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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(mark one)
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended: August 3, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 
For the transaction period from              to             
 
COMMISSION FILE NUMBER 000-20969
 
 
HIBBETT SPORTING GOODS, INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
  
63-1074067
(State or other jurisdiction of
  
(IRS Employee Identification No.)
incorporation or organization)
    
 
 
451 Industrial Lane, Birmingham, Alabama
  
35211
(Address of principal executive offices)
  
(Zip code)
 
(205) 942-4292
(Registrant’s telephone number including area code)
 
NONE
(Former name, former address and former fiscal year, if changed since last report)
 
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    ¨
 
Indicate the number of shares outstanding of each of the issuer’s common stock, as of the latest practicable date: Shares of common stock, par value $.01 per share, outstanding as of September 16, 2002 were 10,053,831 shares.
 

Table of Contents
HIBBETT SPORTING GOODS, INC.
 
INDEX
 
      
Page No.
      
 
      
 
                     February 2, 2002
     
2
 
 
     
3
    
4
 
    
5
 
                     of Operations
     
10
 
    
13
 
      
 
    
14
 
    
14
 
    
14
 
    
14
 
    
14
 
    
14

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Table of Contents
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
 
    
August 3, 2002
   
February 2, 2002
Assets
              
Current Assets:
              
Cash and cash equivalents
   
$
3,638
   
$
1,972
Accounts receivable, net
   
 
2,516
   
 
2,352
Inventories
   
 
94,372
   
 
81,082
Prepaid expenses and other
   
 
3,072
   
 
902
Refundable income tax
   
 
1,131
   
 
—  
Deferred income taxes
   
 
1,345
   
 
1,375
    
  
Total current assets
   
 
106,074
   
 
87,683
    
  
Property and equipment, net
   
 
26,006
   
 
26,471
    
  
Noncurrent Assets:
              
Deferred income taxes
   
 
1,001
   
 
945
Other, net
   
 
189
   
 
216
    
  
Total noncurrent assets
   
 
1,190
   
 
1,161
    
  
Total Assets
   
$
133,270
   
$
115,315
    
  
Liabilities and Stockholders’ Investment
              
Current Liabilities:
              
Accounts payable
   
$
33,285
   
$
23,721
Accrued income taxes
   
 
—  
   
 
2,308
Accrued expenses:
              
Payroll-related
   
 
2,705
   
 
2,954
Other
   
 
2,798
   
 
2,366
    
  
Total current liabilities
   
 
38,788
   
 
31,349
    
  
Long-Term Debt
   
 
5,439
   
 
3,903
    
  
Stockholders’ Investment:
              
Preferred stock, $.01 par value 1,000,000 shares authorized, no shares outstanding
   
 
—  
   
 
—  
Common stock, $.01 par value, 12,000,000 shares authorized, 10,053,831 shares issued and outstanding at August 3, 2002 and 9,927,317 shares issued and outstanding at February 2, 2002
   
 
101
   
 
99
Paid-in capital
   
 
59,839
   
 
57,739
Retained earnings
   
 
29,103
   
 
22,225
    
  
Total stockholders’ investment
   
 
89,043
   
 
80,063
    
  
Total Liabilities and Stockholders’ Investment
   
$
133,270
   
$
115,315
    
  
 
See notes to unaudited condensed consolidated financial statements.

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Table of Contents
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except Share and Per Share Amounts)
 
    
Thirteen Weeks Ended
   
Twenty-Six Weeks Ended
    
August 3,
2002
   
August 4,
2001
   
August 3,
2002
   
August 4,
2001
Net sales
   
$
65,919
   
$
55,633
   
$
136,709
   
$
115,978
Cost of goods sold including warehouse, distribution and store occupancy costs
   
 
45,816
   
 
39,027
   
 
94,609
   
 
80,908
    
  
  
  
Gross profit
   
 
20,103
   
 
16,606
   
 
42,100
   
 
35,070
Store operating, selling, and administrative expenses
   
 
14,116
   
 
11,681
   
 
27,737
   
 
23,118
Depreciation and amortization
   
 
1,710
   
 
1,444
   
 
3,381
   
 
2,826
    
  
  
  
Operating income
   
 
4,277
   
 
3,481
   
 
10,982
   
 
9,126
Interest expense, net
   
 
86
   
 
195
   
 
150
   
 
347
    
  
  
  
Income before provision for income taxes
   
 
4,191
   
 
3,286
   
 
10,832
   
 
8,779
Provision for income taxes
   
 
1,530
   
 
1,240
   
 
3,954
   
 
3,314
    
  
  
  
Net income
   
$
2,661
   
$
2,046
   
$
6,878
   
$
5,465
    
  
  
  
Basic earnings per common share
   
$
0.26
   
$
0.21
   
$
0.69
   
$
0.55
    
  
  
  
Diluted earnings per common share
   
$
0.26
   
$
0.20
   
$
0.67
   
$
0.54
    
  
  
  
Weighted average shares outstanding:
                            
Basic
   
 
10,048,490
   
 
9,876,818
   
 
10,006,400
   
 
9,849,579
    
  
  
  
Diluted
   
 
10,264,334
   
 
10,149,930
   
 
10,240,535
   
 
10,099,724
    
  
  
  
 
See notes to unaudited condensed consolidated financial statements.

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Table of Contents
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
 
    
Twenty-Six Weeks Ended
  
    
August 3,
2002
     
August 4,
2001
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net income
   
$
6,878
 
   
$
5,465
 
    
  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                  
Depreciation and amortization
   
 
3,381
 
   
 
2,826
 
Deferred income taxes
   
 
(26
)
   
 
(26
)
Loss on disposal of assets
   
 
92
 
   
 
44
 
Change in operating assets and liabilities
   
 
(8,718
)
   
 
(6,310
)
    
  
Total adjustments
   
 
(5,271
)
   
 
(3,466
)
    
  
Net cash provided by operating activities
   
 
1,607
 
   
 
1,999
 
    
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                  
Capital expenditures
   
 
(2,997
)
   
 
(3,745
)
Proceeds from sale of property and equipment
   
 
11
 
   
 
14
 
    
  
Net cash used in investing activities
   
 
(2,986
)
   
 
(3,731
)
    
  
CASH FLOWS FROM FINANCING ACTIVITIES:
                  
Revolving loan activity, net
   
 
1,536
 
   
 
2,296
 
Proceeds from options exercised and purchase of shares under employee stock purchase plan
   
 
1,509
 
   
 
1,223
 
    
  
Net cash provided by financing activities
   
 
3,045
 
   
 
3,519
 
    
  
NET INCREASE IN CASH AND CASH EQUIVALENTS
   
 
1,666
 
   
 
1,787
 
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
 
1,972
 
   
 
1,884
 
    
  
CASH AND CASH EQUIVALENTS, END OF PERIOD
   
$
3,638
 
   
$
3,671
 
    
  
Supplemental Disclosures of Cash Flow Information:
                  
Cash paid during the period for:
                  
Interest
   
$
112
 
   
$
310
 
    
  
Income taxes, net of refunds
   
$
6,777
 
   
$
5,561
 
    
  
 
See notes to unaudited condensed consolidated financial statements.

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Table of Contents
HIBBETT SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.    Basis of Presentation & Accounting Policies
 
The accompanying unaudited condensed consolidated financial statements of Hibbett Sporting Goods, Inc. and its wholly-owned subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended February 2, 2002. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position as of August 3, 2002 and August 4, 2001, and the results of its operations and cash flows for the periods presented.
 
The Company has experienced and expects to continue to experience seasonal fluctuations in its net sales and operating income. Therefore, the results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
 
Interest
 
Interest expense for the thirteen weeks ended August 3, 2002 and August 4, 2001 was $86,480 and $195,481, respectively, shown net of interest income of $234 and $251, respectively. Interest expense for the twenty-six weeks ended August 3, 2002 and August 4, 2001 was $152,105 and $347,241, respectively, shown net of interest income of $1,762 and $467, respectively.
 
Advertising
 
Hibbett participates in various advertising and marketing cooperative programs with its vendors, who, under these programs, reimburse Hibbett for certain costs incurred. A receivable for cooperative advertising to be reimbursed is recorded as a decrease to expense as the reimbursements are earned. Hibbett’s gross advertising costs for the thirteen weeks ended August 3, 2002 and August 4, 2001 were $544,769 and $483,631, respectively. The Company’s gross advertising costs for the twenty-six weeks ended August 3, 2002 and August 4, 2001 were $1,479,101 and $1,294,234, respectively.
 
Reportable Segments
 
Hibbett is an operator of full-line sporting good stores in small to mid-sized markets predominately in the southeastern United States. Given the economic characteristics of the store formats, the similar nature of the products sold, the type of customers and methods of distribution, the operations of Hibbett constitute only one reportable segment.
 
Customers
 
No customer accounted for more than 5% of the Company’s sales during the thirteen and twenty-six week periods ended August 3, 2002 or August 4, 2001.
 
Store Closing Costs
 
Hibbett considers individual store closings to be a normal part of operations and expenses all related costs at the time of closing.

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Table of Contents
 
Revenue Recognition
 
During the fourth quarter of fiscal 2002, Hibbett changed its policy from recognizing merchandise revenues at the time of sale to recognizing merchandise revenues at the time the customer takes possession of the merchandise. All merchandise sales occur on-site in the Company’s retail stores, and the customers have the option of paying the full purchase price of the merchandise upon sale or paying a down payment and placing the merchandise on lay away. The customer may make further payments in installments, but the entire purchase price for merchandise placed on lay away must be received by Hibbett within 30 days. The customer takes possession of merchandise placed on lay away upon full payment.
 
Hibbett records the down payment and any installments as deferred revenue until the customer pays the entire purchase price for the merchandise and takes possession of such merchandise, at which time Hibbett recognizes revenue and eliminates the applicable deferred revenue balance. Previously, Hibbett recorded the purchase price for merchandise placed on lay away as revenue, recorded the initial down payment as cash and recorded an account receivable for the amount the customer still owed for the purchase price of the merchandise. Because all merchandise placed on lay away must be paid in full and delivered to the customer within 30 days of the sale, the change in accounting policy with respect to recognizing revenue at the time the customer takes possession of the merchandise only defers the recognition of revenue for merchandise that is placed on lay away within 30 days of the end of a fiscal quarter which is not paid in full and delivered prior to the end of such fiscal quarter. This change in accounting policy has had an immaterial impact on a quarterly basis on Hibbett’s revenues, gross profit, net income and earnings per share.
 
The cost of coupon sales incentives are recognized at the time the related revenue is recognized by Hibbett. Proceeds received from the issuance of gift certificates are initially deferred, and such proceeds are subsequently recognized as revenue at the time the customer redeems such gift certificates and takes possession of the merchandise.
 
Reclassifications
 
Certain prior year numbers have been reclassified to conform to current year presentation.
 
2.    Properties
 
Hibbett currently leases all of its existing 347 store locations and expects that its policy of leasing rather than owning will continue as the Company continues to expand. The Company’s leases typically provide for terms of five to seven years with options on the part of Hibbett to extend. Most leases also contain a three year early termination option if projected sales levels are not met. Hibbett believes that this lease strategy enhances its flexibility to pursue various expansion opportunities resulting from changing market conditions and to periodically re-evaluate store locations. The Company’s ability to open new stores is contingent upon locating satisfactory sites, negotiating favorable leases and recruiting and training additional qualified management personnel.
 
As current leases expire, Hibbett believes that it will be able either to obtain lease renewals for present store locations or to obtain leases for equivalent or better locations in the same general area. For the most part, the Company has not experienced any significant difficulty in either renewing leases for existing locations or securing leases for suitable locations for new stores. However, in the quarter just completed, the Company did experience a temporary slow down in available space, which moved some stores previously planned for opening in fiscal 2003 to fiscal 2004. Based on the Company’s belief that it maintains good relations with its landlords, that most of Hibbett’s leases are at market rents and that generally it has been able to secure leases for suitable locations, the Company believes that its lease strategy will not be detrimental to its business, financial condition, or results of operations.
 
The Company’s offices and its distribution center are leased under an operating lease expiring in 2014. Hibbett Sporting Goods, Inc. owns its Team division’s warehousing and distribution center located in Birmingham, Alabama.
 
Store Locations
 
We operate 347 stores in 20 contiguous states. Of these stores, 128 are located in malls and 219 are located in strip shopping centers which are generally the center of commerce within the area and which are generally anchored by a Wal-Mart store. The following table shows the locations in which we operated stores as of August 3, 2002:
 

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Table of Contents
 
ALABAMA–50
  
Harrison
  
Rome
  
Henderson
  
New Albany
  
Enid
  
Ripley
    
Adamsville
  
Hot Springs
  
Snellville
  
Hopkinsville
  
Ocean Springs
  
Mcalester