Dick's Sporting Goods 2004 Annual Report Download - page 35

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DICK’S SPORTING GOODS, INC. 2004 ANNUAL REPORT 33
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk The Company’s net exposure to interest rate risk will consist primarily of borrowings under the senior secured revolving
credit facility. The Company’s senior secured revolving credit facility bears interest at rates that are benchmarked either to U.S. short-term
floating rate interest rates or one-month LIBOR rates, at the Company’s election. Outstanding borrowings under the Credit Agreement were
$76.1 million as of January 29, 2005. There were no borrowings outstanding under the senior secured revolving credit facility as of
January 31, 2004. 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 senior secured revolving credit facility would be approximately $0.6 million based upon fiscal
2004 average borrowings.
Credit Risk In February 2004, the Company sold $172.5 million issue price of senior unsecured convertible notes due 2024 (“convertible
notes”). In conjunction with the issuance of these convertible notes, we also entered into a five-year convertible bond hedge and a
five-year separate warrant transaction with one of the initial purchasers (“the counterparty”) and/or certain of its affiliates. Subject to the
movement in our common stock price, we could be exposed to credit risk arising out of net settlement of the convertible bond hedge and
separate warrant transaction in our favor. Based on our review of the possible net settlements and the credit strength of the counterparty
and its affiliates, we believe that we do not have a material exposure to credit risk as a result of these share option transactions.
Impact of Inflation The Company does not believe that operating results have been materially affected by inflation during the preceding
three fiscal years. There can be no assurance, however, that operating results will not be adversely affected by inflation in the future.
Tax Matters Presently, the Company does not believe that there are any tax matters that could materially affect the consolidated
financial statements.
Seasonality and Quarterly Results The Company’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. Any decrease in fiscal fourth quarter sales, whether because ofa
slow holiday selling season, unseasonable weather conditions, or otherwise, could have a material adverse effect on our business,
financial condition and operating results for the entire fiscal year.