Hibbett Sports 2007 Annual Report Download - page 58

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Company’s financial position, results of operations or cash flows for any previously reported annual or interim
periods.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases the premises for its retail sporting goods stores under non-cancelable operating leases
having initial or remaining terms of more than one year. The leases typically provide for terms of five to ten years with
options on the part of Hibbett to extend. Many of the Company’s leases contain scheduled increases in annual rent
payments and the majority of its leases also require it to pay maintenance, insurance and real estate taxes. Additionally,
many of the lease agreements contain tenant improvement allowances, rent holidays and/or rent escalation clauses
(contingent rentals). For purposes of recognizing incentives and minimum rental expenses on a straight-line basis over
the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when
the Company enters the space and begins to make improvements in preparation of its intended use.
The Company also leases certain computer hardware, office equipment and transportation equipment under
non-cancelable operating leases having initial or remaining terms of more than one year.
In February 1996, the Company entered into a sale-leaseback transaction to finance its distribution center and
office facilities. In December 1999, the related operating lease was amended to include the fiscal 2000 expansion of
these facilities. The amended lease rate is $819,000 per year and can increase annually with the Consumer Price Index.
This lease will expire in December 2014.
During the fifty-three weeks ended February 3, 2007, we increased our lease commitments by a net of 64
retail stores, each having initial lease termination dates between January 2009 and January 2018 as well as various
office and transportation equipment. At February 3, 2007, the future minimum lease payments, excluding
maintenance, insurance and real estate taxes, for our current operating leases and including the net 64 operating
leases added during the fifty-three weeks ended February 3, 2007, were as follows (in thousands):
Fiscal 2008 $ 36,046
Fiscal 2009 31,445
Fiscal 2010 26,144
Fiscal 2011 19,731
Fiscal 2012 13,875
Thereafter 29,852
TOTAL $ 157,093
Rental expense for all operating leases consisted of the following (in thousands):
Fiscal Year Ended
February 3, January 28, January 29,
2007 2006 2005
Minimum rentals $ 30,291 $ 27,774 $ 24,086
Contingent rentals 2,339 1,658 1,230
$ 32,630 $ 29,432 $ 25,316
Most of the Company’s retail store leases contain provisions that allow for early termination of the lease by
either party if certain pre-determined annual sales levels are not met. Generally, these provisions allow the lease to be
terminated between the third and fifth year of the lease. Should the lease be terminated under these provisions, in some
cases, the unamortized portion of any landlord allowances related to that property would be payable to the landlord.
Legal Proceedings and other Contingencies
In October 2005, three former employees filed a lawsuit in Mississippi federal court alleging they are owed
back wages for overtime because they were improperly classified as exempt salaried employees. They also allege
other wage and hour violations. The suit asks the court to certify the case as a collective action under the Fair Labor
Standards Act on behalf of all similarly situated employees. The Company disputes the allegations of wrongdoing in
this complaint and has vigorously defended itself in this matter. However, there are no assurances that we would be
successful in that defense on the merits or otherwise, and, if unsuccessful, the resolution(s) could have a material
adverse effect on our results of operations and our financial statements as a whole in the period of resolution. As such,
the parties have negotiated a verbal settlement that has not yet been perfected. At year ended February 3, 2007, we