Hibbett Sports 2005 Annual Report Download - page 39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Rent from Landlords
Deferred rent from landlords consist of step rent and allowances from landlords related to the
Company’s leased properties. Step rent represents the difference between actual operating lease payments
due and straight-line rent expense, which is recorded by the Company over the term of the lease, including
the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash
payments are generally lower than straight-line rent expense, and reduced in the later years of the lease
when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised
of amounts received and/or promised to the Company by landlords in the form of leasehold improvements.
These allowances are part of the negotiated terms of the lease. The Company records a receivable from
the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized
into income (through lower rent expense) over the term (including the pre-opening build-out period) of the
applicable lease and the receivable is reduced as amounts are received from the landlord. The liability
for the unamortized landlord allowances, including the current portion, was approximately $13,350,000
and $9,976,000 at January 29, 2005, and January 31, 2004, respectively.
Revenue Recognition
Retail merchandise sales occur on-site in the Company’s retail stores. Customers have the option of
paying the full purchase price of the merchandise upon sale or paying a down payment and placing the
merchandise on layaway. The customer may make further payments in installments, but the entire purchase
price for merchandise placed on layaway must be received by Hibbett within 30 days. The down payment
and any installments are recorded by the Company as deferred revenue until the customer pays the
entire purchase price for the merchandise and takes possession of such merchandise. The Company
recognizes merchandise revenues at the time the customer takes possession of the merchandise.
The cost of coupon sales incentives is recognized at the time the related revenue is recognized by the
Company. Proceeds received from the issuance of gift cards are initially recorded as deferred revenue
and such proceeds are subsequently recognized as revenue at the time the customer redeems such gift
cards and takes possession of the merchandise.
Store Opening and Closing Costs
New store opening costs, including pre-opening costs, are charged to expense as incurred. Store opening
costs primarily include payroll expenses, training costs and straight line rent expenses. All pre-opening
costs are included in store operating, selling and administrative expenses as a part of operating expenses.
The Company considers individual store closings to be a normal part of operations and regularly reviews
store performance against expectations and closes stores not meeting its investment requirements.
Costs associated with store closings are recognized at the time of closing or when a liability has been
incurred. Store assets are also reviewed for possible impairment or reduction of their useful lives.
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