Hibbett Sports 2007 Annual Report Download - page 38

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Accrued Expenses. On a monthly basis, we estimate certain material expenses in an effort to record those
expenses in the period incurred. Our most material estimates relate to payroll and payroll tax expenses, property
taxes, insurance-related expenses and utility expenses. Estimates are primarily based on current activity and
historical results and are adjusted as our estimates change. Differences in our estimates and assumptions could
result in an accrual materially different from the accrual calculated. Historically, the differences in these accruals have
not had a material effect on our financial condition or results of operations.
Income Taxes. On a quarterly basis, we estimate our required tax liability and assess the recoverability of
our deferred tax assets. Our taxes payable are estimated based on enacted tax rates, including estimated tax rates in
states where our store base is growing applied to the income expected to be taxed currently. We assess the
realizability of our deferred tax projections for future taxable income. We cannot guarantee that we will generate
income in future years.
Litigation Accruals. Estimated amounts for claims that are probable and can be reasonably estimated are
recorded as liabilities in the consolidated balance sheets. The likelihood of a material change in these estimated
accruals would be dependent on new claims as they may arise and the favorable or unfavorable outcome of a
particular litigation. As additional information becomes available, we assess the potential liability related to pending
litigation and revise estimates as appropriate. Such revisions in estimates of the potential liability could materially
impact our results of operations and financial position.
Impairment of Assets. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining balance of long-lived assets and intangibles may be impaired and not
recoverable. The Company’s policy is to recognize any impairment loss on long-lived assets as a charge to current
income when certain events or changes in circumstances indicate that the carrying value of the assets may not be
recoverable. Impairment is assessed considering the estimated undiscounted cash flows over the asset’s remaining
life. If estimated cash flows are insufficient to recover the investment, an impairment loss is recognized based on a
comparison of the cost of the asset to fair value less any costs of disposition.
Stock-Based Compensation. We use the Black-Scholes option pricing model to estimate the fair value at the
date of grant of stock options granted under our stock option plans and stock purchase rights associated with the
Employee Stock Purchase Plan. Volatility is estimated as of the date of grant or purchase date based on
management’s estimate of the time period that captures the relative volatility of our stock. We use the risk free
interest rate on the date of grant or purchase date based on the U.S. Treasury rate with maturities approximating the
expected lives of our options. The effects on net income and EPS of stock-based compensation expense, net of tax,
calculated using the fair value of stock options and stock purchase rights in accordance with the Black-Scholes
options pricing model are not necessarily representative of the effects of our results of operations in the future. In
addition, the compensation expense utilizes an option pricing model developed for traded options with relatively short
lives. Our stock option grants have a life of up to ten years and are not transferable. Therefore, the actual fair value of
a stock option grant may be different from the Company’s estimates. The Company believes that its estimates
incorporate all relevant information and represent a reasonable approximation in light of the difficulties involved in
valuing non-traded stock options. All estimates and assumptions are regularly evaluated and updated when
applicable.
Insurance Accruals. We use a combination of insurance and self-insurance for a number of risks including
employee-related health benefits, a portion of which is paid by our employees, workers’ compensation and general
liability . The estimates and accruals for these liabilities associated with these risks are regularly evaluated for
adequacy based on the most current available information, including historical claims experience and expected future
claims costs.
Operating Leases. We lease our retail stores and distribution center under operating leases. Many lease
agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. We recognize rent
expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to
exercise such options would result in an economic penalty. We use a time period for our straight-line rent expense
calculation that equals or exceeds the time period used for depreciation. In addition, the commencement date of the
lease term is the earlier of the date when we become legally obligated for the rent payments or the date when we
take possession of the building for initial setup of fixtures and merchandise.
Dividend Policy
We have never declared or paid any dividends on our common stock. We currently intend to retain our future
earnings to finance the growth and development of our business and for our stock repurchase program, and therefore
do not anticipate declaring or paying cash dividends on our common stock for the foreseeable future. Any future decision
to declare or pay dividends will be at the discretion of our Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements and such other factors as our Board of Directors deems relevant.