Dick's Sporting Goods 2005 Annual Report Download - page 34

Inventory Valuation The Company values inventory using the lower of weighted average cost or market method. Market price
is generally based on the current selling price of the merchandise. The Company regularly reviews inventories to determine
if the carrying value of the inventory exceeds market value and the Company records a reserve to reduce the carrying value to
its market price, as necessary. Historically, the Company has rarely experienced significant occurrences of obsolescence or
slow moving inventory. However, future changes such as customer merchandise preference, unseasonable weather patterns,
or business trends could cause the Company’s inventory to be exposed to obsolescence or slow moving merchandise.
Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. The Company performs
physical inventories at the stores and distribution centers throughout the year. The reserve for shrink represents an estimate
for shrink for each of the Company’s locations since the last physical inventory date through the reporting date. Estimates by
location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results.
Vendor Allowances Vendor 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 relating to the purchase of merchandise inventories 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, 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. On an annual basis at
the end of the year, the Company confirms earned allowances with vendors to ensure the amounts are recorded in accordance
with the terms of the contract.
Goodwill, Intangible Assets and Impairment of Long-Lived Assets Goodwill and other intangible assets are tested for
impairment on an annual basis. Our evaluation of goodwill for impairment requires accounting judgments and financial
estimates in determining the fair value of such assets. If these judgments or estimates change in the future, we may be
required to record impairment charges for these assets.
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.
Business Combinations Our acquisition of Galyan’s was accounted for under the purchase method of accounting. The assets
and liabilities of Galyan’s were adjusted to their fair values and the excess of the purchase price over the net assets acquired
was recorded as goodwill. The determination of fair value involved the use of an independent appraisal, estimates and
assumptions which we believe provided a reasonable basis for determining fair 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.
dick’s sporting goods, inc. 2005 annual report
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