UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended April
29, 2006
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the
transition period from ______________ to _______________
Commission
File No. 000-07258
CHARMING
SHOPPES, INC.
(Exact
name of registrant as specified in its charter)
|
PENNSYLVANIA
|
|
23-1721355
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
450
WINKS LANE, BENSALEM, PA 19020
|
|
(215)
245-9100
|
|
|
(Address
of principal executive offices) (Zip Code)
|
|
(Registrant’s
telephone number, including Area Code)
|
|
NOT
APPLICABLE
(Former
name, former address, and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days:
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-accelerated
Filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
Yes
o No
x
The
number of shares outstanding of the issuer’s Common Stock (par value $.10 per
share), as of May 30, 2006, was 122,377,033 shares.
TABLE
OF CONTENTS
|
|
Page
|
PART
I.
|
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|
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Item
1.
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2
|
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2
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3
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4
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5
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Item
2.
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15
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15
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17
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19
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19
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23
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26
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27
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28
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Item
3.
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28
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Item
4.
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28
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PART
II.
|
|
|
|
|
|
Item
1.
|
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29
|
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|
Item
1A.
|
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29
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|
|
Item
2.
|
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30
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Item
6.
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30
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32
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|
33
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
April
29,
|
|
January
28,
|
|
(In
thousands, except share amounts)
|
|
2006
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
154,877
|
|
$
|
130,132
|
|
Available-for-sale
securities
|
|
|
11,807
|
|
|
20,150
|
|
Accounts
receivable, net of allowances of $6,903 and $6,588
|
|
|
8,485
|
|
|
38,603
|
|
Investment
in asset-backed securities
|
|
|
69,116
|
|
|
66,828
|
|
Merchandise
inventories
|
|
|
448,615
|
|
|
376,409
|
|
Deferred
advertising
|
|
|
21,544
|
|
|
20,591
|
|
Deferred
taxes
|
|
|
13,738
|
|
|
13,848
|
|
Prepayments
and other
|
|
|
100,372
|
|
|
89,245
|
|
Total
current assets
|
|
|
828,554
|
|
|
755,806
|
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold improvements - at cost
|
|
|
902,878
|
|
|
888,481
|
|
Less
accumulated depreciation and amortization
|
|
|
535,848
|
|
|
525,882
|
|
Net
property, equipment, and leasehold improvements
|
|
|
367,030
|
|
|
362,599
|
|
|
|
|
|
|
|
|
|
Trademarks
and other intangible assets
|
|
|
250,590
|
|
|
250,074
|
|
Goodwill
|
|
|
154,014
|
|
|
154,553
|
|
Other
assets
|
|
|
49,401
|
|
|
43,963
|
|
Total
assets
|
|
$
|
1,649,589
|
|
$
|
1,566,995
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
40,000
|
|
$
|
50,000
|
|
Accounts
payable
|
|
|
182,956
|
|
|
133,236
|
|
Accrued
expenses
|
|
|
203,363
|
|
|
217,421
|
|
Income
taxes payable
|
|
|
17,982
|
|
|
1,743
|
|
Current
portion - long-term debt
|
|
|
13,720
|
|
|
14,765
|
|
Total
current liabilities
|
|
|
458,021
|
|
|
417,165
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
43,383
|
|
|
45,046
|
|
Other
non-current liabilities
|
|
|
105,706
|
|
|
98,457
|
|
Long-term
debt
|
|
|
189,258
|
|
|
191,979
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
Common
Stock $.10 par value:
|
|
|
|
|
|
|
|
Authorized
- 300,000,000 shares
|
|
|
|
|
|
|
|
Issued
- 134,554,302 shares and 133,954,852 shares
|
|
|
13,455
|
|
|
13,395
|
|
Additional
paid-in capital
|
|
|
267,826
|
|
|
261,077
|
|
Treasury
stock at cost - 12,265,993 shares
|
|
|
(84,136
|
)
|
|
(84,136
|
)
|
Accumulated
other comprehensive loss
|
|
|
0
|
|
|
(3
|
)
|
Retained
earnings
|
|
|
656,076
|
|
|
624,015
|
|
Total
stockholders’ equity
|
|
|
853,221
|
|
|
814,348
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,649,589
|
|
$
|
1,566,995
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirteen
Weeks Ended
|
|
|
|
April
29,
|
|
April
30,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
734,922
|
|
$
|
603,353
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
499,288
|
|
|
403,922
|
|
Selling,
general, and administrative expenses
|
|
|
183,232
|
|
|
150,938
|
|
Total
operating expenses
|
|
|
682,520
|
|
|
554,860
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
52,402
|
|
|
48,493
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
1,548
|
|
|
2,815
|
|
Interest
expense
|
|
|
(4,124
|
)
|
|
(3,925
|
)
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
49,826
|
|
|
47,383
|
|
Income
tax provision
|
|
|
17,765
|
|
|
17,366
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
32,061
|
|
|
30,017
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
Unrealized
gains on available-for-sale securities, net of income tax provision
of $2
in 2006
|
|
|
3
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
32,064
|
|
$
|
30,017
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
.26
|
|
$
|
.25
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
.24
|
|
$
|
.23
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Thirteen
Weeks Ended
|
|
|
|
April
29,
|
|
April
30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
32,061
|
|
$
|
30,017
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
20,158
|
|
|
18,728
|
|
Deferred
income taxes
|
|
|
(1,665
|
)
|
|
151
|
|
Stock-based
compensation
|
|
|
2,551
|
|
|
1,226
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
(2,035
|
)
|
|
546
|
|
Net
(gain)/loss from disposition of capital assets
|
|
|
353
|
|
|
(873
|
)
|
Net
gain from securitization activities
|
|
|
(152
|
)
|
|
(816
|
)
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
30,118
|
|
|
0
|
|
Merchandise
inventories
|
|
|
(72,206
|
)
|
|
(62,674
|
)
|
Accounts
payable
|
|
|
49,720
|
|
|
43,962
|
|
Deferred
advertising
|
|
|
(953
|
)
|
|
0
|
|
Prepayments
and other
|
|
|
(11,127
|
)
|
|
(4,530
|
)
|
Income
taxes payable
|
|
|
18,274
|
|
|
3,942
|
|
Accrued
expenses and other
|
|
|
(6,160
|
)
|
|
6,036
|
|
Net
cash provided by operating activities
|
|
|
58,937
|
|
|
35,715
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Investment
in capital assets
|
|
|
(23,854
|
)
|
|
(17,697
|
)
|
Proceeds
from sales of capital assets
|
|
|
0
|
|
|
1,923
|
|
Gross
purchases of securities
|
|
|
(3,251
|
)
|
|
(31,725
|
)
|
Proceeds
from sales of securities
|
|
|
9,463
|
|
|
0
|
|
Purchase
of Catherines
receivables portfolio
|
|
|
0
|
|
|
(56,582
|
)
|
Securitization
of Catherines
receivables portfolio
|
|
|
0
|
|
|
56,582
|
|
Increase
in other assets
|
|
|
(7,042
|
)
|
|
(2,272
|
)
|
Net
cash used by investing activities
|
|
|
(24,684
|
)
|
|
(49,771
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
|
96,418
|
|
|
67,262
|
|
Repayments
of short-term borrowings
|
|
|
(106,418
|
)
|
|
(67,262
|
)
|
Repayments
of long-term borrowings
|
|
|
(3,766
|
)
|
|
(4,380
|
)
|
Excess
tax benefits related to stock-based compensation
|
|
|
2,035
|
|
|
0
|
|
Proceeds
from issuance of common stock
|
|
|
2,223
|
|
|
188
|
|
Net
cash used by financing activities
|
|
|
(9,508
|
)
|
|
(4,192
|
)
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
24,745
|
|
|
(18,248
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
130,132
|
|
|
273,049
|
|
Cash
and cash equivalents, end of period
|
|
$
|
154,877
|
|
$
|
254,801
|
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing activities
|
|
|
|
|
|
|
|
Equipment
acquired through capital leases
|
|
$
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We
have
prepared our condensed consolidated balance sheet as of April 29, 2006, our
condensed consolidated statements of operations and comprehensive income for
the
thirteen weeks ended April 29, 2006 and April 30, 2005, and our condensed
consolidated statements of cash flows for the thirteen weeks ended April 29,
2006 and April 30, 2005 without audit. In our opinion, we have made all
adjustments (which include only normal recurring adjustments) necessary to
present fairly our financial position, results of operations and comprehensive
income, and cash flows. Certain prior-year amounts in the condensed consolidated
balance sheets, condensed consolidated statements of operations and
comprehensive income, and condensed consolidated statements of cash flows have
been reclassified to conform to the current-year presentation. We have condensed
or omitted certain information and footnote disclosures normally included in
financial statements prepared in accordance with United States generally
accepted accounting principles. These financial statements and related notes
should be read in conjunction with our financial statements and related notes
included in our January 28, 2006 Annual Report on Form 10-K. The results of
operations for the thirteen weeks ended April 29, 2006 and April 30, 2005 are
not necessarily indicative of operating results for the full fiscal
year.
As
used
in these notes, the terms “Fiscal 2007” and “Fiscal 2006” refer to our fiscal
year ending February 3, 2007 and our fiscal year ended January 28, 2006,
respectively. The terms “the Company,” “we,” “us,” and “our” refer to Charming
Shoppes, Inc. and, where applicable, our consolidated subsidiaries.
Segment
Reporting
Effective
with our acquisition of Crosstown Traders, Inc. (“Crosstown Traders”) on June 2,
2005, we operate and report in two segments, Retail Stores and
Direct-to-Consumer, which are consistent with the way our chief operating
decision-makers review our results of operations. The Retail Stores segment
derives its revenues from sales through retail stores, including store-related
E-commerce sales, under our LANE
BRYANT®,
FASHION
BUG®,
and
CATHERINES
PLUS SIZES®
brands.
The Direct-to-Consumer segment derives its revenues from catalog sales and
catalog-related E-commerce sales under our Crosstown Traders catalogs. See
“Note
11. Segment Reporting”
below
for further information regarding our segment reporting.
Stock-based
Compensation
As
of
April 29, 2006, we had various stock-based compensation plans under which we
are
currently granting awards, which are more fully described in “Item
8. Financial Statements and Supplementary Data; Note 10. Stock Option and Stock
Incentive Plans”
and
“Note
11. Employee Stock Purchase Plan” in
our
January 28, 2006 Annual Report on Form 10-K.
Our
2003
Non-Employee Directors Compensation Plan provides for the grant of stock
options, stock appreciation rights (“SARs”), restricted stock awards, restricted
stock units (“RSUs”), or deferred shares of up to an aggregate total of 600,000
shares of our common stock to members of our Board of Directors that are not
employed by the Company. The exercise price of options or SARs granted under
the
plan may not be less than the fair market value of our common stock on the
date
of grant. Non-employee directors may also elect to receive deferred shares
of
common stock of an equivalent market value instead of cash director’s fees. The
plan provides for a one-time restricted stock award of 10,000 shares of common
stock that vest in equal amounts over three years to a newly elected or
appointed non-employee director. The plan also provides for annual grants of
options for 7,500 shares of common stock that vest in one year and annual grants
of 7,500 RSUs that vest in one year to each non-employee director serving at
the
date of our Annual Meeting of Shareholders. As of April 29, 2006, 311,787 shares
were available for future grants under this plan.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Our
2004
Stock Award and Incentive Plan (the “2004 Plan”) provides for the grant of
options (including both incentive and non-qualified stock options), restricted
stock, stock appreciation rights, restricted stock units, and a variety of
other
types of awards of up to an aggregate of 6,500,000 shares of our common stock
plus shares remaining available under certain of our previous plans. Of the
aggregate shares available, up to 2,000,000 shares may be issued in connection
with “full-value” awards. Additional shares may be used for full-value awards by
reducing the number of shares that remain available for options, SARs, and
other
non-full-value awards at a three-to-one ratio. The aggregate number of shares
subject to awards granted under the 2004 Plan in any fiscal year will not exceed
2% of our common stock on a fully diluted basis as of the last day of the
preceding fiscal year. As of April 29, 2006, 7,321,220 shares were available
for
future grants under this plan.
Our
1988
Key Employee Stock Option Plan provides for the grant of options to our key
employees to purchase up to an aggregate total of 3,000,000 shares of our common
stock. The exercise price of options granted under this plan is $1.00 per share.
As of April 29, 2006, 114,168 shares were available for future grants under
this
plan.
The
table
below summarizes stock option activity for the thirteen weeks ended April 29,
2006:
|
|
|
|
Average
|
|
|
|
|
|
Option
|
|
Option
|
|
Option
Prices
|
|
|
|
Shares
|
|
Price
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 28, 2006
|
|
|
3,672,108
|
|
$
|
5.82
|
|
$
|
1.00
|
|
-
|
|
$
|
12.48
|
|
Granted
-
option
price equal to market price
|
|
|
1,233
|
|
|
13.84
|
|
|
13.84
|
|
-
|
|
|
13.84
|
|
Granted
-
option
price less than market price
|
|
|
31,600
|
|
|
1.00
|
|
|
1.00
|
|
-
|
|
|
1.00
|
|
Canceled/forfeited
|
|
|
(4,333
|
)
|
|
2.94
|
|
|
1.00
|
|
-
|
|
|
6.50
|
|
Exercised
|
|
|
(513,703
|
)
|
|
6.01
|
|
|
1.00
|
|
-
|
|
|
9.10
|
|
Outstanding
at April 29, 2006
|
|
|
3,186,905
|
|
$
|
5.75
|
|
$
|
1.00
|
|
-
|
|
$
|
13.84
|
|
Exercisable
at April 29, 2006
|
|
|
2,892,724
|
|
$
|
5.79
|
|
$
|
1.00
|
|
-
|
|
$
|
8.46
|
|
The
aggregate intrinsic value of options outstanding at April 29 2006 (aggregate
market value on April 29, 2006 less aggregate exercise price) was
$25,502,000.
Our
1994
Employee Stock Purchase Plan permits employees to purchase shares of our common
stock during quarterly offering periods at a price equal to 85% of the lower
of
the stock’s market price on the first day of, or the fifth business day after
the end of, the offering period. Employees purchase shares through accumulation
of payroll deductions of up to 10% of the employee’s compensation during each
offering period. An aggregate total of 2,000,000 shares are reserved for grant
under this plan. As of April 29, 2006, 1,219,518 shares were available for
future grants under this plan.
Through
Fiscal 2006,we accounted for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting
for Stock Issued to Employees,”
as
permitted by Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“SFAS”) No. 123, “Accounting
for Stock-Based Compensation.”
We
recorded compensation expense for stock awards and for stock options with an
exercise price less than the market price of our common stock at the date of
grant, based on the difference between the market price and the exercise price
of the option at the date of grant. The compensation expense was recognized
on a
straight-line basis over the vesting period of each award or option. We did
not
recognize compensation expense for options having an exercise price equal to
the
market price on the date of grant or for shares purchased under our Employee
Stock Purchase Plan.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
We
disclosed as pro forma information compensation expense for all stock options
and stock awards based on an estimated fair value of the option or award. In
accordance with SFAS No. 123, we used the Black-Scholes pricing model to
estimate the fair value of stock options. The Black-Scholes model required
estimates or assumptions as to the dividend yield and price volatility of the
underlying stock, the expected life of the option, and a relevant risk-free
interest rate, which are more fully described in “Item
8. Financial Statements and Supplementary Data; Note 1. Summary of Significant
Accounting Policies; Common
Stock Plans”
in
our
January 28, 2006 Annual Report on Form 10-K.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment”
(“SFAS
No. 123R”), a revision of SFAS No. 123. Under SFAS No. 123R, we are required to
recognize the fair value of stock-based payments as compensation expense in
our
financial statements beginning in Fiscal 2007. Pro forma disclosures are no
longer permitted.
We
elected to adopt SFAS No. 123R on the modified prospective method and,
accordingly, prior periods have not been restated. Stock-based compensation
cost
recognized in the thirteen weeks ended April 29, 2006 includes (i) compensation
cost for all stock-based awards granted prior to the beginning of Fiscal 2007
but not fully vested as of the beginning of Fiscal 2007, based on the grant-date
fair value estimated in accordance with the provisions of SFAS No. 123, and
(ii)
compensation cost for all stock-based awards granted subsequent to the beginning
of Fiscal 2007, based on the grant-date fair value estimated in accordance
with
the provisions of SFAS No. 123R. The impact of the change from using actual
forfeitures to determine compensation expense under the intrinsic value method
to using estimated forfeitures in accordance with the provisions of SFAS No.
123R was immaterial. Current grants of stock-based compensation consist
primarily of restricted stock awards. Under SFAS No. 123R, we will continue
to
use the Black-Scholes valuation model to estimate the fair value of stock
options, using assumptions consistent with our pro forma disclosures under
SFAS
No. 123, and straight-line amortization of stock-based
compensation.
Adoption
of SFAS No. 123R will generally result in the recognition of additional
stock-based compensation in the financial statements as compared to use of
the
intrinsic value method. However, beginning in Fiscal 2005, we changed the
composition of our stock-based compensation awards to include mainly restricted
stock awards, which generally yield the same compensation expense under both
the
intrinsic value method and SFAS No. 123R. In addition, we did not have
significant unvested stock options as of the beginning of Fiscal 2007.
Accordingly, the adoption of SFAS No. 123R did not have a material incremental
impact on our income before taxes and net income, or on our basic and diluted
net income per share. Total stock-based compensation recognized in our results
of operations for the thirteen weeks ended April 29, 2006 and April 30, 2005
was
$2,551,000 and $1,226,000, respectively. Total stock-based compensation not
yet
recognized related to the non-vested portion of stock options and awards
outstanding as of April 29, 2006 was $20,967,000. The weighted-average period
over which we expect to recognize this compensation is approximately 3.1
years.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
The
following table reconciles net income and net income per share as reported
for
the thirteen weeks ended April 30, 2005 using the intrinsic value method under
APB No. 25, to pro forma net income and net income per share using the fair
value method under FASB Statement of Financial Accounting Standards (“SFAS”) No.
123, “Accounting
for Stock-based Compensation:”
|
|
Thirteen
|
|
|
|
Weeks
Ended
|
|
|
|
April
30,
|
|
(In
thousands, except per share amounts)
|
|
2005
|
|
|
|
|
|
|
Net
income as reported
|
|
$
|
30,017
|
|
Add
stock-based employee compensation using intrinsic value
method,
|
|
|
|
|
net
of income taxes
|
|
|
797
|
|
Less
stock-based employee compensation using fair value method,
|
|
|
|
|
net
of income taxes
|
|
|
(1,057
|
)
|
Pro
forma net income
|
|
$
|
29,757
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
As
reported
|
|
$
|
.25
|
|
Pro
forma
|
|
|
.25
|
|
Diluted
net income per share:
|
|
|
|
|
As
reported
|
|
|
.23
|
|
Pro
forma
|
|
|
.23
|
|
Under
the
provisions of SFAS No. 123R, we are required to present gross excess tax
benefits related to stock-based compensation as cash flows from financing
activities in our statements of cash flows instead of as cash flows from
operating activities as previously required. Write-offs of deferred tax assets
related to an excess of stock-based compensation recognized in the financial
statements over amounts deductible for tax purposes will continue to be
reflected as cash flows used by operating activities. Net cash used by financing
activities for the thirteen weeks ended April 29, 2006 includes $2,035,000
of
excess tax benefits related to stock-based compensation that would have been
classified as a cash inflow in net cash provided by operating activities if
we
had not adopted the provisions of SFAS No. 123R.
Note
2. Acquisition of Crosstown Traders, Inc.
On
June
2, 2005, we acquired 100% of the outstanding stock of Crosstown Traders, a
direct marketer of women’s apparel, footwear, accessories, and specialty gifts,
from JPMorgan Partners, the private equity arm of J.P. Morgan Chase & Co. We
accounted for the acquisition under the purchase method of accounting, and
included the results of operations of Crosstown Traders in our results of
operations from the date of acquisition. Prior-period results have not been
restated for the acquisition. Assets acquired and liabilities assumed were
recorded at their estimated fair values. In accordance with the provisions
of
SFAS No. 141, “Business
Combinations,”
we
recognized certain intangible assets acquired, primarily trademarks, tradenames,
internet domain names, and customer relationships, separately from goodwill.
The
fair values of acquired intangible assets, property, and equipment were based
on
an independent appraisal. Other assets acquired and liabilities assumed were
recorded at their estimated fair values. The final purchase price allocations
will be completed after we review all available data and complete our own
internal assessments. Any additional adjustments resulting from finalization
of
the purchase price allocations for Crosstown Traders will affect the amount
assigned to goodwill.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
2. Acquisition of Crosstown Traders, Inc. (Continued)
Concurrent
with the acquisition of Crosstown Traders, we began preparing a formal
integration plan for Crosstown Traders’ operations, which included exiting and
consolidating certain activities of Crosstown Traders, lease terminations,
unfavorable contract costs, severance, and certain other exit costs. As of
January 28, 2006, we finalized the plan and recorded a liability for the costs
of the plan, which we recorded as a component of the purchase price of the
acquisition in accordance with EITF Issue 95-3, “Recognition
of Liabilities in Connection with a Purchase Business
Combination.”
Liabilities
recorded in connection with the integration plan (which we recorded as
adjustments to goodwill and deferred income taxes), adjustments, payments or
settlements of these liabilities for the thirteen weeks ended April 29, 2006,
and the remaining accrual as of April 29, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
|
|
|
Balance
at
|
|
April
29, 2006
|
|
Balance
at
|
|
|
|
January
28,
|
|
|
|
Payments/
|
|
April
29,
|
|
(In
thousands)
|
|
2006
|
|
Adjustments
|
|
Settlements
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and related costs
|
|
$
|
4,380
|
|
$
|
0
|
|
$
|
(192
|
)
|
$
|
4,188
|
|
Lease
termination and related costs
|
|
|
2,180
|
|
|
(290
|
)
|
|
0
|
|
|
1,890
|
|
Unfavorable
contract costs
|
|
|
900
|
|
|
0
|
|
|
0
|
|
|
900
|
|
Other
costs
|
|
|
1,154
|
|
|
.0
|
|
|
.0
|
|
|
1,154
|
|
Total
|
|
$
|
8,614
|
|
$
|
(290
|
)
|
$
|
(192
|
)
|
$
|
8,132
|
|
Severance
and related costs represent involuntary termination benefits for approximately
322 employees as a result of the decision to close Crosstown Traders’
manufacturing facility and two of its offices, and to consolidate certain
back-office operations into our shared-services operations. Lease termination
and related costs mainly represent the estimated lease termination obligations
related
to the
closing of Crosstown Traders’ leased manufacturing facility. The unfavorable
contract costs represent the estimated costs related to an unfavorable service
contract Crosstown Traders entered into prior to the acquisition. Other costs
are principally employee relocation costs to relocate certain key Crosstown
Traders employees from the closed facilities to Crosstown Traders’ headquarters
in Tucson, Arizona. We expect to complete our integration plan by the end of
Fiscal 2007.
During
the thirteen weeks ended April 29, 2006, we entered into a sublease agreement
for Crosstown Traders’ manufacturing facility for a portion of the lease term
ending in December 2009. Accordingly, we have adjusted the estimated lease
termination and related costs accrual, deferred income taxes, and
goodwill.
The
following unaudited pro forma information is based on historical data, and
gives
effect to our acquisition of Crosstown Traders as if the acquisition had
occurred on January 29, 2005. The pro forma information includes adjustments
having a continuing impact on our consolidated results of operations as a result
of using the purchase method of accounting for the acquisition. These
adjustments consist of: additional depreciation of fair value adjustments for
property, equipment, and leasehold improvements; amortization of the fair value
of customer relationships acquired; additional interest expense from borrowings
incurred to finance the acquisition and amortization of deferred financing
costs
related to amending our credit facility; reduced interest expense from the
repayment of Crosstown Traders’ debt; and a reduction in interest income from
the use of cash and cash equivalents to fund a portion of the acquisition cost.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
2. Acquisition of Crosstown Traders, Inc. (Continued)
The
unaudited pro forma information has been prepared based on our purchase price
allocations, using assumptions that our management believes are reasonable.
It
is not necessarily indicative of the actual results of operations that would
have occurred if the acquisition had occurred as of January 29, 2005, and is
not
necessarily indicative of the results that may be achieved in the future. The
unaudited pro forma information does not reflect adjustments for the effect
of
non-recurring items or for operating synergies that we may realize as a result
of the acquisition.
Unaudited
pro forma results of operations:
|
|
Thirteen
|
|
|
|
Weeks
Ended
|
|
|
|
April
30,
|
|
(In
thousands, except per share amounts)
|
|
2005
|
|
|
|
|
|
|
Net
sales
|
|
$
|
711,398
|
|
Net
income
|
|
|
29,800
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
Basic
|
|
$
|
.25
|
|
Diluted
|
|
|
.23
|
|
NOTE
3. Accounts Receivable
Accounts
receivable consist of trade receivables from sales through our FIGI’S catalog,
acquired on June 2, 2005 as part of our acquisition of Crosstown Traders.
Details of our accounts receivable are as follows:
|
|
April
29,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Due
from customers
|
|
$
|
15,388
|
|
$
|
45,191
|
|
Allowance
for doubtful accounts
|
|
|
(6,903
|
)
|
|
(6,588
|
)
|
Net
accounts receivable
|
|
$
|
8,485
|
|
$
|
38,603
|
|
Note
4. Trademarks and Other Intangible Assets
|
|
April
29,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Trademarks,
tradenames, and internet domain names
|
|
$
|
240,300
|
|
$
|
238,800
|
|
Customer
lists, customer relationships, and covenant not to compete
|
|
|
16,400
|
|
|
16,400
|
|
Total
at cost
|
|
|
256,700
|
|
|
255,200
|
|
Less
accumulated amortization of customer lists, customer relationships,
and
covenant not to compete
|
|
|
6,110
|
|
|
5,126
|
|
Net
trademarks and other intangible assets
|
|
$
|
250,590
|
|
$
|
250,074
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
5. Short-term Borrowings and Long-term Debt
|
|
April
29,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
|
|
|
|
|
Revolving
credit facility
|
|
$
|
40,000
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
|
|
|
|
4.75%
Senior Convertible Notes, due June 2012
|
|
$
|
150,000
|
|
$
|
150,000
|
|
Capital
lease obligations
|
|
|
21,734
|
|
|
24,825
|
|
6.07%
mortgage note, due October 2014
|
|
|
12,132
|
|
|
12,261
|
|
6.53%
mortgage note, due November 2012
|
|
|
9,100
|
|
|
9,450
|
|
7.77%
mortgage note, due December 2011
|
|
|
8,916
|
|
|
9,050
|
|
Other
long-term debt
|
|
|
1,096
|
|
|
1,158
|
|
Total
long-term debt
|
|
|
202,978
|
|
|
206,744
|
|
Less
current portion
|
|
|
13,720
|
|
|
14,765
|
|
Long-term
debt
|
|
$
|
189,258
|
|
$
|
191,979
|
|
Note
6. Stockholders’ Equity
|
|
Thirteen
|
|
|
|
Weeks
Ended
|
|
|
|
April
29,
|
|
(Dollars
in thousands)
|
|
2006
|
|
|
|
|
|
|
Total
stockholders’ equity, beginning of period
|
|
$
|
814,348
|
|
Net
income
|
|
|
32,061
|
|
Issuance
of common stock (599,450 shares)
|
|
|
2,223
|
|
Stock-based
compensation expense
|
|
|
2,551
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
2,035
|
|
Unrealized
gains on available-for-sale securities, net of tax
|
|
|
3
|
|
Total
stockholders’ equity, end of period
|
|
$
|
853,221
|
|
Note
7. Customer Loyalty Card Programs
We
offer
our customers various loyalty card programs. Customers that join these programs
are entitled to various benefits, including discounts and rebates on purchases
during the membership period. Customers generally join these programs by paying
an annual membership fee. We recognize revenue from these loyalty programs
as
sales over the life of the membership period based on when the customer earns
the benefits and when the fee is no longer refundable. We recognize
costs
in
connection with administering these programs as cost of goods sold when
incurred. During the thirteen weeks ended April 29, 2006 and April 30, 2005,
we
recognized revenues of $4,070,000 and $3,162,000, respectively, in connection
with our loyalty card programs.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
8. Net Income Per Share
|
|
Thirteen
Weeks Ended
|
|
|
|
April
29,
|
|
April
30,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
121,813
|
|
|
118,984
|
|
Dilutive
effect of assumed conversion of convertible notes
|
|
|
15,182
|
|
|
15,182
|
|
Dilutive
effect of stock options and awards
|
|
|
2,432
|
|
|
1,577
|
|
Diluted
weighted average common shares and equivalents outstanding
|
|
|
139,427
|
|
|
135,743
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
32,061
|
|
$
|
30,017
|
|
Decrease
in interest expense from assumed conversion of notes,
|
|
|
|
|
|
|
|
net
of income taxes
|
|
|
1,128
|
|
|
1,128
|
|
Net
income used to determine diluted net income per share
|
|
$
|
33,189
|
|
$
|
31,145
|
|
|
|
|
|
|
|
|
|
Options
with weighted average exercise price greater than market
|
|
|
|
|
|
|
|
price,
excluded from computation of net income per share:
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
0
|
|
|
111
|
|
Weighted
average exercise price per share
|
|
$
|
0.00
|
|
$
|
8.28
|
|
Note
9. Income Taxes
The
effective income tax rate was 35.7% for the thirteen weeks ended April 29,
2006,
as compared to 36.7% for the thirteen weeks ended April 30, 2005. The tax rate
for the thirteen weeks ended April 29, 2006 was favorably affected by
non-taxable insurance proceeds which were included in pre-tax income for the
period.
Note
10. Asset Securitization
Our
FASHION BUG and CATHERINES proprietary credit card receivables are originated
by
Spirit of America National Bank (our wholly-owned credit card bank), which
transfers its interest in the receivables to the Charming Shoppes Master Trust
(the “Trust”) through a special-purpose entity. The Trust is an unconsolidated
qualified special-purpose entity (“QSPE”). Our Crosstown Traders apparel-related
catalog proprietary credit card receivables are originated in a non-bank program
by Crosstown Traders, which transfers its interest in the receivables to Catalog
Receivables LLC, a separate and distinct unconsolidated QSPE, through a
special-purpose entity. The QSPEs can sell interests in these receivables on
a
revolving basis for a specified term. At the end of the revolving period, an
amortization period begins during which the QSPEs make principal payments to
the
parties that have entered into the securitization agreement with the QSPEs.
In
March
2005, Spirit of America National Bank purchased the CATHERINES credit card
portfolio. Prior to purchasing the portfolio, we had a non-recourse agreement,
scheduled to expire in March 2005, under which a third party provided an
accounts receivable proprietary credit card sales accounts receivable funding
facility for the CATHERINES proprietary credit cards. The purchase of the
portfolio at par value and the subsequent securitization of the purchased
portfolio resulted in the recognition of a gain during the thirteen weeks ended
April 30, 2005 of approximately $2,000,000, which is included in selling,
general, and administrative expenses.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
11. Segment Reporting
Effective
with the acquisition of Crosstown Traders on June 2, 2005, we operate and report
in two segments, Retail Stores and Direct-to-Consumer, which are consistent
with
the way our chief operating decision-makers review our results of operations.
The Retail Stores segment derives its revenues from sales through retail stores
and store-related E-commerce sales under our LANE
BRYANT,
FASHION
BUG,
and
CATHERINES
PLUS SIZES
brands.
The Direct-to-Consumer segment derives its revenues from catalog sales and
catalog-related E-commerce sales under our Crosstown Traders
catalogs.
The
accounting policies of the segments are generally the same as those described
in
“Item
8. Financial Statements and Supplementary Data; Note 1. Summary of Significant
Accounting Policies” in
our
January 28, 2006 Annual Report on Form 10-K. Our direct-response advertising
production costs are expensed over the estimated revenue stream, generally
within one to six months. We use income before interest and taxes excluding
unallocated corporate costs to evaluate segment profitability. Corporate costs
that are currently allocated to the segments include shared service center
costs, information systems support costs, and warehousing costs. Unallocated
costs include corporate general and administrative costs, corporate depreciation
and amortization, corporate occupancy costs, the results of our proprietary
credit card operations, interest, taxes, and other non-routine charges.
Unallocated assets include corporate cash and cash equivalents, the net book
value of corporate facilities, deferred income taxes, and other corporate
long-lived assets.
Selected
financial information for our operations by reportable segment and a
reconciliation of the information by segment to our consolidated totals is
as
follows:
|
|
Retail
|
|
Direct-to-
|
|
Corporate
|
|
|
|
(In
thousands)
|
|
Stores
|
|
Consumer
|
|
and
Other
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended April 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
627,404
|
|
$
|
107,405
|
|
$
|
113
|
|
$
|
734,922
|
|
Depreciation
and amortization
|
|
|
11,094
|
|
|
545
|
|
|
8,519
|
|
|
20,158
|
|
Income
before interest and taxes
|
|
|
60,287
|
|
|
2,972
|
|
|
(9,309
|
)
|
|
53,950
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(4,124
|
)
|
|
(4,124
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(17,765
|
)
|
|
(17,765
|
)
|
Net
income
|
|
|
60,287
|
|
|
2,972
|
|
|
(31,198
|
)
|
|
32,061
|
|
Capital
expenditures
|
|
|
15,413
|
|
|
960
|
|
|
7,481
|
|
|
23,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
603,267
|
|
|
|
|
$
|
86
|
|
$
|
603,353
|
|
Depreciation
and amortization
|
|
|
10,494
|
|
|
|
|
|
8,234
|
|
|
18,728
|
|
Income
before interest and taxes
|
|
|
56,617
|
|
|
|
|
|
(5,309
|
)
|
|
51,308
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(3,925
|
)
|
|
(3,925
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(17,366
|
)
|
|
(17,366
|
)
|
Net
income
|
|
|
56,617
|
|
|
|
|
|
(26,600
|
)
|
|
30,017
|
|
Capital
expenditures
|
|
|
13,912
|
|
|
|
|
|
3,785
|
|
|
17,697
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
12. Impact of Recent Accounting Pronouncements
In
November 2004, the FASB issued SFAS No. 151, “Inventory
Costs - an Amendment of Accounting Research Bulletin No. 43, Chapter
4.”
SFAS No.
151 clarifies, among other things, that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials costs should be
recognized as current-period expenses rather than being capitalized into
inventory. SFAS No. 151 became effective as of the beginning of Fiscal 2007.
The
adoption of SFAS No. 151 did not have a material effect on our financial
condition or results of operations.
In
May
2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections.” SFAS
No.
154 replaces APB Opinion No. 20, “Accounting
Changes,”
and
supersedes SFAS No. 3, “Reporting
Accounting Changes in Interim Financial Statements - an amendment of APB Opinion
No. 28.”
SFAS No.
154 generally requires retrospective application to prior-period financial
statements of a change in accounting principle unless it is impracticable to
determine either the period-specific effects or cumulative effects of the
change. SFAS No. 154 became effective as of the beginning of Fiscal 2007. The
adoption of SFAS No. 154 did not have a material effect on our financial
position or results of operations.
In
October 2005, the FASB issued FASB Staff Position (“FSP”) FAS 13-1, “Accounting
for Rental Costs Incurred during a Construction Period.”
FSP FAS
13-1 concludes that rental costs incurred during and after a construction period
are for the right to control the use of a leased asset during and after
construction of a lessee asset. There is no distinction between the right to
use
a leased asset during the construction period and the right to use that asset
after the construction period. Therefore, rental costs associated with ground
or
building operating leases that are incurred during a construction period shall
be recognized as rental expense and included in income from continuing
operations. FSP FAS 13-1 became effective as of the beginning of Fiscal 2007.
The adoption of FSP FAS 13-1 did not have a material effect on our financial
position or results of operations.
This
management’s discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes included in Item 1 of this report. It should also be read
in
conjunction with the management’s discussion and analysis of financial condition
and results of operations, financial statements, and accompanying notes
appearing in our Annual Report on Form 10-K for the fiscal year ended January
28, 2006. As used in this management’s discussion and analysis, the terms
“Fiscal 2007” and “Fiscal 2006” refer to our fiscal year ending February 3, 2007
and our fiscal year ended January 28, 2006, respectively. The terms “Fiscal 2007
First Quarter” and “Fiscal 2006 First Quarter” refer to the thirteen weeks ended
April 29, 2006 and April 30, 2005, respectively. The terms “Fiscal 2007 Second
Quarter,” “Fiscal 2007 Third Quarter,” and “Fiscal 2007 Fourth Quarter” refer to
the thirteen weeks ending July 29, 2006 and October 28, 2006, and the fourteen
weeks ending February 3, 2007, respectively. The terms “the Company,” “we,”
“us,” and “our” refer to Charming Shoppes, Inc. and, where applicable, our
consolidated subsidiaries.
With
the
exception of historical information, the matters contained in the following
analysis and elsewhere in this report are “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements may include, but are not limited to, projections of revenues, income
or loss, cost reductions, capital expenditures, liquidity, financing needs
or
plans, and plans for future operations, as well as assumptions relating to
the
foregoing. The words “expect,” “should,” “project,” “estimate,” “predict,”
“anticipate,” “plan,” “believes,” and similar expressions are also intended to
identify forward-looking statements. Forward-looking statements are inherently
subject to risks and uncertainties, some of which we cannot predict or quantify.
Future events and actual results, performance, and achievements could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements. We assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements.
Factors
that could cause our actual results of operations or financial condition to
differ from those described in this report include, but are not necessarily
limited to, the following:
·
|
Our
business is dependent upon our ability to accurately predict rapidly
changing fashion trends, customer preferences, and other fashion-related
factors, which we may not be able to successfully accomplish in the
future.
|
·
|
A
slowdown in the United States economy, an uncertain economic outlook,
and
escalating energy costs could lead to reduced consumer demand for
our
products in the future.
|
·
|
The
women’s specialty retail apparel and direct-to-consumer markets are highly
competitive and we may be unable to compete successfully against
existing
or future competitors.
|
·
|
We
may be unable to successfully integrate the operations of Crosstown
Traders, Inc. (“Crosstown Traders”) with the operations of Charming
Shoppes, Inc. In addition, we cannot assure the successful implementation
of our business plan for Crosstown
Traders.
|
·
|
We
cannot assure the successful implementation of our business plan
for entry
into the outlet store distribution
channel.
|
·
|
We
cannot assure the successful implementation of our business plan
for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments.
|
·
|
Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market, which may not
occur.
|
·
|
We
depend on key personnel, particularly our Chief Executive Officer,
Dorrit
J. Bern, and we may not be able to retain or replace these employees
or
recruit additional qualified
personnel.
|
·
|
We
depend on our distribution and fulfillment centers, and could incur
significantly higher costs and longer lead times associated with
distributing our products to our stores and shipping our products
to our
E-commerce and catalog customers if operations at any of these
distribution and fulfillment centers were to be disrupted for any
reason.
|
·
|
We
depend on the availability of credit for our working capital needs,
including credit we receive from our suppliers and their agents,
and on
our credit card securitization facilities. If we were unable to obtain
sufficient financing at an affordable cost, our ability to merchandise
our
stores, E-commerce, or catalog businesses would be adversely
affected.
|
·
|
Natural
disasters, as well as war, acts of terrorism, or the threat of either
may
negatively impact availability of merchandise and customer traffic
to our
stores, or otherwise adversely affect our
business.
|
·
|
We
rely significantly on foreign sources of production and face a variety
of
risks generally associated with doing business in foreign markets
and
importing merchandise from abroad. Such risks include (but are not
necessarily limited to) political instability; imposition of, or
changes
in, duties or quotas; trade restrictions; increased security requirements
applicable to imports; delays in shipping; increased costs of
transportation; and issues relating to compliance with domestic or
international labor standards.
|
·
|
Our
Retail Stores and Direct-to-Consumer segments experience seasonal
fluctuations in net sales and operating income. Any decrease in sales
or
margins during our peak sales periods, or in the availability of
working
capital during the months preceding such periods, could have a material
adverse effect on our business. In addition, extreme or unseasonable
weather conditions may have a negative impact on our
sales.
|
·
|
We
may be unable to obtain adequate insurance for our operations at
a
reasonable cost.
|
·
|
We
may be unable to protect our trademarks and other intellectual property
rights, which are important to our success and our competitive
position.
|
·
|
We
may be unable to hire and retain a sufficient number of suitable
sales
associates at our stores.
|
·
|
Our
manufacturers may be unable to manufacture and deliver merchandise
to us
in a timely manner or to meet our quality
standards.
|
·
|
Our
Retail Stores segment sales are dependent upon a high volume of traffic
in
the strip centers and malls in which our stores are located, and
our
future retail store growth is dependent upon the availability of
suitable
locations for new stores.
|
·
|
Successful
operation of our E-commerce websites and our catalog business is
dependent
on our ability to maintain efficient and uninterrupted customer service
and fulfillment operations.
|
·
|
We
may be unable to manage significant increases in certain costs, including
postage and paper, which could adversely affect our results of
operations.
|
·
|
Response
rates to our catalogs and access to new customers could decline,
which
would adversely affect our net sales and results of
operations.
|
·
|
We
may be unable to successfully implement our plan to improve merchandise
assortments in our Retail Stores or Direct-to-Consumer
segments.
|
·
|
We
make certain significant assumptions, estimates, and projections
related
to the useful lives of our property, plant, and equipment and the
valuation of intangible assets related to acquisitions. The carrying
amount and/or useful life of these assets are subject to periodic
valuation tests for impairment. Impairment results when the carrying
value
of an asset exceeds the undiscounted (or for goodwill and indefinite-lived
intangible assets the discounted) future cash flows associated with
the
asset. If actual experience were to differ materially from the
assumptions, estimates, and projections used to determine useful
lives or
the valuation of property, plant, equipment, or intangible assets,
a
write-down for impairment of the carrying value of the assets, or
acceleration of depreciation or amortization of the assets, could
result.
Such a write-down or acceleration of depreciation or amortization
would
have an adverse impact on our reported results of
operations.
|
·
|
Changes
to existing accounting rules or the adoption of new rules could have
an
adverse impact on our reported results of
operations.
|
·
|
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required
to
include our assessment of the effectiveness of our internal control
over
financial reporting in our annual reports. Our independent registered
public accounting firm is also required to attest to whether or not
our
assessment is fairly stated in all material respects and to separately
report on whether or not they believe that we maintained, in all
material
respects, effective internal control over financial reporting. If
we are
unable to maintain effective internal control over financial reporting,
or
if our independent registered public accounting firm is unable to
timely
attest to our assessment, we could be subject to regulatory sanctions
and
a possible loss of public confidence in the reliability of our financial
reporting. Such a failure could result in our inability to provide
timely
and/or reliable financial information and could adversely affect
our
business.
|
We
have
prepared the financial statements and accompanying notes included in Item 1
of
this report in conformity with United States generally accepted accounting
principles. This requires us to make estimates and assumptions that affect
the
amounts reported in our financial statements and accompanying notes. These
estimates and assumptions are based on historical experience, analysis of
current trends, and various other factors that we believe to be reasonable
under
the circumstances. Actual results could differ from those estimates under
different assumptions or conditions.
We
periodically reevaluate our accounting policies, assumptions, and estimates
and
make adjustments when facts and circumstances warrant. Historically, actual
results have not differed materially from those determined using required
estimates. Our critical accounting policies are discussed in the management’s
discussion and analysis of financial condition and results of operations and
notes accompanying the consolidated financial statements that appear in our
Annual Report on Form 10-K for the fiscal year ended January 28, 2006. Except
as
disclosed below and in the financial statements and accompanying notes included
in Item 1 of this report, there were no material changes in, or additions to,
our critical accounting policies or in the assumptions or estimates we used
to
prepare the financial information appearing in this report.
Stock-based
Compensation
Through
Fiscal 2006, we accounted for stock-based compensation using the intrinsic
value
method in accordance with Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting
for Stock Issued to Employees,”
as
permitted by SFAS No. 123, “Accounting
for Stock-Based Compensation.”
We
recorded compensation expense for stock awards and for stock options with an
exercise price less than the market price of our common stock at the date of
grant, based on the difference between the market price and the exercise price
of the option at the date of grant. The compensation expense was recognized
on a
straight-line basis over the vesting period of each award or option. We did
not
recognize compensation expense for options having an exercise price equal to
the
market price on the date of grant or for shares purchased under our Employee
Stock Purchase Plan.
We
disclosed as pro forma information compensation expense for all stock options
and stock awards based on an estimated fair value of the option or award. In
accordance with SFAS No. 123, we used the Black-Scholes pricing model to
estimate the fair value of stock options. The Black-Scholes model required
estimates or assumptions as to the dividend yield and price volatility of the
underlying stock, the expected life of the option, and a relevant risk-free
interest rate. Our use of different option-pricing models and different
estimates or assumptions could have resulted in materially different estimates
of compensation expense under the fair value method.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment”
(“SFAS
No. 123R”), a revision of SFAS No. 123. Under SFAS No. 123R, we are required to
recognize the fair value of stock-based payments as compensation expense in
our
financial statements beginning in Fiscal 2007. Pro forma disclosures are no
longer permitted.
We
elected to adopt SFAS No. 123R on the modified prospective method and,
accordingly, prior periods have not been restated. We have provided pro forma
disclosure of stock-based compensation determined in accordance with SFAS No.
123, as previously disclosed, for the Fiscal 2006 First Quarter. The impact
of
the change from using actual forfeitures to determine compensation expense
under
the intrinsic value method to using estimated forfeitures in accordance with
the
provisions of SFAS No. 123R was immaterial. Current grants of stock-based
compensation consist primarily of restricted stock awards. Under SFAS No. 123R,
we will continue to use the Black-Scholes valuation model to estimate the fair
value of stock options, using assumptions consistent with our pro forma
disclosures under SFAS No. 123, and straight-line amortization of stock-based
compensation.
Adoption
of SFAS No. 123R will generally result in the recognition of additional
stock-based compensation in the financial statements as compared to use of
the
intrinsic value method. However, beginning in Fiscal 2005, we changed the
composition of our stock-based compensation awards to include mainly restricted
stock awards, which generally yield the same compensation expense under both
the
intrinsic value method and SFAS No. 123R. In addition, we did not have
significant unvested stock options as of the beginning of Fiscal 2007.
Accordingly, the adoption of SFAS No. 123R did not have a material incremental
impact on our income before taxes and net income, or on our basic and diluted
net income per share.
Under
the
provisions of SFAS No. 123R, we are required to present gross excess tax
benefits related to stock-based compensation as cash flows from financing
activities in our statements of cash flows instead of as cash flows from
operating activities as previously required. Write-offs of deferred tax assets
related to an excess of stock-based compensation recognized in the financial
statements over amounts deductible for tax purposes will continue to be
reflected as cash flows used by operating activities. Net cash used by financing
activities for the Fiscal 2007 First Quarter includes $2.0 million of excess
tax
benefits related to stock-based compensation that would have been classified
as
a cash inflow in net cash provided by operating activities if we had not adopted
the provisions of SFAS No. 123R.
See
“Item
1. Financial Statements (Unaudited); Notes to Condensed Consolidated Financial
Statements; Note 1. Condensed Consolidated Financial Statements;
Stock-based
Compensation”
above
for further information on our stock-based compensation expense for the Fiscal
2007 First Quarter and for pro forma disclosures for the Fiscal 2006 First
Quarter. See “Part
II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated
Financial Statements; Note 1. Summary of Significant Accounting Policies;
Common
Stock Plans”
of our
Annual Report on Form 10-K for the fiscal year ended January 28, 2006 for
further information on the estimates and assumptions we used to determine
stock-based compensation expense for our pro forma disclosures in accordance
with SFAS No. 123. Total stock-based compensation not yet recognized related
to
the non-vested portion of stock options and awards outstanding as of April
29,
2006 was $21.0 million. The weighted-average period over which we expect to
recognize this compensation is approximately 3.1 years.
In
December 2005, we announced plans to enter the outlet channel through the
assumption of approximately 75 outlet store leases from Retail Brand Alliance,
and to operate those locations under the name LANE
BRYANT OUTLET™.
Subsequently, in January 2006, we acquired the trademark and internet domain
rights to the PETITE
SOPHISTICATE®
name. We
plan to operate both a LANE
BRYANT OUTLET
store
and a PETITE
SOPHISTICATE OUTLET
store in
approximately 45 of the locations acquired from Retail Brand Alliance. We expect
to open the LANE BRYANT OUTLET stores in the Fiscal 2007 Second and Third
Quarters, and we expect to open the PETITE SOPHISTICATE OUTLET stores by the
Fiscal 2007 Fourth Quarter.
The
following table shows our results of operations expressed as a percentage of
net
sales and on a comparative basis:
|
|
|
|
Percentage
|
|
|
|
Thirteen
Weeks Ended(1)
|
|
Change
|
|
|
|
April
29,
|
|
April
30,
|
|
From
Prior
|
|
|
|
2006(2)
|
|
2005
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
21.8
|
%
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
67.9
|
|
|
66.9
|
|
|
23.6
|
|
Selling,
general, and administrative expenses
|
|
|
24.9
|
|
|
25.0
|
|
|
21.4
|
|
Income
from operations
|
|
|
7.1
|
|
|
8.0
|
|
|
8.1
|
|
Other
income
|
|
|
0.2
|
|
|
0.5
|
|
|
(45.0
|
)
|
Interest
expense
|
|
|
0.6
|
|
|
0.7
|
|
|
5.1
|
|
Income
tax provision
|
|
|
2.4
|
|
|
2.9
|
|
|
2.3
|
|
Net
income
|
|
|
4.4
|
|
|
5.0
|
|
|
6.8
|
|
____________________
|
|
|
|
|
|
|
|
|
|
|
(1) Results
may not add due to rounding.
|
(2) Includes
the results of operations of Crosstown Traders, acquired June 2,
2005.
|
The
following table shows details of our consolidated total net sales:
|
|
Thirteen
Weeks Ended
|
|
|
|
April
29,
|
|
April
30,
|
|
(In
millions)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
$
|
255.9
|
|
$
|
256.5
|
|
LANE
BRYANT
|
|
|
277.0
|
|
|
257.5
|
|
CATHERINES
|
|
|
94.5
|
|
|
89.3
|
|
Total
Retail Stores segment sales
|
|
|
627.4
|
|
|
603.3
|
|
Total
Direct-to-Consumer segment sales(1)
|
|
|
107.4
|
|
|
0.0
|
|
Corporate
and other(2)
|
|
|
0.1
|
|
|
0.1
|
|
Total
net sales
|
|
$
|
734.9
|
|
$
|
603.4
|
|
____________________
|
|
|
|
|
|
|
|
(1) Includes
the results of operations of Crosstown Traders, acquired June 2,
2005.
|
(2) Revenue
related to loyalty card fees.
|
The
following table shows information related to the change in our consolidated
total net sales:
|
|
Thirteen
Weeks Ended
|
|
|
|
April
29,
|
|
April
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Retail
Stores segment
|
|
|
|
|
|
|
|
Increase
(decrease) in comparable store sales(1)
:
|
|
|
|
|
|
|
|
Consolidated
retail stores
|
|
|
1
|
%
|
|
0
|
%
|
FASHION
BUG
|
|
|
(1
|
)
|
|
(2
|
)
|
LANE
BRYANT
|
|
|
2
|
|
|
0
|
|
CATHERINES
|
|
|
5
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Sales
from new stores and E-commerce as a percentage of total consolidated
prior-period sales:
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
2
|
|
|
1
|
|
LANE
BRYANT
|
|
|
5
|
|
|
4
|
|
CATHERINES
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Prior-period
sales from closed stores as a percentage of total consolidated
prior-period sales:
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
(1
|
)
|
|
(2
|
)
|
LANE
BRYANT
|
|
|
(1
|
)
|
|
(1
|
)
|
CATHERINES
|
|
|
(1
|
)
|
|
(0
|
)
|
|
|
|
|
|
|
|
|
Increase
in Retail Stores segment sales
|
|
|
4
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
segment
|
|
|
|
|
|
|
|
Sales
as a percentage of total consolidated prior-period sales(2)
|
|
|
18
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Increase
in total net sales
|
|
|
22
|
|
|
2
|
|
____________________
|
|
|
|
|
|
|
|
(1) “Comparable
store sales” is not a measure that has been defined under generally
accepted accounting principles. The method of calculating comparable
store
sales varies across the retail industry and, therefore, our calculation
of
comparable store sales is not necessarily comparable to similarly-titled
measures reported by other companies. We define comparable store
sales as
sales from stores operating in both the current and prior-year periods.
New stores are added to the comparable store sales base 13 months
after
their open date. Sales from stores that are relocated within the
same mall
or strip-center, remodeled, or have a legal square footage change
of less
than 20% are included in the calculation of comparable store sales.
Sales
from stores that are relocated outside the existing mall or strip-center,
or have a legal square footage change of 20% or more, are excluded
from
the calculation of comparable store sales until 13 months after the
relocated store is opened. Stores that are temporarily closed for
a period
of 4 weeks or more are excluded from the calculation of comparable
store
sales for the applicable periods in the year of closure and the subsequent
year. Non-store sales, such as catalog and internet sales, are excluded
from the calculation of comparable store sales.
|
(2) Includes
catalog sales and catalog-related E-commerce sales from Crosstown
Traders,
acquired on June 2, 2005.
|
The
following table sets forth information with respect to our year-to-date retail
store activity for Fiscal 2007 and planned store activity for all of Fiscal
2007:
|
|
FASHION
|
|
LANE
|
|
|
|
|
|
|
|
BUG
|
|
BRYANT
|
|
CATHERINES
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007 Year-to-Date(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at January 28, 2006
|
|
|
1,025
|
|
|
748
|
|
|
463
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
opened
|
|
|
0
|
|
|
8
|
|
|
5
|
|
|
13
|
|
Stores
closed
|
|
|
(2
|
)
|
|
(4
|
)
|
|
(2
|
)
|
|
(8
|
)
|
Net
change in stores
|
|
|
(2
|
)
|
|
4
|
|
|
3
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at April 29, 2006
|
|
|
1,023
|
|
|
752
|
|
|
466
|
|
|
2,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
relocated during period
|
|
|
9
|
|
|
4
|
|
|
4
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned
store openings(2)
|
|
|
15
|
|
|
60
|
|
|
8
|
|
|
83
|
|
Planned
store closings
|
|
|
20
|
|
|
15
|
|
|
8
|
|
|
43
|
|
Planned
store relocations
|
|
|
35
|
|
|
35
|
|
|
10
|
|
|
80
|
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes
3 Crosstown Traders outlet stores.
|
(2) In
addition, we plan to open 75-80
LANE BRYANT OUTLET stores under leases assumed from Retail Brand
Alliance
under an agreement effective April 1, 2006, which we expect to begin
opening in July 2006 (see "RECENT DEVELOPMENTS"
above).
|
Comparison
of Thirteen Weeks Ended April 29, 2006 and April 30, 2005
Net
Sales
Consolidated
net sales increased in the Fiscal 2007 First Quarter as compared to the Fiscal
2006 First Quarter as a result of sales from Crosstown Traders (our
Direct-to-Consumer segment), which was acquired on June 2, 2005, as well as
increased net sales from our Retail Stores segment. The increase in the Retail
Stores segment’s net sales was primarily a result of sales from new LANE BRYANT
stores, an increase in comparable retail store sales at our LANE BRYANT and
CATHERINES brands, and increases in E-commerce sales at all of our Retail Stores
brands. The increases in the Retail Stores segment’s net sales and consolidated
net sales were at the low end of our plan for low single-digit increases for
the
quarter. We operated 2,241 stores in our Retail Stores segment as of April
29,
2006, as compared to 2,230 stores as of April 30, 2005. Additionally, Crosstown
Traders operated three outlet stores that are included in our Direct-to-Consumer
segment in the Fiscal 2007 First Quarter.
Total
net
sales for the LANE BRYANT brand increased as a result of sales from new stores,
an increase in E-commerce sales, and an increase in comparable retail store
sales, and met our plan for the quarter. As compared to the prior-year period,
a
decrease in the average dollar sale per transaction was offset by an increase
in
the number of transactions per store, while traffic levels were relatively
flat.
Total
net
sales for the FASHION BUG brand decreased as a result of a decrease in
comparable retail store sales and reduced sales from closed stores, and were
slightly below plan for the quarter. The decrease in retail store sales was
partially offset by an increase in store-related E-commerce sales. A decrease
in
store traffic levels during the current-year quarter was partially offset by
an
increase in the average dollar sale per transaction as compared to the
prior-year period.
CATHERINES
comparable retail store sales for the Fiscal 2007 First Quarter continued to
benefit from improved customer response to the brand’s current merchandise
offerings, and met our plan for the quarter. Significantly increased traffic
levels during the Fiscal 2007 First Quarter were partially offset by a lower
average dollar sale per transaction as a result of increased promotional
activity as compared to the prior-year period.
Net
sales
from Crosstown Traders were $107.4 million, or 15% of consolidated net sales
for
the Fiscal 2007 First Quarter, and were at the low end of our sales plan for
the
quarter. Actual customer response rates that were below plan were partially
offset by a better-than-expected average dollar sale per
transaction.
We
offer
various loyalty card programs to our Retail Stores segment customers. Customers
who join these programs are entitled to various benefits, including discounts
and rebates on purchases during the membership period. Customers generally
join
these programs by paying an annual membership fee. We recognize revenue on
these
loyalty programs as sales over the life of the membership period based on when
the customer earns the benefits and when the fee is no longer refundable. Costs
we incur in connection with administering these programs are recognized in
cost
of goods sold as incurred. During the Fiscal 2007 First Quarter and Fiscal
2006
First Quarter, we recognized revenues of $4.1 million and $3.2 million,
respectively, in connection with our loyalty card programs.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 1.0%
as a
percentage of consolidated net sales in the Fiscal 2007 First Quarter as
compared to the Fiscal 2006 First Quarter. Improved merchandise margins for
the
LANE BRYANT and CATHERINES brands in our Retail Stores segment and leverage
on
relatively fixed buying and occupancy costs were offset by inclusion of catalog
costs for our Direct-to-Consumer segment in our Fiscal 2007 First Quarter
results. Consolidated cost of goods sold increased 3.3% as a percentage of
consolidated net sales.
For
our
Retail Stores segment, cost of goods sold, buying, and occupancy
expenses as a percentage of net sales were 0.2% lower in the Fiscal 2007
First Quarter as compared to the Fiscal 2006 First Quarter. The improvement
was
a result of lower levels of promotional pricing and well-controlled inventory
levels in the current-year period.
Cost
of
goods sold for our Direct-to-Consumer segment includes catalog advertising
and
fulfillment costs, which are significant expenses for catalog operations.
Therefore, cost of goods sold for the Direct-to-Consumer segment is generally
higher as a percentage of net sales than cost of goods sold for our Retail
Stores segment, resulting in the increase in consolidated cost of goods sold
as
a percentage of consolidated net sales.
Cost
of
goods sold includes merchandise costs net of discounts and allowances; freight;
inventory shrinkage; and shipping and handling costs associated with our
E-commerce business and, in the Fiscal 2007 First Quarter, our
Direct-to-Consumer business. Fiscal 2007 First Quarter cost of goods sold
includes amortization of direct-response advertising costs. Net merchandise
costs and freight are capitalized as inventory costs.
Consolidated
buying and occupancy expenses as a percentage of consolidated net sales were
2.3% lower in the Fiscal 2007 First Quarter as compared to the Fiscal 2006
First
Quarter, primarily as a result of leverage from increased net sales on
relatively fixed occupancy costs and lower levels of buying and occupancy costs
associated with our Direct-to-Consumer segment. For our Retail Stores segment,
buying and occupancy expenses as a percentage of net sales were unchanged in
the
Fiscal 2007 First Quarter as compared to the Fiscal 2006 First Quarter. The
Direct-to-Consumer segment, which operates only three outlet stores, incurs
lower levels of buying and occupancy costs, which results in a favorable impact
on consolidated buying and occupancy expenses as a percentage of consolidated
net sales.
Buying
expenses include payroll; payroll-related costs; and operating expenses for
our
buying departments, warehouses, and fulfillment centers. Occupancy expenses
include rent; real estate taxes; insurance; common area maintenance; utilities;
maintenance; and depreciation for our stores, warehouse and fulfillment center
facilities, and equipment. Buying, catalog, and occupancy costs are treated
as
period costs and are not capitalized as part of inventory.
Selling,
General, and Administrative
Consolidated
selling, general, and administrative expenses for the Fiscal 2007 First Quarter
decreased 0.1% as a percentage of consolidated net sales as compared to the
prior-year period. The Fiscal 2007 First Quarter included approximately $2.2
million of pre-opening operating expenses related to LANE BRYANT OUTLET stores
that we plan to open during the Fiscal 2007 Second Quarter, higher expenses
related to incentive-based employee compensation and benefit programs, and
the
addition of the Direct-to-Consumer segment. During the Fiscal 2007 Second
Quarter, we expect to recognize approximately $6.3 million of additional
pre-opening operating expenses related to the LANE BRYANT OUTLET store
openings.
Selling
expenses for the Fiscal 2007 First Quarter were 2.7% lower as a percentage
of
net sales, while general and administrative expenses were 2.6% higher as a
percentage of net sales, reflecting lower levels of selling expenses and higher
levels of general and administrative expenses in the Direct-to-Consumer segment
as compared to the Retail Stores segment. General and administrative expenses
for the Fiscal 2007 First Quarter were also negatively impacted by a $1.3
million increase in stock-based compensation as compared to the prior-year
period (see “CRITICAL
ACCOUNTING POLICIES”
above).
Other
Income
Interest
income decreased $0.2 million and other income decreased $1.1 million in the
Fiscal 2007 First Quarter as compared to the Fiscal 2006 First Quarter. Other
income for the Fiscal 2006 First Quarter included a pre-tax gain of $1.2 million
from the sale of certain facilities owned by our Hong Kong sourcing
operations.
Income
Tax Provision
The
effective income tax rate was 35.7% in the Fiscal 2007 First Quarter, as
compared to 36.7% in the Fiscal 2006 First Quarter. The tax rate for the Fiscal
2007 First Quarter was favorably affected by non-taxable insurance proceeds
which were included in pre-tax income for the period.
Our
primary sources of working capital are cash flow from operations, our
proprietary credit card receivables securitization agreements, our investment
portfolio, and our revolving credit facility. The following table highlights
certain information related to our liquidity and capital resources:
|
|
April
29,
|
|
January
28,
|
|
(Dollars
in millions)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
154.9
|
|
$
|
130.1
|
|
Available-for-sale
securities
|
|
|
11.8
|
|
|
20.2
|
|
Working
capital
|
|
$
|
370.5
|
|
$
|
338.6
|
|
Current
ratio
|
|
|
1.8
|
|
|
1.8
|
|
Long-term
debt to equity ratio
|
|
|
22.2
|
%
|
|
23.6
|
%
|
Our
net
cash provided by operating activities increased to $58.9 million for the Fiscal
2007 First Quarter from $35.7 million for the Fiscal 2006 First Quarter. The
$23.2 million increase was primarily attributable to a $30.1 million decrease
in
accounts receivable, which resulted from collections on Christmas season sales
of food and gifts from our Direct-to-Consumer non-apparel related catalogs,
and
a $2.0 million increase in net income. Our net investment in inventories
increased $3.8 million in the Fiscal 2007 First Quarter, primarily as a result
of our new store openings. The timing of payments of deferred, prepaid, and
accrued expenses resulted in a $5.4 million decrease in cash used for operating
activities in the Fiscal 2007 First Quarter.
As
a
result of the adoption of SFAS No. 123R in the Fiscal 2007 First Quarter (see
“CRITICAL
ACCOUNTING POLICIES”
above),
we reported certain tax benefits related to stock-based compensation as cash
provided by financing activities in the Fiscal 2007 First Quarter instead of
as
cash provided by operating activities as permitted in the prior-year period.
This change in reporting classification had a $2.0 million negative impact
on
cash provided by operating activities for the Fiscal 2007 First Quarter, which
was offset by a corresponding positive impact on cash provided by financing
activities.
Capital
Expenditures
Our
gross
capital expenditures, excluding construction allowances received from landlords,
were $23.9 million during the Fiscal 2007 First Quarter. Construction allowances
received from landlords for the Fiscal 2007 First Quarter were $3.7 million.
During Fiscal 2007, we plan to accelerate our new store opening plan, primarily
in our LANE BRYANT brand, which includes a new LANE BRYANT/CACIQUE side-by-side
retail store concept and the opening of a new outlet store channel. We also
plan
to continue to build our infrastructure for the launch of new catalog offerings,
as well as further expansion of our E-commerce operations. During the remainder
of Fiscal 2007, we anticipate incurring additional capital expenditures of
approximately $115 - $125 million before construction allowances received from
landlords. We expect that approximately 70% of our Fiscal 2007 capital
expenditures will support store development, including openings, relocations,
and store improvements. The remainder of the expenditures will primarily be
for
improvements to our information technology and corporate infrastructure. We
expect to finance these additional capital expenditures primarily through
internally-generated funds.
Dividends
We
have
not paid any dividends since 1995, and we do not expect to declare or pay any
dividends on our common stock in the foreseeable future. The payment of future
dividends is within the discretion of our Board of Directors and will depend
upon our future earnings, if any, our capital requirements, our financial
condition, and other relevant factors. Our existing revolving credit facility
allows the payment of dividends on our common stock subject to maintaining
a
minimum level of Excess Availability (as defined in the facility agreement)
for
30 days before and immediately after the payment of such dividends.
Off-Balance-Sheet
Financing
Our
FASHION BUG and CATHERINES proprietary credit card receivables are originated
by
Spirit of America National Bank (our wholly-owned credit card bank), which
transfers its interest in the receivables to the Charming Shoppes Master Trust
(the “Trust”) through a special-purpose entity. The Trust is an unconsolidated
qualified special purpose entity (“QSPE”). Our Crosstown Traders catalog
proprietary credit card receivables, which we securitized subsequent to our
acquisition of Crosstown Traders, are originated in a non-bank program by
Crosstown Traders, which transfers its interest in the receivables to Catalog
Receivables LLC, a separate and distinct unconsolidated QSPE, through a
special-purpose entity. The QSPEs can sell interests in these receivables on
a
revolving basis for a specified term. At the end of the revolving period, an
amortization period begins during which the QSPEs make principal payments to
the
parties that have entered into the securitization agreement with the
QSPEs.
As
of
April 29, 2006, we had the following securitization facilities
outstanding:
(Dollars
in millions)
|
Series
1999-2
|
Series
2002-1
|
Series
2004
|
Series
2004-1
|
2005-RPA(1)
|
|
|
|
|
|
|
Date
of facility
|
May
1999
|
November
2002
|
January
2004
|
August
2004
|
May
2005
|
Type
of facility
|
Conduit
|
Term
|
Conduit
|
Term
|
Conduit
|
Maximum
funding
|
$50.0
|
$100.0
|
$50.0
|
$180.0
|
$55.0
|
Funding
as of April 29, 2006
|
$12.0
|
$100.0
|
$0.0
|
$180.0
|
$52.0
|
First
scheduled principal payment
|
Not
applicable
|
August
2007
|
Not
applicable
|
April
2009
|
Not
applicable
|
Expected
final principal payment
|
Not
applicable(2)
|
May
2008
|
Not
applicable(2)
|
March
2010
|
Not
applicable(2)
|
Renewal
|
Annual
|
Not
applicable
|
Annual
|
Not
applicable
|
Annual
|
____________________
|
|
|
|
|
|
(1) Receivables
Purchase Agreement.
|
(2) Series
1999-2 and Series 2004 have scheduled final payment dates that occur
in
the twelfth month following the month in which the series begins
amortizing. These series and 2005-RPA generally begin amortizing
364 days
after start of the purchase commitment by the series purchaser currently
in effect.
|
As
these
credit card receivables securitizations reach maturity, we plan to obtain
funding for the proprietary credit card programs through additional
securitizations, including annual renewal of our conduit facilities. However,
we
can give no assurance that we will be successful in securing financing through
either replacement securitizations or other sources of replacement
financing.
We
securitized $146.4 million of private label credit card receivables in the
Fiscal 2007 First Quarter and had $358.4 million of securitized credit card
receivables outstanding as of April 29, 2006. We held certificates and retained
interests in our securitizations of $69.1 million as of April 29, 2006, which
are generally subordinated in right of payment to certificates issued by the
QSPEs to third-party investors. Our obligation to repurchase receivables sold
to
the QSPEs is limited to those receivables that, at the time of their transfer,
fail to meet the QSPE’s eligibility standards under normal representations and
warranties. To date, our repurchases of receivables pursuant to this obligation
have been insignificant.
Charming
Shoppes Receivables Corp. (“CSRC”), Charming Shoppes Seller, Inc., and Catalog
Seller LLC, our consolidated wholly-owned indirect subsidiaries, are separate
special-purpose entities (“SPEs”) created for the securitization program. As of
April 29, 2006, our investment in asset-backed securities included $10.0 million
of QSPE certificates, an I/O strip of $15.2 million, and other retained
interests of $43.9 million. These assets are first and foremost available to
satisfy the claims of the respective creditors of these separate corporate
entities, including certain claims of investors in the QSPEs. Additionally,
with
respect to certain Trust Certificates, if either the Trust or Charming Shoppes,
Inc. fails to meet certain financial performance standards, the Trust would
be
obligated to reallocate to third-party investors holding certain certificates
issued by the Trust, collections in an amount up to $9.5 million that otherwise
would be available to CSRC. The result of this reallocation would be to increase
CSRC’s retained interest in the Trust by the same amount. Subsequent to such a
transfer occurring, and upon certain conditions being met, these same investors
would be required to repurchase these interests. As of April 29, 2006, we were
in compliance with these performance standards and, as a result, there were
no
reallocated collections.
In
addition to the above, we could be affected by certain other events that would
cause the QSPEs to hold proceeds of receivables, which would otherwise be
available to be paid to us with respect to our subordinated interests, within
the QSPEs as additional enhancement. For example, if we fail or the QSPEs fail
to meet certain financial performance standards, a credit enhancement condition
would occur, and the QSPEs would be required to retain amounts otherwise payable
to us. In
addition, the failure to satisfy certain financial performance standards could
further cause the QSPEs to stop using collections on QSPE assets to purchase
new
receivables, and would require such collections to be used to repay investors
on
a prescribed basis, as provided in the securitization agreements. If this were
to occur, it could result in our having insufficient liquidity; however, we
believe we would have sufficient notice to seek alternative forms of financing
through other third-party providers. As of April 29, 2006, the QSPEs were in
compliance with all applicable financial performance standards.
Amounts
placed into enhancement accounts, if any, that are not required for payment
to
other certificate holders will be available to us at the termination of the
securitization series. We have no obligation to directly fund the enhancement
account of the QSPEs, other than for breaches of customary representations,
warranties, and covenants and for customary indemnities. These representations,
warranties, covenants, and indemnities do not protect the QSPEs or investors
in
the QSPEs against credit-related losses on the receivables. The providers of
the
credit enhancements and QSPE investors have no other recourse to
us.
These
securitization agreements are intended to improve our overall liquidity by
providing sources of funding for our proprietary credit card receivables. The
agreements provide that we will continue to service the credit card receivables
and control credit policies. This control allows us, absent certain adverse
events, to fund continued credit card receivable growth and to provide the
appropriate customer service and collection activities. Accordingly, our
relationship with our credit card customers is not affected by these
agreements.
We
have a
non-recourse agreement under which a third party provides a proprietary credit
card sales accounts receivable funding facility for our LANE BRYANT brand.
The
facility expires in October 2007. Under this agreement, the third party
reimburses us daily for sales generated by LANE BRYANT’s proprietary credit card
accounts. Upon termination of this agreement, we have the right to purchase
the
receivables allocated to the LANE BRYANT retail stores under such agreement
at
book value from the third party.
Additional
information regarding our asset securitization facility and our LANE BRYANT
agreement is included in “Part
II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and
“Part
II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated
Financial Statements; Note 17. Asset Securitization”
of our
Annual Report on Form 10-K for the fiscal year ended January 28,
2006.
We
lease
substantially all of our operating stores under non-cancelable operating lease
agreements. Additional details on these leases, including minimum lease
commitments, are included in “Item
8. Financial Statements and Supplementary Data; Notes to Consolidated Financial
Statements; Note 18. Leases”
of our
Annual Report on Form 10-K for the fiscal year ended January 28,
2006.
Revolving
Credit Facility
Our
revolving credit facility agreement provides for a revolving credit facility
with a maximum availability of $375 million, subject to certain limitations
as
defined in the facility agreement, and provides that up to $300 million of
the
facility may be used for letters of credit. In addition, we may request, subject
to compliance with certain conditions, additional revolving credit commitments
up to an aggregate of $500 million. The agreement expires on July 28, 2010.
As
of April 29, 2006, we had an aggregate total of $3.6 million of unamortized
deferred debt acquisition costs related to the facility, which we are amortizing
on a straight-line basis over the life of the facility as interest
expense.
The
facility includes provisions for customary representations and warranties and
affirmative covenants, and includes customary negative covenants providing
for
certain limitations on, among other things, sales of assets; indebtedness;
loans, advances and investments; acquisitions; guarantees; and dividends and
redemptions. Under certain circumstances involving a decrease in “Excess
Availability” (as defined in the facility agreement), we may be required to
maintain a minimum “Fixed Charge Coverage Ratio” (as defined in the facility
agreement). The facility is secured by our general assets, except for (i) assets
related to our credit card securitization facilities, (ii) real property, (iii)
equipment, (iv) the assets of our non-U.S. subsidiaries, and (v) certain other
assets. As of April 29, 2006, we were not in violation of any of the covenants
included in the facility.
The
interest rate on borrowings under the facility is Prime for Prime Rate Loans,
and LIBOR as adjusted for the Reserve Percentage (as defined in the facility
agreement) plus 1.0% to 1.5% per annum for Eurodollar Rate Loans. The applicable
rate is determined monthly, based on our average excess availability, as defined
in the facility agreement. As of April 29, 2006, the applicable rates on
borrowings under the facility were 7.75% for Prime Rate Loans and 6.00% (LIBOR
plus 1%) for Eurodollar Rate Loans. All borrowings outstanding under the
facility as of April 29, 2006 were Eurodollar Rate Loans, with a
weighted-average interest rate of 5.63% (LIBOR plus 1%).
Additional
information regarding our long-term borrowings is included in “Part
II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations”
and
“Part
II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated
Financial Statements; Note 8. Short-term Borrowings and Long-term
Debt”
of our
Annual Report on Form 10-K for the fiscal year ended January 28,
2006.
We
believe that our capital resources and liquidity position are sufficient to
support our current operations. Our requirements for working capital, capital
expenditures, and repayment of debt and other obligations are expected to be
funded from operations, supplemented as needed by short-term or long-term
borrowings available under our credit facility, our proprietary credit card
receivables securitization agreements, leases, and other available financing
sources.
We
manage
our FASHION BUG, CATHERINES, and catalog proprietary credit card programs
through
various operating entities that we own. The primary activity of these entities
is to service the balances of our proprietary credit card receivables portfolio
that we sell under credit card securitization facilities. Under the
securitization facilities, we can be exposed to fluctuations in interest rates
to the extent that the interest
rates charged to our customers vary from the rates paid on certificates issued
by the QSPEs.
The
finance charges on most of our FASHION BUG proprietary credit card accounts
are
billed using a floating rate index (the Prime Rate), subject to a floor and
limited by legal maximums. The finance charges on most of our CATHERINES and
catalog proprietary credit card accounts are billed at a fixed rate of interest.
The certificates issued under the securitization facilities include both
floating- and fixed-interest-rate certificates. The floating-rate certificates
are based on an index of either one-month LIBOR or the commercial paper rate,
depending on the issuance. Consequently, we have basis risk exposure with
respect to credit cards billed using a floating-rate index to the extent that
the movement of the floating rate index on the certificates varies from the
movement of the Prime Rate. Additionally, as of April 29, 2006, the floating
finance charge rate on the floating-rate indexed credit cards was below the
contractual floor rate, thus exposing us to interest-rate risk with respect
to
these credit cards as well as the fixed-rate credit cards for the portion of
certificates that are funded at floating rates. However, as a result of the
Trust entering into a series of fixed-rate interest rate swap agreements with
respect to the $161.1 million of Series 2004-1certificates, and $89.5 million
of
Series 2002-1 being issued at fixed rates, we have significantly reduced the
exposure of floating-rate certificates outstanding to interest-rate risk. To
the
extent that short-term interest rates were to increase by one percentage point
by the end of Fiscal 2007, an increase of approximately $350 thousand in
selling, general, and administrative expenses would result.
As
of
April 29, 2006, there were $40 million of borrowings outstanding under our
revolving credit facility. We intend to repay these borrowings during Fiscal
2007. Such borrowings are exposed to variable interest rates. A one percentage
point change in market interest rates would result in a corresponding change
of
approximately $400 thousand per year in our interest expense and cash
flows.
We
are
not subject to material foreign exchange risk, as our foreign transactions
are
primarily U.S. Dollar-denominated and our foreign operations do not constitute
a
material part of our business.
See
“Item
1. Notes To Condensed Consolidated Financial Statements (Unaudited); Note 12.
Impact of Recent Accounting Pronouncements”
above.
See
“Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations; MARKET RISK,”
above.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports we file under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate and in such a manner as to
allow timely decisions regarding required disclosure. We have a Disclosure
Committee, which is made up of several key management employees and which
reports directly to the CEO and CFO, to centralize and enhance these controls
and procedures and assist our management, including our CEO and CFO, in
fulfilling their responsibilities for establishing and maintaining such controls
and procedures and providing accurate, timely, and complete
disclosure.
As
of the
end of the period covered by this report on Form 10-Q (the “Evaluation Date”),
our Disclosure Committee, under the supervision and with the participation
of
management, including our CEO and CFO, carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our management, including our CEO and
CFO,
has concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective.
As
a
result of our June 2, 2005 acquisition of Crosstown Traders, Inc. (“Crosstown
Traders”), we integrated Crosstown Traders into our aforementioned disclosure
controls and procedures and expanded certain of our internal control over
financial reporting to include the consolidation of Crosstown Traders’ financial
position and results of operations, as well as the acquisition-related
accounting and disclosures. As we continue with the integration of Crosstown
Traders and the execution of our plan to migrate certain of the Crosstown
Traders transaction-based processes to our existing financial processes and
systems, including the conversion of the Crosstown Traders general ledger to
our
general ledger system, we are modifying the Crosstown Traders internal control
over financial reporting. As of January 28, 2006, we completed the migration
of
the cash management activities and the conversion of payroll processing to
our
respective processes and systems. The migration plan is expected to continue
through our current fiscal year. Other than changes arising out of the Crosstown
Traders acquisition, there has been no change in our internal control over
financial reporting that occurred during the period covered by this report
on
Form 10-Q that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Other
than ordinary routine litigation incidental to our business, there are no other
pending material legal proceedings that we or any of our subsidiaries are a
party to, or of which any of their property is the subject. There are no
proceedings that are expected to have a material adverse effect on our financial
condition or results of operations.
As
discussed in “Part
I; Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; RECENT
DEVELOPMENTS”
above,
in December 2005, we announced plans to enter the outlet channel through the
assumption of approximately 75 outlet store leases from Retail Brand Alliance,
and to operate those locations under the name LANE
BRYANT OUTLET™.
Subsequently, in January 2006, we acquired the trademark and internet domain
rights to the PETITE
SOPHISTICATE®
name. We
plan to operate both a LANE
BRYANT OUTLET
store
and a PETITE
SOPHISTICATE OUTLET
store in
approximately 45 of the locations acquired from Retail Brand Alliance, which
we
plan to open by the Fiscal 2007 Fourth Quarter.
As
indicated in the risk factors previously disclosed in “Part
I; Item 1A. Risk Factors”
of our
annual report on Form 10-K for the fiscal year ended January 28, 2006, we face
challenges in managing our recent growth. Our operating challenges and
management responsibilities are increasing as we continue to grow and expand
into additional distribution channels. We cannot assure the successful
implementation of our business plan for entry into the outlet store distribution
channel, or that we will achieve our objectives as quickly or as effectively
as
we hope.
Other
than the above, we have not become aware of any material changes since January
28, 2006 in the risk factors previously disclosed in “Part
I; Item 1A. Risk Factors”
of our
annual report on Form 10-K for the fiscal year ended January 28, 2006. See
also
“Part
I; Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; FORWARD-LOOKING
STATEMENTS”
above.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers:
|
|
|
|
|
|
|
Total
|
|
Maximum
|
|
|
|
|
|
|
|
|
Number
|
|
Number
of
|
|
|
|
|
|
|
|
|
of
Shares
|
|
Shares
that
|
|
|
|
|
|
|
|
|
Purchased
as
|
|
May
Yet be
|
|
|
|
Total
|
|
|
|
|
Part
of Publicly
|
|
Purchased
|
|
|
|
Number
|
|
|
Average
|
|
Announced
|
|
Under
the
|
|
|
|
of
Shares
|
|
|
Price
Paid
|
|
Plans
or
|
|
Plans
or
|
|
Period
|
|
Purchased
|
|
|
per
Share
|
|
Programs(2)
|
|
Programs(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
28, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
25, 2006
|
|
|
19,826
|
(1) |
|
$
|
13.39
|
|
|
-
|
|
|
-
|
|
February
26, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
1, 2006
|
|
|
10,540
|
(1) |
|
|
13.63
|
|
|
-
|
|
|
-
|
|
April
2, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
29, 2006
|
|
|
46,243
|
(1) |
|
|
13.96
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
76,609
|
|
|
$
|
13.77
|
|
|
-
|
|
|
-
|
|
____________________
|
(1) Shares
withheld for the payment of payroll taxes on employee stock awards
that
vested during the period.
|
(2) In
Fiscal 1998, we publicly announced that our Board of Directors granted
authority to repurchase up to 10,000,000 shares of our common stock.
In
Fiscal 2000, we publicly announced that our Board of Directors granted
authority to repurchase up to an additional 10,000,000 shares of
our
common stock. In Fiscal 2003, the Board of Directors granted an additional
authorization to repurchase 6,350,662 shares of common stock issued
to
Limited Brands in connection with our acquisition of LANE BRYANT.
From
Fiscal 1998 through Fiscal 2003, we repurchased a total of 21,370,993
shares of common stock, which included shares purchased on the open
market
as well as shares repurchased from Limited Brands. As of July 30,
2005,
4,979,669 shares of our common stock remain available for repurchase
under
these programs. Our revolving credit facility allows the repurchase
of our
common stock subject to maintaining a minimum level of Excess Availability
(as defined in the facility agreement) immediately before and after
such
repurchase. As conditions may allow, we may from time to time acquire
additional shares of our common stock under these programs. Such
shares,
if purchased, would be held as treasury shares. No shares were acquired
under these programs during the thirteen weeks ended April 29, 2006.
The
repurchase programs have no expiration
date.
|
The
following is a list of Exhibits filed as part of this Quarterly Report on Form
10-Q. Where so indicated, Exhibits that were previously filed are incorporated
by reference. For Exhibits incorporated by reference, the location of the
Exhibit in the previous filing is indicated in parentheses.
2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June
2,
2005, filed on June 8, 2005. (Exhibit 2.1).
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K
of the
Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258,
Exhibit 3.1).
|
3.2
|
Bylaws,
as Amended and Restated, incorporated by reference to Form 10-Q of
the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 3.2).
|
31.1
|
|
31.2
|
|
32
|
|
Pursuant
to the requirements 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.
|
CHARMING
SHOPPES, INC.
|
|
(Registrant)
|
|
|
|
|
|
|
Date: June
2, 2006
|
/S/
DORRIT J. BERN
|
|
Dorrit
J. Bern
|
|
Chairman
of the Board
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
Date: June
2, 2006
|
/S/
ERIC M. SPECTER
|
|
Eric
M. Specter
|
|
Executive
Vice President
|
|
Chief
Financial Officer
|
Exhibit
No.
|
Item
|
2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto
and
J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June
2,
2005, filed on June 8, 2005. (Exhibit 2.1).
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K
of the
Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258,
Exhibit 3.1).
|
3.2
|
Bylaws,
as Amended and Restated, incorporated by reference to Form 10-Q of
the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 3.2).
|
31.1
|
|
31.2
|
|
32
|
|