Express 2010 Annual Report Download - page 84

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Self Insurance
The Company is self-insured for medical, workers’ compensation, and general liability benefits up to certain
stop-loss limits. Such costs are accrued based on known claims and an estimate of incurred but not reported
(“IBNR”) claims. IBNR claims are estimated using historical claim information and actuarial estimates. The
accrued liability for self insurance as of January 29, 2011 and January 30, 2010 was $2.4 million and $3.8
million, respectively, and is included in accrued expenses on the Consolidated Balance Sheets.
Revenue Recognition
The Company recognizes sales at the time the customer takes possession of the merchandise which, for
e-commerce revenues, requires an estimate of shipments that have not yet been received by the customer. The
estimate of these shipments is based on shipping terms and historical delivery times. Amounts related to shipping
and handling revenues billed to customers in an e-commerce sale transaction are classified as net sales, and the
related shipping and handling cost are classified as cost of goods sold, buying and occupancy costs in the
Consolidated Statements of Income. The Company’s shipping and handling revenues were $13.2 million, $8.9
million, and $2.7 million in 2010, 2009, and 2008, respectively. Associate discounts are classified as a reduction
of net sales. Net sales exclude sales tax collected from customers and remitted to governmental authorities.
The Company provides a reserve for projected merchandise returns based on prior experience. Merchandise
returns are often resalable merchandise and are refunded by issuing the same payment tender of the original
purchase. Merchandise exchanges of the same product and price, typically due to size or color preferences, are
not considered merchandise returns. The sales returns reserve was $4.9 million and $4.3 million as of
January 29, 2011 and January 30, 2010, respectively, and is included in accrued expenses on the Consolidated
Balance Sheets.
The Company sells gift cards in its retail stores and through its e-commerce website and third parties, which do
not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a liability
at the time a gift card is sold. The gift card liability balance was $22.9 million and $21.1 million, as of
January 29, 2011 and January 30, 2010, respectively, and is included in deferred revenue on the Consolidated
Balance Sheets. The Company recognizes income from gift cards when they are redeemed by the customer.
Income on unredeemed gift cards is recognized when it can be determined that the likelihood of the gift card
being redeemed is remote and that there is no legal obligation to remit the unredeemed gift cards to relevant
jurisdictions, referred to as “gift card breakage”. The gift card breakage rate is based on historical redemption
patterns and totaled $2.6 million, $2.3 million, and $2.4 million in 2010, 2009, and 2008, respectively. Gift card
breakage is included in net sales in the Consolidated Statements of Income.
Share-Based Compensation
The Company records the fair value of share-based payments to employees in the financial statements as
compensation expense, net of forfeitures, over the requisite service period on a straight-line basis.
Cost of Goods Sold, Buying and Occupancy Costs
Cost of goods sold, buying and occupancy costs, includes merchandise costs, net of discounts and allowances,
freight, inventory shrinkage, and other gross margin related expenses. Buying and occupancy expenses primarily
include payroll, benefit costs, and other operating expenses for the buying departments (merchandising, design,
manufacturing, and planning and allocation), distribution, fulfillment, rent, common area maintenance, real estate
taxes, utilities, maintenance, and depreciation for stores.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses primarily include payroll, benefit costs, and other operating
expenses for store selling and administrative departments and store marketing and advertising expenses.
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