Dick's Sporting Goods 2008 Annual Report Download

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2008 ANNUAL REPORT

Table of contents

  • Page 1
    2008 ANNUAL REPORT

  • Page 2
    ... EBITDA Comparable store net sales increase (decrease) (Dick's stores) Store count (Dick's stores) $ Diluted earnings applicable to common stockholders and diluted weighted average shares outstanding are adjusted for the two-for-one stock split, in the form of a stock dividend, which became...

  • Page 3
    ... profitable publicly held full-line sporting goods retailer in the nation. We operate 384 Dick's Sporting Goods stores in 39 states, 89 Golf Galaxy stores in 31 states, and 14 Chick's Sporting Goods stores in Southern California. Our success is based on the disciplined execution of our strategy: to...

  • Page 4
    ...even their own employees. We at Dick's Sporting Goods recognized the consumer slowdown early on and put into place a series of contingency plans that could be implemented quickly if business did not turn around. The backbone of these plans centered on a reduction in both inventory and expenses while...

  • Page 5
    ...year with 384 Dick's Sporting Goods stores, 89 Golf Galaxy stores, and 14 Chick's Sporting Goods stores. During the year, we added 43 Dick's Sporting Goods stores, approximately 35% of which were in new markets while the balance helped fill in existing markets. 2008 MANAGEMENT TEAM ( left to right...

  • Page 6
    ...current environment, we expect the golf business will continue to be challenged as golf is a highly discretionary purchase. We expect to open only one new Golf Galaxy store in 2009 and may not open any in 2010. The conversion process of 12 Chick's Sporting Goods stores located in Southern California...

  • Page 7
    ... completed the integration of Golf Galaxy's headquarters into our own Capitalized on our 2007 acquisition of Chick's Sporting Goods, successfully converting our first Chick's Sporting Goods store into a Dick's Sporting Goods store Opened a third distribution center in Atlanta, increasing our total...

  • Page 8
    ... unite several sports specialty stores - the Golf Pro Shop, the Lodge, the Fitness Center, Footwear, Team Sports and Athletic Apparel - under one roof. Each of our stores offers true specialty store benefits, including authentic merchandise, value-added services and highly trained sales associates...

  • Page 9

  • Page 10

  • Page 11
    ... they count on Dick's to provide the authentic equipment, high-quality apparel and performance footwear they need for every activity in every type of climate. We carry an extensive range of merchandise for sports that are in season, as well as a vast assortment of products for off-season activities...

  • Page 12
    ...products under our Walter Hagen, Slazenger and MAXFLI brands, all of which are available exclusively at Dick's. Drawing on the extensive experience of our in-house golf professionals, our private brands continuously develop innovative, high-caliber equipment, apparel, shoes and accessories. Our Golf...

  • Page 13
    ... high-quality apparel, outerwear and shoes, along with a broad selection of training devices and accessories. We offer golfers informed product guidance, combined with a convenient range of valueadded services, including custom fitting, club repair and re-gripping. â- Dick's commitment to...

  • Page 14
    ... them to face the challenges of their sports, participate safely and achieve new heights. The Lodge at Dick's carries authentic merchandise from trusted brands, like Coleman, The North Face, Shimano, and Old Town Canoes & Kayaks, along with an extensive range of exclusive products from private...

  • Page 15
    THE LODGE HIGHLIGHTS â- Our product assortment spans sports equipment, clothing, footwear and outerwear for a range of outdoor pursuits, from hunting and fishing, to camping, kayaking, and paintball. We feature some of the latest advances in technology, like high-performance apparel, binoculars,...

  • Page 16
    ...Dick's Fitness Center, we understand this level of motivation, so we've created a complete fitness destination store. We stock an extensive selection of equipment...by employing bold signage that helps our customers to understand the various features and price distinctions of different products within...

  • Page 17
    ... home delivery and assembly, extended warranties and financing. We carry specialized accessories geared to help fitness buffs reach their personal best, including pedometers, heart-rate monitors, body-fat scales and training videos, along with high-caliber performance athletic apparel and footwear...

  • Page 18
    ... every sport and athletic pursuit. In Dick's Footwear store, we carry an extensive assortment of performance footwear, including the latest innovations from industry leaders like Nike, adidas, New Balance, Asics, Under Armour and more. Our product line-up ranges from cleats for baseball, football...

  • Page 19
    ...HIGHLIGHTS â- â- performance athletic footwear to offer our customers access to exclusive promotions, and unique products and styles. â- We are often among the first-to-market with new product releases and we maintain a solid in-stock position so our customers can get the products they want in...

  • Page 20
    ...in their sports all year 'round. At Dick's, we manage our inventory to ensure that team players can replenish the equipment and apparel they need in every season of the year. We continuously stock gear for a wide range of sports, including baseball, softball, soccer, basketball, football, hockey and...

  • Page 21
    ... with industry leaders to provide Dick's customers with access to exciting new merchandise. â- â- Our ScoreCard Rewards Program offers loyal customers access to our Game On seasonal magazine, rewards saving certificates and regular members-only product previews, and savings events.

  • Page 22
    ... that can help them perform at their peak. Dick's Athletic Apparel store carries a full assortment of specialized clothing for men, women and children to use across a spectrum of sports and athletic activities in every season. We take great care to stock garments that not only look great, but also...

  • Page 23
    ... wide array of garments that combine science and sports technology to help our customers deliver peak performance. â- â- Our Athletic Apparel shop features an assortment of specialized Women's clothing for virtually every athletic pursuit, from team sports and outdoor activities, to cycling and...

  • Page 24
    ... 2007 Acquired Golf Galaxy, a specialty golf leader, which today operates 89 stores in 31 states Acquired Chick's Sporting Goods, a specialty sporting goods chain, which today operates 14 stores in Southern California Announced plans for a third distribution center in Atlanta 2008 Opened the...

  • Page 25
    ... Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Reconciliation of Non-GAAP Financial Measures Corporate and Stockholder Information 24 25 39 40 41 43 44 45 46 48 49 72 76 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT...

  • Page 26
    ...cash impairment charges of $29.1 million in connection with certain underperforming Dick's Sporting Goods, Golf Galaxy and Chick's Sporting Goods stores. 4 Gain on sale of investment resulted from the sale of a portion of the Company's non-cash investment in its third-party Internet commerce service...

  • Page 27
    ... "Forward Looking Statements". Overview Dick's 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...

  • Page 28
    ... store sales decrease of 4.8%. Golf Galaxy is included in the Company's comparable store sales calculation beginning in the second quarter of 2008 and will be included in the full year comparable store sales calculation beginning in fiscal 2009. 26 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 29
    ... the Company's corporate headquarters. Attributable to the impairment of Golf Galaxy's goodwill and other intangible assets. Impairment of store assets in connection with certain underperforming Dick's Sporting Goods, Golf Galaxy and Chick's Sporting Goods stores. Merger and integration costs...

  • Page 30
    ... store sales would have impacted fiscal 2008 earnings before income taxes by approximately $11 million. Store Count During 2008, we opened 43 Dick's stores and ten Golf Galaxy stores, relocated one Dick's store and converted one Chick's Sporting Goods store to a Dick's Sporting Goods store...

  • Page 31
    ..., outerwear accessories, men's and women's athletic apparel and licensed merchandise, partially offset by lower sales of exercise equipment and kids athletic footwear driven by the Company's decision to exit the Heely's wheeled shoe business in 2007. DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT...

  • Page 32
    ... 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 Chick's acquisitions during 2007. The Company...

  • Page 33
    ... the sale and leaseback of property and equipment totaling $44.9 million, $28.4 million and $32.5 million in fiscal 2008, 2007 and 2006, respectively. During 2008, we opened 43 Dick's stores, ten Golf Galaxy stores, relocated one Dick's store and converted one Chick's Sporting Goods store to a Dick...

  • Page 34
    ... relocate one Dick's Sporting Goods store and three Golf Galaxy stores during fiscal 2009. The Company plans to lease all of its 2009 new stores. This level of store expansion is significantly lower than historical levels and is largely driven by the current economic conditions. Other new business...

  • Page 35
    ... as of January 31, 2009 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. The Company does not believe that any...

  • Page 36
    ... of credit Standby letters of credit Total other commercial commitments $ $ 229 $ 22,245 22,474 $ 229 22,245 22,474 The Company expects to fund these commitments primarily with operating cash ï¬,ows generated in the normal course of business. 34 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 37
    ...year 2009 includes Dick's Sporting Goods stores and Golf Galaxy stores. The comparable store sales calculation for the full year 2008 includes Dick's Sporting Goods stores only. • The Company currently expects to open approximately 19 new Dick's Sporting Goods stores, relocate one Dick's Sporting...

  • Page 38
    ...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...

  • Page 39
    .... 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 Company's common stock price over the expected term and the number of options that will ultimately not complete their...

  • Page 40
    ... the sale of consumer products; risks relating to e-commerce; 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...

  • Page 41
    ... 31, 2009 and February 2, 2008. 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 Credit Agreement would be approximately $0.8 million based upon fiscal 2008 average borrowings. Credit Risk In...

  • Page 42
    ... 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 consolidated financial statements have been prepared in accordance with accounting principles...

  • Page 43
    ... Registered Public Accounting Firm To the Board of Directors and Stockholders of Dick's Sporting Goods, Inc. Pittsburgh, Pennsylvania We have audited the internal control over financial reporting of Dick's Sporting Goods, Inc. and subsidiaries (the "Company") as of January 31, 2009, based...

  • Page 44
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Dick's Sporting Goods, Inc. Pittsburgh, Pennsylvania We have audited the accompanying consolidated balance sheets of Dick's Sporting Goods and subsidiaries (the "Company") as of January 31, 2009 and...

  • Page 45
    ... Impairment of store assets Merger and integration costs Pre-opening expenses Income from operations Gain on sale of asset Interest expense, net Income before income taxes Provision for income taxes Net (loss) income Earnings (loss) per common share: Basic Diluted Weighted average common shares...

  • Page 46
    ... 2009 (Dollars in thousands, except share and per share data) February 2, 2008 Assets Current assets: Cash and cash equivalents Accounts receivable, net Income tax receivable Inventories, net Prepaid expenses and other current assets Deferred income taxes Total current assets Property and equipment...

  • Page 47
    ... available-for-sale, net of tax Foreign currency translation adjustment, net of tax Comprehensive (loss) income See notes to consolidated financial statements. $ (35,094) $ (375) (135) (35,604) $ 155,036 $ 78 134 155,248 112,611 (123) - 112,488 $ $ DICK'S SPORTING GOODS, INC. 2008 ANNUAL...

  • Page 48
    ...Adjusted balance, February 3, 2007 Exchange of Class B common stock for common stock Stock options issued for acquisition Sale of common stock under stock plan Exercise of stock options Tax benefit on convertible note bond hedge Net income Stock...$ 46 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 49
    Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Total $ 209,024 - 3,730 22,988 2,686 - 24,303 39,504 - $ 302,235 - $ 302,235 - 9,117 4,... - 5,174 7,320 (386) 3,017 (35,094) 25,600 1,941 (135) (375) $ 895,582 $ DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT 47

  • Page 50
    ... of Chick's Sporting Goods Net cash used in investing activities Cash ï¬,ows from financing activities: Revolving credit (payments) borrowings, net Construction allowance receipts Payments on long-term debt and capital leases Proceeds from sale of common stock under employee stock purchase plan...

  • Page 51
    ...Dick's Sporting Goods, Inc. (together with its subsidiaries, the "Company") is a specialty retailer selling sporting goods, footwear and apparel through its 487 stores, the majority of which are located throughout the eastern half of the United States. On February 13, 2007, the Company acquired Golf...

  • Page 52
    ... based on quoted market prices or through the use of other valuation techniques. Based upon the Company's review of the current and projected performance of certain underperforming Dick's Sporting Goods, Golf Galaxy and Chick's Sporting Goods stores, the Company determined that the carrying value of...

  • Page 53
    .... 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 Company's Board of Directors declared a two-for-one stock split, in the form of a stock dividend, of the Company...

  • Page 54
    ...applying the treasury stock method. Stock-Based Compensation - The Company has the availability to grant stock options to purchase common stock under Dick's Sporting Goods, Inc. 2002 Stock Option Plan and the Golf Galaxy, Inc. 2004 Incentive Plan (the "Plans"). The Company also has an employee stock...

  • Page 55
    ... as adjusted for entity-specific factors. FSP No. FAS 142-3 is effective as of the beginning of our 2009 fiscal year. We are currently evaluating the potential impact, if any, of the adoption of FSP No. FAS 142-3 on our consolidated financial statements. DICK'S SPORTING GOODS, INC. 2008 ANNUAL...

  • Page 56
    ... 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. 54 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 57
    ...from operating activities as a change in "Deferred construction allowances." 3. Acquisitions On February 13, 2007, the Company acquired Golf Galaxy, Inc. ("Golf Galaxy"), which became a wholly-owned subsidiary of Dick's by means of a merger of Dick's subsidiary with and into Golf Galaxy. The Company...

  • Page 58
    ... primarily of a trade name and customer list resulting from the Company's Golf Galaxy acquisition. The trade name is an indefinite-lived intangible asset, which is not being amortized. The customer list will be amortized over five years. 56 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 59
    ... liabilities in connection with the acquisition and charged to goodwill. Costs incurred in connection with all other business integration activities have been recognized in merger and integration costs in the Consolidated Statements of Operations. DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT 57

  • Page 60
    ..., 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. 58 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 61
    ... charged to earnings Closing reserves related to Golf Galaxy (see Note 5) Closing reserves related to Chick's (see Note 5) Cash payments Interest accretion and other changes in assumptions Accrued store closing and relocation reserves, end of period Less: current portion of accrued store closing...

  • Page 62
    ... 2009)), and (ii) the product of (a) the number of shares of the Company's 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...

  • Page 63
    ... time of conversion. As described in Note 19, the Company repaid substantially all of the notes on February 18, 2009. By their terms, the warrant and bond hedge concurrently expired and no longer had the ability to be exercised. Based on the current price of the Company's common stock and the number...

  • Page 64
    ...Fiscal Year (In thousands) 2009 2010 2011 2012 2013 Thereafter Less: amounts representing interest Present value of net scheduled lease payments Less: amounts due in one year $ $ 1,347 1,345 1,117 953 971 10,233 15,966 (7,574) 8,392 (534) 7,858 62 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 65
    ... 2008, 2007 and 2006, respectively. 11. Stock-Based Compensation and Employee Stock Plans The Company has the availability to grant stock options to purchase common stock under Dick's Sporting Goods, Inc. 2002 Stock Option Plan and the Golf Galaxy, Inc. 2004 Incentive Plan (the "Plans"). The Company...

  • Page 66
    ...: Employee Stock Options Black-Scholes Valuation Assumptions 1 2008 2007 2006 Employee Stock Purchase Plan 2008 2007 2006 Expected life (years) 2 Expected volatility 3 Weighted average volatility Risk-free interest rate 4 Expected dividend yield Weighted average grant date fair values 1 5.51...

  • Page 67
    ...is based on the Company's closing stock prices for the last business day of the period indicated. The total intrinsic value for stock options exercised for 2008, 2007 and 2006 was $8.5 million, $107.0 million and $106.9 million, respectively. The total fair value of options vested for 2008, 2007 and...

  • Page 68
    ...at an exercise price of $27.30 per share and all stock options previously granted to these executives that were exercisable for Golf Galaxy common stock (converted to options exercisable for Company's common stock as a result of the acquisition of Golf Galaxy by the Company) became fully vested upon...

  • Page 69
    ... as of the fiscal periods ended: 2008 (In thousands) 2007 Store-closing expense Stock-based compensation Employee benefits Other accrued expenses not currently deductible for tax purposes Deferred rent Insurance Gift cards Deferred revenue currently taxable Non-Income based tax reserves Uncertain...

  • Page 70
    ... impact on the Consolidated Statements of Operations during fiscal 2009. The tax years 2004-2007 remain open to examination by the major taxing jurisdictions to which we are subject. The Internal Revenue Service examination for tax years 2004-2005 is open and currently is expected to close in 2009...

  • Page 71
    ... the number of shares the Company holds represents less than 5% of GSI's outstanding common stock. 16. Retirement Savings Plans The Company's retirement savings plan, established pursuant to Section 401(k) of the Internal Revenue Code, covers regular status full-time hourly and salaried employees as...

  • Page 72
    ... Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. 70 DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT

  • Page 73
    ... Quarter Fiscal 2008 Net sales Gross profit Income (loss) from operations 2 Net income (loss) Net earnings (loss) per share: Basic 2 Diluted 2 Weighted average number of shares of common stock outstanding: Basic Diluted Fiscal 2007 Net sales 2 Gross profit Income from operations Net income 2 Net...

  • Page 74
    ... 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 and integration costs, non-cash impairment charges and the...

  • Page 75
    ...12.1% Average total capital is calculated as the sum of the current and prior year ending total capital divided by two. ROIC using GAAP amounts was derived as the quotient of GAAP Net Income for ROIC not adjusted (numerator) and average total capital. DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT...

  • Page 76
    ...19 111,662 116,650 Costs related to the Golf Galaxy and Chick's Sporting Goods integration total $18.4 million, which includes $15.9 million of pre tax "merger and integration costs" and $2.5 million included in the Company's provision for income taxes reï¬,ecting the "tax impact of non-deductible...

  • Page 77
    ...-02 31-Oct-03 29-Oct-04 28-Oct-05 27-Oct-06 3-Feb-07 2-Feb-08 â- Dick's Sporting Goods (DKS) Hibbett Sports (HIBB) â- â- S&P Specialty Retail Index S&P 500 The stock performance graph is not necessarily indicative of future performance. DICK'S SPORTING GOODS, INC. 2008 ANNUAL REPORT â- 75

  • Page 78
    ... Corporate Office 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 724-273-3400 The Dick's Sporting Goods Website www.dickssportinggoods.com Transfer Agent and Registrar American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10038 Independent Registered Public Accounting...

  • Page 79
    ... & Chief Operating Officer Lee J. Belitsky Senior Vice President - Distribution & Transportation Diane E. Lazzaris Senior Vice President - Legal, General Counsel & Corporate Secretary Matthew J. Lynch Senior Vice President & Chief Information Officer Kathryn L. Sutter Senior Vice President - Human...

  • Page 80
    DICK'S SPORTING GOODS, INC. 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 724-273-3400 www.dickssportinggoods.com