Dick's Sporting Goods 2007 Annual Report Download - page 32

Dick’s Sporting Goods, Inc. | 2007 Annual Report30
Merger integration and store closing costs associated with the purchase of Galyan’s of $37.8 million were recognized in 2005.
The cost relates primarily to closing Dick’s stores in overlapping markets and advertising the re-branding and re-grand opening
of the former Galyan’s stores.
Pre-opening expenses increased by $5.6 million to $16.4 million in 2006 from $10.8 million in 2005. Pre-opening expenses were
for the opening of 39 new stores and relocation of two stores in 2006 compared to the opening of 26 new stores and relocation
of four stores in 2005. Pre-opening expenses in any year fluctuate depending on the timing and number of store openings and
relocations.
Gain on Sale of Investment Gain on sale of investment was $1.8 million in 2005. The gain resulted from the sale of a portion
of the Company’s non-cash investment in its third-party Internet commerce provider.
Interest Expense, net Interest expense, net, decreased by $3.0 million to $10.0 million in 2006 from $13.0 million in 2005 due
primarily to lower average borrowings on the Company’s senior secured revolving credit facility.
Liquidity and Capital Resources
The following discussion has been updated to reflect the effects of the corrections to the Company’s fiscal 2006 and 2005
Consolidated Statements of Cash Flows described in Note 2 to the consolidated financial statements.
Our primary capital requirements are for working capital, capital improvements and to support expansion plans, as well as for
various investments in store remodeling, store fixtures and ongoing infrastructure improvements.
The change in cash and cash equivalents is as follows:
February 2, February 3, January 28,
Fiscal Year Ended 2008 2007 2006
Net cash provided by operating activities $ 262,834 $ 139,609 $ 168,481
Net cash used in investing activities (435,296) (130,486) (109,870)
Net cash provided by (used in) financing activities 86,693 90,255 (40,933)
Effect of exchange rate changes on cash 134 ——
Net (decrease) increase in cash and cash equivalents $ (85,635) $ 99,378 $ 17,678
Operating Activities
Cash flow from operations is seasonal in our business. Typically, we use cash flow from operations to increase inventory in advance
of peak selling seasons, with the pre-Christmas inventory increase being the largest. In the fourth quarter, inventory levels are reduced
in connection with Christmas sales and this inventory reduction, combined with proportionately higher net income, typically produces
significantly positive cash flow.
Cash provided by operating activities increased by $123.2 million in 2007 to $262.8 million, which consists primarily of higher net
income of $42.4 million and an increase in the change in assets and liabilities of $82.6 million primarily due to lower income tax
payments made in 2007 compared to 2006.
Changes in Assets and Liabilities The primary factors contributing to the increase in the change in assets and liabilities were the
change in income taxes payable and deferred construction allowances, partially offset by an increase in the change in inventory.
The increase in the change in income taxes payable was primarily due to lower income tax payments made during 2007 compared
to 2006 due to the timing of estimated tax payments made in fiscal 2007. The Company will make a larger tax payment in fiscal 2008
relating to fiscal 2007 than in previous years. The increase in deferred construction allowances is primarily related to higher tenant
allowances associated with our 2007 stores compared to 2006. The increase in the change in inventory was primarily due 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.