Dick's Sporting Goods 2009 Annual Report Download - page 72

Selling, General and Administrative Expense —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 $160.1 million, $154.3 million and $152.4 million
for fiscal 2009, 2008 and 2007, 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.
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 (dollars in millions):
Merchandise Category 2009 2008 2007
Fiscal Year
Hardlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,453 $2,217 $2,163
Apparel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,251 1,254 1,077
Footwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 709 659 648
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,413 $4,130 $3,888
2. Acquisitions
On February 13, 2007, the Company acquired 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 was accounted for using the purchase method in accordance with the FASB’s accounting guidance for business
combinations, with Dick’s as the accounting acquirer. Accordingly, the purchase price was 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. Based upon the purchase price
allocation, the Company recorded $111.3 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.
On November 30, 2007, the Company acquired all of the outstanding stock of Chick’s Sporting Goods, Inc. for approximately
$69.2 million. Chick’s shareholders did not subsequently meet specified performance criteria that would have enabled them to
earn up to $5 million in additional contingent consideration.
The acquisition was accounted for using the purchase method in accordance with the FASB’s accounting guidance for business
combinations. Accordingly, the purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities
assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of
net assets acquired was recorded as goodwill. Based upon the purchase price allocation, the Company recorded $43.3 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.
70 Dick’s Sporting Goods, Inc. ¬2009 Annual Report
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)