Dick's Sporting Goods 2007 Annual Report Download

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2007 ANNUAL REPORT

Table of contents

  • Page 1
    2007 ANNUAL REPORT

  • Page 2
    ... to common stockholders and diluted weighted average shares outstanding are adjusted for the two-for-one stock split, in the form of a stock dividend, which became effective October 19, 2007. 1 Results exclude merger integration and store closing costs, gain on sale of investment, and loss on...

  • Page 3
    ... include: Chicago, Florida, Texas, California Approximately 15 percent store growth per year in new and existing markets; potential for at least 800 stores nationwide Third distribution center planned for Atlanta, Georgia, expanding total network capacity to 670 stores CONSISTENT STORE GROWTH 2002...

  • Page 4
    ... Sporting Goods as a leader in our industry and positioned us to continue to excel. Financial Discipline In 2007, our sales rose 25 percent to $3.9 billion, driven by a 2.4 percent comparable store sales gain at Dick's stores, a productive new store opening program, and the addition of Golf Galaxy...

  • Page 5
    ... expanding our credit facility. Lastly, our Board of Directors approved a two-for-one stock split in the form of a stock dividend of Dick's Sporting Goods common shares. Strong Execution Skills Dick's Sporting Goods is one of the largest chains of our kind in the United States with 340 Dick's stores...

  • Page 6
    ... new gear; value-added services to enable them to test equipment before buying and ensure their Strong Consistent Financial Performance Established Leadership Position in the Industry 4 Dick's Sporting Goods, Inc. | 2007 Annual Report 2006 2007 IPO growth, we are planning to open a third...

  • Page 7
    ... of being involved with the communities in which we operate. In 2007, we continued our Community Youth Sports Equipment Kit Program, working with local teams and organizations, impacting more than one million children throughout the year. We also became a corporate partner for Thanks and Giving...

  • Page 8
    ...Chick's Sporting Goods, a specialty sporting goods chain with 15 stores in Southern California that average 50,000 square feet, and generated more than $120 million in total sales for the fiscal year ended June 30, 2007 Announced plans to open a third distribution center, located in Atlanta, Georgia...

  • Page 9
    ... we acquired a new format to drive our growth in the highly fragmented golf industry. We gained 65 stores, helping make Dick's the largest specialty golf retailer in the nation. In 2007, we paid off the purchase price for this acquisition and expanded Golf Galaxy's presence, opening 16 new locations...

  • Page 10
    ...-in-class retail chain. Our locations feature several individual sports specialty stores-the Golf Pro Shop, the Lodge, the Fitness Center, Team Sports, Footwear and Athletic Apparel-which stock authentic merchandise, provide knowledgeable sales assistance, and even offer value-added services, much...

  • Page 11

  • Page 12
    AUTHENTIC MERCHANDISE

  • Page 13
    ... season brings the start of a new sport-and a trip to Dick's to get the high-quality equipment, specialized apparel and performance footwear required to train, play and compete. We consistently stock a broad selection of authentic sporting goods for a wide array of sports, and we provide a selection...

  • Page 14
    ...In addition to equipment, we offer high-quality golf apparel, outerwear and shoes, along with a broad selection of training devices and accessories. We complement our product assortment with a suite of value-added services, ranging from custom fitting, club repair and re-gripping, a trade-in program...

  • Page 15
    ... an authentic specialty shop experience, broadcasting golf tournaments and educational golf programming. Our Maxfli, Walter Hagen and Slazenger brands combine quality materials and unique product designs in an assortment of high-caliber products available exclusively at Dick's and Golf Galaxy.

  • Page 16
    ... footwear and outerwear for a range of outdoor pursuits, from hiking and hunting, to fishing, camping and kayaking. True to our heritage as a bait-and-tackle shop, we emphasize authentic merchandise, featuring products from trusted brands like Coleman, The North Face, Shakespeare, and Old Town canoe...

  • Page 17
    ... the Field & Stream, Quest, and Lodge Outfitters brands. We sell hunting and fishing licenses and offer an array of specialty services, like rifle scope mounting, bore sighting, fishing line spooling and arrow cutting, as well as provide on-site archery lanes where customers can test our products.

  • Page 18
    ...ranging from free weights to complete weight lifting systems. We simplify purchases of large equipment by offering home delivery and assembly, extended warranties and financing. We also carry a host of accessories, including pedometers, heart-rate monitors, body-fat scales and training videos, along...

  • Page 19
    ... cycle shop features bikes, accessories and riding apparel from top manufacturers like Diamondback, Mongoose, Iron Horse, Schwinn and Dick's own Quest brand, as well as convenient services like assembly, safety inspections, custom fittings, repairs and tune-ups by certified bike technicians.

  • Page 20
    ... footwear from industry leaders like Nike, adidas, New Balance, Asics and Under Armour. Our relationships with these manufacturers allow us to stage exclusive vendor and sport-driven promotions. In 2007, we offered a number of exclusive products, including Under Armour and Nike baseball cleats...

  • Page 21
    ... the features and benefits of new products so they can help customers select the best shoes for every sport and skill level. We offer exclusive products and styles from the top manufacturers in performance athletic footwear. Our selling floors have an authentic in-store track where customers can...

  • Page 22
    ... Team Sports store at Dick's offers the gear these athletes need to continuously train for and compete in a wide range of team sports, including baseball, softball, soccer, basketball, football, hockey and lacrosse. For each of these activities, we carry an assortment of equipment, apparel, footwear...

  • Page 23
    ... Sports Many of our sales associates are sports enthusiasts who understand the needs of players and can offer our customers valuable insight into selecting the right merchandise. We employ clear, color-coded signs, and a "good-better-best" format to help players, coaches and parents make product...

  • Page 24
    ... and deliver peak performance. Dick's Athletic Apparel store offers a broad assortment of performance athletic apparel for men, women and children from industry-leading brands such as Under Armour, Nike, adidas, and Reebok. We stock garments tailored for every sport that help athletes to regulate...

  • Page 25
    ...clothing from leading athletic brands for team sports, fitness and a vast range of athletic pursuits. Our athletic apparel helps athletes to play, train and look their best in all weather conditions, all throughout the year. In addition to carrying popular products from national brands, we draw on...

  • Page 26
    ... Chick's Sporting Goods, a specialty sporting goods chain with 15 stores in Southern California Announced plans for a third distribution center in Atlanta, Georgia, which will increase our total network capacity, enabling us to service 670 stores 24 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 27
    ...Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Management's Responsibility for Financial Statements Independent Auditors' Reports Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Comprehensive Income Consolidated...

  • Page 28
    ... fiscal 2008. The store count and square footage amounts include Golf Galaxy and Chick's for fiscal 2007. Calculated using net sales and gross square footage of all stores open at both the beginning and the end of the period. Gross square footage includes the storage, receiving and office space that...

  • Page 29
    ..."Forward Looking Statements". Overview Dick's 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 February 13, 2007, the Company acquired Golf Galaxy by means of merger of our...

  • Page 30
    ...lower sales of exercise equipment and kids athletic footwear driven by the Company's decision to exit the Heely's wheeled shoe business in 2007. Store Count During 2007, we acquired 65 Golf Galaxy stores and 15 Chick's Sporting Goods stores. In addition, we opened 46 Dick's stores and 16 Golf Galaxy...

  • Page 31
    ...'s apparel, kids, athletic and casual footwear, licensed merchandise, baseball, hunting, camping and guns, partially offset by lower sales of bikes, boots, snow sports and outerwear accessories. Store Count During 2006, we opened 39 stores and relocated two stores. As of February 3, 2007 we operated...

  • Page 32
    ... to higher store count. The cash flows from operating the Company's stores is a significant source of liquidity, and we expect will continue to be used in fiscal 2008 primarily to purchase inventory, make capital improvements and open new stores. 30 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 33
    ... expenditures related to the addition of new stores, remodeling of existing stores, enhanced information technology and improved distribution infrastructure, including our Atlanta distribution center. Currently, the Company plans to open approximately 46 new Dick's stores, ten new Golf Galaxy stores...

  • Page 34
    ... in our common stock price may cause us to have to increase the number of shares outstanding and impact our earnings per share calculation. At this time, we would not anticipate that the outstanding notes will be converted currently and believe 32 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 35
    ... commitments as of February 2, 2008 relate to operating lease obligations, future minimum guaranteed contractual payments and letters of credit. The Company has excluded these items from the balance sheet in accordance with generally accepted accounting principles. Contractual Obligations and Other...

  • Page 36
    ... considers the following policies to be the most critical in understanding the judgments that are involved in preparing its consolidated financial statements. Inventory Valuation The Company values inventory using the lower of weighted average cost or market method. Market price is generally based...

  • Page 37
    ..., management periodically evaluates the need to close underperforming stores. Reserves are established when the Company ceases to use the location for the present value of any remaining operating lease obligations, net of estimated sublease income, as prescribed by SFAS No. 146, "Accounting for...

  • Page 38
    ... goods industry and actions by our competitors; the availability of retail store sites on terms acceptable to us; the cost of real estate and other items related to our stores; our inability to manage our growth, open new stores on a timely basis and expand successfully in new and existing markets...

  • Page 39
    ... 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 $0.9 million based upon fiscal 2007 average borrowings. Credit Risk In February 2004...

  • Page 40
    ...on the Company's internal control over financial reporting included in this document. Edward W. Stack Chairman, Chief Executive Officer & President Timothy E. Kullman Executive Vice President - Finance, Administration and Chief Financial Officer 38 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 41
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Dick's Sporting Goods, Inc. Pittsburgh, Pennsylvania We have audited the internal control over financial reporting of Dick's Sporting Goods, Inc. and subsidiaries (the "Company") as of February 2, 2008...

  • Page 42
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Dick's Sporting Goods, Inc. Pittsburgh, Pennsylvania We have audited the accompanying consolidated balance sheets of Dick's Sporting Goods, Inc. and subsidiaries (the "Company") as of February 2, ...

  • Page 43
    ... 2008 February 3, 2007 January 28, 2006 Fiscal Year Ended (Amounts in thousands, except per share data) 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...

  • Page 44
    ... 468,974 Accumulated other comprehensive income 2,012 Total stockholders' equity 888,520 Total Liabilities and Stockholders' Equity $ 2,035,635 See notes to consolidated financial statements. - 794 268 302,235 315,453 1,800 620,550 $ 1,524,265 42 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 45
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME February 2, 2008 February 3, 2007 January 28, 2006 Fiscal Year Ended (Dollars in thousands) Net income Other comprehensive income (loss): Unrealized gain (loss) on securities available-for-sale, net of tax Reclassification adjustment for gains ...

  • Page 46
    ...tax benefit from exercise of stock options Unrealized loss on securities available-for-sale, net of taxes of $66 BALANCE, February 3, 2007 Cumulative effect of adoption of FIN 48 ADJUSTED BALANCE, February 3, 2007 Exchange of Class B common stock for common stock Stock options issued for acquisition...

  • Page 47
    Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Total $ 180,833 - 3,674 22,065 2,452 - - - 209,024 - 3,730 22,988 2,686 - 24,303 39,504 - 302,235 - 302,235 - 9,117 4,505 30,212 2,811 - 29,039 38,504 - - 416,423 $ 129,862 - - - - 72,980 - - 202,842 - - - - ...

  • Page 48
    ... Accrued property and equipment Cash paid during the year for interest Cash paid during the year for income taxes Stock options issued for acquisition (net of $1,810 tax benefit upon exercise) See notes to consolidated financial statements. 46 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 49
    ..., the "Company") is a specialty retailer selling sporting goods, footwear and apparel through its 434 stores, the majority of which are located throughout the eastern half of the United States. On February 13, 2007, the Company acquired Golf Galaxy, Inc. ("Golf Galaxy") by means of merger of our...

  • Page 50
    ..., which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Stock Split - On September 12, 2007, the Company's Board of Directors declared a two-for-one stock split, in the form of a stock dividend, of the Company's common shares for stockholders of record...

  • Page 51
    ... Payment" ("SFAS 123R"), the Company accounted 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. Accordingly, because the exercise price of the option...

  • Page 52
    ... other publicly-traded retailers. The risk-free interest rate is based on the implied yield available on U.S. Treasury constant maturity interest rates whose term is consistent with the expected life of the stock options. 2 3 4 The assumptions used to calculate the fair value of options granted...

  • Page 53
    ... and field support payroll and fringe benefits, advertising, bank card charges, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating the Company's corporate headquarters. Advertising Costs - Production costs of advertising and the costs...

  • Page 54
    ... allowances related to stores where the Company is considered the owner at the time of receipt, rather than as operating or investing activities, as previously reported. The effect of this correction for the year ended February 3, 2007 was to decrease cash provided by operating activities by...

  • Page 55
    ... to date (the "Credit Agreement"). The acquisition is being accounted for using the purchase method in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," with Dick's as the accounting acquirer. Accordingly, the purchase price has been allocated to...

  • Page 56
    ... (net of sublease receipts) Adjustments to the estimate Clearance of discontinued Galyan's merchandise Balance at February 3, 2007 Cash paid (net of sublease receipts) Adjustments to the estimate Store closing reserves established in conjuction with the Golf Galaxy acquisition Balance at February...

  • Page 57
    ... includes future minimum lease payments, maintenance costs and taxes from the date of closure or relocation to the end of the remaining lease term, net of contractual or estimated sublease income. The liability is discounted using a credit-adjusted risk-free rate of interest. The assumptions used in...

  • Page 58
    ... the activity of the store closing reserves established due to Dick's store closings as a result of the Galyan's acquisition, relocations, and other store closings: 2007 (In thousands) 2006 Accrued store closing and relocation reserves, beginning of period Expense charged to earnings Cash payments...

  • Page 59
    ... discount occurs until 2009)), and (ii) the product of (a) the number of shares of the Company's common stock into which the note otherwise would have been converted if no cash payment were made by the Company (i.e. 34.4044 shares per $1,000 face amount), multiplied by (b) the average of the closing...

  • Page 60
    ... 3, 2007, the Company had outstanding letters of credit totaling $16.8 million and $16.5 million, respectively. The following table provides information about the Credit Agreement borrowings as of and for the periods: 2007 (Dollars in thousands) 2006 Balance, fiscal period end Average interest rate...

  • Page 61
    ... value of net scheduled lease payments Less: amounts due in one year $ $ 905 975 953 953 953 11,204 15,943 (8,222) 7,721 (133) 7,588 10. Operating Leases The Company leases substantially all of its stores, office facilities, distribution centers and equipment, under noncancelable operating...

  • Page 62
    ... stock available for issuance pursuant to future stock option grants. The stock option activity during the year is presented in the following table: Weighted Average Remaining Contractual Life (Years) Shares Subject to Options Weighted Average Exercise Price per Share Aggregate Intrinsic Value...

  • Page 63
    ... 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 $25,000 for all purchases ending within the same calendar year. The total number...

  • Page 64
    ... statutory rate as follows for the following periods: 2007 2006 2005 Federal statutory rate State tax, net of federal benefit Other permanent items Effective income tax rate 35.0% 3.6% 1.2% 39.8% 35.0% 4.2% 0.8% 40.0% 35.0% 4.6% 0.4% 40.0% 62 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 65
    ... following as of the fiscal periods ended: 2007 (In thousands) 2006 Store closing expense Stock based compensation Employee benefits Other accrued expenses not currently deductible for tax purposes Deferred rent Insurance Gift cards Deferred revenue currently taxable Non-Income based tax reserves...

  • Page 66
    ... 10-year term of the agreement. Deferred revenue at February 2, 2008 and February 3, 2007 was $1.5 million and $1.9 million, respectively. In total, the number of shares the Company holds represents less than 5% of GSI's outstanding common stock. 64 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 67
    ... Revenue Code, covers regular status full-time hourly and salaried employees as of their date of hire and part-time regular employees once they work 1,000 hours or more in a year and have attained 21 years of age. Under the terms of the retirement savings plan, the Company provides a matching...

  • Page 68
    ... $ 0.62 $ 1,026,275 320,302 115,116 67,718 $ 0.60 $ $ $ Fourth quarter of fiscal 2006 represents a 14 week period, as fiscal 2006 includes 53 weeks. Quarterly results for fiscal 2007 and 2006 do not add to full year results due to rounding. 2 66 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 69
    ... that the Company's management and investors can use to compare core, operating results between reporting periods. The Company has provided reconciliations below for EBITDA, ROIC, net income and earnings per share adjusted for merger integration and store closing costs, the acquisition of Galyan...

  • Page 70
    ... quotient of GAAP Net Income for ROIC not adjusted (numerator) and average total capital not adjusted for the mandatorily redeemable preferred stock (denominator). 2 The after-tax amounts were calculated using the Company's effective tax rate. 68 Dick's Sporting Goods, Inc. | 2007 Annual Report

  • Page 71
    ... below. The graph assumes that $100 was invested on October 15, 2002 in the Company's common stock, the S&P 500, the S&P Specialty Retail Index and Hibbett Sports and that all dividends were reinvested. 1100 1000 900 800 700 IND E X 600 500 400 300 200 100 0 29-Oct-04 28-Oct-05 15-Oct-02 2-May-03...

  • Page 72
    ... 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 dividends in the foreseeable future. In addition, our credit agreement...

  • Page 73
    ... 1985 Chief Executive Officer, Boltaron Performance Products, LLC & Co-Managing Partner of Levene, Gouldin & Thompson, LLP Larry D. Stone Director since 2007 President & Chief Operating Officer Lowe's Companies, Inc. 2007 CORPORATE OFFICERS Edward W. Stack Chairman & Chief Executive Officer William...

  • Page 74
    DICK'S SPORTING GOODS, INC. 300?Industry?Drive????RIDC?Park?West????Pittsburgh,?PA?15275????724-273-3400????www.dickssportinggoods.com S SPORTING GOODS, INC. 300 Industry Drive RIDC Park West Pittsburgh, PA 15275 www.dickssportinggoods.com