Statement of Operations Data: 2017- 2016 Fiscal Year Ended 2015 2014 2013 (dollars in thousands, excluding net sales per gross square foot and per share data) Net sales 2,138,030 S 2,192,547 2,350,129 S 2,165,481 $ 2,219.125 Cost of goods sold, buying and occupancy costs $ 1,522,797 1,529,343 1,554,852 $ 1,504,527 S 1,501,418 Gross profit S 615,233 $ 663,204 $ 795,277 S 660,954 $ 717,707 Selling, general, and administrative expenses 562,088 $ 559,541 587,747 S 524,041 S 504,277 Operating income 29,740 $ 103,6011 S 207,238 S 136,597 S 214,259 Net income S 19,366 $ 57,417 S 116,513 S 68,325 $ 116,539 Dividends declared per share S Earnings per share: Basic 0.25 0.73 S 1.39 S 0.81 1.38 Diluted 0.25 $ 0,73 S 1.38 S 0.81 S 1.37) Weighted Average Diluted Shares Outstanding 78,870 79,049 84,591 84,554 85,068 Other Financial and Operating Data: Comparable sales (3)% (91% (5% 3% Comparable sales (excluding e-commerce sales) (10)% (12) % (7)% (1)% Total gross square feet (in thousands) (average) 5,487 5,604 5,573 5,529 5,439 Number of stores (at year end) 635 656 653 641 632 Capital expenditures 57,435 98,712 S 115,343 S 115,088 105,368 Total gross square feet (in thousands) (average) 5,487 5,604 Number of stores (at year end) 635 656 653 641 632 Capital expenditures 574351 98,712 115,343 S 115,088 S 105,368 Balance Sheet Data (at period end): Cash and cash equivalents 236,222 207,373 S 186,903 S 346,159 311,884 Working capital 38,050 24,363 19.113 20,618 (27,630) Total assets Total debt 1,187,607 1.185,189 1,178,644) 1,278,150 1,182,670 199,527 199,170 Total stockholders' equity 2017 represents a 53-week year 654,000 635.687 617,953 $ 556,339 $ 474,569 (1) Comparable sales have been calculated based upon stores that were opest at least twelve full months as of the end of the reporting period. For 2017, comparable sales were calculated based open the 33-week period ended February 3, 2018 compared to the 53-week period ended February 4, 2017 See full definition of comparable sales in the section titled "How We Assess the Performance of Our Thainess" in Management's Discussion and Analysis of Financial Condition and Results of Operation (2) Working capital is defined as current assets, less cash and cash equivalents, less current liabilities EXPRESS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in Thousands, Except Per Share Amounts) ASSETS CURRENT ASSETS Cash and cash equivalents Receivables, net Inventories Prepaid minimum rent Other Total current assets PROPERTY AND EQUIPMENT Less: accumulated depreciation Property and equipment, net TRADENAME/DOMAIN NAMES/TRADEMARKS DEFERRED TAX ASSETS OTHER ASSETS Total assets February 3, 2018 January 28, 2017 236,222 $ 207,373 12,084 15,787 266,271 241.424 30,779 31.626 19,780 17,923 565,136 514,133 1,047,447 1,029,176 (642.434) (577,890) 405,013 451.286 197,618: 197,618 7,025 7.926 12.815 14.226 1,187,607 S 1,185,189 Total assets LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Accounts payable Deferred revenue Accrued expenses Total current liabilities DEFERRED LEASE CREDITS OTHER LONG-TERM LIABILITIES Total liabilities COMMITMENTS AND CONTINGENCIES (Note 13) STOCKHOLDERS' EQUITY: Preferred stock-50.01 par value; 10,000 shares authorized; no shares issued or outstanding Common stock $0.01 par value, 500,000 shares authorized; 92,647 shares and 92,063 shares issued at February 3, 2018 and January 28, 2017, respectively, and 76,724 shares and 78.422 shares outstanding at February 3, 2018 and January 28, 2017, respectively Additional paid-in capital Accumulated other comprehensive loss: Retained eamings 1,187,607 1,185,189 145,589 172,668 28,920 29,428 116,355 80,301 290,864 282,397 137,618 146,328 105,125 120,777 533,607 549,502 926 921 199,099 185,097 (3,803) 710.081 690,715 Total assets LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Accounts payable Deferred revenue Accrued expenses Total current liabilities DEFERRED LEASE CREDITS OTHER LONG-TERM LIABILITIES Total liabilities COMMITMENTS AND CONTINGENCIES (Note 13) STOCKHOLDERS' EQUITY: Preferred stock-50.01 par value; 10,000 shares authorized; no shares issued or outstanding Common stock $0.01 par value, 500,000 shares authorized; 92,647 shares and 92,063 shares issued at February 3, 2018 and January 28, 2017, respectively, and 76,724 shares and 78.422 shares outstanding at February 3, 2018 and January 28, 2017, respectively Additional paid-in capital Accumulated other comprehensive loss: Retained eamings 1,187,607 1,185,189 145,589 172,668 28,920 29,428 116,355 80,301 290,864 282,397 137,618 146,328 105,125 120,777 533,607 549,502 926 921 199,099 185,097 (3,803) 710.081 690,715 COMMITMENTS AND CONTINGENCIES (Note 13) 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; 92,647 shares and 92,063 shares issued at February 3, 2018 and January 28, 2017, respectively, and 76,724 shares and 78,422 shares outstanding at February 3, 2018 and January 28, 2017, respectively Additional paid-in capital 926 921 199,099 185,097 Accumulated other comprehensive loss (3,803) Retained eamings 710,081 690,715 Treasury stock at average cost; 15,923 shares and 13,641 shares at February 3, 2018 and January 28, 2017, respectively (256,106) (237,243) Total stockholders' equity 654,000 635,687 Total liabilities and stockholders' equity 1,187,607 S 1,185,189 See notes to consolidated financial statements. EXPRESS, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Amounts in Thousands, Except Per Share Amounts) 2017 2016 2015 NET SALES S 2,138,030 S 2.192.547 $ 2,350,129 COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS 1,522,797 1,529,343 1,554,852 Gross profit 615.233. 663,204 795.277 OPERATING EXPENSES: Selling, general, and administrative expenses Restructuring costs Other operating expense, net Total operating expenses OPERATING INCOME 562,088 1 559,541 587,747 22,869 536 62 292 585,493 559,603 588,039 29,740 103.001 207,238 INTEREST EXPENSE, NET 2.242 13,468 OTHER (INCOMEY EXPENSE, NET 15,882 (537) (484) 622 OTHER (INCOME) EXPENSE, NET (537) (484) 672 INCOME BEFORE INCOME TAXES 28.035 90617 190,684 INCOME TAX EXPENSE 8,669 33.200 74,171 NET INCOME 19,366 $. 57,417 116,513 OTHER COMPREHENSIVE INCOME Foreign currency translation gain (loss) Amount reclassified to earnings COMPREHENSIVE INCOME EARNINGS PER SHARE Basic: Diluted WEIGHTED AVERAGE SHARES OUTSTANDING Basic (402) $ 862 (1.608) 4,205 23,169 $ 58.279 5 114,905 0.25 S 0.73 1.39 0.25 S 0.73 1.38 78,592 18,669 83,980 WEIGHTED AVERAGE SHARES OUTSTANDING Basic Diluted See notes to consolidated financial statements. 78.592 78,669 83,980 78,870 79,049 84,591 EXPRESS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in Thousands) Common Stock Treasury Stock Additional Accumulated Other Shares Outstanding Par Value BALANCE, January 31, 2015 84,298 S 904 Paid-in Capital $ 149,789 Retained Comprehensive Earnings At Average Loss Shares Cost Total $516,785 (3,057) 6.102 S (108,082) S 556,339 Net income 116,513 116,513 bouance of common stock 727 7 1,269 Share-based compensation 18,457 Repurchase of common (4.111) stock Foreign currency translation 1111 1.276 18,457 4,111 (73,024) (73,024) (1,608) (1.608) BALANCE, January 30, 2016 80,914 S 911 $ 169,515 $ 633,298 (4,665) 10,213 S (181.106) S 617,953 Net income 57,417 $7,417 Issuance of common stock 936 10 2,724 2,734 Share-based compensation Renurchase of common 12.858 12,858 Share-based compensation Repurchase of common stock Foreign currency translation 12,858 (3,428) 12,858 3.428 (56,137) (56,137) 862 862 BALANCE, January 28, 2017 78.422 $9211 $ 185,097 $ 690,715 $ (3,803) 13,641 $ (237,243) S 635,687 Net income 19.366 19,3661 Issuance of common stock 5841 $ (6) (1) Share-based compensation 14,008 14,008 Repurchase of common stock (2.282) 2,282 (18,863) (18,863) Foreign currency translation Amount reclassified to (402) (402) carnings 4,205 4,205 BALANCE, February 3, 2018 76,724 926 $ 199,099 $710,081 $ 15,923 $ (256,106) S 654,000 See notes to consolidated financial statements. EXPRESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) 2017 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 19.366 57,417 116,513 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 90,221 82.1441 74,904 Loss on disposal of property and equipment 2,891 942 1 1,561 Impairment charge 9,850 5,108 2,657 Loss on deconsolidation of Canada 10,672 Amortization of lease financing obligation discount - Excess tax benefit from share-based compensation Share-based compensation Non-cash loss on extinguishment of debt Deferred taxes Landlord allowance amortization Other non-cash adjustments 11,354 (347) 14,008 12,858 18,438 5314 (912) 20,065 (10,700) (13,183) (11.280) (12,730 (500) Payment of original issue discount (2.812) Changes in operating assets and liabilities: Receivables, net 3,279 6,371 1,097 Inventories (28,954) 14,144 (14,625) Accounts payable. deferred revenue, and accrued expenses (12.862) (15,857) 17.705 Other assets and liabilities 24,691 3,442 32,628 Net cash provided by operating activities 118,567 186,708 229,603 CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (57435) (95.712) (115343) Decrease in cash and cash equivalents resulting from deconsolidation of Canada (9.232) Purchase of intangible acts (21) 05 (10,133) Investment in equity interests Net cash used in investing activities (66,667) (108,866) (115,378) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debi (198,038) Costs incurred in connection with debt arrangements (1,006) Payments on lease financing obligations (1,710) (1,595) (1,552) Repayments of financing arrangements (2.040) 03.274) Excess tax benefit from share-based compensation 347 Proceeds from exercise of stock options 2,735 Repurchase of common stock under share repurchase programs (see Note 9) (17,264) (51,538) 1,276 (68,574 ) Repurchase of common stock for tax withholding obligations (1,599) (4,599) (4,450) Net cash used in financing activities (22,613) (58,271) (271,997) EFFECT OF EXCHANGE RATE ON CASH (438) 899 (1484) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 28,849 20,470 (159,256) CASH AND CASH EQUIVALENTS, Beginning of period 207,373 186,903 346,159 CASH AND CASH EQUIVALENTS, End of period 236,222 S 207373 186,903 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest 8,787 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest Cash paid to taxing authorities See notes to consolidated financial statements, S S 8,787 6,142 $ 40,413 $ 71,686 3. Property and Equipment, Net Property and equipment, net, consisted of Building improvements Furniture, fixtures and equipment, and software Leasehold improvements Construction in process Other Total Less: accumulated depreciation Property and equipment, net February 3, 2018 (in thousands) January 28, 2017 86,487 503,276 86,487 487,381 437,323 440,403 19.550 14,094 811 811 1,047,447 1,029,1767 (642,434) (577,890) 405,013 451,286 Depreciation expense totaled $89.8 million, $81.5 million, and $74.4 million in 2017, 2016, and 2015, respectively, excluding impairment charges discussed in Note 2. Store rent: Fixed minimum Contingent Total store rent Home office, distribution center, other Total rent expense 2017 2016 2015 (in thousands) 208,058 $ 214,696 S 213,228 4,002 4,927 6,945 212,060 219,623 220,173 7,468 5,945 5,413 219,528 S 225,568 S 225,586 As of February 3, 2018, the Company was committed to noncancelable leases with remaining terms from 1 to 10 years. A substantial portion of these commitments consist of store leases, generally with an initial term of 10 years. Store lease terms typically require additional payments covering real estate taxes, common area maintenance costs, and certain other landlord charges, which are excluded from the following table. Minimum rent payment commitments under non-cancelable operating leases are as follows (in thousands): 2018 229,896 2019 197,232 2020 180,691 2021 159,676 2022 147,313 Thereafter 405,754 Total 1,320,562 6. Intangible Assets: The following table provides the significant components of intangible assets: Tradename/domain names/trademarks Licensing arrangements Tradename/domain names/trademarks Licensing arrangements Cost 197,618 425 February 3, 2018 Accumulated Amortization (in thousands) Ending Net Balance 197,618 155 270 270 197,773 198,043 S January 28, 2017 Accumulated Cost Ending Net Balance Amortization (in thousands) 197,618 425 198,043 S 197,618 221 2041 221 197,822 The Company's tradename, Internet domain names, and trademarks have indefinite lives. Licensing arrangements are amortized over a period of ten years and are included in other assets on the Consolidated Balance Sheets. 8 Dehr Required information CP5-2 (Static)Finding Financial Information LO5-2,5-3 [The following information applies to the questions displayed below.] Refer to the financial statements of Express, Inc. given in Appendix C at the end of this book. At the bottom of each statement, the company warns readers that "The accompanying notes are an integral part of these financial statements." The following questions illustrate the types of information that you can find in the financial statements and accompanying notes. (Hint: Use the notes.)) CP5-2 Part 6 6. What portion of gross "Property and Equipment" is composed of "Building Improvements"? (Round your answer to 1 decimal place.) Portion that is building and improvements of 7 [ne romowing mormation applies to the questions displayed below.) Refer to the financial statements of Express, Inc. given in Appendix C at the end of this book. At the bottom of each statement, the company warns readers that "The accompanying notes are an integral part of these financial statements. The following questions illustrate the types of information that you can find in the financial statements and accompanying notes. (Hint: Use the notes.) ook CP5-2 Part 7 7-a. Compute the company's gross profit percentage for the most recent two years. (Enter your answers in decimals and not in percentages. Round to three decimal places.) int Gross profit percentage 2017 2016 7-b. Has the company's gross profit percentage increased or decreased? Increased O Decreased