Third Quarter Fiscal 2007 Form 10-Q
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 October
28, 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 November 24, 2006, was 123,303,995 shares.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
|
|
Page
|
|
|
|
PART
I.
|
|
2
|
|
|
|
Item
1.
|
|
2
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
2
|
|
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive
Income
|
|
|
|
3
|
|
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
Item
2.
|
|
18
|
|
|
|
|
|
18
|
|
|
|
|
|
20
|
|
|
|
|
|
22
|
|
|
|
|
|
23
|
|
|
|
|
|
29
|
|
|
|
|
|
32
|
|
|
|
|
|
33
|
|
|
|
|
|
34
|
|
|
|
Item
3.
|
|
34
|
|
|
|
Item
4.
|
|
34
|
|
|
|
PART
II.
|
|
35
|
|
|
|
Item
1.
|
|
35
|
|
|
|
Item
1A.
|
|
35
|
|
|
|
Item
2.
|
|
36
|
|
|
|
Item
6.
|
|
37
|
|
|
|
|
|
38
|
|
|
|
|
|
39
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
|
|
October
28,
|
|
January
28,
|
|
(In
thousands, except share amounts)
|
|
2006
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
138,238
|
|
$
|
130,132
|
|
Available-for-sale
securities
|
|
|
3,323
|
|
|
20,150
|
|
Accounts
receivable, net of allowances of $1,265 and $6,588
|
|
|
2,020
|
|
|
38,603
|
|
Investment
in asset-backed securities
|
|
|
65,355
|
|
|
66,828
|
|
Merchandise
inventories
|
|
|
481,449
|
|
|
376,409
|
|
Deferred
advertising
|
|
|
26,208
|
|
|
20,591
|
|
Deferred
taxes
|
|
|
18,542
|
|
|
13,848
|
|
Prepayments
and other
|
|
|
107,177
|
|
|
89,245
|
|
Total
current assets
|
|
|
842,312
|
|
|
755,806
|
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold improvements - at cost
|
|
|
947,275
|
|
|
888,481
|
|
Less
accumulated depreciation and amortization
|
|
|
554,568
|
|
|
525,882
|
|
Net
property, equipment, and leasehold improvements
|
|
|
392,707
|
|
|
362,599
|
|
|
|
|
|
|
|
|
|
Trademarks
and other intangible assets
|
|
|
248,759
|
|
|
250,074
|
|
Goodwill
|
|
|
154,020
|
|
|
154,553
|
|
Other
assets
|
|
|
47,831
|
|
|
43,963
|
|
Total
assets
|
|
$
|
1,685,629
|
|
$
|
1,566,995
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
0
|
|
$
|
50,000
|
|
Accounts
payable
|
|
|
207,566
|
|
|
133,236
|
|
Accrued
expenses
|
|
|
202,666
|
|
|
217,421
|
|
Income
taxes payable
|
|
|
10,106
|
|
|
1,743
|
|
Current
portion - long-term debt
|
|
|
11,600
|
|
|
14,765
|
|
Total
current liabilities
|
|
|
431,938
|
|
|
417,165
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
40,136
|
|
|
45,046
|
|
Other
non-current liabilities
|
|
|
114,330
|
|
|
98,457
|
|
Long-term
debt
|
|
|
183,653
|
|
|
191,979
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
Common
Stock $.10 par value:
|
|
|
|
|
|
|
|
Authorized
- 300,000,000 shares
|
|
|
|
|
|
|
|
Issued
- 135,452,909 shares and 133,954,852 shares
|
|
|
13,545
|
|
|
13,395
|
|
Additional
paid-in capital
|
|
|
278,166
|
|
|
261,077
|
|
Treasury
stock at cost - 12,265,993 shares
|
|
|
(84,136
|
)
|
|
(84,136
|
)
|
Accumulated
other comprehensive income/(loss)
|
|
|
1
|
|
|
(3
|
)
|
Retained
earnings
|
|
|
707,996
|
|
|
624,015
|
|
Total
stockholders’ equity
|
|
|
915,572
|
|
|
814,348
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,685,629
|
|
$
|
1,566,995
|
|
|
|
|
|
|
|
|
|
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
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirteen
Weeks Ended
|
|
|
|
October
28,
|
|
October
29,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
695,278
|
|
$
|
663,677
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
478,247
|
|
|
461,806
|
|
Selling,
general, and administrative expenses
|
|
|
186,006
|
|
|
181,275
|
|
Total
operating expenses
|
|
|
664,253
|
|
|
643,081
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
31,025
|
|
|
20,596
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
2,074
|
|
|
1,754
|
|
Interest
expense
|
|
|
(3,540
|
)
|
|
(4,797
|
)
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
29,559
|
|
|
17,553
|
|
Income
tax provision
|
|
|
10,202
|
|
|
6,791
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
19,357
|
|
|
10,762
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
Unrealized
loss on available-for-sale securities,
|
|
|
|
|
|
|
|
net
of income tax
benefit of $1 in 2005
|
|
|
0
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
19,357
|
|
$
|
10,760
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
.16
|
|
$
|
.09
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
.15
|
|
$
|
.09
|
|
|
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
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirty-nine
Weeks Ended
|
|
|
|
October
28,
|
|
October
29,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
2,193,553
|
|
$
|
1,956,105
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
1,509,779
|
|
|
1,331,523
|
|
Selling,
general, and administrative expenses
|
|
|
548,179
|
|
|
489,280
|
|
Total
operating expenses
|
|
|
2,057,958
|
|
|
1,820,803
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
135,595
|
|
|
135,302
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
6,488
|
|
|
5,335
|
|
Interest
expense
|
|
|
(11,475
|
)
|
|
(13,434
|
)
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
130,608
|
|
|
127,203
|
|
Income
tax provision
|
|
|
46,627
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
83,981
|
|
|
80,203
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
Unrealized
gain/(loss) on available-for-sale securities,
|
|
|
|
|
|
|
|
net
of income tax
(provision)/benefit of ($3) in 2006 and $1 in 2005
|
|
|
4
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
83,985
|
|
$
|
80,201
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
.69
|
|
$
|
.67
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
.63
|
|
$
|
.61
|
|
|
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
(Unaudited)
|
|
Thirty-nine
Weeks Ended
|
|
|
|
October
28,
|
|
October
29,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
income
|
|
$
|
83,981
|
|
$
|
80,203
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
66,431
|
|
|
60,369
|
|
Deferred
income taxes
|
|
|
(9,713
|
)
|
|
(4,420
|
)
|
Stock-based
compensation
|
|
|
7,603
|
|
|
4,667
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
(2,635
|
)
|
|
2,365
|
|
Net
(gain)/loss from disposition of capital assets
|
|
|
849
|
|
|
(785
|
)
|
Net
gain from securitization activities
|
|
|
(761
|
)
|
|
(2,806
|
)
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
36,583
|
|
|
0
|
|
Merchandise
inventories
|
|
|
(105,040
|
)
|
|
(118,126
|
)
|
Accounts
payable
|
|
|
74,330
|
|
|
48,691
|
|
Deferred
advertising
|
|
|
(5,617
|
)
|
|
(17,249
|
)
|
Prepayments
and other
|
|
|
(17,932
|
)
|
|
8,902
|
|
Income
taxes payable
|
|
|
10,998
|
|
|
8,963
|
|
Accrued
expenses and other
|
|
|
1,757
|
|
|
28,183
|
|
Net
cash provided by operating activities
|
|
|
140,834
|
|
|
98,957
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Investment
in capital assets
|
|
|
(92,524
|
)
|
|
(68,177
|
)
|
Proceeds
from sales of capital assets
|
|
|
0
|
|
|
2,432
|
|
Gross
purchases of securities
|
|
|
(33,472
|
)
|
|
(49,278
|
)
|
Proceeds
from sales of securities
|
|
|
52,540
|
|
|
17,714
|
|
Acquisition
of Crosstown Traders, Inc., net of cash acquired
|
|
|
0
|
|
|
(256,702
|
)
|
Purchase
of Catherines receivables portfolio
|
|
|
0
|
|
|
(56,582
|
)
|
Securitization
of Catherines receivables portfolio
|
|
|
0
|
|
|
56,582
|
|
Securitization
of Crosstown apparel-related receivables
|
|
|
0
|
|
|
50,000
|
|
Increase
in other assets
|
|
|
(7,417
|
)
|
|
(2,455
|
)
|
Net
cash used by investing activities
|
|
|
(80,873
|
)
|
|
(306,466
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
|
142,212
|
|
|
261,311
|
|
Repayments
of short-term borrowings
|
|
|
(192,212
|
)
|
|
(211,311
|
)
|
Proceeds
from long-term borrowings
|
|
|
0
|
|
|
50,000
|
|
Repayments
of long-term borrowings
|
|
|
(11,491
|
)
|
|
(18,480
|
)
|
Payments
of deferred financing costs
|
|
|
0
|
|
|
(1,371
|
)
|
Excess
tax benefits related to stock-based compensation
|
|
|
2,635
|
|
|
0
|
|
Proceeds
from issuance of common stock
|
|
|
7,001
|
|
|
5,987
|
|
Net
cash (used)/provided by financing activities
|
|
|
(51,855
|
)
|
|
86,136
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
8,106
|
|
|
(121,373
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
130,132
|
|
|
273,049
|
|
Cash
and cash equivalents, end of period
|
|
$
|
138,238
|
|
$
|
151,676
|
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing activities
|
|
|
|
|
|
|
|
Equipment
acquired through capital leases
|
|
$
|
0
|
|
$
|
3,892
|
|
|
|
|
|
|
|
|
|
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 October 28, 2006, our
condensed consolidated statements of operations and comprehensive income for
the
thirteen weeks and thirty-nine weeks ended October 28, 2006 and October 29,
2005, and our condensed consolidated statements of cash flows for the
thirty-nine weeks ended October 28, 2006 and October 29, 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 and thirty-nine weeks ended October
28, 2006 and October 29, 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 term “Fiscal 2008” refers to our fiscal year ending February
2, 2008. 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®
(including
LANE BRYANT OUTLET™),
FASHION
BUG®,
CATHERINES PLUS SIZES®,
and
PETITE SOPHISTICATE OUTLET™ 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
October 28, 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, provided that in no event may more than 50% of such
shares be delivered in connection with “full-value awards.” 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 October 28, 2006, 191,787 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 (“SARS”), 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 October 28, 2006, 7,305,339
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 October 28, 2006, 116,171 shares were available for future grants under
this plan.
The
table
below summarizes stock option activity for the thirty-nine weeks ended October
28, 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
|
|
|
61,233
|
|
|
11.33
|
|
|
11.28
|
|
-
|
|
|
13.84
|
|
Granted
-
option
price less than market price
|
|
|
31,600
|
|
|
1.00
|
|
|
1.00
|
|
-
|
|
|
1.00
|
|
Canceled/forfeited
|
|
|
(8,436
|
)
|
|
3.38
|
|
|
1.00
|
|
-
|
|
|
6.65
|
|
Exercised
|
|
|
(1,252,839
|
)
|
|
6.06
|
|
|
1.00
|
|
-
|
|
|
9.10
|
|
Outstanding
at October 28, 2006
|
|
|
2,503,666
|
|
$
|
5.78
|
|
$
|
1.00
|
|
-
|
|
$
|
13.84
|
|
Exercisable
at October 28, 2006
|
|
|
2,282,667
|
|
$
|
5.77
|
|
$
|
1.00
|
|
-
|
|
$
|
13.84
|
|
The
aggregate intrinsic value of options outstanding at October 28, 2006 (aggregate
market value on October 28, 2006 less aggregate exercise price) was
$22,651,000.
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 October 28, 2006, 1,176,158 shares were available for
future purchases 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 restricted stock and restricted stock unit
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,
restricted stock awards, and restricted stock unit 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 and thirty-nine weeks ended October 28, 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
and restricted stock unit 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 and restricted stock unit 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 October
28,
2006 and October 29, 2005 was $2,588,000 and $1,754,000, respectively. Total
stock-based compensation for the thirty-nine weeks ended October 28, 2006 and
October 29, 2005 was $7,603,000 and $4,667,000, respectively. Total stock-based
compensation not yet recognized, related to the non-vested portion of stock
options and awards outstanding, was $17,284,000 as of October 28, 2006. The
weighted-average period over which we expect to recognize this compensation
is
approximately 2.7 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 and thirty-nine weeks ended October 29, 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 SFAS No. 123:
|
|
Thirteen
|
|
Thirty-nine
|
|
|
|
Weeks
Ended
|
|
Weeks
Ended
|
|
|
|
October
29,
|
|
October
29,
|
|
(In
thousands, except per share amounts)
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
Net
income as reported
|
|
$
|
10,762
|
|
$
|
80,203
|
|
Add
stock-based employee compensation using intrinsic value
|
|
|
|
|
|
|
|
method,
net of
income taxes
|
|
|
1,140
|
|
|
3,033
|
|
Less
stock-based employee compensation using fair value method,
|
|
|
|
|
|
|
|
net
of income
taxes
|
|
|
(1,159
|
)
|
|
(3,323
|
)
|
Pro
forma net income
|
|
$
|
10,743
|
|
$
|
79,913
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
.09
|
|
$
|
.67
|
|
Pro
forma
|
|
|
.09
|
|
|
.67
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
As
reported
|
|
|
.09
|
|
|
.61
|
|
Pro
forma
|
|
|
.09
|
|
|
.61
|
|
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 thirty-nine weeks ended October 28, 2006 includes $2,635,000
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. During the thirty-nine weeks ended
October 28, 2006, we increased the fair value of liabilities assumed by
$1,100,000 for customer refunds related to the pre-acquisition period. In
accordance with the provisions of SFAS No. 141, “Business
Combinations,”
we
recognized certain acquired intangible assets, 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.
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 FASB Emerging Issues Task Force (“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 thirty-nine weeks ended October 28,
2006, and the remaining accrual as of October 28, 2006 were as
follows:
|
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
|
|
Balance
at
|
|
October
28, 2006
|
|
Balance
at
|
|
|
|
January
28,
|
|
|
|
Payments/
|
|
October
28,
|
|
(In
thousands)
|
|
2006
|
|
Adjustments
|
|
Settlements
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and related costs
|
|
$
|
4,380
|
|
$
|
(982
|
)
|
$
|
(2,898
|
)
|
$
|
500
|
|
Lease
termination and related costs
|
|
|
2,180
|
|
|
564
|
|
|
(787
|
)
|
|
1,957
|
|
Unfavorable
contract costs
|
|
|
900
|
|
|
(900
|
)
|
|
|
|
|
0
|
|
Other
costs
|
|
|
1,154
|
|
|
(62
|
)
|
|
(666
|
)
|
|
426
|
|
Total
|
|
$
|
8,614
|
|
$
|
(1,380
|
)
|
$
|
(4,351
|
)
|
$
|
2,883
|
|
Severance
and related costs represent involuntary termination benefits for approximately
275 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 primarily 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 thirty-nine weeks ended October 28, 2006, we finalized the lease termination
and related costs and entered into a sublease agreement for the manufacturing
facility for a term ending in December 2009, which represents a portion of
the
remaining lease term. Additionally, severance and related costs were adjusted
for employees voluntarily leaving the Company and opting to forego their
severance. As a result of our decision to utilize the remaining term of the
acquired unfavorable contract, the unfavorable contract costs accrual was
reduced. Accordingly, we have adjusted the severance and related costs, lease
termination and related costs, unfavorable contract costs, and other costs
accruals; 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:
|
|
Thirty-nine
|
|
|
|
Weeks
Ended
|
|
|
|
October
29,
|
|
(In
thousands, except per share amounts)
|
|
2005
|
|
|
|
|
|
Net
sales
|
|
$
|
2,105,120
|
|
Net
income
|
|
|
77,150
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
Basic
|
|
$
|
.65
|
|
Diluted
|
|
|
.59
|
|
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:
|
|
October
28,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Due
from customers
|
|
$
|
3,285
|
|
$
|
45,191
|
|
Allowance
for doubtful accounts
|
|
|
(1,265
|
)
|
|
(6,588
|
)
|
Net
accounts receivable
|
|
$
|
2,020
|
|
$
|
38,603
|
|
Note
4. Trademarks and Other Intangible Assets
|
|
October
28,
|
|
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
|
|
|
7,941
|
|
|
5,126
|
|
Net
trademarks and other intangible assets
|
|
$
|
248,759
|
|
$
|
250,074
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
5. Short-term Borrowings and Long-term Debt
|
|
October
28,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
|
|
|
Revolving
credit facility
|
|
$
|
0
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
|
|
|
|
4.75%
Senior Convertible Notes, due June 2012
|
|
$
|
150,000
|
|
$
|
150,000
|
|
Capital
lease obligations
|
|
|
15,395
|
|
|
24,825
|
|
6.07%
mortgage note, due October 2014
|
|
|
11,843
|
|
|
12,261
|
|
6.53%
mortgage note, due November 2012
|
|
|
8,400
|
|
|
9,450
|
|
7.77%
mortgage note, due December 2011
|
|
|
8,639
|
|
|
9,050
|
|
Other
long-term debt
|
|
|
976
|
|
|
1,158
|
|
Total
long-term debt
|
|
|
195,253
|
|
|
206,744
|
|
Less
current portion
|
|
|
11,600
|
|
|
14,765
|
|
Long-term
debt
|
|
$
|
183,653
|
|
$
|
191,979
|
|
Note
6. Stockholders’ Equity
|
|
Thirty-nine
|
|
|
|
Weeks
Ended
|
|
|
|
October
28,
|
|
(Dollars
in thousands)
|
|
2006
|
|
|
|
|
|
Total
stockholders’ equity, beginning of period
|
|
$
|
814,348
|
|
Net
income
|
|
|
83,981
|
|
Issuance
of common stock (1,498,057 shares)
|
|
|
7,001
|
|
Stock-based
compensation expense
|
|
|
7,603
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
2,635
|
|
Unrealized
gains on available-for-sale securities, net of tax
|
|
|
4
|
|
Total
stockholders’ equity, end of period
|
|
$
|
915,572
|
|
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 October 28, 2006 and October 29,
2005,
we recognized revenues of $4,871,000 and $3,878,000, respectively, in connection
with our loyalty card programs. During the thirty-nine weeks ended October
28,
2006 and October 29, 2005, we recognized revenues of $14,042,000 and
$11,309,000, 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
|
|
Thirty-nine
Weeks Ended
|
|
|
|
October
28,
|
|
October
29,
|
|
October
28,
|
|
October
29,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
122,586
|
|
|
120,102
|
|
|
122,174
|
|
|
119,513
|
|
Dilutive
effect of assumed conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
notes
|
|
|
15,182
|
|
|
15,182
|
|
|
15,182
|
|
|
15,182
|
|
Dilutive
effect of stock options and awards
|
|
|
2,164
|
|
|
2,268
|
|
|
2,215
|
|
|
1,939
|
|
Diluted
weighted average common shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents
outstanding
|
|
|
139,932
|
|
|
137,552
|
|
|
139,571
|
|
|
136,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
19,357
|
|
$
|
10,762
|
|
$
|
83,981
|
|
$
|
80,203
|
|
Decrease
in interest expense from assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion
of
notes, net of income taxes
|
|
|
1,128
|
|
|
1,128
|
|
|
3,385
|
|
|
3,385
|
|
Net
income used to determine diluted net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
$
|
20,485
|
|
$
|
11,890
|
|
$
|
87,366
|
|
$
|
83,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
with weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater
than market price, excluded from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
computation
of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
1
|
|
|
0
|
|
|
1
|
|
|
0
|
|
Weighted
average exercise price per share
|
|
$
|
13.84
|
|
$
|
0.00
|
|
$
|
13.84
|
|
$
|
0.00
|
|
Note
9. Income Taxes
The
effective income tax rate was 35.7% for the thirty-nine weeks ended October
28,
2006, as compared to 36.9% for the thirty-nine weeks ended October 29, 2005.
The
tax rate for the thirty-nine weeks ended October 28, 2006 was favorably affected
by non-taxable insurance proceeds which were included in pre-tax income for
the
period and by adjustments related to the final reconciliation of our Federal
tax
return for Fiscal 2006. The tax rate for the thirty-nine weeks ended October
28,
2006 was also unfavorably affected by an additional provision for state income
taxes. The
tax
rate for the thirty-nine
weeks ended October 29, 2005
was
unfavorably affected by $1,390,000 of taxes, net of foreign tax credits, on
the
planned repatriation of profits from international operations on which
incremental United States income taxes had not been previously accrued. The
American Jobs Creation Act of 2004 permitted the repatriation of profits from
international operations at a favorable tax rate for a one-year period. The
tax
rate for the thirty-nine
weeks ended October 29, 2005
was also
favorably affected by charitable contributions of inventories to hurricane
relief efforts.
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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
10. Asset Securitization (Continued)
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 a
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 thirty-nine weeks ended October 29, 2005 of
approximately $2,000,000, which is included in selling, general, and
administrative expenses.
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 (including LANE BRYANT
OUTLET),
FASHION
BUG, CATHERINES PLUS SIZES, and PETITE SOPHISTICATE OUTLET 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 chief operating decision-makers
evaluate the performance of our operating segments based on a measure of their
contribution to operations, which consists of net sales less the cost of
merchandise sold and certain directly identifiable and allocable operating
costs. Beginning in Fiscal 2007, we discontinued the allocation of certain
corporate costs, such as shared service costs, information systems support
costs, and insurance costs to our Retail Stores segment (historically, we have
not allocated such costs to our Direct-to-Consumer segment). Accordingly, the
comparative selected financial information by reportable segment shown below
has
been adjusted to exclude these costs from the Retail Stores segment. For the
Retail Stores segment, operating costs consist primarily of store selling and
occupancy costs. For our Direct-to-Consumer segment, operating costs consist
primarily of catalog development, production, and circulation costs, E-commerce
advertising costs, and order processing costs. Other costs that are currently
allocated to the segments include warehousing costs.
Corporate
and Other includes unallocated general and administrative costs, shared service
center costs, information systems support costs, corporate depreciation and
amortization, corporate occupancy costs, the results of our proprietary credit
card operations, and other non-routine charges. Operating contribution for
the
Retail Stores and Direct-to-Consumer segments less Corporate and Other net
expenses equals income before interest and taxes.
Operating
segment assets are those directly used in, or allocable to, that segment’s
operations. For the Retail Stores segment, operating assets consist primarily
of
inventories; the net book value of store facilities; and goodwill and intangible
assets. For the Direct-to-Consumer segment, operating assets consist primarily
of trade receivables; inventories; deferred advertising costs; the net book
value of catalog operating facilities; and goodwill and intangible assets.
Corporate and Other assets include corporate cash and cash equivalents, the
net
book value of corporate facilities, deferred income taxes, and other corporate
long-lived assets.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
11. Segment Reporting (Continued)
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(1)
|
|
Consumer(2)
|
|
and
Other
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended October 28, 2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
615,321
|
|
$
|
79,826
|
|
$
|
131
|
|
$
|
695,278
|
|
Depreciation
and amortization
|
|
|
10,216
|
|
|
718
|
|
|
10,368
|
|
|
21,302
|
|
Income
before interest and taxes
|
|
|
58,974
|
|
|
(2,138
|
)
|
|
(23,737
|
)
|
|
33,099
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(3,540
|
)
|
|
(3,540
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(10,202
|
)
|
|
(10,202
|
)
|
Net
income
|
|
|
58,974
|
|
|
(2,138
|
)
|
|
(37,479
|
)
|
|
19,357
|
|
Capital
expenditures
|
|
|
25,953
|
|
|
2,033
|
|
|
9,567
|
|
|
37,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended October 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,912,533
|
|
$
|
279,579
|
|
$
|
1,441
|
|
$
|
2,193,553
|
|
Depreciation
and amortization
|
|
|
36,693
|
|
|
2,018
|
|
|
27,720
|
|
|
66,431
|
|
Income
before interest and taxes
|
|
|
174,447
|
|
|
1,258
|
|
|
(33,622
|
)
|
|
142,083
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(11,475
|
)
|
|
(11,475
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(46,627
|
)
|
|
(46,627
|
)
|
Net
income
|
|
|
174,447
|
|
|
1,258
|
|
|
(91,724
|
)
|
|
83,981
|
|
Capital
expenditures
|
|
|
64,064
|
|
|
5,023
|
|
|
23,437
|
|
|
92,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
569,150
|
|
$
|
93,613
|
|
$
|
914
|
|
$
|
663,677
|
|
Depreciation
and amortization
|
|
|
10,598
|
|
|
440
|
|
|
10,349
|
|
|
21,387
|
|
Income
before interest and taxes
|
|
|
43,340
|
|
|
839
|
|
|
(21,829
|
)
|
|
22,350
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(4,797
|
)
|
|
(4,797
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(6,791
|
)
|
|
(6,791
|
)
|
Net
income
|
|
|
43,340
|
|
|
839
|
|
|
(33,417
|
)
|
|
10,762
|
|
Capital
expenditures
|
|
|
23,398
|
|
|
1,048
|
|
|
6,338
|
|
|
30,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,811,230
|
|
$
|
143,052
|
|
$
|
1,823
|
|
$
|
1,956,105
|
|
Depreciation
and amortization
|
|
|
30,880
|
|
|
717
|
|
|
28,772
|
|
|
60,369
|
|
Income
before interest and taxes
|
|
|
172,059
|
|
|
245
|
|
|
(31,667
|
)
|
|
140,637
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(13,434
|
)
|
|
(13,434
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(47,000
|
)
|
|
(47,000
|
)
|
Net
income
|
|
|
172,059
|
|
|
245
|
|
|
(92,101
|
)
|
|
80,203
|
|
Capital
expenditures
|
|
|
51,249
|
|
|
1,345
|
|
|
15,583
|
|
|
68,177
|
|
____________________
|
(1) Includes
76 LANE BRYANT OUTLET stores opened in July 2006 and 44 PETITE
SOPHISTICATE OUTLET stores opened in September 2006 (see “Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations; RECENT DEVELOPMENTS”
below).
|
(2) From
date of acquisition of Crosstown Traders, Inc. on June 2,
2005.
|
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.
In
June
2006, the FASB ratified the consensus of EITF Issue No. 06-3, “How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross versus Net
Presentation).”
EITF
Issue No. 06-3 provides that gross or net presentation is an accounting policy
decision that is dependent on the type of tax, and that similar taxes are to
be
presented in a consistent manner. The provisions of EITF Issue No. 06-3 will
be
effective as of the beginning of Fiscal 2008, with early application permitted.
Our current accounting policy is to present taxes within the scope of EITF
Issue
No. 06-3 on a net basis. Our adoption of EITF Issue No. 06-3 will not result
in
a change in our accounting policy and, accordingly, will have no effect on
our
results of operations.
In
July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
109.”
FIN No.
48 clarifies the accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before being recognized
in the financial statements. FIN No. 48 also provides guidance on
de-recognition, measurement, classification, interest and penalties, accounting
in interim periods, expanded disclosures regarding tax uncertainties, and
transition.
FIN
No.
48 applies to all tax positions related to income taxes subject to SFAS No.
109,
“Accounting
for Income Taxes.”
Under
FIN No. 48, recognition of a tax benefit occurs when a tax position is
more-likely-than-not to be sustained upon examination, based solely on its
technical merits. The recognized benefit is measured as the largest amount
of
benefit which is more-likely-than-not to be realized on ultimate settlement,
based on a cumulative probability basis. A tax position failing to qualify
for
initial recognition is recognized in the first interim period in which it meets
the FIN No. 48 recognition standard, or is resolved through negotiation,
litigation, or upon expiration of the statute of limitations. De-recognition
of
a previously recognized tax position would occur if it is subsequently
determined that the tax position no longer meets the more-likely-than-not
threshold of being sustained. Differences between amounts recognized in balance
sheets prior to the adoption of FIN No. 48 and amounts reported after adoption
(except for items not recognized in earnings) will be accounted for as a
cumulative effect adjustment to retained earnings as of the date of adoption
of
FIN No. 48, if material.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
12. Impact of Recent Accounting Pronouncements (Continued)
We
will
be required to adopt the provisions of FIN No. 48 effective as of the beginning
of Fiscal 2008. We are currently analyzing the impact of adoption of FIN No.
48,
and have not yet determined the impact of adoption on our consolidated financial
position or results of operations.
In
September 2006, the FASB ratified the consensus of EITF Issue No. 06-4,
“Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Agreements.”
EITF
Issue No. 06-4 addresses accounting for separate agreements that split life
insurance policy benefits between an employer and an employee. EITF Issue
No.
06-4 requires employers to recognize a liability for future benefits payable
to
the employee under such agreements. The effect of applying the provisions
of
Issue No. 06-4 should be recognized either through a change in accounting
principle by a cumulative-effect adjustment to equity or through the
retrospective application to all prior periods. The provisions of EITF Issue
No.
06-4 will be effective for fiscal years beginning after December 15, 2007,
with
earlier application permitted. We are currently analyzing the impact of adoption
of EITF Issue No. 06-4, and have not yet determined the impact, if any, of
adoption on our consolidated financial position or results of
operations.
In
September 2006, the FASB ratified the consensus of EITF Issue No. 06-5,
“Accounting
for Purchases of Life Insurance - Determining the Amount That Could be Realized
in Accordance with FASB Technical Bulletin 85-4.”
EITF
Issue No. 06-5 addresses the determination of the amount that could be realized
under a life insurance contract in accordance with Technical Bulletin 85-4.
EITF
Issue No. 06-5 requires a policyholder to consider any additional amounts
included in the contractual terms of the policy other than the cash surrender
value in determining the amount that could be realized under the insurance
contract. Policyholders should determine the amount that could be realized
under
the life insurance contract assuming the surrender of an individual-life
by
individual-life policy (or certificate by certificate in a group policy).
Any
amount that is ultimately realized by the policyholder upon the assumed
surrender of the final policy (or final certificate in a group policy) shall
be
included in the amount that could be realized under the insurance contract.
The
provisions of EITF Issue No. 06-5 will be effective for fiscal years beginning
after December 15, 2006. The effect of applying the provisions of Issue No.
06-5
should be recognized either through a change in accounting principle by a
cumulative-effect adjustment to equity or through the retrospective application
to all prior periods. We are currently analyzing the impact of adoption of
EITF
Issue No. 06-5, and have not yet determined the impact, if any, of adoption
on
our consolidated financial position or results of operations.
In
September 2006, the staff of the Securities and Exchange Commission issued
Staff
Accounting Bulletin No. 108 (“SAB 108”), “Financial
Statements - Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements.”
SAB 108
provides guidance on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the financial statements are
materially misstated. Under SAB 108, companies should take into account the
effect of a misstatement on both the current year balance sheet and the current
year income statement in assessing the materiality of a current year
misstatement. Once a current year misstatement has been quantified, the guidance
in SAB 99, “Financial
Statements - Materiality”
should
be applied to determine whether the misstatement is material. The provisions
of
SAB 108 are effective for annual financial statements for fiscal years ending
after November 15, 2006.
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
Third Quarter” and “Fiscal 2006 Third Quarter” refer to the thirteen weeks ended
October 28, 2006 and October 29, 2005, respectively. The terms “Fiscal 2007
Second Quarter” and “Fiscal 2007 Fourth Quarter” refer to the thirteen weeks
ended July 29, 2006 and the fourteen weeks ending February 3, 2007,
respectively. The term “Fiscal 2008” refers to our fiscal year ending February
2, 2008. 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 plans
for
entry into the outlet store distribution channel and expansion of
our
CACIQUE®
product
line through new store formats.
|
· |
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. In addition, we are subject to the Fair
Labor
Standards Act and various state and Federal laws and regulations
governing
such matters as minimum wages, exempt status classification, overtime,
and
employee benefits. Changes in Federal or state laws or regulations
regarding minimum wages or other employee benefits could cause
us to incur
additional wage and benefit costs, which could adversely affect
our
results of operations.
|
· |
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 vital
to
catalog operations, including postage, paper, and acquisition of
prospects, 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 restricted stock and restricted stock unit
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,
restricted stock awards, and restricted stock unit 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 comparable prior-year periods. 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 and restricted
stock unit 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 primarily
restricted stock and restricted stock unit 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 thirty-nine weeks ended October 28, 2006 includes $2.6
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 thirteen
weeks and thirty-nine weeks ended October 28, 2006 and for pro forma disclosures
for the comparable prior-year periods. 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, was $17.3
million as of October 28, 2006. The weighted-average period over which we expect
to recognize this compensation is approximately 2.7 years.
In
December 2005, we announced plans to enter the outlet channel through the
assumption of outlet store leases from Retail Brand Alliance, and to operate
those locations under the name LANE BRYANT OUTLET. A majority of these locations
had been operated as side-by-side locations selling more than one brand.
Subsequently, in January 2006, we acquired the trademark and internet domain
rights to the PETITE SOPHISTICATE®
name.
During the Fiscal 2007 Second Quarter, we opened 73 LANE BRYANT OUTLET stores
in
locations that we assumed from Retail Brand Alliance and converted 3 existing
LANE BRYANT stores to LANE BRYANT OUTLET stores. During the Fiscal 2007 Third
Quarter, we opened 4 additional LANE BRYANT OUTLET stores, including 3 stores
in
locations that we assumed from Retail Brand Alliance. During the Fiscal 2007
Third Quarter, we also opened 44 PETITE SOPHISTICATE OUTLET stores that are
operating with a LANE BRYANT OUTLET store in side-by-side locations assumed
from
Retail Brand Alliance. We opened 2 additional LANE BRYANT OUTLET stores and
1
additional PETITE SOPHISTICATE OUTLET store during 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
|
|
|
|
Percentage
|
|
|
|
Thirteen
Weeks Ended(1)
|
|
Change
|
|
Thirty-nine
Weeks Ended(1)
|
|
Change
|
|
|
|
October
28,
|
|
October
29,
|
|
From
Prior
|
|
October
28,
|
|
October
29,
|
|
From
Prior
|
|
|
|
2006
|
|
2005
|
|
Period
|
|
2006
|
|
2005(2)
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
4.8
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
12.1
|
%
|
Cost
of goods sold, buying, catalog,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
occupancy
expenses
|
|
|
68.8
|
|
|
69.6
|
|
|
3.6
|
|
|
68.8
|
|
|
68.1
|
|
|
13.4
|
|
Selling,
general, and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
26.8
|
|
|
27.3
|
|
|
2.6
|
|
|
25.0
|
|
|
25.0
|
|
|
12.0
|
|
Income
from operations
|
|
|
4.5
|
|
|
3.1
|
|
|
50.6
|
|
|
6.2
|
|
|
6.9
|
|
|
0.2
|
|
Other
income
|
|
|
0.3
|
|
|
0.3
|
|
|
18.2
|
|
|
0.3
|
|
|
0.3
|
|
|
21.6
|
|
Interest
expense
|
|
|
0.5
|
|
|
0.7
|
|
|
(26.2
|
)
|
|
0.5
|
|
|
0.7
|
|
|
(14.6
|
)
|
Income
tax provision
|
|
|
1.5
|
|
|
1.0
|
|
|
50.2
|
|
|
2.1
|
|
|
2.4
|
|
|
(0.8
|
)
|
Net
income
|
|
|
2.8
|
|
|
1.6
|
|
|
79.9
|
|
|
3.8
|
|
|
4.1
|
|
|
4.7
|
|
____________________
|
(1) Results
may not add due to rounding.
|
(2) Includes
the results of operations of Crosstown Traders, Inc. from the date
of
acquisition on June 2, 2005.
|
The
following table shows details of our consolidated total net sales:
|
|
Thirteen
Weeks Ended
|
|
Thirty-nine
Weeks Ended
|
|
|
|
October
28,
|
|
October
29,
|
|
October
28,
|
|
October
29,
|
|
(In
millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
$
|
240.7
|
|
$
|
241.0
|
|
$
|
789.2
|
|
$
|
790.4
|
|
LANE
BRYANT(1)
|
|
|
287.0
|
|
|
247.3
|
|
|
845.2
|
|
|
757.6
|
|
CATHERINES
|
|
|
85.7
|
|
|
80.9
|
|
|
276.2
|
|
|
263.2
|
|
Other
retail stores(2)
|
|
|
1.9
|
|
|
0.0
|
|
|
1.9
|
|
|
0.0
|
|
Total
Retail Stores segment sales
|
|
|
615.3
|
|
|
569.2
|
|
|
1,912.5
|
|
|
1,811.2
|
|
Total
Direct-to-Consumer segment sales(3)
|
|
|
79.8
|
|
|
93.6
|
|
|
279.6
|
|
|
143.1
|
|
Corporate
and other(4)
|
|
|
0.2
|
|
|
0.9
|
|
|
1.5
|
|
|
1.8
|
|
Total
net sales
|
|
$
|
695.3
|
|
$
|
663.7
|
|
$
|
2,193.6
|
|
$
|
1,956.1
|
|
____________________
|
(1) Includes
LANE BRYANT OUTLET stores (see “RECENT
DEVELOPMENTS”
above).
|
(2) Includes
PETITE SOPHISTICATE OUTLET stores (see “RECENT
DEVELOPMENTS”
above).
|
(3) Includes
the results of operations of Crosstown Traders, Inc. from the date
of
acquisition on June 2, 2005.
|
(4) Revenue
related to loyalty card fees.
|
The
following table shows information related to the change in our consolidated
total net sales:
|
|
Thirteen
Weeks Ended
|
|
Thirty-nine
Weeks Ended
|
|
|
|
October
28,
|
|
October
29,
|
|
October
28,
|
|
October
29,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Stores segment
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in comparable store sales(1)
:
|
|
|
|
|
|
|
|
|
|
Consolidated
retail stores
|
|
|
1
|
%
|
|
3
|
%
|
|
1
|
%
|
|
2
|
%
|
FASHION
BUG
|
|
|
0
|
|
|
1
|
|
|
(1
|
)
|
|
0
|
|
LANE
BRYANT
|
|
|
0
|
|
|
4
|
|
|
2
|
|
|
2
|
|
CATHERINES
|
|
|
4
|
|
|
9
|
|
|
4
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from new stores as a percentage of total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
prior-period sales(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
LANE
BRYANT(3)
|
|
|
9
|
|
|
3
|
|
|
5
|
|
|
3
|
|
CATHERINES
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Other
retail stores(4)
|
|
|
0
|
|
|
—
|
|
|
0
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-period
sales from closed stores as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total
consolidated prior-period sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
LANE
BRYANT
|
|
|
(3
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
CATHERINES
|
|
|
(0
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Retail Stores segment sales
|
|
|
8
|
|
|
5
|
|
|
6
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in Direct-to-Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segment
sales
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
(5)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in consolidated total net sales
|
|
|
5
|
|
|
22
|
|
|
12
|
|
|
12
|
|
____________________
|
(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
incremental Retail Stores segment E-commerce sales.
|
(3) Includes
LANE BRYANT OUTLET stores (see “RECENT
DEVELOPMENTS”
above).
|
(4) Includes
PETITE SOPHISTICATE OUTLET stores (see “RECENT
DEVELOPMENTS”
above).
|
(5) Comparison
is not meaningful, as prior-year period includes sales from Crosstown
Traders, Inc. from the date of acquisition on June 2, 2005 (approximately
21 weeks).
|
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
|
|
Other(2)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007 Year-to-Date(1):
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at January 28, 2006
|
|
|
1,025
|
|
|
748
|
|
|
463
|
|
|
0
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
opened
|
|
|
9
|
|
|
121
|
(3)
|
|
7
|
|
|
44
|
|
|
181
|
|
Stores
closed
|
|
|
(13
|
)
|
|
(14
|
)
|
|
(4
|
)
|
|
(0
|
)
|
|
(31
|
)
|
Net
change in stores
|
|
|
(4
|
)
|
|
107
|
|
|
3
|
|
|
44
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at October 28, 2006
|
|
|
1,021
|
|
|
855
|
|
|
466
|
|
|
44
|
|
|
2,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
relocated during period
|
|
|
23
|
|
|
20
|
|
|
7
|
|
|
0
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned
store openings
|
|
|
10
|
|
|
134
|
(4)
|
|
8
|
|
|
45
|
|
|
197
|
|
Planned
store closings
|
|
|
26
|
|
|
16
|
|
|
6
|
|
|
0
|
|
|
48
|
|
Planned
store relocations
|
|
|
27
|
|
|
35
|
|
|
10
|
|
|
0
|
|
|
72
|
|
____________________
|
(1) Excludes
2 Crosstown Traders outlet stores.
|
(2) Includes
PETITE SOPHISTICATE OUTLET stores.
|
(3) Includes
80 LANE BRYANT OUTLET stores (see “RECENT
DEVELOPMENTS”
above).
|
(4) Includes
83 LANE BRYANT OUTLET stores (see “RECENT
DEVELOPMENTS”
above).
|
Comparison
of Thirteen Weeks Ended October 28, 2006 and October 29,
2005
Net
Sales
The
increase in consolidated net sales in the Fiscal 2007 Third Quarter as compared
to the Fiscal 2006 Third Quarter was a result of an increase in net sales from
our Retail Stores segment, partially offset by a decrease in net sales from
our
Direct-to-Consumer segment. The increase in the Retail Stores segment’s net
sales was primarily a result of sales from new LANE BRYANT, LANE BRYANT OUTLET
and PETITE SOPHISTICATE OUTLET stores opened during Fiscal 2007, an increase
in
comparable retail store sales at our CATHERINES brand, and increases in
E-commerce sales at all of our Retail Stores brands. The increase in the Retail
Stores segment’s net sales met our plan for a low single-digit comparable store
sales increase for the quarter. The decrease in net sales from our
Direct-to-Consumer segment was primarily a result of our decision to decrease
circulation for prospecting in order to control costs as a result of reduced
prospecting response rates. We operated 2,386 stores in our Retail Stores
segment as of October 28, 2006, as compared to 2,246 stores as of October 29,
2005. Additionally, Crosstown Traders operated two outlet stores as of October
28, 2006 as compared to three outlet stores as of October 29, 2005. The
Crosstown Traders outlet stores are included in our Direct-to-Consumer
segment.
Total
net
sales for the LANE BRYANT brand increased as a result of sales from new stores
and an increase in E-commerce sales. LANE BRYANT experienced an increase in
the
number of transactions per store, which was partially offset by a decrease
in
the average dollar sale per transaction in the current-year quarter as compared
to the prior-year quarter. The decrease in the average dollar sale per
transaction was a result of reduced sales of denim products in response to
changing fashion trends. Traffic levels decreased as compared to the prior-year
quarter.
Total
net
sales for the FASHION BUG brand were flat as compared to the prior-year quarter.
A decrease in retail store sales as a result of store closures was partially
offset by an increase in store-related E-commerce sales. Store traffic levels
were consistent with the prior-year quarter, while the average dollar sale
per
transaction decreased slightly as compared to the prior-year
quarter.
Total
net
sales for the CATHERINES brand increased as a result of increases in comparable
retail store sales and store-related E-commerce sales. Traffic levels increased
as compared to the prior-year quarter, while the average dollar sale per
transaction decreased slightly as compared to the prior-year
quarter.
Total
net
sales for the Direct-to-Consumer segment decreased as compared to the prior-year
quarter as
a
result of our decision to decrease circulation for prospecting in order to
control costs and as a result of reduced response rates from mailings to our
core customer list. The average order value for the current-year quarter
was above plan, while actual circulation and customer response rates were below
plan.
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 Third Quarter and Fiscal
2006
Third Quarter, we recognized revenues of $4.9 million and $3.9 million,
respectively, in connection with our loyalty card programs.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
The
decrease in consolidated cost of goods sold, buying, and occupancy expenses
as a
percentage of consolidated net sales from the Fiscal 2006 Third Quarter to
the
Fiscal 2007 Third Quarter was primarily as a result of improved merchandise
margins for our Retail Stores segment. Consolidated cost of goods sold decreased
1.5% as a percentage of consolidated net sales, while consolidated buying and
occupancy expenses increased 0.7% 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 0.8% lower in the Fiscal 2007 Third Quarter as
compared to the Fiscal 2006 Third Quarter. We entered the Fiscal 2007 Third
Quarter with improved inventory levels, which resulted in lower sales of
marked-down carryover seasonal merchandise and an improved merchandise margin.
The Fiscal 2007 Third Quarter was also the first full quarter of operations
for
our outlet business. Buying and occupancy expenses for the Retail Stores
segment, as a percentage of net sales, were 0.3% lower in the Fiscal 2007 Third
Quarter as compared to the Fiscal 2006 Third Quarter.
For
our
Direct-to-Consumer segment, cost of goods sold, buying, and occupancy expenses
as a percentage of sales were 1.0% higher in the Fiscal 2007 Third Quarter
as
compared to the Fiscal 2006 Third Quarter. The increase was primarily a result
of the impact of reduced net sales on fixed buying and occupancy costs. Cost
of
goods sold for our Direct-to-Consumer segment includes catalog advertising
and
fulfillment costs, which are significant expenses for catalog operations, and
are therefore generally higher as a percentage of net sales than cost of goods
sold for our Retail Stores segment. The Direct-to-Consumer segment incurs lower
levels of buying and occupancy costs as compared to the Retail Stores
segment.
Cost
of
goods sold includes merchandise costs net of discounts and allowances; freight;
inventory shrinkage; shipping and handling costs associated with our
Direct-to-Consumer and E-commerce businesses; and amortization of
direct-response advertising costs for our Direct-to-Consumer business. Net
merchandise costs and freight are capitalized as inventory costs.
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
The
decrease in consolidated selling, general, and administrative expenses as a
percentage of consolidated net sales was primarily a result of our
continued focus on controlling operating expenses and an improvement in the
contribution from our credit operations, as well as leverage on the increase
in
consolidated net sales.
General
and administrative expenses for the Fiscal 2007 Third Quarter were negatively
impacted by a $0.9 million increase in stock-based compensation as compared
to
the prior-year period (see “CRITICAL
ACCOUNTING POLICIES”
above).
General and administrative expenses for the Fiscal 2006 Third Quarter include
a
gain of $1.3 million recognized in connection with our expected share of the
VISA/MasterCard antitrust settlement.
Income
Tax Provision
The
effective income tax rate was 34.5% for the Fiscal 2007 Third Quarter as
compared to 38.7% for the Fiscal 2006 Third Quarter. The tax rate for the Fiscal
2007 Third Quarter was favorably affected primarily by adjustments related
to
the final reconciliation of our Federal tax return for Fiscal 2006, which
customarily occurs during our third fiscal quarter.
The
tax
rate for the Fiscal 2007 Third Quarter was also unfavorably affected by an
additional provision for state income taxes. The
tax
rate for the Fiscal 2006 Third Quarter was unfavorably affected by $1.4 million
of taxes, net of foreign tax credits, on the planned repatriation of profits
from international operations (see Item
1. Notes to Condensed Consolidated Financial Statements (Unaudited); Note 9.
Income Taxes”
above)
and was favorably affected by charitable contributions of inventories to
hurricane relief efforts.
Comparison
of Thirty-nine Weeks Ended October 28, 2006 and October 29,
2005
Net
Sales
Consolidated
net sales increased in the first three quarters of Fiscal 2007 as compared
to
the first three quarters of Fiscal 2006, primarily as a result of the inclusion
of Crosstown Traders for the entire Fiscal 2007 period, as well as increased
net
sales from our Retail Stores segment. Consolidated net sales for the first
three
quarters of Fiscal 2006 include net sales from Crosstown Traders from the date
of acquisition on June 2, 2005. The increase in the Retail Stores segment’s net
sales was a result of sales from new LANE BRYANT, LANE BRYANT OUTLET, AND PETITE
SOPHISTICATE OUTLET stores opened in Fiscal 2007, 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 met our plan for a low
single-digit comparable store sales increase for the period.
Total
net
sales for the LANE BRYANT brand increased as a result of sales from new stores,
an increase in comparable retail store sales, and an increase in E-commerce
sales. As compared to the prior-year period, a slight 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 slight decreases in
both comparable retail store sales and the number of open stores. The decrease
in retail store sales was partially offset by an increase in store-related
E-commerce sales. The number of transactions per store decreased during the
current-year period while the average dollar sale per transaction increased
slightly as compared to the prior-year period.
Total
net
sales for the CATHERINES brand increased as a result of increases in comparable
retail store sales and store-related E-commerce sales. Significant increases
in
traffic levels and the number of transactions per store during the first three
quarters of Fiscal 2007 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.
Total
net
sales for the Direct-to-Consumer segment for the first three quarters of Fiscal
2007 were below our sales plan for the period as
a
result of our decision to decrease circulation for prospecting in order to
control costs and as a result of reduced response rates from mailings to our
core customer list. The average order value for the current-year period
was above plan, while actual circulation and customer response rates were below
plan.
During
the first three quarters of Fiscal 2007 and Fiscal 2006, we recognized revenues
of $14.0 million and $11.3 million, respectively, in connection with our loyalty
card programs.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
The
increase in consolidated cost of goods sold, buying, catalog, and occupancy
expenses as a percentage of consolidated net sales from the first three quarters
of Fiscal 2006 to the first three quarters of Fiscal 2007 was primarily a result
of the inclusion of catalog costs for our Direct-to-Consumer segment for the
entire Fiscal 2007 period as compared to the inclusion of catalog costs for
five
months for the Fiscal 2006 period as a result of the acquisition of Crosstown
Traders in June 2005. The increase also resulted from reduced merchandise
margins related to higher levels of promotional activity for our Retail Stores
segment in the current-year period. Consolidated cost of goods sold increased
1.3% as a percentage of consolidated net sales, while consolidated buying and
occupancy expenses decreased 0.6% 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% higher in the first three quarters of Fiscal
2007 as compared to the first three quarters of Fiscal 2006 primarily as a
result of pre-opening expenses related to the LANE BRYANT OUTLET stores that
began operations in July 2006. Buying and occupancy expenses for the Retail
Stores segment, as a percentage of net sales, were 0.2 higher in the first
three
quarters of Fiscal 2007 as compared to the first three quarters of Fiscal 2006.
Occupancy expenses for the Retail Stores segment for the first half of Fiscal
2007 included approximately $4.5 million of pre-opening expenses related to
the
LANE BRYANT OUTLET stores that began operations in July 2006.
Cost
of
goods sold for our Direct-to-Consumer segment includes catalog advertising
and
fulfillment costs, which are significant expenses for catalog operations, and
are therefore generally higher as a percentage of net sales than cost of goods
sold for our Retail Stores segment. The Direct-to-Consumer segment incurs lower
levels of buying and occupancy costs, which resulted in a favorable impact
on
consolidated buying and occupancy expenses as a percentage of consolidated
net
sales in the current-year period.
Cost
of
goods sold includes merchandise costs net of discounts and allowances; freight;
inventory shrinkage; shipping and handling costs associated with our
Direct-to-Consumer and E-commerce businesses; and amortization of
direct-response advertising costs for our Direct-to-Consumer business for
periods subsequent to the Crosstown acquisition. Net merchandise costs and
freight are capitalized as inventory costs.
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 first three quarters
of
Fiscal 2007, as a percentage of consolidated net sales, were comparable to
the
prior-year period, reflecting the benefit of our continued focus on controlling
expenses and an improvement in the contribution from our credit operations.
Selling, general, and administrative expenses for the first half of Fiscal
2007
included approximately $3.3 million of pre-opening operating expenses related
to
the LANE BRYANT OUTLET stores that began operations in July 2006. The
current-year period was also negatively impacted by a $3.0 million increase
in
stock-based compensation as compared to the prior-year period (see “CRITICAL
ACCOUNTING POLICIES”
above),
and by inclusion of the Direct-to-Consumer segment for the full Fiscal 2007
period as compared to inclusion of the Direct-to-Consumer segment for five
months for the Fiscal 2006 period as a result of the acquisition of Crosstown
Traders in June 2005. Consolidated selling, general, and administrative expenses
for the prior-year period included a gain of $2.0 million from the purchase
and
subsequent securitization of our CATHERINES credit card portfolio and a gain
of
$1.3 million recognized in connection with our expected share of the
VISA/MasterCard antitrust settlement.
Income
Tax Provision
The
effective income tax rate was 35.7% for the first three quarters of Fiscal
2007
as compared to 36.9% for the first three quarters of Fiscal 2006. The tax rate
for the Fiscal 2007 period was favorably affected by non-taxable insurance
proceeds that were included in pre-tax income for the period and by adjustments
related to the final reconciliation of our Federal tax return for Fiscal
2006.
The
tax
rate for the first three quarters of Fiscal 2007 was also unfavorably affected
by an additional provision for state income taxes. The
tax
rate for the prior-year period was unfavorably affected by $1.4 million of
taxes, net of foreign tax credits, on the planned repatriation of profits from
international operations (see Item
1. Notes to Condensed Consolidated Financial Statements (Unaudited); Note 9.
Income Taxes”
above)
and was favorably affected by charitable contributions of inventories to
hurricane relief efforts.
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:
|
|
October
28,
|
|
January
28,
|
|
(Dollars
in millions)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
138.2
|
|
$
|
130.1
|
|
Available-for-sale
securities
|
|
|
3.3
|
|
|
20.2
|
|
Working
capital
|
|
$
|
410.4
|
|
$
|
338.6
|
|
Current
ratio
|
|
|
2.0
|
|
|
1.8
|
|
Long-term
debt to equity ratio
|
|
|
20.1
|
%
|
|
23.6
|
%
|
Our
net
cash provided by operating activities increased to $140.8 million for the first
three quarters of Fiscal 2007 from $99.0 million for the first three quarters
of
Fiscal 2006. The $41.8 million increase was primarily attributable to a $36.6
million decrease in accounts receivable, which resulted from collections on
holiday-season sales of food and gifts from our FIGI’S Direct-to-Consumer
catalog. Our net investment in inventories decreased $38.7 million in the first
three quarters of Fiscal 2007 as compared to the first three quarters of Fiscal
2006, primarily as a result of our ability to obtain more favorable payment
terms from certain vendors and our continued management of inventory levels.
Higher levels of promotional activity in the current-year period also
contributed to the reduced levels of inventory as compared to the prior-year
period. The timing of payments of deferred, prepaid, and accrued expenses
resulted in a $39.6 million decrease in cash provided by operating activities
in
the first three quarters of Fiscal 2007 as compared to the first three quarters
of Fiscal 2006.
As
a
result of the adoption of SFAS No. 123R in Fiscal 2007 (see “CRITICAL
ACCOUNTING POLICIES”
above),
we are reporting certain tax benefits related to stock-based compensation as
cash provided by financing activities in Fiscal 2007 instead of as cash provided
by operating activities as permitted in the prior-year period. This change
in
reporting classification had a $2.6 million negative impact on cash provided
by
operating activities for the first three quarters of Fiscal 2007, which was
offset by a corresponding positive impact on cash used by financing
activities.
Capital
Expenditures
Our
gross
capital expenditures, excluding construction allowances received from landlords,
were $92.5 million during the first three quarters of Fiscal 2007. Construction
allowances received from landlords for the first three quarters of Fiscal 2007
were $15.2 million. During Fiscal 2007, we accelerated 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 our 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.
For
all
of Fiscal 2007, we anticipate incurring capital expenditures of approximately
$135 - $145 million before construction allowances received from landlords.
We
expect that a majority of these 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
October 28, 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 October 28, 2006
|
$31.7
|
$100.0
|
$00.0
|
$180.0
|
$48.5
|
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 (for the Crosstown Traders catalog proprietary
credit
card receivables program).
|
(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 $454.1 million of private label credit card receivables in the
first
three quarters of Fiscal 2007 and had $367.2 million of securitized credit
card
receivables outstanding as of October 28, 2006. We held certificates and
retained interests in our securitizations of $65.4 million as of October 28,
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
October 28, 2006, our investment in asset-backed securities included $11.0
million of QSPE certificates, an I/O strip of $15.8 million, and other retained
interests of $38.6 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 October 28, 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
October 28, 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 retail
and
outlet stores. 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 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 maximum availability of $500 million. The agreement expires
on July 28, 2010. As of October 28, 2006, we had an aggregate total of $3.2
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 October 28, 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 October 28, 2006, the applicable rates under
the facility were 8.25% for Prime Rate Loans and 6.32% (LIBOR plus 1%) for
Eurodollar Rate Loans. There were no borrowings outstanding under the facility
as of October 28, 2006.
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 and CATHERINES proprietary credit
card accounts are billed using a floating rate index (the Prime Rate), subject
to a floor and limited by legal maximums. Prior to the Fiscal 2007 Third
Quarter, the finance charges on most of our CATHERINES credit card accounts
had
been billed at a fixed rate of interest. With respect to our catalog proprietary
credit card program, the finance charges on most of our 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
October 28, 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 $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 $0.2 million in selling, general, and administrative expenses
would result.
As
of
October 28, 2006, there were no borrowings outstanding under our revolving
credit facility. Future borrowings made under the facility, if any, could be
exposed to variable interest rates.
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
we
continue with the various integration activities of our June 2, 2005 acquisition
of Crosstown Traders, Inc. (“Crosstown Traders”), including the migration of
certain of the Crosstown Traders transaction-based processes to our existing
financial processes and systems, we are modifying the Crosstown Traders internal
control over financial reporting. Additionally, during the period covered by
this report on Form 10-Q, we converted
our existing retail store brand E-commerce operating platform to the Crosstown
Traders platform and order management system, thereby consolidating
capabilities, support, and maintenance of E-commerce onto a common system.
Integration
activities as a result of our acquisition of Crosstown Traders are expected
to
continue through our current fiscal year. Other than changes arising out of
the
Crosstown Traders acquisition and the conversion of our E-commerce operating
platforms and systems, 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 outlet store leases from Retail Brand Alliance, and to operate
those locations under the name LANE BRYANT OUTLETTM.
A
majority of these locations had been operated as side-by-side locations selling
more than one brand. Subsequently, in January 2006, we acquired the trademark
and internet domain rights to the PETITE SOPHISTICATE name. As of October 28,
2006 we have opened 80 LANE BRYANT OUTLET stores, including 76 stores in
locations that we assumed from Retail Brand Alliance. We have also opened 44
PETITE SOPHISTICATE OUTLET stores that are operating with a LANE BRYANT OUTLET
store in side-by-side locations assumed from Retail Brand Alliance.
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)
|
|
|
|
|
|
|
|
|
|
|
|
July
30, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
1,046
|
(1)
|
$
|
10.32
|
|
|
|
|
|
|
|
August
27, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
28, 2006
|
|
|
200
|
(1)
|
|
14.78
|
|
|
|
|
|
|
|
Total
|
|
|
1,246
|
|
$
|
11.03
|
|
|
|
|
|
|
|
____________________
|
(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 October
28, 2006,
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 October 28,
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
|
|
99.1
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated Loan
and
Security Agreement, dated July 28, 2005, by and among Charming Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc.,
and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors, incorporated by reference to Form 10-Q
of the
Registrant for the quarter ended July 29, 2006 (File No. 000-07258,
Exhibit 99.1).
|
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:
December 1, 2006
|
/S/
DORRIT J. BERN
|
|
Dorrit
J. Bern
|
|
Chairman
of the Board
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
Date:
December 1, 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
|
|
|
99.1
|
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated Loan
and
Security Agreement, dated July 28, 2005, by and among Charming Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc.,
and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors, incorporated by reference to Form 10-Q
of the
Registrant for the quarter ended July 29, 2006 (File No. 000-07258,
Exhibit 99.1).
|