Stein Mart 2011 Annual Report Download - page 35

Table of Contents
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
an estimated redemption period (60 months). Breakage income is recorded within Other income, net in the Consolidated Statements of Income.
Co-Brand Credit Card Program. In October 2011, we entered into an Amended and Restated Co-Brand and Private Label Credit Card
Consumer Program Agreement (the “Agreement”) with GE Capital Retail Bank (“GE”). The Agreement amends the Co-Brand Credit Card
Consumer Program Agreement, dated September 28, 2006 (the “Prior Agreement”), for our co-branded consumer credit card program (the
“Co-Brand Program”). The Agreement provides for continuation of the Co-Brand Program and establishes a private label credit card (the
“PLCC Program”) which will be offered to our customers beginning in the second quarter of 2012. The Co-
Brand Program and PLCC Program
are collectively referred to as the “Program”.
The initial term of the Agreement is for seven years and renews automatically for successive one-year terms unless either party provides notice
of termination at least 180 days prior to expiration of the initial or renewal term. The Agreement contains early termination rights for each
party, including rights upon default or upon other specified events. During the term of the Agreement, we will make the Program available to
our customers, including accepting and transmitting account applications and accepting credit cards through our retail locations. GE will extend
credit directly to cardholders under the Program to finance purchases from Stein Mart and, for co-brand cardholders, from other retailers. GE
will provide all servicing for the credit card accounts and bear all credit and fraud losses. We will maintain a cardholder rewards program and
fund rewards issued to and redeemed by cardholders as part of that program. Co-brand cardholders earn reward certificates based on purchase
volume and all cardholders will be able to participate in in-store “extra savings events”.
Consistent with the Prior Agreement, we account for this Agreement using the guidance of Staff Accounting Bulletin No. 104, Revenue
Recognition
, and ASC Topic 605-25, Revenue Recognition, Multiple-Element Arrangements . The current deliverables and consideration
received from GE under the new Agreement related to the ongoing Co-Brand Program, and the accounting for such consideration, is consistent
with the Prior Agreement, except that we are no longer receiving new account fees. New account fees were $2.7 million, $3.0 million and $3.2
million during fiscal 2011, 2010 and 2009, respectively. We are evaluating our accounting for the deliverables and related consideration for the
PLCC Program which will be effective in the second quarter of 2012 when the PLCC Program is launched.
A summary of, and our accounting, for the consideration received in fiscal 2011 under the Agreement related to the Co-Brand Program is as
follows:
Operating Leases. We lease all of our retail stores under operating leases. Certain lease agreements contain rent holidays, and/or rent
escalation clauses. Except for contingent rent, we recognize rent expense on a straight-line basis over the lease term and record the difference
between the amount charged to expense and the rent paid as a deferred rent liability. Contingent rent, determined based on a percentage of sales
in excess of specified levels, is recognized as rent expense when achievement of the specified sales that triggers the contingent rent is probable.
The landlord/lessor constructs the building leasehold improvements for the majority of our stores. However, in certain “replacement-tenant”
situations, we may perform the remodeling. To determine the proper recording of improvements, we first ascertain whether the remodeling falls
within the scope of ASC Topic 840-40, Leases, Leaseback Transactions . If it does not, we assess whether such improvements are to be
accounted for as lessor or lessee assets. If the landlord/lessor makes the improvements and presents us with the finished space on a “turnkey”
basis, we view the assets as being lessor assets. In situations where we do the remodeling work and receive an allowance that
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• The upfront signing fee we received is being amortized on a straight-line basis over the term of the Agreement with amortization
being recorded in Other income.
• A portion of the non-refundable new account acquisition fee (discontinued in October 2011) equal to the customer’s card-activation
reward was deferred until such time that it was redeemed; the remainder was recognized in Other income when the account was
activated.
• Royalty fees received from the Bank are based on a percentage of cardholder purchases. Royalty fees are deferred as a reward
liability (in Accrued expenses and other current liabilites) and are subsequently recognized as revenue when the reward is redeemed
or upon expiration. The related cost of the reward is recognized when the reward is redeemed.
•
Reward breakage revenue is recorded in Other income in the period the reward expires.
• Marketing expenditures incurred, representing payments to third parties, are expensed as incurred and recorded in Selling, general
and administrative (“SG&A”) expenses. Reimbursements of marketing expenses received from the Bank are recorded in Other
income in the same period as the related expenses are recorded.