Hibbett Sports 2011 Annual Report Download - page 42

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Other accounts receivable consists primarily of tenant allowances due from landlords and cooperative advertising due
from vendors. We analyze other accounts receivable for collectability based on aging of individual components, underlying
contractual terms and economic conditions. Recorded amounts are deemed to be collectible.
Inventories and 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.
Shrinkage: We accrue for inventory shrinkage based on the actual historical results of our most 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%, 49.9% and 51.4% of our purchases in Fiscal 2011, Fiscal 2010 and Fiscal
2009, respectively. Our next largest vendor in Fiscal 2011 represented 8.3%, 6.4% and 7.9% of our purchases in Fiscal 2011,
Fiscal 2010 and Fiscal 2009, respectively. Our third largest vendor in Fiscal 2011 represented 8.1%, 9.0% and 8.4% of our
purchases in Fiscal 2011, Fiscal 2010 and Fiscal 2009, 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.
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). Leasehold improvements and buildings under capital leases are
amortized over the shorter of the useful life of the asset or the length of the related lease term. The term of the lease 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. We continually reassess the remaining useful life of leasehold
improvements in light of store closing plans.
Construction in progress has historically been comprised primarily of property and equipment related to unopened
stores and costs associated with technology upgrades at period end. At fiscal year ended January 29, 2011, approximately 82.5%
of the construction in progress balance was comprised of costs associated with technology projects.
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 property and equipment and the related gain or loss is credited or charged to
income.
Deferred Rent
Deferred rent primarily consists of step rent and allowances from landlords related to our leased properties. Step rent
represents the difference between actual operating lease payments due and straight-line rent expense, which we record 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 rent expense. Landlord allowances are generally comprised of amounts received and/or
promised to us by landlords and may be received in the form of cash or free rent. We record 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.