Stein Mart 2008 Annual Report Download - page 36

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-12
SFAS No. 109, Accounting for Income Taxes, requires that companies assess whether valuation allowances should be established against
their deferred tax assets based on consideration of all available evidence using a “more likely than not” standard. In making such
assessments, significant weight is to be given to evidence that can be objectively verified. A company’s current or previous losses are
given more weight than its future outlook, and although the Company was profitable in 2006 and posted a small loss in 2007, the results in
2008 produced a cumulative three-year loss, which is considered a significant factor that is difficult to overcome. Accordingly, the Company
established a valuation allowance of $19.0 million to reflect the amount of deferred tax assets for which it is more likely than not that
realization will not occur. The remaining deferred tax asset of $0.3 million at January 31, 2009 represents the estimated tax benefit
attributable to taxable income available in prior carryback years under current tax laws.
Deferred tax assets (liabilities) are reflected on the Company’s Consolidated Balance Sheets as follows:
January 31,
2009
February 2,
2008
Current deferred tax assets (included in prepaid expenses
and other current assets) $ - $ 405
Current deferred tax liabilities (included in accrued liabilities) (3,638) -
Non-current deferred tax assets (included in other assets) 3,924 8,498
Net deferred tax asset $ 286 $8,903
The components of income tax benefit (provision) are as follows:
2008 2007 2006
Current:
Federal $18,927 $(1,149) $(24,438)
State 38 (940) (1,852)
18,965 (2,089) (26,290)
Deferred:
Federal (7,622) 3,738 4,234
State (762) 401 302
(8,384) 4,139 4,536
Income tax benefit (provision) $10,581 $ 2,050 $(21,754)
In addition to the increase from the deferred tax benefit, net deferred tax assets increased $5.8 million in 2007 due to the recording of
deferred tax assets related to the adoption of FIN48. In 2008, the change in deferred tax assets includes approximately $0.2 million related
to decreases in deferred tax assets related to FIN48.
During 2008, 2007 and 2006, the Company realized tax (deficiencies) benefits of $(0.2) million, $0.2 million and $0.8 million, respectively,
related to share-based compensation plans that were recorded to additional paid-in-capital. The income tax benefit (provision) differs from
the amount of income tax determined by applying the statutory U.S. corporate tax rate to pre-tax amounts due to the following items:
2008 2007 2006
Federal tax at the statutory rate 35.0% 35.0% (35.0)%
State income taxes, net of federal benefit 4.2 6.1 (4.1)
Change in valuation allowance (23.2) --
Business tax credits 0.5 3.5 1.3
Effect of FIN48 0.2 (9.0) -
Compensation-related items (0.2) (2.7) (0.2)
Change in cash surrender value (1.9) (1.4) (0.5)
Other permanent items (1.7) (0.3) 1.6
Income tax benefit (provision) 12.9% 31.2% (36.9)%
At January 31, 2009, the company had state net operating loss carryforwards of approximately $58.0 million which begin to expire in 2010
through 2028. The Company has federal and state tax credits of approximately $1.0 million, $0.8 million of which do not expire and the
remainder expires in 2012 through 2028.