Dick's Sporting Goods 2008 Annual Report Download - page 31

goodwill of Golf Galaxy. The trade name impairment charge of $49.9 million, before an income tax benefi t of $19.2 million, was
determined by comparing the carrying value of the trade name with the estimated fair value of the trade name. The Company also
recorded an impairment charge of $3.1 million, before an income tax benefi t of $1.2 million, to reduce the carrying value of the
customer list related to Golf Galaxy to its estimated fair value. No impairment charges were recorded during 2007.
In 2008, the Company recorded an impairment charge related to certain underperforming Dick’s Sporting Goods, Golf Galaxy and
Chick’s stores totaling $29.1 million, before an income tax benefi t of $11.3 million. The decline in sales performance during 2008 at
these underperforming stores coupled with revised future projections, indicated that the carrying value of these stores exceeded
their estimated fair values suggested by their estimated future cash fl ows.
The Company recorded $15.9 million of merger and integration costs during 2008. These costs were incurred to integrate the
operations of Golf Galaxy and Chick’s and included duplicative administrative costs, severance and system conversion costs related
to the operational consolidation of Golf Galaxy and Chick’s with Dick’s pre-existing business.
Pre-opening expenses decreased by $2.5 million to $16.3 million in 2008 from $18.8 million in 2007. Pre-opening expenses were for
the opening of 43 new Dick’s stores and ten Golf Galaxy stores, as well as the relocation of one Dick’s store in 2008 compared to the
opening of 46 new Dick’s and 16 Golf Galaxy stores and relocation of one store in 2007. Pre-opening expenses in any year fl uctuate
depending on the timing and number of store openings and relocations.
Gain on Sale of Asset The Company exercised its early buyout rights on an aircraft lease during the fi rst quarter of fi scal 2008.
The Company recognized a $2.4 million pre-tax gain on the subsequent sale of the aircraft.
Interest Expense, Net Interest expense, net, decreased by $0.3 million to $11.0 million in 2008 from $11.3 million in 2007 due
primarily to costs related to the fi nancing of both the Golf Galaxy and Chick’s acquisitions during 2007. The Company ended fi scal
2008 with no outstanding borrowings under its Credit Agreement. The Company’s average outstanding borrowings on our Credit
Agreement decreased to $74.8 million from $94.2 million in 2008 compared to 2007. The average interest rate on the Credit
Agreement decreased by 298 basis points compared to last year, primarily refl ecting the decrease in LIBOR rates in the current
year compared to last year as well as the reduction in applicable Credit Agreement interest rates charged to the Company that were
amended in July 2007. Lower interest expense related to Credit Agreement borrowings was offset by higher interest expense totaling
$2.0 million in fi scal 2008 compared to the fi scal 2007 due to overall stock market value declines which impacted the deferred
compensation plan investment values.
Income Tax The Company’s effective tax rate was 261.2% for the year ended January 31, 2009 as compared to 39.8% for the year
ended February 2, 2008. This year’s effective tax rate was primarily impacted by the non-deductible $111.3 goodwill impairment
charge and by non-deductible executive separation costs that increased income tax expense by $2.5 million.
Fiscal 2007 (52 weeks) Compared to Fiscal 2006 (53 weeks)
Net Income Net income increased to $155.0 million in 2007 from $112.6 million in 2006. This represented an increase in diluted earnings
per share of $0.31, or 30%, to $1.33 from $1.02. The increase in earnings was attributable to an increase in net sales and gross profi t
margin percentage, partially offset by an increase in selling, general and administrative expenses as a percentage of sales.
Net Sales Net sales increased 25% to $3,888.4 million in 2007 from $3,114.1 million in 2006. This increase included a comparable
store sales increase of 2.4%, or $66.4 million on a 52 week to 52 week basis. The remaining increase results from the net addition
of new Dick’s stores in the preceding fi ve quarters which were not included in the comparable store base and the inclusion of Golf
Galaxy and Chick’s during fi scal 2007 from their respective acquisition dates, partially offset by the inclusion of a 53rd week of sales
in fi scal 2006.
The increase in comparable store sales was mostly attributable to sales increases in higher margin categories including outerwear,
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 29