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STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-12
During the fourth quarter of 2008, we established a valuation allowance against deferred tax assets because 2008 operating results
produced a cumulative three-year loss, which is considered a significant factor that is difficult to overcome when determining if a valuation
allowance is required per ASC Topic 740, Income Taxes. Although we were profitable in 2009, we remain in a cumulative three-year loss.
We perform a quarterly assessment of net deferred tax assets and plan to carry a valuation allowance until such time that positive evidence
is sufficient to justify realization. The valuation allowance was $16.7 million and $19.0 million at January 30, 2010 and January 31, 2009,
respectively.
Deferred tax assets (liabilities) are reflected on the Consolidated Balance Sheets as follows:
January 30,
2010
January 31,
2009
Current deferred tax liabilities (included in accrued liabilities) $(2,572) $(3,638)
Non-current deferred tax assets (included in other assets) 2,572 3,924
Net deferred tax asset $ - $ 286
The components of income tax provision (benefit) are as follows:
2009 2008 2007
Current:
Federal $10,209 $(18,927) $ 1,149
State 361 (38) 940
10,570 (18,965) 2,089
Deferred:
Federal 286 7,622 (3,738)
State - 762 (401)
286 8,384 (4,139)
Income tax provision (benefit) $10,856 $(10,581) $(2,050)
During 2009, 2008 and 2007, we realized tax benefits (deficiencies) of $0.2 million, $(0.2) million and $0.2 million, respectively, related to
share-based compensation plans that were recorded to additional paid-in-capital. The income tax provision (benefit) 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:
2009 2008 2007
Federal tax at the statutory rate 35.0% (35.0)% (35.0)%
State income taxes, net of federal benefit 3.8 (4.2) (6.1)
Valuation allowance (6.2) 23.2 -
Business tax credits (1.0) (0.5) (3.5)
Effect of changes in tax uncertainties 0.4 (0.2) 9.0
Compensation-related items 0.2 0.2 2.7
Change in cash surrender value (1.4) 1.9 1.4
Other 0.8 1.7 0.3
Income tax provision (benefit) 31.6% (12.9)% (31.2)%
The state tax provision included in the Consolidated Statements of Operations is lower than the state tax rate included in the above rate
reconciliation due to the favorable impact of the utilization of state net operating loss carryforwards for which a valuation allowance was
previously recorded. At January 30, 2010, we had state net operating loss carryforwards of approximately $21.0 million which begin to
expire in 2011 through 2028.