Dick's Sporting Goods 2005 Annual Report Download

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2005 ANNUAL REPORT

Table of contents

  • Page 1
    2005 ANNUAL REPORT

  • Page 2
    ... 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, and gain on sale of investment Our goal is to be the number one sports and fitness specialty retailer for all athletes and outdoor...

  • Page 3
    ... 5 6 17 2 5 4 12 25 11 8 2 28 9 8 4 14 30 2 13 3 2 Expansion initiatives at our distribution centers will result in a total network capacity of 460 stores Distribution Centers Corporate Headquarters 1 Key markets and regions for growth include Chicago, Atlanta, Denver, Boston, Florida 1

  • Page 4
    ... real estate in a number of key new markets that offered further growth opportunity, including Chicago, Atlanta, Minneapolis and Denver. We also said that it would enable us to expand our presence in several existing markets and create valuable efficiencies in the areas of procurement and marketing...

  • Page 5
    ... and layout of a Dick's store; converting the Galyan's stores' systems to our own; and launching a grand re-opening campaign in each market. We also closed the Galyan's corporate office, and adapted the former Galyan's distribution center to optimize our supply chain network. Our diligent attention...

  • Page 6
    ... vendors to our stores and to provide our buyers and planners with more timely data to use in the decision-making process. We also laid the groundwork to open another 40 stores in 2006 in a mix of new and established markets. And we formulated a plan to expand our distribution center in Plainfield...

  • Page 7
    ... and provide Dick's own training programs to store associates, and to extend our tradition of opening new Dick's locations with an experienced Dick's store manager. These initiatives help ensure that our team is well-versed in delivering excellent service and offering up-to-date product knowledge to...

  • Page 8
    ... among sporting goods retailers. In essence, each of our 255 locations houses several sports specialty stores - the Golf Pro Shop, the Lodge, the Fitness Center, Footwear, Team Sports and Athletic Apparel - all under one roof. Each of our specialty stores offers the distinct benefits of a dedicated...

  • Page 9
    dick's sporting goods, inc. 2005 annual report THE GOLF PRO SHOP Every Season Starts at Dick's Sports enthusiasts know that every season truly does start at Dick's - from golf season, to hunting, fishing and camping seasons, to those exhilarating times of year when every team sport first kicks off...

  • Page 10
    dick's sporting goods, inc. 2005 annual report In-store driving ranges and putting greens enable customers to test-drive the latest merchandise releases. Our suite of golf-related services encompasses everything from club repair and re-gripping to arranging private lessons with our pros. THE GOLF...

  • Page 11
    dick's sporting goods, inc. 2005 annual report Our Golf Pro Shop experience includes broadcasts of golf tournaments and educational golf programming. PGA golf professionals provide our customers with informed assistance in selecting the right products for their needs. 9

  • Page 12
    dick's sporting goods, inc. 2005 annual report We draw on our roots as a local bait and tackle shop to deliver authentic merchandise for every season. Tried-and-true brands, such as Coleman, Shakespeare, The North Face, and Old Town Canoe and Kayak, deliver the dependable quality our customers ...

  • Page 13
    dick's sporting goods, inc. 2005 annual report Value-added services, like refilling CO2 tanks, mounting rifle scopes, cutting arrows, and selling hunting and fishing licenses, make Dick's the outdoor enthusiast's one-stop shop. Customers can even test products in our in-store archery ranges. We ...

  • Page 14
    dick's sporting goods, inc. 2005 annual report Certified bike technicians make repairs and showcase our brand selection, which includes Diamondback, Iron Horse, Mongoose and Dick's own Quest line. Certified fitness trainers in our stores provide qualified advice on the best equipment for ...

  • Page 15
    dick's sporting goods, inc. 2005 annual report Our assortment incorporates "good, better and best" choices within each category, and is complemented by services like home delivery and set-up of fitness equipment. FITNESS CENTER The Fitness Center at Dick's is a comprehensive fitness environment ...

  • Page 16
    ...'s sporting goods, inc. 2005 annual report Dedicated sales associates complete a combination of proprietary and vendor-sponsored training programs, ensuring they are always familiar with the latest technical attributes. We deliver a winning combination of premier brands, technology-driven products...

  • Page 17
    dick's sporting goods, inc. 2005 annual report We strive to be among the first-to-market with new releases, making us a leader in the delivery of the latest athletic footwear. We feature a vast selection of technical performance running shoes that are carefully engineered to provide athletes with ...

  • Page 18
    dick's sporting goods, inc. 2005 annual report Technology advances daily, and so does our assortment of the latest backboards, baseball bats, football and other equipment for every major team sport. Many of our sales associates are sports enthusiasts who have hands-on experience with the ...

  • Page 19
    ...inc. 2005 annual report Our ScoreCard loyalty program rewards repeat shoppers with special discounts and promotional offers. We're a year 'round resource where athletes can always get the merchandise they require to train and compete in their sports. TEAM SPORTS The Team Sports store at Dick's is...

  • Page 20
    dick's sporting goods, inc. 2005 annual report Our broad assortment of women's athletic apparel features garments for children and adults to use for competition, team sports and fitness. 18

  • Page 21
    ... Apparel store at Dick's offers a broad assortment of cutting-edge athletic clothing for men, women and children that help athletes to look and feel their best. This assortment includes products from Under Armour, Nike, and adidas, as well as Dick's exclusive private-label brands, Ativa and Fitness...

  • Page 22
    ... the transportation management segment centrally Implemented the warehouse management segment in our Plainfield, Indiana distribution center Manhattan is a highly scalable supply chain platform geared to drive productivity and improve supply chain response times Applied new reporting processes...

  • Page 23
    dick's sporting goods, inc. 2005 annual report Operating Income per Square Foot1 Gross Profit Margins (PERCENTAGE) Private-Label Sales (PERCENTAGE) 2001 2002 2003 2004 2004 P 2005 $7.8 $10.3 $11.5 $12.7 $9.1 $12.1 2001 2002 2003 2004 2004 P 2005 24.6% 26.5% 27.7% 27.8% 27.2% 28.1% 2001 2002 ...

  • Page 24
    ...in thousands, except per share and sales per square foot data) 2005 2004 2003 2002 2001 Statement of Income Data: Net sales Cost of goods sold 1 Gross profit Selling, general and administrative expenses Merger integration and store closing costs Pre-opening expenses Income from operations (Gain) on...

  • Page 25
    ...Looking Statements." Overview The Company is an 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...

  • Page 26
    ... 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 rent, common area maintenance charges, real...

  • Page 27
    ... men's and women's apparel, exercise, athletic and casual footwear, socks, licensed merchandise, baseball and accessories and guns, partially offset by lower sales of paintball, in-line skates, bikes, hockey and hunting. Private Label Sales For the year ended January 28, 2006, private label product...

  • Page 28
    ... in men's, women's and kid's apparel, men's, women's and kid's footwear, golf, licensed product and bikes, partly offset by lower sales of boots, in-line skates and hunting. Private Label Sales For the year ended January 29, 2005, private label product sales (excluding Galyan's private label brands...

  • Page 29
    ...sporting goods, inc. 2005 annual report As a percentage of net sales, selling, general and administrative expenses decreased from 21.41% in 2003 to 21.04% in 2004. The decrease as a percentage of sales was due primarily to decreased advertising expense (27 basis points), decreased corporate payroll...

  • Page 30
    ...be used in 2006 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. Investing Activities Cash used in investing activities decreased by $321.1 million in 2005 to $93.7 million due primarily to...

  • Page 31
    ... primarily of the net payments under the Credit Agreement and proceeds from transactions in the Company's common stock. The Company received proceeds of $11.1 million and $8.3 million from transactions in the Company's stock option and employee stock purchase plan in 2005 and 2004, respectively. The...

  • Page 32
    dick's sporting goods, inc. 2005 annual report Contractual Obligations and Other Commercial Commitments The following table summarizes the Company's material contractual obligations, including both on- and off-balance sheet arrangements in effect at January 28, 2006, and the timing and effect that ...

  • Page 33
    ...." As permitted by FASB No. 123, the Company currently accounts for share-based payments to employees using APB No. 25's intrinsic value method and, as such, recognizes no compensation cost for employee stock options or our employee stock purchase plan. Accordingly, the adoption of SFAS 123R's fair...

  • Page 34
    dick's sporting goods, inc. 2005 annual report Inventory Valuation The Company values inventory using the lower of weighted average cost or market method. Market price is generally based on the current selling price of the merchandise. The Company regularly reviews inventories to determine if the ...

  • Page 35
    ... 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 other items related to...

  • Page 36
    dick's sporting goods, inc. 2005 annual report 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 ...

  • Page 37
    ... reporting as of January 28, 2006 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm. Edward W. Stack Chairman and Chief Executive Officer William R. Newlin Executive Vice President and Chief Administrative Officer Michael F. Hines Executive Vice President...

  • Page 38
    dick's sporting goods, inc. 2005 annual report REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS 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...

  • Page 39
    dick's sporting goods, inc. 2005 annual report INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors and Stockholders of Dicks Sporting Goods, Inc. We have audited management's assessment, included in the accompanying Report of...

  • Page 40
    ...except per share data) January 28, 2006 January 29, 2005 January 31, 2004 Net sales Cost of goods sold, including occupancy and distribution costs Gross profit Selling, general and administrative expenses Merger integration and store closing costs Pre-opening expenses Income from operations Gain on...

  • Page 41
    dick's sporting goods, inc. 2005 annual report CONSOLIDATED BALANCE SHEETS January 28, 2006 (Dollars in thousands, except per share data) January 29, 2005 Assets Current Assets: Cash and cash equivalents Accounts receivable, net Income tax receivable Inventories, net Prepaid expenses and other ...

  • Page 42
    dick's sporting goods, inc. 2005 annual report CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Year Ended (Dollars in thousands) January 28, 2006 January 29, 2005 January 31, 2004 NET INCOME OTHER COMPREHENSIVE INCOME: Unrealized gain on securities available-for-sale, net of tax ...

  • Page 43
    ... credit (payments) borrowings, net (Payments) borrowings on 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 under employee stock purchase plan Proceeds from exercise...

  • Page 44
    ... Dollars Class B Common Stock Shares Dollars BALANCE, February 1, 2003 Exchange of Class B common stock for common stock Sale of common stock under stock plans Exercise of stock options, including tax benefit of $29,861 Transaction costs related to initial public offering Net income Unrealized gain...

  • Page 45
    dick's sporting goods, inc. 2005 annual report Accumulated Other Additional Paid-In Capital Retained Earnings Comprehensive Income Total $ 129,869 - 2,471 43,225 183 - - 175,748 - 3,232 20,870 (18,529) - - $ 8,549 - - - - ...

  • Page 46
    ... 2003 1. Summary of Significant Accounting Policies Operations - Dick's Sporting Goods, Inc. (together with its subsidiaries, the "Company") is a specialty retailer selling sporting goods, footwear and apparel through its 255 stores, the majority of which are located throughout the Eastern half of...

  • Page 47
    ..., advertising the re-branding of Galyan's stores, duplicative administrative costs, recruiting and system conversion costs. These costs were $37.8 million, $20.3 and $0 for fiscal 2005, 2004 and 2003 respectively. Stock Split - On February 10, 2004, the Company's Board of Directors approved...

  • Page 48
    dick's sporting goods, inc. 2005 annual report Stock-Based Compensation - The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and related interpretations. ...

  • Page 49
    ...." As permitted by FASB No. 123, the Company currently accounts for share-based payments to employees using APB No. 25's intrinsic value method and, as such, recognizes no compensation cost for employee stock options or our employee stock purchase plan. Accordingly, the adoption of SFAS 123R's fair...

  • Page 50
    ...inc. 2005 annual report 2. Acquisition On July 29, 2004, Dick's Sporting Goods, Inc. acquired all of the common stock of Galyan's for $16.75 per share in cash, and Galyan's became a wholly owned subsidiary of Dick's. The Company has recorded $156.6 of goodwill as the excess of the purchase price of...

  • Page 51
    ...SFAS No. 141, "Business Combinations". The Company recorded $156.6 million of goodwill as the excess of the purchase price of $369.6 million over the fair value of the net amounts assigned to assets acquired and liabilities assumed. In accordance with SFAS No. 142, "Accounting for Goodwill and Other...

  • Page 52
    dick's sporting goods, inc. 2005 annual report 4. Store and Corporate Office Closings As a result of the Galyan's acquisition, the Company closed six Dick's Sporting Goods stores and four Galyan's stores, the Galyan's clearance center and the Galyan's corporate headquarters. See Note 2 for a ...

  • Page 53
    ... stock based on the extent to which the then market price exceeds $39.31 per share. The aggregate number of shares that the Company could be obligated to issue upon conversion of the senior convertible notes is 4,388,024 shares. The cost of the purchased bond hedge was partially offset by the sale...

  • Page 54
    ... the extent that the then market price per share of the common stock exceeds $56.16 at the time of conversion. Revolving Credit Agreement - On July 28, 2004, the Company executed its Second Amended and Restated Credit Agreement (the "Credit Agreement"), between Dick's and lenders named therein. The...

  • Page 55
    ... Obligations - The Company leases two buildings from the estate of a former stockholder, who is related to current stockholders of the Company, under a capital lease entered into May 1, 1986 which expires in April 2021. In addition, the Company has a capital lease for a store location with a fixed...

  • Page 56
    ...and 2003, respectively. The Company entered into sale-leaseback transactions related to store fixtures, buildings and equipment that resulted in cash receipts of $18.8 million, $35.7 million and $14.7 million for fiscal 2005, 2004 and 2003, respectively. Scheduled lease payments due (including lease...

  • Page 57
    ... 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 58
    dick's sporting goods, inc. 2005 annual report Common Stock, Class B Common Stock and Preferred Stock - During fiscal 2002, the Company amended its corporate charter to, among other things, provide for the authorization of the issuance of up to 100,000,000 shares of common stock, 20,000,000 shares ...

  • Page 59
    ... the fiscal periods ended: 2005 (In thousands) 2004 Store closings expense Employee benefits Other accrued expenses not currently deductible for tax purposes Deferred rent Insurance State net operating loss carryforwards Total deferred tax assets Property and equipment Inventory Total deferred tax...

  • Page 60
    dick's sporting goods, inc. 2005 annual report During fiscal 2005, 2004 and 2003, the Company realized a pre-tax gain of $1.8 million, $11.0 million and $3.5 million, respectively, resulting from the sale of a portion of the Company's investment in GSI. 13. Retirement Savings Plan The Company's ...

  • Page 61
    ... 219,531 Presents EBITDA adjusted for merger integration and store closing costs and gain on sale of investment. Add: Merger Year Ended integration and January 29, 2005 store closing costs Results excluding Less: merger integration Gain on sale and gain on sale of investment of investment EBITDA...

  • Page 62
    ...period. Adjusted Operating Income Reconciliation Fiscal 2005 Amounts (in thousands) % Fiscal 2004 Amounts % Proforma2 Fiscal 2004 Amounts % Reported income from operations (GAAP) Add: Merger integration and store closing costs Add: Galyan's Trading Company Adjusted operating income 2 $ 132,749 37...

  • Page 63
    dick's sporting goods, inc. 2005 annual report Return On Invested Capital (ROIC) 2005 (Dollars in thousands) 2004 2003 2002 2001 2000 1999 Net income Discontinued operations Merger integration and store closing costs, after tax (Gain) on sale/loss on write-down of non cash investment, after tax ...

  • Page 64
    dick's sporting goods, inc. 2005 annual report CORPORATE AND STOCKHOLDER INFORMATION Corporate Office 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 724-273-3400 Dividend Policy We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash ...

  • Page 65
    ... and Transportation Jay Crosson Senior Vice President Human Resources Eileen Gabriel Senior Vice President and Chief Information Officer Jeffrey R. Hennion Senior Vice President Marketing Joseph H. Schmidt Senior Vice President Store Operations Douglas Walrod Senior Vice President Real Estate and...

  • Page 66
    DICK'S SPORTING GOODS, INC. 300 INDUSTRY DRIVE 724-273-3400 RIDC PARK WEST PITTSBURGH, PA 15275 WWW.DICKSSPORTINGGOODS.COM