Stein Mart 2009 Annual Report Download - page 37

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-13
On February 4, 2007, we adopted new guidance on the accounting for uncertainty in income taxes. As a result, we recognized a $0.2
million increase in the liability for unrecognized tax benefits (“UTBs”), which was accounted for as a reduction of retained earnings. The
following is a reconciliation of the change in the amount of unrecognized tax benefits from February 4, 2007 to January 30, 2010:
2009 2008 2007
Beginning balance $ 715 $ 1,256 $ 7,267
Increases due to:
Tax positions taken in prior years 4,292 1,310 3,984
Tax positions taken in current year - - 375
Settlements with taxing authorities 1,498 - -
Decreases due to:
Tax positions taken in prior years (1,123) (1,519) (3,653)
Settlements with taxing authorities - (106) (6,717)
Lapse of statute limitations (231) (226) -
Ending balance $5,151 $ 715 $ 1,256
As of January 30, 2010, the amount of UTBs that, if recognized, would affect the effective tax rate was $3.8 million. We recognize interest
and penalties related to unrecognized tax benefits in income tax expense. During the fiscal years ended January 30, 2010, January 31,
2009 and February 2, 2008, we recognized approximately $0.5 million, $0.1 million and $0.2 million in interest and penalties. The total
amount of accrued interest and accrued penalties as of January 30, 2010 and January 31, 2009 was $1.0 million and $0.5 million,
respectively.
UTBs increased $4.3 million in 2009 related primarily to certain tax positions for income tax returns filed this year and changes in judgment
and estimates related to certain state income tax uncertainties due to changes in circumstances. In addition, the IRS completed its
examination of our 2005 and 2006 federal income tax returns during 2009 and we settled with the IRS. This settlement and the settlement
of other state examinations resulted in net income tax refunds which increased the UTBs by approximately $1.5 million.
We are subject to periodic review by federal, state and local taxing authorities in the ordinary course of business. With few exceptions, we
are no longer subject to federal and state income tax examinations for fiscal years ended before 2006 and 2005, respectively. The
examination of our 2007 and 2008 federal income tax returns and certain state income tax examinations currently in process are expected
to be completed over the next twelve months. As a result, it is reasonably possible that the total amount of gross UTBs may decrease by a
range estimated at $1.5 million to $4.5 million during the next twelve months related to settlements of these examinations.
7. Employee Benefit Plans
We have a defined contribution retirement plan (a 401K plan) covering employees who are at least 21 years of age, have completed at
least one year of service and who work at least 1,000 hours annually. Under the profit sharing portion of the plan, we can make
discretionary contributions which vest at a rate of 20 percent per year after two years of service. During 2008 and 2007, we matched 50
percent of an employee’s voluntary pre-tax contributions up to a maximum of four percent of an employee’s compensation. Our matching
portion vests in accordance with the plan’s vesting schedule. Total Company contributions to the retirement plan, net of forfeitures, were
$55 thousand in 2009 and $1.5 million in 2008 and 2007. We suspended our match for 2009, but we will match contributions again in
2010.
We have an executive deferral plan providing officers, key executives and director-level employees with the opportunity to participate in an
unfunded, deferred compensation program. Under the program, participants may defer up to 100% of their base compensation and
bonuses earned. During 2008 and 2007, we matched the officers’ and key executives’ contributions 100%, and the director-level
employees’ contributions 50%, up to the first 10% of compensation deferred. We suspended our match for 2009 and 2010. A participant’s
Company matching contributions and related investment earnings vest at 20% per year in each of years four through eight, at which time a
participant is fully vested. The liability to the employees for amounts deferred was $3.2 million at January 30, 2010 and $7.1 million at
January 31, 2009, and is included in other liabilities in the Consolidated Balance Sheets. The expense for this plan, net of forfeitures, was
$0.1 million in 2009, $1.0 million in 2008 and $0.8 million in 2007.
We have an executive split-dollar life insurance plan wherein eligible executives are provided with pre-retirement life insurance protection
based upon three to five times base salary. Upon retirement, the executive is provided with life insurance protection based upon one and