Hibbett Sports 2011 Annual Report Download - page 32

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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 is 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 Long-Lived Assets. We continually evaluate whether events and circumstances have occurred that
indicate the remaining balance of long-lived assets may be impaired and not recoverable. Our policy is to adjust the remaining
useful life of depreciable assets and to recognize any impairment loss on long-lived assets as a charge to current income when
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. Evaluation of asset impairment requires significant judgment and estimates.
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 base the risk-free interest rate on the annual continuously compounded risk-
free rate with a term equal to the option’s expected term. The effects on net income and earnings per share (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 our estimates. We believe that our 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 workers’
compensation, general liability and employee-related health benefits, a portion of which is paid by our employees. The estimates
and accruals for the 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.
Leases. We lease all our retail stores, our distribution center and certain equipment, including transportation and
computer equipment. We evaluate each lease at inception to determine whether the lease will be accounted for as an operating or
capital lease. The term of the lease used for this evaluation includes renewal option periods only in instances in which the
exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty.
The majority of our retail stores and our distribution center are operating leases.
Many of our operating 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 on leasehold improvements. 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.
We make judgments regarding the probable term for each lease, which can impact the classification and accounting for
a lease as capital or operating, the escalations in payments that are taken into consideration when calculating straight-line rent and
the term over which landlord allowances received are amortized. These judgments may produce materially different amounts of
depreciation, amortization and rent expense than would be reported in a specific period if different assumed lease terms were
used.
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.
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer (see “Part II, Item 9A, Controls and Procedures”).