Stein Mart 2015 Annual Report Download - page 34

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-10
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.
In 2015, 2014 and 2013, we recognized $1.4 million, $1.1 million and $1.0 million, respectively, of breakage income on unused gift and
merchandise return cards. 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. 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 an estimated redemption period. Breakage income is recorded within selling,
general and administrative expenses (“SG&A”) in the Consolidated Statements of Income.
Co-Brand and Private Label Credit Card Programs. We offer a co-branded credit card and a private label credit card under the Stein
Mart brand. These cards are issued by a third-party bank, Synchrony Bank (“Synchrony”), formerly GE Capital Retail Bank. Synchrony
extends credit directly to cardholders and provides all servicing for the credit card accounts and bears all credit and fraud losses. Once a
card is activated, the co-branded credit card customers are eligible to participate in the credit card rewards program, which provides for an
incentive to cardholders in the form of reward certificates upon the cumulative purchase of an established amount. Stein Mart cardholders
also receive special promotional offers and advance notice of in-store sales events. In 2015, 2014 and 2013, we recognized $5.6 million,
$4.8 million and $2.9 million, respectively, of income from these programs which are recorded within SG&A in the Consolidated Statements
of Income. See Note 13 for further discussion.
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. Construction allowances and other such lease incentives are recorded as a deferred rent liability and are
amortized on a straight-line basis as a reduction of rent expense.
Advertising Expense. Advertising costs are expensed as incurred. Advertising expenses of $57.5 million, $56.3 million and $54.0 million
are reflected in SG&A in the Consolidated Statements of Income for 2015, 2014 and 2013, respectively.
Income Taxes. We follow the guidance in ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities
for the expected future income tax consequences of events that have been included in the Consolidated Financial Statements or tax
returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement
carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the
deferred income tax assets will not be realized. See Note 6 for further discussion.
Share-Based Compensation. We follow the guidance in ASC Topic 718, Stock Compensation, to record share-based compensation.
Pursuant to the guidance, we recognize expense in the financial statements for the fair values of all share-based payments to employees
over the employees’ requisite service periods.
Earnings Per Share (“EPS”). We follow the guidance of ASC Topic 260, Earnings Per Share, which clarifies that unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and are to be included in the computation of net income per share, or EPS, under the two-class method. Our restricted stock awards in
2013 and prior are considered “participating securities” because they contain non-forfeitable rights to dividends. Under the two-class
method, EPS is computed by dividing earnings allocated to common shareholders by the weighted-average number of common shares
outstanding for the period. In applying the two-class method, earnings are allocated to both common stock shares and participating
securities based on their respective weighted-average shares outstanding for the period.