Dick's Sporting Goods 2008 Annual Report Download - page 52

For leasehold improvements and property and equipment under capital lease agreements, depreciation and amortization are
calculated using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term. Depreciation
expense was $90.9 million, $75.2 million and $54.0 million for fi scal 2008, 2007 and 2006, respectively.
Renewals and betterments are capitalized and repairs and maintenance are expensed as incurred.
Impairment of Long-Lived Assets and Costs Associated with Exit Activities – The Company evaluates its long-lived assets to assess
whether the carrying values have been impaired whenever events and circumstances indicate that the carrying value of these
assets may not be recoverable based on estimated undiscounted future cash fl ows, using the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” An impairment loss is
recognized when the estimated undiscounted cash fl ows expected to result from the use of the asset plus eventual net proceeds
expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized,
the carrying amount of the asset is reduced to its estimated fair value as determined based on quoted market prices or through
the use of other valuation techniques. Based upon the Company’s review of the current and projected performance of certain
underperforming Dick’s Sporting Goods, Golf Galaxy and Chick’s Sporting Goods stores, the Company determined that the carrying
value of these stores exceeds their estimated fair values, resulting in a non-cash impairment charge of $29.1 million in fi scal 2008.
No store asset impairment charges were recorded during the years ended February 2, 2008 and February 3, 2007.
A liability is recognized for costs associated with location closings, primarily future lease costs (net of estimated sublease income),
and is charged to income when the Company ceases to use the location.
Goodwill and Intangible Assets – Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired
entities. In accordance with SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets,” the Company is required to assess
the carrying value of goodwill and other intangible assets annually or whenever circumstances indicate that a decline in value may
have occurred, utilizing a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business unit
one level below that operating segment, for which discrete fi nancial information is prepared and regularly reviewed by segment
management. Finite-lived intangible assets are amortized over their estimated useful economic lives and are reviewed for
impairment when factors indicate that an impairment may have occurred.
The goodwill impairment test is a two-step impairment test. In the fi rst step, the Company compares the fair value of each reporting
unit to its carrying value. The Company determines the fair value of its reporting units using a combination of a discounted cash
fl ow and a market value approach. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that
reporting unit, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the net
assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step in
order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s
goodwill. The activities in the second step include valuing the tangible and intangible assets and liabilities of the impaired reporting
unit based on their fair value and determining the fair value of the impaired reporting unit’s goodwill based upon the residual of the
summed identifi ed tangible and intangible assets and liabilities.
The fair value of the Dick’s Sporting Goods reporting unit exceeded the carrying value of the assigned net assets, therefore no further
testing was required and an impairment charge was not required.
Based on macroeconomic factors impacting the specialty golf business and recent and forecasted specialty golf operating performance,
the Company determined that indicators of potential impairment were present for its Golf Galaxy reporting unit during the fi scal quarter
ended January 31, 2009. As a result, the Company assessed the carrying value of goodwill and intangible assets for impairment acquired
in its purchase of Golf Galaxy. Upon completion of the impairment test, the Company determined that the goodwill of its Golf Galaxy
reporting unit was fully impaired and recorded a non-cash impairment charge of $111.3 million. No impairment charges were recorded
for goodwill during the years ended February 2, 2008 and February 3, 2007.
DICK’S SPORTING GOODS, INC. 2008 ANNUAL REPORT
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