2013 Q3 10-Q
Table of Contents

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 November 2, 2013
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission File Number 001-34742
 
EXPRESS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
26-2828128
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1 Express Drive
Columbus, Ohio
 
43230
(Address of principal executive offices)
 
(Zip Code)
Telephone: (614) 474-4001
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x
The number of outstanding shares of the registrant’s common stock was 83,948,853 as of November 30, 2013.

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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 distribution 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 plans;
our dependence on a strong brand image;
our leasing substantial amounts of space;
our reliance on third parties 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 and our ability to pay dividends;
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 February 2, 2013 ("Annual Report"), filed with the Securities and Exchange Commission (“SEC”) on April 2, 2013. 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
 
 
 
ITEM 1.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.




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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)
 
November 2, 2013
 
February 2, 2013
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
181,553

 
$
256,297

Receivables, net
17,433

 
11,024

Inventories
343,020

 
215,082

Prepaid minimum rent
26,125

 
25,166

Other
24,807

 
8,293

Total current assets
592,938

 
515,862

 
 
 
 
PROPERTY AND EQUIPMENT
730,157

 
625,344

Less: accumulated depreciation
(374,869
)
 
(346,975
)
Property and equipment, net
355,288

 
278,369

 
 
 
 
TRADENAME/DOMAIN NAME
197,812

 
197,719

DEFERRED TAX ASSETS
14,275

 
16,808

OTHER ASSETS
8,413

 
10,441

Total assets
$
1,168,726

 
$
1,019,199

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
244,906

 
$
176,125

Deferred revenue
19,725

 
27,851

Accrued bonus
1,742

 
336

Accrued expenses
84,745

 
108,464

Total current liabilities
351,118

 
312,776

 
 
 
 
LONG-TERM DEBT
199,086

 
198,843

OTHER LONG-TERM LIABILITIES
196,339

 
136,418

Total liabilities
746,543

 
648,037

 
 
 
 
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; 89,838 shares and 89,322 shares issued at November 2, 2013 and February 2, 2013, respectively, and 83,946 shares and 85,224 shares outstanding at November 2, 2013 and February 2, 2013, respectively
898

 
893

Additional paid-in capital
125,077

 
105,012

Accumulated other comprehensive income (loss)
222

 
(20
)
Retained earnings
400,534

 
331,921

Treasury stock – at average cost; 5,892 shares and 4,098 shares at November 2, 2013 and February 2, 2013, respectively
(104,548
)
 
(66,644
)
Total stockholders’ equity
422,183

 
371,162

Total liabilities and stockholders’ equity
$
1,168,726

 
$
1,019,199

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
 
November 2, 2013
 
October 27, 2012
 
November 2, 2013
 
October 27, 2012
NET SALES
$
502,992


$
468,527


$
1,497,674


$
1,419,358

         COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
337,727


316,989


1,009,085


932,532

Gross profit
165,265

 
151,538

 
488,589


486,826

OPERATING EXPENSES:
 
 
 
 
 


Selling, general, and administrative expenses
128,366


117,722


360,165


347,224

Other operating expense (income), net
169


(586
)

(415
)

(553
)
Total operating expenses
128,535

 
117,136

 
359,750


346,671

 
 
 
 
 
 


OPERATING INCOME
36,730

 
34,402

 
128,839


140,155

 
 
 
 
 
 


INTEREST EXPENSE, NET
4,876


4,782


14,457


14,337

OTHER EXPENSE (INCOME), NET
153


(116
)

958


(104
)
INCOME BEFORE INCOME TAXES
31,701

 
29,736

 
113,424


125,922

INCOME TAX EXPENSE
12,434


12,314


44,811


50,598

NET INCOME
$
19,267

 
$
17,422

 
$
68,613


$
75,324

 
 
 
 
 
 


OTHER COMPREHENSIVE INCOME:
 
 
 
 
 


Foreign currency translation gain (loss)
26


(49
)

242


(46
)
COMPREHENSIVE INCOME
$
19,293

 
$
17,373

 
$
68,855


$
75,278

 
 
 
 
 
 
 
 
EARNINGS PER SHARE:
 
 
 
 



Basic
$
0.23


$
0.20


$
0.81


$
0.86

Diluted
$
0.23


$
0.20


$
0.81


$
0.86

 
 
 
 
 



WEIGHTED AVERAGE SHARES OUTSTANDING:
 
 
 
 



Basic
83,929


85,980


84,675


87,489

Diluted
84,603


86,216


85,221


87,835

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
 
November 2, 2013
 
October 27, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
68,613


$
75,324

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
Depreciation and amortization
52,000


50,733

Loss on disposal of property and equipment
636


67

Excess tax benefit from share-based compensation
(201
)

(409
)
Share-based compensation
16,016


12,207

Deferred taxes
307


3,713

Changes in operating assets and liabilities:
 

 
Receivables, net
(6,420
)

(1,977
)
Inventories
(128,334
)

(77,270
)
Accounts payable, deferred revenue, and accrued expenses
25,969


19,523

Other assets and liabilities
9,054


7,231

Net cash provided by operating activities
37,640


89,142

 



CASH FLOWS FROM INVESTING ACTIVITIES:



Capital expenditures
(78,772
)

(73,354
)
Purchase of intangible assets
(69
)

(210
)
Net cash used in investing activities
(78,841
)

(73,564
)
 



CASH FLOWS FROM FINANCING ACTIVITIES:
 


Payments on capital lease obligation
(45
)

(41
)
Excess tax benefit from share-based compensation
201


409

Proceeds from share-based compensation
4,426


623

Repurchase of common stock
(37,905
)

(66,534
)
Net cash used in financing activities
(33,323
)

(65,543
)
 





EFFECT OF EXCHANGE RATE ON CASH
(220
)

41

 





NET DECREASE IN CASH AND CASH EQUIVALENTS
(74,744
)
 
(49,924
)
CASH AND CASH EQUIVALENTS, Beginning of period
256,297


152,362

CASH AND CASH EQUIVALENTS, End of period
$
181,553


$
102,438

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., together with its subsidiaries ("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 November 2, 2013, Express operated 628 primarily mall-based stores in the United States, Canada, and Puerto Rico. Additionally, the Company earned revenue from 23 franchise stores in the Middle East and Latin America. These franchise stores are operated by franchisees pursuant to franchise agreements. Under the franchise agreements, the franchisees operate 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. References herein to "2013" and "2012" represent the 52-week period ended February 1, 2014 and the 53-week period ended February 2, 2013, respectively. All references herein to “the third quarter of 2013” and “the third quarter of 2012” represent the thirteen weeks ended November 2, 2013 and October 27, 2012, 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 state 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 2013. Therefore, these statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended February 2, 2013, included in the Company's Annual Report on Form 10-K, filed with the SEC on April 2, 2013.

Principles of Consolidation

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

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements. Actual results may differ from those estimates. The Company revises its estimates and assumptions as new information becomes available.

Reclassifications

Certain prior period amounts have been reclassified or adjusted to conform to the current period presentation.

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 Express brick-and-mortar retail stores, e-commerce operations, and franchise operations.
 

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The following is information regarding the Company's sales channels:
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
November 2, 2013
 
October 27, 2012
 
November 2, 2013
 
October 27, 2012
 
(in thousands)
 
(in thousands)
Stores
$
423,720

 
$
408,043

 
$
1,273,452

 
$
1,254,668

E-commerce
71,175

 
55,062

 
201,782

 
150,130

Other revenue
8,097

 
5,422

 
22,440

 
14,560

Total net sales
$
502,992

 
$
468,527

 
$
1,497,674

 
$
1,419,358

Other revenue consists primarily of shipping and handling revenue related to e-commerce activity, revenue from franchise agreements, and gift card breakage.
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
 
November 2, 2013
 
October 27, 2012
 
November 2, 2013
 
October 27, 2012
 
(in thousands)
Weighted-average shares - basic
83,929

 
85,980

 
84,675

 
87,489

Dilutive effect of stock options, restricted stock units, and restricted stock
674

 
236

 
546

 
346

Weighted-average shares - diluted
84,603

 
86,216

 
85,221

 
87,835







Equity awards representing 2.0 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended November 2, 2013, as the effects of the awards would have been anti-dilutive. 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.

Additionally, for the thirteen and thirty-nine weeks ended November 2, 2013, there were 0.5 million shares 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 Directors (the "Board") authorized the Company to repurchase up to $100.0 million of the Company's common stock (the "Repurchase Program") from time to time in open market or privately negotiated transactions. The Repurchase Program was completed during the thirteen weeks ended November 2, 2013 following the repurchase of 5.6 million shares of the Company's common stock for approximately $100.0 million since May 24, 2012. During the thirteen weeks ended November 2, 2013, the Company repurchased 1.0 million shares of its common stock for a total of $21.2 million, including commissions. In the thirty-nine weeks ended November 2, 2013, the Company repurchased 1.6 million shares of its common stock for a total of $35.1 million, including commissions. During the thirteen weeks ended October 27, 2012, the Company repurchased 1.3 million shares of its common stock for a total of $15.0 million, including commissions. For the thirty-nine weeks ended October 27, 2012, the Company repurchased 4.0 million shares of its common stock for a total of $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.


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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 November 2, 2013 and February 2, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall.
 
 
November 2, 2013
 
Level 1
Level 2
Level 3
 
(in thousands)
U.S. treasury securities money market funds
$
155,497

$

$

 
 
 
February 2, 2013
 
Level 1
Level 2
Level 3
 
(in thousands)
U.S. treasury securities money market funds
$
236,086

$

$

The carrying amounts reflected on the unaudited Consolidated Balance Sheets for cash, cash equivalents, receivables, prepaid expenses, and payables as of November 2, 2013 and February 2, 2013 approximated their fair values.

6. Intangible Assets
The following table provides the significant components of intangible assets:
 
November 2, 2013
 
Cost
 
Accumulated
Amortization 
 
Ending Net Balance
 
(in thousands)
Tradename
$
196,144

 
$

 
$
196,144

Internet domain name/trademark
1,668

 

 
1,668

Net favorable lease obligations/other
20,175

 
18,788

 
1,387

 
$
217,987

 
$
18,788

 
$
199,199


 
February 2, 2013
 
Cost
 
Accumulated
Amortization 
 
Ending Net Balance
 
(in thousands)
Tradename
$
196,144

 
$

 
$
196,144

Internet domain name/trademark
1,575

 

 
1,575

Net favorable lease obligations/other
19,750

 
17,811

 
1,939

 
$
217,469

 
$
17,811

 
$
199,658

The Company's tradename, internet domain name and trademark have indefinite lives. Net favorable lease obligations and other intangibles are amortized over a period between 5 and 9 years and are included in other assets on the unaudited Consolidated Balance Sheets. Amortization expense totaled $0.3 million and $1.0 million during the thirteen and thirty-nine weeks ended November 2, 2013, respectively, and $0.4 million and $1.2 million during the thirteen and thirty-nine weeks ended October 27, 2012, respectively.


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7. Related Party Transactions
The transactions described in this note are transactions between the Company and entities affiliated with Golden Gate Private Equity, Inc. ("Golden Gate"). Prior to July 2007, the Company operated as a division of L Brands, Inc. ("L Brands"). In July 2007, a Golden Gate affiliate acquired approximately 75% of the outstanding equity interests in the Company from L Brands, and the Company began its transition to a stand-alone company. In May 2010, the Company completed an initial public offering ("IPO") whereby Golden Gate and L Brands sold a portion of their shares. Following the IPO, both Golden Gate and L Brands gradually reduced their ownership interest in the Company. On July 29, 2011, L Brands disposed of 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. The related party activity with Golden Gate affiliates described in this note includes only expenses incurred and income earned through the date which Golden Gate ceased to be a related party.

Transactions with Other Golden Gate Affiliates
The Company transacts with Golden Gate affiliates for e-commerce warehouse and fulfillment services, software license purchases, and consulting and software maintenance services.
The Company incurred the following charges from Golden Gate affiliates 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:
 
Thirty-Nine Weeks Ended
 
October 27, 2012
 
 
E-commerce warehouse and fulfillment
$
8,755

Software licenses and consulting and software maintenance services
$
91

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.

Interest expense incurred on the 8 3/4% Senior Notes attributable to the $40.0 million of Senior Notes previously owned by a Golden Gate affiliate was $0.3 million during the thirty-nine weeks ended October 27, 2012.

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 and foreign tax credit carryovers. The Company's effective tax rate was 39.2% and 41.4% for the thirteen weeks ended November 2, 2013 and October 27, 2012, respectively. The effective rate was lower than the comparable prior year period primarily due to a discrete tax charge incurred related to the rate applied to deferred tax balance sheet accounts during the thirteen weeks ended October 27, 2012.
The Company's effective tax rate was 39.5% and 40.2% for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, respectively. The effective rate was lower than the comparable prior year period primarily due to a discrete tax charge incurred related to the rate applied to deferred tax balance sheet accounts during the third quarter of 2012.
9. Lease Financing Obligations

In certain lease arrangements, the Company is involved in 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. Therefore, the Company records an asset in property and equipment on the unaudited Consolidated Balance Sheets, including any capitalized interest costs, and related liabilities in accrued interest and lease financing obligations in other long-term liabilities on the unaudited Consolidated Balance Sheets, for the replacement cost of the Company's portion of the pre-existing building plus the amount of construction-in-progress incurred by the landlord as of the balance sheet date. 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

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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 unaudited Consolidated Balance Sheets at their historical cost, and such assets are depreciated over their remaining useful lives. The replacement cost of the pre-existing building, as well as the costs of construction paid by the landlord, are recorded as lease financing obligations, and a portion of the lease payments are applied as payments of principal and interest. The interest rate selected for lease financing obligations is evaluated at lease inception based on the Company's incremental borrowing rate. At the end of the initial lease term, should the Company decide not to renew the lease, the Company would reverse equal amounts of the net book value of the assets and the corresponding lease financing obligations. The initial lease terms related to these lease arrangements are expected to expire in 2023 and 2029. As of November 2, 2013 and February 2, 2013, the Company has recorded $52.9 million and $16.2 million, respectively, of landlord funded construction, the replacement cost of pre-existing property, and capitalized interest, with a corresponding amount to lease financing obligations, each of which is reflected in the unaudited Consolidated Balance Sheets. These assets and liabilities are classified as non-cash items for purposes of the unaudited Consolidated Statements of Cash Flow.

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

10. Debt
Borrowings outstanding consisted of the following:
 
 
November 2, 2013
 
February 2, 2013
 
(in thousands)
8 3/4% Senior Notes
$
200,850

 
$
200,850

Debt discount on Senior Notes
(1,764
)
 
(2,007
)
Total long-term debt
$
199,086

 
$
198,843


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 Credit Facility ("Revolving Credit Facility"). As of November 2, 2013, there were no borrowings outstanding and approximately $197.4 million available under the the Revolving Credit Facility.

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

Prior to March 1, 2014, the Senior Notes may be redeemed in part or in full at a redemption price equal to the principal amount plus a make-whole premium, calculated in accordance with the indenture governing the Senior Notes, and accrued and unpaid interest. On or after March 1, 2014, the Senior Notes may be redeemed in part or in full at the following percentages of the outstanding principal amount prepaid: 104.38% prior to March 1, 2015; 102.19% on or after March 1, 2015, but prior to March 1, 2016; and at the principal amount on or after March 1, 2016.

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

11

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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's 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.
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 November 2, 2013, the estimated fair value of the Senior Notes was $213.2 million.
Letters of Credit
The Company may enter 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 November 2, 2013 and February 2, 2013, 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 November 2, 2013 and February 2, 2013, outstanding stand-by LCs totaled $2.6 million and $2.1 million, respectively.

11. Share-Based Compensation

The Company records the fair value of share-based payments to employees in the unaudited Consolidated Statements of Income and Comprehensive Income as compensation expense, net of forfeitures, over the requisite service period.

Share-Based Compensation Plans

The following summarizes our share-based compensation expense:
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
November 2, 2013
 
October 27, 2012
 
November 2, 2013
 
October 27, 2012
 
(in thousands)
Restricted stock units and restricted stock
$
3,044

 
$
1,318

 
$
9,353

 
$
6,104

Stock options
2,135

 
2,032

 
6,662

 
6,089

Restricted shares (equity issued pre-IPO)

 
1

 
1

 
14

Total share-based compensation
$
5,179

 
$
3,351

 
$
16,016

 
$
12,207


The stock compensation related income tax benefit recognized by the Company during the thirteen and thirty-nine weeks ended November 2, 2013 was $1.2 million and $3.4 million, respectively. The stock compensation related income tax benefit recognized by the Company during the thirteen and thirty-nine weeks ended October 27, 2012 was $0.2 million and $1.7 million, respectively.

Stock Options

During the thirty-nine weeks ended November 2, 2013, the Company granted stock options under the Amended and Restated 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 later in this note. The majority of stock options granted under the 2010 Plan vest 25% per year over four years and have a 10 year contractual life; however, those granted to the Chief Executive Officer vest ratably over three years. The expense for stock options is recognized using the straight-line attribution method.

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The Company's activity with respect to stock options during the thirty-nine weeks ended November 2, 2013 was as follows:
 
 
Number of
Shares 
 
Grant Date
Weighted Average
Exercise Price Per Share
 
Weighted-Average Remaining Contractual Life (in years)
 
Aggregate Intrinsic Value
 
(in thousands, except per share amounts and years)
Outstanding, February 2, 2013
3,092

 
$
18.99

 
 
 
 
Granted
670

 
$
17.89

 
 
 
 
Exercised
(253
)
 
$
17.35

 
 
 
 
Forfeited or expired
(198
)
 
$
19.35

 
 
 
 
Outstanding, November 2, 2013
3,311

 
$
18.87

 
7.7
 
$
15,306

Expected to vest at November 2, 2013
1,757

 
$
19.23

 
8.2
 
$
7,649

Exercisable at November 2, 2013
1,502

 
$
18.44

 
7.1
 
$
7,437

The following provides additional information regarding the Company's stock options:
 
Thirty-Nine Weeks Ended
 
November 2, 2013

October 27, 2012
 
(in thousands, except per share amounts)
Weighted average grant date fair value of options granted (per share)
$
9.49

 
$
12.79

Total intrinsic value of options exercised
$
904

 
$
267

As of November 2, 2013, there was approximately $12.2 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of approximately 1.5 years.
The Company uses the Black-Scholes-Merton option-pricing model to value stock options granted to employees and directors. The Company's determination of the fair value of stock options is affected by the Company's stock price as well as a number of subjective and complex assumptions. These assumptions include the risk-free interest rate, the Company's expected stock price volatility over the term of the award, expected term of the award, and dividend yield.
The following assumptions were used in estimating the fair value of the stock options on the date of the grant:

 
Thirty-Nine Weeks Ended
 
November 2, 2013
 
October 27, 2012
Risk-free interest rate (1)
1.13
%
 
1.12
%
Price Volatility (2)
55.9
%
 
55.9
%
Expected term (years) (3)
6.20

 
6.17

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)
For the first two years following the Company's IPO, this was based on the historical volatility of selected comparable companies over a period consistent with the expected term of the stock options because the Company had a limited history of being publicly traded. Comparable companies were selected primarily based on industry, stage of life cycle, and size. Beginning with the second anniversary of the IPO in May 2012, 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 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)
The Company does not currently plan on paying regular dividends.
Restricted Stock Units and Restricted Stock
During the thirty-nine weeks ended November 2, 2013, the Company granted restricted stock units (“RSUs”) under the 2010 Plan, including 0.5 million RSUs with performance conditions. The fair value of RSUs is determined based on the Company's stock price on the grant date. The expense for RSUs without performance conditions is recognized using the straight-line attribution method. The expense for RSUs with performance conditions is recognized using the graded vesting method based on the expected achievement of the performance conditions. The RSUs with performance conditions are also subject to time-

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based vesting with requisite service periods of 2 years for the Chief Executive Officer and 3 years for other employees. RSUs without performance conditions vest ratably over 4 years.

The Company's activity with respect to RSUs and restricted stock for the thirty-nine weeks ended November 2, 2013 was as follows:
 
 
Number of
Shares 
Grant Date
Weighted Average
Fair Value Per Share
 
(in thousands, except per share amounts)
Unvested, February 2, 2013
1,218

$
20.65

Granted
950

$
17.96

Vested
(417
)
$
20.15

Forfeited
(152
)
$
20.24

Unvested, November 2, 2013
1,599

$
19.25

The total fair value/intrinsic value of RSUs and restricted stock that vested was $8.4 million during the thirty-nine weeks ended November 2, 2013. As of November 2, 2013, there was approximately $18.8 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 1.7 years.

12. Commitments and Contingencies

From time to time the Company is subject to various 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 wholly-owned indirect subsidiaries of Express, Inc., issued the Senior Notes. Express, Inc. (“Guarantor”) and certain of its indirect 100% owned subsidiaries (“Guarantor Subsidiaries”) have guaranteed, on a joint and several basis, the 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, prior period condensed consolidating financial information has been revised to retroactively give effect to the new structure in place as of August 26, 2012.

In the Condensed Consolidating Statements of Income and Comprehensive Income for the thirteen weeks ended April 28, 2012, as presented in the Company's Quarterly Report on Form 10-Q for the quarterly period ended May 4, 2013, and for the fifty-three weeks ended February 2, 2013, as presented in the Company's Annual Report on Form 10-K for the year ended February 2, 2013, income tax expense (benefit) was improperly presented for the Subsidiary Issuers and the Guarantor Subsidiaries by $38.9 million and $18.0 million, respectively. There was no impact on the Consolidated Balance Sheets, Statements of Income and Comprehensive Income, or Statements of Cash Flows. The corrected amounts are presented in the following tables:

14

Table of Contents

 
Subsidiary Issuers
 
Thirteen weeks ended April 28, 2012
Fifty-three weeks ended February 2, 2013
 
(in thousands)
(Income) loss in subsidiary
$(12,131)
$(52,195)
Income (loss) before income taxes
$61,873
$197,019
Income tax expense (benefit)
$19,530
$57,284
 
Guarantor Subsidiaries
 
Thirteen weeks ended April 28, 2012
Fifty-three weeks ended February 2, 2013
 
(in thousands)
Income tax expense (benefit)
$8,380
$35,649
Net income (loss)
$12,368
$53,741

In addition, the Condensed Consolidating Balance Sheet as of February 2, 2013, presented herein, has been revised to reflect the impact of the changes previously discussed. The corrections made are as follows:
 
February 2, 2013
 
Subsidiary Issuers
Guarantor Subsidiaries
Consolidating Adjustments
 
(in thousands)
Change to Investment in subsidiary
$(17,987)
$—
$17,987
Change to Total assets
$(17,987)
$—
$17,987
Change to Accrued expenses
$(17,987)
$17,987
$—
Change to Total liabilities
$(17,987)
$17,987
$—
Change to Total stockholders' equity
$—
$(17,987)
$17,987

In accordance with accounting guidance found in ASC 250-10, the Company assessed the materiality of the errors and concluded they were not material to the Company's previously issued financial statements. As a result, the Company will revise the Condensed Consolidating Statement of Income for the fifty-three week period ended February 2, 2013 in the Annual Report on Form 10-K for the year ended February 1, 2014.
The following consolidating schedules present the condensed financial information on a combined basis.

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Table of Contents

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

 
November 2, 2013
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,698

 
$
152,792

 
$
23,513

 
$
3,550

 
$

 
$
181,553

Receivables, net

 
9,844

 
6,398

 
1,191

 

 
17,433

Inventories

 
20,806

 
316,158

 
6,056

 

 
343,020

Prepaid minimum rent

 
571

 
24,395

 
1,159

 

 
26,125

Intercompany receivable

 
32,614

 

 
5,784

 
(38,398
)
 

Intercompany loan receivable

 
7,669

 

 

 
(7,669
)
 

Other
164

 
43,189

 
4,321

 
72

 
(22,939
)
 
24,807

Total current assets
1,862

 
267,485

 
374,785

 
17,812

 
(69,006
)
 
592,938

Property and equipment, net

 
45,363

 
291,452

 
18,473

 

 
355,288

Tradename/domain name

 
197,812

 

 

 

 
197,812

Investment in subsidiary
419,584

 
387,531

 

 
413,800

 
(1,220,915
)
 

Deferred tax assets
737

 
8,763

 
4,775

 

 

 
14,275

Intercompany loan receivable

 
18,738

 

 

 
(18,738
)
 

Other assets

 
6,675

 
1,732

 
6

 

 
8,413

Total assets
$
422,183

 
$
932,367

 
$
672,744

 
$
450,091

 
$
(1,308,659
)
 
$
1,168,726

Liabilities and stockholders’ equity

 

 

 

 

 
 
Current liabilities

 

 

 

 

 
 
Accounts payable
$

 
$
241,171

 
$
2,744

 
$
991

 
$

 
$
244,906

Deferred revenue

 
1,059

 
18,566

 
100

 

 
19,725

Accrued bonus

 
1,163

 
539

 
40

 

 
1,742

Accrued expenses

 
39,704

 
66,813

 
1,167

 
(22,939
)
 
84,745

Intercompany payable

 
5,784

 
32,614

 

 
(38,398
)
 

Intercompany loan payable

 

 

 
26,407

 
(26,407
)
 

Total current liabilities

 
288,881

 
121,276

 
28,705

 
(87,744
)
 
351,118

Long-term debt

 
199,086

 

 

 

 
199,086

Other long-term liabilities

 
30,600

 
158,913

 
6,826

 

 
196,339

Total liabilities

 
518,567

 
280,189

 
35,531

 
(87,744
)
 
746,543

Commitments and Contingencies (Note 12)

 

 

 

 

 

Total stockholders’ equity
422,183

 
413,800

 
392,555

 
414,560

 
(1,220,915
)
 
422,183

Total liabilities and stockholders’ equity
$
422,183

 
$
932,367

 
$
672,744

 
$
450,091

 
$
(1,308,659
)
 
$
1,168,726









16

Table of Contents




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

 
February 2, 2013
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
938

 
$
230,174

 
$
22,924

 
$
2,261

 
$

 
$
256,297

Receivables, net

 
5,612

 
3,147

 
2,265

 

 
11,024

Inventories

 
13,597

 
198,094

 
3,391

 

 
215,082

Prepaid minimum rent

 
451

 
23,697

 
1,018

 

 
25,166

Intercompany receivable

 

 
98,304

 
5,783

 
(104,087
)
 

Intercompany loan receivable

 
20,754

 

 

 
(20,754
)
 

Other

 
5,085

 
3,162

 
46

 

 
8,293

Total current assets
938

 
275,673

 
349,328

 
14,764

 
(124,841
)
 
515,862

Property and equipment, net

 
46,913

 
215,829

 
15,627

 

 
278,369

Tradename/domain name

 
197,719

 

 

 

 
197,719

Investment in subsidiary
369,140

 
353,097

 

 
363,356

 
(1,085,593
)
 

Deferred tax assets
738

 
10,369

 
5,701

 

 

 
16,808

Other assets

 
7,710

 
2,727

 
4

 

 
10,441

Total assets
$
370,816

 
$
891,481

 
$
573,585

 
$
393,751

 
$
(1,210,434
)
 
$
1,019,199

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
173,395

 
$
1,132

 
$
1,598

 
$

 
$
176,125

Deferred revenue

 
1,223

 
26,507

 
121

 

 
27,851

Accrued bonus

 

 
334

 
2

 

 
336

Accrued expenses
(346
)
 
16,503

 
90,950

 
1,357

 

 
108,464

Intercompany payable

 
104,087

 

 

 
(104,087
)
 

Intercompany loan payable

 

 

 
20,754

 
(20,754
)
 

Total current liabilities
(346
)
 
295,208

 
118,923

 
23,832

 
(124,841
)
 
312,776

Long-term debt

 
198,843

 

 

 

 
198,843

Other long-term liabilities

 
34,074

 
96,706

 
5,638

 

 
136,418

Total liabilities
(346
)
 
528,125

 
215,629

 
29,470

 
(124,841
)
 
648,037

Commitments and Contingencies (Note 12)

 

 

 

 

 

Total stockholders’ equity
371,162

 
363,356

 
357,956

 
364,281

 
(1,085,593
)
 
371,162

Total liabilities and stockholders’ equity
$
370,816

 
$
891,481

 
$
573,585

 
$
393,751

 
$
(1,210,434
)
 
$
1,019,199


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Table of Contents

EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)

 
Thirteen Weeks Ended November 2, 2013
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Total
Net sales
$

 
$
319,989

 
$
486,881

 
$
8,902

 
$
(312,780
)
 
$
502,992

Cost of goods sold, buying and occupancy costs

 
246,069

 
398,516

 
5,895

 
(312,753
)
 
337,727

Gross profit

 
73,920

 
88,365

 
3,007

 
(27
)
 
165,265

Selling, general, and administrative expenses
55

 
50,064

 
75,233

 
3,015

 
(1
)
 
128,366

Other operating (income) expense, net

 
(180
)
 
374

 
1

 
(26
)
 
169

Operating (loss) income
(55
)
 
24,036

 
12,758

 
(9
)
 

 
36,730

Interest expense (income), net

 
5,065

 
(208
)
 
19

 

 
4,876

(Income) loss in subsidiary
(19,301
)
 
(7,775
)
 

 
(19,301
)
 
46,377

 

Other expense, net

 

 

 
153

 

 
153

Income (loss) before income taxes
19,246

 
26,746

 
12,966

 
19,120

 
(46,377
)
 
31,701

Income tax (benefit) expense
(21
)
 
7,445

 
5,010

 

 

 
12,434

Net income (loss)
$
19,267

 
$
19,301

 
$
7,956

 
$
19,120

 
$
(46,377
)
 
$
19,267

Foreign currency translation
26

 
26

 

 
54

 
(80
)
 
26

Comprehensive income (loss)
$
19,293

 
$
19,327

 
$
7,956

 
$
19,174

 
$
(46,457
)
 
$
19,293


 
Thirteen Weeks Ended October 27, 2012
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
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 income, net

 

 
(586
)
 

 

 
(586
)
Operating (loss) income
(114
)
 
15,705

 
19,505

 
(694
)
 

 
34,402

Interest expense, net

 
4,771

 

 
11

 

 
4,782

(Income) loss in subsidiary
(17,292
)
 
(11,038
)
 

 
(17,292
)
 
45,622

 

Other expense, net

 

 

 
(116
)
 

 
(116
)
Income (loss) before income taxes
17,178

 
21,972

 
19,505

 
16,703

 
(45,622
)
 
29,736

Income tax (benefit) expense
(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 (loss)
$
17,373

 
$
17,243

 
$
11,627

 
$
16,605

 
$
(45,475
)
 
$
17,373






18

Table of Contents

EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)

 
Thirty-Nine Weeks Ended November 2, 2013
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Total
Net sales
$

 
$
779,996

 
$
1,455,753

 
$
24,180

 
$
(762,255
)
 
$
1,497,674

Cost of goods sold, buying and occupancy costs

 
574,603

 
1,181,149

 
15,588

 
(762,255
)
 
1,009,085

Gross profit

 
205,393

 
274,604

 
8,592

 

 
488,589

Selling, general, and administrative expenses
286

 
129,825

 
222,070

 
7,984

 

 
360,165

Other operating (income) expense, net

 
(180
)
 
(250
)
 
15

 

 
(415
)
Operating (loss) income
(286
)
 
75,748

 
52,784

 
593

 

 
128,839

Interest expense, net

 
15,612

 
(1,197
)
 
42

 

 
14,457

(Income) loss in subsidiary
(68,788
)
 
(32,627
)
 

 
(68,788
)
 
170,203

 

Other expense, net

 

 

 
958

 

 
958

Income (loss) before income taxes
68,502

 
92,763

 
53,981

 
68,381

 
(170,203
)
 
113,424

Income tax (benefit) expense
(111
)
 
23,975

 
20,947

 

 

 
44,811

Net income (loss)
$
68,613

 
$
68,788

 
$
33,034

 
$
68,381

 
$
(170,203
)
 
$
68,613

Foreign currency translation
242

 
242

 

 
486

 
(728
)
 
242

Comprehensive income (loss)
$
68,855

 
$
69,030

 
$
33,034

 
$
68,867

 
$
(170,931
)
 
$
68,855


 
Thirty-Nine Weeks Ended October 27, 2012
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
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, net

 

 
(553
)
 

 

 
(553
)
Operating (loss) income
(614
)
 
82,757

 
59,250

 
(1,238
)
 

 
140,155

Interest expense, net

 
14,328

 

 
9

 

 
14,337

(Income) loss in subsidiary
(75,694
)
 
(34,177
)
 

 
(75,694
)
 
185,565

 

Other expense, net

 

 

 
(104
)
 

 
(104
)
Income (loss) before income taxes
75,080

 
102,606

 
59,250

 
74,551

 
(185,565
)
 
125,922

Income tax expense
(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 (loss)
$
75,278

 
$
75,648

 
$
35,320

 
$
74,459

 
$
(185,427
)
 
$
75,278


19

Table of Contents

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

 
Thirty-Nine Weeks Ended November 2, 2013
 
Express, Inc.
 
Subsidiary
Issuers
 
Guarantor
Subsidiaries
 
Other
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Total
Operating Activities
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(86
)
 
$
(15,994
)
 
$
52,240

 
$
1,480

 
$

 
$
37,640

Investing Activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(21,497
)
 
(51,651
)
 
(5,624
)
 

 
(78,772
)
Distributions received
34,325

 

 

 
34,325

 
(68,650
)
 

Purchase of intangible assets

 
(69
)
 

 

 

 
(69
)
Net cash (used in) provided by investing activities
34,325

 
(21,566
)
 
(51,651
)
 
28,701

 
(68,650
)
 
(78,841
)
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
Payments on capital lease obligation

 
(45
)
 

 

 

 
(45
)
Excess tax benefit from share-based compensation

 
201

 

 

 

 
201

Proceeds from share-based compensation
4,426

 

 

 

 

 
4,426

Repurchase of common stock
(37,905
)