NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Standards that were adopted

In the first quarter of the current fiscal year (Fiscal 2018), we adopted Accounting Standard Update (ASU) 2016-09 – Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. Excess income tax benefits and tax deficiencies related to share-based payments are now recognized within income tax expense in the statement of income, rather than within additional paid-in capital on the balance sheet. The impact to our results of operations related to ASU 2016-09 in Fiscal 2018 was an increase in the provision for income taxes of $0.7 million. The future impact on our results of operations will depend in part on the market prices of our common stock on the dates there are taxable events related to equity awards. We elected to account for forfeitures of share-based awards as they occur rather than estimate expected forfeitures, with the change being applied on a modified retrospective basis that resulted in a cumulative effect reduction to retained earnings of $0.8 million as of January 28, 2017.

In July 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-11, Inventory – Simplifying the Measurement of Inventory, which requires all inventory, other than inventory measured at last-in, first out (LIFO) or the retail inventory method, to be measured at the lower of cost and net realizable value. This ASU was effective for fiscal years beginning after December 15, 2016. The adoption of ASU 2015-11 did not have any impact on our consolidated financial statements.

Standards that are not yet adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU updates accounting guidance on revenue recognition. In August 2015, the FASB provided a one-year deferral of the effective date for annual and interim reporting periods beginning after December 15, 2017. We have completed a scoping analysis of the standard and have identified the revenue streams that will be affected by ASU 2014-09. The adoption of ASU 2014-09 will result in newly designed processes and internal controls related to:

gift card breakage which will be recognized in proportion to the customer redemption pattern as opposed to when redemption of the gift card is deemed remote;

the stand-alone benefit received by customers through the Hibbett Rewards customer loyalty program recorded as a separate performance obligation; and

gross rather than net recognition of our liability for net sales returns.

We will adopt this ASU on the first day of Fiscal 2019 using the modified retrospective method with a cumulative adjustment to retained earnings. Adoption of the standard will not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 – Leases, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. We expect to adopt ASU 2016-02 in our fiscal year beginning February 3, 2019 (Fiscal 2020), using the modified retrospective transition approach. Our lease accounting software has been upgraded with ASU 2016-02 functionality.

While we continue to assess the effect of adoption of ASU 2016-02 and the available practical expedients, we anticipate its implementation will result in recognition of approximately $155.0 million to $185.0 million in net ROU assets and approximately $180.0 million to $210.0 million in lease liabilities. We do not expect a significant change in our leasing strategy between now and adoption.

We continuously monitor and review all current accounting pronouncements and standards from the FASB of U.S. GAAP for applicability to our operations. As of February 3, 2018, there were no other new pronouncements, interpretations or staff positions that had or were expected to have a significant impact on our operations.