Dick's Sporting Goods 2012 Annual Report Download - page 40

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with an increased risk of injury and related lawsuits with respect to our performance of background
checks on hunting rifle purchasers as mandated by state and federal law, or the improper use of
hunting rifles and ammunition sold by us, including lawsuits by municipalities or other organizations
attempting to recover costs from hunting rifle manufacturers and retailers relating to the misuse of
hunting rifles and ammunition. In addition, any improper or illegal use by our customers of
ammunition or hunting rifles sold by us could have a negative impact on our reputation and business.
We may incur losses relating to claims filed against us, including costs associated with defending against
them, and there is risk that any such claims or liabilities will exceed our insurance coverage, or affect
our ability to retain adequate liability insurance in the future. Although we have entered into product
liability indemnity agreements with many of our vendors and manufacturers, we cannot assure you that
we will be able to collect payments sufficient to offset product liability losses or, in the case of our
private brand products, where almost all of the manufacturing occurs outside the United States, that we
will be able to collect anything at all. Due to the inherent uncertainties of litigation and other claims,
we cannot accurately predict the ultimate outcome of any such matters.
If our product costs are adversely affected by foreign trade issues, currency exchange rate fluctuations,
increasing prices for raw materials, political instability or other reasons, our sales and profitability may suffer.
We believe that a significant portion of the products that we purchase, including those purchased from
domestic suppliers, is manufactured abroad in countries such as China, Taiwan and South Korea. In
addition, most of our private brand merchandise is manufactured abroad. Foreign imports subject us to
risk relating to changes in import duties, quotas, loss of ‘‘most favored nation’’ status with the U.S.,
shipment delays and shipping port constraints, labor strikes, work stoppages or other disruptions,
freight cost increases and economic uncertainties. In addition, the U.S. periodically considers other
restrictions on the importation of products obtained by our vendors and us. If any of these or other
factors were to cause a disruption of trade from the countries in which our vendors’ supplies or our
private brand products manufacturers are located, our inventory levels may be reduced or the cost of
our products may increase. In addition, to the extent that any foreign manufacturers from whom we
directly or indirectly purchase products utilize labor and other practices that vary from those commonly
accepted in the U.S., we could be hurt by any resulting negative publicity or, in some cases, face
potential liability. Also, the prices charged by foreign manufacturers may be affected by the fluctuation
of their local currency against the U.S. dollar. We source goods from various countries, including
China, and thus changes in the value of the U.S. dollar compared to other currencies may affect the
costs of goods that we purchase.
Our product costs are also affected in part by the prices for raw materials used in said products. A
substantial rise in the price of one or more raw materials used in our products could dramatically
increase the costs associated with the manufacturing of merchandise that we purchase from our vendors
for sale in our stores, as well as products manufactured for our private brands, which could cause the
cost of our products to increase and could potentially have a negative impact on our sales and
profitability.
Historically, political or economic instability in the countries from which our products originate has not
had a material adverse effect on our operations. However, we cannot predict the effect that future
changes in economic or political conditions in such foreign countries may have on our operations.
The loss of our key executives, especially Edward W. Stack, our Chairman and Chief Executive Officer, could
have a material adverse effect on our business due to the loss of their experience and industry relationships.
Our success depends on the continued services of our senior management, particularly Edward W.
Stack, our Chairman and Chief Executive Officer. Mr. Stack also holds a majority of the voting power
of our capital stock, and has been operating the Company since 1984. Mr. Stack possesses detailed and
in-depth knowledge of the issues, opportunities and challenges facing the Company and its businesses.