Express 2014 Annual Report Download - page 39

(2) Includes interest under existing debt facilities.
(3) Other long-term obligations consist of employment related agreements and obligations under other long-
term agreements.
(4) We enter into operating leases in the normal course of business. Most lease arrangements provide us with
the option to renew the leases at defined terms. The future operating lease obligations would change if we
were to exercise these options, or if we were to enter into additional new operating leases. These amounts
also include all contractual lease commitments related to our flagship locations, which we are considered the
owner of for accounting purposes. Common area maintenance, real estate tax, and other customary charges
included in our operating lease agreements are not included above. Estimated annual expense incurred for
such charges is approximately $113 million.
(5) Purchase obligations are made up of merchandise purchase orders and unreserved fabric commitments.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts of our assets, liabilities, revenues, and expenses, as well as the
related disclosure of contingent assets and liabilities at the date of the financial statements. Management
evaluates its accounting policies, estimates, and judgments on an on-going basis. Management bases its estimates
and judgments on historical experience and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different assumptions and conditions.
Management evaluated the development and selection of its critical accounting policies and estimates and
believes that the following policies involve a higher degree of judgment or complexity and are most significant to
reporting its results of operations and financial position and are, therefore, discussed as critical. The following
critical accounting policies reflect the significant estimates and judgments used in the preparation of our
Consolidated Financial Statements. More information on all of our significant accounting policies can be found
in Note 2 to our Consolidated Financial Statements.
Description of Policy Judgments and Uncertainties
Effect if Actual Results Differ
from Assumptions
Gift Card Breakage
We sell gift cards in our retail stores
and through our e-commerce website
and third parties. These cards do not
expire or lose value over periods of
inactivity. We account for gift cards
by recognizing a liability at the time
a gift card is sold. We recognize
income from gift cards when they are
redeemed by the customer. In
addition, income on unredeemed gift
cards is recognized proportionally
using a time-based attribution method
from issuance of the gift card to the
time it can be determined that the
likelihood of the gift card being
redeemed is remote. The gift card
breakage rate is based on historical
redemption patterns.
Our accounting methodology for
calculating gift card breakage
contains uncertainties because it
requires management to make
assumptions that future gift card
redemptions will follow the
pattern of previous redemptions.
Our estimates for these items are
based primarily on historical
transaction experience.
We have not made any material
changes in the accounting
methodology used to determine
gift card breakage over the past
three years.
We have no reason to believe that
there will be a material change in
the future estimates or
assumptions we use to measure
gift card breakage. However, if
actual results are not consistent
with our estimates or
assumptions, we may be exposed
to losses or gains that could be
material.
A 100 basis point change in our
gift card breakage rate as of
January 31, 2015 would not have
had a material impact on pre-tax
income.
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