Express 2011 Annual Report Download - page 31

• engage in transactions with affiliates;
• change the nature of our business;
• change our or our subsidiaries’ fiscal year or organizational documents; and
• make restricted payments (including certain equity issuances).
In addition, in the agreement governing our Opco Revolving Credit Facility, we are required to maintain a fixed
charge coverage ratio of 1.00 to 1.00, if excess availability plus eligible cash collateral is less than 10% of the
borrowing base for 15 consecutive days.
A failure by us or our subsidiaries to comply with the covenants or to maintain the required financial ratios
contained in the agreements governing our indebtedness could result in an event of default under such
indebtedness, which could adversely affect our ability to respond to changes in our business and manage our
operations. Additionally, a default by us under one agreement covering our indebtedness may trigger cross-
defaults under another agreement covering our indebtedness. Upon the occurrence of an event of default or cross-
default under any of the agreements governing our indebtedness, the lenders could elect to declare all amounts
outstanding to be due and payable and exercise other remedies as set forth in the agreements. If any of our
indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay this
indebtedness in full, which could have a material adverse effect on our ability to continue to operate as a going
concern. See the “Liquidity and Capital Resources” for further information relating to our indebtedness.
Our results may be adversely affected by fluctuations in energy costs.
Energy costs have fluctuated dramatically in the past. These fluctuations may result in an increase in our
transportation costs for distribution, utility costs for our retail stores, and costs to purchase product from our
manufacturers. A rise in energy costs could adversely affect consumer spending and demand for our products and
increase our operating costs, both of which could have a material adverse effect on our financial condition and
results of operations.
Changes in taxation requirements or the results of tax audits could adversely affect our financial results.
In connection with the Reorganization, we elected to be treated as a corporation under Subchapter C of Chapter 1
of the Internal Revenue Code of 1986, as amended (the “Code”), effective May 2, 2010 which subjects us to
additional taxes and risks, including tax on our income. As a result of the Reorganization, we recorded a net
deferred tax asset and a one-time non-cash tax benefit of $31.8 million in the second quarter of 2010. In addition,
we may be subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits
may challenge certain of our tax positions, such as the timing and amount of deductions and allocations of
taxable income to the various jurisdictions. These additional taxes and the results of any tax audits could
adversely affect our financial results.
In addition, we are subject to income tax in numerous jurisdictions, and in the future as a result of our expansion
we may be subject to income tax in additional jurisdictions, including international and domestic locations. Our
products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions.
Fluctuations in tax rates and duties could have a material adverse effect on our financial condition, results of
operations, or cash flows.
We may recognize impairment on long-lived assets.
Our long-lived assets, primarily stores and intangible assets, are subject to periodic testing for impairment. Store
assets are reviewed using factors including, but not limited to, our future operating plans and projected future
cash flows. Failure to achieve our future operating plans or generate sufficient levels of cash flow at our stores
could result in impairment charges on long-lived assets, which could have a material adverse effect on our
financial condition or results of operations.
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