Stein Mart 2012 Annual Report Download - page 22

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management judgments and estimates including, among others, merchandise markon, markup, markdowns and shrinkage, which
significantly affect the ending inventory valuation at cost as well as the corresponding charge to cost of goods sold. In addition, failure to
take appropriate permanent markdowns currently can result in an overstatement of inventory.
We perform physical inventory counts at all stores annually. Included in the carrying value of merchandise inventories is a reserve for
shrinkage. Shrinkage is estimated based on historical physical inventory results as a percentage of sales for the year. The difference
between actual and estimated amounts in any year may cause fluctuations in quarterly results, but is not a factor in full year results.
Vendor Allowances. We receive allowances from some of our vendors primarily related to markdown reimbursement, damaged/defective
merchandise and vendor compliance issues. Vendor allowances are recorded when earned. Allowances received from vendors related to
profitability of inventory recently sold are reflected as reductions to cost of merchandise sold in the later of the period that the merchandise
markdown is incurred or the allowance is negotiated. Allowances received from vendors related to damaged/defective inventory are
reflected as reductions to the cost of merchandise as it is received. Allowances received due to vendors’ failure to comply with our policies
(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 2012, 2011 and 2010, we recorded $0.5 million, $1.2 million and $1.2 million, respectively,
in asset impairment charges.
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 2012, 2011 and 2010,
we recorded $1.0 million, $1.2 million and $1.9 million, respectively, in store closing charges.
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. We are responsible for paying the claims that are less than the insured limits. The
reserves recorded for these claims are actuarially estimated 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 February 2, 2013 and January 28, 2012,
insurance reserves of $16.8 million and $16.5 million, respectively, were included in Accrued expenses and other current liabilities and
Other 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. There was no valuation allowance required as
of February 2, 2013 or January 28, 2012. As of January 30, 2010, the Company had a valuation allowance on its net deferred tax asset
which was released in 2010.
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.