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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended November 2, 2002
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Commission File Number 001-31463
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Dick's Sporting Goods, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 16-1241537
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(State or other jurisdiction of (I.R.S. Employer No.)
incorporation or organization)
200 Industry Drive, RIDC Park West, Pittsburgh, Pennsylvania 15275
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (412) 809-0100
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock and Class B Common Stock, respectively
outstanding at December 5, 2002: 12,007,169 and 7,681,008
INDEX TO FORM 10-Q
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statement of Changes in Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
CERTIFICATIONS 19
Page 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dick's Sporting Goods, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Unaudited
(In thousands, except per share data)
13 Weeks Ended 39 Weeks Ended
------------------------- -------------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $290,616 $246,513 $877,375 $734,045
Cost of goods sold, including occupancy
and distribution costs 218,487 185,334 654,853 557,352
-------- -------- -------- --------
GROSS PROFIT 72,129 61,179 222,522 176,693
Selling, general and administrative expenses 64,984 54,234 183,007 149,264
Pre-opening expenses 1,649 2,617 4,861 4,483
-------- -------- -------- --------
INCOME FROM OPERATIONS 5,496 4,328 34,654 22,946
Interest expense 907 1,598 2,647 5,356
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 4,589 2,730 32,007 17,590
Provision for income taxes 1,835 1,092 12,803 7,036
-------- -------- -------- --------
NET INCOME $ 2,754 $ 1,638 $ 19,204 $ 10,554
======== ======== ======== ========
EARNINGS PER COMMON SHARE - BASIC:
Earnings per share $ 0.16 $ 0.10 $ 1.13 $ 0.67
Weighted average common shares outstanding 17,365 16,827 17,006 15,736
EARNINGS PER COMMON SHARE - DILUTED:
Earnings per share $ 0.14 $ 0.08 $ 0.98 $ 0.62
Weighted average common shares outstanding 19,992 19,398 19,512 16,909
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Page 3
Dick's Sporting Goods, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Unaudited
(In thousands)
ASSETS NOVEMBER 2, 2002 FEBRUARY 2, 2002
---------------- ----------------
CURRENT ASSETS:
Cash $ 16,001 $ 8,976
Accounts receivable, net 17,183 14,416
Inventories, net 298,463 202,413
Prepaid expenses and other current assets 6,484 5,243
Deferred income taxes 5,145 5,219
--------- ---------
Total current assets 343,276 236,267
Property and equipment, net 76,853 71,795
Other assets 15,439 14,748
--------- ---------
TOTAL ASSETS $ 435,568 $ 322,810
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 140,258 $ 95,573
Accrued expenses 58,006 47,840
Deferred revenue and other liabilities 13,173 17,958
Income taxes payable -- 5,728
Current portion of long-term debt and capital leases 211 211
--------- ---------
Total current liabilities 211,648 167,310
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LONG-TERM LIABILITIES:
Revolving credit agreement borrowings 98,542 77,073
Long-term debt and capital leases 3,416 3,577
Deferred revenue and other liabilities 12,127 11,745
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Total long-term liabilities 114,085 92,395
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 113 169
Class B common stock 83 --
Additional paid-in capital 124,479 96,279
Accumulated deficit (8,835) (28,039)
Note receivable for common stock (6,196) (6,196)
Accumulated other comprehensive income 191 892
--------- ---------
Total stockholders' equity 109,835 63,105
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 435,568 $ 322,810
========= =========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Page 4
Dick's Sporting Goods, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity
Unaudited
(In thousands)
Note Accumulated
Class B Additional Receivable Other Total
Common Common Paid-In Accumulated for Common Comprehensive Stockholders'
Stock Stock Capital Deficit Stock Income Equity
--------- --------- --------- --------- --------- --------- ---------
Balances at February 2, 2002 $ 169 -- $ 96,279 $ (28,039) $ (6,196) $ 892 $ 63,105
Unrealized loss on securities
available-for-sale, net of
taxes of $378 -- -- -- -- -- (701) (701)
Exchange of common stock
for Class B common stock (83) $ 83 -- -- -- -- --
Sale of common stock in
initial public offering,
net of transaction costs 27 -- 27,908 -- -- -- 27,935
Sale of common stock
under stock option plans -- -- 292 -- -- -- 292
Net income -- -- -- 19,204 -- -- 19,204
--------- --------- --------- --------- --------- --------- ---------
Balances at November 2, 2002 $ 113 $ 83 $ 124,479 $ (8,835) $ (6,196) $ 191 $ 109,835
========= ========= ========= ========= ========= ========= =========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Page 5
Dick's Sporting Goods, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
(In thousands)
39 Weeks Ended
------------------------------
November 2, November 3,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,204 $ 10,554
Adjustments to reconcile net income from operations
to net cash used in operating activities
Depreciation and amortization 10,077 8,115
Deferred income taxes 74 --
Changes in assets and liabilities:
Accounts receivable (2,767) (12,866)
Inventories (96,050) (126,423)
Prepaid expenses and other assets (2,634) (1,464)
Accounts payable 41,106 63,699
Accrued expenses and other 4,438 (1,186)
Deferred revenue and other liabilities (4,508) (2,701)
--------- ---------
Net cash used in continuing operations (31,060) (62,272)
Net cash provided by discontinued operations -- 1,881
--------- ---------
Net cash used in operating activities (31,060) (60,391)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,528) (22,299)
Proceeds from sale-leaseback transactions 5,497 8,439
--------- ---------
Net cash used in investing activities (15,031) (13,860)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (158) (14,633)
Revolving line of credit borrowings, net 21,468 88,361
Proceeds from sale of common stock 30,935 --
Transaction costs for initial public offering (3,000) --
Proceeds from exercise of stock options 292 --
Increase in bank overdraft 3,579 5,046
--------- ---------
Net cash provided by financing activities 53,116 78,774
--------- ---------
NET INCREASE IN CASH 7,025 4,523
CASH, BEGINNING OF PERIOD 8,976 8,279
--------- ---------
CASH, END OF PERIOD $ 16,001 $ 12,802
========= =========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Page 6
Dick's Sporting Goods, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by us, in accordance with the requirements for Form 10-Q and do not
include all the disclosures normally required in annual consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America. Unless otherwise specified, any reference to
year is to our fiscal year and when used in this Form 10-Q and unless the
context otherwise requires, the terms "Dick's," "we," "us" and "our" refer to
Dick's Sporting Goods, Inc. and its subsidiaries.
(2) UNAUDITED INTERIM FINANCIAL DATA
The interim financial information as of November 2, 2002 and for the 13 and 39
weeks ended November 2, 2002 and November 3, 2001 is unaudited and has been
prepared on the same basis as the audited financial statements. In the opinion
of management, such unaudited information includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
interim financial information. This financial information should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in our final prospectus dated October 15, 2002, as filed with the
Securities and Exchange Commission pursuant to Rule 424(b)(4) (File No.
333-96587). Operating results for the 13 and 39 weeks ended November 2, 2002 are
not necessarily indicative of the results that may be expected for the year
ending February 1, 2003 or any other period.
(3) INITIAL PUBLIC OFFERING
During October 2002, we completed an initial public offering of 8,381,320 shares
of common stock, including the underwriters' over-allotment, of which 2,772,000
were sold by us and 5,609,320 were sold by certain of our stockholders. Proceeds
to us, net of $3.0 million in transaction costs, were $27.9 million. The net
proceeds were used to repay outstanding borrowings under our revolving credit
facility.
(4) EARNINGS PER SHARE
Basic earnings per share are based upon the weighted average number of shares
outstanding. Diluted earnings per share are based upon the weighted average
number of shares outstanding plus the incremental shares that would be
outstanding assuming exercise of dilutive stock options and warrants, calculated
by applying the treasury stock method.
We are reporting earnings per share in accordance with accounting principles
generally accepted in the United States of America and are disclosing earnings
per share on a pro-forma basis. The pro-forma amounts assume that the initial
public offering took place at the beginning of the periods presented, and
excludes interest expense on the portion of our revolving credit facility paid
down with the proceeds to us from the initial public offering, and related
income tax effects. The pro-forma results also include an increase in shares for
basic and diluted earnings per share purposes as if the initial public offering
was executed prior to the beginning of the periods presented.
Page 7
The computations for basic and diluted earnings per share are as follows (in
thousands, except for per share amounts):
13 Weeks Ended 39 Weeks Ended
---------------------------- ---------------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
------- ------- ------- -------
Earnings Per Common Share - Basic:
Net income $ 2,754 $ 1,638 $19,204 $10,554
Weighted average common shares
outstanding 17,365 16,827 17,006 15,736
Earnings per common share $ 0.16 $ 0.10 $ 1.13 $ .67
Earnings Per Common Share - Diluted:
Net income $ 2,754 $ 1,638 $19,204 $10,554
Weighted average common shares
outstanding - basic 17,365 16,827 17,006 15,736
Stock options and warrants 2,627 2,571 2,506 1,173
------- ------- ------- -------
Weighted average common shares outstanding 19,992 19,398 19,512 16,909
Earnings per common share $ 0.14 $ 0.08 $ 0.98 $ 0.62
The computations for pro-forma basic and diluted earnings per share are as
follows (in thousands, except for per share amounts):
13 Weeks Ended 39 Weeks Ended
---------------------------- --------------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Pro-Forma Earnings Per Common Share -
Basic:
Pro-forma net income $ 2,863 $ 1,830 $19,577 $11,249
Pro-forma weighted average common
shares outstanding 19,619 19,599 19,606 18,529
Pro-forma earnings per common share $ 0.15 $ 0.09 $ 1.00 $ 0.61
Pro-Forma Earnings Per Common Share -
Diluted:
Pro-forma net income $ 2,863 $ 1,830 $19,577 $11,249
Pro-forma weighted average common
shares outstanding - basic 19,619 19,599 19,606 18,529
Stock options and warrants 2,624 2,595 2,592 3,131
------- ------- ------- -------
Pro-forma weighted average common
shares outstanding 22,243 22,194 22,198 21,660
Pro-forma earnings per common share $ 0.13 $ 0.08 $ 0.88 $ 0.52
Page 8
(5) NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. We do not believe that the adoption of SFAS No. 146 will have a
material impact on our financial position or results of operations.
(6) ACCUMULATED DEFICIT
The interim financial information as of November 2, 2002 and November 3, 2001
includes $63,897 of accretion on previously outstanding redeemable preferred
stock to its redemption value through a charge to accumulated deficit from 1992
to 2000.
(7) COMPREHENSIVE INCOME
39 Weeks Ended
-------------------------------
November 2, November 3,
2002 2001
---------- -----------
Net income $ 19,204 $ 10,554
Other comprehensive income:
Unrealized (loss) gain on securities
available-for-sale, net of taxes of $378 and
$250, respectively (701) 465
-------- --------
Comprehensive income $ 18,503 $ 11,019
======== ========
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
We caution that any forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) contained in this Quarterly
Report on Form 10-Q or made by our management involve risks and uncertainties
and are subject to change based on various important factors, many of which may
be beyond our control. Accordingly, our future performance and financial results
may differ materially from those expressed or implied in any such
forward-looking statements. Accordingly, investors should not place undue
reliance on forward-looking statements as a prediction of actual results. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "intend," "predict" and
"continue" or similar words. Forward-looking statements address, among other
things, our expectations, our growth strategies, including our plans to open new
stores, our efforts to increase profit margins and return on invested capital,
plans to grow our private label business, projections of our future
profitability, results of operations, capital expenditures or our financial
condition or other "forward-looking" information.
The following factors, among others, in some cases have affected and in the
future could affect our financial performance and actual results and could cause
actual results for 2002 and beyond to differ materially from those expressed or
implied in any forward-looking statements included in this report or otherwise
made by our management: the intense competition in 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 our stores; our ability to access
adequate capital; changes in consumer demand; risks relating to product
liability claims and the availability of sufficient insurance coverage relating
to those claims; our relationships with our suppliers, distributors or
manufacturers and their ability to provide us with sufficient quantities of
products; any serious disruption at our distribution or return facility; the
seasonality of our business; the potential impact of natural disasters or
national and international security concerns on us or the retail environment;
risks relating to the regulation of the products we sell, such as hunting
rifles; risks associated with relying on foreign sources of production; risks
relating to implementation of a new management information systems and risks
relating to operational and financial restrictions imposed by our credit
facility; factors associated with our pursuit of strategic acquisitions; the
loss of our key executives, especially Edward W. Stack, our Chairman and Chief
Executive Officer; our ability to meet our labor needs; changes in general
economic and business conditions and in the specialty retail or sporting goods
industry in particular; changes in our business strategies and other factors
discussed under the caption "Risk Factors" contained in our final prospectus
dated October 15, 2002 as filed with the Securities and Exchange Commission
under Rule 424(b)(4) under the Securities Act of 1933.
In addition, we operate in a highly competitive and rapidly changing
environment. Therefore, new risk factors can arise, and it is not possible for
management to predict all such risk factors, nor to assess the impact of all
such risk factors on our business or the extent to which any individual risk
factor, or combination of factors, may cause results to differ materially from
those contained in any forward-looking statement. We do not assume any
obligation to update any forward-looking statements except to the extent
required by the federal securities laws.
OVERVIEW
We are 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. As of November 2, 2002, we operated 141 stores in
25 states throughout the Eastern half of the U.S.
Page 10
RESULTS OF OPERATIONS
The following table sets forth the Company's condensed consolidated statements
of income data as a percent of net sales for the periods indicated:
13 Weeks Ended (1) 39 Weeks Ended (1)
---------------------------- ----------------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, including occupancy and
distribution costs 75.2% 75.2% 74.6% 75.9%
Gross profit 24.8% 24.8% 25.4% 24.1%
Selling, general and administrative expenses 22.4% 22.0% 20.9% 20.3%
Pre-opening expenses 0.6% 1.1% 0.6% 0.6%
Operating income 1.9% 1.7% 3.9% 3.1%
Interest expense 0.3% 0.6% 0.3% 0.7%
Income before income taxes 1.6% 1.1% 3.6% 2.4%
Income taxes 0.6% 0.4% 1.5% 1.0%
Net income 0.9% 0.7% 2.2% 1.4%
(1) due to rounding, columns may not add
13 WEEKS ENDED NOVEMBER 2, 2002 COMPARED TO THE 13 WEEKS ENDED NOVEMBER 3, 2001
Net Sales
Net sales increased by $44.1 million, or 17.9%, to $290.6 million for the 13
weeks ended November 2, 2002, from $246.5 million for the 13 weeks ended
November 3, 2001. This increase resulted from a comparable store sales increase
of $11.4 million, or 5.1%, and $32.7 million in new store sales, which resulted
from the opening of 16 new stores and relocation of three stores in the 39 weeks
ended November 2, 2002, of which seven were opened in the 13 weeks then ended,
and the opening of 14 non-comparable new stores in 2001. The increase in
comparable store sales is mostly attributable to sales increases in the majority
of our merchandise categories with golf, team sports, camping and women's
apparel recording the largest increases. These increases were partially offset
by lower sales of in-line skates, hunting products, and fishing tackle.
Gross Profit
Gross profit increased by $10.9 million, or 17.9%, to $72.1 million for the 13
weeks ended November 2, 2002, from $61.2 million for the 13 weeks ended November
3, 2001. As a percentage of net sales, gross profit remained at 24.8% for both
the 13 weeks ended November 2, 2002 and the 13 weeks ended November 3, 2001. An
improvement in merchandise margin was offset by $1.3 million of expenses
associated with the relocation of two stores one of which was relocated in the
first quarter of this year, the second of which is planned for early next year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $10.8 million to $65.0
million for the 13 weeks ended November 2, 2002 from $54.2 million for the 13
weeks ended November 3, 2001. The dollar increase in these expenses is primarily
attributable to the increased store count and additional personnel to support
our growth. As a percentage of net sales, selling, general and administrative
expenses increased by 0.4% to 22.4% for the 13 weeks ended November 2, 2002 from
22.0% for the 13 weeks ended November 3, 2001. The percentage increase was due
primarily to higher benefit costs and store expenses associated with the rollout
of our scorecard loyalty program.
Page 11
Pre-Opening Expenses
Pre-opening expenses decreased by $1.0 million to $1.6 million for the 13 weeks
ended November 2, 2002 from $2.6 million for the 13 weeks ended November 3,
2001. Pre-opening expenses decreased primarily as a result of the addition of
seven new stores for the 13 weeks ended November 2, 2002 compared to 10 new
stores for the 13 weeks ended November 3, 2001.
Operating Income
Operating income increased by $1.2 million, or 27.0%, to $5.5 million for the 13
weeks ended November 2, 2002 from $4.3 million for the 13 weeks ended November
3, 2001.
Interest Expense
Interest expense decreased by $0.7 million to $0.9 million for the 13 weeks
ended November 2, 2002 from $1.6 million for the 13 weeks ended November 3,
2001. This decrease was due primarily to lower interest rates and lower average
borrowings. All of the net proceeds from our initial public offering of common
stock were used to reduce borrowings under our credit facility during the last
12 days of the 13 weeks ended November 2, 2002.
Income Taxes
Our effective tax rate was 40% in both the 13 weeks ended November 2, 2002 and
the 13 weeks ended November 3, 2001.
Net Income
Net income increased by $1.2 million, or 68.1%, to $2.8 million for the 13 weeks
ended November 2, 2002 from $1.6 million for the 13 weeks ended November 3,
2001.
39 WEEKS ENDED NOVEMBER 2, 2002 COMPARED TO THE 39 WEEKS ENDED NOVEMBER 3, 2001
Net Sales
Net sales increased by $143.3 million, or 19.5%, to $877.4 million for the 39
weeks ended November 2, 2002, from $734.1 million for the 39 weeks ended
November 3, 2001. This increase resulted from a comparable store sales increase
of $34.4 million, or 5.2%, and $108.9 million in new store sales, which resulted
from the opening of 16 new stores and relocation of three stores in the 39 weeks
ended November 2, 2002 and the opening of 19 new stores in 2001. The increase in
comparable store sales is mostly attributable to sales increases in a majority
of our merchandise categories with golf, women's apparel, team sports and
exercise recording the largest increases. These increases were partially offset
by lower sales of in-line skates and fishing tackle.
Gross Profit
Gross profit increased by $45.8 million, or 25.9%, to $222.5 million for the 39
weeks ended November 2, 2002, from $176.7 million for the 39 weeks ended
November 3, 2001. As a percentage of net sales, gross profit increased to 25.4%
for the 39 weeks ended November 2, 2002 from 24.1% for the 39 weeks ended
November 3, 2001. The increase in gross profit percentage was primarily due to
improved merchandise margin, leverage on store occupancy costs and improved
productivity at our distribution center.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $33.7 million to
$183.0 million for the 39 weeks ended November 2, 2002 from $149.3 million for
the 39 weeks ended November 3, 2001. The increase in these expenses is primarily
attributable to the increased store count and additional personnel to support
our growth. As a percentage of net sales, selling, general and administrative
expenses increased by 0.6% to 20.9% for the 39 weeks ended November 2, 2002 from
20.3% for the 39 weeks ended November 3, 2001. The percentage increase was due
primarily to higher benefit costs and store expenses associated with the rollout
of our scorecard loyalty program, as well as continued infrastructure
investments.
Pre-Opening Expenses
Pre-opening expenses increased by $0.4 million to $4.9 million for the 39 weeks
ended November 2, 2002 from $4.5 million for the 39 weeks ended November 3,
2001. We added 16 new stores and relocated three stores during the 39 weeks
ended November 2, 2002 compared to 19 new stores for the 39 weeks ended November
3, 2001.
Page 12
Operating Income
Operating income increased by $11.8 million, or 51.0%, to $34.7 million for the
39 weeks ended November 2, 2002 from $22.9 million for the 39 weeks ended
November 3, 2001.
Interest Expense
Interest expense decreased by $2.8 million to $2.6 million for the 39 weeks
ended November 2, 2002 from $5.4 million for the 39 weeks ended November 3,
2001. This decrease was due to lower interest rates and lower average borrowings
during the 39 week period ended November 2, 2002.
Income Taxes
Our effective tax rate was 40% in both the 39 weeks ended November 2, 2002 and
the 39 weeks ended November 3, 2001.
Net Income
Net income increased by $8.6 million, or 82.0%, to $19.2 million for the 39
weeks ended November 2, 2002 from $10.6 million for the 39 weeks ended November
3, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity and capital requirements are for working capital and
capital expenditures. Working capital consists mainly of merchandise
inventories, which typically reach their peak by the end of the third quarter of
each fiscal year. Capital expenditures primarily relate to new store openings;
existing store expansions, remodels, or relocations; and purchases of equipment
or information technology assets for our stores, distribution facility, and
corporate headquarters.
For the 39 weeks ending November 2, 2002, these capital requirements were
generally funded by internally generated cash, proceeds from fixture leasing and
borrowings from our revolving credit facility. Cash flows from operating,
investing and financing activities for the 39 weeks ending November 2, 2002 and
November 3, 2001 are summarized below.
CASH FLOW ANALYSIS
39 Weeks Ended
---------------------------
November 2, November 3,
2002 2001
----------- -----------
Net cash used in operating activities $(31,060) $(60,391)
Net cash used in investing activities:
Capital expenditures (20,528) (22,299)
Proceeds from sale-leasebacks and fixture leasing 5,497 8,439
-------- --------
Net cash used in investing activities (15,031) (13,860)
Net cash provided by financing activities 53,116 78,774
Net cash used in operating activities was $31.1 million for the 39 weeks ended
November 2, 2002 compared to $60.4 million for the 39 weeks ended November 3,
2001. The largest factors contributing to improvement in cash flow versus last
year are higher net income and a lesser increase in inventories. Net income was
$19.2 million for the 39 weeks ended November 2, 2002, compared to $10.6 million
for the 39 weeks ended November 3, 2001. Inventory turnover increased 4.5% to
2.64 for the 39 weeks ended November 2, 2002, compared to 2.52 for the 39 weeks
ended November 3, 2001.
Net cash used in investing activities was $15.0 million for the 39 weeks ended
November 2, 2002 compared to $13.9 million for the 39 weeks ended November 3,
2001. Capital expenditures were primarily for new stores, relocating existing
stores and purchases of information technology assets.
Net cash provided by financing activities was $53.1 million for the 39 weeks
ended November 2, 2002 compared to $78.8 million for the 39 weeks ended November
3, 2001. In October 2002, pursuant to a registration statement filed with the
Securities and Exchange Commission, a total of 8,381,320 shares of stock,
including the underwriters' over-allotment, were sold to the public, of these,
2,772,000 were sold by us and 5,609,320 were sold by stockholders. Proceeds to
us, net of $3.0 million
Page 13
in transaction costs, were $27.9 million. The net proceeds were used
to repay outstanding borrowings under our revolving credit facility.
This credit facility currently provides for revolving loans in an aggregate
outstanding principal amount of up to $180 million. The actual availability
under our credit facility is limited to the lesser of 70% of our eligible
inventory or 85% of our inventory's liquidation value, in each case net of
specified reserves and less any letters of credit outstanding. Total remaining
borrowing capacity, after subtracting letters of credit as of November 2, 2002
was $72.6 million. Interest on outstanding indebtedness under the credit
facility currently accrues at the lender's prime commercial lending rate or, if
we elect, at the one month LIBOR plus 1.25% based on our current interest
coverage ratio. Our obligations under the credit facility are secured by
interests in substantially all of our assets excluding store and distribution
center equipment and fixtures. The credit facility contains various restrictive
covenants and matures on May 30, 2006. We have used our credit facility to meet
our seasonal working capital requirements and support our growth. Outstanding
principal borrowings under the credit facility were $98.5 and $77.1 million at
November 2, 2002 and February 2, 2002, respectively.
We believe that cash flows from operations and funds available under our credit
facility will be sufficient to satisfy our capital requirements during the next
12 months.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are discussed in our final prospectus filed
October 15, 2002, as filed with the Securities and Exchange Commission pursuant
to Rule 424(b)(3) (File No. 333-96587). In preparing our financial statements,
we made estimates and judgments, which affect the results of our operations and
the value of assets and liabilities we report. Our actual results may differ
from these estimates. We believe that the following summarizes critical
accounting policies, which require significant judgments and estimates in our
preparation of our consolidated financial statements.
Inventory Valuation
We value our inventory using the lower of weighted average cost or market
method. Market price is generally based on the current selling price of the
merchandise. We regularly review inventories to determine if the carrying value
of the inventory exceeds market value and we record a reserve to reduce the
carrying value to its market price, as necessary. Historically, we have rarely
experienced significant occurrences of obsolescence or slow moving inventory.
However, future changes such as customer merchandise preference, unseasonable
weather patterns, or business trends could cause our inventory to be exposed to
obsolescence or slow moving merchandise.
Shrink is accrued as a percentage of merchandise sales based on historical
shrink trends. We perform physical inventories at our stores and distribution
center throughout the year. The reserve for shrink represents an estimate for
shrink for each of our locations since the last physical inventory date through
the reporting date. Estimates by location and in the aggregate are impacted by
internal and external factors and may vary significantly from actual results.
Impairment of Assets
We review long-lived assets whenever events and circumstances indicate that the
carrying value of these assets may not be recoverable based on estimated future
cash flows. Assets are reviewed at the lowest level for which cash flows can be
identified, which is the store level. In determining future cash flows,
significant estimates are made by us with respect to future operating results of
each store over its remaining lease term. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
SEASONALITY
Our business is highly seasonal in nature. Our highest sales and operating
income historically occur during the fourth fiscal quarter, which is due in
part, to the holiday selling season and to our sales of cold weather footwear
and apparel. The fourth quarter generated approximately 32% of our net sales and
approximately 55% of our net income for fiscal 2001. Any decrease in our
fourth quarter sales, whether because of a 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.
Page 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Our primary interest rate risk exposure results from the borrowings under our
revolving credit facility. Our 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 our election. Borrowings under the credit facility
were $98.5 and $77.1 million at November 2, 2002 and February 2, 2002,
respectively. The impact on our annual net income of a hypothetical one
percentage point interest rate change on the average outstanding balances under
our revolving credit facility would be approximately $0.6 million based upon
fiscal 2001 average borrowings.
IMPACT OF INFLATION
We do not believe that inflation has a material impact on our earnings from
operations.
TAX MATTERS
Presently, we do not believe that we have any tax matters that could materially
affect our consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed of the effectiveness of the design and operation of
the company's disclosure controls and procedures, within 90 days of the filing
date of this report. This evaluation was conducted under the supervision and
with the participation of the company's management, including its Chief
Executive Officer and its Chief Financial Officer. Based on that evaluation, the
company's Chief Executive Officer and its Chief Financial Officer concluded that
the company's disclosure controls were effective to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported in
accordance with the rules and forms of the SEC. It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. There have been no significant changes in
the company's internal controls or in other factors that could significantly
affect these controls since the date the controls were evaluated.
Page 15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the initial public offering of our common stock in October
2002:
o we filed a charter amendment which provides for, among other things,
the authorization of the issuance of up to 100,000,000 shares of
common stock, 20,000,000 shares of Class B common stock, and 5,000,000
shares of preferred stock, the rights and preferences of which may be
established from time to time by our board of directors;
o we issued and declared a pre-offering 2.31-for-1 stock split in the
form of a stock dividend (in the amount of 1.31 shares of common stock
for every outstanding share of common stock) to all existing holders
of common stock (where all fractional shares issued in connection with
the dividend were retired)); and
o Edward W. Stack and his relatives (which we refer to collectively as
the "Stack Family") exchanged shares of common stock for shares of
Class B common stock.
This exchange between Dick's and the Stack family occurred on October 14, 2002.
In the exchange, members of the Stack Family exchanged 8,326,653 shares of our
common stock for an equal number of Class B common stock. The sole consideration
to us for the shares of Class B common stock issued were previously owned shares
of our common stock. The Class B common stock was issued in reliance on the
exemption from registration contained in Section 3(a)(9) of the Securities Act
of 1933 for securities exchanged by the issuer with existing stockholders. All
holders receiving shares of Class B common stock were existing common
stockholders of Dick's. There were no underwriters acting on behalf of the
company in connection with the issuance of the Class B common stock and no
commission or remuneration was paid or given directly or indirectly for
soliciting such exchange.
Each share of Class B common stock is convertible at any time, at the option of
the holder, into one share of common stock. Each share of Class B common stock
shall convert automatically into one share of common stock upon any transfer of
beneficial ownership to any persons other than to the following:
- the Stack Family and the estate, guardian, conservator or committee
for any member of the Stack Family;
- any descendant of any member of the Stack Family (which we call a
"Stack Descendant") and their respective estates, guardians,
conservators or committees;
- any Stack Family Controlled Entity; and
- any trustees, in their respective capacities as such, of any Stack
Family Controlled Trust.
A Stack Family Controlled Entity is (i) any not-for-profit corporation if at
least a majority of its board of directors is composed of Stack Family members
and/or Stack Descendants; (ii) any other corporation if at least 80% of the
value of its outstanding equity is owned by Stack Family members and/or Stack
Descendants; (iii) any partnership if at least 80% of the value of its
partnership interests are owned by Stack Family members and/or Stack
Descendants; and (iv) any limited liability or similar company if at least 80%
of the value of the company is owned by Stack Family members and/or Stack
Descendants. A Stack Family Controlled Trust is any trust the primary
beneficiaries of which are members of the Stack Family, Stack Descendants,
spouses of Stack Descendants and their respective estates, guardians,
conservators or committees and/or charitable organizations which if the trust is
a wholly charitable trust, at least 80% of the trustees of such trust consist of
Stack Family members and/or Stack Descendants.
Each share of Class B common stock also converts automatically into one share of
common stock if (i) a person ceases to be any of the specified persons listed
above, other than upon the pledge of such person's shares of Class B common
stock to a financial institution or (ii) on the record date for any meeting of
our stockholders, the aggregate number of shares of Class B common stock
beneficially owned by the Stack Family, Stack Descendants, Stack Family
Controlled Entities and Stack Family Controlled Trusts is less than 2,310,000
shares of Class B common stock (appropriately adjusted for any future stock
splits, dividends, reclassifications, recapitalizations, reverse stock splits or
other similar). If any shares of common stock require registration with or
approval of any governmental authority under any federal or state law before
such shares of common stock may be issued upon conversion, we must cause such
shares to be registered or approved, as the case may be, and use our best
efforts to list the shares to be delivered upon conversion prior to such
delivery upon each national securities exchange upon which the outstanding
common stock is listed at the time of such delivery. Once the shares of the
Class B common stock are converted into shares of common stock, the number of
shares classified as Class B
Page 16
common stock will be reduced and may not be reissued and the number of common
stock shall be increased on a one-for-one basis.
The effects of the modifications on the rights of our common stockholders and
any limitations or qualifications on our common stockholders' rights are more
fully described under the caption "Description of Capital Stock" contained in
our final prospectus dated October 15, 2002 and filed with the Securities and
Exchange Commission under Rule 424(b)(4) under the Securities Act of 1933 (File
No. 333-96587).
On October 21, 2002, we consummated the initial public offering of our common
stock. The managing underwriters were Merrill Lynch & Co., Goldman, Sachs & Co.,
Banc of America Securities LLC and William Blair & Company. The shares of common
stock sold in the offering were registered under the Securities Act of 1933 on a
registration statement (File No. 333-96587) that was declared effective by the
Securities and Exchange Commission on October 15, 2002. Under that registration
statement, we registered an offering of common stock worth up to $200 million. A
total of 8,381,320 shares of common stock were sold in the offering. Of that
amount 2,772,000 shares of common stock were sold by us and 5,609,320 shares of
common stock were sold by certain stockholders (including an aggregate of
1,092,005 shares of common stock sold by those selling stockholders under an
over-allotment option granted to the underwriters). All shares of common stock
in the offering were sold at a price to the public of $12.00 per share. The
offering terminated after the sale and initial public offering of an aggregate
of $100.6 million of the securities registered on the registration statement.
The aggregate gross proceeds from the shares of common stock sold by us was
$30.9 million and the aggregate gross proceeds to the selling stockholders was
$62.6. The estimated aggregate net proceeds to us from the offering was
approximately $27.9 million after deducting an aggregate of $2.3 million in
underwriting discounts and commissions paid to the underwriters for all shares
sold by us, an estimated $0.1 million in expenses paid to or for the
underwriters, and an estimated $2.9 million in other expenses incurred in
connection with the offering. In connection with the offering, we directed the
underwriters to pay a fee of $1.0 million to Peter J. Solomon Company Limited at
the closing of the offering as payment for financial advisory services to us in
connection with the offering.
The net proceeds from the offering were used to reduce the outstanding
borrowings under the revolving credit facility. We intend, subject to compliance
with the terms of the credit facility, to reborrow under the credit facility in
the ordinary course of business for opening new retail stores and general
corporate purposes, including working capital.
None of the discounts, commissions or expenses paid by us as a result of the
offering or any net proceeds received by us were paid, directly or indirectly,
to any of our officers or directors or any of their associates, or to any
persons owning ten percent or more of our outstanding common stock or to any of
our affiliates.
ITEM 5. OTHER INFORMATION
During the quarterly period covered by this filing, our Audit Committee approved
the engagement of Deloitte & Touche, LLP to provide tax consulting and tax
preparation services to us. These services were approved as non-audit services.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
99.1 Certification of Chief Executive Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
b. Reports on 8-K:
None.
Page 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on December 13, 2002 on its
behalf by the undersigned thereunto duly authorized.
DICK'S SPORTING GOODS, INC
By: /s/ EDWARD W. STACK
---------------------
Edward W. Stack,
Chairman of the Board, Chief Executive Officer and Director
By: /s/ MICHAEL F. HINES
----------------------
Michael F. Hines
Chief Administrative Officer and Chief Financial Officer
(principal financial and accounting officer)
Page 18
CERTIFICATIONS
I, Edward W. Stack, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dick's Sporting Goods,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 13, 2002.
/s/ EDWARD W. STACK
- ---------------------
Edward W. Stack,
Chairman of the Board, Chief Executive Officer and Director
Dick's Sporting Goods, Inc.
Page 19
CERTIFICATIONS
I, Michael F. Hines, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dick's Sporting Goods,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 13, 2002.
/s/ MICHAEL F. HINES
- ----------------------------
Michael F. Hines
Chief Administrative Officer and Chief Financial Officer
Dick's Sporting Goods, Inc.
Page 20