Express 2014 Annual Report Download - page 55

Leases and Leasehold Improvements
The Company has leases that contain pre-determined fixed escalations of minimum rentals and/or rent
abatements subsequent to taking possession of the leased property. The rent expense is recognized on a straight-
line basis commencing upon possession date. The Company records the difference between the recognized rent
expense and amounts payable under the leases as deferred lease credits. The Company also has leases that
contain contingent rent provisions, such as overage rent. For these leases, the Company records a contingent rent
liability in accrued expenses on the Consolidated Balance Sheets and the corresponding rent expense in cost of
goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income
when specified financial levels have been achieved or when management determines that achieving the specified
financial levels during the year is probable.
The Company receives allowances for leasehold improvements from landlords related to its retail stores. These
allowances are generally comprised of cash amounts received from landlords as part of negotiated lease terms.
The Company records a receivable and a landlord allowance upon execution of the corresponding lease. The
landlord allowance is recorded as deferred lease credits on the Consolidated Balance Sheets. The landlord
allowance is amortized on a straight-line basis as a reduction of rent expense over the term of the lease, including
the pre-opening build-out period. The receivable is reduced as allowance amounts are received from landlords.
The Company has leasehold improvements which are depreciated over the shorter of the initial lease term,
including renewal periods if reasonably assured, or their estimated useful lives.
Debt Issuance Costs and Discount
Fees incurred in connection with the Company’s borrowings, referred to as debt issuance costs, are capitalized
and included in other assets on the Consolidated Balance Sheets. Debt discounts are reflected as a reduction of
debt on the Consolidated Balance Sheets. Debt issuance costs and debt discounts are amortized to interest
expense over the term of the respective debt agreements. As of January 31, 2015 and February 1, 2014, debt
issuance costs totaled $4.7 million and $6.2 million, respectively. The Company recorded amortization expense
related to debt issuance costs of $1.5 million, $1.4 million, and $1.3 million in 2014, 2013, and 2012,
respectively. The Company recorded amortization expense for debt discounts of $0.4 million, $0.3 million, and
$0.3 million in 2014, 2013, and 2012, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, the amount of
taxes currently payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the
estimated future tax consequences of temporary differences that currently exist between the tax basis and
financial reporting basis of the Company’s assets and liabilities. Valuation allowances are established against
deferred tax assets when it is more likely than not that the realization of those deferred tax assets will not occur.
Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those
temporary differences are expected to reverse. The effect on deferred taxes from a change in tax rate is
recognized through continuing operations in the period that includes the enactment date of the change. Changes
in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.
A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on
the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be
recognized.
The Company recognizes tax liabilities for uncertain tax positions and adjusts these liabilities when the
Company’s judgment changes as a result of the evaluation of new information not previously available. Due to
51