Dick's Sporting Goods 2004 Annual Report Download

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2004 annual report2004 annual report

Table of contents

  • Page 1
    2004 annual report

  • Page 2
    ... equity Return on invested capital EBITDA Adjusted EBITDA 1 Comparable store net sales increase Store count $ ...adjusted for the two-for-one stock split, in the form of a stock dividend, which became effective April 5, 2004. 1 Results exclude merger integration and store closing costs, gain on sale...

  • Page 3
    DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT executing a winning game plan Every athlete knows what it takes to reach a new goal: a sound game plan for improvement, along with the discipline, focus and commitment required to execute that plan. At Dick's Sporting Goods, we draw on these same ...

  • Page 4
    ... business. Among other accomplishments, we completed the first acquisition in our Company's history, drove continued organic growth and strengthened our infrastructure. As a result of these initiatives, Dick's ended fiscal 2004 as the most profitable publicly held full-line sporting goods retailer...

  • Page 5
    ..., logistics and marketing in the future. From the outset, our goal was to execute the acquisition quickly and efficiently. Drawing on the operating discipline that is a Dick's hallmark, we immediately set about the process of converting the Galyan's locations into Dick's Sporting Goods stores...

  • Page 6
    ...by offering product testing areas, providing equipment maintenance and repair services, and staffing our stores with sales associates who are themselves sports enthusiasts. We enhance the value of our store concept by maintaining a steady in-stock position and promoting a strong service culture that...

  • Page 7
    ...-line sporting goods retailer. Generated return on invested capital of 12.1 percent. Posted a 36 percent increase in our stock price. 2004 âœ" Growth Acquired Galyan's Trading Company, adding 48 stores in 21 states that positioned us in a number of key new markets and expanded our square footage...

  • Page 8
    Complete specialty stores in every service-intensive location. UNIQUE A THE PRO SHOP THE LODGE shopping 6

  • Page 9
    ... golf; outdoor activities, like hunting, fishing and camping; fitness and bikes; footwear; and team sports, such as baseball, soccer, football and basketball. We complement these specialty areas by offering a broad assortment of high-technology, branded athletic apparel for men, women and children...

  • Page 10
    ... customers insightful product suggestions. We round it all out by offering in-store putting greens and driving ranges where customers can test potential purchases; providing club re-gripping and repair services; and creating a true Pro Shop environment complete with broadcasts of golf tournaments...

  • Page 11
    ... quality and value. And because we recognize that golf enthusiasts want immediate access to the most up-to-date innovations in equipment and apparel, we make it our business to be a leading marketer of newly released items. THE NEW TITLEIST PRO V1 DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 9

  • Page 12
    ... their sporting needs with one easy stop. These services range from mounting scopes on rifles, to cutting arrows, refilling CO2 tanks, and selling hunting and fishing licenses. We complete the package by offering in-store archery ranges in most locations where customers can test our products, as...

  • Page 13
    ...and Old Town Canoe and Kayak. We supplement these products with our private-label merchandise, which includes outdoor equipment, rugged outerwear, apparel and footwear marketed under the Northeast Outfitters, Quest and Field & Stream brands. SHIMANO STRADIC SPINNING REEL DICK'S SPORTING GOODS, INC...

  • Page 14
    ... trained sales force that includes certified fitness trainers and bike technicians in most locations. These professionals help our customers select the right products and take advantage of our in-store services, including home delivery and set-up of fitness equipment, and on-site bike repair. 12

  • Page 15
    ... Each of our Fitness stores also features a dedicated Cycle shop that offers a range of well-known brands, such as Diamondback, Schwinn, GT and DBX, Dick's own line of bicycles and outdoor extreme sports equipment. EXCLUSIVE HORIZON CST TREADMILL DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 13

  • Page 16
    ... area extends Dick's commitment to authenticity beyond simply carrying first-rate merchandise. We also utilize distinct signage to highlight the practical advantages of key products; offer an in-store track for testing potential purchases; and create an appealing atmosphere by broadcasting sports...

  • Page 17
    ... allocation system to balance our assortment in all of our locations; and we employ an inventory management system to ensure stock levels remain strong, and merchandise is replenished. NIKE SHOX EXCLUSIVE INTERACTIVE NIKE PERFORMANCE ZONE DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 15

  • Page 18
    ... ensure they understand our merchandise and uphold our deep commitment to service. And we reinforce that commitment by offering a range of in-store resources, like sharpening ice skates and stringing tennis rackets, as well as by rewarding repeat customers through our ScoreCard loyalty program. 16

  • Page 19
    ... our customers associate with excellence, such as Nike, adidas, Mizuno and Wilson, as well as Dick's own private-label brands, like our Power Bolt product line, which provides quality and value. WILSON A3000 EXCLUSIVE LIFETIME ELITE BASKETBALL SYSTEM DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT...

  • Page 20
    ... Under Armour apparel includes several innovative product lines - like HeatGear, ColdGear and TurfGear - that were developed to help athletes optimize their performance in a range of different terrains and weather conditions. Our Nike merchandise includes garments from their innovative Pro line, as...

  • Page 21
    ... and safety. Dick's Athletic Apparel area offers a range of specialty clothing designed to enable men, women and children to look, feel and perform their best. Dick's commitment to carrying authentic merchandise means our Athletic Apparel area is a place where customers can find products built for...

  • Page 22
    ... to build our Company in a disciplined and rational fashion. In the coming year, we plan to expand our store base by at least 25 new locations, which will introduce us into new markets and increase our penetration of existing markets. We will complete our conversion of Galyan's, focusing on driving...

  • Page 23
    ... Income 40 Consolidated Statements of Changes in Stockholders' Equity 42 Consolidated Statements of Cash Flows 43 Notes to Consolidated Financial Statements 58 Regulation G Reconciliations 62 Corporate and Stockholder Information DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 21

  • Page 24
    ...in our third-party Internet commerce service provider due to a decline in the value of that company's publicly traded stock. Discontinued operations resulted from our former Internet commerce business. Represents accretion of the redeemable preferred stock to its redemption value through a charge to...

  • Page 25
    ...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 Dick's Sporting Goods, Inc. completed the acquisition of Galyan's Trading Company, Inc...

  • Page 26
    ... gift card. Sales are recorded net of estimated returns. Revenue from layaway sales is recognized upon receipt of final payment from the customer. Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight, distribution and store occupancy costs. Store occupancy costs include...

  • Page 27
    ... in the majority of the Company's merchandise categories, with team sports, women's apparel, water sports, paintball and licensed apparel recording the largest increases. These increases were partly offset by lower sales of in-line skates, hunting equipment and fishing tackle. Income from Operations...

  • Page 28
    ... $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 cashbased royalty arrangement with that provider into an equity...

  • Page 29
    ... related to the new corporate headquarters that opened during June of 2004 and the conversion of the Plainfield distribution center. The Company also generated $12.0 million in proceeds from the sale of a portion of the Company's non-cash investment in its third-party Internet commerce service...

  • Page 30
    ... under the Credit Agreement and proceeds received of $8.3 million and $15.9 million from the exercise of employee stock options and purchases of common stock under the employee stock purchase plan in 2004 and 2003, respectively. On February 18, 2004, the Company completed a private offering of $172...

  • Page 31
    ... 2005. Other new business opportunities or store expansion rates substantially in excess of those presently planned may require additional funding. Off-Balance Sheet Arrangements The Company's only off-balance sheet contractual obligations and commercial commitments as of January 29, 2005 relate to...

  • Page 32
    ... center and the Galyan's corporate headquarters. The Company also expects total merger integration and store closing costs of approximately $70 million pre-tax, of which $20 million was incurred in fiscal 2004. The Company estimates future merger costs of $39 million in fiscal 2005 with the balance...

  • Page 33
    ... exceeds the fair value of the assets. Business Combinations Our acquisition of Galyan's is accounted for under the purchase method of accounting. The assets and liabilities of Galyan's are adjusted to their fair values and the excess of the purchase price over the net assets acquired is recorded...

  • Page 34
    ... intense competition in 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...

  • Page 35
    ...'s business is subject to seasonal fluctuations. Significant portions of the Company's net sales and profits are realized during the fourth quarter of the Company's fiscal year, which is due, in part, to the holiday selling season and, in part, to our sales of cold weather sporting goods and apparel...

  • Page 36
    independent auditors' report Report of Independent 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 January ...

  • Page 37
    ... 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 Management's Report on "Internal Control Over Financial Reporting", that Dick's Sporting Goods, Inc. and subsidiaries (the "Company...

  • Page 38
    ..., an independent registered public accounting firm, as stated in their report which is included herein on page 35. Edward W. Stack Chairman and Chief Executive Officer William R. Newlin Executive Vice President and Chief Administrative Officer Michael F. Hines Executive Vice President and Chief...

  • Page 39
    ... 29, 2005 January 31, 2004 February 1, 2003 Net sales Cost of goods sold, including occupancy and distribution costs Gross profit Selling, general and administrative expenses Pre-opening expenses Merger integration and store closing costs Income from operations (Gain) on sale / loss on write-down...

  • Page 40
    ... per share data) January 31, 2004 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, net Construction in progress - leased...

  • Page 41
    ... in net income due to the sale of available-for-sale securities, net of tax Comprehensive income See notes to consolidated financial statements. $ 68,905 5,417 - $ 52,408 6,016 - $ 38,137 (892) 892 - 38,137 $ (7,138) 67,184 $ (2,299) 56,125 $ DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT...

  • Page 42
    ... to initial public offering Net income Unrealized gain on securities available-for-sale, net of taxes of $2,001 BALANCE, January 31, 2004 Exchange of Class B common stock for common stock Sale of common stock under stock plans Exercise of stock options, including tax benefit of $15,868 Purchase of...

  • Page 43
    Additional Paid-In Capital (Accumulated Deficit) Retained Earnings Note Receivable for Common Stock Accumulated Other Comprehensive Income Total $ 96,112 - 27,881 4,412 18 1,446 - - - ...885 (18,529) 68,905 5,417 (7,138) 313,667 $ $ $ $ $ DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 41

  • Page 44
    ...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 in initial public offering Proceeds from sale of common stock under employee stock purchase plan Proceeds from exercise of...

  • Page 45
    ...specialty retailer selling sporting goods, footwear and apparel through its 234 stores, the majority of which are located throughout the eastern half of the United States. On July 29, 2004, a wholly owned subsidiary of Dick's Sporting Goods, Inc. completed the acquisition of Galyan's Trading Company...

  • Page 46
    ... of closing Dick's stores in connection with the Galyan's acquisition, advertising the re-branding of Galyan's stores, duplicative administrative costs, recruiting and system conversion costs. These costs were $20.3 million for fiscal 2004. Stock Split On February 10, 2004, the Company's board...

  • Page 47
    ... upon the redemption of the gift card. Sales are recorded net of estimated returns. Revenue from layaway sales is recognized upon receipt of final payment from the customer. Advertising Costs Production costs of advertising and the costs to run the advertisements are expensed the first time...

  • Page 48
    ... new in-fill opportunities as well as a quicker entry into key markets such as Chicago, Atlanta, Minneapolis, Dallas and Denver, capitalizing on Galyan's premium quality real estate; The acquisition improved our logistics capabilities, with the addition of a second full-service distribution center...

  • Page 49
    ... reserves are adequate to complete its integration plan and expects payments to be substantially completed by the end of fiscal 2005, with the balance in fiscal 2006 and beyond which relates primarily to future lease payments on closed stores. DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 47

  • Page 50
    ... 2004 Change in deferred taxes related to purchase price adjustments Elimination of deferred rent Decrease in property and equipment, net for revised store closing estimate Record favorable leases based on appraisal Galyan's transaction fees Decrease in accruals related to the corporate headquarters...

  • Page 51
    ... six Dick's Sporting Goods stores and four Galyan's stores, two of which have lease terms expiring in fiscal 2004, the Galyan's clearance center and the Galyan's corporate headquarters. As of January 29, 2005, the Company has recorded $3.7 million of reserves and write-offs, net of cash payments for...

  • Page 52
    ... the Dick's stores during 2004: Acquisition Related Not Related to the Acquisition Total Cost of sales Merger integration and store closing costs Total charge to earnings $ $ - $ 7,924 7,924 $ 1,579 $ - 1,579 $ 1,579 7,924 9,503 The amounts above relate to store rent, common area maintenance...

  • Page 53
    ...based on the level of excess borrowing availability. Borrowings are collateralized by the assets of the Company, excluding store and distribution center equipment and fixtures that have a net carrying value of $87.0 million as of January 29, 2005. DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 51

  • Page 54
    ... payment of any dividends. The Credit Agreement provides for letters of credit not to exceed the lesser of (a) $75 million, (b) $350 million less the outstanding loan balance and (c) the borrowing base minus the outstanding loan balance. As of January 29, 2005 and January 31, 2004, the Company...

  • Page 55
    ... and 2002, respectively. The Company entered into sale-leaseback transactions related to store fixtures, buildings and equipment that resulted in cash receipts of $35.7 million, $14.7 million and $6.4 million for fiscal 2004, 2003 and 2002, respectively. Scheduled lease payments due (including lease...

  • Page 56
    ... determined by the Company's compensation committee. The employee's purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the last business day of the semi-annual offering period. Employees may purchase shares having a fair market value of up to...

  • Page 57
    ....0% 2004 (In thousands) 2003 Other accrued expenses not currently deductible for tax purposes Employee benefits Deferred rent State net operating loss carryforwards Store closings expense Insurance Deferred revenue Property and equipment Total deferred tax assets Property and equipment Inventory...

  • Page 58
    ..., resulting from the sale of a portion of the Company's investment in GSI. 13. Retirement Savings Plan The Company's retirement savings plan, established pursuant to Section 401(k) of the Internal Revenue Code, covers all employees who have completed one year of service and have attained 21...

  • Page 59
    ... profit Income from operations Net income (loss) Net earnings (loss) per common share $ 364,207 102,758 17,322 10,608 0.20 $ 416,135 119,164 30,805 17,908 0.34 $ 541,009 $ 138,251 194 (1,956) (0.04) $ 788,048 226,353 62,548 42,345 0.79 $ $ $ DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 57

  • Page 60
    ... 3,514 9,650 3,520 8,662 36,308 EBITDA (Proforma) Fiscal 20041 Add: Merger Integration Year Ended and Store January 29, 2005 Closing Costs Results Excluding Less: Merger Integration Gain on Sale and Gain on Sale of Investment of Investment Net income Provision for income taxes Interest expense...

  • Page 61
    ... income taxes Interest expense, net Depreciation and amortization EBITDA 3 $ $ 38,137 $ 25,425 2,864 14,420 80,846 $ (1,468) $ (979) - - (2,447) $ 39,605 26,404 2,864 14,420 83,293 Presents EBITDA adjusted for the write-down of investment. DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 59

  • Page 62
    ...adjusted net income, and adjusted diluted earnings per share to the most directly comparable GAAP financial information is presented below. 2004 2003 2002 Net Income Reported net income (GAAP) Add: Merger integration and store closing costs, after tax Less: Gain on sale of investment, after tax Add...

  • Page 63
    ... as the quotient of GAAP net income for ROIC not adjusted (numerator) and average total capital not adjusted for the mandatorily redeemable preferred stock (denominator). The after-tax amounts were calculated using a 40% effective tax rate. DICK'S SPORTING GOODS, INC. 2004 ANNUAL REPORT 61

  • Page 64
    ... to: Investor Relations 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 724-273-3400 Common Stock The shares of Dick's Sporting Goods, Inc. common stock are listed and traded on the New York Stock Exchange (NYSE), under the symbol "DKS." The shares of the Company's Class B common stock are...

  • Page 65
    ... Chairman and Chief Executive Officer Dick's Sporting Goods, Inc. Emanuel Chirico Director since 2003 Executive Vice President and Chief Financial Officer Phillips-Van Heusen Corporation William J. Colombo Director since 2002 President and Chief Operating Officer Dick's Sporting Goods, Inc. David...

  • Page 66
    Dick's Sporting Goods, Inc. 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 724-273-3400 www.dickssportinggoods.com