Stein Mart 2008 Annual Report Download - page 37

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-13
The Company adopted the provisions of FIN48 on February 4, 2007. As a result of the implementation of FIN 48, the Company recognized
a $0.2 million increase in the liability for unrecognized tax benefits, 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 31, 2009:
2008 2007
Beginning balance $ 1,256 $ 7,267
Increases due to:
Tax positions taken in prior years 1,310 3,984
Tax positions taken in current year -375
Decreases due to:
Tax positions taken in prior years (1,519) (3,653)
Settlements with taxing authorities (106) (6,717)
Lapse of statute limitations (226) -
Ending balance $ 715 $ 1,256
As of January 31, 2009, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.9 million.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. During the fiscal years ended
January 31, 2009 and February 2, 2008, the Company recognized approximately $0.1 million and $0.2 million in interest and penalties.
The total amount of accrued interest and accrued penalties as of January 31, 2009 and February 2, 2008 was $0.5 million.
The Company and/or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few
exceptions, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years ended before 2005
and is no longer subject to state and local tax examinations for fiscal years ended before 2004. During 2007, the Internal Revenue Service
(IRS) completed its examination of the Company’s federal income tax returns for fiscal years 2003 and 2004 and the Company settled with
the IRS. The most significant adjustments were related to the Company’s revenue recognition associated with gift and return cards.
Subsequent to January 31, 2009, the IRS completed its examination of the Company’s 2005 and 2006 federal income tax returns and the
Company settled with the IRS. The settlement will result in income tax refunds of approximately $2.2 million, primarily related to reversals
of favorable roll forward adjustments from the 2003 and 2004 IRS examination. Consequently, the unrecognized tax benefits will increase
by approximately $2.2 million during 2009.
7. Employee Benefit Plans
The Company has 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, the
Company can make discretionary contributions which vest at a rate of 20 percent per year after two years of service. During 2008, 2007
and 2006, the Company matched 50 percent of an employee’s voluntary pre-tax contributions up to a maximum of four percent of an
employee’s compensation. The Company’s matching portion vests in accordance with the plan’s vesting schedule. Total Company
contributions to the retirement plan, net of forfeitures, were $1.5 million in 2008 and 2007 and $1.4 million in 2006. The Company has
suspended its match for 2009.
The Company has 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 one-half to two and one-half times final base salary. As discussed in the recent accounting pronouncements section of Note 1 to
the Notes to Consolidated Financial Statements, the Company adopted EITF 06-4 on February 3, 2008 and recorded a postretirement
benefit liability pertaining to these life insurance benefits of $4.5 million through a reduction to retained earnings. The Company’s
postretirement cost was $0.9 million in 2008. The postretirement benefit liability was $4.6 million at January 31, 2009 and is classified in
other liabilities. The $0.8 million in accumulated other comprehensive income on the consolidated balance sheet at January 31, 2009
relates to these benefits.
The Company also has 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, 2007 and 2006, the Company matched the officers’ and key executives’ contributions
100%, and the director-level employees’ contributions 50%, up to the first 10% of compensation deferred. The Company has suspended its