Dick's Sporting Goods 2004 Annual Report Download - page 49

DICK’S SPORTING GOODS, INC. 2004 ANNUAL REPORT 47
The transaction is being accounted for using the purchase method of accounting as required by Statement of Financial Accounting
Standards (“SFAS”) Statement No. 141, “Business Combinations,” with Dick’s as the accounting acquirer. Accordingly, the purchase price
has been allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at
the date of the acquisition. The excess of the purchase price over the estimated fair value of net assets acquired was recorded as goodwill.
The Consolidated Statements of Income for the year ended January 29, 2005 reflect the results of Dick’s Sporting Goods on a stand-alone
basis from February 1, 2004 to July 28, 2004 and the combined company from the acquisition date of July 29, 2004 to January 29, 2005.
Prior year results include Dick’s Sporting Goods, Inc. on a stand-alone basis. The allocation of the purchase price to specific assets and
liabilities is based, in part, upon internal estimates of assets and liabilities. The Company has received an independent appraisal for
certain assets and is in the process of refining its internal fair value estimates for certain assets and liabilities; therefore, the allocation of
the purchase price is preliminary and the final allocation may differ. Based on the preliminary purchase price allocation, the following
table summarizes estimated fair values of the assets acquired and liabilities assumed:
(In thousands)
Inventory $ 158,572
Other current assets 61,609
Property and equipment, net 164,449
Other long-term assets, excluding goodwill 4,371
Goodwill 157,245
Favorable leases 5,310
Accounts payable (94,784)
Accrued expenses (59,847)
Other current liabilities (11,403)
Long-term debt (5,933)
Other long-term liabilities (10,105)
Fair value of net assets acquired, including intangibles $ 369,484
As of January 29, 2005, the Company had accrued expenses of $3.6 million related to Galyan’s associate severance, retention bonuses
and relocation, and $3.7 million related to the closing of Galyan’s stores, the Galyan’s clearance center and its corporate headquarters,
which consists primarily of rent, common area maintenance and real estate taxes. These costs were accounted for under Emerging Issues
Task Force No. 95-3 (“Issue 95-3”), “Recognition of Liabilities in Connection with a Purchase Business Combination,” and were recognized
as a liability assumed in the acquisition. The Company is continuing to assess and complete the integration plans, which may result in
changes to those accruals and reserves recorded.
The following table summarizes the activity in 2004:
Liabilities Established
for the Closing Inventory Reserve
Associate Severance, of Galyan’s Stores for Discontinued
Retention and and Corporate Galyan’s
Relocation Headquarters Merchandise Total
(In thousands)
Liabilities and reserves established
in conjunction with the Galyan’s acquisition at July 31, 2004 $ 15,600 $ 15,838 $ 22,686 $ 54,124
Cash paid (11,381) (3,834) – (15,215)
Adjustments to the estimate (599) (8,331) – (8,930)
Clearance of discontinued Galyan’s merchandise – – (16,376) (16,376)
Balance at January 29, 2005 $ 3,620 $ 3,673 $ 6,310 $ 13,603
The $16.4 million of inventory reserve utilized for the clearance of discontinued Galyan’s merchandise was recorded as a reduction of
cost of sales from July 31, 2004 to January 29, 2005. The Company believes that the remaining reserves are adequate to complete its
integration plan and expects payments to be substantially completed by the end of fiscal 2005, with the balance in fiscal 2006 and
beyond which relates primarily to future lease payments on closed stores.