Hibbett Sports 2005 Annual Report Download - page 45

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
improvements, which had previously been recorded as a reduction to related leasehold improvements,
should be reflected as deferred rent and amortized over the lease term, including the build-out period, as
a reduction to rent expense rather than depreciation.
The Company evaluated the materiality of these corrections on its financial statements and concluded
that the incremental impact of these corrections is not material to any quarterly or annual period; however,
the cumulative effect of these corrections is material to the fourth quarter of fiscal 2005. As a result,
the Company has recorded the cumulative effect as of the beginning of fiscal year 2003 and has restated
previously issued consolidated financial statements for the fiscal years ended January 31, 2004 and
February 1, 2003 to recognize the impact of including the build-out period in our straight line rent
expense, recording depreciation on leasehold improvements over the shorter of their estimated useful
lives or the initial, non-cancelable lease term and to classify landlord allowances for normal tenant
improvements as deferred rent and amortize them over the lease term as a reduction to rent expense
rather than depreciation.
The after tax cumulative effect of the restatement through fiscal year ended February 2, 2002, of
$1.2 million was recorded as a reduction to the Company’s beginning retained earnings balance at
February 3, 2002, as reflected in its consolidated statements of stockholders’ investment. The cumulative
effect of the restatement through fiscal 2004 increased property and equipment by $4.4 million,
increased deferred rent liability by $8.2 million and increased deferred income taxes by $1.4 million.
Expenses related to store occupancy and pre-opening costs for fiscal 2004 and fiscal 2003 decreased by
$1.6 million and $1.3 million, respectively, while depreciation expenses for the same fiscal periods
increased by $2.4 million and $1.9 million, respectively. As a result of the restatements, operating profit
for fiscal 2004 and fiscal 2003 decreased by $1.1 million and $0.8 million, respectively, as did income
before the provision for income taxes. Net income decreased by $0.7 million in fiscal 2004 and $0.5
million in fiscal 2003.
The restatement did not impact the Company’s previously reported net increase in cash and cash
equivalents, revenues or compliance with revolving line of credit covenants.
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