Dick's Sporting Goods 2007 Annual Report Download - page 53

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Revenue Recognition – Revenue from retail sales is recognized at the point of sale, net of sales tax. A provision for anticipated
merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded.
Revenue from gift cards and returned merchandise credits (collectively the “cards”), are deferred and recognized upon the redemption
of the cards. These cards have no expiration date. Income from unredeemed cards is recognized in the Consolidated Statements of
Income in selling, general and administrative expenses at the point at which redemption becomes remote. The Company performs
an evaluation of the aging of the unredeemed cards, based on the elapsed time from the date of original issuance, to determine
when redemption is remote. Revenue from layaway sales is recognized upon receipt of final payment from the customer.
Cost of Goods Sold – Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight, distribution and store
occupancy costs. Store occupancy costs include rent, common area maintenance charges, real estate and other asset based taxes,
store maintenance, utilities, depreciation, fixture lease expenses and certain insurance expenses.
Selling, General and Administrative Expenses – Selling, general and administrative expenses include store and field support payroll
and fringe benefits, advertising, bank card charges, information systems, marketing, legal, accounting, other store expenses and
all expenses associated with operating the Company’s corporate headquarters.
Advertising Costs – Production costs of advertising and the costs to run the advertisements are expensed the first time the
advertisement takes place. Advertising expense, net of cooperative advertising was $152.4 million, $122.9 million and $96.1 million
for fiscal 2007, 2006 and 2005, respectively.
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 fiscal
year, the Company confirms earned allowances with vendors to determine that the amounts are recorded in accordance with
the terms of the contract.
Fair Value of Financial Instruments – The Company has financial instruments, which include long-term debt and revolving debt.
The carrying amounts of the Company’s debt instruments approximate their fair value, estimated using the Company’s current
incremental borrowing rates for similar types of borrowing arrangements.
Reclassifications – Certain reclassifications have been made to the fiscal 2006 Consolidated Balance Sheet to conform to the fiscal
2007 presentation.
Segment Information – The Company is a specialty retailer that offers a broad range of products in its specialty retail stores
primarily in the eastern United States. Given the economic characteristics of the store formats, the similar nature of the products
sold, the type of customer, and method of distribution, the Company’s operating segments are aggregated within one reportable
segment. The following table sets forth the approximate amount of net sales attributable to hardlines, apparel and footwear
for the periods presented:
Fiscal Year
Merchandise Category 2007 2006 2005
(Dollars in millions)
Hardlines $ 2,163 $ 1,768 $ 1,497
Apparel 1,077 811 672
Footwear 648 535 456
Total net sales $ 3,888 $ 3,114 $ 2,625