Rue 21 2010 Annual Report Download - page 57

new inventory in certain circumstances will displace merchandise units currently on-hand. The markdown reserve is
recorded as an increase to cost of goods sold in the accompanying Consolidated Statements of Income.
The Company also estimates a shrinkage reserve for the period of time between the last physical count and the
balance sheet date. The estimate for shrinkage reserve can be affected by changes in merchandise mix and changes
in actual shrinkage trends.
Property and Equipment
Property and equipment are recorded on the basis of cost with depreciation and amortization computed
utilizing the straight-line method over the estimated useful lives as follows:
Furniture and fixtures ..................... 7years
Leasehold improvements . . . ............... Lesser of 10 years or lease term
Automobiles ........................... 5years
Computer equipment and software ........... 3to5years
In accordance with the FASB’s authoritative guidance related to the impairment or disposal of long-lived
assets, impairment losses may be recorded on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets
are less than the carrying amounts of those assets. If such a condition occurs, the assets are adjusted to their
estimated fair value. Impairment charges of $221, $273 and $219 were recognized for the fiscal years ended
January 29, 2011, January 30, 2010, January 31, 2009, respectively, for assets related to stores to be converted and
are recorded in selling, general, and administrative expense in the accompanying Consolidated Statements of
Income.
Deferred Rent and Tenant Allowances
Deferred rent is recognized when a lease contains a predetermined fixed escalation of minimum rent. The
Company recognizes the related rent expense on a straight-line basis from possession date and records the
difference between the recognized rental expense and the amounts payable under the lease as deferred rent liability.
Also included in deferred rent are tenant allowances received from landlords in accordance with negotiated lease
terms. The tenant allowances are amortized as a reduction to rent expense on a straight-line basis over the term of
the lease (including the pre-opening build-out period). The short-term portion of deferred rent is recorded in accrued
expenses and other current liabilities and the long-term portion is included in deferred rent, tenant allowances and
other long-term liabilities in the accompanying Consolidated Balance Sheets.
Insurance and Self-Insurance
The Company uses a combination of insurance and self-insurance for a number of risk management activities
including workers’ compensation, general liability, automobile liability, and employee-related health care benefits,
a portion of which is paid by the employees. Costs related to claims are accrued based on known claims and
historical experiences of incurred but not reported claims received from our insurers. The Company believes that it
has adequately reserved for its self-insurance liability, which is capped through the use of stop-loss contracts and
specified retentions with insurance companies. However, any significant variation of future claims from historical
trends could cause actual results to differ from the accrued liability.
Revenue Recognition
Revenue is recognized upon purchase of merchandise by customers. Allowances for sales returns are recorded
as a reduction of net sales in the periods in which the sales are recognized. Consistent with our merchandise return
policy of 30 days, the allowance for sales returns at each period end is calculated and recorded based upon an
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rue21, inc. and subsidiary
Notes to Consolidated Financial Statements — (continued)