenses and get instant access to the services they need, like rifle scope...

  • Page 16
    .... Our stores feature a dedicated cycle shop with a selection of bikes, accessories and riding apparel from manufacturers like Diamondback, Mongoose, and Dick's own Quest brand. We also employ certified bike technicians who can provide assembly, safety inspections, custom fittings, repairs and tune...

  • Page 17
    Fitness Center

  • Page 18
    ...sport in every season. Our customers count on us to have the latest new products, and they appreciate the fact that each of our selling floors has an authentic in-store track where they can test-run potential purchases. We round out our Footwear store experience by hosting exclusive vendor and sport...

  • Page 19
    Footwear

  • Page 20

  • Page 21
    ...Team Sports stores with sports enthusiasts who understand the sports they play and often have first-hand experience using our merchandise. Our ScoreCard Rewards Program provides repeat customers with product previews, special discounts, members-only savings events and a subscription to our exclusive...

  • Page 22
    ... brands, Ativa and Fitness Gear, utilize advanced fabrics to provide our customers with a unique collection of sports apparel that delivers exceptional quality and value. Our Apparel store includes a dedicated section for Women's athletic apparel, which features a full line of specialized clothing...

  • Page 23
    Athletic Apparel

  • Page 24
    ... corporate office functions under one roof Implemented new merchandise and allocation systems Expanded Smithton, Pennsylvania distribution center, giving us the ability to support 230 stores 2005 Introduced the Manhattan transportation and warehouse management system, a highly scalable supply chain...

  • Page 25
    ... 2004; Dick's private label program introduced in Galyan's stores in 2005 2006 FINANCIAL REPORT Five-Year Financial Summary Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Management's Responsibility...

  • Page 26
    ... SPORTING GOODS, INC. 2006 ANNUAL REPORT FIVE-YEAR FINANCIAL SUMMARY Fiscal Year (Dollars in thousands, except per share and sales per square foot data) 2006 2005 2004 2003 2002 Statement of Income Data: Net sales Cost of goods sold1 Gross profit Selling, general and administrative expenses Merger...

  • Page 27
    ... Act of 1995. See page 33 "Forward Looking Statements." Overview The Company 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 July 29, 2004, a wholly owned subsidiary of...

  • Page 28
    ... 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 Company's corporate headquarters. Merger integration and store closing costs all...

  • Page 29
    ...in men's and women's 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. Private Label Sales For the year ended February 3, 2007, private label product sales in...

  • Page 30
    ... men's and women's apparel, exercise, athletic and casual footwear, socks, licensed merchandise, baseball and accessories and guns, partially offset by lower sales of paintball, in-line skates, bikes, hockey and hunting. Private Label Sales For the year ended January 28, 2006, private label product...

  • Page 31
    ... due to higher bonus expense, an increase in advertising accruals and an increase in capital accruals due to higher store count and an increase in the number of new stores planned for 2007 compared to 2006. The increase in deferred construction allowances is primarily related to higher tenant...

  • Page 32
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT During 2006, we opened 39 stores and relocated two stores compared to opening 26 stores and the relocation of four stores during 2005. Sale-leaseback transactions covering store fixtures, buildings and information technology assets also have the effect...

  • Page 33
    ...share of $0.21. Comparable store sales at Dick's Sporting Goods stores are expected to increase approximately 4-6%, or approximately 3%, adjusting for the shifted retail calendar due to the 53rd week in 2006. The Company expects to open 11 new Dick's stores and 10 new Golf Galaxy stores in the first...

  • Page 34
    ... 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...

  • Page 35
    ... the sporting goods industry and actions by our competitors; our inability to manage our growth, open new stores on a timely basis and expand successfully in new and existing markets; the availability of retail store sites on terms acceptable to us; the cost of real estate and other items related to...

  • Page 36
    ...of the products we sell, such as hunting rifles; risks associated with relying on foreign sources of production; risks relating to the operation and implementation of new management information systems; risks relating to operational and financial restrictions imposed by our Credit Agreement; factors...

  • Page 37
    ... 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 $0.3 million based upon fiscal 2006 average borrowings. Credit Risk In February 2004...

  • Page 38
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Dick's Sporting Goods, Inc. is responsible for the preparation and integrity of the consolidated financial statements included in this Annual Report to Shareholders. The ...

  • Page 39
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Dick's Sporting Goods, Inc. We have audited the accompanying consolidated balance sheets of Dick's Sporting Goods, Inc. and subsidiaries (the "Company") as of February 3, 2007 and January 28, 2006, and the related...

  • Page 40
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Dick's Sporting Goods, Inc. We have audited management's assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that Dick's Sporting Goods, Inc. and subsidiaries (the "Company...

  • Page 41
    ...2006 January 29, 2005 Net sales Cost of goods sold, including occupancy and distribution costs Gross profit Selling, general and administrative expenses Merger integration and store closing costs...$ 1.47 1.35 $ $ 1.44 1.30 Weighted average common shares outstanding: Basic Diluted See notes to ...

  • Page 42
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS February 3, 2007 (Dollars in thousands, except per share data) January 28, 2006 Assets Current assets: Cash and cash equivalents Accounts receivable, net Income tax receivable Inventories, net Prepaid expenses and other ...

  • Page 43
    ... 29, 2005 Net Income Other comprehensive income: Unrealized (loss) gain on securities available-for-sale, net of tax Reclassification adjustment for gains realized in net income due to the sale of available-for-sale securities, net of tax Comprehensive income See notes to consolidated financial...

  • Page 44
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Class B Common Stock Shares Common Stock Shares Dollars (Dollars in thousands) Dollars BALANCE, January 31, 2004 Exchange of Class B common stock for common stock Sale of common stock under ...

  • Page 45
    Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Total $ 175,748 - 3,232 20,870 (18,529) - - $ 60,957 - - - - 68,905 - $ 3,717 - - - - - 5,417 $ 240,894 - 3,233 20,885 (18,529) 68,905 5,417 - 181,321 - 3,675 22,078 2,452 - - - 129,862 - - - - 72,980 -...

  • Page 46
    ...notes Revolving credit (payments) borrowings, net Payments on long-term debt and capital leases Payment for purchase of bond hedge Proceeds from issuance of warrant Transaction costs for convertible notes Proceeds from sale of common stock under employee stock purchase plan Proceeds from exercise of...

  • Page 47
    ... ENDED 2006, 2005 AND 2004 1. Summary of Significant Accounting Policies Operations - Dick's Sporting Goods, Inc. (together with its subsidiaries, the "Company") is a specialty retailer selling sporting goods, footwear and apparel through its 294 stores, the majority of which are located throughout...

  • Page 48
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT Goodwill and Intangible Assets - 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 is impaired. Additional impairment assessments may be ...

  • Page 49
    ... 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...

  • Page 50
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT 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 Black - Scholes Valuation Assumptions 1 Employee ...

  • Page 51
    ... of the store formats, the similar nature of the products sold, the type of customer, and method of distribution, the operations of the Company are one reportable segment. The following table sets forth the approximate amount of net sales attributable to hardlines, apparel and footwear for the...

  • Page 52
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT As of February 3, 2007, the Company had a net receivable of $0.7 million as our projected sublease cash flows exceed our anticipated rent payments for two of the closed former Galyan's stores. These costs were accounted for under Emerging Issues Task ...

  • Page 53
    ...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 Dick's store closings as...

  • Page 54
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT The $4.3 million of expense charged to earnings for the year was recorded in cost of goods sold, including occupancy and distribution costs in the consolidated statements of income. The current portion of accrued store closing and relocation reserves ...

  • Page 55
    ... prime corporate lending rate or (b) the one-month London Interbank Offering Rate ("LIBOR"), plus the applicable margin of 1.25% to 1.75% based on the level of excess borrowing availability. Borrowings are collateralized by the assets of the Company, excluding store and distribution center equipment...

  • Page 56
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT The following table provides information about the Credit Agreement borrowings as of and for the periods: 2006 (Dollars in thousands) 2005 Balance, fiscal period end Average interest rate Maximum outstanding during the year Average outstanding during ...

  • Page 57
    ...and 2004, respectively. The Company entered into sale-leaseback transactions related to store fixtures, buildings and equipment that resulted in cash receipts of $24.8 million, $18.8 million and $35.7 million for fiscal 2006, 2005 and 2004, respectively. Scheduled lease payments due (including lease...

  • Page 58
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT 9. Stock-Based Compensation and Employee Stock Plans Stock Option Plans - The Company grants stock options to purchase common stock under the Plan. Stock options generally vest over four years in 25% increments from the date of grant and expire 10 ...

  • Page 59
    ...-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 number of shares issuable under the plan is 2,310,000. There were 122,982 and 125,989 shares issued under the plan during fiscal 2006...

  • Page 60
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT The provision for income taxes differs from the amounts computed by applying the federal statutory rate as follows for the following periods: 2006 2005 2004 Federal statutory rate State tax, net of federal benefit Other permanent items Effective ...

  • Page 61
    ... 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...

  • Page 62
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT 15. 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. ...

  • Page 63
    ... Quarter 2006 Net sales2 Gross profit Income from operations2 Net income2 Net earnings per common share 2005 Net sales Gross profit... quarter of fiscal 2006 represents a 14 week period, as fiscal 2006 includes 53 weeks. Quarterly results for fiscal 2006 do not add to full year results due to rounding....

  • Page 64
    ...performance that the Company's management and investors can use to compare core, operating results between reporting periods. The Company has provided reconciliations below for EBITDA, ROIC, net income and earnings per share adjusted for merger integration and store closing costs, the acquisition of...

  • Page 65
    ...Proforma Fiscal 2004 Per Share 1 Reported net income (GAAP) Add: Merger integration and store closing costs, after tax Less: Gain on sale of investment, after tax Less: Galyan's net loss Adjusted net income and earnings per share Adjusted net income % increase over adjusted prior year 1 $ 72,980...

  • Page 66
    DICK'S SPORTING GOODS, INC. 2006 ANNUAL REPORT Return On Invested Capital (ROIC) 2006 (Dollars in thousands) 2005 2004 2003 2002 2001 Net income Merger integration and store closing costs, after tax (Gain) on sale / loss on write-down of non cash investment, after tax Adjusted net income Net ...

  • Page 67
    ... The graph assumes that $100 was invested on October 15, 2002 in the Company's common stock, the S&P 500, the S&P Specialty Retail Index and Hibbett Sports and that all dividends were reinvested. 900 800 700 600 I ND EX â- Dickís S porting Goods (DKS) 400 300 200 100 0 15-Oct-02 29-Oct-04 28-Oct...

  • Page 68
    ... to: Investor Relations 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 724-273-3400 Quarterly Stock Price Range Set forth below, for the applicable periods indicated, are the high and low closing sales prices per share of the Company's common stock as reported by the NYSE. 2006 Fiscal...

  • Page 69
    ... Products, LLC and Co-Managing Partner of Levene, Gouldin & Thompson, LLP Emanuel Chirico Director since 2003 Chief Executive Officer Phillips-Van Heusen Corporation William J. Colombo Director since 2002 President and Chief Operating Officer Dick's Sporting Goods, Inc. Corporate Officers...

  • Page 70
    DICK' S S PORTING GOOD S , INC. 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 724-273-3400 www.dickssportinggoods.com