Express 2013 Annual Report Download - page 47

Table of Contents
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 the complexity of some of these uncertainties, the ultimate resolution may result in a payment
that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and
the effective tax rate in the period in which the new information becomes available.
Interest and penalties related to unrecognized tax benefits are recognized within income tax expense in the Consolidated Statements of Income and
Comprehensive Income. Accrued interest and penalties are included within accrued expenses on the Consolidated Balance Sheets.
The income tax liability was $19.2 million and $17.2 million as of February 1, 2014 and February 2, 2013, respectively, and was included in accrued
liabilities on the Consolidated Balance Sheets.
The Company may be subject to periodic audits by the Internal Revenue Service ("IRS") and other taxing authorities. These audits may challenge certain of the
Company's tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions.
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The Company is generally self-insured in the United States for medical, workers' compensation, and general liability benefits up to certain stop-loss limits.
Such costs are accrued based on known claims and estimates of incurred but not reported (“IBNR”) claims. IBNR claims are estimated using historical claim
information and actuarial estimates. The accrued liability for self insurance is included in accrued expenses on the Consolidated Balance Sheets.
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The Canadian dollar is the functional currency for the Company's Canadian business. Assets and liabilities denominated in foreign currencies were translated
into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies
were translated into U.S. dollars at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included
in other expense (income), net whereas related translation adjustments are reported as an element of other comprehensive income, both of which are included in
the Consolidated Statements of Income and Comprehensive Income. The Company designates certain foreign currency denominated, long-term intercompany
financing transactions as being of a long-term investment nature and records gains and losses on the transactions arising from changes in exchange rates as
translation adjustments.
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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 costs are classified as cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income. The
Company's shipping and handling revenues were $14.5 million, $17.4 million, and $15.8 million in 2013, 2012, and 2011, 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 also sells merchandise to multiple franchisees pursuant to different franchise agreements. Revenues may consist of sales of product and/or
royalties. Revenues from products sold to franchisees are recorded at the time title transfers to the
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