NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Operations
DICK’S Sporting Goods, Inc. (together with its subsidiaries, referred to as “the Company”, “we”, “us” and “our” unless specified otherwise) is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through its dedicated teammates, in-store services and unique specialty shop-in-shops. The Company also owns and operates Golf Galaxy and Field & Stream stores, as well as GameChanger, a youth sports mobile app used for scheduling, communications and live scorekeeping. The Company offers its products through a content-rich eCommerce platform that is integrated with its store network and provides athletes with the convenience and expertise of a 24-hour storefront.
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to the end of January. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal years 2019, 2018 and 2017 ended on February 1, 2020, February 2, 2019 and February 3, 2018, respectively. All fiscal years presented include 52 weeks of operations except fiscal 2017, which included 53 weeks.
Principles of Consolidation
The Consolidated Financial Statements include DICK’S Sporting Goods, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to prior year amounts within the Consolidated Balance Sheets and Statements of Cash Flows to conform to the current year presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and all highly liquid instruments purchased with a maturity of three months or less at the date of purchase. At February 1, 2020, the Company held only cash. At February 2, 2019, the Company held cash equivalents of approximately $33.8 million that were valued as Level 1 investments.
Cash Management
The Company’s cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at February 1, 2020 and February 2, 2019 include $54.0 million and $36.4 million, respectively, of checks drawn in excess of cash balances not yet presented for payment.
Accounts Receivable
Accounts receivable consist principally of amounts due from vendors and landlords. The Company’s allowance for doubtful accounts totaled $3.0 million at both February 1, 2020 and February 2, 2019.
Inventories
Inventories are stated at the lower of weighted average cost and net realizable value. Inventory costs consist of the direct cost of merchandise including freight. Inventories are net of shrinkage, obsolescence, other valuation accounts and vendor allowances totaling $131.7 million and $113.3 million at February 1, 2020 and February 2, 2019, respectively.
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Property and Equipment
Property and equipment are recorded at cost and include finance leases. Renewals and betterments are capitalized. Repairs and maintenance are expensed as incurred.
Depreciation is computed using the straight-line method over the following estimated useful lives:
|
|
|
|
|
|
|
|
|
Buildings
|
|
40 years
|
Leasehold improvements
|
|
10-25 years
|
Furniture, fixtures and equipment
|
|
3-7 years
|
Computer software
|
|
3-10 years
|
For leasehold improvements and property and equipment under finance lease agreements, depreciation is calculated using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term. Leasehold improvements made after lease commencement are depreciated over the shorter of their estimated useful lives or the remaining lease term, including renewal periods, if reasonably assured. The Company recognized depreciation expense of $307.2 million, $285.8 million and $273.7 million, respectively, or $249.1 million, $223.2 million and $214.9 million in fiscal 2019, 2018 and 2017, respectively, net of tenant allowances.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets and assesses whether the carrying values have been impaired whenever events and circumstances indicate that the carrying value of these assets may not be recoverable based on estimated undiscounted future cash flows. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus eventual net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value as determined based on quoted market prices or through the use of other valuation techniques. The related impairment expense is recorded within selling, general and administrative expenses on the Consolidated Statements of Income.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired entities. The Company assesses the carrying value of goodwill annually or whenever circumstances indicate that a decline in value may have occurred.
The Company’s goodwill impairment test compares the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using a combination of the income approach, by using a discounted cash flow model, and a market value approach. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment charge to selling, general and administrative expenses is recorded to reduce the carrying value to the fair value. A reporting unit is the operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by management.
Intangible Assets
Intangible assets consist of both indefinite-lived and finite-lived assets. A majority of the Company’s intangible assets are indefinite-lived, consisting primarily of trademarks and acquired trade names, which the Company tests annually for impairment or whenever circumstances indicate that a decline in value may have occurred using Level 3 inputs. The Company estimates the fair value of these intangible assets based on an income approach using the relief-from-royalty method.
The Company’s finite-lived intangible assets consist primarily of customer lists and other acquisition-related assets. Finite-lived intangible assets are amortized over their estimated useful economic lives and are reviewed for impairment when factors indicate that an impairment may have occurred. The Company recognizes an impairment charge when the estimated fair value of the intangible asset is less than its carrying value.
Self-Insurance
The Company is self-insured for certain losses related to health, workers' compensation and general liability insurance, although we maintain stop-loss coverage with third-party insurers to limit our liability exposure. Liabilities associated with these losses are estimated in part by considering historical claims experience, industry factors, severity factors and other actuarial assumptions.
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|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Pre-opening Expenses
Pre-opening expenses, which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Rent is recognized within pre-opening expense from the date the Company takes possession of a site through the date of store opening.
Earnings Per Common Share
Basic earnings per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number of shares of common stock, plus the effect of dilutive potential common shares outstanding during the period, using the treasury stock method. Dilutive potential common shares include outstanding stock options, restricted shares of common stock, restricted stock units and warrants.
Stock-Based Compensation
The Company has the ability to grant restricted shares of common stock, restricted stock units and stock options to purchase common stock under the DICK’S Sporting Goods, Inc. 2012 Stock and Incentive Plan, as Amended and Restated (the “2012 Plan”). The Company records stock-based compensation expenses based on the fair value of stock awards at the grant date and recognizes the expense over the employees’ service periods.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes and provides deferred income taxes for temporary differences between the amounts reported for assets and liabilities for financial statement purposes and for income tax reporting purposes, using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Consolidated Financial Statements from such a position are measured based on the largest benefit that will more likely than not be realized upon ultimate settlement. Interest and penalties from income tax matters are recognized in income tax expense.
Revenue Recognition
Sales Transactions
Revenue is recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer and is measured as the amount of consideration to which the Company expects to be entitled to in exchange for corresponding goods or services. Substantially all of the Company’s sales are single performance obligation arrangements for retail sale transactions for which the transaction price is equivalent to the stated price of the product or service, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product or service at the point of sale. Revenue from retail sales is recognized at the point of sale. Sales tax amounts collected from customers that are assessed by a governmental authority are excluded from revenue.
Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. Shipping and handling activities occurring subsequent to the transfer of control to the customer are accounted for as fulfillment costs rather than as a promised service. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
Deferred Revenue
Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. These cards have no expiration date. Income from unredeemed cards is recognized on the Consolidated Statements of Income within net sales in proportion to the pattern of rights exercised by the customer in future periods. The Company performs an evaluation of historical redemption patterns from the date of original issuance to estimate future period redemption activity. During the fiscal years ended February 1, 2020 and February 2, 2019, the Company recognized $17.4 million and $13.6 million of gift card breakage revenue, respectively, and experienced approximately $82.0 million and $81.9 million of gift card redemptions that were included in its gift card liability as of February 2, 2019 and February 3, 2018, respectively. Based on the Company’s historical experience, the majority of gift card revenue is recognized within twelve months of deferral.
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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|
Loyalty program points are accrued at the estimated retail value per point, net of estimated breakage. The Company estimates the breakage of loyalty points based on historical redemption rates experienced within the loyalty program. Based on the Company’s customer loyalty program policies, the majority of program points earned are redeemed or expire within twelve months. See Note 7–Deferred Revenue and Other Liabilities for additional information regarding the amount of these liabilities at February 1, 2020 and February 2, 2019.
Net sales by category
The following table disaggregates the amount of net sales attributable to hardlines, apparel and footwear for the periods presented (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Hardlines (1)
|
$
|
3,695.2
|
|
|
$
|
3,632.1
|
|
|
$
|
3,887.0
|
|
Apparel
|
3,109.0
|
|
|
2,962.4
|
|
|
2,920.3
|
|
Footwear
|
1,811.4
|
|
|
1,719.5
|
|
|
1,694.6
|
|
Other (2)
|
135.1
|
|
|
122.6
|
|
|
88.6
|
|
Total net sales
|
$
|
8,750.7
|
|
|
$
|
8,436.6
|
|
|
$
|
8,590.5
|
|
|
|
|
|
|
|
1.Includes items such as sporting goods equipment, fitness equipment, golf equipment and hunting and fishing gear.
2.Includes the Company’s non-merchandise sales categories, including in-store services, shipping revenues and credit card processing revenues.
Cost of Goods Sold
Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost or net realizable value); freight; distribution; shipping; and store occupancy costs. The Company defines merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with the Company’s internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating the Company’s Customer Support Center (“CSC”).
Advertising Costs
Production costs for all forms of advertising and the costs to run the advertisements are expensed the first time the advertisement takes place. Advertising expense, net of cooperative advertising, was $338.7 million, $322.2 million and $330.1 million for fiscal 2019, 2018 and 2017, respectively.
Business Development Allowances
Business development allowances include allowances, rebates and cooperative advertising funds received from vendors. These funds are determined for each fiscal year and the majority are based on various quantitative contract terms. Amounts expected to be received from vendors for the purchase of merchandise inventories (“vendor allowances”) are recognized as a reduction of cost of goods sold as the merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as advertising (“cooperative advertising”), are recorded as a reduction to the related expense in the period that the related expense is incurred. The Company records an estimate of earned allowances based on the latest projected purchase volumes and advertising forecasts.
Segment Information
The Company is a specialty omni-channel retailer that offers a broad range of products in its specialty retail stores, which are primarily located in the eastern United States. Given the economic characteristics of the store formats, the similar nature of the products sold, the type of customer and method of distribution, the Company’s operating segments are aggregated within one reportable segment. Refer to Revenue Recognition within this Note for additional disclosure of net sales by merchandise category.
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|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Construction Allowances
All of the Company’s store locations are leased. The Company may receive reimbursement from a landlord for some of the cost of the structure, subject to satisfactory fulfillment of applicable lease provisions. These reimbursements may be referred to as tenant allowances, construction allowances or landlord reimbursements (“construction allowances”).
The Company’s accounting for construction allowances differs if the Company is deemed to have control of the underlying asset prior to commencement of the lease. In instances when the Company is not deemed to have control of the underlying asset prior to lease commencement, reimbursement from a landlord for tenant improvements is classified as a lease incentive and included as a reduction to the related operating lease asset on the Consolidated Balance Sheets. The incentive is amortized as part of operating lease expense on a straight-line basis over the term of the lease. Landlord reimbursements from these transactions are included in cash flows from operating activities as a change in deferred construction allowances.
In cases where the Company is deemed to have control of the underlying asset prior to lease commencement, a sale and leaseback of the asset occurs when construction of the asset is complete and the lease term begins, if relevant sale-leaseback accounting criteria are met. Any gain or loss from the transaction is included within deferred revenue and other liabilities on the Consolidated Balance Sheets and deferred and amortized as rent expense on a straight-line basis over the term of the lease. The Company reports the amount of cash received for the construction allowance as construction allowance receipts within the financing activities section of its Consolidated Statements of Cash Flows when such allowances are received prior to completion of the sale-leaseback transaction. The Company reports the amount of cash received from construction allowances as proceeds from sale leaseback transactions within the investing activities section of its Consolidated Statements of Cash Flows when such amounts are received after the sale-leaseback accounting criteria have been achieved.
Leases
The Company determines whether a contract is or contains a lease at contract inception. Beginning in fiscal 2019, operating lease assets and operating lease liabilities are recognized at the lease’s commencement date based on the present value of remaining fixed lease payments over the lease term. As the rate implicit in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at a lease’s commencement date to determine the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The operating lease asset also includes any fixed lease payments made, net of lease incentives, and incurred initial direct costs.
Operating lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred and may include certain index-based changes in rent and other non-fixed payments for services provided by the lessor. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company’s leases do not contain any material residual guarantees or material restrictive covenants.
Recently Adopted Accounting Pronouncements and Transition
Revenue Recognition
On February 4, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 (“Topic 606”) using the modified retrospective approach for all contracts not completed as of the adoption date. Financial results for reporting periods beginning after February 3, 2018 are presented in accordance with Topic 606, while prior periods will continue to be reported in accordance with our pre-adoption accounting policies. Accordingly, the fiscal 2017 financial statements have not been adjusted to conform to Topic 606.
The primary impact to the Company’s accounting policies of adopting Topic 606 relates to the timing of revenue recognition for gift card breakage. Gift card breakage prior to adoption was recognized at the point gift card redemption was deemed remote. As a result of the adoption of Topic 606, the Company recognizes gift card breakage over time in proportion to the pattern of rights exercised by the customer. This change in accounting policy was accounted for through a cumulative effect adjustment to increase beginning retained earnings during the first quarter of fiscal 2018. The Company reclassified $27.7 million from deferred revenue and other liabilities resulting in a cumulative effect adjustment of $20.5 million, net of tax, to retained earnings on the Company’s Consolidated Balance Sheets and Consolidated Statement of Changes in Stockholders’ Equity. Additionally, the adoption of Topic 606 resulted in insignificant financial statement presentation reclassifications related to our customer loyalty program and our sales return reserve.
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|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
In addition, the Company elected the practical expedient within Topic 606 related to sales taxes that are assessed by a governmental authority, which allows for the exclusion of sales tax from the transaction price. The Company also elected the practical expedient within Topic 606 related to shipping and handling costs, which allows for shipping and handling activities occurring subsequent to the transfer of control to the customer to be accounted for as fulfillment costs rather than a promised service.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), which required an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about an entity’s leasing arrangements. ASU 2016-02 was effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which affected certain aspects of the previously issued guidance. Amendments included an additional transition option that allowed entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors.
On February 3, 2019, the Company adopted ASU 2016-02 and all related amendments using the optional transition method and elected the package of practical expedients permitted under the transition guidance within the new standard. Such election allowed the Company to not reassess whether any expired or existing contracts are or contain leases, not to reassess the lease classification for any expired or existing leases, and not to reassess initial direct costs for any existing leases. The Company also elected the practical expedient related to land easements. The Company did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date.
The Company has lease agreements with non-lease components that relate to the lease components and elected the practical expedient to account for non-lease components, and the lease components to which they relate, as a single lease component for all classes of underlying assets. The Company also elected to keep short-term leases with an initial term of 12 months or less off the Consolidated Balance Sheet.
Adoption of these standards did not materially affect our consolidated net income or cash flows, but resulted in the recognition of $2.5 billion of lease assets and $3.1 billion of lease liabilities as of February 3, 2019. In connection with the adoption, pre-existing liabilities for deferred rent and various lease incentives were reclassified as a component of the lease assets. Accordingly, the Company recorded an $8.0 million adjustment to opening retained earnings, primarily resulting from the impairment of lease assets recognized at adoption. Refer to Note 9–Leases for additional information.
Recently Issued Accounting Pronouncements
Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This update simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impacts of adoption on the Company’s Consolidated Financial Statements.
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Management does not expect that the adoption of this guidance will have a significant impact on the Company’s Consolidated Financial Statements.
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|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
2. Earnings per Common Share
The computations for basic and diluted earnings per common share are as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Earnings per common share - Basic:
|
|
|
|
|
|
Net income
|
$
|
297,462
|
|
|
$
|
319,864
|
|
|
$
|
323,445
|
|
Weighted average common shares outstanding - basic
|
87,502
|
|
|
97,743
|
|
|
106,977
|
|
Earnings per common share
|
$
|
3.40
|
|
|
$
|
3.27
|
|
|
$
|
3.02
|
|
Earnings per common share - Diluted:
|
|
|
|
|
|
Net income
|
$
|
297,462
|
|
|
$
|
319,864
|
|
|
$
|
323,445
|
|
Weighted average common shares outstanding - basic
|
87,502
|
|
|
97,743
|
|
|
106,977
|
|
Dilutive effect of stock-based awards
|
1,564
|
|
|
1,038
|
|
|
609
|
|
Weighted average common shares outstanding - diluted
|
89,066
|
|
|
98,781
|
|
|
107,586
|
|
Earnings per common share
|
$
|
3.34
|
|
|
$
|
3.24
|
|
|
$
|
3.01
|
|
|
|
|
|
|
|
Anti-dilutive stock-based awards excluded from diluted calculation
|
2,990
|
|
|
3,519
|
|
|
3,693
|
|
3. Property and Equipment
Property and equipment are recorded at cost and consist of the following as of the end of the fiscal periods presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Buildings and land
|
$
|
322,618
|
|
|
$
|
320,243
|
|
Leasehold improvements
|
1,671,782
|
|
|
1,613,663
|
|
Furniture, fixtures and equipment
|
1,148,670
|
|
|
1,172,380
|
|
Computer software
|
424,584
|
|
|
393,535
|
|
Total property and equipment
|
3,567,654
|
|
|
3,499,821
|
|
Less: accumulated depreciation and amortization
|
(2,151,926)
|
|
|
(1,934,550)
|
|
Net property and equipment
|
$
|
1,415,728
|
|
|
$
|
1,565,271
|
|
|
|
|
|
The amounts above include construction in progress of $44.7 million and $74.3 million for fiscal 2019 and 2018, respectively.
4. Goodwill and Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill, which is reported net of $111.3 million in accumulated impairments in each period, for the fiscal periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Goodwill, balance at beginning of year
|
$
|
250,476
|
|
|
|
|
$
|
250,476
|
|
|
|
Sale of subsidiaries
|
(4,619)
|
|
|
|
|
—
|
|
|
|
Goodwill, balance at end of year
|
$
|
245,857
|
|
|
|
|
$
|
250,476
|
|
|
|
|
|
|
|
|
|
|
|
No impairment charges were recorded against goodwill in fiscal 2019, 2018 or 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Intangible Assets
The components of intangible assets were as follows as of the end of the fiscal years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Gross Amount
|
|
Accumulated Amortization
|
Trademarks (indefinite-lived)
|
$
|
60,910
|
|
|
$
|
—
|
|
|
$
|
89,206
|
|
|
$
|
—
|
|
Trade names (indefinite-lived)
|
15,660
|
|
|
—
|
|
|
16,031
|
|
|
—
|
|
Customer lists
|
18,195
|
|
|
(9,176)
|
|
|
21,166
|
|
|
(7,774)
|
|
Acquired technology and other finite-lived intangible assets
|
20,634
|
|
|
(17,551)
|
|
|
26,901
|
|
|
(21,160)
|
|
Other indefinite-lived intangible assets
|
6,096
|
|
|
—
|
|
|
5,796
|
|
|
—
|
|
Total intangible assets
|
$
|
121,495
|
|
|
$
|
(26,727)
|
|
|
$
|
159,100
|
|
|
$
|
(28,934)
|
|
|
|
|
|
|
|
|
|
The Company had indefinite-lived and finite-lived intangible assets, net of accumulated amortization, of $82.7 million and $12.1 million, respectively, as of February 1, 2020 and $111.0 million and $19.1 million, respectively, as of February 2, 2019. In connection with the Company’s hunt restructuring, which is described further in Note 15–Fair Value Measurements, the Company recorded a $28.3 million non-cash impairment charge to reduce the carrying value of a trademark associated with its hunting business to its estimated fair value. The impairment charge is included within selling, general and administrative expenses on the Consolidated Statement of Income.
In connection with the sale of two of its technology subsidiaries in the third quarter of fiscal 2019, the Company disposed of goodwill and intangible assets, net of accumulated amortization, of $4.6 million and $2.1 million, respectively. See Note 5–Sale of Subsidiaries for additional details.
Amortization of the Company’s finite-lived intangible assets was $5.3 million in fiscal 2019 and $6.4 million in each of fiscal 2018 and 2017.
The Company expects to recognize amortization expense on existing finite-lived intangible assets over the next five years as follows (in thousands):
|
|
|
|
|
|
Fiscal Year
|
Estimated Amortization Expense
|
2020
|
$
|
4,209
|
|
2021
|
3,684
|
|
2022
|
2,474
|
|
2023
|
1,544
|
|
2024
|
191
|
|
|
|
Total
|
$
|
12,102
|
|
5. Sale of Subsidiaries
On August 22, 2019, the Company sold two of its technology subsidiaries, Blue Sombrero and Affinity Sports, to Stack Sports for $45.0 million, or proceeds of $40.4 million, net of cash sold. In connection with the sale, the Company entered into a long-term strategic partnership agreement pursuant to which it will serve as the official retailer of Stack Sports. Stack Sports has no affiliation with Edward W. Stack, the Company’s Chairman and Chief Executive Officer. The sale resulted in a pre-tax gain of $33.8 million, which is included in gain on sale of subsidiaries in the Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
6. Accrued Expenses
Accrued expenses consist of the following as of the end of the fiscal periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Accrued payroll, withholdings and benefits
|
$
|
203,200
|
|
|
$
|
166,039
|
|
Accrued real estate taxes, utilities and other occupancy costs
|
67,354
|
|
|
72,727
|
|
Accrued property and equipment
|
32,756
|
|
|
19,094
|
|
Accrued sales tax
|
21,214
|
|
|
18,576
|
|
Other
|
90,977
|
|
|
87,906
|
|
Total accrued expenses
|
$
|
415,501
|
|
|
$
|
364,342
|
|
|
|
|
|
7. Deferred Revenue and Other Liabilities
Deferred revenue and other liabilities consist of the following as of the end of the fiscal periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Current:
|
|
|
|
Deferred gift card revenue
|
$
|
159,417
|
|
|
$
|
156,457
|
|
Customer loyalty program
|
32,955
|
|
|
32,367
|
|
Term loan
|
—
|
|
|
4,523
|
|
Other
|
33,587
|
|
|
36,900
|
|
Total current deferred revenue and other liabilities
|
$
|
225,959
|
|
|
$
|
230,247
|
|
Long-term:
|
|
|
|
Deferred construction allowances
|
$
|
—
|
|
|
$
|
505,767
|
|
Deferred rent, including pre-opening rent
|
—
|
|
|
98,808
|
|
Deferred compensation
|
99,686
|
|
|
77,324
|
|
|
|
|
|
Term loan
|
—
|
|
|
51,562
|
|
Other
|
34,169
|
|
|
33,112
|
|
Total other long-term liabilities
|
$
|
133,855
|
|
|
$
|
766,573
|
|
|
|
|
|
Adoption of ASU 2016-02
As discussed in Note 1, the Company adopted ASU 2016-02 and all related amendments on the first day of fiscal 2019. In connection with the adoption, deferred construction allowances, deferred rent and other lease-related balances were reclassified as a component of the operating lease assets.
Term Loan
On August 18, 2017, the Company financed the purchase of a corporate aircraft through a loan with Bank of America Leasing & Capital, LLC (“BOA”) with a fixed interest rate of 3.41% payable in increments of $4.5 million annually through December 2024 and a balloon payment of $29.3 million (the “BOA Loan”) at maturity. In connection with the Company’s sale of the related aircraft in the fourth fiscal quarter of 2019, the BOA Loan was repaid in full without a prepayment penalty.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
8. Revolving Credit Facility
On June 28, 2019, the Company amended its existing $1.25 billion senior secured revolving credit facility to extend the maturity date to June 28, 2024 and increase the borrowing capacity to $1.6 billion, which includes a maximum amount of $150.0 million to be issued in the form of letters of credit (the “Credit Facility”). The Credit Facility allows the Company, upon the satisfaction of certain conditions, to request an increase of up to $500.0 million in borrowing availability, subject to existing or new lenders agreeing to provide such additional revolving commitments. The Credit Facility is secured by a first priority security interest in certain property and assets, including receivables, inventory, deposit accounts, securities accounts and other personal property of the Company and is guaranteed by the Company’s domestic subsidiaries.
The annual interest rates applicable to loans under the Credit Facility are equal to, at the Company’s option, a base rate or an adjusted LIBOR rate plus, in each case, an applicable margin percentage. The applicable margin percentage for base rate loans is 0.125% to 0.375% and for adjusted LIBOR rate loans is 1.125% to 1.375%, depending on the Company’s borrowing availability.
The Credit Facility contains a covenant that requires the Company to maintain a minimum adjusted availability of 7.5% of its borrowing base. The Credit Facility also contains certain covenants that could, within specific predefined circumstances, limit the Company’s ability to, among other things: incur or guarantee additional indebtedness; pay distributions on, redeem or repurchase capital stock; redeem or repurchase subordinated debt; make certain investments; sell assets; or consolidate, merge or transfer all or substantially all of the Company’s assets. Other than in certain limited conditions, the Company is permitted under the Credit Facility to continue to pay dividends and repurchase shares pursuant to its stock repurchase program. As of February 1, 2020, the Company was in compliance with the terms of the Credit Facility.
The table below presents selected Credit Facility information as of the end of the following fiscal years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Outstanding borrowings under Credit Facility
|
$
|
224,100
|
|
|
$
|
—
|
|
Remaining borrowing capacity under Credit Facility
|
$
|
1,359,769
|
|
|
$
|
1,233,869
|
|
Outstanding letters of credit under Credit Facility
|
$
|
16,131
|
|
|
$
|
16,131
|
|
9. Leases
The Company leases all of its stores, three of its distribution centers and certain equipment under non-cancellable operating leases that expire at various dates through 2033. The Company’s stores generally have initial lease terms of 10 to 15 years and contain multiple five-year renewal options and rent escalation provisions. The lease agreements provide primarily for the payment of minimum annual rentals, costs of utilities, property taxes, maintenance, common areas and insurance.
The components of lease cost for the current fiscal year were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
Operating lease cost
|
|
$
|
590,381
|
|
|
|
|
Short-term lease cost
|
|
7,579
|
|
|
|
|
Variable lease cost
|
|
119,452
|
|
|
|
|
Sublease income
|
|
(5,135)
|
|
|
|
|
Total lease cost
|
|
$
|
712,277
|
|
|
|
|
|
|
|
|
|
|
Prior to the adoption of ASU 2016-02, Leases (Topic 842), rent expense under operating leases totaled $530.9 million and $532.7 million in fiscal 2018 and fiscal 2017, respectively.
Supplemental cash flow information related to operating leases for fiscal 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
655,679
|
|
Non-cash operating lease assets and liabilities obtained in exchange for new or modified leases
|
|
$
|
244,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Supplemental balance sheet information related to operating leases as of February 1, 2020 were as follows:
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term for operating leases
|
|
6.71 years
|
Weighted average discount rate for operating leases
|
|
6.57
|
%
|
Future maturities of operating lease liabilities as of February 1, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
652,337
|
|
|
|
|
|
|
|
2021
|
|
623,352
|
|
|
|
|
|
|
|
2022
|
|
566,596
|
|
|
|
|
|
|
|
2023
|
|
486,424
|
|
|
|
|
|
|
|
2024
|
|
389,918
|
|
|
|
|
|
|
|
Thereafter
|
|
843,469
|
|
|
|
|
|
|
|
Total future undiscounted lease payments
|
|
3,562,096
|
|
|
|
|
|
|
|
Less: imputed interest
|
|
(685,780)
|
|
|
|
|
|
|
|
Total reported lease liability
|
|
$
|
2,876,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has entered into operating leases, primarily related to future store locations, that have not yet commenced. As of February 1, 2020, the future minimum payments on these leases approximated $152.8 million.
The Company acts as sublessor on several operating leases. As of February 1, 2020, total future minimum rentals under non-cancellable subleases approximated $56.9 million.
10. Stockholders' Equity
Common Stock, Class B Common Stock and Preferred Stock
The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of 200,000,000 shares of common stock, par value $0.01 per share, and the issuance of 40,000,000 shares of Class B common stock, par value $0.01 per share. In addition, the Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock.
Holders of common stock generally have rights identical to holders of Class B common stock, except that holders of common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share. A related party, relatives of the related party and their trusts hold all outstanding Class B common stock, which can only be held by members of this group. Class B common shares are not publicly tradable. Each share of Class B common stock can be converted at any time into one share of common stock at the holder’s option.
Dividends per Common Share
The Company declared and paid aggregate cash dividends of $1.10, $0.90 and $0.68 per share of common stock and Class B common stock during fiscal 2019, 2018 and 2017, respectively.
Treasury Stock
The Company’s Board of Directors authorized a five-year $1 billion share repurchase program on March 16, 2016 (the “2016 program”). The Company repurchased shares under the 2016 program as follows for the fiscal years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Shares of common stock repurchased
|
11,052
|
|
9,572
|
|
8,122
|
Cash paid for treasury stock
|
$
|
402,240
|
|
|
$
|
323,352
|
|
|
$
|
284,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
As of February 1, 2020, the Company had $31.2 million remaining under the 2016 program.
On June 12, 2019, the Company’s Board of Directors authorized an additional five-year share repurchase program of up to $1.0 billion of its common stock. The Company has not repurchased any shares under this program to date.
11. Income Taxes
Recent Legislation
On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”), which, among other things lowered the U.S. corporate statutory income tax rate from 35% to 21%, eliminated certain deductible items and added other deductible items for corporations, imposed a tax on unrepatriated foreign earnings and eliminated U.S. taxes on most future foreign earnings. As a result of the Tax Act, the Company recorded a provisional income tax charge of $6.0 million in fiscal 2017 related to the deemed repatriation of accumulated but undistributed earnings of foreign operations and a provisional income tax benefit of $5.3 million related to the re-measurement of the Company’s net deferred tax liability. The tax owed on the Company’s deemed repatriation resulting from the Tax Act is payable in uneven annual installments through 2025. Accordingly, $4.7 million of the tax on undistributed foreign earnings not payable within the next 12 months is presented within other long-term liabilities on the Consolidated Balance Sheet. Additionally, the Tax Act includes a provision designed to tax Global Intangible Low Tax Income (“GILTI”) earned by non-U.S. corporate subsidiaries of large U.S. shareholders starting in 2018. The Company has elected to account for any future GILTI tax liabilities as period costs and will expense those liabilities in the period incurred.
Provision for Income Taxes
The components of the provision for income taxes are as follows for the fiscal years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
87,263
|
|
|
$
|
94,729
|
|
|
$
|
114,443
|
|
State
|
24,139
|
|
|
22,585
|
|
|
20,996
|
|
Total current provision
|
111,402
|
|
|
117,314
|
|
|
135,439
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(606)
|
|
|
(3,943)
|
|
|
38,805
|
|
State
|
(554)
|
|
|
(1,315)
|
|
|
3,648
|
|
Total deferred provision
|
(1,160)
|
|
|
(5,258)
|
|
|
42,453
|
|
Total provision
|
$
|
110,242
|
|
|
$
|
112,056
|
|
|
$
|
177,892
|
|
|
|
|
|
|
|
The Company’s effective income tax rate differs from the federal statutory rate as follows for the fiscal years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Federal statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
33.7
|
%
|
State tax, net of federal benefit
|
4.6
|
%
|
|
3.8
|
%
|
|
3.3
|
%
|
Valuation allowance
|
—
|
%
|
|
—
|
%
|
|
(0.8)
|
%
|
Other permanent items
|
1.4
|
%
|
|
1.1
|
%
|
|
(0.7)
|
%
|
Effective income tax rate
|
27.0
|
%
|
|
25.9
|
%
|
|
35.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Components of deferred tax assets (liabilities) consist of the following as of the end of the fiscal years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Operating lease liabilities
|
$
|
756,660
|
|
|
$
|
—
|
|
Inventory
|
43,499
|
|
|
35,487
|
|
Employee benefits
|
38,554
|
|
|
33,591
|
|
Deferred rent
|
—
|
|
|
27,648
|
|
Stock-based compensation
|
19,494
|
|
|
19,005
|
|
Gift cards
|
14,044
|
|
|
14,458
|
|
Deferred revenue currently taxable
|
2,450
|
|
|
7,263
|
|
Store closing expense
|
119
|
|
|
1,178
|
|
Other accrued expenses not currently deductible for tax purposes
|
6,343
|
|
|
5,895
|
|
Net operating loss carryforward
|
1,207
|
|
|
2,056
|
|
Non income-based tax reserves
|
3,675
|
|
|
5,464
|
|
Capital loss carryforward
|
922
|
|
|
922
|
|
Uncertain income tax positions
|
905
|
|
|
1,218
|
|
Insurance
|
2,175
|
|
|
2,298
|
|
Other
|
924
|
|
|
120
|
|
Total deferred tax assets
|
890,971
|
|
|
156,603
|
|
Operating lease assets
|
(597,553)
|
|
|
—
|
|
Property and equipment
|
(232,832)
|
|
|
(115,726)
|
|
Inventory valuation
|
(40,049)
|
|
|
(26,871)
|
|
Intangibles
|
(7,518)
|
|
|
(5,068)
|
|
Prepaid expenses
|
(3,928)
|
|
|
(3,723)
|
|
Other
|
(3,866)
|
|
|
(3,748)
|
|
Total deferred tax liabilities
|
(885,746)
|
|
|
(155,136)
|
|
Net deferred tax asset
|
$
|
5,225
|
|
|
$
|
1,467
|
|
|
|
|
|
The deferred tax asset from net operating loss carryforwards of $1.2 million represents approximately $2.8 million of federal net operating losses, which expire in 2036, and $9.9 million of state net operating losses, which expire in 2034. In 2019, of the $5.2 million net deferred tax asset, approximately $14.4 million is included within other long-term assets and approximately $9.2 million is included within other long-term liabilities on the Consolidated Balance Sheet. In 2018, of the $1.5 million net deferred tax asset, $13.2 million was included within other long-term assets and $11.8 million was included within other long-term liabilities.
The Company does not provide for deferred taxes on the excess of the financial reporting basis over the tax basis related to its investments in foreign subsidiaries. It is the Company’s intention to permanently reinvest the earnings from foreign subsidiaries outside the United States. Under the Tax Act, the associated transition tax resulted in the elimination of the excess of the amount of financial reporting basis over the tax basis in the foreign subsidiaries and subjected $66.6 million of undistributed foreign earnings to tax. An actual repatriation from the Company’s international subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. The Company does not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs and accordingly does not provide for foreign withholding taxes and U.S. state taxes.
As of February 1, 2020, the Company’s total liability for uncertain tax positions, including related interest and penalties, was approximately $4.3 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Unrecognized Tax Benefits
The following table provides a reconciliation of the Company’s total balance of unrecognized tax benefits, excluding interest and penalties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Beginning of fiscal year
|
$
|
4,318
|
|
|
$
|
8,047
|
|
|
$
|
8,293
|
|
Increases as a result of tax positions taken in a prior period
|
422
|
|
|
456
|
|
|
124
|
|
Decreases as a result of tax positions taken in a prior period
|
(1,532)
|
|
|
(411)
|
|
|
(142)
|
|
Decreases as a result of settlements during the current period
|
(422)
|
|
|
(2,977)
|
|
|
(228)
|
|
Reductions as a result of a lapse of statute of limitations during the current period
|
—
|
|
|
(797)
|
|
|
—
|
|
End of fiscal year
|
$
|
2,786
|
|
|
$
|
4,318
|
|
|
$
|
8,047
|
|
|
|
|
|
|
|
The balance at February 1, 2020 includes $2.2 million of unrecognized tax benefits that would impact our effective tax rate if recognized. The Company recognizes accrued interest and penalties from unrecognized tax benefits in income tax expense.
As of February 1, 2020, the liability for uncertain tax positions includes $1.5 million for the accrual of interest. During fiscal 2019, 2018 and 2017, the Company recorded $0.3 million, $0.3 million and $0.4 million, respectively, for the accrual of interest and penalties in the Consolidated Statements of Income. The Company has ongoing federal, state and local examinations, and it is possible that these examinations may be resolved within 12 months. Due to the potential for resolution of these examinations, and the expiration of various statutes of limitation, it is reasonably possible that $2.0 million of the Company’s gross unrecognized tax benefits and interest at February 1, 2020 could be recognized within the next 12 months. The Company does not anticipate that changes in its unrecognized tax benefits will have a material impact on the Consolidated Statements of Income during fiscal 2020.
Audits
The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”). As part of CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. The IRS has completed examinations of 2017 and all prior tax years. The Company is no longer subject to examination in any of its major state jurisdictions for years prior to 2015.
12. Stock-Based Compensation
The Company has the ability to grant restricted shares of common stock, restricted stock units and options to purchase common stock under the 2012 Plan. As of February 1, 2020, there were 5,230,233 shares of common stock available for the future issuance of awards pursuant to the 2012 Plan.
The following table provides total stock-based compensation recognized in the Consolidated Statements of Income for the fiscal years presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Stock option expense
|
$
|
6,286
|
|
|
$
|
7,147
|
|
|
$
|
8,686
|
|
Restricted stock expense
|
37,207
|
|
|
34,794
|
|
|
27,553
|
|
Total stock-based compensation expense
|
$
|
43,493
|
|
|
$
|
41,941
|
|
|
$
|
36,239
|
|
Total related tax benefit
|
$
|
9,620
|
|
|
$
|
9,104
|
|
|
$
|
12,130
|
|
|
|
|
|
|
|
Stock Options
Stock options are generally granted on an annual basis, vest 25% per year over four years and have a seven-year contractual life. When options are exercised, the Company issues new shares of common stock.
The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. Stock options are expensed on a straight-line basis over the vesting period, which is considered to be the requisite service period. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on the Company’s historical experience and future expectations.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
The following assumptions were used in the Black-Scholes option valuation model for awards granted in the fiscal years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Option Plans
|
|
|
|
|
Black-Scholes Valuation Assumptions
|
2019
|
|
2018
|
|
2017
|
Expected term (years) (1)
|
5.39
|
|
5.20
|
|
5.47
|
Expected volatility (2)
|
35.15% - 38.40%
|
|
33.15% - 37.41%
|
|
29.24% - 33.86%
|
Weighted average volatility
|
35.75
|
%
|
|
34.61
|
%
|
|
30.52
|
%
|
Risk-free interest rate (3)
|
1.39% - 2.43%
|
|
2.55% - 3.04%
|
|
1.70% - 2.25%
|
Expected dividend yield
|
2.31% - 3.25%
|
|
2.40% - 2.82%
|
|
|
1.30% - 2.78%
|
|
Weighted average grant date fair value
|
$
|
10.59
|
|
|
$
|
9.02
|
|
|
$
|
11.98
|
|
(1)Represents the estimated period of time until exercise and is based on historical experience of similar awards giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior.
(2)Based on the historical volatility of the Company’s common stock over a time frame consistent with the expected life of the stock options.
(3)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.
The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience.
Stock option activity for the last three fiscal years is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Subject to Options
|
|
Weighted Average Exercise Price per Share
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding, January 28, 2017
|
3,561,085
|
|
|
$
|
46.71
|
|
|
3.88
|
|
$
|
22,638
|
|
Granted
|
786,246
|
|
|
45.28
|
|
|
|
|
|
Exercised
|
(582,022)
|
|
|
28.43
|
|
|
|
|
|
Forfeited / Expired
|
(635,360)
|
|
|
50.60
|
|
|
|
|
|
Outstanding, February 3, 2018
|
3,129,949
|
|
|
$
|
48.97
|
|
|
4.08
|
|
$
|
389
|
|
Granted
|
881,334
|
|
|
34.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited / Expired
|
(880,856)
|
|
|
45.96
|
|
|
|
|
|
Outstanding, February 2, 2019
|
3,130,427
|
|
|
$
|
45.65
|
|
|
4.07
|
|
$
|
1,783
|
|
Granted
|
605,574
|
|
|
38.58
|
|
|
|
|
|
Exercised
|
(144,275)
|
|
|
38.59
|
|
|
|
|
|
Forfeited / Expired
|
(528,352)
|
|
|
43.97
|
|
|
|
|
|
Outstanding, February 1, 2020
|
3,063,374
|
|
|
$
|
44.87
|
|
|
3.88
|
|
$
|
10,254
|
|
Exercisable, February 1, 2020
|
1,630,803
|
|
|
$
|
49.79
|
|
|
2.65
|
|
$
|
1,594
|
|
Vested and expected to vest, February 1, 2020
|
2,907,149
|
|
|
$
|
45.25
|
|
|
3.78
|
|
$
|
9,159
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value reported in the table above is based on the Company’s closing stock prices for the last business day of the period indicated. The intrinsic value for stock options exercised during fiscal 2019 and fiscal 2017 totaled $1.0 million and $10.7 million, respectively. No stock options were exercised in fiscal 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
The fair value of options that vested during 2019, 2018 and 2017 totaled $7.0 million, $8.1 million and $9.6 million, respectively.
Nonvested stock option activity for the year ended February 1, 2020 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Subject to Options
|
|
Weighted Average Grant Date Fair Value
|
Nonvested, February 2, 2019
|
1,618,847
|
|
|
$
|
11.09
|
|
Granted
|
605,574
|
|
|
10.59
|
|
Vested
|
(567,585)
|
|
|
12.33
|
|
Forfeited
|
(224,265)
|
|
|
9.34
|
|
Nonvested, February 1, 2020
|
1,432,571
|
|
|
$
|
10.66
|
|
|
|
|
|
As of February 1, 2020, unrecognized stock-based compensation expense from nonvested stock options was approximately $8.9 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.3 years.
Additional information regarding stock options outstanding as of February 1, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
Options Exercisable
|
|
|
Range of
Exercise Prices
|
|
Shares
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Weighted Average Exercise Price
|
|
Shares
|
|
Weighted Average Exercise Price
|
$24.48 - $34.05
|
|
646,237
|
|
|
5.24
|
|
$
|
33.52
|
|
|
141,071
|
|
|
$
|
33.34
|
|
$35.22 - $45.67
|
|
631,453
|
|
|
5.88
|
|
39.02
|
|
|
60,213
|
|
|
43.47
|
|
$46.29 - $47.09
|
|
711,627
|
|
|
2.52
|
|
46.93
|
|
|
572,479
|
|
|
46.89
|
|
$47.64 - $55.29
|
|
682,696
|
|
|
3.11
|
|
51.12
|
|
|
471,438
|
|
|
51.97
|
|
$55.49 - $58.86
|
|
391,361
|
|
|
2.24
|
|
58.43
|
|
|
385,602
|
|
|
58.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$24.48 - $58.86
|
|
3,063,374
|
|
|
3.88
|
|
$
|
44.87
|
|
|
1,630,803
|
|
|
$
|
49.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Restricted Stock
The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the third anniversary of the date of grant, subject to the employee’s continuing employment as of that date.
Restricted stock activity for the last three fiscal years is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
Nonvested, January 28, 2017
|
2,360,040
|
|
|
$
|
50.64
|
|
Granted
|
2,228,573
|
|
|
41.47
|
|
Vested
|
(359,956)
|
|
|
54.13
|
|
Forfeited
|
(624,420)
|
|
|
49.38
|
|
Nonvested, February 3, 2018
|
3,604,237
|
|
|
$
|
44.84
|
|
Granted
|
1,616,600
|
|
|
33.96
|
|
Vested
|
(549,293)
|
|
|
49.88
|
|
Forfeited
|
(1,213,927)
|
|
|
45.05
|
|
Nonvested, February 2, 2019
|
3,457,617
|
|
|
$
|
38.88
|
|
Granted
|
1,578,677
|
|
|
37.37
|
|
Vested
|
(852,549)
|
|
|
38.96
|
|
Forfeited
|
(796,795)
|
|
|
39.84
|
|
Nonvested, February 1, 2020
|
3,386,950
|
|
|
$
|
37.94
|
|
From time-to-time, the Company may issue a special grant of performance-based restricted stock in support of strategic initiatives. In fiscal 2017, the Company issued such a grant under the 2017 Long-Term Incentive Plan of 674,209 shares. As of February 1, 2020, nonvested restricted stock included 56,945 shares outstanding under the 2017 Long-Term Incentive Plan. These shares are scheduled to vest in April 2020, subject to the employees’ continuing employment on the vesting date. In fiscal 2019, the Company issued a special grant under the 2019 Long-Term Incentive Plan of 710,053 shares. As of February 1, 2020, nonvested restricted stock included 611,738 shares outstanding under the 2019 Long-Term Incentive Plan. The Company expects 305,869 shares to vest under this plan in April 2022, subject to the employees’ continued employment through that date.
As of February 1, 2020, total unrecognized stock-based compensation expense, net of estimated forfeitures, from nonvested shares of restricted stock was approximately $42.6 million, which the Company expects to recognize over a weighted average period of approximately 1.4 years.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
13. Retirement Savings Plans
The Company’s retirement savings plan, established pursuant to Section 401(k) of the Internal Revenue Code, covers regular status full-time hourly and salaried employees and part-time employees after one month of employment with the Company. Employees must be 21 years of age to participate. Under the terms of the retirement savings plan, the Company may make a discretionary matching contribution equal to a percentage of each participant’s contribution, up to 10% of the participant’s compensation. The Company’s discretionary matching contribution percentage is typically 50%. Total employer contributions recorded under the plan, net of forfeitures, was $10.0 million, $9.8 million and $8.3 million in fiscal 2019, 2018 and 2017, respectively.
The Company also has non-qualified deferred compensation plans for highly compensated employees whose contributions are limited under qualified defined contribution plans. Amounts contributed and deferred under the deferred compensation plans are credited or charged with the performance of investment options offered under the plans and elected by the participants. In the event of bankruptcy, the assets of these plans are available to satisfy the claims of general creditors. The liability for compensation deferred under the Company’s plans was $99.7 million and $77.3 million as of February 1, 2020 and February 2, 2019, respectively, and is included within long-term liabilities on the Consolidated Balance Sheets. Total employer contributions recorded under these plans, net of forfeitures, was $3.2 million in fiscal 2019 and $2.1 million in each of fiscal 2018 and 2017.
14. Commitments and Contingencies
Marketing and Naming Rights Commitments
Within the ordinary course of business, the Company enters into contractual commitments in order to promote the Company’s brand and products, including media and naming rights extending through 2026. The aggregate payments under these commitments were $15.5 million, $18.0 million and $33.3 million during fiscal 2019, 2018 and 2017, respectively.
As of February 1, 2020, the aggregate amount of future minimum payments related to these commitments is as follows (in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
$
|
18,851
|
|
2021
|
9,792
|
|
2022
|
4,054
|
|
2023
|
2,889
|
|
2024
|
2,975
|
|
Thereafter
|
6,221
|
|
Total
|
$
|
44,782
|
|
|
|
Licenses for Trademarks
Within the ordinary course of business, the Company enters into licensing agreements for the exclusive or preferential rights to use certain trademarks extending through 2022. Under specific agreements, the Company is obligated to pay annual guaranteed minimum royalties. Also, the Company is required to pay additional royalties when the royalties that are based on qualified purchases or retail sales (dependent upon the agreement) exceed the guaranteed minimum. The aggregate payments under these commitments were $11.1 million, $12.1 million and $9.6 million during fiscal 2019, 2018 and 2017, respectively.
As of February 1, 2020, the aggregate amount of future minimum payments under these commitments is as follows (in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
$
|
5,213
|
|
2021
|
2,208
|
|
2022
|
1,250
|
|
|
|
|
|
|
|
Total
|
$
|
8,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Other
The Company has other non-cancellable contractual commitments, including minimum requirements with its third-party eCommerce fulfillment provider, and technology-related commitments extending through 2022. The aggregate payments under these commitments were $46.9 million, $48.5 million and $37.7 million during fiscal 2019, 2018 and 2017, respectively.
As of February 1, 2020, the aggregate amount of future minimum payments under these commitments is as follows (in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
2020
|
$
|
32,341
|
|
2021
|
25,431
|
|
2022
|
23,911
|
|
|
|
|
|
|
|
Total
|
$
|
81,683
|
|
|
|
The Company is involved in legal proceedings incidental to the normal conduct of its business. Although the outcome of any pending legal proceedings cannot be predicted with certainty, management believes that adequate insurance coverage is maintained and that the ultimate resolution of these matters will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.
15. Fair Value Measurements
ASC 820, “Fair Value Measurement and Disclosures”, outlines a valuation framework and creates a fair value hierarchy for assets and liabilities as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop
its own assumptions.
The Company measures its deferred compensation plan assets held in trust at fair value on a recurring basis using Level 1 inputs. Such assets consist of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plans, as discussed in Note 13–Retirement Savings Plans. As of February 1, 2020 and February 2, 2019, the fair value of the Company’s deferred compensation plans were $99.7 million and $77.3 million, respectively, as determined by quoted prices in active markets. The Company’s policy for recognition of transfers between levels of the fair value hierarchy is to recognize any transfer at the end of the fiscal quarter in which the determination to transfer was made.
The fair value of cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximated their book values due to the short-term nature of these instruments at both February 1, 2020 and February 2, 2019.
Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include property and equipment, goodwill and other intangible assets, equity and other assets, such as inventory. The Company determines the fair values of these assets using Level 3 inputs.
The Company has conducted a strategic review of its hunt business, including Field & Stream. In connection with the review, the Company removed hunt category merchandise from approximately 135 DICK’S Sporting Goods stores through the end of fiscal 2019 and reallocated the space in these stores to a localized assortment. The Company plans to remove the hunt department from approximately 440 additional DICK’S Sporting Goods stores in fiscal 2020, which resulted in restructuring charges of $57.7 million (collectively “the hunt restructuring”). The restructuring charges included $35.7 million of non-cash impairments of a trademark and store assets, a $13.1 million write-down of hunt inventory and an $8.9 million charge related to our exit from eight Field & Stream stores, which were subleased to Sportsman’s Warehouse, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
16. Subsequent Events
On March 6, 2020, the Company’s Board of Directors declared a quarterly cash dividend in the amount of $0.3125 per share on the Company’s common stock and Class B common stock payable on March 27, 2020 to stockholders of record as of the close of business on March 20, 2020.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. Subsequent to March 10, 2020, the Company experienced a significant reduction in customer traffic and demand resulting from the continued spread of COVID-19. On March 18, 2020, the Company announced it will temporarily close all of its stores for two weeks; however, the Company’s eCommerce business, including Contactless Curbside Pickup and ship-from-store, are continuing. While the Company expects this matter to negatively impact its results of operations, cash flows and financial position, the related financial impact cannot be reasonably estimated at this time.
Supplemental Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for fiscal 2019 and 2018 is as follows (in thousands, except earnings per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Net sales
|
$
|
1,920,677
|
|
|
$
|
2,259,212
|
|
|
$
|
1,962,204
|
|
|
$
|
2,608,650
|
|
|
Gross profit
|
563,809
|
|
|
677,071
|
|
|
580,642
|
|
|
733,036
|
|
|
Income from operations (1)
|
76,073
|
|
|
155,003
|
|
|
45,625
|
|
|
98,911
|
|
|
Net income
|
57,525
|
|
(2)
|
112,534
|
|
|
57,584
|
|
(3)
|
69,819
|
|
(4)
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic (1)
|
$
|
0.62
|
|
|
$
|
1.28
|
|
|
$
|
0.68
|
|
|
$
|
0.83
|
|
|
Diluted
|
$
|
0.61
|
|
|
$
|
1.26
|
|
|
$
|
0.66
|
|
|
$
|
0.81
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
92,887
|
|
|
88,080
|
|
|
85,048
|
|
|
83,995
|
|
|
Diluted
|
94,388
|
|
|
89,400
|
|
|
86,601
|
|
|
85,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Net sales
|
$
|
1,909,719
|
|
|
$
|
2,177,488
|
|
|
$
|
1,857,273
|
|
|
$
|
2,492,090
|
|
|
Gross profit (1)
|
560,369
|
|
|
659,281
|
|
|
523,554
|
|
|
694,579
|
|
|
Income from operations (1)
|
87,332
|
|
|
162,527
|
|
|
52,866
|
|
|
142,009
|
|
|
Net income
|
60,085
|
|
|
|
119,397
|
|
|
|
37,827
|
|
|
|
102,555
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic (1)
|
$
|
0.59
|
|
|
$
|
1.21
|
|
|
$
|
0.39
|
|
|
$
|
1.09
|
|
|
Diluted (1)
|
$
|
0.59
|
|
|
$
|
1.20
|
|
|
$
|
0.39
|
|
|
$
|
1.07
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
101,384
|
|
|
98,716
|
|
|
96,677
|
|
|
94,193
|
|
|
Diluted
|
102,153
|
|
|
99,591
|
|
|
97,890
|
|
|
95,490
|
|
|
|
|
|
|
|
|
|
|
|
(1)Quarterly results for fiscal year do not add to full year results due to rounding.
(2)Included a non-cash impairment charge of $5.6 million related to an asset held for sale and a benefit of $4.7 million related to a favorable litigation settlement.
(3)Included a gain on sale of subsidiaries totaling $25.0 million, hunt restructuring charges of $6.6 million and a non-cash impairment charge of $5.6 million related to an asset held for sale.
(4)Includes hunt restructuring charges of $43.5 million.
ITEM 16. FORM 10-K SUMMARY
Not applicable.