Edgar Filing: EXPRESS, INC.

EXPR Q3 11 10Q

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 October 29, 2011



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 such registrants were 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. (Check one):



Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x (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 88,908,602 as of November 30, 2011.

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FORWARD-LOOKING STATEMENTS

This 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 used to manufacture our products;


•	interruptions of the flow of our 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;


•	impairment charges on long-lived assets;


•	our failure to maintain adequate internal controls;


•	substantial costs as a result of being a public company; and


•	potential conflicts of interest with our principal stockholder.

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 29, 2011, filed with the Securities and Exchange Commission (“SEC”) on March 22, 2011. 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.

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INDEX




PART I	FINANCIAL INFORMATION	4

ITEM 1.	FINANCIAL STATEMENTS.	4

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	27

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	44

ITEM 4.	CONTROLS AND PROCEDURES.	44

PART II	OTHER INFORMATION	45

ITEM 1.	LEGAL PROCEEDINGS.	45

ITEM 1A.	RISK FACTORS.	45

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	45

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	45

ITEM 4.	REMOVED AND RESERVED.	45

ITEM 5.	OTHER INFORMATION.	45

ITEM 6.	EXHIBITS.	45

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PART I – FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS.

EXPRESS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)



	October 29, 2011			January 29, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	144,982		$	187,762
Receivables, net	7,869			9,908
Inventories	278,540			185,209
Prepaid minimum rent	22,792			22,284
Other	34,571			22,130
Total current assets	488,754			427,293

PROPERTY AND EQUIPMENT	504,542			448,109
Less: accumulated depreciation	(280,759		)	(236,790		)
Property and equipment, net	223,783			211,319

TRADENAME/DOMAIN NAME	197,474			197,414
DEFERRED TAX ASSETS	3,933			5,513
OTHER ASSETS	16,205			21,210
Total assets	$	930,149		$	862,749

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	187,973		$	85,843
Deferred revenue	18,335			25,067
Accrued bonus	6,523			14,268
Accrued expenses	91,595			91,792
Accounts payable and accrued expenses – related parties	4,207			79,865
Total current liabilities	308,633			296,835

LONG-TERM DEBT	316,906			366,157
OTHER LONG-TERM LIABILITIES	86,531			69,595
Total liabilities	712,070			732,587

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; 88,968 shares and 88,736 shares issued at October 29, 2011 and January 29, 2011, respectively and 88,909 shares and 88,696 shares outstanding at October 29, 2011 and January 29, 2011, respectively	888			887
Additional paid-in capital	85,034			77,318
Accumulated other comprehensive loss	—			—
Retained earnings	132,260			51,957
Treasury stock – at average cost; 59 shares and 40 shares at October 29, 2011 and January 29, 2011, respectively	(103		)	—
Total stockholders’ equity	218,079			130,162
Total liabilities and stockholders’ equity	$	930,149		$	862,749

See notes to unaudited consolidated financial statements.

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EXPRESS, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)



	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 29, 2011			October 30, 2010			October 29, 2011			October 30, 2010
NET SALES	$	486,784		$	450,577		$	1,400,202		$	1,284,316
COST OF GOODS SOLD, BUYING, AND OCCUPANCY COSTS	310,816			286,254			896,088			832,770
Gross profit	175,968			164,323			504,114			451,546
OPERATING EXPENSES:
Selling, general, and administrative expenses	115,061			111,309			342,236			325,155
Other operating expense (income), net	34			799			(166		)	17,844
Total operating expenses	115,095			112,108			342,070			342,999

OPERATING INCOME	60,873			52,215			162,044			108,547

INTEREST EXPENSE	6,328			7,570			27,843			51,699
INTEREST INCOME	(2		)	(1		)	(7		)	(12		)
OTHER INCOME, NET	(148		)	(62		)	(148		)	(1,968		)
INCOME BEFORE INCOME TAXES	54,695			44,708			134,356			58,828
INCOME TAX EXPENSE (BENEFIT)	22,025			18,407			54,053			(20,148		)
NET INCOME	$	32,670		$	26,301		$	80,303		$	78,976

OTHER COMPREHENSIVE INCOME:
Foreign currency translation	2			—			—			—
COMPREHENSIVE INCOME	$	32,672		$	26,301		$	80,303		$	78,976

Pro forma income before income taxes (Note 11)										$	58,828
Pro forma income tax expense (Note 11)										23,932
Pro forma net income (Note 11)										$	34,896

EARNINGS PER SHARE:
Basic	$	0.37		$	0.30		$	0.91		$	0.94
Diluted	$	0.37		$	0.30		$	0.90		$	0.93

WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1):
Basic	88,643			88,340			88,573			84,352
Diluted	88,903			88,680			88,838			85,173

PRO FORMA EARNINGS PER SHARE (Note 11):
Basic										$	0.41
Diluted										$	0.41

PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING (Note 11):
Basic										84,352
Diluted										85,173

See notes to unaudited consolidated financial statements.

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EXPRESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)



	Thirty-Nine Weeks Ended
	October 29, 2011			October 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	80,303		$	78,976
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	51,198			51,483
Loss on disposal of property and equipment	89			1,453
Change in fair value of interest rate swap	—			(1,968		)
Share-based compensation	7,483			4,411
Non-cash loss on extinguishment of debt	2,744			8,781
Deferred taxes	(2,764		)	(32,527		)
Changes in operating assets and liabilities:
Receivables, net	2,043			(2,288		)
Inventories	(93,325		)	(68,629		)
Accounts payable, deferred revenue, and accrued expenses	9,008			(716		)
Accounts payable and accrued expenses – related parties	1,160			6,682
Other assets and liabilities	6,404			5,199
Net cash provided by operating activities	64,343			50,857

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(55,915		)	(41,950		)
Purchase of intangible assets	(60		)	—
Net cash used in investing activities	(55,975		)	(41,950		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Senior Notes	—			246,498
Net proceeds from equity offering	—			166,898
Repayments of long-term debt arrangements	(50,087		)	(300,938		)
Costs incurred in connection with debt arrangements and Senior Notes	(1,192		)	(12,124		)
Costs incurred in connection with equity offering	—			(6,498		)
Proceeds from share-based compensation	234			—
Repurchase of common stock	(103		)	—
Repayment of notes receivable	—			5,633
Distributions	—			(261,000		)
Net cash used in financing activities	(51,148		)	(161,531		)

EFFECT OF EXCHANGE RATES ON CASH	—			—

NET DECREASE IN CASH AND CASH EQUIVALENTS	(42,780		)	(152,624		)
CASH AND CASH EQUIVALENTS, Beginning of period	187,762			234,404
CASH AND CASH EQUIVALENTS, End of period	$	144,982		$	81,780

See notes to unaudited consolidated financial statements.

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Notes to Unaudited Consolidated Financial Statements

(unaudited)

1. Description of Business and Basis of Presentation

Business Description

Express, Inc. (the "Company" or "Express") 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 the Company's retail stores and website. As of October 29, 2011, Express operated 607 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 a wholly-owned subsidiary of 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 "2011" and "2010" represent the 52-week periods ended January 28, 2012 and January 29, 2011, respectively. All references herein to “the third quarter of 2011” and “the third quarter of 2010” represent the thirteen weeks ended October 29, 2011 and October 30, 2010, respectively.

Basis of Presentation

In connection with the initial public offering of the Company's common stock ("IPO") on May 12, 2010, Express Parent LLC ("Express Parent") converted into a Delaware corporation and changed its name from Express Parent LLC to Express, Inc. This conversion was effective May 2, 2010 for tax purposes. In connection with this conversion, all of the equity interests in Express Parent, which consisted of Class L, Class A, and Class C units, were converted into shares of the Company's common stock at a ratio of 0.702, 0.649, and 0.442, respectively. The accounting effects of the recapitalization, collectively referred to as the "Reorganization", are reflected retrospectively for all periods presented in the unaudited Consolidated Financial Statements.

Express owns all of the outstanding equity interests in Express Topco LLC ("Express Topco"), which owns all of the outstanding equity interests in Express Holding LLC ("Express Holding"). Express Holding owns all of the outstanding equity interests in Express, LLC and Express Finance Corp. ("Express Finance"). Express, LLC conducts the operations of the Company and was a division of Limited Brands until it was acquired by an affiliate of Golden Gate Private Equity, Inc. ("Golden Gate") in 2007 (the "Golden Gate Acquisition"). Express Finance was formed on January 28, 2010, solely for the purpose of serving as co-issuer of the 8 3/4% Senior Notes ("Senior Notes") issued on March 5, 2010 and described in Note 9.

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 2011. Therefore, these statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended January 29, 2011, included in the Company's Annual Report on Form 10-K, 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. Recently Issued Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 clarifies and changes the application of various fair value measurement principles and disclosure requirements and will be effective for the Company in the first quarter of 2012. The Company has assessed the updated guidance and expects adoption to have no impact on its consolidated financial position or

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results of operations.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 requires presentation of the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements and eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. ASU No. 2011-05 will be effective for the Company in the first quarter of 2012. The Company has assessed the guidance and expects adoption to have no impact on its consolidated financial position or results of operations.

3. Segment Reporting

The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that the Chief Executive Officer is its Chief Operating Decision Maker and that there is one operating segment. Therefore, the Company reports results as a single segment, which includes Express brick-and-mortar retail stores and e-commerce operations.

The following is information regarding the Company's major product classes and sales channels:



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010		October 29, 2011		October 30, 2010
Classes:	(in thousands)				(in thousands)
Apparel	$	440,792	$	408,574	$	1,267,240	$	1,161,368
Accessories and other	41,542		38,147		118,696		111,500
Other revenue	4,450		3,856		14,266		11,448
Total net sales	$	486,784	$	450,577	$	1,400,202	$	1,284,316



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010		October 29, 2011		October 30, 2010
Channels:	(in thousands)				(in thousands)
Stores	$	436,683	$	414,278	$	1,264,653	$	1,185,821
E-commerce	45,651		32,443		121,283		87,047
Other revenue	4,450		3,856		14,266		11,448
Total net sales	$	486,784	$	450,577	$	1,400,202	$	1,284,316

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

4. Earnings Per Share

The weighted-average shares used to calculate basic and diluted earnings per share for the thirty-nine weeks ended October 30, 2010 have been retroactively adjusted based on the Reorganization (see Note 1).

The following table provides a reconciliation between basic and diluted earnings per share:



	Thirteen Weeks Ended October 29, 2011					Thirteen Weeks Ended October 30, 2010
(in thousands, except per share amounts)	Net Income		Weighted Average Shares	Per Share Amount		Net Income		Weighted Average Shares	Per Share Amount
Basic EPS	$	32,670	88,643	$	0.37	$	26,301	88,340	$	0.30
Effect of dilutive securities:
Restricted shares, restricted stock units, and stock options	—		260	—		—		340	—
Diluted EPS	$	32,670	88,903	$	0.37	$	26,301	88,680	$	0.30

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	Thirty-Nine Weeks Ended October 29, 2011						Thirty-Nine Weeks Ended October 30, 2010
(in thousands, except per share amounts)	Net Income		Weighted Average Shares	Per Share Amount			Net Income		Weighted Average Shares	Per Share Amount
Basic EPS	$	80,303	88,573	$	0.91		$	78,976	84,352	$	0.94
Effect of dilutive securities:
Restricted shares, restricted stock units, and stock options	—		265	(0.01		)	—		821	(0.01		)
Diluted EPS	$	80,303	88,838	$	0.90		$	78,976	85,173	$	0.93

Stock options and restricted stock units to purchase 2.0 million and 2.3 million shares of common stock were not included in the computation of diluted EPS for the thirteen and thirty-nine weeks ended October 29, 2011, respectively, as to do so would have been anti-dilutive. Stock options to purchase 1.3 million shares of common stock were not included in the computation for the thirteen and thirty-nine weeks ended October 30, 2010, as to do so would have been anti-dilutive.

5. Fair Value of Financial Assets and Liabilities

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.

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 October 29, 2011 and January 29, 2011, respectively, aggregated by level in the fair value hierarchy within which those measurements fall.



	October 29, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
U.S. treasury securities funds	$	123,063	$	—	$	—	$	123,063

	January 29, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
U.S. treasury securities funds	$	168,929	$	—	$	—	$	168,929

The carrying amounts reflected on the unaudited Consolidated Balance Sheets for cash, cash equivalents, receivables, prepaid expenses, and payables approximated their fair values as of October 29, 2011 and January 29, 2011.

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6. Intangible Assets

The significant components of intangible assets are as follows:



	October 29, 2011					January 29, 2011
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
	(in thousands)
Tradename	$	196,144	$	—		$	196,144	$	—
Internet domain name/other	1,330		—			1,270		—
Net favorable lease obligations	19,750		(15,831		)	19,750		(14,449		)
Credit card relationships & customer lists	4,766		(4,766		)	4,766		(4,317		)
	$	221,990	$	(20,597	)	$	221,930	$	(18,766	)

The Company's tradename and internet domain name have indefinite lives. Net favorable lease obligations, credit card relationships, and customer lists have finite lives and are amortized over a period of up to 7 years, 4 years, and 2 years, respectively, and are included in other assets on the unaudited Consolidated Balance Sheets. Amortization expense totaled $0.4 million and $1.8 million during the thirteen and thirty-nine weeks ended October 29, 2011, respectively; and $0.9 million and $3.0 million during the thirteen and thirty-nine weeks ended October 30, 2010, respectively.

7. Related Party Transactions

Transactions with Limited Brands

On July 29, 2011, Limited Brands divested its remaining ownership in the Company and, as a result of this disposition, Limited Brands and their affiliates were no longer related parties as of the end of the second quarter of 2011. The 2011 related party activity with Limited Brands and their affiliates described below includes only those expenses transacted prior to Limited Brands' disposition of the Company's common stock.

The Company incurred charges from affiliates of Limited Brands, including Mast Global Logistics ("Mast"), for various transaction 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		Thirty-Nine Weeks Ended
	October 30, 2010		October 29, 2011		October 30, 2010
	(in thousands)		(in thousands)
Merchandise Sourcing	$	119,058	$	198,162	$	309,959
Transaction and Logistics Services	$	13,855	$	24,788	$	44,397

The Company’s outstanding liability related to merchandise sourcing and transaction and logistics services provided by Limited Brands, including Mast, included in accounts payable and accrued expenses – related parties on the unaudited Consolidated Balance Sheets was $68.3 million and $8.6 million, respectively, as of January 29, 2011.

Prior to the IPO, under the Limited Liability Company Agreement of Express Parent ("LLC Agreement"), Limited Brands was entitled to receive a cash payment at the same time payments were made under an advisory agreement with Golden Gate ("Advisory Agreement") equal to the product of (i) the amount of the fees actually paid in cash under the Advisory Agreement and (ii) the quotient of the number of units held by Limited Brands over the number of units held by Golden Gate at the time of payment of such Advisory Agreement fees. Effective May 12, 2010, the LLC Agreement, including the advisory arrangement with Limited Brands, was terminated in connection with the Company’s conversion to a corporation and IPO. The Company paid Limited Brands a one-time termination fee of $3.3 million in the second quarter of 2010 in connection with the termination of the LLC Agreement and has made no payments subsequent to this termination.

The Company incurred the following charges from Limited Brands related to advisory fees and the termination of the LLC Agreement. These charges are included in other operating expense (income), net, in the unaudited Consolidated Statements of Income and Comprehensive Income:

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	Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010
	(in thousands)
Limited Brands LLC Agreement Fee (including termination fee)	$	—	$	4,156

As a result of the termination of the LLC Agreement, the Company had no financial obligation to Limited Brands related to this agreement as of October 29, 2011 or January 29, 2011.

Transactions with Golden Gate

In connection with the Golden Gate Acquisition, the Company entered into an Advisory Agreement with Golden Gate that was originally scheduled to expire in July 2017. Pursuant to the Advisory Agreement, the Company paid Golden Gate an annual management fee equal to the greater of (i) $2.0 million per fiscal year or (ii) 3% of adjusted EBITDA of Express Holding. Additionally, the Company reimbursed Golden Gate for reasonable out-of-pocket expenses incurred as a result of providing on-going advisory services. Effective May 12, 2010, the Advisory Agreement was terminated in connection with the Company’s conversion to a corporation and IPO. The Company paid Golden Gate a one-time termination fee of $10.0 million in the second quarter of 2010 in connection with the termination of the Advisory Agreement and has made no payments subsequent to this termination.

The Company incurred the following charges from Golden Gate related to advisory fees, out-of-pocket expenses, and the termination of the Advisory Agreement. These charges are included in other operating expense (income), net in the unaudited Consolidated Statements of Income and Comprehensive Income:



	Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010
	(in thousands)
Advisory fees and out-of-pocket expenses (including Advisory Agreement termination fee)	$	—	$	12,752

As a result of the termination of the Advisory Agreement, the Company had no financial obligation to Golden Gate related to this agreement as of October 29, 2011 or January 29, 2011.

Transactions with Other Golden Gate Affiliates

The Company also transacts with affiliates of Golden Gate for e-commerce warehouse and fulfillment services, software license purchases, and consulting and software maintenance services. The Company incurred the following charges, included primarily in cost of goods sold, buying, and occupancy costs in the unaudited Consolidated Statements of Income and Comprehensive Income:



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010		October 29, 2011		October 30, 2010
	(in thousands)				(in thousands)
E-commerce warehouse and fulfillment	$	7,305	$	1,153	$	21,209	$	6,315
Software licenses and maintenance and consulting	$	55	$	33	$	198	$	259

In March 2010, the Company elected to prepay its e-commerce service provider, a Golden Gate affiliate, $10.2 million for services from April 2010 through January 2011 in exchange for a discount on those services. This prepaid amount was expensed as services were rendered with $3.0 million and $7.0 million being included primarily in cost of goods sold, buying, and occupancy costs in the unaudited Consolidated Statements of Income and Comprehensive Income during the thirteen and thirty-nine weeks ended October 30, 2010, respectively. The prepaid balance related to this Golden Gate affiliate was fully amortized as of January 29, 2011.

The Company’s outstanding liability to other Golden Gate affiliates, included in accounts payable and accrued expenses - related parties on the unaudited Consolidated Balance Sheets, was $4.2 million and $3.0 million as of October 29, 2011 and

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January 29, 2011, respectively.

In December 2009, the Company began providing real estate services to multiple Golden Gate affiliates. Income recognized for these services during the thirteen and thirty-nine weeks ended October 29, 2011 was $0.1 million and $0.4 million, respectively. Income recognized for these services during the thirteen and thirty-nine weeks ended October 30, 2010 was $0.1 million and $0.3 million, respectively. The Company's receivable balance related to these services was $0.1 million as of October 29, 2011 and January 29, 2011.

As part of the prepayment in full of the 14.5% Topco Term C Loan ("Term C Loan") in February 2010, an affiliate of Golden Gate received a payment consisting of $50.0 million of principal, $0.6 million of interest, and a $1.0 million prepayment penalty. As part of the prepayment in full of the 13.5% Topco Term B Loan ("Term B Loan") in May 2010, an affiliate of Golden Gate received a payment consisting of $58.3 million of principal, $2.1 million of interest, and a $3.5 million prepayment penalty. Total interest expense on the Term C Loan and Term B Loan, collectively referred to as the "Topco Credit Facility", attributed to Golden Gate affiliates was $2.7 million during the thirty-nine weeks ended October 30, 2010. The Company did not incur any interest expense under the Topco Credit Facility during the thirteen and thirty-nine week periods ended October 29, 2011 due to the termination of the Topco Credit Facility in the first half of 2010.

During the first and second quarters of 2011, the Company repurchased $25.0 million and $24.2 million of the 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, leaving $10.0 million of Senior Notes owned by a Golden Gate affiliate outstanding as of October 29, 2011. Interest expense incurred on the Senior Notes attributable to the Golden Gate affiliate was $0.2 million and $1.5 million during the thirteen and thirty-nine weeks ended October 29, 2011, respectively; and $1.1 million and $3.0 million during the thirteen and thirty-nine weeks ended October 30, 2010, respectively.

8. Income Taxes

Prior to May 2, 2010, the Company was treated as a partnership for federal income tax purposes, and therefore had not been subject to federal and state income tax (subject to exception in a limited number of state and local jurisdictions). On May 12, 2010, the Company elected to be treated as a corporation under Subchapter C of Chapter 1 of the United States Internal Revenue Code, effective May 2, 2010 and was therefore subject to federal and state tax expense beginning May 2, 2010.

The Reorganization, for tax purposes, was deemed a contribution by Express Parent of its assets and liabilities to the Company, followed by the liquidation of Express Parent. The Reorganization resulted in a taxable gain to Express Parent. Except in those few jurisdictions where Express Parent was taxed directly, the taxable gain flowed through to the members due to Express Parent's partnership tax treatment. The taxable gain correspondingly increased the tax basis in the assets acquired by the Company in the Reorganization. Also, as a result of the Reorganization, the Company had a liability due to a management holding company totaling $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 had a net liability of $3.5 million comprised of a $4.8 million gross liability payable to a Golden Gate entity and a $1.3 million gross receivable due from taxing authorities. The Company settled the liability due to Golden Gate by making a final cash payment during the second quarter of 2011.

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 40.3% and 41.2% for the thirteen weeks ended October 29, 2011 and October 30, 2010, respectively.

The Company's effective tax rate was 40.2% and (34.2)% for the thirty-nine weeks ended October 29, 2011 and October 30, 2010, respectively. The increase in the effective rate is primarily a result of the Company's conversion to a corporation in connection with its IPO in the second quarter of 2010 and the recognition of a one-time tax benefit of $31.8 million in conjunction with the corporate reorganization.

The Company recorded a valuation allowance against the deferred tax assets arising from the net operating loss of foreign subsidiaries. As of October 29, 2011 and January 29, 2011, the valuation allowance was approximately $0.3 million and $0.1 million, respectively. 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 twelve months, but the outcome of tax matters is uncertain and unforeseen results can occur.

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9. Debt

Borrowings outstanding consisted of the following:



	October 29, 2011			January 29, 2011
	(in thousands)
Opco Term Loan	$	119,688		$	120,625
8 3/4% Senior Notes	200,850			250,000
Debt discount on Senior Notes	(2,382		)	(3,218		)
Total debt	318,156			367,407
Short term portion of debt	(1,250		)	(1,250		)
Total long-term debt	$	316,906		$	366,157

Opco Revolving Credit Facility

On July 29, 2011, Express Holding and its domestic subsidiaries entered into an Amended and Restated $200.0 million secured Asset-Based Loan Credit Agreement (the "Opco Revolving Credit Facility"). The Opco Revolving Credit Facility amended, restated, and extended the existing $200.0 million asset-based revolving credit facility, which was scheduled to expire on July 6, 2012. In connection with the amendment, the Company incurred $1.2 million of debt issuance costs that is being amortized on a straight-line basis through July 2016.

The Opco Revolving Credit Facility is scheduled to expire on July 29, 2016 and allows for up to $30.0 million of swing line advances and up to $45.0 million to be available in the form of letters of credit. Borrowings under the Opco Revolving Credit Facility bear interest at a rate equal to either the rate appearing on Bloomberg L.P.'s Page BBAM1/(Official BBA USD Dollar Libor Fixings) (the “Eurodollar Rate”) plus an applicable margin rate or the highest of (1) the prime lending rate, (2) 0.50% per annum above the federal funds rate and (3) 1% above the Eurodollar Rate, in each case plus an applicable margin rate. The applicable margin rate is determined based on excess availability as determined by reference to the borrowing base. The applicable margin for Eurodollar Rate-based advances is 1.50%, 1.75%, or 2.00% if excess availability is greater than or equal to 66% of the borrowing base, less than 66% of the borrowing base but greater than or equal to 33% of the borrowing base, or less than 33% of the borrowing base, respectively. The applicable margin rate for base rate-based advances is 0.50%, 0.75%, or 1.00% if excess availability is greater than or equal to 66% of the borrowing base, less than 66% of the borrowing base but greater than or equal to 33% of the borrowing base, or less than 33% of the borrowing base, respectively. The borrowing base components are 90% of credit card receivables plus 90% of the liquidation value of eligible inventory plus 100% of borrowing base-eligible cash collateral (not to exceed 20% of the borrowing base) less certain reserves.

The unused line fee payable under the Opco Revolving Credit Facility is incurred at 0.375% per annum of the average daily unused revolving commitment during each quarter, payable quarterly in arrears on the first day of each May, August, November, and February. In the event that (1) an event of default has occurred or (2) excess availability plus eligible cash collateral is less than 12.5% of the borrowing base for five consecutive days, such unused line fees are payable on the first day of each month.

Interest payments under the Opco Revolving Credit Facility are due quarterly on the first day of each May, August, November, and February for base rate-based advances, provided, however, in the event that (1) an event of default has occurred or (2) excess availability plus eligible cash collateral is less than 12.5% of the borrowing base for five consecutive days, interest payments are due on the first day of each month. Interest payments under the Opco Revolving Credit Facility are due on the last day of the interest period for Eurodollar Rate-based advances for interest periods of one, two, and three months, and additionally every three months after the first day of the interest period for Eurodollar Rate-based advances for interest periods of greater than three months.

The Opco Revolving Credit Facility requires Express Holding and its domestic 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 Opco 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; the ability to change the nature of its business or its fiscal year; the ability to amend the terms of the $125.0 million variable rate term loan ("Opco Term Loan"); and

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permitted activities of Express Holding. All obligations under the Opco Revolving Credit Facility are guaranteed by Express Holding and its domestic subsidiaries (that are not borrowers) and secured by a lien on substantially all of the assets of Express Holding and its domestic subsidiaries, provided that the liens on certain assets of Express Holding and its domestic subsidiaries are junior in priority to the liens securing the Opco Term Loan.

In connection with amending and restating the existing $200.0 million asset-based revolving credit facility, the Company recognized a $0.3 million loss on extinguishment of debt attributed to the write-off of unamortized debt issuance costs for the thirty-nine weeks ended October 29, 2011, which was recorded as interest expense in the unaudited Consolidated Statements of Income and Comprehensive Income and represents a non-cash adjustment to reconcile net income to net cash provided by operating activities within the unaudited Consolidated Statements of Cash Flows.

As of October 29, 2011, there were no borrowings outstanding and approximately $198.2 million available under the Opco Revolving Credit Facility.

Senior Notes

On March 5, 2010, Express, LLC and Express Finance co-issued, in a private placement, $250.0 million of 8 3/4% Senior Notes due 2018 at an offering price of 98.599% of the face value. An affiliate of Golden Gate purchased $50.0 million of Senior Notes in the offering.

In connection with the Senior Notes offering, Express, LLC and Express Finance entered into a registration rights agreement, which required Express, LLC and Express Finance to use commercially reasonable efforts to register notes having substantially identical terms as the Senior Notes with the SEC. On September 27, 2010, Express, LLC and Express Finance exchanged $200.0 million of the unregistered Senior Notes for registered Senior Notes having substantially identical terms as the unregistered Senior Notes.

During the first and second quarters of 2011, Express, LLC repurchased $25.0 million and $24.2 million of the 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, leaving $10.0 million of unregistered Senior Notes held by a Golden Gate affiliate outstanding as of October 29, 2011. Express, LLC received a written waiver from the Golden Gate affiliate in regards to the requirement to register the remaining $10.0 million of Senior Notes.

Loss on Extinguishment

In connection with the Senior Notes repurchases in the first and second quarters of 2011, the Company recognized a $6.9 million loss on extinguishment of debt which was recorded as interest expense in the unaudited Consolidated Statements of Income and Comprehensive Income. Of this loss on extinguishment, the premium on the repurchases represented $4.4 million. The remaining loss on extinguishment was attributable to the unamortized debt issuance costs and unamortized discount write-offs totaling $2.5 million. The unamortized debt issuance costs and unamortized discount write-offs are presented as 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 Opco Term Loan was estimated using quoted market prices for similar debt issues. The fair value of the Senior Notes was determined using quoted market prices. As of October 29, 2011, the fair value of the Opco Term Loan and Senior Notes was $129.3 million and $209.9 million, respectively.

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 October 29, 2011 and January 29, 2011, there were no outstanding trade LCs. Additionally, the Company enters into stand-by letters of credit ("stand-by LCs") on an as-needed basis to secure merchandise and fund other general and administrative costs. As of October 29, 2011 and January 29, 2011, outstanding stand-by LCs totaled $1.8 million.

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10. Share-Based Compensation

The following summarizes our share-based compensation expense:



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010		October 29, 2011		October 30, 2010
	(in thousands)				(in thousands)
Stock options	$	1,669	$	723	$	4,798	$	1,341
Restricted stock units and restricted stock	1,049		28		2,529		50
Restricted shares (Pre-IPO)	12		90		156		3,020
Total share-based compensation	$	2,730	$	841	$	7,483	$	4,411

Stock Options

During the thirty-nine weeks ended October 29, 2011, the Company granted stock options under the Express, Inc., 2010 Incentive Compensation Plan (the "2010 Plan"). The majority of the options granted vest 25% per year over 4 years and have a 10 year contractual life.

The Company's activity with respect to stock options for the thirty-nine weeks ended October 29, 2011 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 29, 2011	1,383		$	16.94
Granted	1,433		$	18.72
Exercised	(14	)	$	17.00
Forfeited	(59	)	$	17.26
Outstanding, October 29, 2011	2,743		$	17.86	9.0	$	14,211
Expected to vest as of October 29, 2011	2,389		$	17.97	9.0	$	12,125
Exercisable as of October 29, 2011	305		$	16.96	8.5	$	1,857

The following provides additional information regarding the Company's stock options:



	Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010
	(in thousands, except per share amounts)
Weighted average grant date fair value of options granted	$	9.96	$	9.19
Total intrinsic value of options exercised	$	77	$	—

As of October 29, 2011, there was $19.1 million of unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of approximately 1.9 years.

The Company uses the Black-Scholes-Merton option-pricing model for valuation of 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 Company's expected stock price volatility over the term of the awards, expected term of the awards, dividend yield, and risk-free interest rate.

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The fair value of stock options was estimated at the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions:



	Thirty-Nine Weeks Ended
	October 29, 2011		October 30, 2010
Risk-free interest rate ⁽¹⁾	1.39	%	2.84	%
Price Volatility ⁽²⁾	55	%	54	%
Expected term (years) ⁽³⁾	6.25		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)	As 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.


(3)	Calculated utilizing the “simplified” methodology prescribed by Staff Accounting Bulletin 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 thirty-nine weeks ended October 29, 2011, the Company granted restricted stock units (“RSUs”) and restricted stock under the 2010 Plan. The fair value of the RSUs and restricted stock is determined based on the Company's stock price on the date of grant. The Company's activity with respect to RSUs and restricted stock for the thirty-nine weeks ended October 29, 2011 was as follows:



	Number of Shares		Grant Date Weighted Average Fair Value
	(in thousands, except per share amounts)
Unvested, January 29, 2011	44		$	4.88
Granted	926		$	18.93
Vested	(14	)	$	7.67
Forfeited	(10	)	$	15.14
Unvested, October 29, 2011	946		$	18.49

The total fair value of RSUs and restricted stock that vested during the thirty-nine weeks ended October 29, 2011 was $0.1 million. No RSUs or restricted stock vested during 2010. As of October 29, 2011, there was $14.7 million of unrecognized compensation expense related to unvested RSUs and restricted stock, which is expected to be recognized over a weighted average period of approximately 2.2 years.

Restricted Shares (Pre-IPO)

The Company's activity with respect to restricted shares for the thirty-nine weeks ended October 29, 2011 was as follows:



	Number of Shares		Grant Date Weighted Average Fair Value
	(in thousands, except per share amounts)
Unvested, January 29, 2011	220		$	1.03
Granted	—		$	—
Vested	(173	)	$	1.07
Repurchased	(11	)	$	0.90
Unvested, October 29, 2011	36		$	0.90

The total fair value of restricted shares that vested during the thirty-nine weeks ended October 29, 2011 and October 30, 2010

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was $0.2 million and $2.9 million, respectively.

As of October 29, 2011, there was less than $0.1 million of unrecognized compensation expense related to unvested restricted shares, which is expected to be recognized over a weighted average period of approximately 0.6 years.

11. Pro forma Information

The pro forma net income applied in computing pro forma earnings per share for the thirty-nine weeks ended October 30, 2010 is based on the Company’s historical net income as adjusted to reflect the Company’s conversion to a corporation as if it had occurred as of the beginning of 2010. In connection with the Reorganization, effective May 2, 2010, the Company became taxed as a corporation. The Company was previously treated as a partnership for tax purposes, and therefore generally not subject to federal income tax. The pro forma net income includes adjustments for income tax expense as if the Company had been a corporation at an assumed combined federal, state, and local income tax rate of 40.9% for the first quarter of 2010. The pro forma net income for the thirty-nine weeks ended October 30, 2010 also eliminates the non-cash deferred tax benefit of $31.8 million as a non-recurring item related to the Reorganization (see Note 1).

12. Commitments and Contingencies

Express was named as a defendant in a purported class action lawsuit alleging various California state labor law violations. The complaint was originally filed on February 18, 2009, and amended complaints were subsequently filed. To avoid the expense and uncertainty of further litigation with respect to this matter, on March 31, 2011, the Company entered into a settlement agreement to resolve all claims of the plaintiff and other similarly situated class members that were asserted or could have been asserted based on the factual allegations in the final amended complaint for the case. In September 2011, the court granted final approval of the settlement, and in November 2011, the Company paid all amounts due under the settlement. The accrual was adjusted to the actual payment amount in the unaudited Consolidated Balance Sheet as of October 29, 2011. The adjustment was not material to the financial statements.

In a complaint filed on July 7, 2011, Express was named as a defendant in a purported nationwide class action lawsuit alleging violations of the Fair Labor Standards Act and of applicable state wage and hour statutes related to alleged off-the-clock work. The lawsuit seeks unspecified monetary damages and attorneys' fees. Express is vigorously defending these claims. At this time, Express 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 effect on the Company's results of operations, financial condition, or cash flows.

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13. Guarantor Subsidiaries

On March 5, 2010, Express, LLC and Express Finance (the “Subsidiary Issuers”), both wholly-owned indirect subsidiaries of the Company, issued the Senior Notes. The Company (“Guarantor”) and certain of the Company’s indirect wholly-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 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.

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13. Guarantor Subsidiaries (continued)

EXPRESS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(Amounts in Thousands)

(Unaudited)



	October 29, 2011
	Express, Inc.			Subsidiary Issuers		Guarantor Subsidiaries		Other Subsidiaries			Eliminations			Consolidated Total
Assets
Current assets
Cash and cash equivalents	$	1,616		$	143,020	$	—	$	346		$	—		$	144,982
Receivables, net	—			6,547		—		1,322			—			7,869
Inventories	—			276,430		—		2,110			—			278,540
Prepaid minimum rent	—			22,632		—		160			—			22,792
Intercompany receivable	—			6,327		16,669		—			(22,996		)	—
Other	17			34,548		—		6			—			34,571
Total current assets	1,633			489,504		16,669		3,944			(22,996		)	488,754
Property and equipment, net	—			221,239		—		2,544			—			223,783
Tradename/domain name	—			197,474		—		—			—			197,474
Investment in subsidiary	215,063			1,196		—		209,560			(425,819		)	—
Deferred tax asset	968			2,072		—		893						3,933
Other assets	—			16,201		—		4			—			16,205
Total assets	$	217,664		$	927,686	$	16,669	$	216,945		$	(448,815	)	$	930,149
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	—		$	187,690	$	—	$	283		$	—		$	187,973
Deferred revenue	—			4,968		13,356		11			—			18,335
Accrued bonus	—			6,520		—		3			—			6,523
Accrued expenses	(577		)	96,618		—		(4,446		)	—			91,595
Accounts payable and accrued expenses—related parties	—			4,207		—		—			—			4,207
Intercompany payable	—			16,669		—		6,327			(22,996		)	—
Total current liabilities	(577		)	316,672		13,356		2,178			(22,996		)	308,633
Long-term debt	—			316,906		—		—			—			316,906
Other long-term liabilities	162			84,548		—		1,821			—			86,531
Total liabilities	(415		)	718,126		13,356		3,999			(22,996		)	712,070
Commitments and Contingencies (Note 12)
Total stockholders’ equity	218,079			209,560		3,313		212,946			(425,819		)	218,079
Total liabilities and stockholders’ equity	$	217,664		$	927,686	$	16,669	$	216,945		$	(448,815	)	$	930,149

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13. Guarantor Subsidiaries (continued)

EXPRESS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(Amounts in Thousands)

(Unaudited)



	January 29, 2011
	Express, Inc.			Subsidiary Issuers		Guarantor Subsidiaries		Other Subsidiaries			Eliminations			Consolidated Total
Assets
Current assets
Cash and cash equivalents	$	1,647		$	186,115	$	—	$	—		$	—		$	187,762
Receivables, net	—			9,908		—		—			—			9,908
Inventories	—			185,209		—		—			—			185,209
Prepaid minimum rent	—			22,284		—		—			—			22,284
Intercompany receivable	—			—		26,029		311			(26,340		)	—
Other	—			22,130		—		—			—			22,130
Total current assets	1,647			425,646		26,029		311			(26,340		)	427,293
Property and equipment, net	—			211,319		—		—			—			211,319
Tradename/domain name	—			197,414		—		—			—			197,414
Investment in subsidiary	127,260			3,147		—		121,757			(252,164		)	—
Deferred tax asset	968			3,652		—		893			—			5,513
Other assets	—			21,210		—		—			—			21,210
Total assets	$	129,875		$	862,388	$	26,029	$	122,961		$	(278,504	)	$	862,749
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	—		$	85,843	$	—	$	—		$	—		$	85,843
Deferred revenue	—			2,185		22,882		—			—			25,067
Accrued bonus	—			14,268		—		—			—			14,268
Accrued expenses	(444		)	96,535		—		(4,299		)	—			91,792
Accounts payable and accrued expenses—related parties	—			79,865		—		—			—			79,865
Intercompany payable	—			26,340		—		—			(26,340		)	—
Total current liabilities	(444		)	305,036		22,882		(4,299		)	(26,340		)	296,835
Long-term debt	—			366,157		—		—			—			366,157
Other long-term liabilities	157			69,438		—		—			—			69,595
Total liabilities	(287		)	740,631		22,882		(4,299		)	(26,340		)	732,587
Commitments and Contingencies (Note 12)
Total stockholders’ equity	130,162			121,757		3,147		127,260			(252,164		)	130,162
Total liabilities and stockholders’ equity	$	129,875		$	862,388	$	26,029	$	122,961		$	(278,504	)	$	862,749

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13. Guarantor Subsidiaries (continued)

EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)



	Thirteen Weeks Ended October 29, 2011
	Express, Inc.			Subsidiary Issuers			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	485,837		$	—		$	947		$	—		$	486,784
Cost of goods sold, buying, and occupancy costs	—			309,172			—			1,644			—			310,816
Gross profit	—			176,665			—			(697		)	—			175,968
Selling, general, and administrative expenses	252			113,425			(44		)	1,428			—			115,061
Other operating expense (income), net	—			34			—			—			—			34
Operating income (loss)	(252		)	63,206			44			(2,125		)	—			60,873
Interest expense	—			6,328			—			—			—			6,328
Interest income	—			(2		)	—			—			—			(2		)
(Income) loss in subsidiary	(32,927		)	1,931			—			(32,927		)	63,923			—
Other income, net	—			—			—			(148		)	—			(148		)
Income (loss) before income taxes	32,675			54,949			44			30,950			(63,923		)	54,695
Income tax expense (benefit)	3			22,022			—			—			—			22,025
Net income (loss)	$	32,672		$	32,927		$	44		$	30,950		$	(63,923	)	$	32,670

Foreign currency translation	—			—			—			2			—			2
Comprehensive income	$	32,672		$	32,927		$	44		$	30,952		$	(63,923	)	$	32,672

Table of Contents

13. Guarantor Subsidiaries (continued)

EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)



	Thirteen Weeks Ended October 30, 2010
	Express, Inc.			Subsidiary Issuers			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	450,577		$	—		$	—		$	—		$	450,577
Cost of goods sold, buying, and occupancy costs	—			286,254			—			—			—			286,254
Gross profit	—			164,323			—			—			—			164,323
Selling, general, and administrative expenses	322			111,042			(55		)	—			—			111,309
Other operating expense (income), net	—			799			—			—			—			799
Operating income (loss)	(322		)	52,482			55			—			—			52,215
Interest expense	—			7,570			—			—			—			7,570
Interest income	—			(1		)	—			—			—			(1		)
(Income) loss in subsidiary	(26,622		)	(55		)	—			(26,650		)	53,327			—
Other income, net	—			(62		)	—			—			—			(62		)
Income (loss) before income taxes	26,300			45,030			55			26,650			(53,327		)	44,708
Income tax expense (benefit)	(1		)	18,380			—			28			—			18,407
Net income (loss)	$	26,301		$	26,650		$	55		$	26,622		$	(53,327	)	$	26,301

Foreign currency translation	—			—			—			—			—			—
Comprehensive income	$	26,301		$	26,650		$	55		$	26,622		$	(53,327	)	$	26,301

Table of Contents

13. Guarantor Subsidiaries (continued)

EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)



	Thirty-Nine Weeks Ended October 29, 2011
	Express, Inc.			Subsidiary Issuers			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	1,399,255		$	—		$	947		$	—		$	1,400,202
Cost of goods sold, buying, and occupancy costs	—			894,348			—			1,740			—			896,088
Gross profit	—			504,907			—			(793		)	—			504,114
Selling, general, and administrative expenses	1,207			339,723			(166		)	1,472			—			342,236
Other operating expense (income), net	—			(166		)	—			—			—			(166		)
Operating income (loss)	(1,207		)	165,350			166			(2,265		)	—			162,044
Interest expense	—			27,843			—			—			—			27,843
Interest income	—			(7		)	—			—			—			(7		)
(Income) loss in subsidiary	(81,515		)	1,951			—			(81,515		)	161,079			—
Other income, net	—			—			—			(148		)	—			(148		)
Income (loss) before income taxes	80,308			135,563			166			79,398			(161,079		)	134,356
Income tax expense (benefit)	5