10-Q 1 a10-qq22012.htm 10-Q 10-Q Q2 2012
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM 10-Q
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 28, 2012
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission File Number 001-34742
 
EXPRESS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
26-2828128
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1 Express Drive
Columbus, Ohio
 
43230
(Address of principal executive offices)
 
(Zip Code)
Telephone: (614) 474-4001
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
The number of outstanding shares of the registrant’s common stock was 86,757,894 as of August 24, 2012.

1


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Quarterly Report") contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, and financial results, our plans and objectives for future operations, growth or initiatives, strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
changes in consumer spending and general economic conditions;
our ability to identify and respond to new and changing fashion trends, customer preferences, and other related factors;
fluctuations in our sales and results of operations on a seasonal basis and due to a variety of other factors;
increased competition from other retailers;
the success of the malls and shopping centers in which our stores are located;
our dependence upon independent third parties to manufacture all of our merchandise;
the availability constraints and price volatility of raw materials and labor used to manufacture our products;
interruptions of the flow of merchandise from international manufacturers causing disruptions in our supply chain;
shortages of inventory, delayed shipments to our online customers, and harm to our reputation due to difficulties or shut-down of distribution facilities;
our reliance upon independent third-party transportation providers for substantially all of our product shipments;
our dependence upon key executive management;
our growth strategy, including our international expansion plan;
our dependence on a strong brand image;
our leasing substantial amounts of space;
the failure to find store employees that can effectively operate our stores;
our reliance on Limited Brands, Inc. ("Limited Brands") to provide us with certain key services for our business;
our reliance on information systems and any failure, inadequacy, interruption or security failure of those systems;
claims made against us resulting in litigation;
changes in laws and regulations applicable to our business;
our inability to protect our trademarks or other intellectual property rights;
our substantial indebtedness and lease obligations;
restrictions imposed by our indebtedness on our current and future operations;
fluctuations in energy costs;
changes in taxation requirements or the results of tax audits; and
impairment charges on long-lived assets.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and, it is impossible for us to anticipate all factors that could affect our actual results. For the discussion of these risks and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended January 28, 2012 ("Annual Report"), filed with the Securities and Exchange Commission (“SEC”) on March 23, 2012. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as otherwise required by law.










2


INDEX




3




PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.

EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
 
July 28, 2012
 
January 28, 2012
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
130,174

 
$
152,362

Receivables, net
12,308

 
9,027

Inventories
210,353

 
208,954

Prepaid minimum rent
23,543

 
23,461

Other
24,978

 
18,232

Total current assets
401,356

 
412,036

 
 
 
 
PROPERTY AND EQUIPMENT
569,534

 
521,860

Less: accumulated depreciation
(317,829
)
 
(294,554
)
Property and equipment, net
251,705

 
227,306

 
 
 
 
TRADENAME/DOMAIN NAME
197,694

 
197,509

DEFERRED TAX ASSETS
12,650

 
12,462

OTHER ASSETS
11,970

 
12,886

Total assets
$
875,375

 
$
862,199

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
161,808

 
$
133,679

Deferred revenue
19,188

 
27,684

Accrued bonus
4,118

 
14,689

Accrued expenses
86,317

 
109,161

Accounts payable and accrued expenses – related parties

 
5,997

Total current liabilities
271,431

 
291,210

 
 
 
 
LONG-TERM DEBT
198,685

 
198,539

OTHER LONG-TERM LIABILITIES
107,960

 
91,303

Total liabilities
578,076

 
581,052

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 12)

 

 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock – $0.01 par value; 10,000 shares authorized; no shares issued or outstanding

 

Common stock – $0.01 par value; 500,000 shares authorized; 89,570 shares and 88,946 shares issued at July 28, 2012 and January 28, 2012, respectively, and 86,757 shares and 88,887 shares outstanding at July 28, 2012 and January 28, 2012, respectively
896

 
890

Additional paid-in capital
97,451

 
87,713

Accumulated other comprehensive loss
(4
)
 
(7
)
Retained earnings
250,556

 
192,654

Treasury stock – at average cost; 2,813 shares and 59 shares at July 28, 2012 and January 28, 2012, respectively
(51,600
)
 
(103
)
Total stockholders’ equity
297,299

 
281,147

Total liabilities and stockholders’ equity
$
875,375

 
$
862,199

See notes to unaudited consolidated financial statements.

4


EXPRESS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 28,
2012
 
July 30,
2011
 
July 28,
2012
 
July 30,
2011
NET SALES
$
454,879

 
$
446,041

 
$
950,831

 
$
913,418

COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
308,358

 
296,209

 
615,543

 
585,272

Gross profit
146,521

 
149,832

 
335,288

 
328,146

OPERATING EXPENSES:
 
 
 
 
 
 
 
Selling, general, and administrative expenses
115,307

 
117,682

 
229,502

 
227,175

Other operating expense (income), net
18

 
402

 
33

 
(200
)
Total operating expenses
115,325

 
118,084

 
229,535

 
226,975

 
 
 
 
 
 
 
 
OPERATING INCOME
31,196

 
31,748

 
105,753

 
101,171

 
 
 
 
 
 
 
 
INTEREST EXPENSE
4,773

 
10,510

 
9,556

 
21,515

INTEREST INCOME

 
(2
)
 
(1
)
 
(5
)
OTHER EXPENSE, NET
220

 

 
12

 

INCOME BEFORE INCOME TAXES
26,203

 
21,240

 
96,186

 
79,661

INCOME TAX EXPENSE
10,374

 
8,620

 
38,284

 
32,028

NET INCOME
$
15,829

 
$
12,620

 
$
57,902

 
$
47,633

 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
Foreign currency translation
81

 
(2
)
 
3

 
(2
)
COMPREHENSIVE INCOME
$
15,910

 
$
12,618

 
$
57,905

 
$
47,631

 
 
 
 
 
 
 
 
EARNINGS PER SHARE:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.14

 
$
0.66

 
$
0.54

Diluted
$
0.18

 
$
0.14

 
$
0.65

 
$
0.54

 
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
 
 
 
 
 
 
 
Basic
87,640

 
88,583

 
88,243

 
88,538

Diluted
87,979

 
88,860

 
88,645

 
88,805

See notes to unaudited consolidated financial statements.

5


EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
 
 
Twenty-Six Weeks Ended
 
July 28, 2012
 
July 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
57,902

 
$
47,633

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
33,937

 
34,557

Loss on disposal of property and equipment
35

 
56

Excess tax benefit from share-based compensation
(277
)
 

Share-based compensation
8,856

 
4,753

Non-cash loss on extinguishment of debt

 
2,744

Deferred taxes
(188
)
 

Changes in operating assets and liabilities:

 

Receivables, net
(3,285
)
 
1,192

Inventories
(1,403
)
 
(22,221
)
Accounts payable, deferred revenue, and accrued expenses
(26,300
)
 
(22,313
)
Other assets and liabilities
5,005

 
(5,149
)
Net cash provided by operating activities
74,282

 
41,252

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(45,661
)
 
(33,553
)
Purchase of intangible assets
(185
)
 
(60
)
Net cash used in investing activities
(45,846
)
 
(33,613
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repayments of long-term debt arrangements

 
(49,775
)
Costs incurred in connection with debt arrangements and Senior Notes

 
(1,161
)
Payments on capital lease obligation
(27
)
 

Excess tax benefit from share-based compensation
277

 

Proceeds from share-based compensation
623

 
191

Repurchase of common stock
(51,497
)
 
(102
)
Net cash used in financing activities
(50,624
)
 
(50,847
)
 
 
 
 
EFFECT OF EXCHANGE RATE ON CASH

 
(2
)
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(22,188
)
 
(43,210
)
CASH AND CASH EQUIVALENTS, Beginning of period
152,362

 
187,762

CASH AND CASH EQUIVALENTS, End of period
$
130,174

 
$
144,552

See notes to unaudited consolidated financial statements.

6



Notes to Unaudited Consolidated Financial Statements
(unaudited)

1. Description of Business and Basis of Presentation
Business Description

Express, Inc. ("Express" or the "Company") is a specialty apparel and accessories retailer of women's and men's merchandise, targeting the 20 to 30 year old customer. Express merchandise is sold through its retail stores and website. As of July 28, 2012, Express operated 611 primarily mall-based stores in the United States, Canada, and Puerto Rico. Additionally, the Company earns royalties from 7 stores in the Middle East operated through a development agreement ("Development Agreement") with Alshaya Trading Co. ("Alshaya"). Under the Development Agreement, Alshaya operates stores that sell Express-branded apparel and accessories purchased directly from the Company.

Fiscal Year

The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years are referred to by the calendar year in which the fiscal year commences. All references herein to "2012" and "2011" represent the 53-week period ended February 2, 2013 and the 52-week period ended January 28, 2012, respectively. All references herein to “the second quarter of 2012” and “the second quarter of 2011” represent the thirteen weeks ended July 28, 2012 and July 30, 2011, respectively.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for 2012. Therefore, these statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended January 28, 2012, included in the Company's Annual Report, filed with the SEC.

Principles of Consolidation

The unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

2. Segment Reporting

The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that, together, its Chief Executive Officer and its Chief Operating Officer are the Chief Operating Decision Maker, and that there is one operating segment. Therefore, the Company reports results as a single segment, which includes the operation of its brick-and-mortar retail stores and e-commerce operations.
 
The following presents information regarding the Company's major product classes and sales channels:
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
Classes:
(in thousands)
 
(in thousands)
Apparel
$
412,352

 
$
403,272

 
$
859,917

 
$
826,448

Accessories and other
38,019

 
37,331

 
81,776

 
77,154

Other revenue
4,508

 
5,438

 
9,138

 
9,816

Total net sales
$
454,879

 
$
446,041

 
$
950,831

 
$
913,418


7


 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
Channels:
(in thousands)
 
(in thousands)
Stores
$
403,179

 
$
402,503

 
$
846,625

 
$
827,970

E-commerce
47,192

 
38,100

 
95,068

 
75,632

Other revenue
4,508

 
5,438

 
9,138

 
9,816

Total net sales
$
454,879

 
$
446,041

 
$
950,831

 
$
913,418

Other revenue consists primarily of shipping and handling revenue related to e-commerce activity, gift card breakage, and royalties from the Development Agreement.

Revenues and long-lived assets relating to the Company's international operations were not material for any period presented and are, therefore, not reported separately from domestic revenues or long-lived assets.

3. Earnings Per Share
The following table provides a reconciliation between basic and diluted weighted-average shares used to calculate basic and diluted earnings per share:
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
 
(in thousands)
 
(in thousands)
Weighted-average shares - basic
87,640

 
88,583

 
88,243

 
88,538

Dilutive effect of stock options, restricted stock units, and restricted stock
339

 
277

 
402

 
267

Weighted-average shares - diluted
87,979

 
88,860

 
88,645

 
88,805








Equity awards representing 2.6 million and 2.3 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen and twenty-six weeks ended July 28, 2012, respectively, as the effects of the awards would have been anti-dilutive. Equity awards representing 2.4 million and 2.3 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen and twenty-six weeks ended July 30, 2011, respectively, as the effects of the awards would have been anti-dilutive.

Additionally, for the thirteen and twenty-six weeks ended July 28, 2012, there were 0.3 million shares of restricted stock excluded from the computation of diluted weighted average shares because the number of shares ultimately issued is contingent on the Company's performance compared to pre-established annual performance goals.
4. Share Repurchase Program

On May 24, 2012, the Company's Board of Director's ("Board") authorized the repurchase of up to $100 million of the Company's common stock ("Repurchase Program"), which may be made from time to time in open market or privately negotiated transactions. The Repurchase Program will be funded using the Company's available cash and is expected to be executed in the 18 month period following the authorization. The Repurchase Program may be suspended, modified, or discontinued at any time, and the Company has no obligation to make repurchases of its common stock under the Repurchase Program. Through July 28, 2012, 2.7 million shares had been repurchased under the Repurchase Program at an average purchase price of $18.60 per share, totaling $50.1 million, which includes commissions.

5. Fair Value of Financial Assets

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
        
Level 1-Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
           

8


Level 2-Valuation is based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
        
Level 3-Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The following table presents the Company's assets measured at fair value on a recurring basis as of July 28, 2012 and January 28, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall.
 
 
July 28, 2012
 
Level 1
Level 2
Level 3
 
(in thousands)
U.S. treasury securities funds
$
106,664

$

$

 
 
 
January 28, 2012
 
Level 1
Level 2
Level 3
 
(in thousands)
U.S. treasury securities funds
$
131,543

$

$

The carrying amounts reflected on the unaudited Consolidated Balance Sheets for cash, cash equivalents, receivables, prepaid expenses, and payables as of July 28, 2012 and January 28, 2012 approximated their fair values.
6. Intangible Assets
The following table provides the significant components of intangible assets:
 
 
July 28, 2012
 
January 28, 2012
 
Gross Amount
 
Accumulated
Amortization 
 
 
Gross Amount
 
Accumulated
Amortization 
 
 
(in thousands)
 
(in thousands)
Tradename
$
196,144

 
$

 
$
196,144

 
$

Internet domain name/other
1,550

 

 
1,365

 

Net favorable lease obligations
19,750

 
17,043

 
19,750

 
16,275

 
$
217,444

 
$
17,043

 
$
217,259

 
$
16,275


The Company's tradename and internet domain name/other have indefinite lives. Net favorable lease obligations are amortized over a period between 5 and 7 years, which also represents the remaining life of each respective lease at the evaluation date, and are included in other assets on the unaudited Consolidated Balance Sheets. Amortization expense totaled $0.4 million and $0.8 million during the thirteen and twenty-six weeks ended July 28, 2012, respectively; and $0.7 million and $1.4 million during the thirteen and twenty-six weeks ended July 30, 2011, respectively.

7. Related Party Transactions
The transactions described below are transactions between the Company and entities affiliated with Golden Gate Private Equity, Inc. (“Golden Gate”) and Limited Brands. Prior to July 2007, the Company operated as a division of Limited Brands. In July 2007, a Golden Gate affiliate acquired approximately 75% of the outstanding equity interests in the Company from Limited Brands, and the Company began its transition to a stand-alone Company. In May 2010, the Company launched an initial public offering ("IPO") whereby Golden Gate and Limited Brands sold a portion of their shares. Since the IPO, Golden Gate and Limited Brands gradually reduced their ownership interest in the Company. On July 29, 2011, Limited Brands sold its remaining ownership interest in the Company, and as a result of this disposition, ceased to be a related party as of the end of the second quarter of 2011. On March 19, 2012, Golden Gate sold its remaining ownership interest in the Company, and as of May 31, 2012, Golden Gate no longer had representation on the Board. As a result of the disposition and Board seat removal, Golden Gate ceased to be a related party as of June 1, 2012.
Transactions with Limited Brands

The Company is party to a logistics services agreement with an affiliate of Limited Brands. The Limited Brands affiliate

9


provides certain inbound and outbound transportation and delivery services, distribution services, and customs and brokerage services. In addition, merchandise sourcing services are provided by Mast Global Fashions, an affiliate of Limited Brands and the Company also leases its home office and distribution center from an affiliate of Limited Brands.

The 2011 related party activity with Limited Brands and their affiliates described below includes only those expenses incurred through Limited Brands' disposition of the Company's common stock on July 29, 2011. 
 
The Company incurred charges from affiliates of Limited Brands for various services, including home office rent, which is included in selling, general, and administrative expenses. The costs of merchandise sourcing services and logistics services, including distribution center rent, are included in cost of goods sold, buying and occupancy costs. The amounts included in the unaudited Consolidated Statements of Income and Comprehensive Income are as follows:
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 30, 2011
 
July 30, 2011
 
(in thousands)
 
(in thousands)
Merchandise Sourcing
$
109,649

 
$
198,162

Transaction and Logistics Services
$
12,772

 
$
24,778


Transactions with Other Golden Gate Affiliates
The Company transacts with affiliates of Golden Gate for e-commerce warehouse and fulfillment services, software license purchases, and consulting and software maintenance services. The 2012 related party activity with affiliates of Golden Gate described below includes only those expenses incurred through Golden Gate's removal from the Board on May 31, 2012. 
The Company incurred the following charges from various affiliates of Golden Gate, included primarily in cost of goods sold, buying and occupancy costs in the unaudited Consolidated Statements of Income and Comprehensive Income:
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
 
(in thousands)
 
(in thousands)
E-commerce warehouse and fulfillment
$
2,005

 
$
6,998

 
$
8,755

 
$
13,904

Software licenses and consulting and software maintenance
$
51

 
$
25

 
$
91

 
$
143

The Company provided real estate services to certain Golden Gate affiliates. Income recognized during the thirteen weeks ended July, 28, 2012 was minimal and during the twenty-six weeks ended July 28, 2012 was $0.2 million. Income recognized for these services during the thirteen and twenty-six weeks ended July 30, 2011 was $0.1 million and $0.3 million, respectively.

During the first and second quarters of 2011, the Company repurchased $25.0 million and $24.2 million of Senior Notes, respectively, in open market transactions. Of the $49.2 million of Senior Notes repurchased, $40.0 million were held by a Golden Gate affiliate. Interest expense incurred on the Senior Notes attributable to the Golden Gate affiliate was $0.1 million and $0.3 million, during the thirteen and twenty-six weeks ended July 28, 2012, respectively; and $0.4 million and $1.3 million during the thirteen and twenty-six weeks ended July 30, 2011, respectively.

8. Income Taxes

As a result of the Company's IPO and other related transactions in the second quarter of 2010, the Company recorded a liability due to a management holding company that totaled $0.8 million as of January 29, 2011. The Company settled this liability by making a final cash payment during the first quarter of 2011. Additionally, the Company settled a $4.8 million gross liability payable to a Golden Gate entity by making a final cash payment during the second quarter of 2011. In the first quarter of 2012, the Company recorded an additional pre-IPO tax liability of $0.3 million with an offsetting receivable from Golden Gate. The receivable from Golden Gate was settled in the second quarter of 2012.

The provision for income taxes is based on a current estimate of the annual effective tax rate adjusted to reflect the impact of discrete items.  The Company's quarterly effective tax rate does not reflect a benefit associated with losses related to certain foreign subsidiaries. The Company's effective tax rate was 39.6% and 40.6% for the thirteen weeks ended July 28, 2012 and July 30, 2011, respectively. The Company's effective tax rate was 39.8% and 40.2% for the twenty-six weeks ended July 28,

10


2012 and July 30, 2011, respectively.
The Company recorded a valuation allowance against the deferred tax assets arising from the net operating loss of foreign operations. As of January 28, 2012, the valuation allowance for net operating losses totaled $0.1 million. In addition, as of January 28, 2012, the valuation allowance for other noncurrent tax assets totaled $0.2 million.  No other valuation allowances have been provided for deferred tax assets because management believes that it is more-likely-than-not that the full amount of the net deferred tax assets will be realized in the future.
The Company does not expect material adjustments to the total amount of unrecognized tax benefits within the next 12 months, but the outcome of tax matters is uncertain and unforeseen results can occur.

9. Lease Financing Obligations

In certain lease arrangements, the Company is involved with the construction of the building. To the extent the Company is involved in the construction of structural improvements or takes construction risk prior to commencement of a lease, it is deemed the owner of the project for accounting purposes. The Company then records an asset in property and equipment and a related financing obligation for the amount of construction-in-progress and the replacement cost of the Company's portion of the pre-existing building. Once construction is complete, the Company considers the requirements for sale-leaseback treatment, including the transfer of all risks of ownership back to the landlord, and whether the Company has any continuing involvement in the leased property. If the arrangement does not qualify for sale-leaseback treatment, the building assets subject to these obligations remain on the Company's Consolidated Balance Sheets at their historical cost, and such assets are depreciated over their remaining useful lives. The costs of construction paid by the landlord and the replacement cost of the pre-existing building are recorded as lease financing obligations in other long-term liabilities on the unaudited Consolidated Balance Sheets, and a portion of the lease payments are applied as payments of principal and interest. The selection of the interest rate for lease financing obligations is evaluated at lease inception based on the Company's incremental borrowing rate. As of July 28, 2012, the Company had recorded $4.4 million in property and equipment, along with an offsetting amount recorded as a lease financing obligation. These assets and liabilities are classified as non-cash items for purposes of the unaudited Consolidated Statements of Cash Flow.

The Company will not report rent expense for the portion of the rent payment determined to be related to the properties which are owned for accounting purposes. Rather, this portion of the rental payments under the lease will be recognized as a reduction of the financing obligation and interest expense. Expense relating to the land is recognized on a straight-line basis once construction begins.

10. Debt
Borrowings outstanding consisted of the following:
 
 
July 28, 2012
 
January 28, 2012
 
(in thousands)
8 3/4% Senior Notes
$
200,850

 
$
200,850

Debt discount on Senior Notes
(2,165
)
 
(2,311
)
Total long-term debt
$
198,685

 
$
198,539


Revolving Credit Facility

On July 29, 2011, Express Holding, LLC, a wholly-owned subsidiary, ("Express Holding") and its subsidiaries entered into an Amended and Restated $200.0 million secured Asset-Based Loan Revolving Credit Facility ("Revolving Credit Facility"). As of July 28, 2012, there were no borrowings outstanding and approximately $195.0 million available under the the Revolving Credit Facility.

The Revolving Credit Facility requires Express Holding and its subsidiaries to maintain a fixed charge coverage ratio of at least 1.0:1.0 if excess availability plus eligible cash collateral is less than 10% of the borrowing base for 15 consecutive days. In addition, the Revolving Credit Facility contains customary covenants and restrictions on Express Holding and its subsidiaries' activities, including, but not limited to, limitations on the incurrence of additional indebtedness; liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, and prepayment of other debt; distributions, dividends, and the repurchase of capital stock; transactions with affiliates; and the ability to change the nature of its business or its fiscal year. All obligations under the Revolving Credit Facility are guaranteed by Express Holding and its domestic subsidiaries (that are

11


not borrowers) and secured by a lien on substantially all of the assets of Express Holding and its domestic subsidiaries.
Senior Notes

On March 5, 2010, Express, LLC and Express Finance Corp. ("Express Finance"), wholly-owned subsidiaries of the Company, co-issued, in a private placement, $250.0 million of 8 3/4% Senior Notes due in 2018 at an offering price of 98.6% of the face value.

In the first quarter of 2011, $25.0 million of Senior Notes were repurchased on the open market at a price of 108.75% of the principal amount. In the second quarter of 2011, $24.2 million of Senior Notes were repurchased on the open market at an average price of 109.21% of the principal amount.

The indenture governing the Senior Notes contains customary covenants and restrictions on the activities of Express, LLC, Express Finance, and Express, LLC's restricted subsidiaries, including, but not limited to, the incurrence of additional indebtedness; payment of dividends or distributions in respect of capital stock or certain other restricted payments or investments; entering into agreements that restrict distributions from restricted subsidiaries; the sale or disposal of assets, including capital stock of restricted subsidiaries; transactions with affiliates; the incurrence of liens; and mergers, consolidations or the sale of substantially all of Express, LLC's assets. Certain of these covenants will be suspended if the Senior Notes are assigned an investment grade rating by both Standard & Poor and Moody's Investors Service and no default has occurred or is continuing. If either rating on the Senior Notes should subsequently decline to below investment grade, the suspended covenants will be reinstated.

Loss on Extinguishment

In connection with the Senior Notes repurchases in the first and second quarters of 2011, the Company recognized a $3.4 million and $6.9 million loss on extinguishment of debt for the thirteen and twenty-six weeks ended July 30, 2011, respectively. Of this loss on extinguishment of debt, the premium on the repurchases represented $2.2 million and $4.4 million for the thirteen and twenty-six weeks ended July 30, 2011, respectively. The remaining loss on extinguishment consisted of the write-off of unamortized debt issuance costs and unamortized discount totaling $1.2 million and $2.5 million, respectively, for the thirteen and twenty-six weeks ended July 30, 2011, respectively.
In connection with the amendment and restatement of the $200.0 million asset-based revolving credit facility in the second quarter of 2011, the Company recognized a $0.3 million loss on extinguishment of debt attributed to the write-off of unamortized debt issuance costs for the thirteen and twenty-six weeks ended July 30, 2011.

The losses on extinguishment of debt were recorded as interest expense in the unaudited Consolidated Statements of Income and Comprehensive Income. The write-offs of unamortized debt issuance costs and unamortized discounts represent a non-cash adjustment to reconcile net income to net cash provided by operating activities within the unaudited Consolidated Statements of Cash Flows.
Fair Value of Debt
The fair value of the Senior Notes was estimated using a number of factors, such as recent trade activity, size, timing, and yields of comparable bonds, and is, therefore, within Level 2 of the fair value hierarchy. As of July 28, 2012, the estimated fair value of the Senior Notes was $218.7 million.
Letters of Credit
The Company periodically enters into various trade letters of credit ("trade LCs") in favor of certain vendors to secure merchandise. These trade LCs are issued for a defined period of time, for specific shipments, and generally expire 3 weeks after the merchandise shipment date. As of July 28, 2012 and January 28, 2012, there were no outstanding trade LCs. Additionally, the Company enters into stand-by letters of credit ("stand-by LCs") on an as-need basis to secure merchandise and fund other general and administrative costs. As of July 28, 2012 and January 28, 2012, outstanding stand-by LCs totaled $2.1 million and $1.8 million, respectively.

11. Share-Based Compensation

The following summarizes our share-based compensation expense:

12


 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
 
(in thousands)
 
(in thousands)
Stock options
$
2,159

 
$
1,705

 
$
4,057

 
$
3,129

Restricted stock units and restricted stock
2,838

 
841

 
4,786

 
1,480

Restricted shares (equity issued pre-IPO)
3

 
61

 
13

 
144

Total share-based compensation
$
5,000

 
$
2,607

 
$
8,856

 
$
4,753


The stock compensation related income tax benefit recognized by the Company during the thirteen weeks ended July 28, 2012 was minimal and was $1.5 million for the twenty-six weeks ended July 28, 2012; and $0.1 million during the thirteen and twenty-six weeks ended July 30, 2011, respectively.

Stock Options

During the twenty-six weeks ended July 28, 2012, the Company granted stock options under the Express, Inc., 2010 Incentive Compensation Plan (the "2010 Plan"). The fair value of the stock options is determined using the Black-Scholes-Merton option-pricing model as described further below. The majority of stock options granted under the 2010 plan vest 25% per year over 4 years and have a 10 year contractual life, however those granted to the Chief Executive Officer vest ratably over 3 years. The expense for stock options is recognized using the straight-line attribution method.
The Company's activity with respect to stock options during the twenty-six weeks ended July 28, 2012 was as follows:
 
 
Number of
Shares 
 
Grant Date
Weighted Average
Exercise Price
 
Weighted-Average Remaining Contractual Life
 
Aggregate Intrinsic Value
 
(in thousands, except per share amounts and years)
Outstanding, January 28, 2012
2,667

 
$
17.93

 
 
 
 
Granted
527

 
$
25.16

 
 
 
 
Exercised
(35
)
 
$
17.45

 
 
 
 
Forfeited or expired
(34
)
 
$
19.63

 
 
 
 
Outstanding, July 28, 2012
3,125

 
$
19.13

 
8.5

 
$
44

Expected to vest at July 28, 2012
2,162

 
$
19.78

 
8.6

 
$
33

Exercisable at July 28, 2012
929

 
$
17.56

 
8.1

 
$
11

The following provides additional information regarding the Company's stock options:
 
Twenty-Six Weeks Ended
 
July 28, 2012
(in thousands, except per share amounts)
 
Weighted average grant date fair value of options granted
$
13.43

Total intrinsic value of options exercised
$
267

Total fair value of options vested
$
6,171

As of July 28, 2012, there was approximately $20.0 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of approximately 1.5 years.
The Company uses the Black-Scholes-Merton option-pricing model to value stock options granted to employees and directors. The Company's determination of the fair value of stock options is affected by the Company's stock price as well as a number of subjective and complex assumptions. These assumptions include the risk-free interest rate, the Company's expected stock price volatility over the term of the awards, expected term of the award, and dividend yield.
The fair value of stock options was estimated at the grant date using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:

13



 
Twenty-Six Weeks Ended
 
July 28, 2012
 
July 30, 2011
Risk-free interest rate (1)
1.14
%
 
2.37
%
Price Volatility (2)
55.9
%
 
53.5
%
Expected term (years) (3)
6.16

 
6.25

Dividend yield (4)

 


(1)
Represents the yield on U.S. Treasury securities with a term consistent with the expected term of the stock options.
(2)
Because the Company's stock has a limited history of being publicly traded, this was based on the historical volatility of selected comparable companies over a period consistent with the expected term of the stock options. Comparable companies were selected primarily based on industry, stage of life cycle, and size. Beginning with the second anniversary of the IPO, the Company began using its own volatility as an additional input in the determination of expected volatility.
(3)
Calculated utilizing the “simplified” methodology prescribed by SAB No. 107 due to the lack of historical exercise data necessary to provide a reasonable basis upon which to estimate the term.
(4)
Based on the fact that the Company does not currently plan on paying regular dividends.
Restricted Stock Units and Restricted Stock
During the twenty-six weeks ended July 28, 2012, the Company granted restricted stock units (“RSUs”) and restricted stock under the 2010 Plan, including 0.4 million shares of performance-based restricted stock and 0.1 million shares of performance-based RSUs. The fair value of the RSUs and restricted stock is determined based on the Company's stock price on the grant date. The expense for RSUs and restricted stock is recognized using the straight-line attribution method except for awards with performance conditions, for which the graded vesting method is used. These awards have vesting conditions with requisite service periods of 3 years for the Chief Executive Officer, 4 years for other employees, and 1 year for members of the Board. 

The Company's activity with respect to RSUs and restricted stock for the twenty-six weeks ended July 28, 2012 was as follows:
 
 
Number of
Shares 
Grant Date
Weighted Average
Fair Value 
 
(in thousands, except per share amounts)
Unvested, January 28, 2012
900

$
18.52

Granted
762

$
25.14

Vested
(168
)
$
17.75

Forfeited
(9
)
$
21.77

Unvested, July 28, 2012
1,485

$
21.97

The total fair value/intrinsic value of RSUs and restricted stock that vested during the twenty-six weeks ended July 28, 2012 was $3.0 million. The number of RSUs and restricted stock vested during the twenty-six weeks ended July 30, 2011 was minimal. As of July 28, 2012, there was approximately $23.9 million of total unrecognized compensation expense related to unvested RSUs and restricted stock, which is expected to be recognized over a weighted-average period of approximately 1.8 years.

12. Commitments and Contingencies

In a complaint filed on July 7, 2011 in the United States District Court for the Northern District of Illinois styled as Eric Wynn, et al., v. Express, LLC, Express was named as a defendant in a purported nationwide collective action alleging violations of the Fair Labor Standards Act and of applicable Illinois state wage and hour statutes related to alleged off-the-clock work. The lawsuit seeks unspecified monetary damages and attorneys' fees. In March 2012, the court granted conditional collective action certification. Express continues to vigorously defend against these claims. At this time, the Company is not able to predict the outcome of this lawsuit or the amount of any loss that may arise from it.
The Company is subject to various other claims and contingencies arising out of the normal course of business. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse

14


effect on the Company's results of operations, financial condition, or cash flows.


13. Guarantor Subsidiaries
On March 5, 2010, Express, LLC and Express Finance (the “Subsidiary Issuers”), both 100% owned indirect subsidiaries of the Company, issued the Senior Notes. The Company (“Guarantor”) and certain of the Company’s indirect 100% owned subsidiaries (“Guarantor Subsidiaries”) have guaranteed, on a joint and several basis, the Company’s obligations under the Senior Notes. The guarantees are not full and unconditional because Guarantor Subsidiaries can be released and relieved of their obligations under certain customary circumstances contained in the indenture governing the Senior Notes. These circumstances include the following, so long as other applicable provisions of the indenture are adhered to: any sale or other disposition of all or substantially all of the assets of any Guarantor Subsidiary, any sale or other disposition of capital stock of any Guarantor Subsidiary, or designation of any restricted subsidiary that is a Guarantor Subsidiary as an unrestricted subsidiary.
The following consolidating schedules present the condensed financial information on a combined basis.

15


EXPRESS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(Amounts in thousands)
(Unaudited)

 
July 28, 2012
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
938

 
$
126,914

 
$

 
$
2,322

 
$

 
$
130,174

Receivables, net

 
11,330

 

 
978

 

 
12,308

Inventories

 
208,557

 

 
1,796

 

 
210,353

Prepaid minimum rent

 
22,943

 

 
600

 

 
23,543

Intercompany loan receivable

 
14,245

 

 

 
(14,245
)
 

Intercompany receivable

 

 
18,672

 
5,862

 
(24,534
)
 

Other
843

 
24,084

 

 
51

 

 
24,978

Total current assets
1,781

 
408,073

 
18,672

 
11,609

 
(38,779
)
 
401,356

Property and equipment, net

 
242,354

 

 
9,351

 

 
251,705

Tradename/domain name

 
197,694

 

 

 

 
197,694

Investment in subsidiary
294,676

 
(296
)
 

 
288,891

 
(583,271
)
 

Deferred tax assets
852

 
11,798

 

 

 


 
12,650

Other assets

 
11,966

 

 
4

 

 
11,970

Total assets
$
297,309

 
$
871,589

 
$
18,672

 
$
309,855

 
$
(622,050
)
 
$
875,375

Liabilities and stockholders’ equity

 

 

 

 

 
 
Current liabilities

 

 

 

 

 
 
Accounts payable
$

 
$
161,186

 
$

 
$
622

 
$

 
$
161,808

Deferred revenue

 
4,013

 
15,116

 
59

 

 
19,188

Accrued bonus

 
4,118

 

 

 

 
4,118

Accrued expenses
10

 
85,821

 

 
486

 

 
86,317

Intercompany payable

 
24,534

 

 

 
(24,534
)
 

Intercompany loan payable

 

 

 
14,245

 
(14,245
)
 

Total current liabilities
10

 
279,672

 
15,116

 
15,412

 
(38,779
)
 
271,431

Long-term debt

 
198,685

 

 

 

 
198,685

Other long-term liabilities

 
104,341

 

 
3,619

 

 
107,960

Total liabilities
10

 
582,698

 
15,116

 
19,031

 
(38,779
)
 
578,076

Commitments and Contingencies (Note 12)

 

 

 

 

 

Total stockholders’ equity
297,299

 
288,891

 
3,556

 
290,824

 
(583,271
)
 
297,299

Total liabilities and stockholders’ equity
$
297,309

 
$
871,589

 
$
18,672

 
$
309,855

 
$
(622,050
)
 
$
875,375









16


EXPRESS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(Amounts in thousands)
(Unaudited)

 
 
January 28, 2012
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,575

 
$
149,237

 
$

 
$
1,550

 
$

 
$
152,362

Receivables, net

 
7,439

 

 
1,588

 

 
9,027

Inventories

 
206,507

 

 
2,447

 

 
208,954

Prepaid minimum rent

 
22,985

 

 
476

 

 
23,461

Intercompany loan receivable

 
12,684

 

 

 
(12,684
)
 

Intercompany receivable

 

 
26,570

 
5,862

 
(32,432
)
 

Other

 
18,228

 

 
4

 

 
18,232

Total current assets
1,575

 
417,080

 
26,570

 
11,927

 
(45,116
)
 
412,036

Property and equipment, net

 
218,701

 

 
8,605

 

 
227,306

Tradename/domain name

 
197,509

 

 

 

 
197,509

Investment in subsidiary
277,920

 
127

 

 
272,135

 
(550,182
)
 

Deferred tax assets
852

 
11,610

 

 

 

 
12,462

Other assets

 
12,882

 

 
4

 

 
12,886

Total assets
$
280,347

 
$
857,909

 
$
26,570

 
$
292,671

 
$
(595,298
)
 
$
862,199

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
133,061

 
$

 
$
618

 
$

 
$
133,679

Deferred revenue

 
4,493

 
23,141

 
50

 

 
27,684

Accrued bonus

 
14,671

 

 
18

 

 
14,689

Accrued expenses
(800
)
 
108,422

 

 
1,539

 

 
109,161

Accounts payable and accrued expenses—related parties

 
5,997

 

 

 

 
5,997

Intercompany payable

 
32,432

 

 

 
(32,432
)
 

Intercompany loan payable

 

 

 
12,684

 
(12,684
)
 

Total current liabilities
(800
)
 
299,076

 
23,141

 
14,909

 
(45,116
)
 
291,210

Long-term debt

 
198,539

 

 

 

 
198,539

Other long-term liabilities

 
88,159

 

 
3,144

 

 
91,303

Total liabilities
(800
)
 
585,774

 
23,141

 
18,053

 
(45,116
)
 
581,052

Commitments and Contingencies (Note 12)

 

 

 

 

 

Total stockholders’ equity
281,147

 
272,135

 
3,429

 
274,618

 
(550,182
)
 
281,147

Total liabilities and stockholders’ equity
$
280,347

 
$
857,909

 
$
26,570

 
$
292,671

 
$
(595,298
)
 
$
862,199




17


EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
 
Thirteen Weeks Ended July 28, 2012
 
 
 
Subsidiary
 
Guarantor
 
Other
 
 
 
Consolidated
 
Express, Inc.
 
Issuers
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
451,455

 
$

 
$
3,424

 
$

 
$
454,879

Cost of goods sold, buying and occupancy costs

 
304,434

 

 
3,924

 

 
308,358

Gross profit

 
147,021

 

 
(500
)
 

 
146,521

Selling, general, and administrative expenses
230

 
113,683

 
(55
)
 
1,449

 

 
115,307

Other operating expense (income), net

 
1,783

 

 
(1,765
)
 

 
18

Operating income (loss)
(230
)
 
31,555

 
55

 
(184
)
 

 
31,196

Interest expense

 
4,773

 

 
(88
)
 
88

 
4,773

Interest income

 
88

 

 

 
(88
)
 

(Income) loss in subsidiary
(16,059
)
 
261

 

 
(16,059
)
 
31,857

 

Other expense (income), net

 

 

 
220

 

 
220

Income (loss) before income taxes
15,829

 
26,433

 
55

 
15,743

 
(31,857
)
 
26,203

Income tax expense (benefit)

 
10,374

 

 

 

 
10,374

Net income (loss)
$
15,829

 
$
16,059

 
$
55

 
$
15,743

 
$
(31,857
)
 
$
15,829

Foreign currency translation
81

 
81

 

 
162

 
(243
)
 
81

Comprehensive income
$
15,910

 
$
16,140

 
$
55

 
$
15,905

 
$
(32,100
)
 
$
15,910

EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
Thirteen Weeks Ended July 30, 2011
 
 
 
Subsidiary
 
Guarantor
 
Other
 
 
 
Consolidated
 
Express, Inc.
 
Issuers
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
446,041

 
$

 
$

 
$

 
$
446,041

Cost of goods sold, buying and occupancy costs

 
296,113

 

 
96

 

 
296,209

Gross profit

 
149,928

 

 
(96
)
 

 
149,832

Selling, general, and administrative expenses
257

 
117,433

 
(52
)
 
44

 

 
117,682

Other operating expense (income), net

 
402

 

 

 

 
402

Operating income (loss)
(257
)
 
32,093

 
52

 
(140
)
 

 
31,748

Interest expense

 
10,510

 

 

 

 
10,510

Interest income

 
(2
)
 

 

 

 
(2
)
(Income) loss in subsidiary
(12,874
)
 
90

 

 
(12,874
)
 
25,658

 

Income (loss) before income taxes
12,617

 
21,495

 
52

 
12,734

 
(25,658
)
 
21,240

Income tax expense (benefit)
(1
)
 
8,621

 

 

 

 
8,620

Net income (loss)
$
12,618

 
$
12,874

 
$
52

 
$
12,734

 
$
(25,658
)
 
$
12,620

Foreign currency translation

 

 

 
(2
)
 

 
(2
)
Comprehensive income
$
12,618

 
$
12,874

 
$
52

 
$
12,732

 
$
(25,658
)
 
$
12,618



18


EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
 
Twenty-Six Weeks Ended July 28, 2012
 
 
 
Subsidiary
 
Guarantor
 
Other
 
 
 
Consolidated
 
Express, Inc.
 
Issuers
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
944,296

 
$

 
$
6,535

 
$

 
$
950,831

Cost of goods sold, buying and occupancy costs

 
607,923

 

 
7,620

 

 
615,543

Gross profit

 
336,373

 

 
(1,085
)
 

 
335,288

Selling, general, and administrative expenses
500

 
226,395

 
(127
)
 
2,734

 

 
229,502

Other operating expense (income), net

 
3,309

 

 
(3,276
)
 

 
33

Operating income (loss)
(500
)
 
106,669

 
127

 
(543
)
 

 
105,753

Interest expense

 
9,556

 

 
(2
)
 
2

 
9,556

Interest income

 
1

 

 

 
(2
)
 
(1
)
(Income) loss in subsidiary
(58,402
)
 
426

 

 
(58,402
)
 
116,378

 

Other expense (income), net

 

 

 
12

 

 
12

Income (loss) before income taxes
57,902

 
96,686

 
127

 
57,849

 
(116,378
)
 
96,186

Income tax expense (benefit)

 
38,284

 

 

 

 
38,284

Net income (loss)
$
57,902

 
$
58,402

 
$
127

 
$
57,849

 
$
(116,378
)
 
$
57,902

Foreign currency translation
3

 
3

 

 
6

 
(9
)
 
3

Comprehensive income
$
57,905

 
$
58,405

 
$
127

 
$
57,855

 
$
(116,387
)
 
$
57,905

EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
Twenty-Six Weeks Ended July 30, 2011
 
 
 
Subsidiary
 
Guarantor
 
Other
 
 
 
Consolidated
 
Express, Inc.
 
Issuers
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
913,418

 
$

 
$

 
$

 
$
913,418

Cost of goods sold, buying and occupancy costs

 
585,176

 

 
96

 

 
585,272

Gross profit

 
328,242

 

 
(96
)
 

 
328,146

Selling, general, and administrative expenses
955

 
226,298

 
(122
)
 
44

 

 
227,175

Other operating expense (income), net

 
(200
)
 

 

 

 
(200
)
Operating income (loss)
(955
)
 
102,144

 
122

 
(140
)
 

 
101,171

Interest expense

 
21,515

 

 

 

 
21,515

Interest income

 
(5
)
 

 

 

 
(5
)
(Income) loss in subsidiary
(48,588
)
 
20

 

 
(48,588
)
 
97,156

 

Income (loss) before income taxes
47,633

 
80,614

 
122

 
48,448

 
(97,156
)
 
79,661

Income tax expense (benefit)
2

 
32,026

 

 

 

 
32,028

Net income (loss)
$
47,631

 
$
48,588

 
$
122

 
$
48,448

 
$
(97,156
)
 
$
47,633

Foreign currency translation

 

 

 
(2
)
 

 
(2
)
Comprehensive income
$
47,631

 
$
48,588

 
$
122

 
$
48,446

 
$
(97,156
)
 
$
47,631



19


EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 
Twenty-Six Weeks Ended July 28, 2012
 
 
 
Subsidiary
 
Guarantor
 
Other
 
 
 
Consolidated
 
Express, Inc.
 
Issuers
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
Operating Activities
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(1,260
)
 
$