1.	Basis of Presentation

In the opinion of management of Destination XL Group, Inc., a Delaware corporation (formerly known as Casual Male Retail Group, Inc. and collectively referred to as the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended February 2, 2013 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 15, 2013.

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2013 is a 52-week period ending on February 1, 2014. Fiscal 2012 was a 53-week period ending on February 2, 2013.

Reclassification

Results for the first quarter of fiscal 2012 have been restated to reflect the operating results of the Company’s European operations as discontinued operations. See Note 5, “Discontinued Operations.”

Segment Information

The Company reports its operations as one reportable segment, Big & Tall Men’s Apparel, which consists of two principal operating segments: its retail business and its direct businesses. The Company considers its operating segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into a single reporting segment. The direct operating segment includes the operating results and assets for LivingXL^® and ShoesXL^®.

Other Intangibles

At May 4, 2013, the “Casual Male” trademark has a carrying value of $3.6 million and is considered a definite-lived asset. The Company is amortizing the remaining carrying value of $3.6 million on an accelerated basis consistent with projected cash flows through fiscal 2018, its estimated remaining useful life.

The Company’s “Rochester” trademark is considered an indefinite-lived intangible asset and has a carrying value of $1.5 million. During the first three months of fiscal 2013, no event or circumstance occurred which would cause a reduction in the fair value of the Company’s reporting units, requiring interim testing of the Company’s “Rochester” trademark.

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. The carrying amounts for the Company’s long-term debt approximate fair value as the interest rates and terms are substantially similar to those that could be obtained currently for similar instruments. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.

Accumulated Other Comprehensive Income (Loss) - (“AOCI”)

Other comprehensive income (loss) include amounts related to foreign currency and pension plans and are reported in the Consolidated Statements of Comprehensive Income. Other comprehensive income and reclassifications from AOCI for the three months ended May 4, 2013 and April 28, 2012 are as follows:


	May 4, 2013									April 28, 2012
For the three months ended (in thousands):	Pension Plans			Foreign			Total			Pension Plans			Foreign		Total
Balance at beginning of fiscal year	$	(5,828	)	$	267		$	(5,561	)	$	(5,949	)	$	233	$	(5,716	)

Other comprehensive income (loss) before reclassifications, net of taxes		43			(68	)		(25	)		25			102		127

Amounts reclassified from accumulated other comprehensive income (loss), net of taxes ⁽¹⁾		51			—			51			70			—		70


Other comprehensive income (loss) for the period		94			(68	)		26			95			102		197


Balance at end of quarter	$	(5,734	)	$	199		$	(5,535	)	$	(5,854	)	$	335	$	(5,519	)

(1)

Represents the amortization of the unrecognized (gain)/loss. The amortization of the unrecognized loss, before tax, of $84,000 and $116,000 for the three months ended May 4, 2013 and April 28, 2012, respectively, was charged to Selling, General & Administrative expense on the Consolidated Statement of Operations.

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

Stock-based Compensation

All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the statement of operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards that will ultimately vest requires significant judgment. Actual results, and future changes in estimates, may differ from the Company’s current estimates.

For the first three months of fiscal 2013 and fiscal 2012, the Company recognized total stock-based compensation expense of $0.1 million and $0.4 million, respectively.

The total compensation cost related to non-vested awards not yet recognized as of May 4, 2013 is approximately $0.3 million which will be expensed over a weighted average remaining life of 16 months.

Valuation Assumptions for Stock Options and Restricted Stock

The Company granted stock options to purchase 1,077 and 1,286 shares of common stock to certain of its non-employee directors as compensation for the three months ended May 4, 2013 and April 28, 2012, respectively. There were no grants of restricted stock.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average grant date fair-value of stock options granted during the first quarter of fiscal 2013 was $1.74 per share.

The following assumptions were used for grants for the first quarter of fiscal 2013 and fiscal 2012:


	May 4, 2013	April 28, 2012
Expected volatility	52.0%	55.0%
Risk-free interest rate	0.36-0.38%	0.31%
Expected life	3.0 yrs	3.0 yrs
Dividend rate	—	—

Expected volatilities are based on historical volatilities of the Company’s common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

During the first three months of fiscal 2013, options to purchase 200,000 shares of common stock, with an intrinsic value of approximately $42,000, were exercised through net share settlement. As a result, only 8,047 shares were issued.

The Company granted 3,872 shares of common stock, with a fair value of approximately $18,000, to certain of its non-employee directors as compensation for the first three months of fiscal 2013.

Recently Issued Accounting Pronouncements

The Company has reviewed accounting pronouncements and interpretations thereof that have effective dates during the periods reported and in future periods. The Company believes that the following impending standards may have an impact on its future filings. The applicability of any standard will be evaluated by the Company and is still subject to review by the Company.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires the presentation of the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under generally accepted accounting principles in the United States (“U.S. GAAP”) to be reclassified to net income in its entirety in the same reporting period. The guidance was effective for fiscal years beginning after December 15, 2012. The Company has adopted ASU 2013-2 and has included the related disclosure within the notes to the consolidated financial statements.