Dick's Sporting Goods 2004 Annual Report Download - page 32

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Since the first part of February 2005, we have completed the systems conversion and all of our stores are now on the same systems.
From merchandising to allocations to the point-of-sale to warehouse management, we have eliminated duplicate systems and are now
operating on a common platform. We have re-signed all of the Galyan’s stores as Dick’s stores in order to leverage the advertising
spending in the markets where both Dick’s and Galyan’s operate stores, and we have also reset the interior of the former Galyan’s stores
to optimize the space for the Dick’s merchandise assortment. The reassortment initiative is well under way and is being done in
conjunction with the arrival of spring 2005 receipts. As of the end of February 2005, all administrative functions and processes were run
solely out of the Dick’s corporate headquarters as the former Galyan’s headquarters building has been closed.
Overall, our plan is on track to complete the conversion by the end of the second quarter of fiscal 2005. We will continue to modify the
interior of the stores and effect changes to the merchandise assortment. When this initiative is complete, we expect to be operating these
stores not only under the Dick’s name, but also with the same merchandise assortments, financial discipline and customer service
expectations as we have for the rest of our stores.
The Company anticipates closing ten stores in conjunction with the conversion, six Dick’s stores and four Galyan’s stores, the Galyan’s
clearance 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 in fiscal 2006 and beyond, which relates to future lease payments on closed stores. Merger
integration and store closing costs primarily include the expense of closing Dick’s stores, advertising the re-branding of Galyan’s stores,
duplicative costs, recruiting and system conversion costs.
Newly Issued Accounting Standards As discussed in the notes to the consolidated financial statements, we do not recognize any
expense for stock option grants or for our employee stock purchase plan. The Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) 123R, which requires expense recognition as compensation costs in our
Consolidated Statements of Income for stock option grants and certain employee stock purchase plans beginning in the third quarter
of our fiscal 2005. The Company is currently analyzing the impact of expensing stock options, which is based on a number of factors,
including the Company’s stock price, and will not be determined until the end of the second quarter of fiscal 2005. Based on current
information, however, the Company estimates the expense related to stock options and the employee stock purchase plan in the second
half of the year to be approximately $0.12 - $0.14 per share.
At its meeting on July 1, 2004 the Emerging Issues Task Force (“EITF”) reached a tentative consensus that the dilutive effect of contingent
convertible debt instruments must be included in dilutive EPS regardless of whether the triggering contingency has been satisfied. This
tentative consensus, EITF Issue 04-8 (“Issue 04-8”), “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share,” would be
applied on a retroactive basis and would require restatement of prior period diluted EPS by those affected companies. At its September 2004
meeting, the EITF affirmed its tentative consensus as it relates to market price contingencies.
The Indenture under which the convertible notes were issued prohibited the Company from paying cash upon a conversion of the Notes
if an event of default (as defined in the Indenture) had occurred and was continuing at that time. The Company sought the consent of the
holders of the Notes to amend the Indenture to eliminate that prohibition. This default provision, as it existed, would have caused the
Company to include all shares of its common stock which are potentially issuable upon a conversion of the Notes in its computation of
diluted earnings per share despite the Company’s obligations and intention to settle amounts due in cash. The Company successfully
completed its consent solicitation on December 23, 2004 and the Supplemental Indenture removed the restriction that prohibited the
Company from paying cash upon the conversion of any Note if there had occurred and was continuing an Event of Default under the
Indenture. As a result of the Supplemental Indenture, the Company is still permitted to exclude shares of its common stock which are
potentially issuable upon a conversion of the Notes in its computation of diluted earnings per share.
management’s discussion and analysis continued