Stein Mart 2009 Annual Report Download - page 31

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-7
Store Closing Costs. We follow the guidance in ASC Topic 420, Exit or Disposal Cost Obligations, to record store closing costs. ASC
Topic 420 requires the recognition of costs associated with exit or disposal activities when they are incurred, generally the cease-use date.
Lease termination costs are recorded net of estimated sublease income that could reasonably be obtained for the properties.
Insurance Reserves. We use a combination of insurance and self-insurance for various risks including workers’ compensation, general
liability and associate-related health care benefits, a portion of which is paid by the covered employees. We are responsible for paying the
claims that are less than the insured limits. The reserves recorded for these claims are estimated actuarially, based on claims filed and
claims incurred but not reported. These reserve estimates are adjusted based upon actual claims filed and settled.
Store Pre-Opening Costs. Costs incurred prior to the date that new stores open are expensed as incurred.
Comprehensive Income/(Loss). Comprehensive income (loss) consists of two components, net income/(loss) and other comprehensive
income/(loss). Other comprehensive income/(loss) refers to gains and losses that, under generally accepted accounting principles, are
recorded as an element of stockholders’ equity but are excluded from net income/(loss). Accumulated other comprehensive income in
2008 and 2009 includes unrecognized actuarial gains and transition obligations related to our postretirement benefit plans. There were no
other comprehensive income/(loss) transactions in 2007. See Note 7 for further discussion.
Revenue Recognition. Revenue from sales of our merchandise is recognized at the time of sale, net of any returns, discounts and
percentage-off coupons. Future merchandise returns are estimated based on historical experience. Sales tax collected from customers is
not recognized as revenue and is included in accrued liabilities until paid. Shoe sales are excluded from net sales, as the shoe department
inventory is owned by a single supplier under a supply agreement. Our percentage of net revenue per the supply agreement is included in
other income, net in the Consolidated Statements of Operations.
Gift and Return Card Revenue Recognition. We offer electronic gift cards and electronic merchandise return cards to our customers.
No revenue is recognized at the time gift cards are sold; rather, the issuance is recorded as a liability to customers. At the time return cards
are issued for returned merchandise, the sale is reversed and the issuance is recorded as a liability to customers. Card liabilities are
reduced and sales revenue is recognized when cards are redeemed for merchandise.
Co-Brand Credit Card Program. We have a Co-Brand Credit Card Consumer Program Agreement (the “Agreement”) with GE Money
Bank (the “Bank”). Stein Mart makes the Program available to its customers, including accepting and transmitting account applications and
accepting the credit card in its stores. The Bank extends credit directly to cardholders under the program to finance purchases from Stein
Mart, as well as from other retailers, and assumes all credit risk from the credit card accounts. Cardholders earn rewards under the
program based on purchases made with the credit card at Stein Mart and other businesses where the card is accepted. The initial term of
the Agreement is for five years (ending September 2011) and renews automatically for successive one-year terms unless either party
provides notice of termination at least 180 days prior to expiration of the initial or renewal term.
We account for this Agreement using the guidance of Staff Accounting Bulletin No. 104, Revenue Recognition, and ASC Topic 605-25,
Revenue Recognition, Multiple-Element Arrangements. We evaluated all of the deliverables under the arrangement and determined that
they should be accounted for as separate units of accounting. Further, we use the residual method to allocate the amount of arrangement
consideration to the delivered items as described in ASC Topic 605-25. A summary of and our accounting for the consideration received
under the Agreement is as follows:
x The upfront signing fee we receive is being amortized on a straight-line basis over the five-year term of the Agreement with
amortization being recorded in other income.
x A portion of the non-refundable new account acquisition fee equal to the customer’s card-activation reward is deferred until such
time that it is redeemed; the remainder is recognized in other income when an account is activated.
x Royalty fees received from Bank are based on a percentage of cardholder purchases. Royalty fees are deferred as a reward
liability (in accrued liabilities) and are subsequently recognized as revenue when the reward is redeemed or upon expiration. The
related cost of the reward is recognized when the reward is redeemed.
x Reward breakage revenue is recorded in other income in the period the reward expires.
x Marketing expenditures incurred, representing payments to third parties, are expensed as incurred and recorded in selling,
general and administrative (“SG&A”) expenses. Reimbursements of marketing expenses received from the Bank are recorded in
other income in the same period as the related expenses are recorded.