Express 2014 Annual Report Download - page 44

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Description of Policy Judgments and Uncertainties
Effect if Actual Results Differ
from Assumptions
Share-based Compensation
The fair value of our share-based
compensation related to stock options
is estimated using the Black-Scholes-
Merton option-pricing model, which
requires us to estimate the expected
term of the option and the expected
stock price volatility over the
expected term.
Our accounting methodology for
calculating share-based payments
contains uncertainties because it
requires management to make
assumptions and judgments to
determine the fair value of our
awards. The primary assumptions
used in the valuation of the stock
options are the expected term of
the option and the future
volatility of our stock price.
As we have limited history as a
public company, we have elected
to utilize the SEC’s simplified
method for calculation of the
expected term, which takes a
significant amount of judgment
out of this assumption. Our
volatility was estimated using
comparable companies’ volatility
over a similar expected term,
and, beginning with the second
anniversary of the IPO in May
2012, we began using our own
volatility as an additional input as
well.
We have no reason to believe
that the future volatility of our
stock will be materially different
from the estimate used in valuing
our awards.
A 10% increase in volatility
would yield an approximate 7%
increase in the Black-Scholes-
Merton valuation for stock
options.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our Revolving Credit Facility bears interest at variable rates. See Note 8 to our Consolidated Financial
Statements for further information on the calculation of the rates. We did not borrow any amounts under our
Revolving Credit Facility during 2014. Changes in interest rates are not expected to have a material impact on
our future earnings or cash flows given our limited exposure to such changes.
Foreign Currency Exchange Risk
All of our merchandise purchases are denominated in U.S. dollars, therefore we are not exposed to foreign
currency exchange risk on these purchases. However, we currently operate 17 stores in Canada, with the
functional currency of our Canadian operations being the Canadian dollar. Our Canadian operations have
intercompany accounts with our U.S. subsidiaries that eliminate upon consolidation, but the transactions resulting
in such accounts do expose us to foreign currency exchange risk. Currently, we do not utilize hedging
instruments to mitigate foreign currency exchange risks. As of January 31, 2015, a hypothetical 10% change in
the Canadian foreign exchange rate would not have had a material impact on the results of operations.
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