UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K | | | | | | | | |
| (Mark One) |
| ☒ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the fiscal year ended February 3, 2024 |
| OR |
| ☐ | | 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
EXP OldCo Winddown, 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) |
Registrant's telephone number, including area code: (614) 474-4001
Securities registered pursuant to Section 12(b) of the Act: None
| | | | | | | | | | | | | | | |
| Title of each class | | | Trading Symbol(s) | | Name of each exchange on which registered |
| | | | | |
Securities registered pursuant to Section 12(g) of the Act: None1
1.On April 24, 2024, the registrant filed a Form 15 pursuant to Rule 12g-4(a)(1) under the Act to terminate the registration of its common stock, $.01 par value per share, under Section 12(g) of the Act. As provided under Rule 12g-4(a)(1), the termination of registration took effect on July 23, 2024, which was 90 days after the registrant’s required certification to the Securities and Exchange Commission on Form 15.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☐ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of July 29, 2023: $51,795,927.
The number of outstanding shares of the registrant's common stock was 3,746,725 as of December 30, 2024.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 1
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 2
INTRODUCTORY NOTE
On April 22, 2024 (the “Petition Date”), EXP OldCo Winddown, Inc. (f/k/a Express, Inc., the “Company”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions to commence proceedings under chapter 11 (the “Chapter 11 Cases”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 Cases are being jointly administered under the caption “In re: Express, Inc., et al.” (Case No. 24-10831). On December 17, 2024, the Bankruptcy Court confirmed a joint plan of reorganization (the “Plan”). Pursuant to the Plan, proceeds from the going-concern-sale transaction (as further described in Part II, Item 7 below) (the "Sale Transaction") and the disposition of the Debtors’ remaining assets will be distributed to eligible claim holders, in order of priority, after which each of the Debtors’ estates will be wound down. The Company anticipates that the Plan will go effective on or about December 31, 2024. As of the date of this Annual Report on Form 10-K (“Form 10-K”), the Company and other Debtors no longer have any operations, other than those relating to the wind-down process provided in the Plan.
After the Petition Date, and following the filing of post-effective amendments to outstanding registration statements to remove unsold securities, the Company filed a Form 15 with the U.S. Securities and Exchange Commission (the "SEC") to terminate the registration of the Company’s common stock, par value $0.01 per share (the “Common Stock”) under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and to suspend its duty to file reports pursuant to Section 15(d)(1) of the Exchange Act for fiscal year 2024 because the Company had less than 300 holders of record of its Common Stock (and no holders of any other class of securities registered under the Securities Act of 1933, as amended (the “Securities Act”)). The Company is filing this Form 10-K solely to comply with its obligation to file all reports required to be filed with the SEC not filed prior to the filing of the Form 15. This is the last report that the Company anticipates filing with the SEC.
On May 6, 2024, the Company filed a NT 10-K on Form 12b-25 with the SEC wherein the Company disclosed it was unable to timely file, without unreasonable effort and expense, the Form 10-K as a result of the considerable time and resources the Company’s management was devoting to the Chapter 11 Cases and the need to prepare and review the disclosures required in the Form 10-K. The Company is herein filing the Form 10-K now that all of the required procedures and processes to prepare and review such disclosures have been completed.
Except as otherwise specifically stated in this Form 10-K, the description and disclosures presented herein reflect the Company’s business as previously operated as of February 3, 2024 (the last day of the Company’s 2023 fiscal year), prior to the filing of the Chapter 11 Cases. Following the consummation of the Sale Transaction, the Company no longer had any operations, other than those relating to the completion of the Chapter 11 process and the wind-down process provided in the Plan.
As a “smaller reporting company” as defined in Regulation S-K under the Securities Act, the Company has elected to avail itself of the scaled disclosure obligations available to smaller reporting companies.
CAUTIONARY NOTE REGARDING THE COMPANY’S COMMON STOCK
The Company cautions that trading in its Common Stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for the Company’s Common Stock may bear little or no relationship to the actual recovery, if any, by holders of the Company’s Common Stock in the Chapter 11 Cases. As provided in the Plan, all existing equity interests in the Company (including shares of its Common Stock) will be cancelled and extinguished, with stockholders receiving no recovery on account of their shares of Common Stock. Accordingly, stockholders will experience a complete loss on their investment under the Plan.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the “safe harbor” provisions of the Private Securities Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Form 10-K are forward-looking statements. Forward-looking statements in this Form 10-K may include, for example, our current expectations and projections relating to the outcome and timing of the Chapter 11 Cases, including the effectiveness of the Plan. You can identify forward-looking statements by the fact that they do
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 3
not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “potential, ” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely,” “continue to,” and other words and terms of similar meaning. These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict, and significant contingencies, many of which are beyond the Company’s control.
Many factors could cause the Company’s actual results to differ materially and adversely from any of these forward-looking statements. Among these factors are: risks and uncertainties associated with the Chapter 11 Cases, including a potential delay with respect to the Plan’s effectiveness; the Debtors’ ability to efficiently conduct the wind-down process contemplated by the Plan; the effects of the Chapter 11 process on the interests of various constituents and financial stakeholders including the amount of their recovery, if any, in the Chapter 11 Cases; the outcome of any known and unknown litigation and regulatory proceedings; compliance with laws and regulations; and other risks and uncertainties outside of the Debtors’ control . We caution you not to place undue reliance on these forward-looking statements. We do not undertake any obligation to make any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events, except as required by law.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 4
PART I
ITEM 1. BUSINESS.
In this Form 10-K, "Express", "we", "us", "the Company", and "our" refer to EXP OldCo Winddown, Inc. (f/k/a Express, Inc.) and its consolidated subsidiaries as a combined entity except where the context requires otherwise.
Except as otherwise specifically stated herein, the description of the Company’s business contained herein reflects the Company’s business as previously operated as of February 3, 2024 (the last day of the Company’s 2023 fiscal year), prior to the filing of the Chapter 11 Cases on April 22, 2024. Currently, the Company’s operations are limited to winding down its business. The Company anticipates that there be no assets available for distribution to the Company’s stockholders. As provided in the Plan, all existing equity interests in the Company (including shares of its Common Stock) will be cancelled and extinguished, with stockholders receiving no recovery on account of their shares of Common Stock.
The Company’s fiscal year ends on the Saturday closest to January 31. This typically results in a fifty-two-week year, but occasionally gives rise to an additional week, resulting in a fifty-three-week year. All references herein to the Company's fiscal years are as follows:
| | | | | | | | | | | | | | |
| Fiscal Year | | Year Ended | | Number of Weeks |
| 2023 | | February 3, 2024 | | 53 |
| 2022 | | January 28, 2023 | | 52 |
| | | | |
The Company was formed on June 10, 2008. The Company previously operated as a multi-brand fashion retailer with an omnichannel platform, including both physical and online stores. Its two brand-based operating segments were Express, which included UpWest, and Bonobos.
| | | | | | | | |
| Brand | | Description |
| Express | | Grounded in a belief that style, quality and value should all be found in one place, Express is a brand with a purpose - We Create Confidence. We Inspire Self-Expression. - powered by a styling community. |
| UpWest | | UpWest is an apparel, accessories and home goods brand with a purpose to provide comfort for people and planet. |
| Bonobos | | Bonobos is a menswear brand known for exceptional fit and an innovative retail model. |
As of February 3, 2024, we operated 589 stores in the United States and Puerto Rico, including 192 factory outlet stores. Our stores were located primarily in high-traffic shopping malls, lifestyle centers, outlet centers, and street locations, and average approximately 7,600 gross square feet. We also sold our products through the express.com online store, the Express mobile app, the bonobos.com online store and the upwest.com online store and franchisees who operated Express locations in Latin America pursuant to franchise agreements. Our 2023 merchandise sales were comprised of 93% apparel and 7% accessories and other and 53% women's and 47% men's. As of February 3, 2024, the composition of Express operated stores was as follows:
| | | | | |
| Store Count |
| Express | |
| Retail stores | 326 | |
| Outlet stores | 192 | |
| Total retail and outlet stores | 518 | |
| UpWest | 12 | |
| Bonobos | 59 | |
| Total stores | 589 | |
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As of the date of this Form 10-K, there are no Express operated stores.
Bonobos Acquisition
On May 23, 2023, we completed the acquisition of the operating assets of Bonobos. Refer to Note 5 to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion regarding the acquisition.
WHP Strategic Partnership
On January 25, 2023, we closed a strategic partnership transaction with WHP Global ("WHP"), a leading global brand management firm. Pursuant to the transaction, WHP acquired 5.4 million newly issued shares of our Common Stock at a purchase price of $4.60 per share, or $25.0 million in the aggregate, representing approximately 7.4% of our outstanding shares of our Common Stock, on a pro forma basis, as of the closing of the transaction. The Company and WHP also formed EXP Topco, LLC, an intellectual property joint venture (the "Joint Venture") valued at approximately $400.0 million, with WHP committing $235.0 million to the Joint Venture for 60% ownership of the Joint Venture and the Company contributing certain intellectual property in exchange for 40% ownership of the Joint Venture. Refer to Note 4 to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion regarding the WHP partnership. | | | | | | | | | | | | | | |
| COMPETITION AND COMPETITIVE STRENGTHS |
The apparel retail market is highly competitive. Prior to the Sale Transaction, we competed with other omni-channel retailers that engage in the retail sale of women's and men's apparel, accessories, and similar merchandise. We competed on the basis of a combination of factors, including, among others, style, breadth, quality, and price of merchandise offered, in-store and online customer experience, and brand image.
When we previously conducted retail operations prior to the filing of the Chapter 11 Cases, the majority of our apparel designs were created by our in-house design team. We established a design and merchandising philosophy called the Express Edit that supported our brand promise: “to edit the best of now for real life versatility”. Below are the four ideas that defined the Express Edit merchandising philosophy:
•Versatility Adds Value
◦Create modern-day dressing experience with multiple ways to wear at work, at play, during the day and during the night
•New & Now
◦Meet our customers’ desire for newness by understanding where fashion is now and looking ahead to where it's going through monthly deliveries in key categories that continue to update a seasonal wardrobe
•Drive Denim
◦Denim is the foundation of every modern wardrobe. We completely reinvented our assortments and are delivering premium jeans under $100
•Add an Accessory
◦Accessories are a fashion entry point and an add-on to an outfit at an opening price point
We planned our product assortments and displayed them in our stores and online in a coordinated manner to encourage our customers to purchase items that can be worn in multiple ways for multiple wearing occasions.
| | | | | | | | | | | | | | |
| OMNICHANNEL CUSTOMER EXPERIENCE |
Like our customers, we viewed retail as an omnichannel experience that seamlessly integrated our stores and online channels.
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Our stores were at the core of our omnichannel platform. We designed our stores to create a distinctive and engaging shopping environment and project our image of Express as a fashion authority. Our stores featured a vibrant and youthful look, bright signage and popular music. Our stores were constructed and finished to allow us to efficiently shift merchandise displays throughout the year as seasons dictate.
Similar to our stores, our eCommerce capabilities were focused on creating an engaging and easy shopping experience that supports a vibrant fashion consumer, whether on a mobile device, tablet or desktop, with a particular focus on the mobile experience.
Our Sourcing Methods
We utilized a broad base of manufacturers located throughout the world. We did not own or operate any manufacturing facilities and, as a result, contracted with third-party vendors for the production of all of our merchandise. We purchased both apparel and accessories through buying agents and directly from vendors. In exchange for a commission, our buying agents identify suitable vendors and coordinate our purchasing requirements with vendors by placing orders for merchandise on our behalf, facilitating the timely delivery of goods to us, obtaining samples of merchandise produced in factories, inspecting finished merchandise, and carrying out vendor compliance monitoring and administrative communications on our behalf.
We purchased the majority of our merchandise outside of the United States through arrangements with approximately 45 vendors utilizing approximately 200 manufacturing facilities located in approximately 20 countries throughout the world, primarily in Asia. The top five countries from which we sourced our merchandise in 2023 were Vietnam, China, Indonesia, India and Bangladesh, based on total cost of merchandise purchased. The top 10 manufacturing facilities, based on cost, supplied approximately 29% of our merchandise in 2023. We purchased merchandise using purchase orders, and therefore were not subject to long-term production contracts with any vendors, manufacturers, or buying agents.
Quality Assurance and Compliance Monitoring
Each supplier, factory, and subcontractor that manufactured our merchandise was required to adhere to our Code of Vendor Conduct and certain other purchasing terms and conditions, including those related to product quality. This was designed to ensure that each of our suppliers' operations were conducted in a legal, ethical, and responsible manner. Our Code of Vendor Conduct required that each of our suppliers provided minimum wages and benefits, limited working hours, complied with all laws, including environmental laws, and provided a safe and healthy work environment. It also forbid the use of child labor or forced labor and prohibited unauthorized subcontracting. We monitored compliance through third parties who conducted regular factory audits on our behalf as well as through our buying agents.
As of February 3, 2024, we utilized three facilities for the distribution of our product as follows:
| | | | | | | | |
| Location | | Owned & Operated By: |
| Columbus, Ohio (Primarily serves Express store and eCommerce operations) | | Third-Party |
| Richwood, Kentucky (Primarily serves Express eCommerce operations) | | Third-Party |
| Florence, New Jersey (Serves only Bonobos store and eCommerce operations) | | Third-Party |
Virtually all of the merchandise sold in our Express stores and on our website was first received and processed at a central distribution facility in Columbus, Ohio. From there, merchandise allocated to be sold in stores was shipped to our stores and merchandise to be sold online direct-to-consumer was shipped to a distribution facility in Richwood, Kentucky (the "Richwood Facility"). Merchandise was typically shipped to such stores and to the Richwood Facility via third-party delivery services multiple times per week, thereby providing them with a steady flow of inventory. The third-party who operated the Richwood Facility was responsible for fulfilling the majority of the orders placed through
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our website and shipping the merchandise directly to customers or to stores for pickup, via third-party delivery services. In addition, certain retail stores had the ability to ship select online merchandise directly to our customers.
All of the merchandise sold in our Bonobos stores and on our website was received and processed at a central distribution facility in Florence, New Jersey (the "Florence Facility"). From there, merchandise allocated to be sold in stores was shipped to our stores and merchandise to be sold online direct-to-consumer is shipped directly to them. The third-party who operated the Florence Facility was responsible for fulfilling the majority of the orders placed through our website and shipping the merchandise directly to customers, via third-party delivery services.
The Express trademark and certain variations thereon, such as Express World Brand, are registered or are subject to pending trademark applications with the United States Patent and Trademark Office and/or with the registries of many foreign countries. In addition, the Express trademarks are used in many registered domain names, including express.com. During the fourth quarter of 2022, we sold certain intellectual property to the Joint Venture, and received a license back to such intellectual property under the Intellectual Property License Agreement discussed further below.
Intellectual Property License Agreement
In connection with the strategic partnership with WHP, we entered into an Intellectual Property License Agreement (the “License Agreement”) with the Joint Venture. The License Agreement provided us with an exclusive license in the United States to the intellectual property we contributed pursuant to the membership interest purchase agreement entered into by and among the Company, WHP and Express LLC, a wholly owned subsidiary of the Company (the “Membership Interest Purchase Agreement”) and certain other intellectual property. The initial term of the License Agreement was 10 years, and the License Agreement automatically renewed for successive renewal terms of 10 years (unless we provided notice of non-renewal at least 24 months prior to the end of the initial or applicable renewal term). Except for our right not to renew the License Agreement, the License Agreement was not terminable by either party. Pursuant to the License Agreement, we were required to pay actual royalties at a rate of (i) 3.25% of net sales arising from retail sales of certain licensed goods in the first through the fifth contract years (and 3.5% thereafter), and (ii) 8% of net sales arising from wholesale sales of such goods. Cash earnings in the Joint Venture were distributed quarterly to both the Company and WHP on a pro rata basis. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 2, Note 4 and Note 9 to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion. | | | | | | | | | | | | | | |
| REGULATION AND LEGISLATION |
We are subject to labor and employment laws and regulations, including minimum wage requirements; intellectual property laws; consumer protection laws and regulations, including those governing advertising and promotions, privacy, and product safety; laws and regulations with respect to the operation of our stores and business generally, including the Foreign Corrupt Practices Act; and laws and regulations that apply as a result of being a public company, including rules that obligated us to make certain public disclosures and file periodic reports with the SEC (which had been applicable prior to the Company suspending its duty to file periodic reports with the SEC on April 24, 2024). In addition, we are subject to United States customs laws and similar laws of other countries associated with the import and export of merchandise.
On December 17, 2024, we reached a settlement with the SEC in connection with its finding, following the Company’s self-reporting to the SEC, that the Company failed to disclose certain perquisites and personal benefits provided to the Company’s former chief executive officer for fiscal years 2019, 2020 and 2021. Without admitting or denying the SEC’s findings, the Company agreed to a cease and desist order. No civil penalties were imposed based in part upon the Company’s self-reporting of the failure to disclose the referenced perquisites and its cooperation with the SEC’s investigation.
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As of February 3, 2024, we employed approximately 10,000 associates, approximately 30% of which were full-time.
ITEM 1A. RISK FACTORS.
As a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, we are not required to provide the information required by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 1C. CYBERSECURITY.
Except as otherwise specifically stated therein, the description of the Company’s cybersecurity risk management program set forth is as of February 3, 2024 (the last day of the Company’s 2023 fiscal year), which was prior to the completion of the Sale Transaction. Although our Board of Directors (the “Board”) still oversees cybersecurity risks, due to limited resources and personnel following the Sale Transaction, we currently no longer have in place the cybersecurity risk management program and governance structure described below, which may make us susceptible to heightened cybersecurity risks.
| | | | | | | | | | | | | | |
| RISK MANAGEMENT AND STRATEGY |
Cybersecurity risk management is an integral part of our enterprise risk management strategy, which is overseen by the Board. Cybersecurity is critical to maintaining the trust of our customers and business partners, and we are committed to protecting our and their confidential and sensitive information and to mitigating cybersecurity risks that impact our systems and networks. In order to respond to the threat of security breaches and cyberattacks, we have developed a program, overseen by our Chief Technology Officer, that is designed to assess, identify, and manage material risks from cybersecurity threats. Our information security program is focused on protecting and preserving the confidentiality, integrity and continued availability of all information owned by, or in the care of, the Company.
This program includes an incident response plan that provides controls and procedures for timely and accurate reporting of any material cybersecurity incident. We periodically conduct cross-functional tabletop training exercises to rehearse our response to cyber-related breach incidents or other major security events. We also mandate information security awareness training for all employees, along with testing employee readiness through phishing simulations and providing periodic security information updates.
We regularly perform evaluations of our information security program and continue to invest in our capabilities to keep our customers, partners, suppliers and information assets in our possession safe. Although we employ service provider due diligence and onboarding procedures to identify potential cybersecurity risk, our ability to monitor the cybersecurity practices of our service providers is limited and there can be no assurance that we can prevent or mitigate the risk of any compromise or failure in the information system, software, networks and other assets owned or controlled by our vendors.
The Board oversees our information security program. The Audit Committee of the Board (the "Audit Committee"), which is tasked with oversight of certain risk issues, including cybersecurity, receives reports from the Chief Technology Officer throughout the year. The Board and the Audit Committee also receive updates about the results of readiness assessments led by outside advisors who provide a third-party independent assessment of our technical program and our internal response preparedness. The Audit Committee regularly briefs the full Board on these matters, and the full Board also receives periodic briefings on cybersecurity threats to enhance our directors’ literacy on security issues.
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Our Chief Technology Officer is responsible for developing and executing our information security program. The Chief Technology Officer partners with key corporate functions for the purpose of identifying, considering and assessing material cybersecurity risks on an ongoing basis, establishing processes to ensure that such potential cybersecurity risks are monitored, implementing appropriate mitigation measures, reporting cybersecurity breaches and other information security incidents, and maintaining our information security program. The Chief Technology Officer has more than a decade of information technology leadership experience, including responsibility for cybersecurity matters. Our information security team, reporting to the Chief Technology Officer, have appropriate cybersecurity experience and education, including CISSP and CompTIA certifications. Our management team receives regular updates on our cybersecurity posture and reviews detailed information about our cybersecurity preparedness. At least quarterly, management provides the Board and the Audit Committee with updates about our cybersecurity and related risk exposures, our policies and procedures to mitigate such exposures and the status of projects to strengthen our information security infrastructure and program maturity and defend against and respond to cybersecurity threats.
ITEM 2. PROPERTIES. | | | | | | | | | | | | | | |
| HOME OFFICE, DISTRIBUTION CENTER, DESIGN STUDIO AND PHOTO STUDIO |
As of February 3, 2024
As of February 3, 2024, all of our 589 stores were leased from third parties.
As of February 3, 2024, the lease for our corporate headquarters in Columbus, Ohio, the lease for our distribution facility in Columbus, Ohio, and the lease for our design offices in New York City were set to expire in January 2031. As of February 3, 2024, the lease for our photo studio in downtown Columbus, Ohio was set to expire in December 2024.
Impact of Chapter 11 Cases and Sale Transaction
Effective May 31, 2024, the Debtors provided notice of and completed rejection of 17 unexpired leases in accordance with the procedures approved by the Bankruptcy Court. On August 19, 2024, the Bankruptcy Court extended the deadline for the Debtors to assume, assume and assign, or reject unexpired leases to November 18, 2024. An additional 101 unexpired leases were rejected in accordance with the procedures approved by the Bankruptcy Court. In connection with the Sale Transaction, approximately 403 leases for Express stores, 50 leases for Bonobos stores and the lease for our corporate headquarters in Columbus, Ohio, were assigned to and assumed by the purchaser. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Chapter 11 Cases” and Note 14 to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion regarding the acquisition.
ITEM 3. LEGAL PROCEEDINGS.
The information set forth under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K, is incorporated into this Item 3 by reference.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Previously, our Common Stock was traded on the New York Stock Exchange (“NYSE”) under the symbol “EXPR.”
On March 6, 2024, the NYSE notified the Company, and publicly announced, that it had determined to commence proceedings to delist our Common Stock as a result of the Company’s non-compliance with Rule 802.01B of the NYSE Listed Company Manual which requires listed companies to maintain an average global market capitalization of at least $15 million over a period of 30 consecutive trading days. Trading in the Common Stock on the NYSE was suspended after market close on March 6, 2024.
On March 14, 2024, the NYSE filed its notification of removal from listing (Form 25) with the SEC.
The Company’s Common Stock currently trades on the OTC Pink Open Market under the symbol “EXPR.Q”. The OTC Pink Open Market is an inter-dealer quotation system. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
As of December 30, 2024, there were 64 holders of record of our Common Stock. The number of holders of record is based upon the actual number of holders registered at such date and does not include holders of shares in “street name,” or persons, partnerships, associates, corporations, or other entities identified in security position listings maintained by depositories.
No dividends were paid by the Company on its Common Stock in 2023 or 2022, and the Company will not pay any cash dividends on its Common Stock in the future.
The following table provides information regarding the purchase of shares of our Common Stock made by or on behalf of us or any "affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Exchange Act during each month of the quarterly period ended February 3, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Month | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs (2) |
| | (in thousands, except per share amounts) |
| October 29, 2023 - November 25, 2023 | | — | | | $ | — | | | — | | | $ | 34,215 | |
| November 26, 2023 - December 30, 2023 | | — | | | $ | — | | | — | | | $ | 34,215 | |
| December 31, 2023 - February 3, 2024 | | 0.2 | | | $ | 8.01 | | | — | | | $ | 34,215 | |
| Total | | 0.2 | | | | | — | | | |
1.Represents shares purchased in connection with employee tax withholding obligations under the Second Amended and Restated Express, Inc. 2018 Incentive Compensation Plan.
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2.On November 30, 2017, the Company announced that the Board approved a share repurchase program that authorized the Company to repurchase up to $150.0 million of the Company’s outstanding Common Stock using available cash. The program provided for the repurchase of shares on the open market, including through Rule 10b5-1 plans, in privately negotiated transactions, through block purchases, or otherwise in compliance with applicable laws, including Rule 10b-18 of the Exchange Act. In connection with the Chapter 11 Cases, the Company’s share repurchase program was suspended indefinitely.
ITEM 6. [RESERVED]
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of the Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the related Notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Form 10-K. All references herein to "2023" and "2022" refer to the 53-week period ended February 3, 2024 and the 52-week period ended January 28, 2023, respectively. Our management's discussion and analysis of financial condition and results of operations is presented in the following sections:
On April 22, 2024, the Company and certain of its direct and indirect subsidiaries (then known as Express Topco LLC; Express Holding, LLC; Express Finance Corp.; Express LLC; Express Fashion Investments, LLC; Express Fashion Logistics, LLC; Express Fashion Operations, LLC.; Express GC, LCC; Express BNBS Fashion, LLC; UW, LLC; and Express Fashion Digital Services Costa Rica, S.R.L. collectively, the “Debtors”) filed voluntary petitions to commence proceedings under chapter 11 (the “Chapter 11 Cases”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 Cases are being jointly administered under the caption “In re: Express, Inc., et al.” (Case No. 24-10831).
Through the Chapter 11 process, the Debtors sought to implement a going-concern sale transaction. On April 21, 2024, the Company received a non-binding letter of intent from a consortium led by WHP Global and affiliates of the Company’s two most significant landlords, Simon Property Group, L.P. and Brookfield properties (the “Phoenix JV”) for the potential acquisition of a substantial portion of the Company’s assets and the assumption of leases on a minimum of 280 stores for aggregate cash consideration in the amount of $10.0 million plus 100% of the net orderly liquidation value of acquired merchandise, in addition to the assumption of the applicable liabilities. On May 22, 2024, the Debtors entered into an asset purchase agreement (the “Purchase Agreement”) with the Phoenix JV. The Purchase Agreement provided for a total purchase price of approximately $172.0 million, consisting of approximately $134.0 million in cash consideration and $38.0 million of assumed liabilities. On June 14, 2024, the Bankruptcy Court entered an order approving the Purchase Agreement and the sale contemplated thereby (the “Sale Transaction”). The Sale Transaction was successfully consummated on June 21, 2024. Pursuant to the Sale Transaction, 403 leases for Express stores, 50 leases for Bonobos stores and the lease for the Company’s corporate headquarters in Columbus, Ohio, were assigned to and assumed by the Phoenix JV.
Additionally through the Chapter 11 process, the Debtors provided notice of and completed rejection of 118 unexpired leases in accordance with the procedures approved by the Bankruptcy Court.
On July 10, 2024, the ability for persons or entities (other than governmental units) to file proofs of claim in the Chapter 11 Cases expired.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 13
On August 7, 2024, the Bankruptcy Court entered an order extending the Debtor’s exclusivity period to file a Chapter 11 Plan to November 19, 2024 and their solicitation of acceptances thereof to January 20, 2025.
On December 17, 2024, the Bankruptcy Court confirmed the Plan. Pursuant to the Plan, proceeds from the Sale Transaction and the Debtors’ remaining assets will be distributed to eligible claim holders, in order of priority, after which each of the Debtors’ estates will be wound down. The Company anticipates that the Plan will go effective on or about December 31, 2024. As of the date of this Form 10-K, the Company and the other Debtors no longer have any operations, other than those relating to the wind-down process provided in the Plan.
Debtor-in-Possession Financing
In order to administer the Chapter 11 Cases, operate the Debtors’ business in the ordinary course and facilitate the marketing and consummation of the Sale Transaction, the Company obtained $214.0 million of post-petition debtor-in-possession financing (the “DIP Facilities”), consisting of (a) a new money single draw term loan in the amount of $25.0 million (the “Second Lien New Money DIP Term Loans”) and (b) a roll-up of (i) certain secured prepetition obligations under the Asset-Based Term Loan Agreement, dated as of September 5, 2023 (the “FILO Term Loan Agreement”) in the amount of $63.0 million (the “Second Lien DIP Term Roll-Up Loans”), and (ii) certain secured prepetition obligations under the asset-based loan credit agreement, dated as of May 20, 2015 (as amended, the “ABL Credit Agreement”) in the amount of $126.0 million (the “First Lien DIP ABL Roll-Up Loans”).
Each of the DIP Facilities were provided to the Company subject to the terms and conditions set forth in the respective DIP Credit Agreements that were executed by the Debtor and the applicable lenders on April 24, 2024, which include conditions precedent, representations and warranties, various affirmative and negative covenants, and events of default customary for financings of such type.
The relief granted by the Bankruptcy Court in its order on June 6, 2024 approving the final DIP Facilities (the “Final DIP Order”) also included granting certain adequate protections to the Debtors’ prepetition secured lenders and agents, which are intended to protect their interests in collateral securing their prepetition claims against the Debtors from any diminution in value.
Refer to Note 8 in our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion.
Litigation
Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against the applicable debtor, including actions to collect indebtedness, including interest payments, incurred prior to the Petition Date or to exercise control over the applicable debtor’s property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases also automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the applicable debtor or its property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the applicable debtor’s bankruptcy estate, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code.
The Chapter 11 Cases and the Sale Transaction are subsequent events that occurred after the periods for which the financial information herein is presented. Thus, the description of the Company’s business and financial information included in this management’s discussion and analysis of financial condition and results of operations reflects the Company’s business as previously operated as of February 3, 2024, prior to the filing of the Chapter 11 Cases on April 22, 2024 and prior to giving effect to the completion of the Sale Transaction on June 21, 2024.
Express previously operated as a multi-brand fashion retailer with an omnichannel platform, including both physical and online stores. Its two brand-based operating segments were Express, which included UpWest, and Bonobos.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 14
As of February 3, 2024, we operated 589 stores in the United States and Puerto Rico, the express.com online store, the Express mobile app, the bonobos.com online store and the upwest.com online store.
| | | | | | | | |
| Brand | | Description |
| Express | | Grounded in a belief that style, quality and value should all be found in one place, Express is a brand with a purpose - We Create Confidence. We Inspire Self-Expression. - powered by a styling community. |
| UpWest | | UpWest is an apparel, accessories and home goods brand with a purpose to provide comfort for people and planet. |
| Bonobos | | Bonobos is a menswear brand known for exceptional fit and an innovative retail model. |
Bonobos Acquisition
On May 23, 2023, we completed the acquisition of the operating assets of Bonobos.
Refer to Note 5 to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion regarding the acquisition.
WHP Strategic Partnership
On January 25, 2023, we closed the strategic partnership transaction with WHP, a leading global brand management firm. Pursuant to the transaction, WHP acquired 5.4 million newly issued shares of our Common Stock, at a purchase price of $4.60 per share, or $25.0 million in the aggregate, representing approximately 7.4% of our outstanding shares of Common Stock, on a pro forma basis, as of the closing of the transaction. The Company and WHP also formed a Joint Venture valued at approximately $400.0 million, with WHP committing $235.0 million to the Joint Venture for 60% ownership of the Joint Venture and the Company contributing certain intellectual property in exchange for 40% ownership of the Joint Venture. Refer to Note 4 to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion regarding the WHP strategic partnership.
1-for-20 Reverse Stock Split
On August 14, 2023, our Board approved the implementation of a 1-for-20 reverse stock split of our Common Stock, and a corresponding proportional reduction in the number of authorized shares of Common Stock. The reverse stock split was effected after market close on August 30, 2023 (the “Effective Date”), and shares of Common Stock began trading on a split-adjusted basis as of market open on August 31, 2023.
All shares of Common Stock, stock option awards and per share amounts contained in the Consolidated Financial Statements have been retroactively adjusted to reflect the 1-for-20 reverse stock split. Refer to Note 9 to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion regarding the reverse stock split.
Management's Assessment of Going Concern
Management has concluded that the Debtors’ need to implement a chapter 11 restructuring plan and the costs, risks and uncertainties surrounding the Chapter 11 Cases raise substantial doubt about the Company’s ability to continue as a going concern for 12 months following the issuance of the financial statements.
Expense Reduction Initiatives
During 2023, we conducted a comprehensive review of our business model to identify actions expected to further meaningfully reduce pre-tax costs and enable a more efficient and effective organization and have engaged external advisors to assist in this effort.
During 2023, management was focused on improving its results of operations, operating cash flows and liquidity through expense reduction initiatives and developed contingency plans.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 15
| | |
| FINANCIAL DETAILS FOR 2023 |
|
•Consolidated net sales decreased 0.5% to $1.85 billion, including $152.2 million of Bonobos net sales, from $1.86 billion in 2022 |
•The 53rd week added approximately $21.8 million to net sales for 2023 |
•Consolidated comparable sales decreased 9% compared to 2022 |
•Comparable retail sales (includes both retail stores and eCommerce sales) decreased 7% compared to 2022 |
•Comparable outlet sales decreased 14% compared to 2022 |
•Consolidated gross margin was 21.6% of net sales compared to 28.4% of net sales in 2022, a decrease of approximately 680 basis points |
•Consolidated operating loss was $162.0 million compared to $67.5 million in 2022 |
•Consolidated net loss was $208.5 million, or a loss of $55.89 per diluted share, compared to net income of $293.8 million, or $85.1 per diluted share, in 2022, which reflected the gain on the transaction with WHP |
| | | | | | | | | | | | | | |
| HOW WE ASSESSED THE PERFORMANCE OF OUR BUSINESS |
In assessing the performance of our business, we considered a variety of performance and financial measures. These key measures included net sales, comparable sales, eCommerce demand, transactions, cost of goods sold, buying and occupancy costs, gross profit/gross margin, and selling, general, and administrative expenses. The following table describes and discusses these measures.
| | | | | | | | |
| Net Sales | | |
| Description | | |
| Revenue from the sale of merchandise, less returns and discounts, as well as shipping and handling revenue related to eCommerce, revenue from the rental of our LED sign in Times Square, gift card breakage and revenue earned from our private label credit card agreement. |
| | |
| Discussion | | |
| Our business is seasonal, and we historically realized a higher portion of our net sales in the third and fourth quarters, due primarily to the impact of the holiday season. Generally, approximately 45% of our annual net sales occurred in the Spring season (first and second quarters) and 55% occurred in the Fall season (third and fourth quarters). |
| | | | | | | | |
| Comparable Sales | | |
| Description | | |
Comparable sales is a measure of the amount of sales generated in a period relative to the amount of sales generated in the comparable prior year period. Comparable sales for 2023 was calculated using the 53-week period ended February 3, 2024 as compared to the 53-week period ended February 4, 2023.
Comparable retail sales includes: •Sales from retail stores that were open 12 months or more as of the end of the reporting period •eCommerce shipped sales
Comparable outlet sales includes: •Sales from outlet stores that were open 12 months or more as of the end of the reporting period, including conversions
Comparable sales excludes: •Sales from stores where the square footage has changed by more than 20% due to remodel or relocation activity •Sales from stores in a phased remodel where a portion of the store is under construction and therefore not productive selling space •Sales from stores where the store cannot open due to weather damage or other catastrophes, including pandemics |
| | |
| Discussion | | |
| Our business and our comparable sales were subject, at certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter, Thanksgiving, and Christmas, and regional fluctuations for events such as sales tax holidays. We believe comparable sales provides a useful measure for investors by removing the impact of new stores and closed stores. Management considers comparable sales a useful measure in evaluating continuing store performance. |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 16
| | | | | | | | |
| eCommerce Demand | | |
| Description | | |
| eCommerce demand is defined as gross orders for Express and/or third party merchandise that originate through our eCommerce platform, including the website, app, and buy online pick-up in store. |
| | |
| Discussion | | |
| We believe eCommerce demand is a useful operational metric for investors and management as it provides visibility for orders placed but not yet shipped. |
| | | | | | | | |
| Transactions | | |
| Description | | |
| Transactions are defined as the number of customer point of sale interactions with customers. |
| | |
| Discussion | | |
| We believe this metric is useful as it provides a better indicator of the acceptance of our product. |
| | | | | | | | |
| Cost of Goods Sold, Buying and Occupancy Costs | | |
| Description | | |
Includes the following: •Direct cost of purchased merchandise •Inventory shrink and other adjustments •Inbound and outbound freight •Royalties paid to the Joint Venture •Merchandising, design, planning and allocation, and manufacturing/production costs •Occupancy costs related to store operations (such as rent and common area maintenance, utilities, and depreciation on assets) •Logistics costs associated with our eCommerce business •Impairments on long-lived assets and right of use lease assets |
| | |
| Discussion | | |
Our cost of goods sold typically increased in higher volume quarters because the direct cost of purchased merchandise is tied to sales.
The primary drivers of the costs of individual goods are raw materials, labor in the countries where our merchandise is sourced, and logistics costs associated with transporting our merchandise.
Buying and occupancy costs related to stores are largely fixed and do not necessarily increase as volume increases.
Changes in the mix of products sold by type of product or by channel may also impact our overall cost of goods sold, buying and occupancy costs.
Extended periods of declined business and sales could result in additional impairment of our assets. |
| | | | | | | | |
| Gross Profit/Gross Margin | | |
| Description | | |
| Gross profit is net sales minus cost of goods sold, buying and occupancy costs. Gross margin measures gross profit as a percentage of net sales. |
| | |
| Discussion | | |
Gross profit/gross margin is impacted by the price at which we were able to sell our merchandise and the cost of our product.
Inventory levels were previously reviewed on an on-going basis in order to identify slow-moving merchandise and generally use markdowns to clear such merchandise. The timing and level of markdowns were driven primarily by seasonality and customer acceptance of our merchandise and have a direct effect on our gross margin.
Any marked down merchandise that is not sold is marked-out-of-stock. We use third-party vendors to dispose of this marked-out-of-stock merchandise. |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 17
| | | | | | | | |
| Selling, General, and Administrative Expenses | | |
| Description | | |
Includes operating costs not included in cost of goods sold, buying and occupancy costs such as: •Payroll and other expenses related to operations at our corporate offices •Store expenses other than occupancy costs •Marketing expenses, including production, mailing, print, and digital advertising costs, among other things |
| | |
| Discussion | | |
| With the exception of store payroll, certain marketing expenses, and incentive compensation, selling, general, and administrative expenses generally did not vary proportionally with net sales. As a result, selling, general, and administrative expenses as a percentage of net sales were generally higher in lower volume quarters and lower in higher volume quarters. |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 18
Fiscal 2023 compared to Fiscal 2022
The financial results of Bonobos were included in our results beginning from the closing date of the acquisition on May 23, 2023.
Store Activity
The following table shows store activity for the stated periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
| Retail | | Outlet | | UpWest | | Bonobos1 | | Total | | Retail | | Outlet | | UpWest | | | | Total |
| Beginning stores | 342 | | 198 | | 13 | | — | | | 553 | | 351 | | 203 | | 7 | | | | 561 |
| New stores | 1 | | | 1 | | | 3 | | | 60 | | | 65 | | | 7 | | | — | | | 10 | | | | | 17 | |
| Closed stores | (17) | | | (7) | | | (4) | | | (1) | | | (29) | | | (16) | | | (5) | | | (4) | | | | | (25) | |
| Ending stores | 326 | | | 192 | | | 12 | | | 59 | | | 589 | | | 342 | | | 198 | | | 13 | | | | | 553 | |
| Gross square footage at end of period (in thousands) | | | | 4,462 | | | | | | | | | | | 4,552 | |
1.Bonobos stores were acquired on May 23, 2023
Net Sales
The following table shows net sales and comparable sales for the stated periods:
| | | | | | | | | | | | | |
| |
| | 2023 | | 2022 | | |
| Express | $ | 1,702,147 | | | $ | 1,864,182 | | | |
| Bonobos | 152,210 | | | — | | | |
| Net sales (in thousands) | $ | 1,854,357 | | | $ | 1,864,182 | | | |
| Dollar change compared to prior year | $ | (9,825) | | | | | |
| Percentage change compared to prior year | (0.5) | % | | | | |
| Consolidated comparable retail sales percentage change | (7) | % | | (2) | % | | |
| Consolidated comparable outlet sales percentage change | (14) | % | | 4 | % | | |
| Total consolidated comparable sales percentage change | (9) | % | | — | % | | |
Net sales for 2023 decreased 0.5%, or $9.8 million, to $1,854.4 million compared to 2022, partially offset by $152.2 million of sales from the addition of Bonobos. The 53rd week contributed approximately $21.8 million to net sales. The decrease in Express sales was primarily attributable to challenging comparable sales in both our women's and men's business. This was driven by traffic softness in both retail and outlet stores along with reduced consumer spending, increased price sensitivity in discretionary categories and aggressive promotional activity across the industry that began in 2022 and persisted throughout fiscal year 2023. We continue to face challenges with the Express brand including declines in our customer file and store traffic, driven by missteps in our merchandise strategy where we were out of balance across categories, price points and wearing occasions. The misalignment between our assortment architectures and customer demand significantly impacted our sales.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 19
Gross Profit
The following table shows cost of goods sold, buying and occupancy costs, gross profit in dollars, and gross margin percentage for the stated periods:
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
| Cost of goods sold, buying and occupancy costs | $ | 1,453,975 | | | $ | 1,335,588 | | | |
| Gross profit | $ | 400,382 | | | $ | 528,594 | | | |
| Gross margin percentage | 21.6 | % | | 28.4 | % | | |
| Dollar change compared to prior year | $ | (128,212) | | | | | |
The 680 basis point decrease in gross margin percentage, or gross profit as a percentage of net sales, for 2023 compared to 2022 was comprised of a decrease in merchandise margin of 620 basis points and an increase in buying and occupancy costs as a percentage of net sales of 60 basis points.
•The decrease in merchandise margin was primarily driven by the challenging macroeconomic and highly promotional retail environment, increased shipping and handling flex on higher eCommerce sales, as well as 350 basis points of royalty expense related to the Joint Venture.
•Buying and occupancy deleveraged due to the decline in comparable sales. In addition, buying and occupancy was also impacted by $2.7 million of severance charges related to our restructuring and $3.4 million due to an impairment charge of certain long-lived store related assets and right of use assets. Refer to Note 1 for further discussion regarding the restructuring costs and Note 2 for further discussion regarding the impairment charges for 2023 in our Consolidated Financial Statements included elsewhere in this Form 10-K. Selling, General, and Administrative Expenses
The following table shows selling, general, and administrative expenses in dollars and as a percentage of net sales for the stated periods:
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
| Selling, general, and administrative expenses | $ | 594,106 | | | $ | 596,671 | | | |
| Selling, general, and administrative expenses, as a percentage of net sales | 32.0 | % | | 32.0 | % | | |
| Dollar change compared to prior year | $ | (2,565) | | | | | |
SG&A for 2023 decreased 0.4%, or $2.6 million, to $594.1 million compared to 2022. The decrease was primarily driven by our expense savings initiatives, including reductions in marketing spend, store labor costs, and a reduction in force in our corporate office that was implemented during the third quarter of 2023, as well as lower long-term incentive compensation. This was partially offset by the consolidation of Bonobos, as well as acquisition-related and integration costs incurred in connection with the acquisition and severance charges related to our restructuring.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 20
Royalty Income
The following table shows royalty income in dollars and as a percentage of net sales for the stated periods:
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
| Royalty income | $ | (22,375) | | | $ | — | | | |
| Royalty income, as a percentage of net sales | (1.2) | % | | — | % | | |
| Dollar change compared to prior year | $ | (22,375) | | | | | |
Royalty income for 2023 increased by $22.4 million compared to 2022. The increase was due to our share of equity income associated with our equity investment with WHP. Refer to Note 4 in our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion of our equity investment. Other Operating Income, Net
The following table shows other operating income in dollars and as a percentage of net sales for the stated periods:
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
| Other operating income, net | $ | (9,375) | | | $ | (590) | | | |
| Other operating income, as a percentage of net sales | (0.5) | % | | — | % | | |
| Dollar change compared to prior year | $ | (8,785) | | | | | |
Other operating income for 2023 increased by $8.8 million compared to 2022. The increase reflects $8.3 million in settlement proceeds received in January 2024 related to the settlement of claims in the payment card interchange fee antitrust litigation.
Interest Expense, Net
The following table shows interest expense in dollars and as a percentage of net sales for the stated periods:
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
| Interest expense, net | $ | 20,058 | | | $ | 29,103 | | | |
| Interest expense, as a percentage of net sales | 1.1 | % | | 1.6 | % | | |
| Dollar change compared to prior year | $ | (9,045) | | | | | |
Interest expense for 2023 decreased 31.1%, or $9.0 million, to $20.1 million compared to 2022. The decrease was the result of higher aggregate amounts borrowed and higher variable interest rates on our outstanding indebtedness offset by $5.1 million of Term Loan refinancing costs, $4.5 million of early debt termination fees related to the subsequent termination of the Term Loan and $1.8 million of accelerated Term Loan discount amortization during 2022. Refer to Note 8 in our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion regarding our borrowings during 2023. EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 21
Gain on Transaction with WHP
The following table shows gain on transaction with WHP in dollars and as a percentage of net sales for the stated periods:
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
| Gain on transaction with WHP | $ | — | | | $ | (409,493) | | | |
| Gain on transaction with WHP, as a percentage of net sales | — | % | | (22.0) | % | | |
| Dollar change compared to prior year | $ | 409,493 | | | | | |
The $409.5 million decrease in 2023 compared to 2022 was due to $235.0 million from the sale of the majority of our interest in our intellectual property to the Joint Venture, $156.7 million on the equity method investment and $17.8 million from the premium paid on the common shares by WHP in 2022. Refer to Note 2, Note 4 and Note 9 in our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion. Other Expense (Income), Net
The following table shows other expense (income), net in dollars and as a percentage of net sales for the stated periods:
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| (in thousands, except percentages) |
| Other expense (income), net | $ | 27,200 | | | $ | (1,384) | | | |
| Other expense (income), as a percentage of net sales | 1.5 | % | | (0.1) | % | | |
| Dollar change compared to prior year | $ | 28,584 | | | | | |
The $28.6 million decrease in other income in 2023 compared to 2022 was primarily due to the impairment of our equity method investment in 2023. Refer to Note 4 in our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion. Income Tax (Benefit) Expense
The following table shows income tax (benefit) expense in dollars and as a percentage of net sales for the stated periods:
| | | | | | | | | | | | | |
| |
| | 2023 | | 2022 | | |
| | (in thousands, except percentages) |
| Income tax (benefit) expense | $ | (693) | | | $ | 20,453 | | | |
| Income tax (benefit) expense, as a percentage of net sales | — | % | | 1.1 | % | | |
| Dollar change compared to prior year | $ | (21,146) | | | | | |
The effective tax rate was 0.3% and 6.5% for 2023 and 2022, respectively. The effective tax rate for 2023 reflects the impact of the recording of an additional valuation allowance against our current year losses, our return-to-provision adjustment, and an adjustment to a refund claim made under the CARES Act. The effective tax rate for 2022 was driven by the tax expense related to the gain on the transaction with WHP Global.
| | | | | | | | | | | | | | |
| LIQUIDITY AND CAPITAL RESOURCES |
| | | | |
Sources and Uses of Cash
Historically, the primary source of our liquidity was cash flows from operations. Due to the seasonality of our business, we historically realized a significant portion of the cash flows from operating activities during the second half of the fiscal year. The primary cash needs of our business historically were for merchandise inventories, payroll, rent for our retail and outlet locations, marketing, capital expenditures associated with opening new locations,
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 22
updating existing locations, as well as the development of our information technology. Our traditional strategy was to seek out and evaluate opportunities for effectively managing and deploying capital in ways that improved working capital and supported and enhanced our business initiatives and strategies.
Historically, our liquidity position benefited from the fact that we generally collected cash from sales to customers the same day or, in the case of credit or debit card transactions, within three to five days of the related sale, and we had up to 75 days to pay certain merchandise vendors and 45 days to pay the majority of our non-merchandise vendors. Commitments under our lease agreements and debt agreements also required future cash outlays. For information on payments required under lease agreements see Note 6 of our Consolidated Financial Statements included elsewhere in this Form 10-K and for payment information related to our long-term debt see Note 8 of our Consolidated Financial Statements included elsewhere in this Form 10-K. During 2023, the following significant transactions impacted our liquidity:
•On May 23, 2023, we completed the acquisition of Bonobos for $28.3 million in cash consideration
•Realized $80 million of cost reductions for fiscal year 2023 versus fiscal year 2022
•We borrowed a net additional $22.3 million under the Revolving Credit Facility (as defined in Note 8 of our Consolidated Financial Statements included elsewhere in this Form 10-K) to fund normal working capital needs •On September 5, 2023, we entered into a definitive loan agreement for a $65.0 million first-in-last-out asset-based term loan in further support of expanding liquidity access. We borrowed a net additional $63.1 million during 2023
•On April 15, 2024, we received approximately $49.0 million from the CARES Act
Based upon the sales and results of operations seen during 2023, and expense reduction and other measures planned and taken to date, we were in compliance with the financial covenants under the Revolving Credit Facility and FILO Term Loan (as defined in Note 8 of our Consolidated Financial Statements included elsewhere in this Form 10-K) as of February 3, 2024. As of February 3, 2024, we had a negative working capital balance, meaning our current liabilities exceeded our current assets (including cash balances). As of February 3, 2024, our current liabilities included current operating lease liabilities, for which the corresponding operating right of use assets are recorded as non-current on our Consolidated Balance Sheets.
Chapter 11 Cases
As previously disclosed, to address our financial challenges, we and certain of our subsidiaries voluntarily filed petitions to commence proceedings under Chapter 11 of the Bankruptcy Code. During the pendency of the Chapter 11 Cases, our principal source of liquidity was proceeds from the DIP Facilities approved by the Bankruptcy Court, as the filing of Chapter 11 constituted an event of default that accelerated our obligations under the ABL Credit Agreement and the FILO Term Loan Agreement.
Refer to Note 8 and Note 14 of our Consolidated Financial Statements included elsewhere in this Form 10-K for more information.
The accompanying Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, management has concluded that the Debtors’ need to implement a Chapter 11 restructuring plan and the costs, risks and uncertainties surrounding the outcome of the Chapter 11 Cases raise substantial doubt about the Company’s ability to continue as a going concern for 12 months following the issuance of the financial statements. The Company's accompanying Consolidated Financial Statements do not include any adjustments that might result from the wind-down of the Debtors’ estates under the Plan, including the disposition of the proceeds of the Sale Transaction and the disposition of the Debtors’ remaining assets to eligible claim holders.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 23
Analysis of Cash Flows
The following table presents a summary of our cash flows from operating, investing and financing activities for the period indicated:
| | | | | | | | | | | |
| |
| | 2023 | | 2022 |
| | (in thousands) |
| Net cash used in operating activities | $ | (56,836) | | | $ | (157,080) | |
| Net cash (used in) provided by investing activities | (54,461) | | | 196,012 | |
| Net cash provided by (used in) financing activities | 81,861 | | | (14,496) | |
| Net (decrease) increase in cash and cash equivalents | (29,436) | | | 24,436 | |
| Cash and cash equivalents | beginning of period | 65,612 | | | 41,176 | |
| Cash and cash equivalents | end of period | $ | 36,176 | | | $ | 65,612 | |
Operating Activities
Our business historically relied on cash flows from operations as our primary source of liquidity, with the majority of those cash flows being generated in the fourth quarter of the year.
Net cash used in operating activities was $56.8 million in 2023 compared to $157.1 million in 2022, an increase of $100.2 million. This increase was primarily driven by changes in working capital.
Investing Activities
Investing activities consisted primarily of investments in capital expenditures related to investments in new and remodeled store construction and fixtures and investments in information technology. Investing activities also include our strategic investments.
Net cash used in investing activities was $54.5 million in 2023 compared to net cash provided by investing activities of $196.0 million in 2022, a decrease of $250.5 million. For 2023, net cash used in investing activities was primarily due to the acquisition of Bonobos for $28.3 million and capital expenditures of $26.1 million relating to new and remodeled store construction and fixtures and investments in information technology. For 2022, the net cash provided by investing activities was primarily due to proceeds of $243.4 million from the WHP transaction offset by capital expenditures of $47.4 million relating to new and remodeled store construction and fixtures and investments in information technology. The decrease in capital expenditures in 2023 was primarily driven by intentional reductions in our capital expenditures in response to our business results and redeployment of capital to fund the Bonobos transaction and to support our cost reduction initiatives. Refer to Note 5 for further discussion regarding the acquisition and Note 4 in our Consolidated Financial Statements included elsewhere in this Form 10-K for further details regarding the WHP transaction. Financing Activities
Financing activities consisted primarily of borrowings and repayments related to our debt arrangements and other equity related transactions.
Net cash provided by financing activities was $81.9 million in 2023 compared to net cash used in financing activities of $14.5 million in 2022, an increase of $96.4 million. This increase was primarily driven by borrowings under our debt arrangements.
Debt Arrangements
The Company's filing of the Chapter 11 Cases constituted an event of default that accelerated our obligations under the ABL Credit Agreement and the FILO Term Loan Agreement. Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against the applicable debtor, including actions to collect indebtedness, including interest payments, incurred prior to the Petition Date or to exercise control over the applicable debtor’s property. Our pre-petition debt and post-petition debt are described in greater detail below.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 24
Pre-Petition Debt (Historical)
Revolving Credit Facility
During 2023, we borrowed a net additional $22.3 million under the Revolving Credit Facility to fund normal working capital needs as well as capital expenditures for stores, our eCommerce platform and other information technology investments. As of February 3, 2024, the Company had approximately $144.4 million in borrowings outstanding under the Revolving Credit Facility and approximately $31.1 million was available for additional borrowing under the Revolving Credit Facility subject to certain borrowing base limitations and after giving effect to outstanding letters of credit in the aggregate amount of $20.1 million, primarily related to a third party logistics contract. Refer to Note 8 of our Consolidated Financial Statements included elsewhere in this Form 10-K for additional information on the Revolving Credit Facility. FILO Term Loan
During 2023, we borrowed a net additional $63.1 million under the FILO Term Loan. As of February 3, 2024, the net aggregate outstanding principal amount of the FILO Term Loan was $60.3 million, of which $4.7 million was classified as short-term debt and $55.6 million was classified as long-term debt on the Consolidated Balance Sheet, net of unamortized costs. Refer to Note 8 of our Consolidated Financial Statements included elsewhere in this Form 10-K for additional information on the Term Loan. Investment Agreement
On December 8, 2022, we entered into an investment agreement relating to the issuance and sale of shares of our common stock, par value $0.01, in a private placement to WHP (the "Investment Agreement"). On January 25, 2023, we completed the transactions contemplated by the Investment Agreement and the Membership Interest Purchase Agreement. Pursuant to the Investment Agreement, we issued and sold 5.4 million shares of common stock to WHP for a purchase price of $4.60 per share, or an aggregate purchase price of $25.0 million. The excess paid over fair value of $17.8 million was recorded in gain on transaction with WHP on the Consolidated Statements of Income and Comprehensive Income. We used the proceeds to repay our outstanding term loan, fund the Joint Venture’s first year guaranteed minimum royalty of $60.0 million pursuant to the License Agreement and pay costs, fees and expenses incurred in connection with the Investment Agreement and other associated transactions. For additional information, refer to Note 4 and Note 9 of our Consolidated Financial Statements included elsewhere in this Form 10-K.
Post-Petition Debt (Chapter 11 Cases)
Debtor-in-Possession Financing
In order to administer the Chapter 11 Cases, operate the Debtors’ business in the ordinary course and facilitate the marketing and consummation of the Sale Transaction (as defined below), the Company obtained $214.0 million of post-petition debtor-in-possession financing, consisting of (a) a new money single draw term loan in the amount of $25.0 million (the “Second Lien New Money DIP Term Loans”) and (b) a roll-up of (i) certain secured prepetition obligations under the Asset-Based Term Loan Agreement, dated as of September 5, 2023 (the “FILO Term Loan Agreement”) in the amount of $63.0 million (the “Second Lien DIP Term Roll-Up Loans”), and (ii) certain secured prepetition obligations under the asset-based loan credit agreement, dated as of May 20, 2015 (as amended, the “ABL Credit Agreement”) in the amount of $126.0 million (the “First Lien DIP ABL Roll-Up Loans”).
Each of the DIP Facilities are provided to the Company subject to the terms and conditions set forth in the respective DIP Credit Agreements that were executed by the Debtor and the applicable lenders on April 24, 2024, which include conditions precedent, representations and warranties, various affirmative and negative covenants, and events of default customary for financings of such type. The proceeds of all or a portion of the proposed DIP Facilities may be used by the Debtors for, among other things, refinancing the pre-petition debt of the Company, post-petition working capital for the Debtors, payment of costs to administer the Chapter 11 Cases, payment of expenses and fees of the transactions contemplated by the Chapter 11 Cases, payment of court-approved adequate protection obligations under the DIP Credit Agreements, and payment of other costs, in each case subject to the terms of the respective DIP Credit Agreement and the Final DIP Order or any other order of the Bankruptcy Court. The DIP ABL Facility was used to repay in full the obligations under the Second Amended and Restated
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 25
Asset-Based Loan Credit Agreement, dated as of May 20, 2015 (as amended, the “ABL Credit Agreement”), including interest and fees through the date of repayment, on a dollar-for-dollar cashless basis.
The First Lien DIP ABL Loans are senior obligations of the Company and certain Debtors, and are secured by a first priority lien on the collateral under the ABL Credit Agreement, as well as on any unencumbered assets of the Debtors. The Second Lien New Money Term Loans and the Second Lien DIP Term Roll-up Loans (collectively, the DIP Term Loan Facility”) are senior obligations of the Company and certain Debtors, secured by a second priority lien on the collateral under the ABL Credit Agreement as well as on any unencumbered assets of the Debtors.
The relief granted by the Bankruptcy Court in its order on June 6, 2024, approving the final DIP Facilities (the “Final DIP Order”) also included granting certain adequate protections to the Debtors’ prepetition secured lenders and agents, which are intended to protect their interests in collateral securing their prepetition claims against the Debtors from any diminution in value. Refer to Note 8 of our Consolidated Financial Statements included elsewhere in this Form 10-K for additional information on the DIP Facilities. EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 26
| | | | | | | | | | | | | | |
| CRITICAL ACCOUNTING ESTIMATES |
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues, and expenses, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates, and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
Management evaluated the development and selection of its critical accounting policies and estimates and believes that the following policies involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position and are, therefore, discussed as critical. The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our Consolidated Financial Statements. More information on all of our significant accounting policies can be found in Note 2 to our Consolidated Financial Statements included elsewhere in this Form 10-K. | | | | | | | | |
| Store Asset Impairment |
| Description of Policy | | |
Store related Property and Equipment, including the right of use assets, are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of these assets might not be recoverable. These include, but are not limited to, material adverse changes in projected revenues, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative economic conditions, a significant decrease in the market value of an asset and store closure or relocation decisions. We review for indicators of impairment at the individual store level, the lowest level for which cash flows are identifiable.
Stores that display an indicator of impairment are subjected to an impairment assessment. Our impairment assessment requires management to make assumptions and judgments related, but not limited, to management’s expectations for future operations and projected cash flows.
•The key assumption used in our undiscounted future store cash flow models is the sales growth rate.
An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. Fair value of our store-related assets is determined at the individual store level based on the highest and best use of the asset group.
•The key assumptions used in our fair value analysis may include discounted estimates of future store cash flows from operating the store and/or comparable market rents. |
| | |
| Judgments and Uncertainties | | |
| Our analysis for impairment requires judgment surrounding identification of appropriate triggering events and assumptions used in our fair value model. |
| | |
| Effect if Actual Results Differ from Assumptions | | |
| We have no reason to believe that there will be a material change in the future estimates or assumptions we use in this evaluation. However, if we become aware of additional triggering events there is potential that additional stores could be required to be tested for impairment and could be impaired. These events could include further deterioration in store operating results, increased store labor costs, our inability to implement our cost savings initiatives or lower mall traffic. In addition, if market rent fair values deteriorate, our fair value test could determine additional right of use asset impairment. A 1% reduction in our store related assets would be approximately $5.3 million at February 3, 2024. |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 27
| | | | | | | | |
| Inventories - Lower of Cost or Net Realizable Value | | |
| Description of Policy | | |
| Inventories are principally valued at the lower of cost or net realizable value on a weighted-average cost basis. We record a lower of cost or net realizable value adjustment for our inventories if the cost of specific inventory items on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. |
| | |
| Judgments and Uncertainties | | |
| Our accounting methodology for determining the lower of cost or net realizable value adjustment contains uncertainties because it requires management to make assumptions and estimates that are based on factors such as merchandise seasonality, historical trends, and estimated inventory levels, including sell-through of remaining units. |
| | |
| Effect if Actual Results Differ from Assumptions | | |
| We have no reason to believe that there will be a material change in the future estimates or assumptions we use to measure the lower of cost or net realizable value adjustment. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 100 basis point increase or decrease in the lower of cost or net realizable value adjustment would not have had a material impact on the inventory balance or pre-tax income as of and for the year ended February 3, 2024. |
| | | | | | | | |
| Valuation Allowance on Deferred Tax Assets |
| Description of Policy | | |
| Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our assets and liabilities. Valuation allowances are established against deferred tax assets when it is more likely than not that the realization of those deferred tax assets will not occur. |
| | |
| Judgments and Uncertainties | | |
| Our deferred tax asset and liability balances contain uncertainty because changes in tax laws, rates, or future taxable income may differ from estimates and judgments made by management. Assessing whether deferred tax assets are realizable requires significant judgment. We consider all available positive and negative evidence, including past operating results and expectations of future operating income. The ultimate realization of deferred tax assets is often dependent upon future profitability, which is inherently uncertain. While we have a full valuation allowance on our net deferred tax asset assets, future changes in assumptions could have an effect on our estimates. |
| | |
| Effect if Actual Results Differ from Assumptions | | |
| We have no reason to believe that there will be a material change in the future estimates or assumptions we use to calculate our deferred taxes. However, if future tax rates are changed, or if actual results are not consistent with our estimates, we may need to adjust the carrying value of our deferred tax balances. An increase or decrease in the valuation allowance would result in a respective increase or decrease in our effective tax rate in the period the increase or decrease occurs. |
| | | | | | | | | | | | | | |
| Recently Issued Accounting Pronouncements |
Recently issued accounting pronouncements and their estimated effect on the Company’s consolidated financial statements are described in Note 1 of our Consolidated Financial Statements included elsewhere in this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, we are not required to provide the information required by this Item.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 29
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of EXP OldCo Winddown, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated financial statements of Express, Inc. and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of February 3, 2024 and January 28, 2023, and the related consolidated statements of income and comprehensive income, of changes in stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Substantial Doubt about the Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has defaulted under the ABL Credit Agreement and the FILO Term Loan Agreement and as discussed in Note 14, Express, Inc. and certain of its direct and indirect subsidiaries filed voluntary petitions to commence proceedings under chapter 11 of title 11 of the United States Code in the U.S. Bankruptcy Court, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Notes 1 and 14. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Bonobos from its assessment of internal control over financial reporting as of February 3, 2024 because it was acquired by the Company in a purchase business combination during the year ended February 3, 2024. We have
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 30
also excluded Bonobos from our audit of internal control over financial reporting. Bonobos is a wholly-owned subsidiary whose total assets and total sales excluded from management’s assessment and our audit of internal control over financial reporting represent 7% and 8%, respectively, of the related consolidated financial statement amounts as of and for the year ended February 3, 2024.
Subsequent Event
As discussed in Note 14 to the consolidated financial statements, on April 22, 2024, Express, Inc. and certain of its direct and indirect subsidiaries filed voluntary petitions to commence proceedings under Chapter 11 of title 11 of the United States Code in the U.S. Bankruptcy Court and on December 17, 2024, the Bankruptcy Court confirmed the plan which the Company anticipates will go effective on or before December 31, 2024.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Store Asset Impairment Assessments
As described in Notes 2 and 3 to the consolidated financial statements, the Company has long-lived assets which include consolidated property and equipment, net of $106 million and consolidated right of use asset, net of $529 million as of February 3, 2024, of which a significant portion of such balances relate to store level long-lived assets. For the year ended February 3, 2024, the Company recognized impairment charges of $3 million related to store level property and equipment and right of use assets. As disclosed by management, store related property and equipment and right of use assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of these assets might not be recoverable. Management reviews for indicators of impairment at the individual store level, the lowest level for which cash flows are identifiable. Stores that display an indicator of impairment are subjected to an impairment assessment. The impairment assessment requires management to make assumptions and judgments related, but not limited, to management’s expectations for future operations and projected cash flows. The key assumption used in undiscounted future store cash flow models is the sales growth rate. An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. Fair value of the store-related assets is determined at the individual store level based on the highest and best use of the asset group. The key assumptions used in the fair value analysis may include discounted estimates of future store cash flows from operating the store and/or comparable market rents.
The principal considerations for our determination that performing procedures relating to the store asset impairment assessments is a critical audit matter are a high degree of auditor subjectivity and effort in performing procedures
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 31
and evaluating management’s significant assumptions related to the sales growth rate when developing the undiscounted future cash flows, and comparable market rents when estimating the fair value. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the store asset impairment assessments, including controls over the assumptions used when developing the undiscounted future cash flows expected to be generated by the assets to test for recoverability and when estimating the fair value of the asset groups to measure for impairment. These procedures also included, among others (i) testing management’s process for developing the undiscounted future cash flows expected to be generated by the assets and estimating the fair value of the asset groups; (ii) evaluating the appropriateness of the models used by management; (iii) testing the completeness, accuracy and relevance of underlying data used in the models; and (iv) evaluating the reasonableness of the significant assumptions related to the sales growth rate when developing the undiscounted future cash flows, and comparable market rents when estimating the fair value. Evaluating management’s assumptions related to the sales growth rate and comparable market rents involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the asset groups, the consistency with evidence obtained in other areas of the audit as it relates to the sales growth rate, and consistency with external market data as it relates to the sales growth rate and comparable market rents. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the comparable market rents significant assumption.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
December 30, 2024
We have served as the Company’s auditor since 2008.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 32
EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Per Share Amounts)
| | | | | | | | | | | |
| | February 3, 2024 | | January 28, 2023 |
| ASSETS | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 36,176 | | | $ | 65,612 | |
| Receivables, net | 31,648 | | | 12,374 | |
| Income tax receivable | 1,939 | | | 1,462 | |
| Inventories | 369,897 | | | 365,649 | |
| Prepaid royalty | — | | | 59,565 | |
| Prepaid rent | 7,947 | | | 7,744 | |
| Other | 17,297 | | | 21,998 | |
| Total current assets | 464,904 | | | 534,404 | |
| | | |
| | | |
| | | |
| Right of Use Asset, Net | 528,716 | | | 505,350 | |
| | | |
| Property and Equipment | 987,615 | | | 1,019,577 | |
| Less: accumulated depreciation | (881,700) | | | (886,193) | |
| Property and equipment, net | 105,915 | | | 133,384 | |
| | | |
| Non-Current Income Tax Receivable | 45,482 | | | 52,278 | |
| Equity Method Investment | 139,010 | | | 166,106 | |
| Other Assets | 5,713 | | | 6,803 | |
| TOTAL ASSETS | $ | 1,289,740 | | | $ | 1,398,325 | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current Liabilities: | | | |
| Short-term lease liability | $ | 177,525 | | | $ | 189,006 | |
| Accounts payable | 216,490 | | | 191,386 | |
| Deferred royalty income | — | | | 19,852 | |
| Deferred revenue | 46,645 | | | 35,543 | |
| Short-term debt | 4,659 | | | — | |
| Accrued expenses | 118,768 | | | 105,803 | |
| Total current liabilities | 564,087 | | | 541,590 | |
| | | |
| Long-Term Lease Liability | 420,175 | | | 406,448 | |
| Long-Term Debt | 199,970 | | | 122,000 | |
| | | |
| Other Long-Term Liabilities | 11,741 | | | 20,718 | |
| Total Liabilities | 1,195,973 | | | 1,090,756 | |
| | | |
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; 25,000 shares authorized; 4,953 shares and 4,953 shares issued at February 3, 2024 and January 28, 2023, respectively, and 3,747 shares and 3,688 shares outstanding at February 3, 2024 and January 28, 2023, respectively | 50 | | | 50 | |
| Additional paid-in capital | 223,397 | | | 229,573 | |
| | | |
| Retained earnings | 130,752 | | | 355,736 | |
| Treasury stock – at average cost; 1,206 shares and 1,265 shares at February 3, 2024 and January 28, 2023, respectively | (260,432) | | | (277,790) | |
| Total stockholders’ equity | 93,767 | | | 307,569 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,289,740 | | | $ | 1,398,325 | |
See Notes to Consolidated Financial Statements. EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 33
EXPRESS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Amounts)
| | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| Net Sales | $ | 1,854,357 | | | $ | 1,864,182 | | | |
| Cost of Goods Sold, Buying and Occupancy Costs | 1,453,975 | | | 1,335,588 | | | |
| GROSS PROFIT | 400,382 | | | 528,594 | | | |
| Operating Expenses (Income): | | | | | |
| Selling, general, and administrative expenses | 594,106 | | | 596,671 | | | |
| Royalty income | (22,375) | | | — | | | |
| | | | | |
| | | | | |
| Other operating income, net | (9,375) | | | (590) | | | |
| TOTAL OPERATING EXPENSES | 562,356 | | | 596,081 | | | |
| | | | | |
| OPERATING LOSS | (161,974) | | | (67,487) | | | |
| | | | | |
| Interest Expense, Net | 20,058 | | | 29,103 | | | |
| Gain on Transaction with WHP | — | | | (409,493) | | | |
| Other Expense (Income), Net | 27,200 | | | (1,384) | | | |
| (LOSS) INCOME BEFORE INCOME TAXES | (209,232) | | | 314,287 | | | |
| Income Tax (Benefit) Expense | (693) | | | 20,453 | | | |
| | | | | |
| | | | | |
| NET (LOSS) INCOME | $ | (208,539) | | | $ | 293,834 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| COMPREHENSIVE (LOSS) INCOME | $ | (208,539) | | | $ | 293,834 | | | |
| | | | | |
| EARNINGS PER SHARE: | | | | | |
| Basic | $ | (55.89) | | | $ | 86.37 | | | |
| Diluted | $ | (55.89) | | | $ | 85.10 | | | |
| | | | | |
| WEIGHTED AVERAGE SHARES OUTSTANDING: | | | | | |
| Basic | 3,731 | | | 3,402 | | | |
| Diluted | 3,731 | | | 3,453 | | | |
See Notes to Consolidated Financial Statements. EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 34
EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in Thousands)
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| Common Stock | | | | Treasury Stock | | |
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| | Shares Outstanding | Par Value | Additional
Paid-in
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Earnings | Accumulated Other Comprehensive Loss | Shares | At Average Cost | | Total |
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| BALANCE, January 29, 2022 | 3,354 | | $ | 47 | | $ | 220,967 | | $ | 77,093 | | $ | — | | 1,327 | | $ | (296,799) | | | $ | 1,308 | |
| Net income | — | | — | | — | | 293,834 | | — | | — | | — | | | 293,834 | |
| Issuance of common stock | 272 | | 3 | | 6,896 | | — | | — | | — | | — | | | 6,899 | |
| Exercise of stock options and vesting of restricted stock units | 94 | | — | | (5,830) | | (15,191) | | — | | (94) | | 21,021 | | | — | |
| Share-based compensation | — | | — | | 7,540 | | — | | — | | — | | — | | | 7,540 | |
| Repurchase of common stock | (32) | | — | | — | | — | | — | | 32 | | (2,012) | | | (2,012) | |
| BALANCE, January 28, 2023 | 3,688 | | $ | 50 | | $ | 229,573 | | $ | 355,736 | | $ | — | | 1,265 | | $ | (277,790) | | | $ | 307,569 | |
| Net loss | — | | — | | — | | (208,539) | | — | | — | | — | | | (208,539) | |
| Exercise of stock options and vesting of restricted stock units | 81 | | — | | (1,284) | | (16,445) | | — | | (81) | | 17,729 | | | — | |
| Share-based compensation | — | | — | | (4,892) | | — | | — | | — | | — | | | (4,892) | |
| Repurchase of common stock | (22) | | — | | — | | — | | — | | 22 | | (371) | | | (371) | |
| BALANCE, February 3, 2024 | 3,747 | | $ | 50 | | $ | 223,397 | | $ | 130,752 | | $ | — | | 1,206 | | $ | (260,432) | | | $ | 93,767 | |
See Notes to Consolidated Financial Statements.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 35
EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
| | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| OPERATING ACTIVITIES | | | | | |
| Net (loss) income | $ | (208,539) | | | $ | 293,834 | | | |
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | | | | | |
| Depreciation and amortization | 53,262 | | | 62,169 | | | |
| Gain on transaction with WHP | — | | | (409,493) | | | |
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| Loss on extinguishment of debt | — | | | 4,500 | | | |
| Loss on disposal of property and equipment | 42 | | | 57 | | | |
| Impairment of property, equipment and lease assets | 3,428 | | | 2,150 | | | |
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| Equity method investment impairment | 27,200 | | | — | | | |
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| Share-based compensation | (4,892) | | | 7,540 | | | |
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| Deferred taxes | (2,733) | | | 10,868 | | | |
| Landlord allowance amortization | (307) | | | (387) | | | |
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| Changes in operating assets and liabilities: | | | | | |
| Receivables, net | (17,203) | | | (630) | | | |
| Income tax receivable | 6,319 | | | (75) | | | |
| Prepaid royalty | 59,565 | | | (59,565) | | | |
| Inventories | 47,045 | | | (6,854) | | | |
| Deferred royalty income | (19,852) | | | 19,852 | | | |
| Accounts payable, deferred revenue and accrued expenses | 17,611 | | | (46,367) | | | |
| Other assets and liabilities | (17,782) | | | (34,679) | | | |
| NET CASH USED IN OPERATING ACTIVITIES | (56,836) | | | (157,080) | | | |
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| INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (26,057) | | | (47,375) | | | |
| Acquisition, net of cash acquired | (28,300) | | | — | | | |
| Proceeds from WHP transaction | — | | | 243,387 | | | |
| Costs related to WHP transaction | (104) | | | — | | | |
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (54,461) | | | 196,012 | | | |
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| FINANCING ACTIVITIES | | | | | |
| Proceeds from borrowings under the revolving credit facility | 315,250 | | | 350,470 | | | |
| Repayment of borrowings under the revolving credit facility | (292,906) | | | (263,470) | | | |
| Proceeds from term loan facility | 65,000 | | | — | | | |
| Repayment of borrowings under term loan facility | (1,927) | | | (96,737) | | | |
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| Costs incurred in connection with debt arrangements | (3,185) | | | (9,646) | | | |
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| Proceeds on issuance of common stock | — | | | 6,899 | | | |
| Repurchase of common stock for tax withholding obligations | (371) | | | (2,012) | | | |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 81,861 | | | (14,496) | | | |
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| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (29,436) | | | 24,436 | | | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 65,612 | | | 41,176 | | | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 36,176 | | | $ | 65,612 | | | |
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| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
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| Cash paid for interest | $ | 15,243 | | | $ | 25,121 | | | |
| Cash paid to taxing authorities | $ | 1,881 | | | $ | 1,374 | | | |
See Notes to Consolidated Financial Statements. EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 36
| | | | | | | | | | | | | | |
| EXPRESS, INC. | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 37
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| NOTE 1 | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Business Description
Prior to completing the going-concern sale transaction (described below), Express, Inc. (which, effective as of September 18, 2024, changed its name to EXP OldCo Winddown, Inc., together with its subsidiaries “Express” or the “Company”) previously operated as a multi-brand fashion retailer with an omnichannel platform, including both physical and online stores. The Company’s two brand-based operating segments were Express, which included UpWest and Bonobos.
| | | | | | | | |
| Brand | | Description |
| Express | | Grounded in a belief that style, quality and value should all be found in one place, Express is a brand with a purpose - We Create Confidence. We Inspire Self-Expression. - powered by a styling community. |
| UpWest | | UpWest is an apparel, accessories and home goods brand with a purpose to provide comfort for people and planet. |
| Bonobos | | Bonobos is a menswear brand known for exceptional fit and an innovative retail model. |
As of February 3, 2024, the Company operated 589 retail and factory outlet stores in the United States and Puerto Rico, the express.com online store, the Express mobile app, the bonobos.com online store and the upwest.com online store. As of February 3, 2024, the composition of Express operated stores was as follows:
| | | | | |
| Store Count |
| Express | |
| Retail stores | 326 | |
| Outlet stores | 192 | |
| Total retail and outlet stores | 518 | |
| UpWest | 12 | |
| Bonobos | 59 | |
| Total stores | 589 | |
Chapter 11 Cases
On April 22, 2024 (the “Petition Date”), the Company and certain of its direct and indirect subsidiaries (then known as Express Topco LLC; Express Holding, LLC; Express Finance Corp.; Express LLC; Express Fashion Investments, LLC; Express Fashion Logistics, LLC; Express Fashion Operations, LLC.; Express GC, LCC; Express BNBS Fashion, LLC; UW, LLC; and Express Fashion Digital Services Costa Rica, S.R.L. collectively, the “Debtors”) filed voluntary petitions to commence proceedings under chapter 11 (the “Chapter 11 Cases”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On December 17, 2024, the Bankruptcy Court confirmed a joint plan of reorganization (the “Plan”). The Chapter 11 Cases are being jointly administered under the caption “In re: Express, Inc., et al.” (Case No. 24-10831).
Through the Chapter 11 process, the Debtors sought to implement a going-concern sale transaction. On April 21, 2024, the Company received a non-binding letter of intent from a consortium led by WHP Global and affiliates of the Company’s two most significant landlords, Simon Property Group, L.P. and Brookfield properties (the “Phoenix JV”) for the potential acquisition of a substantial portion of the Company’s assets and the assumption of leases on a minimum of 280 stores for aggregate cash consideration in the amount of $10.0 million plus 100% of the net orderly liquidation value of acquired merchandise, in addition to the assumption of the applicable liabilities. On May 22, 2024, the Debtors entered into an asset purchase agreement (the “Purchase Agreement”) with the Phoenix JV. The Purchase Agreement provided for a total purchase price of approximately $172.0 million, consisting of approximately $134.0 million in cash consideration and $38.0 million of assumed liabilities. On June 14, 2024, the Bankruptcy Court entered an order approving the Purchase Agreement and the sale contemplated thereby (the “Sale Transaction”). The Sale Transaction was successfully consummated on June 21, 2024. Pursuant to the Sale Transaction, 403 leases for Express stores, 50 leases for Bonobos stores and the lease for the Company’s corporate headquarters in Columbus, Ohio, were assigned to and assumed by the Phoenix JV.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 38
Additionally through the Chapter 11 process, the Debtors provided notice of and completed rejection of 118 unexpired leases in accordance with the procedures approved by the Bankruptcy Court.
On July 10, 2024, the ability for persons or entities (other than governmental units) to file proofs of claim in the Chapter 11 Cases expired.
On August 7, 2024, the Bankruptcy Court entered an order extending the Debtor’s exclusivity period to file a Chapter 11 Plan to November 19, 2024 and their solicitation of acceptances thereof to January 20, 2025.
On December 17, 2024, the Bankruptcy Court confirmed the Plan. Pursuant to the Plan, proceeds from the Sale Transaction and the Debtors’ remaining assets will be distributed to eligible claim holders, in order of priority, after which each of the Debtors’ estates will be wound down. The Company anticipates that the Plan will go effective on or about December 31, 2024. As of the date of this Form 10-K, the Company and the other Debtors no longer have any operations, other than those relating to the wind-down process provided in the Plan.
Refer to Note 14 for further discussion regarding the Chapter 11 Cases.
Bonobos Acquisition
On May 23, 2023, the Company completed the acquisition of the operating assets of Bonobos, a menswear brand known for exceptional fit and an innovative retail model. Refer to Note 5 for further discussion regarding the acquisition. WHP Strategic Partnership
In the fourth quarter of 2022, Express closed the strategic partnership transaction with WHP Global (“WHP”), a leading global brand management firm. In connection with the closing of this transaction in January 2023, the Company and WHP also formed an intellectual property joint venture (the “Joint Venture”), intended to scale the Express brand through new domestic category licensing and international expansion opportunities. Refer to Note 4 for further discussion regarding the WHP partnership.
Reverse Stock Split and Recasting of Per-Share Amounts
On August 14, 2023, the Company’s Board of Directors (the "Board") approved the implementation of a 1-for-20 reverse stock split of the Company’s common stock, par value $0.01 per share (“Common Stock”), and a corresponding proportional reduction in the number of authorized shares of Common Stock. The reverse stock split was effected after market close on August 30, 2023 (the “Effective Date”), and shares of Common Stock began trading on a split-adjusted basis as of market open on August 31, 2023.
All shares of Common Stock, stock option awards and per share amounts contained in the Consolidated Financial Statements and Notes have been retroactively adjusted to reflect the 1-for-20 reverse stock split. Refer to Note 9 for further discussion regarding the reverse stock split. Restructuring Costs
On July 14, 2023 and August 17, 2023, the Company announced and implemented respective phases of a workforce reduction. During 2023, in connection with the restructuring of the Company’s work force, the Company recognized $4.7 million in restructuring and related reorganization charges with $2.7 million recorded in cost of goods sold, buying and occupancy costs and $2.0 million recorded in selling, general and administrative expense in the Consolidated Statements of Income and Comprehensive Income. The charges were primarily related to employee severance and benefit costs.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 39
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 the Company's fiscal years are as follows:
| | | | | | | | | | | | | | |
| Fiscal Year | | Year Ended | | Number of Weeks |
| 2023 | | February 3, 2024 | | 53 |
| 2022 | | January 28, 2023 | | 52 |
| | | | |
Basis of Presentation
Express, Inc., a holding company, owns all of the outstanding equity interests in Express Topco LLC, a holding company, which owns all of the outstanding equity interests in Express Holding, LLC ("Express Holding"). Express Holding owns all of the outstanding equity interests in Express, LLC. Express, Inc., through its indirect, wholly owned subsidiaries, including Express Fashion Operations, LLC, conducts the operations of the Company and Express Fashion Investments, LLC which owns a 40% economic interest with significant influence in the Joint Venture.
The accompanying Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might be necessary should we be unable to continue as a going concern. Moreover, the implementation of the Plan could materially change the amounts of assets and liabilities reported in the Company's accompanying Consolidated Financial Statements as the amounts included therein do not include any adjustments that might result therefrom.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. As of February 3, 2024, the Company indirectly held a 40% equity method interest in the Joint Venture, which is majority owned by WH Borrower, LLC, an affiliate of WHP. All intercompany transactions and balances have been eliminated in consolidation. The financial results of Bonobos have been included in the Consolidated Financial Statements from the date of the completion of the acquisition on May 23, 2023.
Segment Reporting
The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company determined that its Chief Executive Officer is the Chief Operating Decision Maker (the "CODM"), and that there were two brand-based operating segments: Express, which includes UpWest, and Bonobos. These operating segments had similar economic characteristics, classes of consumers, products, and production and distribution methods, operate in the same regulatory environments, and have been aggregated into one reportable segment.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("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 revenue and expense 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.
Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 40
reportable segment. The ASU would have been effective for the Company’s Form 10-K for the fiscal year ended February 1, 2025, and subsequent interim periods, with early adoption permitted. The Company has not adopted this ASU and has not reflected its impact on its Consolidated Financial Statements and disclosures.
In December 2023, the FASB issued a final standard on ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. For public business entities, the requirement will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company has not adopted this ASU and has not reflected its impact on its Consolidated Financial Statements and disclosures.
Going Concern and Management’s Plans
Given the Debtors’ need to implement a chapter 11 restructuring plan, as well as the inherent risks, unknown results and inherent uncertainties surrounding the outcome of the Chapter 11 Cases and the Company’s ability to satisfy its financial obligations that may arise, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for 12 months following the issuance of the financial statements. Following the implementation of the Plan, which is anticipated to go effective on or about December 31, 2024, the Company and other Debtors will have no operations, other than those relating to the wind-down process provided in the Plan. Refer to Note 14 for further discussion regarding the Chapter 11 Cases.
| | | | | | | | | | | | | | |
| NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Cash and Cash Equivalents
Cash and cash equivalents include investments in money market funds, payments due from banks for third-party credit and debit card transactions for up to five days of sales, cash on hand, and deposits with financial institutions. As of February 3, 2024 and January 28, 2023, amounts due from banks for credit and debit card transactions totaled approximately $9.4 million and $10.1 million, respectively.
Outstanding checks not yet presented for payment amounted to $12.5 million and $31.2 million as of February 3, 2024 and January 28, 2023, respectively, and are included in accounts payable on the Consolidated Balance Sheets.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
■Level 1 - Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
■Level 2 - Valuation is based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
■Level 3 - Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 41
Financial Assets
The following table presents the Company's financial assets, recorded in cash and cash equivalents on the Consolidated Balance Sheets, measured at fair value on a recurring basis as of February 3, 2024 and January 28, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall.
| | | | | | | | | | | | | | | | | |
| February 3, 2024 |
| Level 1 | | Level 2 | | Level 3 |
| (in thousands) |
| Money market funds | $ | — | | | $ | — | | | $ | — | |
| |
| January 28, 2023 |
| Level 1 | | Level 2 | | Level 3 |
| (in thousands) |
| Money market funds | $ | 47,792 | | | $ | — | | | $ | — | |
The money market funds are valued using quoted market prices in active markets.
Non-Financial Assets
The Company's non-financial assets, which include fixtures, equipment, improvements, right of use assets, and an equity method investment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur indicating the carrying value of these assets may not be recoverable, or annually in the case of indefinite-lived intangibles, an impairment test is required to be performed by the Company.
The carrying amounts reflected on the Consolidated Balance Sheets for the remaining cash, cash equivalents, receivables, prepaid expenses, and payables as of February 3, 2024 and January 28, 2023 approximated their fair values. The equity method investment is reflected at cost and is the result of a market participant transaction with WHP whereby the Company received proceeds of $260.0 million and a 40% ownership interest in the Joint Venture in exchange for contributing certain intellectual property to the Joint Venture.
The Company reviews its equity method investment by comparing its fair value to its carrying value. If the carrying value of the investment exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired and reduced to fair value, and the impairment is recognized in the period identified. Factors providing evidence of such a loss include changes in the investee's operations or financial condition, significant continuing losses, significant negative economic conditions or a significant decrease in the market value. Impairment charges are recorded in other expense (income), net in the Consolidated Statements of Income and Comprehensive Income. During 2023, the Company recognized an impairment charge of $27.2 million related to its equity method investment. Refer to Note 4 for further discussion regarding the equity method investment impairment. Receivables, Net
Receivables, net consist primarily of construction allowances, receivables from the Bank related to the Card Agreement, our franchisees, and third-party resellers of our gift cards, and other miscellaneous receivables. Outstanding receivables are continuously reviewed for collectability. The Company's allowance for estimated credit losses was not significant as of February 3, 2024 or January 28, 2023.
Inventories
Inventories are principally valued at the lower of cost or net realizable value on a weighted-average cost basis. The Company writes down inventory, the impact of which is reflected in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income, if the cost of specific inventory items on hand exceeds the amount the Company expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on management's judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or net realizable value adjustment to inventory as of February 3, 2024 and January 28, 2023 was $15.1 million and $10.3 million, respectively.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 42
The Company also records an inventory shrink reserve for estimated merchandise inventory losses between the last physical inventory count and the balance sheet date. This estimate is based on management's analysis of historical results.
Advertising
Advertising production costs are expensed at the time the promotion first appears in media, stores, or on the website. Total advertising expense was $122.0 million and $134.9 million in 2023 and 2022, respectively. Advertising costs are included in selling, general, and administrative expenses in the Consolidated Statements of Income and Comprehensive Income.
Property and Equipment, Net
Property and equipment are stated at cost. Depreciation of property and equipment is computed on a straight-line basis, using the following useful lives:
| | | | | |
Category | Depreciable Life |
| Software, including software developed for internal use | 3 - 7 years |
| Store related assets and other property and equipment | 3 - 10 years |
| Furniture, fixtures and equipment | 5 - 7 years |
| Leasehold improvements | Shorter of lease term or useful life of the asset, typically no longer than 10 years |
| Building improvements | 6 - 30 years |
When a decision is made to dispose of property and equipment prior to the end of its previously estimated useful life, depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in other operating income, net, in the Consolidated Statements of Income and Comprehensive Income. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments that extend useful lives are capitalized.
Store Asset Impairment
Property and equipment, including the right of use assets, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur indicating the carrying value of these assets may not be recoverable, an impairment test is required. These events include, but are not limited to, material adverse changes in projected revenues, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative economic conditions, a significant decrease in the market value of an asset and store closure or relocation decisions. The reviews are conducted at the store level, the lowest identifiable level of cash flow.
Stores that display an indicator of impairment are subjected to an impairment assessment. Such stores are tested for recoverability by comparing the sum of the estimated future undiscounted cash flows to the carrying amount of the asset. This recoverability test requires management to make assumptions and judgments related, but not limited, to management’s expectations for future cash flows from operating the store.
▪The key assumption used in the undiscounted future store cash flow models is the sales growth rate.
An impairment loss may be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, any loss would be measured as the excess of the carrying amount of the asset group over its fair value. Fair value of the store-related assets is determined at the individual store level based on the highest and best use of the asset group.
▪The key assumptions used in the fair value analysis may include discounted estimates of future store cash flows from operating the store and/or comparable market rents.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 43
During 2023 and 2022, the Company recognized impairment charges as follows:
| | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| | (in thousands) |
| Right of use asset impairment | | $ | 1,939 | | | $ | 1,483 | | | |
| Property and equipment asset impairment | | 1,489 | | | 667 | | | |
| Total asset impairment | | $ | 3,428 | | | $ | 2,150 | | | |
Impairment charges are recorded in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income.
Equity Method Investments
The Company accounts for its 40% economic interest in the Joint Venture, through which it exercises significant influence but does not have control over the investee, under the equity method. Under the equity method, the Company records its investment in the investee on the balance sheet initially at cost, and subsequently adjusts the carrying amount based on its share of the investee's net income or loss. Royalty distributions received from the investee are recognized as a reduction of the carrying amount of the investment. The Company's share of equity (income) losses and other adjustments associated with this equity method investment is included in royalty income in the Consolidated Statements of Income and Comprehensive Income. The carrying value for the Company's equity investment is reported in equity method investment on the Consolidated Balance Sheets. The Company reports its share of earnings using a one-month lag because results are not available in time for it to record them in the concurrent period. This convention has not historically materially impacted the Company's results.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, the amount of taxes currently payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of the Company's assets and liabilities. Valuation allowances are established against deferred tax assets when it is more likely than not that the realization of those deferred tax assets will not occur.
Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes from a change in tax rate is recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.
The Company considers all available evidence, both positive and negative, when evaluating whether deferred tax assets are realizable. Such factors include past operating results, taxable income in prior carryback years, future reversal of existing temporary differences, prudent and feasible tax planning strategies and forecasts of future operating income. The past operating results is given more weight than expectations of future profitability, which is inherently uncertain. The assumptions utilized in determining future taxable income require significant judgment and actual operating results in future years could differ from the Company’s current assumptions and estimates.
A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
The Company recognizes tax liabilities for uncertain tax positions and adjusts these liabilities when the Company's judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which the new information becomes available.
Interest and penalties related to unrecognized tax benefits are recognized within income tax expense in the Consolidated Statements of Income and Comprehensive Income. Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 44
The income tax liability was $2.6 million and $8.0 million as of February 3, 2024 and January 28, 2023, respectively, and is included in accrued expenses on the Consolidated Balance Sheets.
The Company may be subject to periodic audits by the Internal Revenue Service ("IRS") and other taxing authorities. These audits may challenge certain of the Company's tax positions, such as the timing and amount of deductions and allocation of taxable income to various jurisdictions.
Self-Insurance
The Company is generally self-insured in the United States for medical, workers' compensation and general liability benefits up to certain stop-loss limits. Such costs are accrued based on known claims and estimates of incurred but not reported (“IBNR”) claims. IBNR claims are estimated using historical claim information and actuarial estimates. The accrued liability for self-insurance is included in accrued expenses on the Consolidated Balance Sheets.
Revenue Recognition
All revenues are recognized in net sales in the Consolidated Statements of Income and Comprehensive Income.
The following is information regarding the Company's major product categories and sales channels:
| | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| (in thousands) |
| Apparel | $ | 1,678,831 | | | $ | 1,667,833 | | | |
| Accessories and other | 120,042 | | | 144,356 | | | |
| Other revenue | 55,484 | | | 51,993 | | | |
| Total net sales | $ | 1,854,357 | | | $ | 1,864,182 | | | |
| | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| (in thousands) |
| Retail | $ | 1,370,374 | | | $ | 1,314,647 | | | |
| Outlet | 428,499 | | | 497,542 | | | |
| Other revenue | 55,484 | | | 51,993 | | | |
| Total net sales | $ | 1,854,357 | | | $ | 1,864,182 | | | |
Merchandise returns are reflected in the accounting records of the channel where they are physically returned. Other revenue consists primarily of revenue earned from our private label credit card agreement, shipping and handling revenue related to eCommerce activity, sell-off revenue related to marked-out-of-stock inventory sales to third parties, revenue from gift card breakage and revenue from franchise agreements.
Revenue related to the Company’s international franchise operations was not material for any period presented and, therefore, is not reported separately from domestic revenue.
Merchandise Sales
The Company recognizes sales for in-store purchases at the point-of-sale. Revenue related to eCommerce transactions is recognized upon shipment based on the fact that control transfers to the customer at that time. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any amounts received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income for amounts paid to applicable carriers. Associate discounts on merchandise purchases are classified as a reduction of net sales. Net sales excludes sales tax collected from customers and remitted to governmental authorities.
The Company also sells merchandise to multiple franchisees pursuant to different franchise agreements. Revenues may consist of sales of merchandise and/or royalties. Revenues from merchandise sold to franchisees are recorded
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 45
at the time title transfers to the franchisees. Royalty revenue is based upon a percentage of the franchisee’s net sales to third parties and is earned when such sales to third parties occur.
Loyalty Program
The Company maintains a customer loyalty program in which customers earn points toward rewards for qualifying purchases and other marketing activities. Upon reaching specified point values, customers are issued a reward, which they may redeem on merchandise purchases at the Company’s stores or on its website. Generally, rewards earned must be redeemed within 60 days from the date of issuance. The Company defers a portion of merchandise sales based on the estimated standalone selling price of the points earned. This deferred revenue is recognized as certificates are redeemed or expire. To calculate this deferral, the Company makes assumptions related to card holder redemption rates based on historical experience. The loyalty liability is included in deferred revenue on the Consolidated Balance Sheets.
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| (in thousands) |
| Beginning balance loyalty deferred revenue | $ | 9,939 | | | $ | 10,918 | | | |
| Reduction in revenue (revenue recognized) | 407 | | | (979) | | | |
| Ending balance loyalty deferred revenue | $ | 10,346 | | | $ | 9,939 | | | |
Sales Returns Reserve
The Company reduces net sales and provides a reserve for projected merchandise returns based on prior experience. Merchandise returns are often resalable merchandise and are refunded by issuing the same payment tender as the original purchase. The sales returns reserve was $11.4 million and $9.0 million as of February 3, 2024 and January 28, 2023, respectively, and is included in accrued expenses on the Consolidated Balance Sheets. The asset related to projected returned merchandise is included in other assets on the Consolidated Balance Sheets.
Gift Cards
The Company sells gift cards in its stores, on its eCommerce website and through third parties. These gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a liability at the time a gift card is sold. The gift card liability balance was $32.2 million and $25.6 million as of February 3, 2024 and January 28, 2023, respectively, and is included in deferred revenue on the Consolidated Balance Sheets. As part of the acquisition of Bonobos, the Company acquired $7.5 million in gift card liability. Refer to Note 5 for further discussion regarding the acquisition. During 2023 and 2022, the Company recognized approximately $12.0 million and $13.9 million of revenue that was previously included in the beginning gift card contract liability, respectively. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company also recognizes income on unredeemed gift cards, referred to as “gift card breakage.” Gift card breakage is recognized proportionately using a time-based attribution method from issuance of the gift card to the time when it can be determined that the likelihood of the gift card being redeemed is remote and that there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. The gift card breakage rate is based on historical redemption patterns. Gift card breakage is included within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income. | | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| (in thousands) |
| Beginning gift card liability | $ | 25,604 | | | $ | 25,066 | | | |
| Issuances and acquired | 39,575 | | | 30,780 | | | |
| Redemptions | (30,105) | | | (27,303) | | | |
| Gift card breakage | (2,913) | | | (2,939) | | | |
| Ending gift card liability | $ | 32,161 | | | $ | 25,604 | | | |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 46
Private Label Credit Card
The Company has an agreement with Comenity Bank (the “Bank”) to provide customers with private label credit cards (the “Card Agreement”) which was amended on August 28, 2017 to extend the term of the arrangement through December 31, 2024. Each private label credit card bears the logo of the Express brand and can only be used at the Company’s store locations and eCommerce channel. The Bank is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders and a portion of any fraudulent usage of the accounts.
Pursuant to the Card Agreement, the Company receives amounts from the Bank during the term based on a percentage of private label credit card sales and is also eligible to receive incentive payments for the achievement of certain performance targets. These funds are recorded within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income. The Company also receives reimbursement funds from the Bank for certain expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the private label credit card. The reimbursement funds received related to private label credit cards are recorded within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income.
In connection with the Card Agreement, the Bank agreed to pay the Company a $20.0 million refundable payment which the Company recognized upon receipt as deferred revenue within other long-term liabilities in the Consolidated Balance Sheets and began to recognize into income on a straight-line basis commencing January 2018. As of February 3, 2024, the deferred revenue balance of $2.6 million will be recognized over the remaining term of the amended Card Agreement within the other revenue component of net sales in the Consolidated Statements of Income and Comprehensive Income.
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| (in thousands) |
| Beginning balance refundable payment liability | $ | 5,516 | | | $ | 8,394 | | | |
| | | | | |
| Recognized in revenue | (2,878) | | | (2,878) | | | |
| Ending balance refundable payment liability | $ | 2,638 | | | $ | 5,516 | | | |
Cost of Goods Sold, Buying and Occupancy Costs
Cost of goods sold, buying and occupancy costs, includes merchandise costs, freight, inventory shrinkage, royalties paid to the Joint Venture and other gross margin related expenses. Buying and occupancy expenses primarily include payroll, benefit costs, and other operating expenses for the buying departments (merchandising, design, manufacturing and planning and allocation), distribution, eCommerce fulfillment, rent, common area maintenance, real estate taxes, utilities, maintenance and depreciation for stores.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses include all operating costs not included in cost of goods sold, buying and occupancy costs, with the exception of proceeds received from insurance claims and gain/loss on disposal of assets, which are included in other operating income, net. These costs include payroll and other expenses related to operations at our corporate home office, store expenses other than occupancy, and marketing expenses.
Royalty Income
Royalty income consists of our share of equity income associated with our equity investment with WHP discussed in Note 4. Other Operating Income, Net
Other operating income, net primarily consists of gains/losses on disposal of assets, excess proceeds from the settlement of insurance claims and the write off of certain costs associated with aborted debt negotiations.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 47
Gain on Transaction with WHP
Gain on transaction with WHP primarily consists of proceeds from the sale of majority interest of intellectual property to the Joint Venture, the equity method investment and the premium paid on the common shares by WHP in 2022 discussed in Note 4.
Other Expense (Income), Net
Other expense (income), net primarily consists of the impairment of the Company's equity method investment discussed in Note 4.
| | | | | | | | | | | | | | |
| NOTE 3 | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net, consisted of:
| | | | | | | | | | | |
| February 3, 2024 | | January 28, 2023 |
| (in thousands) |
| Building improvements | $ | 12,679 | | | $ | 16,312 | |
| Furniture, fixtures and equipment, and software | 583,346 | | | 582,205 | |
| Leasehold improvements | 382,620 | | | 402,598 | |
| Construction in process | 8,160 | | | 17,652 | |
| Other | 810 | | | 810 | |
| Total | 987,615 | | | 1,019,577 | |
| Less: accumulated depreciation | (881,700) | | | (886,193) | |
| Property and equipment, net | $ | 105,915 | | | $ | 133,384 | |
Depreciation expense totaled $55.1 million and $61.5 million in 2023 and 2022, respectively, excluding impairment charges discussed in Note 2.
| | | | | | | | | | | | | | |
| NOTE 4 | EQUITY METHOD INVESTMENT |
The following table is a summary of the Company’s equity method investment with WHP:
| | | | | | | | | | | | | |
| % of Ownership | Balance Sheet Location | February 3, 2024 | | |
| | | (in thousands) |
| EXP Topco, LLC | 40% | Equity Method Investment | $ | 139,010 | | | |
| | | | | |
The Company accounts for its 40% economic interest in the Joint Venture, through which it exercises significant influence but does not have control over the investee, under the equity method. Under the equity method, the Company records its investment in the investee on the balance sheet initially at cost, and subsequently adjusts the carrying amount based on its share of the investee's net income or loss. Royalty distributions received from the investee are recognized as a reduction of the carrying amount of the investment. The Company's share of equity (income) losses and other adjustments associated with this equity method investment is included in royalty income in the Consolidated Statements of Income and Comprehensive Income. The carrying value for the Company's equity investment is reported in equity method investment on the Consolidated Balance Sheets. The Company reports its share of earnings using a one-month lag because results are not available in time for it to record them in the concurrent period. This convention has not historically materially impacted the Company's results.
In preparing its financial statements for the fiscal year ended February 3, 2024, the Company evaluated the equity method investment with WHP, and determined there was an other-than-temporary impairment. The Company's conclusion was based on the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. The Company utilized discounted cash flow techniques to project cash flows based upon the guaranteed minimum royalty payments, as described below. As a result, the equity method investment with a carrying value of $166.2 million was written down to its estimated fair value of $139.0 million, resulting in a non-
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 48
cash, pre-tax impairment charge of $27.2 million. The impairment was based on the fair value of the investment at the balance sheet date. The fair value was determined based upon the estimated future cash flows of the Joint Venture. This loss from impairment was recorded in other expense (income), net in the Consolidated Statements of Income and Comprehensive Income. The equity interest in the Joint Venture was sold pursuant to the Sale Transaction.
Equity Method Investment with WHP
On January 25, 2023, the Company closed the strategic partnership transaction with WHP. In connection with the closing of this transaction, the Company and WHP formed the Joint Venture. The Company contributed certain intellectual property of the Company in exchange for 40% ownership of the Joint Venture and $235.0 million. WHP paid the $235.0 million for a 60% ownership of the Joint Venture, implying a fair value of the Company’s 40% interest in the Joint Venture of approximately $156.7 million.
During the fourth quarter of 2022, under the derecognition guidance from Accounting Standards Codification ("ASC") Topic 810, Consolidation, the Company derecognized the intellectual property assets at their carrying amount upon their contribution to the Joint Venture. Because the carrying amount of the contributed intellectual property assets was zero, a $391.7 million gain was recognized at the time of contribution, of which $156.7 million was related to the Company’s 40% interest in the Joint Venture. The gain was recorded in gain on transaction with WHP on the Consolidated Statements of Income and Comprehensive Income. Transaction costs capitalized in the cost of the equity method investment totaled $9.4 million.
Separately, on December 8, 2022, the Company and WH Borrower, LLC, an affiliate of WHP ("WH Borrower") entered into an investment agreement (the “Investment Agreement”) pursuant to which the Company issued and sold 5.4 million newly issued shares of Common Stock to WH Borrower in private placement for a purchase price of $4.60 per share, or an aggregate purchase price of approximately $25.0 million, representing an approximate pro forma ownership of 7.4% of the outstanding shares of Common Stock. The difference between the purchase price paid and the trading price of the Common Stock on the day of the completion of the transaction resulted in a gain of $17.8 million and was recorded in gain on transaction with WHP on the Consolidated Statements of Income and Comprehensive Income.
In connection with the strategic partnership with WHP, on January 25, 2023, the Company and the Joint Venture entered into an Intellectual Property License Agreement (the “License Agreement”). The License Agreement provided the Company with an exclusive license in the United States to the intellectual property contributed in connection with the Membership Interest Purchase Agreement and certain other intellectual property. The initial term of the License Agreement was 10 years, and the License Agreement automatically renewed for successive renewal terms of 10 years (unless the Company provided notice of non-renewal at least 24 months prior to the end of the initial or applicable renewal term). Except for the Company’s right not to renew the License Agreement, the License Agreement was not terminable by either party. The Company paid the Joint Venture a royalty on net sales of certain licensed goods and committed to an annual guaranteed minimum annual royalty during the term of the License Agreement (i.e., $60.0 million in the first contract year, increasing by $1.0 million per year for the next five contract years, and remaining at $65.0 million following the sixth contract year). The Company paid the Joint Venture royalties at a rate of (i) 3.25% of net sales arising from retail sales of certain licensed goods in the first through fifth contract years (and 3.5% thereafter), and (ii) 8% of net sales arising from wholesale sales of such goods. The Company prepaid the Joint Venture’s first contract year guaranteed minimum royalty of $60.0 million with a portion of the transaction proceeds, which was recorded as a prepaid royalty on the Consolidated Balance Sheets.
Pursuant to the agreement governing the operations of the Joint Venture (the “Operating Agreement”), cash earnings of the Joint Venture were distributed quarterly to the Company and WH Borrower on a pro rata basis based on their respective equity ownership interests.
As the Chairman and Chief Executive Officer of WHP was appointed to the Board upon the closing of the Investment Agreement discussed above, the agreements entered into in connection with the WHP strategic partnership transaction, including the Operating Agreement, the Investment Agreement and the License Agreement (including related royalty payments) are considered related party transactions.
During 2023, the Company recognized $22.4 million of royalty income, respectively, from the Joint Venture, which is recorded in royalty income in the Consolidated Statements of Income and Comprehensive Income.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 49
Summary Financial Information for Equity Method Investment
Summarized financial information related to the Company's equity method investment on a one-month lag is reflected below:
| | | | | | | |
| Fifty-Three Weeks Ended February 3, 20241 | | |
| (in thousands) |
| Revenue | $ | 59,667 | | | |
| Gross profit | 59,667 | | | |
| Operating expenses | 28,830 | | | |
| Interest income | (116) | | | |
| Income before taxes | 30,953 | | | |
| Net income | $ | 29,699 | | | |
| Income attributable to the equity method investment | $ | 22,375 | | | |
1.Reflects a one-month lag
| | | | | | | | |
| February 3, 20241 | | | |
| (in thousands) |
| Current assets | $ | 8,238 | | | | |
| Non-current assets | 414,873 | | | | |
| Total assets | $ | 423,111 | | | | |
| Current liabilities | 7,717 | | | | |
| Non-current liabilities | 14,295 | | | | |
| Total liabilities | $ | 22,012 | | | | |
| Equity method investment | $ | 139,010 | | | | |
1.Reflects a one-month lag
Equity Method Investment in Homage, LLC
In 2016, the Company made a $10.1 million investment in Homage, LLC, a privately held retail company based in Columbus, Ohio. The non-controlling investment in the entity was being accounted for under the equity method.
During the third quarter of 2020, the Company sold all of its interest in Homage, LLC back to Homage, LLC in exchange for a promissory note payable to the Company in the principal amount of $1.5 million. The Company recorded a reserve against the full value of this promissory note.
During the fourth quarter of 2021, the Company revised the payment terms of the note receivable and collected $0.3 million which was recorded as other income within other (income)/expense, net in the Consolidated Statements of Income and Comprehensive Income.
During 2022, the Company collected $1.2 million which was recorded as other income within other (income)/expense, net in the Consolidated Statements of Income and Comprehensive Income. The Company has no remaining activity with Homage, LLC.
The Company accounts for business combinations in accordance with ASC Topic 805, Business Combinations. Consistent with ASC Topic 805, the Company accounts for each business combination by applying the acquisition method. Under the acquisition method, the Company records the identifiable assets acquired and liabilities assumed at their respective fair values on the acquisition date. There are various estimates and judgments related to the valuation of identifiable assets acquired and liabilities assumed. These estimates and judgments have the potential to materially impact the Company’s Consolidated Financial Statements.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 50
The acquisition method permits the Company a period of time after the acquisition date during which the Company may adjust the provisional amounts recognized in a business combination. This period of time is referred to as the “measurement period”. The measurement period provides an acquirer with a reasonable time, generally not to exceed one year, to obtain the information necessary to identify and measure the assets acquired and liabilities assumed. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports in its consolidated financial statements provisional amounts for the items for which the accounting is incomplete. Accordingly, the Company is required to recognize adjustments to the provisional amounts in the reporting period in which the adjustments to the provisional amounts are determined. Thus, the Company would adjust its consolidated financial statements as needed as a result of the change to the provisional amounts calculated as if the accounting had been completed at the acquisition date.
Acquisition-related costs are costs the Company incurs to affect a business combination. Those costs may include such items as finder’s fees, advisory, legal, accounting, valuation, and other professional or consulting fees, and general administrative costs. The Company accounts for such acquisition-related costs as expenses in the period in which the costs are incurred and the services are received.
Bonobos Asset Acquisition
On May 23, 2023, the Company completed the acquisition of the operating assets and liabilities of Bonobos, a menswear brand known for exceptional fit and an innovative retail model, for total cash consideration of approximately $28.3 million, which represents (i) the $25.0 million purchase price, plus (ii) $2.0 million of certain customary adjustments related to net working capital and $1.3 million of prepaid rent expense. The acquisition was funded with borrowings under the Revolving Credit Facility described in Note 8. Bonobos License Agreement
On May 23, 2023, the Company and WHP entered into a license agreement that provides the Company with an exclusive license in the United States to intellectual property related to the Bonobos brand, including intellectual property rights for the Bonobos brand that was separately acquired by WHP (the “Bonobos License Agreement”). The Bonobos License Agreement has an initial term of 10 years from its effective date, and automatically renews for successive renewal terms of 10 years unless (i) the Company provides notice of non-renewal at least 24 months prior to the end of the initial or applicable renewal term, or (ii) WHP exercises its right to not renew in the event of certain failures by the Company to pay the annual guaranteed minimum royalty. Except for such non-renewal rights, the Bonobos License Agreement is not terminable by either party. The Company will pay WHP a royalty on net sales of certain licensed goods and is committed to pay an annual guaranteed minimum royalty during the term of the Bonobos License Agreement (ranging from $6.5 million in the first contract year to $11.5 million in the tenth contract year and each contract year thereafter). The Company will pay royalties at a rate of (i) 3.25% of net sales arising from retail sales of certain licensed goods in the first through the fifth contract years (and 3.5% thereafter), and (ii) 8% of net sales arising from wholesale sales of such goods. Refer to Note 4 for further details regarding the Company’s equity method investment with WHP.
Purchase Price Allocation
The Bonobos acquisition was accounted for as a business combination in accordance with ASC Topic 805. Consistent with ASC Topic 805, Bonobos was consolidated into the Company's Consolidated Financial Statements starting on the closing date of the acquisition. The purchase price allocation as of the closing date of the acquisition was based on a preliminary valuation and was finalized in fiscal year 2023 with no purchase accounting adjustments. The purchase price consideration was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 51
| | | | | | | |
| Bonobos | | |
| (in thousands) |
| Purchase Price | | | |
| Cash paid | $ | 28,300 | | | |
| | | |
| Allocation | | | |
| Receivables, net | $ | 2,071 | | | |
| Inventory | 51,293 | | | |
| Right of use asset, net | 27,914 | | | |
| Property and equipment, net | 2,858 | | | |
| Other assets acquired | 5,827 | | | |
| Assets acquired | $ | 89,963 | | | |
| Short-term lease liability | (6,698) | | | |
| Accounts payable | (9,479) | | | |
| Deferred revenue | (9,077) | | | |
| Long-term lease liability | (23,617) | | | |
| Accrued expenses and other liabilities assumed | (12,792) | | | |
| Liabilities assumed | $ | (61,663) | | | |
| Net cash paid | $ | 28,300 | | | |
The Company recorded an allocation of the purchase price to the tangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The fair value of inventories, which is made up of finished goods, was determined based on market assumptions for realizing a reasonable profit after selling costs. Goodwill is determined as the excess of the purchase price over the fair value of the net assets acquired. The Company recognized an immaterial amount of goodwill recognized related to the acquisition.
During 2023, the Company incurred $5.2 million of acquisition-related and integration costs in connection with the acquisition of Bonobos, which was included in selling, general and administrative expenses in the Consolidated Statements of Income and Comprehensive Income and are included in pro forma earnings.
Pro Forma Financial Information
The aggregate net sales and net income of Bonobos was $152.2 million and $1.4 million during 2023, respectively. The following financial information presents the Company's consolidated results as if the acquisition had occurred on January 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2023 | | 2022 |
| | | | | | | | (in thousands) |
| Net sales | | | | | | | | $ | 1,923,377 | | | $ | 2,054,636 | |
| Net (loss) income | | | | | | | | $ | (187,604) | | | $ | 286,672 | |
The Company did not have any nonrecurring pro forma adjustments directly attributable to the Bonobos acquisition included in the reported pro forma earnings and revenue.
These pro forma results have been calculated after applying the Company's accounting policies. These pro forma results were based on estimates and assumptions, which the Company believes are reasonable. They are not the results that would have been realized had the acquisition actually occurred on January 30, 2022 and are not necessarily indicative of the Company's consolidated results of operations in future periods. The pro forma results include adjustments related to purchase accounting.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 52
The Company accounts for leases under ASU 2016-02, “Leases (Topic 842)” (“ASC 842”). This ASU is a comprehensive standard that requires lessees to recognize lease assets and lease liabilities for most leases, including those leases previously classified as operating leases.
The Company’s right of use assets represent a right to use underlying assets for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at the lease commencement date (date on which the Company gains access to the property) based on the estimated present value of lease payments over the lease term, net of landlord allowances to be received. The Company accounts for the lease and non-lease components as a single lease component for all current classes of leases.
The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases. The store leases typically have initial terms of 5 to 10 years however, most of the leases that are coming to the end of their lease lives are being renegotiated with shorter terms. The current lease term for the corporate headquarters expires in 2031, with one optional five-year extension period. The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet. As of February 3, 2024, the Company does not have any material short-term leases. The Company is generally obligated for the cost of property taxes, insurance and other landlord costs, including common area maintenance charges, relating to its leases. If these charges are fixed, they are combined with lease payments in determining the lease liability; however, if such charges are not fixed, they are considered variable lease costs and are expensed as incurred. The variable payments are not included in the measurement of the lease liability or asset. The Company’s finance leases are immaterial.
Certain lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company’s lease agreements do not provide an implicit rate, so the Company uses an estimated incremental borrowing rate, which is derived from third-party information available at the lease commencement date, in determining the present value of lease payments. The rate used is for a secured borrowing of a similar term as the lease.
Annual store rent consists of a fixed minimum amount and/or contingent rent based on a percentage of sales exceeding a stipulated amount.
The following table is a summary of the Company’s components of net lease cost, which is included in cost of goods sold, buying and occupancy costs, in the Consolidated Statements of Income and Comprehensive Income:
| | | | | | | | | | | |
| | | 2023 | 2022 | |
| | | (in thousands) |
| Operating lease costs | | | $ | 228,612 | | $ | 220,682 | | |
| Variable and short-term lease costs | | | 64,437 | | 63,516 | | |
| Total lease costs | | | $ | 293,049 | | $ | 284,198 | | |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 53
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | |
| 2023 | 2022 | |
| (in thousands) |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows for operating leases | $ | 257,995 | | $ | 253,197 | | |
| Right of use assets obtained in exchange for operating lease liabilities | $ | 158,744 | | $ | 45,136 | | |
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | |
| 2023 | 2022 | |
| Operating leases: | | | |
| Weighted average remaining lease term (in years) | 4.1 | 3.8 | |
| Weighted average discount rate | 9.7 | % | 6.9 | % | |
The following table reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities (without giving effect to the rejection unexpired leases in connection with the Chapter 11 Cases) recorded on the Consolidated Balance Sheets as of February 3, 2024:
| | | | | |
| February 3, 2024 |
| (in thousands) |
| 2024 | $ | 227,569 | |
| 2025 | 177,052 | |
| 2026 | 129,603 | |
| 2027 | 84,638 | |
| 2028 | 56,676 | |
| Thereafter | 59,272 | |
| Total minimum lease payments | 734,810 | |
| Less: amount of lease payments representing interest | 137,110 | |
| Present value of future minimum lease payments | 597,700 | |
| Less: current obligations under leases | 177,525 | |
| Long-term lease obligations | $ | 420,175 | |
Refer to Item 2 Properties included elsewhere in this Form 10-K for further discussion regarding lease agreements.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 54
The provision (benefit) for income taxes consists of the following:
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| Current: | (in thousands) |
| U.S. federal | $ | 1,508 | | | $ | 8,273 | | | |
| U.S. state and local | 532 | | | 1,312 | | | |
| Total | 2,040 | | | 9,585 | | | |
| Deferred: | | | | | |
| U.S. federal | 995 | | | 3,546 | | | |
| U.S. state and local | (3,728) | | | 7,322 | | | |
| Total | (2,733) | | | 10,868 | | | |
| Income tax (benefit) expense | $ | (693) | | | $ | 20,453 | | | |
The following table provides a reconciliation between the statutory federal income tax rate and the effective tax rate:
| | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| Federal income tax rate | 21.0 | % | | 21.0 | % | | |
| State income taxes, net of federal income tax effect | 5.3 | % | | 6.4 | % | | |
| Change in uncertain tax positions | 0.2 | % | | 0.4 | % | | |
| Share-based compensation | (0.3) | % | | 0.1 | % | | |
| Non-deductible executive compensation | 0.2 | % | | 0.6 | % | | |
| Change in valuation allowance | (24.7) | % | | (21.8) | % | | |
| CARES Act Adjustment | (3.9) | % | | — | % | | |
| Return-to-Provision Adjustment | 2.8 | % | | — | % | | |
| Tax credits | — | % | | (0.3) | % | | |
| Other items, net | (0.2) | % | | 0.1 | % | | |
| Effective tax rate | 0.4 | % | | 6.5 | % | | |
The decrease in the tax rate in 2023 compared to 2022 is primarily attributable to the gain on the transaction with WHP in 2022, as well as adjustments made in 2023 as a result of the audit of the Company's CARES Act refund claim (detailed below). The gain on the transaction with WHP in 2022 allowed the Company to utilize certain deferred tax assets and tax attributes with a corresponding release to the Company's valuation allowance. In 2023, the Company reflected an increase in its valuation allowance against current year taxable losses.
On March 27, 2020, the CARES Act was enacted into law. The CARES Act provides several provisions that impact the Company, including the establishment of a five-year carryback of net operating losses originating in the tax years 2018, 2019 and 2020, temporarily suspending the 80% limitation on the use of net operating losses, relaxing limitation rules on business interest deductions, and retroactively clarifying that businesses may immediately write-off certain qualified leasehold improvement property dating back to January 1, 2018. The Company carried back certain of its U.S. federal net operating losses to offset taxable income in the five-year carryback period as part of the CARES Act. As of February 3, 2024, the Company has a $45.5 million income tax receivable recorded as a non-current asset.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 55
The following table provides the effect of temporary differences that created deferred income taxes as of February 3, 2024 and January 28, 2023. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carry-forwards at the end of the respective periods.
| | | | | | | | | | | |
| | February 3, 2024 | | January 28, 2023 |
| (in thousands) |
| Deferred tax assets: | | | |
| Accrued expenses and deferred compensation | $ | 9,406 | | | $ | 9,999 | |
| Lease liability | 161,658 | | | 161,389 | |
| Intangible assets | 13,795 | | | 10,851 | |
| Inventory | 683 | | | 1,136 | |
| Deferred revenue | 6,973 | | | 5,418 | |
| Interest Expense | 5,282 | | | — | |
| Bad Debts | 660 | | | — | |
| Property and equipment | 3,936 | | | — | |
| Other | 1,351 | | | 871 | |
| Net operating losses, tax credit and other carryforwards | 52,316 | | | 17,693 | |
| Valuation allowance | (92,372) | | | (41,767) | |
| Total deferred tax assets | 163,688 | | | 165,590 | |
| | | |
| Deferred tax liabilities: | | | |
| Prepaid expenses | 1,227 | | | 2,374 | |
| Right of use asset | 138,963 | | | 133,149 | |
| Investment in Joint Venture | 31,633 | | | 36,500 | |
| Property and equipment | — | | | 4,435 | |
| | | |
| Total deferred tax liabilities | 171,823 | | | 176,458 | |
| Net deferred tax liability | $ | (8,135) | | | $ | (10,868) | |
The Company evaluates whether deferred tax assets are realizable on a quarterly basis. The Company considers all available positive and negative evidence, including past operating results and expectations of future operating income. Accordingly, the Company has booked a valuation allowance against the amount of deferred tax assets not expected to be realized as of February 3, 2024.
As of February 3, 2024, the Company had U.S. federal net operating loss carryforwards of $128.0 million and U.S. state net operating loss carryforwards of $528.0 million. The U.S. federal net operating losses have an indefinite carryforward period. The U.S. state net operating losses have carryforward periods of five to twenty years with varying expiration dates and certain jurisdictions have an unlimited carryforward period. The Company also has $0.1 million in foreign tax credits, which can be carried forward 10 years and expire starting in 2027. A valuation allowance has been recorded on all tax attributes not expected to be realized in future periods.
The net deferred tax liability as of February 3, 2024 is included in the Other Long-Term Liabilities on the Consolidated Balance Sheets.
The following table summarizes the changes in the valuation allowance:
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| (in thousands) |
| Valuation allowance, beginning of year | $ | 41,767 | | | $ | 107,669 | | | |
| Changes in related gross deferred tax assets/liabilities | 5,705 | | | 2,661 | | | |
| Charge (release) | 44,900 | | | (68,563) | | | |
| Valuation allowance, end of year | $ | 92,372 | | | $ | 41,767 | | | |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 56
The increase in the valuation allowance in 2023 is primarily attributable to taxable losses generated in the current year.
Uncertain Tax Positions
The Company evaluates tax positions using a more likely than not recognition criterion.
A reconciliation of the beginning to ending unrecognized tax benefits is as follows:
| | | | | | | | | | | | | |
| February 3, 2024 | | January 28, 2023 | | |
| (in thousands) |
| Unrecognized tax benefits, beginning of year | $ | 1,967 | | | $ | 1,573 | | | |
| Gross addition for tax positions of the current year | — | | | 335 | | | |
| Gross addition for tax positions of the prior year | — | | | 174 | | | |
| | | | | |
| Reduction for tax positions of prior years | (45) | | | — | | | |
| Lapse of statute of limitations | (455) | | | (115) | | | |
| Unrecognized tax benefits, end of year | $ | 1,467 | | | $ | 1,967 | | | |
The amount of the above unrecognized tax benefits as of February 3, 2024 and January 28, 2023 that would impact the Company's effective tax rate, if recognized, is $1.5 million and $2.0 million, respectively.
During 2023 and 2022, the Company released gross uncertain tax positions of $0.5 million and $0.1 million, respectively, and the related accrued interest and penalties of $0.2 million and $0.1 million, respectively, as a result of the expiration of associated statutes of limitation.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The total amount of net interest in tax expense related to interest and penalties included in the Consolidated Statements of Income and Comprehensive Income was $(0.1) million for 2023 and $(0.1) million for 2022. As of February 3, 2024 and January 28, 2023, the Company had accrued interest and penalties of $0.4 million and $0.5 million, respectively.
The Company is subject to examination by the IRS for years subsequent to 2013. The Company recently completed an audit for refund claims related to the carryback of U.S. federal net operating losses as a result of CARES Act provisions. On April 15, 2024, the Company received the CARES Act refund in the amount of approximately $49.0 million. The Company is also generally subject to examination by various U.S. state and local and non-U.S. tax jurisdictions for the years subsequent to 2013. The Company does not expect the results from any income tax audit to have a material impact on the Company’s financial statements.
As of February 3, 2024, the Company believed that over the next twelve months, it was reasonably possible that up to $0.5 million of unrecognized tax benefits could be resolved as the result of settlements of audits and the expiration of statutes of limitation. Final settlement of these issues may result in payments that are more or less than this amount, but the Company does not anticipate that the resolution of these matters will result in a material change to its consolidated financial position or results of operations.
The Company's filing of the Chapter 11 Cases constituted an event of default that accelerated its obligations under the ABL Credit Agreement and the FILO Term Loan Agreement. Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against the applicable Debtor, including actions to collect indebtedness, including interest payments, incurred prior to the Petition Date or to exercise control over the applicable Debtor’s property.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 57
The following table summarizes the Company's outstanding debt as of the dates indicated:
| | | | | | | | | | | | | | | | | |
| | | February 3, 2024 | | January 28, 2023 |
| | | (in thousands) |
| Revolving Credit Facility | | | $ | 144,357 | | | $ | 122,000 | |
| FILO Term Loan | | | 63,073 | | | — | |
| Total outstanding borrowings | | | 207,430 | | | 122,000 | |
| Less: unamortized debt issuance costs | | | (2,801) | | | — | |
| Total debt, net | | | 204,629 | | | 122,000 | |
| Less: current portion of long-term debt | | | 4,659 | | | — | |
| Long-term debt, net | | | $ | 199,970 | | | $ | 122,000 | |
| | | | | |
| Outstanding letters of credit | | | $ | 20,082 | | | $ | 19,636 | |
Revolving Credit Facility
Express, LLC (the "Borrower") and its subsidiaries entered into an Asset-Based Loan Credit Agreement (the "ABL Credit Agreement") with the lenders party thereto, Wells Fargo Bank, National Association, as administrative agent and collateral agent ("Wells Fargo"), and Bank of America, N.A., as documentation agent (“Bank of America”) pursuant to which revolving loans, up to a maximum borrowing amount of $290.0 million (the “Revolving Credit Facility”), may have been borrowed, repaid and reborrowed until the maturity date of November 26, 2027. Amounts borrowed under the Revolving Credit Facility bore interest at a variable rate indexed to Secured Overnight Financing Rate plus a pricing margin ranging from 1.75% to 2.25% per annum, as determined in accordance with the provisions of the ABL Credit Agreement based on average daily excess availability, as of any date of determination, for the most recently ended fiscal quarter, commencing April 30, 2023.
On September 5, 2023, the Loan Parties entered into a Fifth Amendment to the ABL Credit Agreement, which, among other things, permitted the entry by the Loan Parties into the Term Loan Agreement (defined below) on a second-priority basis to the Revolving Credit Facility.
Amounts borrowed under the Revolving Credit Facility were subject to a borrowing base which is calculated based on specified percentages of eligible inventory, credit card receivables and cash, less certain reserves. As of February 3, 2024, the interest rate on the approximately $144.4 million in outstanding borrowings under the Revolving Credit Facility was approximately 7.8%.
The unused line fee payable under the Revolving Credit Facility was 0.25% per annum regardless of the average daily excess availability, payable in arrears monthly.
The ABL Credit Agreement required the Borrower to maintain minimum excess availability and included customary events of default.
All obligations under the Revolving Credit Facility were guaranteed by the loan parties (other than the Borrower) and secured by a first priority lien on substantially all of the Loan Parties’ assets, subject to certain permitted liens.
As of February 3, 2024, the Company had approximately $144.4 million in borrowings outstanding under the Revolving Credit Facility and approximately $31.1 million remained available for borrowing under the Revolving Credit Facility as of such date after giving effect to outstanding letters of credit in the amount of $20.1 million and subject to certain borrowing base limitations as further discussed above. The fair value of the outstanding borrowings under the Revolving Credit Facility is estimated using Level 2 inputs and at February 3, 2024 and January 28, 2023 was $156.2 million and $115.0 million, respectively.
As a result of the filing of the Chapter 11 Cases, the lenders became subject to automatic stay provisions. This means that certain actions, including enforcing remedies or taking enforcement actions against the collateral, were temporarily stayed or put on hold and required the lenders to adhere to the provisions and limitations set forth under Chapter 11 of the Bankruptcy Code. Pursuant to the Sale Order and the related payoff letters, the lenders were paid off in full by the Debtors with proceeds from the Sale Transaction. At such point, all liens, claims and causes of
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 58
action that the lenders may have had against the applicable Debtors were released and the Sale Transaction occurred as free and clear in accordance with Section 363 of the Bankruptcy Code.
FILO Term Loan
On September 5, 2023, the Company, the Borrower and certain other direct or indirect, wholly-owned subsidiaries of the Company (collectively, the “Loan Parties”) entered into an asset-based term loan agreement (the “Term Loan Agreement”) with ReStore Capital LLC, as administrative agent, collateral agent and lender, and the other lenders from time to time party thereto. The Term Loan Agreement provided the Borrower with a $65.0 million “first-in, last-out” term loan (the “FILO Term Loan”). The Borrower received $32.5 million in gross proceeds upon entering into the Term Loan Agreement, with the remaining $32.5 million principal amount from the FILO Term Loan received on September 13, 2023. The net proceeds of the FILO Term Loan were used to pay down outstanding borrowings under the ABL Credit Agreement without corresponding commitment reductions.
The FILO Term Loan was to mature on the earlier of (a) November 26, 2027 and (b) the date of termination of the commitments under the ABL Credit Agreement. The FILO Term Loan will bore interest at a variable rate based on the Secured Overnight Financing Rate plus an applicable margin of 10.00%.
The FILO Term Loan Agreement required the Borrower to maintain certain financial covenants and also contained customary affirmative and negative covenants and events of default. Obligations under the Term Loan Agreement were guaranteed by the Loan Parties (other than the Borrower) and secured by a second priority lien on substantially all personal property of the Loan Parties, including cash, accounts receivable, and inventory, and shared the same collateral as the Revolving Credit Facility.
As of February 3, 2024, the aggregate outstanding principal amount of the FILO Term Loan was $63.1 million. The fair value of the $63.1 million aggregate outstanding principal amount of the FILO Term Loan at February 3, 2024 was $47.8 million.
As of February 3, 2024, the interest rate on the outstanding principal balance of the FILO Term Loan was 15.3%.
The Term Loan Agreement required the Borrower to maintain minimum excess availability and included customary events of default.
All obligations under the Term Loan Agreement were guaranteed by the Loan Parties (other than the Borrower) and secured by a second priority lien on substantially all personal property of the Loan Parties, including cash, accounts receivable, and inventory, and shared the same collateral as the Revolving Credit Facility.
The Company recorded deferred financing costs associated with the issuance of the FILO Term Loan. The unamortized balance of such deferred costs was $2.8 million as of February 3, 2024. The aggregate outstanding principal amount of the FILO Term Loan is presented on the Consolidated Balance Sheets, net of the unamortized fees.
As a result of the filing of the Chapter 11 Cases, the lenders became subject to automatic stay provisions. This means that certain actions, including enforcing remedies or taking enforcement actions against the collateral, were temporarily stayed or put on hold and required the lenders to adhere to the provisions and limitations set forth under Chapter 11 of the Bankruptcy Code. Pursuant to the Sale Order and the related payoff letters, the lenders were paid off in full by the Debtors with proceeds from the Sale Transaction. At such point, all liens, claims and causes of action that the lenders may have had against the applicable Debtors were released and the Sale Transaction occurred as free and clear in accordance with Section 363 of the Bankruptcy Code.
Letters of Credit
The Company entered into various trade letters of credit ("trade LCs") in favor of certain vendors to secure merchandise. These trade LCs were issued for a defined period of time, for specific shipments, and generally expired three weeks after the merchandise shipment date. As of February 3, 2024 and January 28, 2023, there were no outstanding trade LCs. Additionally, the Company entered into stand-by letters of credit ("stand-by LCs") on an as-needed basis to secure payment obligations for third party logistic services, merchandise purchases, and other general and administrative expenses. As of February 3, 2024 and January 28, 2023, outstanding stand-by LCs totaled $20.1 million and $19.6 million, respectively.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 59
Debtor-in-Possession Financing
In order to administer the Chapter 11 Cases, operate the Debtors’ business in the ordinary course and facilitate the marketing and consummation of the Sale Transaction (as defined below), the Company obtained $214.0 million of post-petition debtor-in-possession financing (the “DIP Facilities”), consisting of (a) a new money single draw term loan in the amount of $25.0 million (the “Second Lien New Money DIP Term Loans”) and (b) a roll-up of (i) certain secured prepetition obligations under the Asset-Based Term Loan Agreement, dated as of September 5, 2023 (the “FILO Term Loan Agreement”) in the amount of $63.0 million (the “Second Lien DIP Term Roll-Up Loans”), and (ii) certain secured prepetition obligations under the asset-based loan credit agreement, dated as of May 20, 2015 (as amended, the “ABL Credit Agreement”) in the amount of $126.0 million (the “First Lien DIP ABL Roll-Up Loans”).
Each of the DIP Facilities were provided to the Company subject to the terms and conditions set forth in the respective DIP Credit Agreements that were executed by the Debtor and the applicable lenders on April 24, 2024, which include conditions precedent, representations and warranties, various affirmative and negative covenants, and events of default customary for financings of such type. The proceeds of all or a portion of the proposed DIP Facilities may be used by the Debtors for, among other things, refinancing the pre-petition debt of the Company, post-petition working capital for the Debtors, payment of costs to administer the Chapter 11 Cases, payment of expenses and fees of the transactions contemplated by the Chapter 11 Cases, payment of court-approved adequate protection obligations under the DIP Credit Agreements, and payment of other costs, in each case subject to the terms of the respective DIP Credit Agreement and the Final DIP Order or any other order of the Bankruptcy Court. The DIP ABL Facility was used to repay in full the obligations under the Second Amended and Restated Asset-Based Loan Credit Agreement, dated as of May 20, 2015 (as amended, the “ABL Credit Agreement”), including interest and fees through the date of repayment, on a dollar-for-dollar cashless basis.
The First Lien DIP ABL Loans are senior obligations of the Company and certain Debtors, and are secured by a first priority lien on the collateral under the ABL Credit Agreement, as well as on any unencumbered assets of the Debtors. The Second Lien New Money Term Loans and the Second Lien DIP Term Roll-up Loans (collectively, the DIP Term Loan Facility”) are senior obligations of the Company and certain Debtors, secured by a second priority lien on the collateral under the ABL Credit Agreement as well as on any unencumbered assets of the Debtors.
The relief granted by the Bankruptcy Court in its order on June 6, 2024, approving the final DIP Facilities (the “Final DIP Order”) also included granting certain adequate protections to the Debtors’ prepetition secured lenders and agents, which were intended to protect their interests in collateral securing their prepetition claims against the Debtors from any diminution in value.
| | | | | | | | | | | | | | |
| NOTE 9 | STOCKHOLDERS' EQUITY |
Share Repurchase Program
On November 28, 2017, the Board approved a share repurchase program that authorized the Company to repurchase up to $150.0 million of the Company’s outstanding Common Stock using available cash (the "Repurchase Program"), allowing the Company to repurchase shares on the open market, including through Rule 10b5-1 plans, in privately negotiated transactions, through block purchases, or otherwise in compliance with applicable laws, including Rule 10b-18 of the Exchange Act of 1934. As of February 3, 2024, the Company had approximately $34.2 million remaining under this authorization.
In connection with the Chapter 11 Cases, the Company’s share repurchase program was suspended indefinitely.
Investment Agreement
On December 8, 2022, the Company entered into the Investment Agreement with WHP. On January 25, 2023, the Company completed the transaction contemplated by the Investment Agreement. Pursuant to the Investment Agreement, the Company issued and sold 5.4 million shares of Common Stock to WHP (the “Purchased Shares”) for a purchase price of $4.60 per share, or an aggregate purchase price of $25.0 million, representing an approximate pro forma ownership of 7.4%. The Investment Agreement contains customary representations, warranties and covenants of the Company and WHP. The excess paid over fair value of $17.8 million was recorded in gain on transaction with WHP on the Consolidated Statements of Income and Comprehensive Income.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 60
Reverse Stock Split and Recasting of Per-Share Amounts
On August 30, 2023, the Company filed a Certificate of Amendment to the Company’s Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effect a 1-for-20 reverse stock split of the Common Stock. Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on August 30, 2023, (i) every 20 shares of Common Stock issued and outstanding, including shares of Common Stock held by the Company as treasury shares, were automatically combined into one share of Common Stock, and (ii) the number of authorized shares of Common Stock was reduced from 500.0 million authorized shares to 25.0 million authorized shares of Common Stock.
Shares of the Common Stock began trading on a split-adjusted basis at market open on August 31, 2023. The $0.01 par value per share of Common Stock and any other rights associated the Common Stock were not affected by the reverse stock split.
All shares of Common Stock, stock option awards and per share amounts in the accompanying Consolidated Financial Statements and related Notes have been retrospectively restated to reflect the effect of the reverse stock split.
Preferred shares outstanding were not affected by the reverse stock split and as such, those shares have not been adjusted in the accompanying Consolidated Financial Statements and related Notes.
| | | | | | | | | | | | | | |
| NOTE 10 | LONG-TERM INCENTIVE COMPENSATION |
The Company records the fair value of share-based payments to employees in the Consolidated Statements of Income and Comprehensive Income as compensation expense, net of forfeitures, over the requisite service period. The Company issues shares of Common Stock from treasury stock, at average cost, upon exercise of stock options and vesting of restricted stock units, including those with performance conditions.
Long-Term Incentive Compensation Plans
The following summarizes long-term incentive compensation expense as of the date indicated:
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| (in thousands) |
| Restricted stock units | $ | 892 | | | $ | 4,075 | | | |
| Stock options | 161 | | | 350 | | | |
| Performance-based restricted stock units | (5,945) | | | 3,115 | | | |
| Total share-based compensation | $ | (4,892) | | | $ | 7,540 | | | |
| Cash-settled awards | 7,578 | | | 8,662 | | | |
| Total long-term incentive compensation | $ | 2,686 | | | $ | 16,202 | | | |
The stock compensation related income tax benefit, excluding consideration of valuation allowances, recognized by the Company in 2023 and 2022 was $5.0 million and $3.1 million, respectively.
The valuation allowances associated with these tax benefits were $5.0 million in 2023 compared to $3.1 million in 2022.
Equity Awards
Restricted Stock Units
During 2023, the Company granted restricted stock units ("RSUs") under the Second Amended and Restated Express, Inc. 2018 Incentive Compensation Plan (the "Plan"). The fair value of RSUs is generally determined based on the Company’s closing stock price on the day prior to the grant date in accordance with the Plan. The RSUs
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 61
granted generally vest ratably over one to three years and the expense related to these RSUs is recognized using the straight-line attribution method over this vesting period.
The Company's activity with respect to RSUs for 2023 was as follows:
| | | | | | | | | | | |
| Number of Shares | | Grant Date Weighted Average Fair Value |
| (in thousands, except per share amounts) |
| Unvested, January 28, 2023 | 87 | | | $ | 45.38 | |
| Granted | 1 | | | $ | 22.80 | |
| Vested | (81) | | | $ | 44.39 | |
| Forfeited | (5) | | | $ | 59.98 | |
| Unvested, February 3, 2024 | 2 | | | $ | 44.70 | |
The total fair value of RSUs that vested during 2023 and 2022 was $3.6 million and $5.4 million, respectively. As of February 3, 2024, there was approximately $0.1 million of total unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately 1.2 years.
Stock Options
During 2023, the Company did not grant stock options. The expense for stock options is recognized using the straight-line attribution method.
The Company's activity with respect to stock options during 2023 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Grant Date
Weighted Average
Exercise Price | | Weighted-Average Remaining Contractual Life
(in years) | | Aggregate Intrinsic Value |
| (in thousands, except per share amounts and years) |
| Outstanding, January 28, 2023 | 143 | | | $ | 96.86 | | | | | |
| Granted | — | | | $ | — | | | | | |
| Exercised | — | | | $ | — | | | | | |
| Forfeited or expired | (122) | | | $ | 64.63 | | | | | |
| Outstanding, February 3, 2024 | 21 | | | $ | 279.49 | | | 2.0 | | $ | — | |
| Expected to vest at February 3, 2024 | — | | | $ | — | | | 0.0 | | $ | — | |
| Exercisable at February 3, 2024 | 21 | | | $ | 279.49 | | | 2.0 | | $ | — | |
As of February 3, 2024, there was no unrecognized compensation expense related to stock options.
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. There were no stock options issued or exercised in 2023 or 2022.
Performance-Based Restricted Stock Units
During 2022, the Company granted performance-based RSUs to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Common Stock upon vesting based upon the achievement of certain performance conditions. The number of shares of Common Stock earned could range between 0% and 200% of the target amount of shares underlying the award depending upon performance achieved over a three-year vesting period. The performance conditions of the awards include adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted EBITDA") targets and the Company's total shareholder return ("TSR") relative to a select group of peer companies. A Monte Carlo valuation model was used to determine the fair value of the awards. The TSR performance condition is a market condition. Therefore, the fair
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 62
value of the portion of the awards which vest based on the TSR performance condition is fixed at the measurement date and is not revised based on actual performance during the three-year vesting period. The number of shares of Common Stock underlying the portion of the awards which vest based on the Company’s Adjusted EBITDA performance in relation to the pre-established targets will change during the three-year vesting period based on estimates.
During 2023, as a material inducement to accept employment with the Company, the Company granted its new Chief Executive Officer an award consisting of 0.15 million performance-based RSUs. The RSUs will become eligible to vest (with a maximum payout of 200% of target) on the last day of fiscal year 2026 based on the Company’s average stock price performance, relative to a pre-determined goal, during the period between the grant date and the last day of fiscal year 2026. A Monte Carlo valuation model was used to determine the fair value of the inducement award. Because the stock price performance condition is a market condition, the fair value of the award is measured and fixed at the grant date and is not revised based on actual performance during the performance period.
As of February 3, 2024, $0.4 million of total unrecognized compensation cost is expected to be recognized on outstanding performance-based RSUs over a remaining weighted-average period of 3.0 years.
Cash-Settled Awards
Time-Based Cash-Settled Awards
During 2023, the Company granted time-based cash-settled awards to employees that vest ratably over three years. These awards are classified as liabilities and do not vary based on changes in the Company's stock price or financial performance. The expense related to these awards will be accrued using a straight-line method over this vesting period. As of February 3, 2024, $7.3 million of total unrecognized compensation cost is expected to be recognized on outstanding cash-settled awards over a weighted-average period of 1.3 years.
Performance-Based Cash-Settled Awards
During 2023, the Company granted performance-based cash-settled awards to a limited number of senior executive-level employees. These awards are classified as liabilities, are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement with compensation expense being recognized in proportion to the completed requisite service period up until date of settlement. The amount of cash earned ranges between 0% and 200% of the target amount depending upon performance achieved over a three-year performance period commencing on the first day of the Company’s 2023 fiscal year and ending on the last day of the Company’s 2025 fiscal year. The performance conditions of the award include Adjusted EBITDA targets and the Company's TSR relative to a select group of peer companies. The fair value of the awards will change based on estimates of the Company’s Adjusted EBITDA performance in relation to the pre-established targets. A Monte Carlo valuation model was used to determine the fair value of the awards. As of February 3, 2024, $0.5 million of total unrecognized compensation cost is expected to be recognized on outstanding performance-based cash-settled awards over a remaining weighted-average period of 2.2 years.
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| NOTE 11 | 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. All shares of Common Stock in the table below have been retrospectively restated to reflect the effect of the reverse stock split:
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| (in thousands) |
| Weighted-average shares - basic | 3,731 | | | 3,402 | | | |
| Dilutive effect of stock options and restricted stock units | — | | | 51 | | | |
| Weighted-average shares - diluted | 3,731 | | | 3,453 | | | |
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Equity awards representing 0.2 million shares of Common Stock were excluded from the computation of diluted earnings per share for both 2023 and 2022, respectively, as the inclusion of these awards would have been anti-dilutive.
Additionally, for 2023, equity awards representing 0.2 million shares of Common Stock were excluded from the computation of diluted weighted average shares because the number of shares of Common Stock that will ultimately be issued is contingent on the Company's performance compared to pre-established performance goals which have not been achieved as of February 3, 2024.
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| NOTE 12 | RETIREMENT BENEFITS |
The employees of the Company, if eligible, participate in a qualified defined contribution retirement plan (the “Qualified Plan”) sponsored by the Company.
Participation in the Company's Qualified Plan is available to employees who meet certain age and service requirements. The Qualified Plan permits employees to elect contributions up to the lesser of 15% of their compensation or the maximum limits allowable under the Internal Revenue Code. The Company matches employee contributions according to a predetermined formula. Employee contributions and Company matching contributions vest immediately.
Total expense recognized related to the Qualified Plan employer match was $4.3 million and $3.8 million in 2023 and 2022, respectively.
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| NOTE 13 | COMMITMENTS AND CONTINGENCIES |
As a result of the Chapter 11 Cases, substantially all proceedings then pending against the Debtors were stayed by operation of Section 362(a) of the Bankruptcy Code.
In accordance with applicable accounting standards, the Company establishes an accrued liability for loss contingencies related to legal proceedings when the loss is both probable and reasonably estimable. As of February 3, 2024, the Company's Consolidated Balance Sheet includes an estimated liability based on its best estimate of the outcome of the unresolved matters.
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| NOTE 14 | SUBSEQUENT EVENTS |
NYSE Delisting and Suspension of SEC Reporting Obligations
On March 6, 2024, trading in the Common Stock on the NYSE was suspended after market close. On March 14, 2024, the NYSE filed its notification of removal from listing (Form 25) with the SEC. On April 24, 2024, following the filing of post-effective amendments to outstanding registration statements to remove unsold securities, the Company filed a Form 15 with the SEC to terminate the registration of the Common Stock under Section 12(g) of the Exchange Act, and to suspend its duty to file reports pursuant to Section 15(d)(1) of the Exchange Act.
Chapter 11 Cases
On April 22, 2024, the Debtors filed the Chapter 11 Cases in the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption “In re: Express, Inc., et al.” (Case No. 24-10831).
Potential Claims
We filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of us and each of our Debtor subsidiaries, subject to the assumptions filed in connection therewith. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was set by the Bankruptcy Court as July 10, 2024. Governmental units were required to file proof of claims by October 22, 2024, the deadline that was set by the Bankruptcy Court.
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As of December 11, 2024, the Debtors had received approximately 1,745 proofs of claim, approximately 83% of which represent general unsecured claims, for an aggregate amount of approximately $686.7 million. We will continue to evaluate these claims throughout the Chapter 11 process and recognize or adjust amounts in the financial statements as necessary using the best information available at such time. Differences between amounts scheduled by us and claims by unsecured creditors will ultimately be reconciled and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete.
Debtor-in-Possession Financing
In order to administer the Chapter 11 Cases, operate the Debtors’ business in the ordinary course during the pendency of the Chapter 11 Cases and facilitate the marketing and consummation of the Sale Transaction, the Company obtained $214.0 million of DIP Facilities, consisting of (a) the Second Lien New Money DIP Term Loans and (b) a roll-up of (i) the Second Lien DIP Term Roll-Up Loans, and (ii) the First Lien DIP ABL Roll-Up Loans.
Refer to Note 8 for further discussion of the DIP Facilities.
Key Developments in the Chapter 11 Cases
Through the Chapter 11 process, the Debtors sought to implement a going-concern sale transaction. On April 21, 2024, the Company received a non-binding letter of intent from Phoenix JV for the potential acquisition of a substantial portion of the Company’s assets and the assumption of leases on a minimum of 280 stores for aggregate cash consideration in the amount of $10.0 million plus 100% of the net orderly liquidation value of acquired merchandise, in addition to the assumption of the applicable liabilities. On May 22, 2024, the Debtors entered the Purchase Agreement with the Phoenix JV. The Purchase Agreement provided for a total purchase price of approximately $172.0 million, consisting of approximately $134.0 million in cash consideration and $38.0 million of assumed liabilities. On June 14, 2024, the Bankruptcy Court entered an order approving the Purchase Agreement and the Sale Transaction. The Sale Transaction was successfully consummated on June 21, 2024. Pursuant to the Sale Transaction, 403 leases for Express stores, 50 leases for Bonobos stores and the lease for the Company’s corporate headquarters in Columbus, Ohio, were assigned to and assumed by the Phoenix JV.
Additionally, through the Chapter 11 process, the Debtors provided notice of and completed rejection of 118 unexpired leases in accordance with the procedures approved by the Bankruptcy Court.
On December 17, 2024, the Bankruptcy Court confirmed the Plan. Pursuant to the Plan, proceeds from the Sale Transaction and the disposition of the Debtors’ remaining assets will be distributed to eligible claim holders, in order of priority, after which each of the Debtors’ estates will be wound down. The Company anticipates that the Plan will go effective on or about December 31, 2024. As of the date of this Form 10-K, the Company and the other Debtors no longer have any operations, other than those relating to the wind-down process provided in the Plan.
Refer to Note 1 for further discussion on the Chapter 11 claims process.
CARES Act
The CARES Act, enacted on March 27, 2020, includes several provisions that impact us, including (a) the establishment of a five-year carryback of net operating losses originating in the tax years 2018, 2019 and 2020, (b) temporarily suspending the 80% limitation on the use of net operating losses, (c) relaxing limitation rules on business interest deductions, and (d) retroactively clarifying that businesses may immediately write off certain qualified leasehold improvement property dating back to January 1, 2018. We carried back certain of our U.S. federal net operating losses to offset taxable income in the five-year carryback period as part of the CARES Act entitling us to a refund. On April 15, 2024, we received the CARES Act refund in the amount of approximately $49.0 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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ITEM 9A. CONTROLS AND PROCEDURES.
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| EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES |
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation prior to filing this Form 10-K of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of February 3, 2024.
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| MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with generally accepted accounting principles. We conducted an evaluation of the effectiveness of our internal control over financial reporting based on Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of February 3, 2024. In making this assessment, we used the criteria set forth by COSO. Based on our assessment, management concluded that, as of February 3, 2024, the Company's internal control over financial reporting was effective.
Management has excluded Bonobos from its assessment of internal control over financial reporting as of February 3, 2024, because it was acquired by the Company in a purchase business combination during 2023. Bonobos' total assets and total revenues represent approximately 7% and 8%, respectively, of our total assets and total revenues, as of and for the fifty-three weeks ended February 3, 2024.
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| CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING |
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
Insider Trading Arrangements
During the quarterly period ended February 3, 2024, none of our directors or officers subject to Section 16 of the Exchange Act adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act and/or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not Applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The name and age of each member of the Board of Directors (the “Board”), their positions held with the Company (if any) and other biographical information as of December 30, 2024 is set forth below.
Michael Archbold, age 64, joined the Board in January 2012. Mr. Archbold served as Chief Executive Officer of GNC Holdings, Inc. from August 2014 until July 2016 and also served as a director on the board of GNC Holdings, Inc. Prior to that, he was the Chief Executive Officer of The Talbots Inc. from August 2012 until June 2013 and also served as a director on the board of The Talbots Inc. Prior to that, Mr. Archbold served as President and Chief Operating Officer of Vitamin Shoppe, Inc. from April 2011 until June 2012, and prior to that as its Executive Vice President, Chief Operating Officer, and Chief Financial Officer from April 2007. Mr. Archbold served as Executive Vice President / Chief Financial and Administrative Officer of Saks Fifth Avenue from 2005 until 2007. From 2002 until 2005 he served as Chief Financial Officer for AutoZone, Inc., originally as Senior Vice President, and later as Executive Vice President. Mr. Archbold is an inactive certified public accountant and has 20 years of financial experience in the retail industry. Mr. Archbold currently serves on the Board of the Council for Inclusive Capitalism with The Vatican, on the Advisory Board for the Dolan School of Business at Fairfield University, and as the Program Director for the CFO Council: Fortune 250 at The Conference Board. We believe that Mr. Archbold’s experience in the areas of accounting, finance and capital structure; risk management; retail merchandising and operations; business development and strategic planning; and investor relations, as well as his prior executive leadership of complex organizations, qualifies him to serve on the Board.
Terry Davenport, age 66, joined the Board in November 2016. Mr. Davenport served as Global Brand Advisor for Starbucks Coffee Company from February 2014 until he retired in October 2017. Mr. Davenport spent the last ten years of his career at Starbucks Coffee Company. Prior to serving as Global Brand Advisor, his roles at Starbucks included: Senior Vice President of Global Creative Studios, Senior Vice President of Marketing and Category for Europe, Middle East, and Africa (EMEA), and Senior Vice President of Marketing for the U.S. He originally joined Starbucks as Vice President of Brand Strategy and Consumer Insights in October 2006. Prior to joining Starbucks, Mr. Davenport held senior brand leadership roles with YUM! Brands, PepsiCo., and Omnicom Agencies. Mr. Davenport is currently a strategic advisor and consultant for various enterprises on consumer, strategy, and brand related matters. We believe that Mr. Davenport’s past experience with target customers and in the areas of consumer brand marketing and advertising; e-commerce and omni-channel retailing; retail merchandising and operations; business development and strategic planning; international operations; and environmental, social and governance (“ESG”) matters qualifies him to serve on the Board.
Stewart Glendinning, age 59, joined the Board in September 2023 and has served as Chief Executive Officer of the Company since September 2023. Prior to his current role, he served as Group President, Prepared Foods of Tyson Foods and before that as Executive Vice President and Chief Financial Officer of Tyson. Previously, he was President and Chief Executive Officer of Molson Coors International. He began his career at Molson Coors in 2005 as Chief Financial Officer for Molson Coors UK and subsequently held the positions of Chief Financial Officer for Molson Coors Brewing, President and Chief Executive Officer of the UK Business, and President and Chief Executive Officer of Molson Coors Canada. Mr. Glendinning currently serves on the Board of Directors of The North West Company and has served with various organizations within the U.S. Naval Reserve. We believe that Mr. Glendinning’s past executive leadership, coupled with his extensive experience in the consumer products industry and in the areas of worldwide financial planning, finance and accounting, qualify him to serve on the Board.
Karen Leever, age 60, joined the Board in August 2016. Ms. Leever is the Chief Product Officer of Fetch Pet Insurance, a role she has held since October 2024. Prior to that, Ms. Leever served as the Chief Operating Officer since January 2022. Prior to that, Ms. Leever served as President, US Digital Products and Marketing, for Discovery Communications from 2018 to 2021, and as Executive Vice President and General Manager, Digital Media of Discovery Communications from 2015 to 2018. Prior to joining Discovery Communications, she spent ten years with DIRECTV, and held several roles, including Senior Vice President, Digital and Direct Sales from 2013 to 2015,
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Senior Vice President of Digital Marketing and Media in 2012, and Senior Vice President of directv.com and Customer Communications in 2011. Additionally, Ms. Leever served as Vice President, Marketing at Kmart Corporation during 2005 and as Divisional Vice President, eCommerce from 2004 until 2005. Earlier in her career, she spent more than a decade in electronic television retailing at HSN and QVC, overseeing website design, messaging, pricing, and programming strategies. We believe that Ms. Leever’s technology development and management experience as well as her experience with target customers and in the areas of e-commerce and omni-channel retailing; data analytics; business development and strategic planning; retail merchandising and operations; and leadership development and succession planning, qualify her to serve on the Board.
Patricia E. Lopez, age 63, joined the Board in February 2022. Ms. Lopez most recently served as Chief Executive Officer and as a member of the Board of Directors of High Ridge Brands Co., a Clayton, Dubilier & Rice Company, from 2017 until April 2020. Before joining High Ridge Brands Co., Ms. Lopez served as Senior Vice President of The Estée Lauder Companies Inc. from 2015 until 2016 and Chief Marketing Officer of Avon Products, Inc. from 2012 until 2015. Prior to that, Ms. Lopez worked for The Procter & Gamble Company from 1983 to 2012, where she held various roles in Latin America and the United States before ultimately serving as Vice President and General Manager of Eastern Europe in Russia. Ms. Lopez currently serves as a director of Domino’s Pizza, Inc., Aramark and Virtue Labs, and previously served as a director of Acreage Holdings, Inc. from May 2021 to June 2023. We believe that Ms. Lopez’s experience with target customers, past executive leadership of complex organizations and experience in the areas of consumer brand marketing and advertising; business development and strategic planning; corporate governance and public company board practices; international operations; and retail merchandising qualify her to serve on the Board.
Mylle Mangum, age 76, joined the Board in August 2010 and serves as Board Chair. Ms. Mangum is the Chief Executive Officer of IBT Holdings, LLC, a position she has held since October 2003. Prior to that, Ms. Mangum served as Chief Executive Officer of True Marketing Services, LLC since July 2002. She served as Chief Executive Officer of MMS Incentives, Inc. from 1999 to 2002. From 1997 until 1999, she served as President-Global Payment Systems and Senior Vice President-Expense Management and Strategic Planning for Carlson Wagonlit Travel, Inc. From 1992 until 1997 she served as Executive Vice President-Strategic Management for Holiday Inn Worldwide. Ms. Mangum was previously employed with BellSouth Corporation as Director-Corporate Planning and Development from 1986 to 1992 and President of BellSouth International from 1985 to 1986. Prior to that, she was with the General Electric Company. Ms. Mangum previously served as a director of Emageon, Inc., Scientific-Atlanta, Inc., Respironics, Inc., and PRGX Global, Inc. Ms. Mangum currently serves as a director of Barnes Group Inc. and Haverty Furniture Companies, Inc. We believe that Ms. Mangum’s prior executive leadership of complex organizations, combined with her experience in the areas of business development and strategic planning; corporate governance and public company board practices; leadership development and succession planning; international and franchise operations; accounting, finance, and capital structure; and executive compensation, qualify her to serve on the Board.
Satish Mehta, age 60, joined the Board in December 2022. Mr. Mehta has served as Chief Technology Officer of Chewy, Inc. since June 2018. From July 2017 to June 2018, Mr. Mehta served as Vice President—Data and Analytics Solutions for UnitedHealth Group. Prior to that, Mr. Mehta served in various capacities at Staples Inc., including serving as their Vice President, Price—Data & Analytics, Omni-Channel and Innovation Labs from January 2014 to July 2017. Mr. Mehta’s experience also includes over eight years of service, from November 2005 to January 2014, at Yahoo!, in various positions including as their Senior Director, Global Data and Ad Tech. We believe that Mr. Mehta’s technology development and management experience, as well as his experience with target customers and in the areas of data analytics; risk management; supply chain; consumer brand marketing; and e-commerce and omni-channel retailing, qualify him to serve on the Board.
Peter Swinburn, age 71, joined the Board in February 2012. Mr. Swinburn served as Chief Executive Officer and President of Molson Coors Brewing Company from July 2008 until he retired in December 2014. He also served as a director on the board of Molson Coors Brewing Company and MillerCoors Brewing Company from July 2008 until his retirement. Prior to that, he was Chief Executive Officer of Coors (U.S.) and from 2005 until October 2007, Mr. Swinburn served as President and Chief Executive Officer of Molson Coors Brewing Company (UK) Limited. Prior to that, he served as President and Chief Executive Officer of Coors Brewing Worldwide and Chief Operating Officer of Molson Coors Brewing Company (UK) Limited following the Molson Coors Brewing Company’s acquisition of Molson Coors Brewing Company (UK) Limited in 2002 where he served until 2003. Mr. Swinburn currently serves on the Board of Directors of Driven Brands, Inc. and previously served as a director of Fuller, Smith & Turner PLC and of Cabela’s Inc. We believe that Mr. Swinburn’s prior executive leadership of complex organizations, combined
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with his experience in the areas of business development and strategic planning; consumer brand marketing and advertising; international operations; finance and capital structure; corporate governance and public company board practices; mergers and acquisitions; and executive compensation, qualify him to serve on the Board.
William Transier, age 70, joined the Board in April 2024. Mr. Transier is the founder and Chief Executive Officer of Transier Advisors, LLC, an independent advisory firm which, since 2015, has provided services to companies facing financial distress, suboptimal operational situations, turnaround, restructuring, transformation or in need of interim executive or board leadership. Prior to that, he was co-founder of Endeavour International Corporation, an international oil and gas exploration and production company. He served as non-executive Chairman of Endeavour's Board of Directors from December 2014 until November 2015. He served from September 2006 until December 2014 as Chairman, Chief Executive Officer, and President of Endeavour and as its Chairman and Co-Chief Executive Officer from its formation in February 2004 through September 2006. Prior to Endeavour, Mr. Transier served as Executive Vice President and Chief Financial Officer of Ocean Energy, Inc. and its predecessor, Seagull Energy Corporation from May 1996 to April 2003. Before his tenure with Ocean, Mr. Transier served in various roles including partner in the audit department and head of the Global Energy practice of KPMG LLP from June 1986 to April 1996. Mr. Transier currently serves on the Board of Directors of Helix Energy Solutions Group, Tupperware Brands Corporation, Altera Infrastructure Holdings and Steward Health Care. We believe that Mr. Transier’s experience in the areas of audit/accounting and financial reporting combined with his extensive professional background advising or working for companies in financial distress qualifies him to serve on the Board.
The Board is divided into three classes of directors, with only one class of directors being elected in each year and each class serving a three-year term. The term of office of our Class I directors (Messrs. Archbold, Glendinning, Mehta and Swinburn) expires at our 2026 annual meeting of shareholders. The term of office of our Class II directors (Mmes. Lopez and Mangum) expires at our 2024 annual meeting of shareholders. The term of office of our Class III directors (Messrs. Davenport and Transier and Ms. Leever) expires at our 2025 annual meeting of shareholders. We do not expect to hold an annual meeting of shareholders in 2024.
The Plan provides that once effective, all directors of the Company will be discharged from the Board, ceasing to be directors, without any further action.
The names, ages, positions, and a brief account of the business experience of the individuals who served as executive officers of the Company as of December 30, 2024 is set forth below:
Stewart Glendinning, age 59, is our Chief Executive Officer. His biography can be found above under “Board of Directors” above.
Mark Still, age 47, was appointed Senior Vice President and Chief Financial Officer effective as of April 21, 2024. Prior to that, Mr. Still was appointed Interim Chief Financial Officer and Treasurer in November 2023, in addition to his role as Senior Vice President, Brand Finance and Merchandise Planning & Allocation which he had held since January 2023. Prior to that, Mr. Still served in various finance roles at the Company with increasing levels of responsibility for more than 18 years.
Our executive officers are appointed by the Board and serve until their successors have been duly elected and qualified or their earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
Our Code of Conduct sets forth the ethical standards, legal requirements, and other policies we expect our directors, officers, and associates to comply with at all times. The Company will provide to any person without charge a copy of the Code of Conduct, upon request by mail delivered to Express, Inc., 1 Express Drive, Columbus, OH 43230.
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ITEM 11. EXECUTIVE COMPENSATION.
As a “smaller reporting company” as defined in Regulation S-K under the Securities Act, we have opted to provide compensation information pursuant to the scaled disclosure rules applicable to smaller reporting companies. Under these rules, we are required to provide only a Summary Compensation Table and table of Outstanding Equity Awards at Fiscal Year-End, as well as specified narrative disclosures regarding executive compensation for the 2023 fiscal year.
For the 2023 fiscal year, our named executive officers (“NEOs”) and their positions were as follows:
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| Name | Position (as of February 3, 2024) | | |
| Stewart Glendinning | Chief Executive Officer | | |
Mark Still1 | Interim Chief Financial Officer and Treasurer | | |
Sara Tervo2 | Executive Vice President and Chief Marketing Officer | | |
| Timothy Baxter | Former Chief Executive Officer | | |
| Matthew Moellering | Former President and Chief Operating Officer | | |
Malissa Akay3 | Former Executive Vice President and Chief Merchandising Officer | | |
1.Mr. Still was appointed Interim Chief Financial Officer and Treasurer, effective November 17, 2023, in addition to continuing to serve in his then-current role as Senior Vice President, Brand Finance and Planning & Allocation. On and effective as of April 21, 2024, prior to the commencement of the Chapter 11 Cases, the Company appointed Mr. Still as Senior Vice President and Chief Financial Officer.
2.Ms. Tervo’s employment with the Company ended July 12, 2024.
3.Ms. Akay’s employment with the Company ended July 14, 2023.
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| Fiscal Year 2023 Summary Compensation Table |
The following table shows the compensation earned by our NEOs during the fiscal years ended February 3, 2024, January 28, 2023, and January 29, 2022 referred to as 2023, 2022, and 2021, respectively.
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| Name and Principal Position | Year | Salary ($) | Bonus ($)1 | Stock Awards ($)2 | Option Awards ($) | Non-Equity Incentive Plan Compensation ($)3 | Non-Qualified Deferred Compensation Earnings ($)4 | All Other Compensation ($)5 | Total ($) |
| Stewart Glendinning | 2023 | 524,423 | 1,000,000 | 471,735 | — | — | — | 710 | 1,996,868 |
Chief Executive Officer6 | | | | | | | | | |
| Mark Still | 2023 | 375,096 | 179,874 | — | — | — | — | 15,581 | 570,551 |
Senior Vice President, Interim Chief Financial Officer and Treasurer6 | | | | | | | | | |
| Sara Tervo | 2023 | 642,115 | 279,560 | — | — | — | — | 19,925 | 941,600 |
| Executive Vice President and Chief Marketing Officer | 2022 | 622,500 | 162,893 | 382,783 | — | 548,380 | — | 13,783 | 1,730,339 |
| 2021 | 600,000 | 271,226 | 350,000 | — | 900,000 | — | 13,129 | 2,134,355 |
| Timothy Baxter | 2023 | 851,538 | 1,677,359 | — | — | — | — | 544,689 | 3,073,586 |
Former Chief Executive Officer6 | 2022 | 1,262,500 | 977,358 | 2,296,693 | — | 3,154,200 | — | 26,835 | 7,717,586 |
| 2021 | 1,000,000 | 927,358 | 2,100,002 | — | 2,600,000 | — | 324,370 | 6,951,730 |
| Matthew Moellering | 2023 | 228,846 | 872,019 | — | — | — | — | 15,996 | 1,116,861 |
Former President and Chief Operating Officer6 | 2022 | 843,750 | 465,409 | 1,093,664 | — | 1,482,800 | — | 13,461 | 3,899,084 |
| 2021 | 825,000 | 503,325 | 999,999 | — | 1,485,000 | — | 13,318 | 3,826,642 |
| Malissa Akay | 2023 | 346,154 | 359,434 | — | — | — | — | 550,486 | 1,256,074 |
Former Executive Vice President and Chief Merchandising Officer6 | 2022 | 743,750 | 209,434 | 492,149 | — | 697,500 | — | 14,430 | 2,157,263 |
| 2021 | 725,000 | 331,309 | 450,000 | — | 1,087,500 | — | 13,466 | 2,607,275 |
1.For 2023, reflects the cash payment that our NEOs (except for Mr. Glendinning) received on April 15, 2023 in relation to the time-based restricted cash awards granted to them on March 24, 2020, March 25, 2021, and March 24, 2022.
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Additionally, for Mr. Moellering, who retired from the Company effective as of May 5, 2023, reflects a pro rata cash payment in the amount of $73,277 in respect of unvested time-based restricted cash awards granted to him in 2020, 2021 and 2022 which accelerated in connection with this retirement.
Mr. Glendinning joined the Company in September 2023 and therefore did not receive any such awards. The amount shown for Mr. Glendinning reflects 50% of a $2,000,000 make-whole bonus paid to him on January 1, 2024.
For Mr. Still, the amount shown also reflects a cash retention bonus paid to him in the amount of $100,000.
2.Reflects the aggregate grant date fair value of awards granted in the applicable year. For 2023, the amount reflects the grant date fair value of 150,000 performance-based restricted stock units (“PSUs”) granted to Mr. Glendinning on October 15, 2023. The PSUs become eligible to vest (with a maximum payout of 200% of target) on January 30, 2027 based on the Company’s stock price performance over any 60 consecutive trading day period between October 15, 2023 and January 30, 2027, subject to Mr. Glendinning’s continued employment with the Company through the vesting date. In connection with the Plan, all outstanding equity interests in the Company will be cancelled as of its effective date; therefore, these PSUs will not vest and have no current value. During 2023, no other performance-based or time-based stock awards were granted to our NEOs.
3.No payouts were made to our NEOs under our annual incentive compensation program for 2023.
4.The Company does not sponsor any tax-qualified or non-qualified defined benefit retirement plans.
5.The amounts reported as All Other Compensation for each NEO during 2023 included the following:
| | | | | | | | | | | | | | | | | |
| Name | Executive Life Insurance ($)a | Executive Disability Insurance ($)b | Qualified Retirement Plan Company Match ($)c | Severance ($)d | Total ($) |
| Stewart Glendinning | 350 | | 360 | | — | | — | | 710 | |
| Mark Still | 314 | | 647 | | 14,620 | | — | | 15,581 | |
| Sara Tervo | 529 | | 865 | | 18,531 | | — | | 19,925 | |
| Timothy Baxter | 560 | | 649 | | 17,654 | | 525,826 | | 544,689 | |
| Matthew Moellering | 238 | | 288 | | 15,469 | | — | | 15,995 | |
| Malissa Akay | 315 | | 433 | | 16,085 | | 533,654 | | 550,487 | |
a.Amounts represent the annual premiums paid by the Company for executive life insurance.
b.Amounts represent the annual premiums paid by the Company for executive disability insurance.
c.The Company matches 100% of 401(k) deferrals, up to 4% of eligible compensation not in excess of the IRS Qualified Plan Maximum Compensation Limit.
d.Reflects the aggregate base salary and annual incentive compensation continuation benefits that Mr. Baxter and Ms. Akay are entitled to receive pursuant to the terms of their respective employment/severance agreement with the Company. The amount for Mr. Baxter also reflects a payment for monthly medical and dental care premium under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), in the amount of $1,403.
6.Mr. Glendinning joined the Company as Chief Executive Officer effective September 15, 2023. Mr. Still was appointed Interim Chief Financial Officer and Treasurer effective November 17, 2023. Mr. Baxter resigned as our Chief Executive Officer effective September 14, 2023. Mr. Moellering retired effective May 5, 2023. Ms. Akay’s employment with the Company ended as of July 14, 2023.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 72
| | | | | | | | | | | | | | |
| Outstanding Equity Awards at Fiscal Year-End |
The table below sets forth certain information regarding the outstanding equity awards held by each of our NEOs as of February 3, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Option Awards | Stock Awards |
| Name | Number of
Securities
Underlying
Exercisable
Options
(#) | Number of
Securities
Underlying
Unexercisable
Options
(#) | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#) | Option
Exercise
Price
($/
Share) | Option
Expiration
Date | Number
of Shares
or Units
of Stock
That Have
Not
Vested
(#) | Market
Value of
Shares
or
Units of
Stock
That
Have
Not
Vested
($) | Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#) | Equity Incentive Plans: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)3 |
| Stewart Glendinning | — | — | — | — | — | — | — | 150,000 1 | 751,500 |
| Mark Still | — | — | — | — | — | — | — | — | — |
| Sara Tervo | — | — | — | — | — | — | — | 2,4112 | 12,077 |
| — | — | — | — | — | — | — | — | — |
| Timothy Baxter | — | — | — | — | — | — | — | — | — |
| Matthew Moellering | — | — | — | — | — | — | — | 2,5072 | 12,560 |
| — | — | — | — | — | — | — | — | — |
| 2,221 | — | — | 188.40 | 3/14/2027 | — | — | — | — |
| 1,026 | — | — | 422.80 | 3/30/2026 | — | — | — | — |
| 963 | — | — | 325.60 | 3/26/2025 | — | — | — | — |
| 1,166 | — | — | 317.60 | 4/1/2024 | — | — | — | — |
| Malissa Akay | — | — | — | — | — | — | — | — | — |
1.Represents Mr. Glendinning’s inducement award of 150,000 PSUs that became eligible to vest (with a maximum payout of 200% of target) on the last day of fiscal 2026 based on the average stock price of the Company’s common stock over any 60 consecutive trading day period between October 15, 2023 and January 30, 2027. In connection with the Plan, all outstanding equity interests in the Company will be cancelled as of its effective date; therefore, these PSUs will not vest and have no current value.
2.Reflects the number of restricted stock units with performance-based vesting criteria granted in 2022 under the Second Amended and Restated Express, Inc. 2018 Incentive Compensation Plan (the “2018 Plan”) that would be earned at the threshold performance level. The number of performance-based restricted stock units that are actually earned will be determined based on the Company’s Adjusted EBITDA targets for the three-year period commencing on the first day of the Company’s 2022 fiscal year and ending on the last day of the Company’s 2024 fiscal year, compared to the performance goals established by the Committee. In connection with the Plan, all outstanding equity interests in the Company will be cancelled as of its effective date; therefore, these restricted stock units will not vest and have no current value.
3.Based on the February 2, 2024 closing stock price of $5.01.
| | | | | | | | | | | | | | |
| Employment Agreements; Severance and Post-Employment Benefits |
The following sets forth a description of the material terms of the employment agreement or severance agreement, as applicable between the Company and the respective named executive officer, as was in effect at the commencement of the Chapter 11 Cases (or if earlier, at the time of termination of the respective NEO's employment).
Stewart Glendinning
Pursuant to the Company’s employment agreement with Mr. Glendinning, which was entered into effective as of September 15, 2023, Mr. Glendinning (i) was entitled to receive an annual base salary equal to $1,350,000; and (ii) was eligible to participate in the Company’s annual incentive compensation plan at an annual target award amount
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 73
of 150% of his base salary, pro-rated for service during any partial performance period; provided, however, that for the 12- month period beginning on September 15, 2023, Mr. Glendinning was entitled to receive an annual incentive award in an amount no less than his annual target award amount.
The employment agreement will terminate on the effective date of the Plan.
Matthew Moellering
Pursuant to the Company’s employment agreement with Mr. Moellering, as amended and restated, Mr. Moellering was entitled to (i) an annual base salary; (ii) short-term, performance-based cash incentive payment opportunities for each six-month operating season; (iii) equity-based compensation awards commensurate with his performance and position; and (iv) severance compensation depending on the factual circumstances. On September 23, 2019, a letter agreement was entered into with Mr. Moellering, pursuant to which he was (i) promoted to President and Chief Operating Officer; (ii) entitled to an annual base salary of $825,000 and a seasonal performance-based cash incentive target percentage of 90%; and (iii) beginning with the Company’s annual grant of long-term incentive awards in fiscal 2020, entitled to an annual long-term incentive compensation amount of $2,000,000.
As Mr. Moellering voluntarily retired effective as of May 5, 2023, he was not entitled to any salary or incentive compensation continuation benefits under his agreements.
Timothy Baxter
In connection with Mr. Baxter’s departure from the Company, the Company and Mr. Baxter entered into a separation agreement (the “Separation Agreement”) dated as of September 11, 2023. Pursuant to the terms and conditions of the Separation Agreement, and in exchange for a release of claims and Mr. Baxter’s continued compliance with the restrictive covenants set forth in the Separation Agreement, the Company agreed to pay Mr. Baxter: (i) an amount equal to 1.0 times his base salary ($1,350,000) payable in 12 substantially equal monthly installments commencing no later than 60 days following the date of termination; (ii) a lump sum amount equal to the actual annual incentive compensation he would have received, based on actual achievement, had he remained employed with the Company through the end of fiscal 2023, payable on the date on which annual incentive compensation for each such period is paid to executives generally; and (iii) if Mr. Baxter timely elects the continuation of coverage, an amount equal to the monthly medical and dental care plan premium under COBRA for a 12-month period, payable in 12 substantially equal monthly installments commencing no later than 60 days following the date of termination. In addition to the amounts described above, the Company also paid Mr. Baxter any earned but unpaid base salary as of the date of termination and reimbursed him for any and all monies advanced or expenses incurred through the date of termination. Mr. Baxter’s equity awards will vest as and to the extent provided for in the agreements related to those awards.
Other Severance Agreements
We entered into severance agreements with each of Ms. Akay and Ms. Tervo in September 2019 and with Mr. Still on and effective as of April 21, 2024 prior to the commencement of the Chapter 11 Cases. Each severance agreement provided that if the executive’s employment with the Company is terminated by the Company other than for “cause,” or by the executive for “good reason,” and the executive signs a general release, then the executive is entitled to receive her base salary and medical and dental benefits for up to one year following separation from the Company. Each executive was also entitled thereunder to receive the amount of cash incentive compensation that each would have otherwise received for the performance period in which the separation occurs. The severance agreements included customary restrictions with respect to the use of our confidential information and provide that all intellectual property developed or conceived by the executive while employed by us which relates to our business is Company property. Each executive also agreed not to (1) solicit any of our associates, (2) interfere with or harm any of our business relationships, or (3) participate (whether as an officer, director, employee, or otherwise) in any competitive business during the term of his or her employment and during the 12-month period immediately thereafter.
Ms. Akay’s employment with the Company was terminated without cause effective July 14, 2023. Pursuant to the terms of her severance agreement with the Company, she was entitled to receive her base salary and medical and dental benefits for up to one year following separation from the Company as well as the amount of cash incentive compensation that she would have otherwise received for the performance period in which the separation occurred.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 74
Ms. Tervo voluntarily resigned her employment with the Company effective July 12, 2024, and therefore, she was not entitled to any salary or incentive compensation continuation benefits under her severance agreement.
Mr. Still’s employment transferred to the Phoenix JV in connection with the Sale Transaction. Pursuant to the terms of the Plan, he was not entitled to any salary or incentive compensation continuation benefits under his severance agreement.
| | | | | | | | | | | | | | |
| 2023 Director Compensation Table |
The following table sets forth information regarding compensation earned by each of our non-employee directors in fiscal year 2023. Employee directors receive no compensation for Board service.
| | | | | | | | | | | |
| Director | Fees Earned or Paid in Cash ($)1,4 | Stock Awards
($) | Total
($) |
| Michael Archbold | 110,000 | — | 110,000 |
| Terry Davenport | 110,000 | — | 110,000 |
Michael F. Devine2 | — | — | — |
| Karen Leever | 90,000 | — | 90,000 |
| Patricia Lopez | 90,000 | — | 90,000 |
Antonio Lucio3 | 67,500 | — | 67,500 |
| Mylle Mangum | 200,000 | — | 200,000 |
| Satish Mehta | 90,000 | — | 90,000 |
| Yehuda Shmidman | 94,6075 | 14,9896 | 109,596 |
| Peter Swinburn | 90,000 | — | 90,000 |
1.These amounts do not represent the actual amounts paid to or received by the named director during fiscal year 2023. Historically, the Company granted its non-employee directors restricted stock units, but in an effort to conserve shares, the annual non-employee director retainer was granted on June 15, 2023 in the form of time-based restricted cash awards. Due to the Chapter 11 Cases, none of these time-based restricted cash awards vested.
2.Mr. Devine resigned from the Board effective February 27, 2023, and did not receive a time-based cash award.
3.Mr. Lucio resigned from the Board effective December 18, 2023, and forfeited his unvested time-based cash award.
4.Reflects amounts paid on December 28, 2023 for compensation earned in the first quarter of 2024 and does not include amounts paid in December 2022 for compensation earned in the first quarter of 2023.
5.Includes $14,607 paid to Mr. Shmidman on February 9, 2023 for Board services during a portion of the first quarter of 2023 after his appointment to the Board.
6.Reflects the aggregate grant date fair value of restricted stock units granted to Mr. Shmidman on February 15, 2023 in connection with his appointment to the Board. The restricted stock units vested on June 15, 2023. The grant date fair value was determined based on the assumptions and methodologies set forth in Note 10 to the Company’s consolidated financial statements included in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information regarding beneficial ownership of our common stock as of December 10, 2024 for (1) each person who is known by us to own beneficially more than 5% of our common stock (a “5% shareholder”), (2) each director and named executive officer, and (3) all directors and current executive officers as a group.
Beneficial ownership, for purposes of the following table, is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 75
shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof, or has the right to acquire such powers within 60 days. Common stock issuable upon the exercise of options that are currently exercisable or exercisable within 60 days of December 10, 2024 and common stock issuable upon the vesting of restricted stock units within 60 days are deemed to be outstanding and beneficially owned by the person holding the options or restricted stock units, as applicable, for purposes of computing the percentage ownership of that person and any group of which that person is a member. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Percentage of beneficial ownership of our 5% shareholders is based on 3,746,725 shares of common stock outstanding. Percentage of beneficial ownership of our named executive officers and directors is based on 3,746,725 shares of common stock outstanding which are held by such named executive officer or director. Except as disclosed in the footnotes to the following table and subject to applicable community property laws, we believe that each beneficial owner identified in the following table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the shareholder. Unless otherwise indicated in the following table or footnotes below, the address for each beneficial owner is c/o Express, Inc., 1 Express Drive, Columbus, Ohio 43230. All share numbers reflect the 1-for-20 reverse stock split of our common stock on August 30, 2023.
| | | | | | | | |
| Name and Address | Shares Beneficially Owned | Percent of Stock Outstanding |
| 5% Shareholders: | | |
EXPWHP, LLC1 | 271,739 | 7.3% |
Royce & Associates, LP2 | 255,171 | 6.8% |
| | | |
| Named Executive Officers and Directors: | | |
| Stewart Glendinning | — | * |
| Mark Still | 2,659 | * |
Matthew Moellering3 | — | * |
Malissa Akay3 | 10,540 | * |
Sara Tervo3 | 8,447 | * |
Timothy Baxter3 | 39,729 | 1.06% |
| Michael Archbold | 10,922 | * |
| Terry Davenport | 9,444 | * |
| Karen Leever | 9,539 | * |
| Patricia E. Lopez | 2,329 | * |
| Mylle Mangum | 14,183 | * |
| Satish Mehta | 1,427 | * |
| Peter Swinburn | 10,922 | * |
| William Transier | — | * |
| All Directors and Current Executive Officers as a Group (10 persons) | 61,425 | 1.64% |
* Less than one percent.
1.Based on a Schedule 13D filed with the SEC on February 1, 2023 by Oaktree AIF (Cayman) GP Ltd., Oaktree Fund AIF Series (Cayman), L.P.—Series N., WH Topco, L.P., WH Holdco, LLC, WH Intermediate, LLC, WH Borrower, EXPWHP, LLC, Yehuda Shmidman, Thomas Casarella, Hank Sneddon, and Chris Pucillo (the “Affiliates”). WH Borrower is the parent and managing member of EXPWHP, LLC. Each of Messrs. Shmidman, Casarella, Sneddon and Pucillo, as a managing member of WH Borrower, WH Intermediate, LLC and WH Holdco, LLC, may be deemed the beneficial owner of such shares. The Affiliates, including EXPWHP, LLC, share voting and dispositive power over 5,434,783 shares. The address of EXPWHP, LLC is EXPWHP, LLC c/o WHP Global, LLC, 530 Fifth Avenue, 12 Floor, New York, NY 10036. The amounts set forth above are adjusted to reflect the 1-for-20 reverse stock split.
2.Based on a Schedule 13G filed with the SEC by Royce & Associates, LP (“Royce”) on January 23, 2024. Royce beneficially held sole voting and dispositive power over 255,171 shares. The address of Royce is 745 Fifth Avenue, New York, NY 10151.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 76
3.The shares of common stock reported in the table are based on the information available to the Company as of the respective individual’s last date of employment with the Company.
| | | | | | | | | | | | | | |
| Securities Authorized for Issuance under Equity Compensation Plans |
The following table summarizes share and exercise price information about our equity compensation plan as of February 3, 2024.
| | | | | | | | | | | |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) |
| Plan Category | (a) | (b) | (c) |
| Equity compensation plans approved by security holders | 229,247 | $279.49 | 380,678 |
| Equity compensation plans not approved by security holders | — | — | — |
| Total | 229,247 | $279.49 | 380,678 |
The table above includes 206,144 restricted stock units (“RSUs”) with performance-based vesting conditions. The number of performance-based RSUs that are ultimately earned may vary from 0% to 200% of target depending on achievement relative to the predefined financial performance targets. The amounts in columns (a) and (c) reflected in the table are calculated assuming the target payout for all performance-based restricted stock units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
| | | | | | | | | | | | | | |
| Related Person Transactions |
Under our current Related Person Transaction policy, a “Related Person Transaction” is any transaction, arrangement, or relationship between us or any of our subsidiaries and a Related Person where the amount involved exceeds $120,000 and the Related Person has or will have a direct or indirect material interest. A “Related Person” is any of our executive officers, directors, director nominees, any shareholder beneficially owning in excess of 5% of our stock or securities exchangeable for our stock, any immediate family member of any of the foregoing persons, and any firm, corporation, or other entity in which any of the foregoing persons is an executive officer, a partner or principal, or in a similar position, or in which such person has a 5% or greater beneficial ownership interest in such entity.
All Related Person Transactions must be approved or ratified by a majority of the disinterested directors on the Board or a designated committee thereof consisting solely of disinterested directors in accordance with our Related Person Transaction Policy. In approving any Related Person Transaction, the Board or the committee must determine that the transaction is on terms no less favorable in the aggregate than those generally available to an unaffiliated third-party under similar circumstances.
Since January 29, 2023, other than as described below, there has not been, and there is not currently proposed, any transaction or series of transactions to which we were or will be a participant in which the amount involved exceeded or will exceed $120,000 and in which any Related Person had or will have a direct or indirect material interest.
Strategic Partnership and Intellectual Property Joint Venture with WHP Global
In January 2023, we entered into a strategic partnership with WHP which included, among other transactions, the formation of an intellectual property joint venture (the “IP JV”) with WHP Global, a leading brand management firm (“WHP”), which was intended to scale the Express brand through new domestic category licensing and international expansion opportunities. The Company contributed certain intellectual property assets to the IP JV and retained a
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 77
40% ownership in the IP JV. An affiliate of WHP purchased a 60% ownership interest in the JV. Yehuda Shmidman, Chief Executive Officer of WHP, was appointed to the Board in connection with the transactions, and served on the Board until his resignation on April 19, 2024.
Under the amended and restated limited liability agreement (“Operating Agreement”) governing the operations of the IP JV, cash earnings of the IP JV were distributed quarterly to the Company and WHP on a pro rata basis. The IP JV was managed by a board of managers controlled by an affiliate of WHP, subject to the Company’s right to approve certain actions by the IP JV. Distributions received by the Company from the IP JV during fiscal year 2023 totaled $22.4 million. The equity interests in the Joint Venture was sold pursuant to the Sale Transaction.
In addition, the Company was previously party to certain intellectual property agreements entered into in connection with the IP JV and the parties’ joint acquisition of menswear brand Bonobos, as further described below.
Intellectual Property License Agreement
The Company and the IP JV were party to an Intellectual Property License Agreement entered into January 25, 2023 (the “IP License Agreement”). The IP License Agreement provided the Company with an exclusive license in the United States to the intellectual property contributed to the IP JV and certain other intellectual property. The initial term of the IP License Agreement was 10 years, and the IP License Agreement automatically renewed for successive renewal terms of 10 years (unless the Company provided notice of non-renewal at least 24 months prior to the end of the initial or applicable renewal term). Except for the Company’s right not to renew the IP License Agreement, the IP License Agreement was not terminable by either party. The Company agreed to pay the IP JV a royalty on net sales of certain licensed goods and committed to an annual guaranteed minimum annual royalty during the term of the IP License Agreement (i.e., $60 million in the first contract year, increasing by $1 million per year for the next five contract years, and remaining at $65 million following the sixth contract year). The Company paid actual royalties at a rate of (i) 3.25% of net sales arising from retail sales of certain licensed goods in the first through the fifth contract years (and 3.5% thereafter), and (ii) 8% of net sales arising from wholesale sales of such goods.
Pursuant to the Sale Transaction, the IP License Agreement was transferred to EXPWHP, LLC.
Bonobos License Agreement
On May 23, 2023, in connection with their purchase of the Bonobos business from Walmart Inc. (the “Bonobos Transaction”), the Company and WHP Investments, LLC, an affiliate of WHP (“WHP Investments”) entered into a license agreement (the “Bonobos License Agreement”) that provided the Company with an exclusive license in the United States to intellectual property related to the Bonobos brand, including intellectual property rights for the Bonobos brand that was acquired by WHP Investments in connection with the Bonobos Transaction. The Bonobos License Agreement had an initial term of ten (10) years from the effective date, and automatically renewed for successive renewal terms of ten (10) years unless (i) the Company provided notice of non-renewal at least 24 months prior to the end of the initial or applicable renewal term, or (ii) WHP Investments exercised its right to not renew in the event of certain failures by the Company to pay the annual guaranteed minimum royalty. Except for such non-renewal rights, the Bonobos License Agreement was not terminable by either party. The Company paid WHP Investments a royalty on net sales of certain licensed goods and committed an annual guaranteed minimum royalty during the term of the Bonobos License Agreement (ranging from $6.5 million in the first contract year to $11.5 million in the tenth contract year and each contract year thereafter). The Company paid royalties at a rate of (i) 3.25% of net sales arising from retail sales of certain licensed goods in the first through the fifth contract years (and 3.5% thereafter), and (ii) 8% of net sales arising from wholesale sales of such goods.
Pursuant to the Sale Transaction, the Bonobos License Agreement was transferred to EXPWHP, LLC.
The foregoing descriptions of the Operating Agreement, the IP License Agreement and the Bonobos License Agreement are qualified in their entirety to the full text of the agreements, each of which are filed as exhibits to this Form 10-K.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 78
The Board determined that all of our directors, except for Mr. Glendinning and Mr. Shmidman (when he served as a director from January 25, 2023 to April 19, 2024), are “independent” based on the meaning of such term under the NYSE listing rules. (The Company is no longer subject to such listing rules following the delisting of its common stock from the NYSE on March 6, 2024.)
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
| | | | | | | | | | | | | | |
| Independent Registered Public Accounting Firm Fees and Services |
The following table sets forth the aggregate fees billed to us by PricewaterhouseCoopers LLP, our independent auditor, in fiscal years 2023 and 2022:
| | | | | | | | | | | | | | | | |
| | Fees | | |
| Services Rendered | | 2023 | | 2022 | | |
Audit Fees1 | | $2,440,000 | | $1,780,000 | | |
Audit-Related Fees2 | | — | | 90,000 | | |
| Tax Fees | | 60,000 | | — | | |
All Other Fees3 | | 4,500 | | 4,500 | | |
| Total | | $2,504,500 | | $1,874,500 | | |
1.Audit Fees for fiscal years 2023 and 2022 represent fees for professional services rendered by PricewaterhouseCoopers LLP in connection with the audit of our annual consolidated financial statements. In fiscal year 2022, this included fees associated with the transaction with WHP.
2.Audit-Related Fees for fiscal year 2022 represent fees related to potential financial reporting and SEC filing matters related to the transaction with WHP.
3.All Other Fees for fiscal years 2023 and 2022 represent subscription fees for software to assist management with its financial reporting obligations.
The Company has a policy that requires the Audit Committee, or the Audit Committee Chair under a limited delegation of authority from the Audit Committee, to pre-approve all audit and non-audit services to be provided by our independent auditor and to consider whether the provision of non-audit services is compatible with maintaining the independence of our independent auditor in deciding whether to approve non-audit services. Any pre-approvals made by the Audit Committee Chair under the limited delegation of authority are reported to the full Audit Committee at the next regularly scheduled meeting. All services performed by our independent auditor in fiscal years 2023 and 2022 were pre-approved in accordance with the policy. As a general matter, it is the Audit Committee’s preference that any non-audit services be provided by a firm other than our independent auditor absent special circumstances.
The Bankruptcy Court approved PricewaterhouseCoopers LLP as a post-petition audit service provider.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 79
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) Consolidated Financial Statements
(2) Financial Statement Schedules
Schedules have been omitted because they are not required or are not applicable or because the information required to be set forth therein either is not material or is included in the financial statements or notes thereto.
(3) List of Exhibits
The following exhibits are either included in this report or incorporated by reference as indicated in the following:
EXHIBIT INDEX
| | | | | | | | |
| Exhibit Number | | Exhibit Description |
| | Certificate of Incorporation of Express, Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (File No. 333-168097), filed with the SEC on July 14, 2010). |
| | Certificate of Amendment of Certificate of Incorporation of Express, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on June 11, 2013). |
| | Certificate of Amendment to the Certificate of Incorporation of Express, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on September 1, 2023). |
| | Amended and Restated Bylaws of Express, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on January 24, 2023). |
| | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1/A (File No. 333-164906), filed with the SEC on April 30, 2010 (the "Express S-1")). |
| | Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K, filed with the SEC on March 24, 2022). |
| | Registration Rights Agreement, by and between Express, Inc. and WHP Borrower, LLC (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC on January 26, 2023). |
| | Form of Amended and Restated Employment Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q, filed with the SEC on June 6, 2013). |
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| | | | | | | | |
| | Form of Amended and Restated Severance Agreement (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q, filed with the SEC on June 6, 2013). |
| | Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.11 to the Express S-1). |
| | Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.17 to the Express S-1). |
| | Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.19 to the Express S-1). |
| | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.13 to the Express S-1). |
| | Form of Stock Option Grant Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, filed with the SEC on June 6, 2013). |
| | Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q, filed with the SEC on June 6, 2013). |
| | Form of Non-Qualified Stock Option Grant (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on April 4, 2014). |
| | Form of Restricted Stock Unit Agreement for Restricted Stock Units (incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on April 4, 2014). |
| | Form of Restricted Stock Unit Agreement for Performance Stock Units (incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on April 4, 2014). |
| | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.22 to the Express S-1 |
| | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on January 5, 2012). |
| | Second Amended and Restated $250,000,000 Asset-Based Loan Credit Agreement, dated as of May 20, 2015 among Express Holding, LLC, as Parent, Express, LLC, as Borrower, the Initial Lenders, Initial Issuing Bank and Swing Line Bank, Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, U.S. Bank National Association, as Syndication Agent, and Wells Fargo Bank, National Association, as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on May 27, 2015). |
| | Form of Severance Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on July 7, 2015). |
| | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed with the SEC on July 7, 2015). |
| | Form of Restricted Stock Unit Agreement for Performance Stock Units (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on April 1, 2016). |
| | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on August 3, 2016). |
| | Form of Restricted Stock Unit Agreement for Performance Stock Units (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on March 17, 2017). |
| | Form of Second Amended and Restated Employment Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed with the SEC on March 17, 2017). |
| | Form of Amended and Restated Severance Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed with the SEC on March 17, 2017). |
| | Second Amended and Restated Express, Inc. 2010 Incentive Compensation Plan (incorporated by reference to Appendix B to Express, Inc.'s definitive proxy statement on Schedule 14A, filed with the SEC on April 28, 2017). |
| | Form of Restricted Stock Unit and Other Cash-Based Award Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on April 6, 2018). |
| | Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on June 14, 2018). |
| | Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on March 21, 2019). |
| | Form of Other Cash-Based Award Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed with the SEC on March 21, 2019). |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 81
| | | | | | | | |
| | First Amendment to Second Amended and Restated $250,000,000 Asset-Based Loan Credit Agreement and First Amendment to Amended and Restated Security Agreement, dated as of May 24, 2019, among Express Holding, LLC, as Parent, Express, LLC, as Borrower, the subsidiary guarantors party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, as Collateral Agent, as Issuing Bank and as Swingline Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on May 30, 2019). |
| | Form of Express, Inc. Employment Inducement Award Agreement of Non-qualified Stock Options (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed with the SEC on September 10, 2019). |
| | Form of Express, Inc. Employment Inducement Award Agreement of Restricted Stock Units (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, filed with the SEC on September 10, 2019). |
| | Form of License Agreement. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC April 13, 2023). |
| | Letter Agreement, dated as of September 23, 2019, between Express, Inc. and Matt Moellering (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on September 23, 2019). |
| | Second Amended and Restated Express, Inc. 2018 Incentive Compensation Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8, filed with the SEC on June 15, 2020). |
| | $140,000,000 Asset-Based Term Loan Agreement, dated January 13, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on January 13, 2021). |
| | Second Amendment to the Second Amended and Restated $250,000,000 Asset-Based Loan Credit Agreement, dated January 13, 2021 incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on January 13, 2021). |
| | Employment Agreement by and among Express, Inc., Express LLC and Timothy Baxter, dated effective June 18, 2022 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on June 17, 2022). |
| | First Amendment to Asset-Based Term Loan Agreement and First Amendment to Security Agreement, dated November 23, 2022 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on November 28, 2022). |
| | Third Amendment to Second Amended and Restated Asset-Based Loan Credit Agreement and First Amendment to Second Amended and Restated Security Agreement, dated November 23, 2022 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed with the SEC on November 28, 2022). |
| | Investment Agreement, by and between Express, Inc. and WH Borrower, LLC, dated December 8, 2022 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on December 9, 2022). |
| | Membership Interest Purchase Agreement by and among Express, Inc., WH Borrower, LLC and Express, LLC, dated December 8, 2022 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K/A filed with the SEC on December 9, 2022). |
| | Special Cash Business Continuity Award Agreement, by and between Express LLC and Jason Judd, dated effective January 19, 2023. |
| | Amended Revolving Credit Facility, by and among Express, Inc., Express Topco LLC, Express Holding, LLC, Express, LLC, Express Fashion Investments, LLC and the other loan parties signatory thereto, Wells Fargo Bank, National Association, as administrative agent and collateral agent, and the other lenders named therein, dated January 25, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 26, 2023). |
| | Operating Agreement, by and among Express, LLC, Express Fashion Investments, LLC, Exp Topco, LLC and EXPWHP, LLC, dated January 25, 2023 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on January 26, 2023). |
| | Intellectual Property License Agreement, by and between Express, Inc. and EXP Topco LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on January 26, 2023). |
| | License Agreement, by and between Express, Inc. and WHP Investments, LLC, dated May 23, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 24, 2023). |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 82
| | | | | | | | |
| | Form of Other Cash-Based Award Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on June 8, 2023). |
| | Term Loan Agreement, by and among Express, Inc., Express, LLC, certain other direct or indirect, wholly-owned subsidiaries of Express, Inc., ReStore Capital LLC, as administrative agent, collateral agent and lender, and the other lenders from time to time party thereto, dated as of September 5, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2023). |
| | Fifth Amendment to Second Amended and Restated Asset-Based Loan Credit Agreement, by and among Express, Inc., Express, LLC, certain other direct or indirect, wholly-owned subsidiaries of the Company, Wells Fargo Bank, National Association, as administrative agent and collateral agent, and the lenders party thereto, dated as of September 5, 2023 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on September 6, 2023). |
| | Separation Agreement, dated as of September 11, 2023, by and between Express, Inc., Express, LLC and Timothy Baxter (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 11, 2023). |
| | Employment Agreement, dated September 6, 2023, by and among Express, Inc., Express, LLC and Stewart Glendinning (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on September 11, 2023). |
| | Form of Employment Inducement Award Agreement (Performance-Based Restricted Stock Units) (incorporated by reference to Exhibit 99.1 to the Form S-8, filed with the SEC on October 11, 2023). |
| | List of subsidiaries of registrant. |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certification of Principal Financial Officer and Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | Express, Inc. Clawback Policy |
| 101.INS* | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
| 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| | |
| + | Indicates a management contract or compensatory plan or arrangement. |
| * | Filed herewith. |
(b) Exhibits
The exhibits to this report are listed in section (a)(3) of Item 15 above.
(c) Financial Statement Schedules
None.
ITEM 16. FORM 10-K SUMMARY.
Not applicable.
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| Date: | December 30, 2024 | EXP OldCo Winddown, Inc. |
| | | |
| | By: | /s/ Mark Still |
| | | Mark Still |
| | | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 84
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Mark Still as attorney-in-fact and agent, with full power of substitution and re-substitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in son, hereby ratifying and confirming all that said attorney-in-fact or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| | | |
| Date: | December 30, 2024 | By: | /s/ Stewart Glendinning |
| | | Stewart Glendinning |
| | | Chief Executive Officer (Principal Executive Officer) |
| | | |
| Date: | December 30, 2024 | By: | /s/ Mark Still |
| | | Mark Still |
| | | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
| | | |
| Date: | December 30, 2024 | By: | /s/ Michael G. Archbold |
| | | Michael G. Archbold |
| | | Director |
| | | |
| Date: | December 30, 2024 | By: | /s/ Terry Davenport |
| | | Terry Davenport |
| | | Director |
| | | |
| Date: | December 30, 2024 | By: | /s/ Karen Leever |
| | | Karen Leever |
| | | Director |
| | | |
| Date: | December 30, 2024 | By: | /s/ Patricia E. Lopez |
| | | Patricia E. Lopez |
| | | Director |
| | | |
| Date: | December 30, 2024 | By: | /s/ Mylle H. Mangum |
| | | Mylle H. Mangum |
| | | Director |
| | | |
| Date: | December 30, 2024 | By: | /s/ Satish Mehta |
| | | Satish Mehta |
| | | Director |
| | | |
| Date: | December 30, 2024 | By: | /s/ William Transier |
| | | William Transier |
| | | Director |
| | | |
| Date: | December 30, 2024 | By: | /s/ Peter Swinburn |
| | | Peter Swinburn |
| | | Director |
EXP OldCo Winddown, Inc. | 2023 FORM 10-K | 85
