Dick's Sporting Goods 2007 Annual Report Download - page 55

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Any gain or loss from the transaction is deferred and amortized as rent expense on a straight-line basis over the base term of the
lease. The Company reports the amount of cash received for the construction allowance as “Construction Allowance Receipts”
within the financing activities section of its Consolidated Statements of Cash Flows when such allowances are received prior to
completion of the sale-leaseback transaction. The Company reports the amount of cash received from construction allowances as
“Proceeds from sale leaseback transactions” within the investing activities section of its Consolidated Statements of Cash Flows
when such amounts are received after the sale-leaseback accounting criteria have been achieved.
In instances where the Company is not deemed to be the owner during the construction period, reimbursement from a landlord
for tenant improvements is classified as an incentive and included in deferred revenue and other liabilities on the consolidated
balance sheets. The deferred rent credit is amortized as rent expense on a straight-line basis over the base term of the lease.
Landlord reimbursements from these transactions are included in cash flows from operating activities as a change in “Deferred
construction allowances”.
3. Acquisition
On February 13, 2007, the Company acquired Golf Galaxy, Inc. (“Golf Galaxy”), which became a wholly owned subsidiary of Dick’s
by means of a merger of Dick’s subsidiary with and into Golf Galaxy. The Company paid $227.0 million which was financed using
approximately $79 million of cash and cash equivalents and the balance from borrowings under our Second Amended and Restated
Credit Agreement, as amended to date (the “Credit Agreement”).
The acquisition is being accounted for using the purchase method in accordance with Statement of Financial Accounting Standards
(SFAS) 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 fair value of net assets acquired was recorded as goodwill. Goodwill and
identifiable intangible assets recorded in the acquisition will be tested for impairment as required by SFAS No. 142, “Goodwill and
Other Intangible Assets”. Based upon the purchase price allocation, the Company has recorded $112.6 million of goodwill as a result
of the acquisition. None of the goodwill is deductible for tax purposes. The Company received an independent appraisal for certain
assets to determine their fair value. The purchase price allocation is final, except for any potential income tax changes that may
arise. The following table summarizes the fair values of the assets acquired and liabilities assumed:
(In thousands)
Inventory $ 70,711
Other current assets (including cash) 19,685
Property and equipment, net 47,875
Other long-term assets, excluding goodwill and intangible assets 246
Trade name 65,749
Customer list and other intangibles 5,659
Goodwill 112,614
Accounts payable (34,000)
Accrued expenses (14,063)
Other current liabilities (9,759)
Other long-term liabilities (30,381)
Fair value of net assets acquired, including intangibles $ 234,336
The customer list will be amortized over 12 years. In addition, the trade name is an indefinite-lived intangible asset, which will not
be amortized. The amortization of intangible assets is included in selling, general and administrative expenses.
The following unaudited proforma summary presents information as if Golf Galaxy had been acquired at the beginning of the period
presented. The proforma amounts include certain reclassifications to Golf Galaxy’s amounts to conform them to the Company’s
reporting calendar and an increase in pre-tax interest expense of $11.8 million for the year ended February 3, 2007, to reflect the
increase in borrowings under the Credit Agreement to finance the acquisition as if it had occurred at the beginning of the period.
In addition, the proforma net income excludes $1.4 million of pre-tax merger related expenses. The proforma amounts do not
reflect any benefits from economies which might be achieved from combining the operations.