Hibbett Sports 2011 Annual Report Download - page 52

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We apply 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.
We file income tax returns in the U.S. federal and various state jurisdictions. 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.
Generally, we are not subject to changes in income taxes by the U.S. federal taxing jurisdiction for years prior to Fiscal 2008 or
by most state taxing jurisdictions for years prior to Fiscal 2007. 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 follows (in thousands):
January 29, 2011 January 30, 2010 January 31, 2009
Unrecognized tax benefit - beginning of year 2,351$ 2,501$ 2,623$
Gross increases - tax positions in prior period 264 105 -
Gross decreases - tax positions in prior period - - (100)
Gross increases - tax positions in current period 2,191 259 241
Settlements - - -
Lapse of statute of limitations (919) (514) (263)
Unrecognized tax benefit - end of year 3,887$ 2,351$ 2,501$
Fiscal Year Ended
We classify interest and penalties recognized on unrecognized tax benefits as income tax expense. As of January 29,
2011, January 30, 2010 and January 31, 2009, we have accrued interest and penalties in the amount of $0.3 million, $0.4 million
and $0.5 million, respectively.
Of the unrecognized tax benefits as of January 29, 2011, January 30, 2010 and January 31, 2009, $1.6 million, $1.3
million and $1.1 million, respectively, if recognized, would affect our effective income tax rate.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Annual Bonuses and Equity Incentive Awards
Specified officers and corporate employees of our Company are entitled to annual bonuses, primarily based on measures of
Company operating performance. At January 29, 2011 and January 30, 2010, there was $4.1 million and $3.3 million, respectively,
of annual bonus related expense included in accrued expenses.
In addition, the Compensation Committee (Committee) of the Board of Directors places performance criteria on awards of
PSUs made in the form of RSUs to our NEOs under the Incentive Plan. The performance criteria are tied to performance targets
with respect to future sales and operating income over a specified period of time. These PSUs are expensed under the provisions of
ASC Topic 718 and are evaluated each quarter to determine the probability that the performance conditions set within will be met.
We expect the Committee to continue to place performance criteria on awards of RSUs to our NEOs in the future.
Legal Proceedings and other Contingencies
We are a party to various legal proceedings incidental to our business. We do not believe that any of these matters will,
individually or in the aggregate, have a material adverse effect on our business or financial condition. We cannot give assurance,
however, that one or more of these lawsuits will not have a material adverse effect on our results of operations for the period in
which they are resolved. At January 29, 2011, we estimate that the liability related to these matters is approximately $0.4 million
and accordingly, have accrued $0.4 million as a current liability in our consolidated balance sheet. As of January 30, 2010, we
had accrued $0.3 million as it related to our estimated liability for legal proceedings.