Stein Mart 2011 Annual Report Download - page 34

Table of Contents
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
Factors used in the review include management’s plans for future operations, recent operating results and projected cash flows. See Note 3 for
further discussion.
Fair Value Measurements
We follow the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. This guidance also establishes the following three-
level hierarchy
based upon the transparency of inputs to the valuation of an asset or liability on the measurement date:
Assets and liabilities measured at fair value on a recurring basis include cash and cash equivalents. Assets and liabilities measured on a non-
recurring basis include store related assets as used in our impairment calculations. See Note 3 for further discussion.
Store Closing Costs. We follow the guidance in ASC Topic 420, Exit or Disposal Cost Obligations, to record store closing costs. ASC Topic
420 requires the recognition of costs associated with exit or disposal 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.
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.
Store Pre-Opening Costs. Costs incurred prior to the date that new stores open are expensed as incurred.
Comprehensive Income. Comprehensive income consists of two components, net income and other comprehensive income. Other
comprehensive income refers to gains and losses that, under generally accepted accounting principles, are recorded as an element of
shareholders’ equity but are excluded from net income. Accumulated other comprehensive (loss) income in 2011, 2010 and 2009 includes
unrecognized actuarial (losses) gains and transition obligations related to our postretirement benefit plans. See Note 8 for further discussion.
Revenue Recognition. Revenue from sales of our merchandise is recognized at the time of sale, net of any returns, 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 expenses and other current liabilities until paid. Shoe sales are excluded from net sales, as the shoe
department inventory is owned by a single supplier under a supply agreement. Our percentage of net revenue per the supply agreement is
included in Other income, net in the Consolidated Statements of Income.
We offer electronic gift cards and electronic merchandise return cards to our customers. These cards do not have expiration dates. No revenue
is recognized at the time gift cards are sold; rather, the issuance is recorded as a liability to customers. At the time merchandise return cards are
issued for returned merchandise, the sale is reversed and the issuance is recorded as a liability to customers. These card liabilities are reduced
and sales revenue is recognized when cards are redeemed for merchandise. Card liabilities are included within Accrued expenses and other
current liabilities in the Consolidated Balance Sheets.
During 2011 and 2010, we recognized $1.0 million and $10.3 million, respectively, of breakage income on unused gift and merchandise return
cards. Results for 2010 includes a gain of $9.7 million to recognize cumulative breakage on unused gift and merchandise return cards since the
inception of these programs. Breakage income is recognized when the likelihood of the card being redeemed by the customer is remote and we
have determined that there is no legal obligation to remit card balances to relevant jurisdictions. Prior to the second quarter of 2010, we had not
recognized breakage on card balances pending our final determination of the escheat laws applicable to our operations and historical
redemption patterns. We follow the Redemption Recognition Method to account for breakage of unused cards where breakage is recognized as
cards are redeemed for the purchase of merchandise based upon a historical breakage rate over
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Level 1:
Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level 2:
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level 3:
Unobservable inputs that reflect assumptions about what market participants would use in pricing assets or liabilities
based on the best information available.