Dick's Sporting Goods 2003 Annual Report Download - page 29

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conditions throughout the fourth quarter resulting in a reduction of mark-down activity, as well as increased sales of
private label products that provide us with significantly higher gross margins than comparable products we sell. In
addition, the gross profit percentage improved due to leverage of store occupancy costs that resulted from increased
comparable store sales and improved productivity at the Company’s distribution center.
Selling, general and administrative expenses increased by $49.7 million to $262.8 million from $213.1 million in 2001.
As a percentage of net sales, selling, general and administrative expenses increased to 20.7% from 19.8% in 2001.
The percentage increase was due primarily to higher payroll and benefit costs, continued infrastructure investments in
the form of information systems and increased corporate office employees, and expenses associated with the rollout
of the Company’s “Scorecard” loyalty program.
Pre-opening expenses increased by $0.5 million to $5.6 million from $5.1 million in 2001. Pre-opening expenses were
for the addition of 16 new stores and three relocations in 2002 compared to 20 new stores in 2001. The 2002 pre-opening
expense was negatively impacted as the opening of one store was significantly delayed due to the late opening of the
shopping center.
Loss on Write-Down of Non-Cash Investment Loss on write-down of non-cash investment resulted from a
$2.4 million write-down in 2002 of the non-cash investment in the Company’s third-party Internet commerce service
provider due to a decline in the value of that company’s publicly traded stock. In July 2001, the Company had
converted a cash-based royalty arrangement with that provider into an equity investment in that company which
resulted in this non-cash investment.
Interest Expense, Net Interest expense decreased by $3.3 million to $2.9 million from $6.2 million in 2001. This
decrease was due primarily to lower interest rates and lower average borrowings. All of the net proceeds of $27.9 million
from the Company’s initial public offering of common stock were used to reduce borrowings under the senior secured
revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements are for inventory, capital improvements, and pre-opening expenses to support
expansion plans, as well as for various investments in store remodeling, store fixtures and ongoing infrastructure
improvements. The Company’s main sources of liquidity in 2003 have been our cash flows from operations, borrowings
under the senior secured revolving credit facility, proceeds from the exercise of stock options and proceeds from sale-
leaseback transactions.
The change in cash and cash equivalents is as follows:
January 31, February 1, February 2,
Fiscal Year Ended 2004 2003 2002
Net cash provided by operating activities $86,500 $61,138 $ 12,007
Net cash used in investing activities (33,395) (22,584) (21,965)
Net cash provided by (used in) financing activities 29,449 (36,410) 10,655
Net increase in cash and cash equivalents $82,554 $2,144 $ 697
OPERATING ACTIVITIES
Cash provided by operating activities increased by $25.4 million in 2003, or 41.6%, to $86.5 million, reflecting higher
net income adjusted for non-cash items. The primary increase is the $29.9 million tax benefit from the exercise of stock
options. Increases in cash provided by operating activities were partially offset by larger decreases in accounts payable
and income taxes payable. The decrease in the change in accounts payable was primarily due to a decrease in in-
transit import inventory where we take possession overseas, and to the timing of receipts during the last two months
of 2002 compared to 2003. The decrease in the change in income taxes payable is primarily related to the tax benefit
from the exercise of stock options and changes in deferred taxes. The decrease is partially offset by the increase in
income taxes payable related to the increase in taxable income in 2003 as compared to 2002. The cash flow from
operating the Company’s stores is a significant source of liquidity, and will continue to be used in 2004 primarily to
purchase inventory, make capital improvements and open new stores. All of the Company’s revenues are realized at
the point-of-sale in the stores. Thus, net sales are essentially on a cash basis.