Express 2013 Annual Report Download - page 36

Table of Contents
 

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We are subject to various claims and contingencies
related to legal, regulatory, and other matters arising
out of the normal course of business. Our
determination of the treatment of claims and
contingencies in our Consolidated Financial
Statements is based on management's view of the
expected outcome of the applicable claim or
contingency. Management may also use outside legal
advice on matters related to litigation to assist in the
estimating process.
We accrue a liability if the likelihood of an adverse
outcome is probable and the amount is reasonably
estimable. We re-evaluate these assessments on a
quarterly basis or as new material information
becomes available to determine whether a liability
should be established or if any existing liability
should be adjusted.
Our liability for claims and contingencies contains
uncertainties because the eventual outcome will
result from future events. Additionally, the
determination of current accruals requires estimates
and judgments related to future changes in facts
and circumstances, differing interpretations of the
law, assessments of the amount of damages, and
the effectiveness of strategies or other factors
beyond our control.
We have not made any material changes in the
accounting methodology used to establish our
liability for claims and contingencies over the past
3 years.
We have no reason to believe that there will be a
material change in our accrual or the assumptions
we use to establish the accrual for claims and
contingencies. However, if actual results are not
consistent with our estimates or expectations of the
eventual outcomes of cases, we may be exposed to
gains or losses that could be material and our cash
flow could be materially impacted.
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We account for income taxes using the asset and
liability method. Under this method, the amount of
taxes currently payable or refundable is 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 the financial reporting basis of our assets and
liabilities.
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 in earnings in the period that includes the
enactment date of the change.
Our accounting methodology for calculating our tax
liabilities contains uncertainties because our
judgments may change as a result of evaluation of
new information not previously available.
Our deferred tax asset and liability balances contain
uncertainty because changes in tax laws and rates
may differ from the estimates and judgments made
by management.
We may be subject to periodic audits by the Internal
Revenue Service and other taxing authorities. These
audits may challenge certain of our tax positions,
such as the timing and amount of deductions and
allocation of taxable income to the various
jurisdictions.
We have no reason to believe there is a likelihood
that there will be a material change in our tax related
balances. However, due to the complexity of some
of these uncertainties, the ultimate resolution may
result in a payment that is materially different from
the current estimate of our tax liabilities.
We have no reason to believe that our results of
operations will differ materially from our current
expectations. However, if actual results are not
consistent with our estimates, we may need to
adjust the valuation allowance in the future. An
increase or decrease in the valuation allowance
would result in a respective increase or decrease in
our effective tax rate in the period the increase
occurs.
To the extent that we prevail in matters for which
unrecognized tax benefit liabilities have been
established or are required to pay amounts in excess
of recorded unrecognized tax benefit liabilities, our
effective tax rate in a given financial statement
period could be materially affected. An unfavorable
tax settlement would require use of our cash and
result in an increase in our effective tax rate in the
period of resolution. A favorable tax settlement
would be recognized as a reduction in our effective
tax rate in the period of resolution.
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