Express 2012 Annual Report Download - page 59

The carrying amounts reflected on the Consolidated Balance Sheets for cash, cash equivalents, receivables,
prepaid expenses, and payables as of February 2, 2013 and January 28, 2012 approximated their fair values.
Receivables, Net
Receivables, net consist primarily of tenant allowances from landlords and miscellaneous trade receivables,
which are continuously reviewed for collectability. The Company maintains an allowance for doubtful accounts
balance which totaled $1.9 million, $2.9 million, and $3.6 million as of February 2, 2013, January 28, 2012, and
January 29, 2011, respectively.
Inventories
Inventories are principally valued at the lower of cost or market on a weighted-average cost basis. The Company
writes down inventory, the impact of which is reflected in cost of goods sold, buying and occupancy costs in the
Consolidated Statements of Income and Comprehensive Income, if the cost of specific inventory items on hand
exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory. These estimates are
based on management’s judgment regarding future demand and market conditions and analysis of historical
experience. The lower of cost or market adjustment to inventory as of February 2, 2013 and January 28, 2012
was $7.6 million and $9.0 million, respectively.
The Company also records an inventory shrink reserve calculated as a percentage of cost of goods sold for
estimated merchandise inventory losses for the period between the last physical inventory count and the balance
sheet date. This estimate is based on management’s analysis of historical results. The shrink reserve was $16.5
million, $18.2 million, and $15.0 million as of February 2, 2013, January 28, 2012, and January 29, 2011,
respectively.
Advertising
Advertising production costs are expensed at the time the promotion first appears in media, store, or on the
website, except for direct response advertising costs that relate primarily to the production and distribution of the
Company’s catalogs. Direct response advertising costs are amortized over the expected future revenue stream,
which is typically 1 to 3 months from the date materials are mailed. Total advertising expense totaled $85.8
million, $83.2 million, and $72.6 million in 2012, 2011, and 2010, respectively. Advertising costs are included in
selling, general, and administrative expenses in the Consolidated Statements of Income and Comprehensive
Income.
Private Label Credit Card
The Company has an agreement with a third party to provide customers with private label credit cards (the “Card
Agreement”). Each private label credit card bears the logo of the Express brand and can only be used at the
Company’s retail store locations and website. A third-party financing company is the sole owner of the accounts
issued under the private label credit card program and absorbs the losses associated with non-payment by the
private label card holders and a portion of any fraudulent usage of the accounts. Pursuant to the Card Agreement,
the Company receives reimbursement funds from the third-party financing company for expenses the Company
incurs based on usage of the private label credit cards. These reimbursement funds are used by the Company to
fund marketing programs associated with the private label credit card and is recognized when the amounts are
fixed or determinable and collectability is reasonably assured, which is generally at the time the actual usage of
the private label credit cards or specified transaction occurs. The funds received related to these private label
credit cards are classified in selling, general, and administrative expenses in the Consolidated Statements of
Income and Comprehensive Income.
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