Dick's Sporting Goods 2015 Annual Report Download - page 35

Intangible assets that have been determined to have indefinite lives are also not subject to amortization and are reviewed at
least annually for potential impairment, or more frequently as mentioned above. The fair value of the Company's intangible
assets are estimated and compared to their carrying value. The Company estimates the fair value of these intangible assets
based on an income approach using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a
third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is
dependent on a number of factors, including estimates of future sales growth and trends, royalty rates in the category of
intellectual property, discount rates and other variables. If actual results are not consistent with our estimates and assumptions
used in estimating fair value, the Company may be exposed to losses that could be material. The Company does not believe
there is reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate fair value.
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. The Company uses an income approach to determine the fair value of
individual store locations, which requires discounting projected future cash flows over its remaining lease term. When
determining the stream of projected future cash flows associated with an individual store location, the Company makes
assumptions, incorporating local market conditions, about key store variables including sales growth rates, gross margin and
controllable expenses, such as store payroll. An impairment loss is recognized when the carrying amount of the store location is
not recoverable and exceeds its fair value.
Based on an analysis of current and future store performance, management periodically evaluates the need to close
underperforming stores. Reserves are established for the present value of any remaining operating lease obligations, net of
estimated sublease income, when the Company ceases to use the location. 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 expected dividend yield. In addition,
we estimate the number of awards that will ultimately not complete their vesting requirements ("forfeitures") and recognize
expense for those stock awards expected to vest. Changes in the assumptions can materially affect the estimate of fair value of
stock-based compensation and consequently, the related amount recognized on the Consolidated Statements of Income.
Uncertain Tax Positions
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 assumptions and judgments can materially affect amounts
recognized on the Consolidated Balance Sheets and Statements of Income.
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