Stein Mart 2011 Annual Report Download - page 22

Table of Contents
related to damaged/defective inventory are reflected as reductions to the cost of merchandise as it is received. Allowances received due to
compliance issues (primarily violations of shipping and merchandise preparation requirements) are reflected as a reduction of the cost of the
merchandise when compliance issues are identified during the receiving process. Although it is unlikely that there will be a significant
reduction in historical levels of vendor support, if a reduction were to occur, we could experience higher cost of merchandise sold.
Impairment of Long
-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Factors used in the review include management’s plans for future operations, recent
operating results and projected cash flows. For long-lived assets held for use, an impairment loss is recognized if the sum of the future
undiscounted cash flows from the use of the assets is less than the carrying value of the assets. The amount of the impairment charge is the
excess of the carrying value of the asset over its fair value. Fair value, as used in our asset impairment calculations, is based on the best
information available, including prices for similar assets. Impairment reviews are performed for individual stores during the fourth quarter, or
more frequently should circumstances change. A significant change in cash flows could result in an increase in asset impairment charges.
During 2011, we recorded $1.2 million in pre-tax asset impairment charges related to stores closed in 2011, stores closing in 2012 and certain
other under-performing stores.
Store Closing Costs.
We record costs associated with store closing activities when they are incurred, generally the cease-use date. Lease
termination costs are recorded net of estimated sublease income that could reasonably be obtained for the properties. In the event we are not
successful in subleasing closed store locations, additional store closing costs may be recorded. During 2011, we recorded $1.2 million in pre-
tax store closing charges related to stores closed or relocated in 2011.
Insurance Reserves.
We use 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. We are 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. The estimated accruals for these reserves could be
significantly affected if future claims differ from historical trends and other actuarial assumptions. As of January 28, 2012 and January 29,
2011, insurance reserves of $16.5 million and $14.9 million, respectively, were included in Accrued expenses and other current liabilities.
Historically, our actuarial estimates have not been materially different from actual results.
Valuation Allowance for Deferred Tax Assets. Income tax accounting guidance requires that companies assess whether valuation allowances
should be established against 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.
We perform a quarterly assessment of our net deferred tax assets to determine realization. During the fourth quarter of 2008, we established a
valuation allowance against deferred tax assets due to a cumulative net loss on a three-year historical basis which is considered a significant
factor that is difficult to overcome when determining if a valuation allowance is required per Accounting Standards Codification (“ASC”)
Topic 740, Income Taxes . Based on the return to profitability on a three-
year historical basis, along with our expectation of future earnings, we
reversed our remaining valuation allowance of $6.0 million in the fourth quarter of 2010. There was no valuation allowance required as of
January 28, 2012 or January 29, 2011.
Income Tax Reserves.
We record liabilities for uncertain tax positions related to federal and state income taxes. These liabilities reflect our
best estimate of our ultimate income tax liability based on the tax code, regulations, and pronouncements of the jurisdictions in which we do
business. Estimating our ultimate tax liability involves significant judgments regarding the application of complex tax regulations across many
jurisdictions. If actual results differ from estimated results, our effective tax rate and tax balances could be affected. As such, these estimates
may require adjustment in the future as additional facts become known or as circumstances change.
For a complete listing of our significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) amended ASC Topic 220, Comprehensive Income. The amended guidance
requires most entities to present changes in net income and other comprehensive income in either a single statement of comprehensive income
or two separate, but consecutive, statements. The objective of these amendments is to improve the comparability, consistency, and transparency
of financial reporting and to increase the prominence of items reported in other comprehensive income. This guidance is effective for fiscal
years beginning after December 15, 2011, however early adoption is permitted. The adoption of this guidance will not have a material impact
on our consolidated financial statements or disclosures.
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