Hibbett Sports 2007 Annual Report Download - page 48

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realizable value. The Company’s business is dependent to a significant degree upon close relationships with its
vendors. The Company’s largest vendor, Nike, represented approximately 46.6%, 43.9% and 38.9% of its purchases
in fiscal 2007, 2006 and 2005, respectively. Our next largest vendor in fiscal 2007 represented approximately 9.4%,
3.7% and 3.8% of its purchases in fiscal 2007, 2006 and 2005, respectively. The merger between two of our vendors
accounted for the increase in concentration of our second largest vendor between periods. Our third largest vendor
in fiscal 2007 represented approximately 4.7%, 3.2% and 2.6% of its purchases in fiscal 2007, 2006 and 2005,
respectively.
Beginning in fiscal year 2008, inventory will be valued using the lower of weighted average cost or market.
The Company believes the cost method is preferable as compared to the retail method because it will increase the
organizational focus on the actual margin realized on each sale. This change in accounting method is not expected
to have a material impact on the Company’s consolidated financial statements.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on assets is principally provided using the
straight-line method over their estimated service lives (3 to 5 years for equipment, 7 years for furniture and fixtures
and 39 years for buildings) or, in the case of leasehold improvements, the shorter of the initial term of the underlying
leases or the estimated economic lives of the improvements (typically 3 to 10 years).
Construction in progress is comprised of property and equipment related to unopened stores and costs
associated with technology upgrades at period end.
Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of
assets sold, retired or otherwise disposed of are removed from the accounts and the related gain or loss is credited or
charged to income.
In March 1998, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of
Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,”
which provides guidance on accounting for such costs. SOP 98-1 requires computer software costs that are incurred
in the preliminary project stage to be expensed as incurred. Once the capitalization criteria of SOP 98-1 have been
met, directly attributable development costs should be capitalized. It also provides that upgrade and maintenance
costs should be expensed. Our treatment of such costs is consistent with SOP 98-1, with the costs capitalized being
amortized over the expected useful life of the software. In fiscal 2007, we capitalized approximately $120,000 under
SOP 98-1 associated with the implementation of new merchandising software. In fiscal 2006, we capitalized
approximately $10,500 under SOP 98-1 associated with the implementation of new merchandising software.
Deferred Rent from Landlords
Deferred rent from landlords primarily consists 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 and may be received in the form of cash or free rent. 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.
On our statements of cash flows, the current and long-term portions of landlord allowances are included as
changes in cash flows from operations. The current portion is included as a change in other operating assets and
liabilities and the long-term portion is included as a change in deferred rent, non-current. The liability for the current
portion of unamortized landlord allowances was $3.1 million and $2.9 million at February 3, 2007 and January 28,
2006, respectively. The liability for the long-term portion of unamortized landlord allowances was $12.6 million and
$11.3 million at February 3, 2007 and January 28, 2006, respectively. The non-cash portion of landlord allowances
received is immaterial.
Revenue Recognition
We recognize revenue, including gift card and layaway sales, in accordance with the Securities and
Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial
Statements,” as amended by SAB No. 104, “Revenue Recognition.”