Dick's Sporting Goods 2012 Annual Report Download - page 59

37
The Company expects to fund these commitments primarily with operating cash flows generated in the
normal course of business.
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 current selling price 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. Historically, the
Company has rarely experienced significant occurrences of obsolescence or slow moving inventory.
However, future changes, such as customer merchandise preference, unseasonable 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 the 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. On an annual basis at the end of the year, the Company confirms earned
allowances with vendors to ensure the amounts are recorded in accordance with the terms of the
contract.
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.