Edgar Filing: EXPRESS, INC.

10-Q Q3 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 October 27, 2012



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 85,491,704 as of November 30, 2012.

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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.

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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.	22

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	30

ITEM 4.	CONTROLS AND PROCEDURES.	31

PART II	OTHER INFORMATION	31

ITEM 1.	LEGAL PROCEEDINGS.	31

ITEM 1A.	RISK FACTORS.	31

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	31

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	32

ITEM 4.	MINE SAFETY DISCLOSURES.	32

ITEM 5.	OTHER INFORMATION.	32

ITEM 6.	EXHIBITS.	32

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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 27, 2012			January 28, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	102,438		$	152,362
Receivables, net	9,416			9,027
Inventories	286,877			208,954
Prepaid minimum rent	24,233			23,461
Other	28,949			18,232
Total current assets	451,913			412,036

PROPERTY AND EQUIPMENT	614,145			521,860
Less: accumulated depreciation	(333,279		)	(294,554		)
Property and equipment, net	280,866			227,306

TRADENAME/DOMAIN NAME	197,719			197,509
DEFERRED TAX ASSETS	9,640			12,462
OTHER ASSETS	11,216			12,886
Total assets	$	951,354		$	862,199

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	207,472		$	133,679
Deferred revenue	18,524			27,684
Accrued bonus	85			14,689
Accrued expenses	87,638			109,161
Accounts payable and accrued expenses – related parties	—			5,997
Total current liabilities	313,719			291,210

LONG-TERM DEBT	198,760			198,539
OTHER LONG-TERM LIABILITIES	135,780			91,303
Total liabilities	648,259			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; 89,607 shares and 88,946 shares issued at October 27, 2012 and January 28, 2012, respectively, and 85,509 shares and 88,887 shares outstanding at October 27, 2012 and January 28, 2012, respectively	896			890
Additional paid-in capital	100,910			87,713
Accumulated other comprehensive loss	(53		)	(7		)
Retained earnings	267,979			192,654
Treasury stock – at average cost; 4,098 shares and 59 shares at October 27, 2012 and January 28, 2012, respectively	(66,637		)	(103		)
Total stockholders’ equity	303,095			281,147
Total liabilities and stockholders’ equity	$	951,354		$	862,199

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 27, 2012			October 29, 2011			October 27, 2012			October 29, 2011
NET SALES	$	468,527		$	486,784		$	1,419,358		$	1,400,202
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS	316,989			310,816			932,532			896,088
Gross profit	151,538			175,968			486,826			504,114
OPERATING EXPENSES:
Selling, general, and administrative expenses	117,722			115,061			347,224			342,236
Other operating (income) expense, net	(586		)	34			(553		)	(166		)
Total operating expenses	117,136			115,095			346,671			342,070

OPERATING INCOME	34,402			60,873			140,155			162,044

INTEREST EXPENSE	4,782			6,328			14,338			27,843
INTEREST INCOME	—			(2		)	(1		)	(7		)
OTHER INCOME, NET	(116		)	(148		)	(104		)	(148		)
INCOME BEFORE INCOME TAXES	29,736			54,695			125,922			134,356
INCOME TAX EXPENSE	12,314			22,025			50,598			54,053
NET INCOME	$	17,422		$	32,670		$	75,324		$	80,303

OTHER COMPREHENSIVE INCOME:
Foreign currency translation	(49		)	2			(46		)	—
COMPREHENSIVE INCOME	$	17,373		$	32,672		$	75,278		$	80,303

EARNINGS PER SHARE:
Basic	$	0.20		$	0.37		$	0.86		$	0.91
Diluted	$	0.20		$	0.37		$	0.86		$	0.90

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	85,980			88,643			87,489			88,573
Diluted	86,216			88,903			87,835			88,838

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 27, 2012			October 29, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	75,324		$	80,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,733			51,198
Loss on disposal of property and equipment	67			89
Excess tax benefit from share-based compensation	(409		)	—
Share-based compensation	12,207			7,483
Non-cash loss on extinguishment of debt	—			2,744
Deferred taxes	3,713			(2,764		)
Changes in operating assets and liabilities:
Receivables, net	(379		)	2,043
Inventories	(77,900		)	(93,325		)
Accounts payable, deferred revenue, and accrued expenses	18,555			10,168
Other assets and liabilities	7,231			6,404
Net cash provided by operating activities	89,142			64,343

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(73,354		)	(55,915		)
Purchase of intangible assets	(210		)	(60		)
Net cash used in investing activities	(73,564		)	(55,975		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt arrangements	—			(50,087		)
Costs incurred in connection with debt arrangements and Senior Notes	—			(1,192		)
Payments on capital lease obligation	(41		)	—
Excess tax benefit from share-based compensation	409			—
Proceeds from share-based compensation	623			234
Repurchase of common stock	(66,534		)	(103		)
Net cash used in financing activities	(65,543		)	(51,148		)

EFFECT OF EXCHANGE RATE ON CASH	41			—

NET DECREASE IN CASH AND CASH EQUIVALENTS	(49,924		)	(42,780		)
CASH AND CASH EQUIVALENTS, Beginning of period	152,362			187,762
CASH AND CASH EQUIVALENTS, End of period	$	102,438		$	144,982

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. ("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 retail stores and the Company's website, www.express.com. As of October 27, 2012, Express operated 618 primarily mall-based stores in the United States, Canada, and Puerto Rico. Additionally, the Company earned royalties from 10 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 third quarter of 2012” and “the third quarter of 2011” represent the thirteen weeks ended October 27, 2012 and October 29, 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				Thirty-Nine Weeks Ended
	October 27, 2012		October 29, 2011		October 27, 2012		October 29, 2011
Classes:	(in thousands)				(in thousands)
Apparel	$	421,681	$	440,792	$	1,281,598	$	1,267,240
Accessories and other	41,424		41,542		123,200		118,696
Other revenue	5,422		4,450		14,560		14,266
Total net sales	$	468,527	$	486,784	$	1,419,358	$	1,400,202

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	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 27, 2012		October 29, 2011		October 27, 2012		October 29, 2011
Channels:	(in thousands)				(in thousands)
Stores	$	408,043	$	436,683	$	1,254,668	$	1,264,653
E-commerce	55,062		45,651		150,130		121,283
Other revenue	5,422		4,450		14,560		14,266
Total net sales	$	468,527	$	486,784	$	1,419,358	$	1,400,202

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		Thirty-Nine Weeks Ended
	October 27, 2012	October 29, 2011	October 27, 2012	October 29, 2011
	(in thousands)		(in thousands)
Weighted-average shares - basic	85,980	88,643	87,489	88,573
Dilutive effect of stock options, restricted stock units, and restricted stock	236	260	346	265
Weighted-average shares - diluted	86,216	88,903	87,835	88,838

Equity awards representing 3.8 million and 2.4 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended October 27, 2012, respectively, as the effects of the awards would have been anti-dilutive. Equity awards representing 2.0 million and 2.3 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended October 29, 2011, respectively, as the effects of the awards would have been anti-dilutive.

Additionally, for the thirteen and thirty-nine weeks ended October 27, 2012, there were 0.3 million shares of restricted stock excluded from the computation of diluted weighted average shares because the number of shares that will ultimately be 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. During the thirteen weeks ended October 27, 2012, the Company repurchased 1.3 million shares of its common stock under the Repurchase Program at an average price of $11.70 per share, totaling $15.0 million, including commissions; and through October 27, 2012, the Company repurchased 4.0 million shares of its common stock at an average price of $16.38 per share, totaling $65.1 million, including 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.

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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 27, 2012 and January 28, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall.



	October 27, 2012
	Level 1		Level 2		Level 3
	(in thousands)
U.S. treasury securities funds	$	77,456	$	—	$	—

	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 October 27, 2012 and January 28, 2012 approximated their fair values.

6. Intangible Assets

The following table provides the significant components of intangible assets:



	October 27, 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	1,575		—		1,365		—
Net favorable lease obligations	19,750		17,427		19,750		16,275
	$	217,469	$	17,427	$	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 represented 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 $1.2 million during the thirteen and thirty-nine weeks ended October 27, 2012, respectively; and $0.4 million and $1.8 million during the thirteen and thirty-nine weeks ended October 29, 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, Golden Gate ceased to be a related party as of June 1, 2012.

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Transactions with Limited Brands

The Company is party to a logistics services agreement with an affiliate of Limited Brands. The Limited Brands affiliate 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. The Company is also party to a lease agreement with an affiliate of Limited Brands for its home office and distribution center.

The 2011 related party activity with affiliates of Limited Brands 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 are included in selling, general, and administrative expenses, and for merchandise sourcing and logistics services, including distribution center rent, which 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:



	Thirty-Nine Weeks Ended
	October 29, 2011
	(in thousands)
Merchandise sourcing	$	198,162
Transaction and logistics services	$	24,788

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 and income earned through the date on which Golden Gate ceased to be a related party.

The Company incurred the following charges from affiliates of Golden Gate for various services, which are 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 27, 2012		October 29, 2011
	(in thousands)		(in thousands)
E-commerce warehouse and fulfillment	$	7,305	$	8,755	$	21,209
Software licenses and consulting and software maintenance services	$	55	$	91	$	198

The Company provided real estate services to certain Golden Gate affiliates. Income recognized during the thirty-nine weeks ended October 27, 2012 was $0.2 million. 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.

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 $0.3 million, during the thirty-nine weeks ended October 27, 2012; and $0.2 million and $1.5 million during the thirteen and thirty-nine weeks ended October 29, 2011, respectively.

8. Income Taxes

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 41.4% and 40.3% for the thirteen weeks ended October 27, 2012

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and October 29, 2011, respectively. The Company's effective tax rate was 40.2% for the thirty-nine weeks ended October 27, 2012 and October 29, 2011.

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.

During the third quarter of 2012, the Internal Revenue Service initiated an audit of the period ended January 29, 2011, which is currently on-going.

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 October 27, 2012, the Company had recorded $23.8 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 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:



	October 27, 2012			January 28, 2012
	(in thousands)
8 3/4% Senior Notes	$	200,850		$	200,850
Debt discount on Senior Notes	(2,090		)	(2,311		)
Total long-term debt	$	198,760		$	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 October 27, 2012, there were no borrowings outstanding and approximately $197.9 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'

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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 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 (the "Senior Notes") 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 $6.9 million loss on extinguishment of debt for the thirty-nine weeks ended October 29, 2011. Of this loss on extinguishment, $2.5 million was attributed to the write-off of unamortized debt issuance costs and unamortized discount.

In connection with the amendment and restatement of the 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 thirty-nine weeks ended October 29, 2011.

The loss on extinguishment of debt was 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 October 27, 2012, the estimated fair value of the Senior Notes was $217.7 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 October 27, 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 October 27, 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:

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	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 27, 2012		October 29, 2011		October 27, 2012		October 29, 2011
	(in thousands)				(in thousands)
Stock options	$	2,032	$	1,669	$	6,089	$	4,798
Restricted stock units and restricted stock	1,318		1,049		6,104		2,529
Restricted shares (equity issued pre-IPO)	1		12		14		156
Total share-based compensation	$	3,351	$	2,730	$	12,207	$	7,483

During the thirteen and thirty-nine weeks ended October 27, 2012, the stock compensation related income tax benefit recognized by the Company was $0.2 million and $1.7 million, respectively; and during the thirteen and thirty-nine weeks ended October 29, 2011, was minimal and $0.1 million, respectively.

Stock Options

During the thirty-nine weeks ended October 27, 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 thirty-nine weeks ended October 27, 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	576		$	23.98
Exercised	(35	)	$	17.45
Forfeited or expired	(37	)	$	19.80
Outstanding, October 27, 2012	3,171		$	19.01	8.3	$	—
Expected to vest at October 27, 2012	2,180		$	19.61	8.4	$	—
Exercisable at October 27, 2012	961		$	17.63	7.9	$	—

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



	Thirty-Nine Weeks Ended
	October 27, 2012
(in thousands, except per share amounts)
Weighted average grant date fair value of options granted	$	12.79
Total intrinsic value of options exercised	$	267
Total fair value of options vested	$	6,503

As of October 27, 2012, there was approximately $17.6 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of approximately 1.3 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:

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	Thirty-Nine Weeks Ended
	October 27, 2012		October 29, 2011
Risk-free interest rate ⁽¹⁾	1.12	%	1.39	%
Price Volatility ⁽²⁾	55.9	%	55.4	%
Expected term (years) ⁽³⁾	6.17		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 thirty-nine weeks ended October 27, 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 thirty-nine weeks ended October 27, 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	826		$	24.13
Vested	(176	)	$	17.89
Forfeited	(12	)	$	21.83
Unvested, October 27, 2012	1,538		$	21.57

The total fair value/intrinsic value of RSUs and restricted stock that vested was $3.2 million and $0.1 million during the thirty-nine weeks ended October 27, 2012 and October 29, 2011, respectively. As of October 27, 2012, there was approximately $18.6 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 1.5 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. The Company has accrued an amount on the Consolidated Balance Sheet as of October 27, 2012 that reflects its best estimate of the potential loss, which is not expected to be material to the Consolidated Financial Statements. As the situation develops and more information becomes available, the amount of this reserve may increase or decrease accordingly.

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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.

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. On August 26, 2012, Express, LLC contributed certain assets and liabilities to a newly created Guarantor Subsidiary. As a result, the current and prior period condensed consolidated financial information has been revised to retroactively give effect to the new structure in place as of August 26, 2012.

The following consolidating schedules present the condensed financial information on a combined basis.

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EXPRESS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(Amounts in thousands)

(Unaudited)



	October 27, 2012
	Express, Inc.		Subsidiary Issuers		Guarantor Subsidiaries		Other Subsidiaries		Eliminations			Consolidated Total
Assets
Current assets
Cash and cash equivalents	$	938	$	74,129	$	24,343	$	3,028	$	—		$	102,438
Receivables, net	—		3,884		3,903		1,629		—			9,416
Inventories	—		18,041		266,010		2,826		—			286,877
Prepaid minimum rent	—		446		23,139		648		—			24,233
Intercompany loan receivable	—		17,596		—		—		(17,596		)	—
Intercompany receivable	—		55,917		—		5,862		(61,779		)	—
Other	1,066		24,348		3,525		10		—			28,949
Total current assets	2,004		194,361		320,920		14,003		(79,375		)	451,913
Property and equipment, net	—		41,073		227,766		12,027		—			280,866
Tradename/domain name	—		197,719		—		—		—			197,719
Investment in subsidiary	300,250		334,995		—		294,466		(929,711		)	—
Deferred tax assets	852		6,386		2,402		—		—			9,640
Other assets	—		8,066		3,146		4		—			11,216
Total assets	$	303,106	$	782,600	$	554,234	$	320,500	$	(1,009,086	)	$	951,354
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	—	$	204,530	$	1,831	$	1,111	$	—		$	207,472
Deferred revenue	—		1,320		17,159		45		—			18,524
Accrued bonus	—		—		85		—		—			85
Accrued expenses	12		45,201		41,295		1,130		—			87,638
Intercompany payable	—		5,862		55,917		—		(61,779		)	—
Intercompany loan payable	—		—		—		17,596		(17,596		)	—
Total current liabilities	12		256,913		116,287		19,882		(79,375		)	313,719
Long-term debt	—		198,760		—		—		—			198,760
Other long-term liabilities	—		32,461		98,462		4,857		—			135,780
Total liabilities	12		488,134		214,749		24,739		(79,375		)	648,259
Commitments and Contingencies (Note 12)
Total stockholders’ equity	303,094		294,466		339,485		295,761		(929,711		)	303,095
Total liabilities and stockholders’ equity	$	303,106	$	782,600	$	554,234	$	320,500	$	(1,009,086	)	$	951,354

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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		$	121,273	$	27,964		$	1,550	$	—		$	152,362
Receivables, net	—			1,917		5,522			1,588		—			9,027
Inventories	—			22,681		183,826			2,447		—			208,954
Prepaid minimum rent	—			219		22,766			476		—			23,461
Intercompany loan receivable	—			12,684		—			—		(12,684		)	—
Intercompany receivable	—			—		—			5,862		(5,862		)	—
Other	—			20,188		(1,960		)	4		—			18,232
Total current assets	1,575			178,962		238,118			11,927		(18,546		)	412,036
Property and equipment, net	—			31,415		187,286			8,605		—			227,306
Tradename/domain name	—			197,509		—			—		—			197,509
Investment in subsidiary	277,920			300,747		—			272,135		(850,802		)	—
Deferred tax assets	852			7,224		4,386			—		—			12,462
Other assets	—			8,956		3,926			4		—			12,886
Total assets	$	280,347		$	724,813	$	433,716		$	292,671	$	(869,348	)	$	862,199
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	—		$	131,767	$	1,294		$	618	$	—		$	133,679
Deferred revenue	—			3,158		24,476			50		—			27,684
Accrued bonus	—			13,486		1,185			18		—			14,689
Accrued expenses	(800		)	63,899		44,523			1,539		—			109,161
Accounts payable and accrued expenses—related parties	—			5,997		—			—		—			5,997
Intercompany payable	—			5,862		—			—		(5,862		)	—
Intercompany loan payable	—			—		—			12,684		(12,684		)	—
Total current liabilities	(800		)	224,169		71,478			14,909		(18,546		)	291,210
Long-term debt	—			198,539		—			—		—			198,539
Other long-term liabilities	—			29,970		58,189			3,144		—			91,303
Total liabilities	(800		)	452,678		129,667			18,053		(18,546		)	581,052
Commitments and Contingencies (Note 12)
Total stockholders’ equity	281,147			272,135		304,049			274,618		(850,802		)	281,147
Total liabilities and stockholders’ equity	$	280,347		$	724,813	$	433,716		$	292,671	$	(869,348	)	$	862,199

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EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



	Thirteen Weeks Ended October 27, 2012
				Subsidiary			Guarantor			Other						Consolidated
	Express, Inc.			Issuers			Subsidiaries			Subsidiaries			Eliminations			Total
Net sales	$	—		$	263,985		$	462,960		$	4,157		$	(262,575	)	$	468,527
Cost of goods sold, buying and occupancy costs	—			202,519			374,101			2,602			(262,233		)	316,989
Gross profit	—			61,466			88,859			1,555			(342		)	151,538
Selling, general, and administrative expenses	114			45,761			69,940			2,249			(342		)	117,722
Other operating expense (income), net	—			—			(586		)	—			—			(586		)
Operating income (loss)	(114		)	15,705			19,505			(694		)	—			34,402
Interest expense	—			4,771			—			11			—			4,782
Interest income	—			—			—			—			—			—
(Income) loss in subsidiary	(17,292		)	(11,038		)	—			(17,292		)	45,622			—
Other expense (income), net	—			—			—			(116		)	—			(116		)
Income (loss) before income taxes	17,178			21,972			19,505			16,703			(45,622		)	29,736
Income tax expense (benefit)	(244		)	4,680			7,878			—			—			12,314
Net income (loss)	$	17,422		$	17,292		$	11,627		$	16,703		$	(45,622	)	$	17,422
Foreign currency translation	(49		)	(49		)	—			(98		)	147			(49		)
Comprehensive income	$	17,373		$	17,243		$	11,627		$	16,605		$	(45,475	)	$	17,373

EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



	Thirteen Weeks Ended October 29, 2011
				Subsidiary			Guarantor		Other						Consolidated
	Express, Inc.			Issuers			Subsidiaries		Subsidiaries			Eliminations			Total
Net sales	$	—		$	290,893		$	485,463	$	947		$	(290,519	)	$	486,784
Cost of goods sold, buying and occupancy costs	—			203,508			396,070		1,644			(290,406		)	310,816
Gross profit	—			87,385			89,393		(697		)	(113		)	175,968
Selling, general, and administrative expenses	252			40,984			72,510		1,428			(113		)	115,061
Other operating expense (income), net	—			—			34		—			—			34
Operating income (loss)	(252		)	46,401			16,849		(2,125		)	—			60,873
Interest expense	—			6,328			—		—			—			6,328
Interest income	—			(2		)	—		—			—			(2		)
(Income) loss in subsidiary	(32,925		)	(8,014		)	—		(32,925		)	73,864			—
Other expense (income), net	—			—			—		(148		)	—			(148		)
Income (loss) before income taxes	32,673			48,089			16,849		30,948			(73,864		)	54,695
Income tax expense (benefit)	3			15,164			6,858		—			—			22,025
Net income (loss)	$	32,670		$	32,925		$	9,991	$	30,948		$	(73,864	)	$	32,670
Foreign currency translation	2			2			—		4			(6		)	2
Comprehensive income	$	32,672		$	32,927		$	9,991	$	30,952		$	(73,870	)	$	32,672

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EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



	Thirty-Nine Weeks Ended October 27, 2012
				Subsidiary			Guarantor			Other						Consolidated
	Express, Inc.			Issuers			Subsidiaries			Subsidiaries			Eliminations			Total
Net sales	$	—		$	819,709		$	1,406,431		$	10,692		$	(817,474	)	$	1,419,358
Cost of goods sold, buying and occupancy costs	—			606,086			1,136,406			6,837			(816,797		)	932,532
Gross profit	—			213,623			270,025			3,855			(677		)	486,826
Selling, general, and administrative expenses	614			130,866			211,328			5,093			(677		)	347,224
Other operating expense (income), net	—			—			(553		)	—			—			(553		)
Operating income (loss)	(614		)	82,757			59,250			(1,238		)	—			140,155
Interest expense	—			14,329			—			9			—			14,338
Interest income	—			(1		)	—			—			—			(1		)
(Income) loss in subsidiary	(75,694		)	(34,177		)	—			(75,694		)	185,565			—
Other expense (income), net	—			—			—			(104		)	—			(104		)
Income (loss) before income taxes	75,080			102,606			59,250			74,551			(185,565		)	125,922
Income tax expense (benefit)	(244		)	26,912			23,930			—			—			50,598
Net income (loss)	$	75,324		$	75,694		$	35,320		$	74,551		$	(185,565	)	$	75,324
Foreign currency translation	(46		)	(46		)	—			(92		)	138			(46		)
Comprehensive income	$	75,278		$	75,648		$	35,320		$	74,459		$	(185,427	)	$	75,278

EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



	Thirty-Nine Weeks Ended October 29, 2011
				Subsidiary			Guarantor		Other						Consolidated
	Express, Inc.			Issuers			Subsidiaries		Subsidiaries			Eliminations			Total
Net sales	$	—		$	822,877		$	1,398,187	$	947		$	(821,809	)	$	1,400,202
Cost of goods sold, buying and occupancy costs	—			585,795			1,130,024		1,740			(821,471		)	896,088
Gross profit	—			237,082			268,163		(793		)	(338		)	504,114
Selling, general, and administrative expenses	1,207			120,276			219,619		1,472			(338		)	342,236
Other operating expense (income), net	—			(235		)	69		—			—			(166		)
Operating income (loss)	(1,207		)	117,041			48,475		(2,265		)	—			162,044
Interest expense	—			27,843			—		—			—			27,843
Interest income	—			(7		)	—		—			—			(7		)
(Income) loss in subsidiary	(81,515		)	(26,747		)	—		(81,515		)	189,777			—
Other expense (income), net	—			—			—		(148		)	—			(148		)
Income (loss) before income taxes	80,308			115,952			48,475		79,398			(189,777		)	134,356
Income tax expense (benefit)	5			34,437			19,611		—			—			54,053
Net income (loss)	$	80,303		$	81,515		$	28,864	$	79,398		$	(189,777	)	$	80,303
Foreign currency translation	—			—			—		—			—			—
Comprehensive income	$	80,303		$	81,515		$	28,864	$	79,398		$	(189,777	)	$	80,303

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EXPRESS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Thirty-Nine Weeks Ended October 27, 2012

Subsidiary

Guarantor

Other

Consolidated

Express, Inc.

Issuers

Subsidiaries