Stein Mart 2008 Annual Report Download - page 31

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-7
Insurance Reserves. The Company uses 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. The
Company is 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 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 loss. The Company’s accumulated other comprehensive income in 2008
includes unrecognized gains on postretirement benefit plan obligations. There were no other comprehensive income (loss) transactions in
2007 and 2006. See Note 7 for further discussion.
Revenue Recognition. Revenue from sales of the Company’s merchandise is recognized at the time of sale, net of any returns and
allowances, 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. Shoe sales are excluded from net sales, as the
shoe department inventory was owned by a single supplier under a supply agreement in 2008 and 2007 and a second supplier under a
sublease agreement in 2006. The Company’s percentage of net revenue per the supply agreement and sublease rental income per the
sublease agreement are included in other income, net in the Consolidated Statements of Operations.
Gift and Return Card Revenue Recognition. The Company offers electronic gift cards and electronic merchandise return cards to its
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. In September 2006 the Company entered into a Co-Brand Credit Card Consumer Program Agreement
(the “Agreement”) with GE Money Bank (the “Bank”). During the term of the Agreement, Stein Mart will make the Program available to its
customers, including accepting and transmitting account applications and accepting the credit card in its stores. The Bank will extend 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 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 EITF No. 00-21,
Revenue Arrangements with Multiple Deliverables. 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 EITF No. 00-21. A summary of and our accounting for the consideration received
under the Agreement is as follows:
xAn upfront signing fee is amortized on a straight-line basis over the five-year term of the Agreement and amortization is recorded
in other income.
xA portion of the non-refundable new account acquisition fee is deferred until such time that a cardholder redeems their initial
card-activation reward (of a specified dollar amount); the remainder is recognized in other income when an account is activated.
xRoyalty 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.
xReward breakage revenue is recorded in other income in the period the reward expires.
xMarketing expenditures incurred by the Company, 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.
Operating Leases. The Company leases all of its retail stores under operating leases. Certain lease agreements contain rent holidays,
and/or rent escalation clauses. Except for contingent rent, the Company recognizes rent expense on a straight-line basis over the "lease