Stein Mart 2012 Annual Report Download - page 40

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-12
Adjustments
The following is a description of the areas in which the errors were identified and for which we made correcting adjustments to our
Consolidated Financial Statements. The associated income tax expense or benefit and related deferred tax asset or liability for each error
has also been corrected, including the impact of valuation allowance releases in 2010.
(1) Inventory markdowns - We identified and corrected errors related to the incorrect treatment of certain inventory markdowns as
promotional (temporary). Based on analysis of various factors, these inventory markdowns should have been accounted for as permanent
markdowns. Under the retail inventory method of accounting used by us, promotional markdowns do not impact the value of unsold
inventory and thus do not impact cost of sales until the merchandise is sold. Conversely, permanent markdowns reduce the value of
unsold inventory and impact cost of sales at the time the markdowns are taken.
(2) Leasehold improvement costs - We identified and corrected errors to report fixed assets related to leasehold improvements at their
gross amount with lessor reimbursements for the related construction recorded as deferred rent credits. Landlord (lessor) reimbursements
to us (lessee) for store interior construction had been incorrectly accounted for as reductions in the fixed assets related to leasehold
improvements. This practice was based on the prior belief that our leasehold improvements increased the fair value of the lessor’s
property. Management now believes that there was no significant increase in the fair value of the lessor’s leased assets and therefore
these leasehold improvements should have been recorded, depreciated over and subject to impairment exclusive of lessor
reimbursements in the respective periods. Cost of merchandise sold decreased by $3.0 million and $3.2 million for 2011 and 2010,
respectively, and Selling, general and administrative expenses increased by $1.1 million and $1.2 million for 2011 and 2010, respectively
as a result of this adjustment.
(3) Compensated absences (paid vacation) - We identified and corrected errors to record liabilities for compensated absences (paid
vacation) which were not previously recorded.
(4) Leased department commissions - We corrected the presentation of leased department commissions in the Consolidated
Statements of Income. Leased department commissions were presented in Other income, net of related expenses and have been
corrected to report Net sales (increase of $19.1 million and $18.2 million for 2011 and 2010, respectively) and Selling, general and
administrative expenses (increase of $6.4 million and $6.1 million for 2011 and 2010, respectively) on a gross basis. There was no impact
to Net income related to this change.
(5) Sales returns - We corrected the presentation of estimated sales returns in the Consolidated Statements of Income. Estimated sales
returns were previously incorrectly presented on a net basis and have been presented on a gross basis in Net sales and Cost of
merchandise sold (adjustment of $1.5 million and $1.4 million for 2011 and 2010, respectively). There was no impact to Net income related
to this change.
(6) Insurance-related assets and liabilities - We corrected the presentation of insurance-related assets and liabilities in the Consolidated
Balance Sheets. The long-term portion of insurance assets ($7.1 million) was previously incorrectly reported as Prepaid expenses and
other current assets and is now reported as Other assets. The long-term portion of insurance liabilities ($11.5 million) was previously
incorrectly reported as Accrued expenses and other current liabilities and is now reported as Other liabilities. There was no impact on Total
assets or Total liabilities related to this change.
(7) Other - We corrected certain previously identified errors and out of period adjustments that were deemed immaterial to the annual or
interim period in which they were recorded and restated prior periods to reflect these corrections in the appropriate periods. The amounts
relate to credit card reward income breakage, credit card receivables, software costs, and assets no longer in use.