Dick's Sporting Goods 2010 Annual Report Download - page 57

rates and other variables. The Company recognizes an impairment charge when the estimated fair value of the intangible asset is
less than the carrying value.
Impairment of Long-Lived Assets and Closed Store Reserves
The Company reviews long-lived assets whenever events and circumstances indicate that the carrying value of these assets may
not be recoverable based on estimated undiscounted 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 the Company
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.
Based on an analysis of current and future store performance, management periodically evaluates the need to close
underperforming stores. Reserves are established when the Company ceases to use the location for the present value of any
remaining operating lease obligations, net of estimated sublease income. If the timing or amount of actual sublease income
differs from estimated amounts, this could result in an increase or decrease in the related reserves.
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.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with fair value recognition provisions, under which the
Company uses the Black-Scholes option-pricing model, which requires the input of assumptions. These assumptions include
estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the
estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately
not complete their vesting requirements (“forfeitures”). Changes in the assumptions can materially affect the estimate of fair
value of stock-based compensation and consequently, the related amount recognized in the Consolidated Statements of
Operations.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with generally accepted accounting principles, whereby the Company only
recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities. The application of income tax law is inherently complex. Laws and regulations in this area
are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments
regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over
time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the
Consolidated Balance Sheets and Statements of Operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company’s net exposure to interest rate risk consists primarily of borrowings under the Credit Agreement. The Credit
Agreement bears interest at rates that are benchmarked either to U.S. short-term floating rate interest rates or one-month
LIBOR rates, at the Company’s election. Average borrowings were $63.7 million during fiscal 2009. There were no borrowings
under the Credit Agreement during fiscal 2010.
Impact of Inflation
Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our operating results.
Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a
high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling,
general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with these
increased costs.
Dick’s Sporting Goods, Inc. ¬2010 Annual Report 37