Hibbett Sports 2011 Annual Report Download - page 31

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The cost of coupon sales incentives is recognized at the time the related revenue is recognized by us. Proceeds
received from the issuance of gift cards are initially recorded as deferred revenue. Revenue is subsequently recognized at the
time the customer redeems the gift cards and takes possession of the merchandise. Unredeemed gift cards are recorded as a
current liability.
Beginning in Fiscal 2010, to the extent not required to be remitted to jurisdictions as unclaimed property, gift card
breakage revenue is recognized based upon historical redemption patterns and represents the balance of gift cards for which we
believe the likelihood of redemption by the customer is remote. Prior to Fiscal 2010, gift card breakage revenue was not
recognized due to the absence of reliable historical data. For Fiscal 2011 and Fiscal 2010, $0.2 million and $0.3 million of
breakage revenue, respectively, was recorded in income as other income and is included in the accompanying consolidated
statements of operations as a reduction to store operating, selling and administrative expense. For Fiscal 2009, there was no
breakage revenue recorded in our consolidated statements of operations. The net deferred revenue liability at January 29, 2011
and January 30, 2010, was $3.1 million and $2.5 million, respectively. Prior to Fiscal 2010, we escheated unredeemed gift cards.
Inventory Valuation.
Lower of Cost or Market: Inventories are valued using the lower of weighted average cost or market method. Market
is determined based on estimated net realizable value. We regularly review inventories to determine if the carrying value exceeds
realizable value, and we record an accrual to reduce the carrying value to net realizable value as necessary. We account for
obsolescence as part of our lower of cost or market accrual based on historical trends and specific identification. As of January
29, 2011 and January 30, 2010, the accrual was $1.8 million and $2.0 million, respectively. A determination of net realizable
value requires significant judgment and estimates.
Shrink Reserves: We accrue for inventory shrinkage based on the actual historical results of our recent physical
inventories. These estimates are compared to actual results as physical inventory counts are performed and reconciled to the
general ledger. Store counts are typically performed on a cyclical basis, and the distribution center’s counts are performed
quarterly. As of January 29, 2011 and January 30, 2010, the accrual was $1.8 million.
Inventory Purchase Concentration: Our business is dependent to a significant degree upon close relationships with our
vendors. Our largest vendor, Nike, represented 47.8% and 49.9% of our purchases for Fiscal 2011 and Fiscal 2010, respectively.
Our second largest vendor represented 8.3% and 6.4% of our purchases while our third largest vendor represented 8.1% and 9.0%
of our purchases for Fiscal 2011 and Fiscal 2010, respectively.
Consignment Inventories: Beginning in Fiscal 2010, we expanded our business model to include consignment
merchandise. Consignment inventories, which are owned by the vendor but located in our stores, are not reported as our
inventory until title is transferred to us or our purchase obligation is determined. At January 29, 2011 and January 30, 2010,
vendor-owned inventories held at our locations (and not reported as our inventory) were $0.7 million and $0.3 million,
respectively.
Accrued Expenses. On a monthly basis, we estimate certain significant expenses in an effort to record those expenses
in the period incurred. Our most significant 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. Determination of estimates and assumptions for accrued expenses requires significant judgment.
Income Taxes. We estimate the annual tax rate based on projected taxable income for the full year and record a
quarterly income tax provision in accordance with the anticipated annual rate. As the year progresses, we refine the estimates of
the year’s taxable income as new information becomes available, including year-to-date financial results. This continual
estimation process often results in a change to our expected effective tax rate for the year. When this occurs, we adjust the
income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the
expected annual tax rate. Significant judgment is required in determining our effective tax rate and in evaluating our tax position
and changes in estimates could materially impact our results of operations and financial position.
Uncertain Tax Positions. We account for uncertain tax positions in accordance with ASC Topic 740, Income Taxes.
The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often
ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures.
Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our
subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and
statements of operations. See “Part II, Item 8, Consolidated Financial Statements Note 9 – Income Taxes” for additional detail
on our uncertain tax positions.