Hibbett Sports 2012 Annual Report Download - page 20

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Our in-house legal department monitors regulatory activity and is active in notifying and updating applicable departments
and personnel on pertinent matters and legislation. Our Human Resources Department also leads compliance training programs with
our operations team to ensure our field managers are kept abreast of regulatory activity that affects their areas of responsibility. We
believe that we are in substantial compliance with applicable environment and other laws and regulations, and although no assurance
can be given, we do not foresee the need for any significant expenditure in this area in the near future.
Changes in rules related to accounting for income taxes, changes in tax laws in any of the jurisdictions in which we operate or
adverse outcomes from audits by taxing authorities could result in an unfavorable change in our effective tax rate.
We operate our business in several tax jurisdictions. As a result, our effective tax rate is derived from a combination of the
federal rate and applicable tax rates in the various states in which we operate. Our effective tax rate may be lower or higher than our
tax rates have been in the past due to numerous factors, including the sources of our income and the tax filing positions we take. We
base our estimate of an effective tax rate at any given point in time upon a calculated mix of the tax rates applicable to our Company
and to estimates of the amount of business likely to be done in any given jurisdiction. Changes in rules related to accounting for
income taxes, changes in tax laws in any of the jurisdictions in which we operate or adverse outcomes from tax audits that we may be
subject to in any of the jurisdictions in which we operate could result in an unfavorable change in our effective tax rate.
Litigation may adversely affect our business, financial condition and results of operations.
Our business is subject to the risk of litigation by employees, consumers, suppliers, competitors, stockholders, government
agencies or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The
outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. We may incur losses
relating to these claims, and in addition, these proceedings could cause us to incur costs and may require us to devote resources to
defend against these claims that could adversely affect our results of operations. For a description of current legal proceedings, see
“Part I, Item 3, Legal Proceedings.”
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We currently lease all of our existing 832 store locations and expect that our policy of leasing rather than owning will
continue as we continue to expand. Our leases typically provide for terms of five to ten years with options on our part to extend.
Most leases also contain a kick-out clause if projected sales levels are not met and an early termination/remedy option if co-tenancy
and exclusivity provisions are violated. We believe this leasing strategy enhances our flexibility to pursue various expansion
opportunities resulting from changing market conditions and to periodically re-evaluate store locations. Our ability to open new
stores is contingent upon locating satisfactory sites, negotiating acceptable leases, recruiting and training qualified management
personnel and the availability of market relevant inventory.
As current leases expire, we believe we will either be able to obtain lease renewals for present store locations or to obtain
leases for equivalent or better locations in the same general area. Historically, we have not experienced any significant difficulty in
either renewing leases for existing locations or securing leases for suitable locations for new stores. Beginning in Fiscal 2010, we
had difficulty securing leases for new stores related to new construction due to the economic issues facing the commercial real estate
market and landlords, thus reducing our ability to open stores at our historical rates. This trend continued into Fiscal 2011, but
improved to some extent in Fiscal 2012. Based primarily on our belief that we maintain good relations with our landlords, that most
of our leases are at approximate market rents and that generally we have been able to secure leases for suitable locations, we believe
our lease strategy will not be detrimental to our business, financial condition or results of operations. We believe we will be able to
continue to accelerate our new store growth in Fiscal 2013 from Fiscal 2012 by negotiating acceptable leases for suitable locations
left vacant by recent closings of franchised and entertainment-related businesses.
Our corporate offices and our distribution center are leased under an operating lease. We own the Team facility located
in Birmingham, Alabama that warehouses inventory for educational institutions and youth associations. We believe our current
distribution center is suitable and adequate to support our needs in the next few years. The lease for our corporate offices and
distribution center expires in December 2014 and we are currently planning to build a new facility and move our corporate
offices. See “Risk Factors.”