Hibbett Sports 2010 Annual Report Download - page 51

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Deferred income tax assets represent items which will be used as a tax deduction or credit in future tax
returns or are items of income which have not been recognized for financial statement purposes but were included in
the current or prior tax returns for which we have already properly recorded the tax benefit in the consolidated
statements of operations. At least quarterly, we assess the likelihood that the deferred income tax assets balance will
be recovered. We take into account such factors as prior earnings history, expected future earnings, carryback and
carryforward periods and tax strategies that could potentially enhance the likelihood of a realization of a deferred
income tax asset. To the extent recovery is not more likely than not, a valuation allowance is established against the
deferred income tax asset, increasing our income tax expense in the year such determination is made. We have
determined that no such allowance is required.
On February 4, 2007, we adopted the provisions of FASB Interpretation No. 48 (FIN No. 48), Accounting
for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, codified primarily in ASC Topic
740. In accordance with ASC Topic 740, we recognize a tax benefit associated with an uncertain tax position when,
in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority.
For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure
the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon
ultimate settlement with a taxing authority. Our liability associated with unrecognized tax benefits is adjusted
periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or
emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. Our
effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent
adjustments as considered appropriate by management.
A number of years may elapse before a particular matter for which we have recorded a liability related to
an unrecognized tax benefit is audited and finally resolved. The number of years with open tax audits varies by
jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax
matter, we believe our liability for unrecognized tax benefits is adequate. Favorable settlement of an unrecognized
tax benefit could be recognized as a reduction in our effective tax rate in the period of resolution. Unfavorable
settlement of an unrecognized tax benefit could increase the effective tax rate and may require the use of cash in the
period of resolution. Our liability for unrecognized tax benefits is generally presented as non-current. However, if
we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current.
A reconciliation of the unrecognized tax benefit under ASC Topic 740 during Fiscal 2010, Fiscal 2009 and
Fiscal 2008 follows (in thousands):
January 30, 2010 January 31, 2009 February 2, 2008
Unrecognized tax benefit - beginning of year 2,501$ 2,623$ 5,117$
Gross increases - tax positions in prior period 105 - 836
Gross decreases - tax positions in prior period - (100) (3,259)
Gross increases - tax positions in current period 259 241 -
Settlements - - (29)
Lapse of statute of limitations (514) (263) (42)
Unrecognized tax benefit - end of year 2,351$ 2,501$ 2,623$
Fiscal Year Ended
Due to a lapse of the statute of limitations, we expect a decrease in our unrecognized tax benefit liability in
the next 12 months of approximately $0.9 million related to compensation deductions claimed on prior income tax
returns. We classify interest and penalties recognized on unrecognized tax benefits as income tax expense. As of
January 30, 2010, January 31, 2009 and February 2, 2008, we have accrued interest and penalties in the amount of
$0.4 million, $0.5 million and $0.3 million, respectively.
Of the unrecognized tax benefits as of January 30, 2010, January 31, 2009 and February 2, 2008, $1.3
million, $1.1 million and $1.0 million, respectively, if recognized, would affect our effective income tax rate.
We file income tax returns in the U.S. federal and various state jurisdictions. Generally, we are not subject
to changes in income taxes by the U.S. federal taxing jurisdiction for years prior to Fiscal 2007 or by most state
taxing jurisdictions for years prior to Fiscal 2006.