Dick's Sporting Goods 2015 Annual Report Download - page 34

Critical Accounting Policies and Use of Estimates
The Company's significant accounting policies are described in Note€1 of the Consolidated Financial Statements, which were
prepared in accordance with accounting principles generally accepted in the United States of America. Critical accounting
policies are those that the Company believes are both most important to the portrayal of the Company's financial condition and
results of operations, and require the Company's most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application
of those policies may result in materially different amounts being reported under different conditions or using different
assumptions.
The Company considers the following policies to be the most critical in understanding the judgments that are involved in
preparing its consolidated financial statements.
Inventory Valuation
The Company values inventory using the lower of weighted average cost or market method. Market price is generally based on
the selling price expectations of the merchandise. The Company regularly reviews inventories to determine if the carrying value
of the inventory exceeds market value and the Company records a reserve to reduce the carrying value to its market price, as
necessary. Changes in customer merchandise preference, consumer spending, weather patterns, economic conditions or
business trends could cause the Company's inventory to be exposed to obsolescence or slow moving merchandise.
Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. The Company performs
physical inventories at its stores and distribution centers throughout the year. The reserve for shrink represents an estimate for
shrink for each of the Company's locations since the last physical inventory date through the reporting date. Estimates by
location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results.
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 treated as a reduction of inventory and reduce
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.
Goodwill and Intangible Assets
Goodwill, indefinite-lived and other finite-lived intangible assets are reviewed for impairment on an annual basis, or whenever
circumstances indicate that a decline in value may have occurred. Our evaluation for impairment requires accounting
judgments and financial estimates in determining the fair value of the reporting unit. If these judgments or estimates change in
the future, we may be required to record impairment charges for these assets.
The goodwill impairment test is a two-step impairment test. In the first 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 flow and a market value approach. The Company's estimates may differ from actual results due to, among
other things, economic conditions, changes to its business models, or changes in operating performance. Significant differences
between these estimates and actual results could result in future impairment charges and could materially affect the Company's
future financial results. 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 aggregate identified tangible and intangible assets and liabilities. As of January€30, 2016, the
Company had no reporting unit(s) at risk for goodwill impairment.
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