Dick's Sporting Goods 2008 Annual Report Download - page 54

Merger and Integration Costs – The Company recorded $15.9 million in merger and integration costs in the accompanying consolidated
fi nancial statements for fi scal 2008. These integration costs primarily include duplicative administrative costs, severance and system
conversion costs related to the operational consolidation of Golf Galaxy and Chick’s Sporting Goods with the Company’s pre-existing
business. In addition, the Company recorded $2.5 million in the provision for income taxes refl ecting the tax impact of non-deductible
executive separation costs resulting from the departure of certain executive offi cers of Golf Galaxy during July 2008.
Earnings Per Share – The computation of basic earnings per share is based on the weighted average number of shares outstanding
during the period. The computation of diluted earnings per share is based on the weighted average number of shares outstanding
plus the incremental shares that would be outstanding assuming the exercise of dilutive stock options and warrants, calculated by
applying the treasury stock method.
Stock-Based Compensation – The Company has the availability to grant stock options to purchase common stock under Dick’s
Sporting Goods, Inc. 2002 Stock Option Plan and the Golf Galaxy, Inc. 2004 Incentive Plan (the “Plans”). The Company also has an
employee stock purchase plan (“ESPP”) which provides for eligible employees to purchase shares of the Company’s common stock
(see Note 11).
Income Taxes – The Company utilizes the asset and liability method of accounting for income taxes under the provisions of SFAS No.
109, “Accounting for Income Taxes,” and provides deferred income taxes for temporary differences between the amounts reported
for assets and liabilities for fi nancial statement purposes and for income tax reporting purposes.
The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109 (“SFAS 109”), on February 4, 2007. As a result of the
implementation of FIN 48, the Company recognized no material adjustment in the liability for unrecognized income tax benefi ts.
At the adoption date of February 4, 2007, the Company recorded a decrease to retained earnings of $1.5 million. Also at the date
of adoption, the Company had $12.0 million of unrecognized tax benefi ts, of which approximately $9.1 million would affect our
effective tax rate if recognized.
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 Operations 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.
Cost of Goods Sold – Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight, distribution and store
occupancy costs. Occupancy costs include rent, common area maintenance charges, real estate and other asset based taxes,
general maintenance, utilities, depreciation, fi xture lease expenses and certain insurance expenses.
Selling, General and Administrative Expense – Selling, general and administrative expenses include store and fi eld support payroll
and fringe benefi ts, 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 fi rst time the advertisement
takes place. Advertising expense, net of cooperative advertising was $154.3 million, $152.4 million and $122.9 million for fi scal 2008,
2007 and 2006, respectively.
DICK’S SPORTING GOODS, INC. 2008 ANNUAL REPORT
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