form10qnov32007.htm
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 November 3, 2007
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 December 4, 2007 was 116,694,356 shares.
TABLE
OF CONTENTS
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Page
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2
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2
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Condensed
Consolidated Balance Sheets
|
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2
|
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|
|
Condensed
Consolidated Statements of Operations and Comprehensive
Income
|
|
|
|
3
|
|
|
4
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|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
5
|
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|
|
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|
6
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1
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21
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23
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24
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25
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34
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38
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39
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40
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40
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40
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41
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|
41
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|
41
|
|
|
|
|
|
42
|
|
|
|
|
|
43
|
|
|
|
|
|
45
|
|
|
|
|
|
46
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
November
3,
|
|
|
February
3,
|
|
(In
thousands, except share amounts)
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
36,389
|
|
|
$ |
143,838
|
|
Available-for-sale
securities
|
|
|
26,919
|
|
|
|
1,997
|
|
Accounts
receivable, net of allowances of $1,440 and $5,083
|
|
|
3,559
|
|
|
|
33,366
|
|
Investment
in asset-backed securities
|
|
|
113,458
|
|
|
|
60,643
|
|
Merchandise
inventories
|
|
|
498,196
|
|
|
|
429,433
|
|
Deferred
advertising
|
|
|
32,130
|
|
|
|
21,707
|
|
Deferred
taxes
|
|
|
5,232
|
|
|
|
4,469
|
|
Prepayments
and other
|
|
|
145,073
|
|
|
|
145,385
|
|
Total
current assets
|
|
|
860,956
|
|
|
|
840,838
|
|
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold improvements – at cost
|
|
|
1,095,772
|
|
|
|
996,430
|
|
Less
accumulated depreciation and amortization
|
|
|
630,414
|
|
|
|
573,984
|
|
Net
property, equipment, and leasehold improvements
|
|
|
465,358
|
|
|
|
422,446
|
|
|
|
|
|
|
|
|
|
|
Trademarks
and other intangible assets
|
|
|
247,171
|
|
|
|
249,490
|
|
Goodwill
|
|
|
152,811
|
|
|
|
153,370
|
|
Other
assets
|
|
|
68,252
|
|
|
|
44,798
|
|
Total
assets
|
|
$ |
1,794,548
|
|
|
$ |
1,710,942
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
194,407
|
|
|
$ |
178,629
|
|
Accrued
expenses
|
|
|
192,321
|
|
|
|
190,702
|
|
Current
portion – long-term debt
|
|
|
9,239
|
|
|
|
10,887
|
|
Total
current liabilities
|
|
|
395,967
|
|
|
|
380,218
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
66,206
|
|
|
|
57,340
|
|
Other
non-current liabilities
|
|
|
160,666
|
|
|
|
144,722
|
|
Long-term
debt
|
|
|
305,658
|
|
|
|
181,124
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Common
stock $.10 par value:
|
|
|
|
|
|
|
|
|
Authorized
– 300,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
– 151,374,836 shares and 135,762,531 shares
|
|
|
15,137
|
|
|
|
13,576
|
|
Additional
paid-in capital
|
|
|
406,372
|
|
|
|
285,159
|
|
Treasury
stock at cost – 34,224,114 shares and 12,265,993 shares
|
|
|
(324,425 |
) |
|
|
(84,136 |
) |
Accumulated
other comprehensive income
|
|
|
18
|
|
|
|
1
|
|
Retained
earnings
|
|
|
768,949
|
|
|
|
732,938
|
|
Total
stockholders’ equity
|
|
|
866,051
|
|
|
|
947,538
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
1,794,548
|
|
|
$ |
1,710,942
|
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirteen
Weeks Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
(In
thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
669,389
|
|
|
$ |
695,278
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
486,519
|
|
|
|
480,818
|
|
Selling,
general, and administrative expenses
|
|
|
187,996
|
|
|
|
183,435
|
|
Total
operating expenses
|
|
|
674,515
|
|
|
|
664,253
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from operations
|
|
|
(5,126 |
) |
|
|
31,025
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
2,686
|
|
|
|
2,074
|
|
Interest
expense
|
|
|
(2,206 |
) |
|
|
(3,540 |
) |
|
|
|
|
|
|
|
|
|
Income/(loss)
before income taxes
|
|
|
(4,646 |
) |
|
|
29,559
|
|
Income
tax provision/(benefit)
|
|
|
(1,078 |
) |
|
|
10,202
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
(3,568 |
) |
|
|
19,357
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
Unrealized
gain on available-for-sale securities,
|
|
|
|
|
|
|
|
|
net
of income tax provision of $8
in 2007
|
|
|
15
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income/(loss)
|
|
$ |
(3,553 |
) |
|
$ |
19,357
|
|
|
|
|
|
|
|
|
|
|
Basic
net income/(loss) per share
|
|
$ |
(.03 |
) |
|
$ |
.16
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income/(loss) per share
|
|
$ |
(.03 |
) |
|
$ |
.15
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
(In
thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,225,026
|
|
|
$ |
2,193,553
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
1,584,048
|
|
|
|
1,516,490
|
|
Selling,
general, and administrative expenses
|
|
|
574,885
|
|
|
|
541,468
|
|
Total
operating expenses
|
|
|
2,158,933
|
|
|
|
2,057,958
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
66,093
|
|
|
|
135,595
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
7,787
|
|
|
|
6,488
|
|
Interest
expense
|
|
|
(8,287 |
) |
|
|
(11,475 |
) |
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
65,593
|
|
|
|
130,608
|
|
Income
tax provision
|
|
|
24,584
|
|
|
|
46,627
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
41,009
|
|
|
|
83,981
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
Unrealized
gain on available-for-sale securities,
|
|
|
|
|
|
|
|
|
net
of income tax provision of
$11 in 2007 and $3 in 2006
|
|
|
17
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
41,026
|
|
|
$ |
83,985
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
.33
|
|
|
$ |
.69
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
.32
|
|
|
$ |
.63
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
41,009
|
|
|
$ |
83,981
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
69,492
|
|
|
|
66,431
|
|
Stock-based
compensation
|
|
|
8,494
|
|
|
|
7,603
|
|
Deferred
income taxes
|
|
|
8,856
|
|
|
|
(9,713 |
) |
Excess
tax benefits related to stock-based compensation
|
|
|
(847 |
) |
|
|
(2,635 |
) |
Net
loss from disposition of capital assets
|
|
|
1,926
|
|
|
|
849
|
|
Net
gain from securitization activities
|
|
|
(7,486 |
) |
|
|
(1,139 |
) |
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
29,807
|
|
|
|
36,583
|
|
Merchandise
inventories
|
|
|
(68,763 |
) |
|
|
(105,040 |
) |
Accounts
payable
|
|
|
15,778
|
|
|
|
74,330
|
|
Deferred
advertising
|
|
|
(10,423 |
) |
|
|
(5,617 |
) |
Prepayments
and other
|
|
|
(591 |
) |
|
|
(17,932 |
) |
Income
taxes payable
|
|
|
0
|
|
|
|
10,998
|
|
Accrued
expenses and other
|
|
|
16,853
|
|
|
|
2,135
|
|
Purchase
of Lane Bryant credit card receivables portfolio
|
|
|
(230,975 |
) |
|
|
0
|
|
Securitization
of Lane Bryant credit card receivables portfolio
|
|
|
230,975
|
|
|
|
0
|
|
Net
cash provided by operating activities
|
|
|
104,105
|
|
|
|
140,834
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Investment
in capital assets
|
|
|
(108,775 |
) |
|
|
(92,524 |
) |
Gross
purchases of securities
|
|
|
(73,089 |
) |
|
|
(33,472 |
) |
Proceeds
from sales of securities
|
|
|
3,777
|
|
|
|
52,540
|
|
Increase
in other assets
|
|
|
(17,225 |
) |
|
|
(7,417 |
) |
Net
cash used by investing activities
|
|
|
(195,312 |
) |
|
|
(80,873 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
|
9,527
|
|
|
|
142,212
|
|
Repayments
of short-term borrowings
|
|
|
(9,527 |
) |
|
|
(192,212 |
) |
Proceeds
from issuance of senior convertible notes
|
|
|
275,000
|
|
|
|
0
|
|
Proceeds
from long-term borrowings
|
|
|
986
|
|
|
|
0
|
|
Repayments
of long-term borrowings
|
|
|
(9,044 |
) |
|
|
(11,491 |
) |
Payments
of deferred financing costs
|
|
|
(7,611 |
) |
|
|
0
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
847
|
|
|
|
2,635
|
|
Purchase
of hedge on senior convertible notes
|
|
|
(90,475 |
) |
|
|
0
|
|
Sale
of common stock warrants
|
|
|
53,955
|
|
|
|
0
|
|
Purchases
of treasury stock
|
|
|
(240,289 |
) |
|
|
0
|
|
Net
proceeds from shares issued under employee stock
plans
|
|
|
389
|
|
|
|
7,001
|
|
Net
cash used by financing activities
|
|
|
(16,242 |
) |
|
|
(51,855 |
) |
|
|
|
|
|
|
|
|
|
Increase/(decrease) in
cash and cash equivalents
|
|
|
(107,449 |
) |
|
|
8,106
|
|
Cash
and cash equivalents, beginning of period
|
|
|
143,838
|
|
|
|
130,132
|
|
Cash
and cash equivalents, end of period
|
|
$ |
36,389
|
|
|
$ |
138,238
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing activities
|
|
|
|
|
|
|
|
|
Common
stock issued on redemption of convertible notes
|
|
$ |
149,564
|
|
|
$ |
0
|
|
Assets
acquired through capital leases
|
|
$ |
5,509
|
|
|
$ |
0
|
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Note
1. Condensed Consolidated Financial Statements
The
accompanying interim unaudited condensed consolidated financial statements
have
been prepared in accordance with the rules and regulations of the United States
Securities and Exchange Commission. Accordingly, 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. 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 and condensed consolidated statements of operations
and comprehensive income have been reclassified to conform to the current-year
presentation. These financial statements and related notes should be read
in conjunction with our financial statements and related notes included in
our
February 3, 2007 Annual Report on Form 10-K. The results of operations for
the thirteen weeks and thirty-nine weeks ended November 3, 2007 and October
28,
2006 are not necessarily indicative of operating results for the full fiscal
year.
As
used
in these notes, “Fiscal 2008” refers to our fiscal year ending February 2, 2008
and “Fiscal 2007” refers to our fiscal year ended February 3, 2007.
“Fiscal 2009” refers to our fiscal year ending January 31,
2009. “Fiscal 2008 Third Quarter” refers to our fiscal quarter ended
November 3, 2007 and “Fiscal 2007 Third Quarter” refers to our fiscal quarter
ended October 28, 2006. “Fiscal 2008 First Quarter” refers to our
fiscal quarter ended May 5, 2007 and “Fiscal 2008 Second Quarter” refers to our
fiscal quarter ended August 4, 2007. The term “Fiscal 2009 First
Quarter” refers to our fiscal quarter ending May 3, 2008. The terms
“Charming Shoppes, Inc.,” “the Company,” “we,” “us,” and “our” refer to Charming
Shoppes, Inc. and its consolidated subsidiaries, except where the context
otherwise requires or as otherwise indicated.
Segment
Reporting
We
operate and report in two segments: Retail Stores and
Direct-to-Consumer. We determine our operating segments based on the
way our chief operating decision-makers review our results of
operations. We also consider the similarity of economic
characteristics, production processes, and operations in aggregating our
operating segments. Accordingly, we have aggregated our retail stores
and store-related E-commerce operations into a single reporting segment (the
“Retail Stores” segment). Our catalog and catalog-related E-commerce
operations are reported under the Direct-to-Consumer segment. 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® (including
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
10. Segment
Reporting” below for further information regarding our segment
reporting.
Stock-based
Compensation
We
have
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 11.
Stock-Based Compensation Plans” in
our February 3, 2007 Annual Report on Form 10-K.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Shares
available for future grants under our stock-based compensation plans as of
November 3, 2007:
2004
Stock Award and Incentive Plan
|
|
|
3,915,252
|
|
2003
Non-Employee Directors Compensation Plan
|
|
|
122,968
|
|
1994
Employee Stock Purchase Plan
|
|
|
1,072,687
|
|
1988
Key Employee Stock Option Plan
|
|
|
105,055
|
|
Stock
option activity for the thirty-nine weeks ended November 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Intrinsic
|
|
|
|
Option
|
|
|
Option
|
|
|
Option
Prices
|
|
|
Value(1)
|
|
|
|
Shares
|
|
|
Price
|
|
|
Per
Share
|
|
|
(000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at February 3, 2007
|
|
|
2,217,790
|
|
|
$ |
5.82
|
|
|
$ |
1.00
|
|
|
|
–
|
|
|
$ |
13.84
|
|
|
$ |
16,473
|
|
Granted
– option price less than market price
|
|
|
18,000
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
–
|
|
|
|
1.00
|
|
|
|
|
|
Canceled/forfeited
|
|
|
(7,502 |
) |
|
|
4.08
|
|
|
|
1.00
|
|
|
|
–
|
|
|
|
11.28
|
|
|
|
|
|
Exercised
|
|
|
(148,181 |
) |
|
|
5.26
|
|
|
|
1.00
|
|
|
|
–
|
|
|
|
8.46
|
|
|
|
884 |
(2) |
Outstanding
at November 3, 2007
|
|
|
2,080,107
|
|
|
$ |
5.82
|
|
|
$ |
1.00
|
|
|
|
–
|
|
|
$ |
13.84
|
|
|
$ |
2,092
|
|
Exercisable
at November 3, 2007
|
|
|
2,015,680
|
|
|
$ |
5.98
|
|
|
$ |
1.00
|
|
|
|
–
|
|
|
$ |
13.84
|
|
|
$ |
1,717
|
|
____________________
|
|
(1)
Aggregate market value less aggregate exercise price.
|
|
(2)
As of date of exercise.
|
|
Stock-based
compensation expense for the thirteen weeks and thirty-nine weeks ended November
3, 2007 and October 28, 2006 includes (i) compensation cost for all
partially-vested stock-based awards granted prior to the beginning of Fiscal
2007, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”
(“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. 123 (revised
2004), “Share-Based Payment” (“SFAS No. 123R”), a revision of SFAS No.
123. Current grants of stock-based compensation consist primarily of
restricted stock and restricted stock unit awards.
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
|
November
3,
|
|
|
October
28,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
$ |
734
|
|
|
$ |
2,588
|
|
|
$ |
8,494
|
|
|
$ |
7,603
|
|
We
use
the Black-Scholes valuation model to estimate the fair value of stock options,
and amortize stock-based compensation on a straight-line basis over the
estimated life of a stock option or the vesting period of an
award. Stock-based compensation for performance-based awards is
initially determined using an estimate of performance levels expected to be
achieved and is periodically reviewed and adjusted as
required. Estimates or assumptions we used under the Black-Scholes
model are consistent with those used in Fiscal 2007, as described in
“Item 8. Financial Statements and Supplementary Data; Note 1. Summary
of
Significant Accounting Policies; Stock-based
Compensation” in our February 3, 2007 Annual
Report on Form 10-K.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Total
stock-based compensation not yet recognized, related to the non-vested portion
of stock options and awards outstanding, was $18,334,000 as of November 3,
2007. The weighted-average period over which we expect to recognize
this compensation is approximately 3 years. During the thirteen weeks
ended November 3, 2007, we reduced our estimate of the number of shares expected
to vest in connection with our performance-based awards.
Crosstown
Traders Integration Plan
Concurrent
with our acquisition of Crosstown Traders (see “Item 8. Financial
Statements and Supplementary Data; Note 2.
Acquisition of Crosstown
Traders, Inc.”
in our February 3, 2007 Annual Report on Form 10-K),
we prepared a
formal integration plan for Crosstown Traders’ operations that included exiting
and consolidating certain activities of Crosstown Traders, lease terminations,
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 outstanding as of February
3,
2007, adjustments, payments, or settlements of these liabilities for the
thirty-nine weeks ended November 3, 2007, and the remaining accrual as of
November 3, 2007 were as follows:
|
|
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
|
|
|
Balance
at
|
|
|
November
3, 2007
|
|
|
Balance
at
|
|
|
|
February
3,
|
|
|
|
|
|
Payments/
|
|
|
November
3,
|
|
(In
thousands)
|
|
2007
|
|
|
Adjustments
|
|
|
Settlements
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
termination and related costs
|
|
$ |
1,820
|
|
|
$ |
(746 |
) |
|
$ |
(1,074 |
) |
|
$ |
0
|
|
Other
costs
|
|
|
239
|
|
|
|
(153 |
) |
|
|
(86 |
) |
|
|
0
|
|
Total
|
|
$ |
2,059
|
|
|
$ |
(899 |
) |
|
$ |
(1,160 |
) |
|
$ |
0
|
|
During
the Fiscal 2008 Third Quarter, we reached an agreement with the landlord to
terminate the lease on Crosstown Traders’ manufacturing facility for
approximately $570,000 and paid or settled the remaining liabilities in
connection with the integration plan. Accordingly, the lease termination
liability and related costs, other costs, goodwill, and deferred taxes were
adjusted in the Fiscal 2008 Third Quarter to reflect the termination of the
lease and the payment or settlement of the remaining liabilities.
Note
2. Accounts Receivable
Accounts
receivable consist of trade receivables from sales through our FIGI’S® catalog.
Details of our accounts receivable are as follows:
|
|
November
3,
|
|
|
February
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
Due
from customers
|
|
$ |
4,999
|
|
|
$ |
38,449
|
|
Allowance
for doubtful accounts
|
|
|
(1,440 |
) |
|
|
(5,083 |
) |
Net
accounts receivable
|
|
$ |
3,559
|
|
|
$ |
33,366
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
3. Trademarks and Other Intangible Assets
|
|
November
3,
|
|
|
February
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
Trademarks,
tradenames, and internet domain names
|
|
$ |
241,988
|
|
|
$ |
241,850
|
|
Customer
lists, customer relationships, and covenant not to compete
|
|
|
16,400
|
|
|
|
16,400
|
|
Total
at cost
|
|
|
258,388
|
|
|
|
258,250
|
|
Less
accumulated amortization of customer lists, customer
|
|
|
|
|
|
|
|
|
relationships,
and covenant not
to compete
|
|
|
11,217
|
|
|
|
8,760
|
|
Net
trademarks and other intangible assets
|
|
$ |
247,171
|
|
|
$ |
249,490
|
|
Note
4. Long-term Debt
|
|
November
3,
|
|
|
February
3,
|
|
(In
thousands)
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
1.125%
Senior Convertible Notes, due May 2014
|
|
$ |
275,000
|
|
|
$ |
0
|
|
4.75%
Senior Convertible Notes, due June 2012(1)
|
|
|
0
|
|
|
|
149,999
|
|
Capital
lease obligations
|
|
|
12,876
|
|
|
|
12,853
|
|
6.07%
mortgage note, due October 2014
|
|
|
11,235
|
|
|
|
11,696
|
|
6.53%
mortgage note, due November 2012
|
|
|
7,000
|
|
|
|
8,050
|
|
7.77%
mortgage note, due December 2011
|
|
|
8,051
|
|
|
|
8,496
|
|
Other
long-term debt
|
|
|
735
|
|
|
|
917
|
|
Total
long-term debt
|
|
|
314,897
|
|
|
|
192,011
|
|
Less
current portion
|
|
|
9,239
|
|
|
|
10,887
|
|
Long-term
debt
|
|
$ |
305,658
|
|
|
$ |
181,124
|
|
____________________
|
|
(1)
On April 30, 2007, we called these notes for redemption on June 4,
2007
(see below).
|
|
On
April
30, 2007, we issued $250,000,000 in aggregate principal amount of 1.125% Senior
Convertible Notes due May 1, 2014 (the “1.125% Notes”) in a private offering for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended. On May 11, 2007, the initial
purchasers of the 1.125% Notes exercised their over-allotment option and
purchased an additional $25,000,000 in aggregate principal amount of the
notes. The 1.125% Notes were issued at par plus accrued interest, if
any, from April 30, 2007, and interest is payable semiannually in arrears on
May
1 and November 1, beginning November 1, 2007. The 1.125% Notes will
mature on May 1, 2014, unless earlier repurchased by us or
converted.
We
received combined proceeds of approximately $268,125,000 from the issuance,
net
of underwriting fees of approximately $6,875,000. The underwriting
fees, as well as additional transaction costs of $736,000 incurred in connection
with the issuance of the 1.125% Notes, are included in “Other assets” on our
condensed consolidated balance sheets, and are being amortized to interest
expense on an effective interest rate basis over the life of the notes (seven
years).
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
4. Long-term Debt (Continued)
Holders
of the 1.125% Notes may convert their notes based on a conversion rate of
65.0233 shares of our common stock per $1,000 principal amount of notes (the
equivalent of $15.379 per share), subject to adjustment upon certain events,
only under the following circumstances as described in the Indenture for the
1.125% Notes (the “Indenture”): (1) during specified periods, if the price of
our common stock reaches specified thresholds; (2) if the trading price of
the
1.125% Notes is below a specified threshold; (3) at any time after November
15,
2013; or (4) upon the occurrence of certain corporate transactions.
Upon
conversion, we intend to deliver an amount in cash equal to the lesser of the
aggregate principal amount of notes to be converted or our total conversion
obligation. If our conversion obligation exceeds the aggregate
principal amount of the 1.125% Notes, we will deliver shares of our common
stock
in respect of the excess. However, we have the option, subject to the
approval of our Board of Directors, to elect to satisfy our conversion
obligation entirely in shares of our common stock. In connection with
a “Fundamental Change” as defined in the Indenture, we also will deliver upon
conversion of the notes additional shares of common stock as described in the
Indenture. In addition, if we undergo a Fundamental Change before
maturity of the 1.125% Notes, we may be required to repurchase for cash all
or a
portion of the 1.125% Notes at a repurchase price of 100% of the principal
amount of the notes being repurchased, plus accrued and unpaid interest,
including additional amounts, if any, up to but excluding the date of
purchase. As of November 3, 2007, none of the conditions allowing
holders of the 1.125% Notes to convert had been met.
Under
a
registration rights agreement that we entered into with the initial purchasers
of the 1.125% Notes, we agreed to file a shelf registration statement with
the
Securities and Exchange Commission (“SEC”) covering re-sales of the 1.125% Notes
and the shares of our common stock issuable on conversion of the
notes. On August 24, 2007, we filed with the SEC an automatic shelf
registration statement covering re-sales of the 1.125% Notes and the shares
issuable on conversion of the notes.
We
accounted for the issuance of the 1.125% Notes in accordance with the guidance
in EITF Issue 90-19, “Convertible Bonds with Issuer Option to Settle for
Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.” Accordingly, we have recorded the 1.125% Notes as
long-term debt in our condensed consolidated balance sheet as of November 3,
2007.
Concurrent
with the issuance of the 1.125% Notes, we entered into privately negotiated
common stock call options with affiliates of the initial
purchasers. The call options allow us to purchase up to approximately
17,881,000 shares of our common stock at an initial strike price of $15.379
per
share. The call options expire on May 1, 2014 and must be net-share
settled. The cost of the call options was approximately
$90,475,000.
In
addition, we sold warrants to affiliates of certain of the initial purchasers
whereby they have the option to purchase up to approximately 18,775,000 shares
of our common stock at an initial strike price of $21.607 per
share. The warrants expire on various dates from July 30, 2014
through December 18, 2014 and must be net-share settled. We received
approximately $53,955,000 in cash proceeds from the sale of these
warrants.
The
call
options are intended to reduce the potential dilution to our common stock upon
conversion of the 1.125% Notes by effectively increasing the initial conversion
price of the notes to $21.607 per share, representing a 73.0% conversion premium
over the closing price of $12.49 per share for our common stock on April 30,
2007.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
4. Long-term Debt (Continued)
Paragraph
11(a) of SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” provides that contracts issued or held by an entity that are
both (1) indexed to the entity’s own common stock and (2) classified in
stockholders’ equity in its statement of financial position are not considered
to be derivative instruments under SFAS No. 133 if the provisions of EITF Issue
00-19 are met.
We
accounted for the call options and warrants in accordance with the guidance
in
EITF Issue 00-19. The call options and warrants meet the requirements
of EITF Issue 00-19 to be accounted for as equity
instruments. Accordingly, the cost of the call options and the
proceeds from the sale of the warrants are included in additional paid-in
capital in our accompanying condensed consolidated balance sheet as of November
3, 2007. We used a portion of the net proceeds from the 1.125% Notes
to pay the $36,520,000 net cost of the call options and warrants.
In
accordance with SFAS No. 128, “Earnings Per Share,” the 1.125% Notes
will have no impact on our diluted net income per share until the price of
our
common stock exceeds the conversion price of $15.379 per share because the
principal amount of the 1.125% Notes will be settled in cash upon
conversion. Prior to conversion, we will include the effect of the
additional shares that may be issued if our common stock price exceeds $15.379
per share using the treasury stock method. For the first $1.00 by
which the price of our common stock exceeds $15.379 per share, there would
be
dilution of approximately 1,093,000 shares. Further increases in the
share price would result in additional dilution at a declining rate, such that
a
price of $21.607 per share would result in cumulative dilution of approximately
5,156,000 shares. Should the stock price exceed $21.607 per share, we
would also include the dilutive effect of the additional potential shares that
may be issued related to the warrants, using the treasury stock
method. The 1.125% Notes and warrants would have a combined dilutive
effect such that, for the first $1.00 by which the stock price exceeds $21.607
per share, there would be cumulative dilution of approximately 6,552,000 shares
prior to conversion. Further increases in the share price would
result in additional dilution at a declining rate.
The
call
options are not included in the calculation of diluted net income per share
because their effect would be anti-dilutive. Upon conversion of the
1.125% Notes, the call options will serve to neutralize the dilutive effect
of
the notes up to a stock price of $21.607 per share. For the first
$1.00 by which the stock price exceeds $21.607 per share, the call options
would
reduce the cumulative dilution of approximately 6,552,000 shares in the example
above to approximately 833,000 shares.
The
preceding calculations assume that the average price of our common stock exceeds
the respective conversion prices during the period for which diluted net income
per share is calculated, and exclude any potential adjustments to the conversion
ratio provided under the terms of the 1.125% Notes.
On
April
30, 2007, we called for the redemption on June 4, 2007 of our $149,999,000
outstanding aggregate principal amount of 4.75% Senior Convertible Notes, due
June 2012 (the “4.75% Notes”). The holders of the 4.75% Notes had the
option to convert their notes into shares of our common stock at a conversion
price of $9.88 per share until the close of business on June 1,
2007. As of June 4, 2007, the holders of $149,956,000 principal
amount of the 4.75% Notes had exercised their right to convert their notes
into
an aggregate of 15,145,556 shares of our common stock and the remaining notes
were redeemed for $43,000. In addition, we paid $392,000 in lieu of
fractional shares.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
5. Stockholders’ Equity
|
|
Thirty-nine
|
|
|
|
Weeks
Ended
|
|
|
|
November
3,
|
|
(Dollars
in thousands)
|
|
2007
|
|
|
|
|
|
Total
stockholders’ equity, beginning of period
|
|
$ |
947,538
|
|
Cumulative
effect of adoption of FIN No. 48(1)
|
|
|
(4,998 |
) |
Net
income
|
|
|
41,009
|
|
Net
proceeds from shares issued under employee stock plans (466,749
shares)
|
|
|
389
|
|
Purchase
of treasury shares (21,958,121 shares)
|
|
|
(240,289 |
) |
Common
stock issued on redemption of convertible notes (15,145,556
shares)
|
|
|
149,564
|
|
Sale
of common stock warrants(2)
|
|
|
53,955
|
|
Purchase
of common stock call options(2)
|
|
|
(90,475 |
) |
Stock-based
compensation expense
|
|
|
8,494
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
847
|
|
Unrealized
gain on available-for-sale securities, net of tax
|
|
|
17
|
|
Total
stockholders’ equity, end of period
|
|
$ |
866,051
|
|
____________________
|
|
(1)
See “Note
8. Income
Taxes” below.
|
|
(2)
See “Note
4. Long-term
Debt” above.
|
|
During
the Fiscal 2008 First Quarter, we repurchased 10,315,000 shares of our common
stock with $131,102,000 of the proceeds from our issuance of 1.125% Senior
Convertible Notes due May 1, 2014 (see “Note 4. Long-term Debt”
above). In May 2007, we announced a program to use an additional $80
to $100 million of the proceeds to repurchase shares of common stock during
Fiscal 2008. During the Fiscal 2008 Second Quarter and Fiscal 2008
Third Quarter, we repurchased an aggregate total of 10,416,000 shares of our
common stock for $100,000,000 under this program.
During
the Fiscal 2008 Third Quarter, we also announced our intention to complete
the
repurchase of additional shares during the remainder of Fiscal 2008 under a
prior authorization from our Board of Directors that allows us to repurchase
up
to approximately 4,980,000 shares of our common stock. During the
Fiscal 2008 Third Quarter, we purchased an aggregate total of 1,227,000 shares
for $9,187,000 under this program (see “Note 12. Subsequent
Events” below for information regarding additional
purchases).
On
November 8, 2007 (subsequent to the end of the Fiscal 2008 Third Quarter),
we
announced that our Board of Directors has authorized a new $200 million share
repurchase program (see “Note 12. Subsequent Events”
below).
Note
6. 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
6. Customer Loyalty Card Programs (Continued)
During
the thirteen weeks ended November 3, 2007 we recognized revenues of
$5,438,000 and during the thirteen weeks ended October 28, 2006 we recognized
revenues of $4,871,000 in connection with our loyalty card programs.
During the thirty-nine weeks ended November 3, 2007 we recognized revenues
of
$16,449,000 and during the thirty-nine weeks ended October 28, 2006 we
recognized revenues of $14,042,000 in connection with our loyalty card
programs.
At
the
end of the Fiscal 2008 Third Quarter, we began offering a loyalty program in
connection with the issuance of our new LANE BRYANT proprietary credit
card. Cardholders earn points for purchases using the credit card,
which may be redeemed for merchandise coupons upon the accumulation of a
specified number of points. No membership fees are charged in
connection with this program. This program had no impact on our
Fiscal 2008 Third Quarter results of operations.
Note
7. Net Income per Share
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
|
November
3,
|
|
|
October
28,
|
|
(In
thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
121,196
|
|
|
|
122,586
|
|
|
|
122,688
|
|
|
|
122,174
|
|
Dilutive
effect of assumed conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.75%
Senior Convertible
Notes
|
|
|
0 |
(1) |
|
|
15,182
|
|
|
|
6,674 |
(1) |
|
|
15,182
|
|
Dilutive
effect of stock options and awards
|
|
|
0 |
(2) |
|
|
2,164
|
|
|
|
1,478
|
|
|
|
2,215
|
|
Diluted
weighted average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
equivalents
outstanding
|
|
|
121,196
|
|
|
|
139,932
|
|
|
|
130,840
|
|
|
|
139,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(3,568 |
) |
|
$ |
19,357
|
|
|
$ |
41,009
|
|
|
$ |
83,981
|
|
Decrease
in interest expense from assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion
of 4.75% Senior
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes,
net of income
taxes
|
|
|
0 |
(1) |
|
|
1,128
|
|
|
|
1,476 |
(1) |
|
|
3,385
|
|
Net
income/(loss) used to determine diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
income/(loss) per
share
|
|
$ |
(3,568 |
) |
|
$ |
20,485
|
|
|
$ |
42,485
|
|
|
$ |
87,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
with weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater
than market price, excluded from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
computation
of net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
193
|
|
|
|
1
|
|
|
|
77
|
|
|
|
1
|
|
Weighted
average exercise price per share
|
|
$ |
7.71
|
|
|
$ |
13.84
|
|
|
$ |
9.30
|
|
|
$ |
13.84
|
|
____________________
|
|
(1)
The notes were converted or redeemed on June 4, 2007 (see “Note 4.
Long-term Debt” above).
|
|
(2)
All stock options and awards are excluded from the computation of
diluted
net loss per share as their effect would have been
anti-dilutive.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
7. Net Income per Share (Continued)
Our
1.125% Notes have no impact on our diluted net income per share until the price
of our common stock exceeds the conversion price of $15.379 per share because
we
expect to settle the principal amount of the 1.125% Notes in cash upon
conversion. The call options are not included in the calculation of
diluted net income per share because their effect would be
anti-dilutive. Should the price of our common stock exceed $21.607
per share, we would also include the dilutive effect of the additional potential
shares that may be issued related to the warrants, using the treasury stock
method. See “Note 4. Long-term Debt” above for
further information regarding the 1.125% Notes, related call options and
warrants, and the conversion of our 4.75% Notes.
See
“Note 5. Stockholders’ Equity” above and “Note 12.
Subsequent Events” below for further information regarding repurchases
of our common stock.
Note
8. Income Taxes
The
effective income tax rate was 37.5% for the thirty-nine weeks ended November
3,
2007, as compared to 35.7% for the thirty-nine weeks ended October 28,
2006.
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) are accounted for as a cumulative-effect
adjustment to retained earnings as of the date of adoption of FIN No. 48, if
material.
We
adopted the provisions of FIN No. 48 effective as of February 4,
2007. In accordance with FIN No. 48, we recognized a
cumulative-effect adjustment of $4,998,000, increasing our liability for
unrecognized tax benefits, interest, and penalties and reducing the February
4,
2007 balance of retained earnings.
As
of
February 4, 2007, we had $44,203,000 of gross unrecognized tax
benefits. If recognized, the portion of the liabilities for gross
unrecognized tax benefits that would decrease our provision for income taxes
and
increase our net income is $15,106,000. We record interest and
penalties related to unrecognized tax benefits in income tax
expense. As of the date of adoption of FIN No. 48, we had accrued
interest and penalties of $7,412,000.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
8. Income Taxes (Continued)
As
of
November 3, 2007, the gross unrecognized tax benefits were
$52,624,000. If recognized, the portion of the liabilities for gross
unrecognized tax benefits that would decrease our provision for income taxes
and
increase our net income was $17,201,000. The accrued interest and
penalties as of November 3, 2007 were $8,429,000. During the Fiscal
2008 Third Quarter, the gross unrecognized tax benefits increased by $3,539,000
and the portion of the liabilities for gross unrecognized tax benefits that,
if
recognized, would increase our income tax benefit and decrease our net loss
increased by $963,000. Accrued interest and penalties increased
during the Fiscal 2008 Third Quarter by $463,000.
We
expect
that the amount of unrecognized tax benefits will change within the next 12
months. Although we cannot determine the amount of the change at this
time, based on currently available information we do not expect the change
to
have a material impact on our financial position or results of
operations.
Our
U.S.
Federal income tax returns for Fiscal 2005 and beyond remain subject to
examination by the U.S. Internal Revenue Service (“IRS”). The IRS is
not currently examining any of our tax returns. We file returns in
numerous state jurisdictions, with varying statutes of
limitations. Our state tax returns for Fiscal 2003 and beyond,
depending upon the jurisdiction, remain subject to examination. The
statute of limitations on a limited number of returns for years prior to Fiscal
2003 has been extended by agreement between us and the particular state
jurisdiction. The earliest year still subject to examination by state
tax authorities is Fiscal 1999.
Note
9. Asset Securitization
Our
FASHION BUG, LANE BRYANT, CATHERINES, PETITE SOPHISTICATE, and Crosstown
Traders proprietary credit card receivables are originated by Spirit of America
National Bank (the “Bank”), our wholly-owned credit card bank, which transfers
its interest in all the receivables other than Crosstown Traders receivables
to
the Charming Shoppes Master Trust (the “Trust”) through Charming Shoppes
Receivables Corp. (“CSRC”), a separate and distinct special-purpose entity.
The Trust is an unconsolidated qualified special-purpose entity
(“QSPE”).
Through
Fiscal 2007, our Crosstown Traders apparel-related catalog proprietary credit
card receivables, which we securitized subsequent to our acquisition of
Crosstown Traders, were originated in a non-bank program by Crosstown
Traders. Crosstown Traders transferred its interest in the
receivables to Catalog Receivables LLC, a separate and distinct unconsolidated
QSPE, through a separate and distinct special-purpose entity. On
February 5, 2007, the Bank acquired the account relationships of the Crosstown
Traders catalog proprietary credit cards and all subsequent new receivables
are
originations of the Bank. This acquisition did not cause a change in
the securitization entities used by the Crosstown Traders proprietary credit
card program.
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. All assets of the
QSPEs (including the receivables) are isolated and support the securities issued
by those entities. Our asset securitization program is more fully
described in “Item 8. Financial Statements and Supplementary Data; Note
16. Asset
Securitization” in our February 3, 2007 Annual Report
on Form 10-K.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
9. Asset Securitization (Continued)
We
securitized $679,198,000 of private label credit card receivables in the first
three quarters of Fiscal 2008 and had $595,473,000 of securitized credit card
receivables outstanding as of November 3, 2007. We held certificates and
retained interests in our securitizations of $113,458,000 as of November 3,
2007, 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.
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 November 3, 2007,
our investment in asset-backed securities included $41,510,000 of QSPE
certificates, an I/O strip of $24,275,000, and other retained interests of
$47,673,000. 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. does not 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
$9,450,000 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, with the third-party investor retaining an economic interest
in
the certificates. Subsequent to such a transfer occurring, and upon
certain conditions being met, these same investors would be required to
repurchase these interests when the financial performance standards are again
satisfied. Our net loss for the Fiscal 2008 Third Quarter has
resulted in the requirement to begin the reallocation of collections as
discussed above. We anticipate that $9,450,000 of collections will be
fully transferred on December 17, 2007. The requirement for the
reallocation of these collections will cease and such investors would be
required to repurchase such interests upon our announcement of a quarter with
net income. As of November 3, 2007, the Trust was in compliance with
its financial performance standards.
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 or the QSPEs do
not 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 although
we cannot provide assurance in that regard. As of November 3, 2007, we and
the QSPEs were in compliance with the applicable financial performance standards
referred to in this paragraph.
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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
9. Asset Securitization (Continued)
Prior
to
November 1, 2007, we had an agreement under which a third party provided a
proprietary credit card sales accounts receivable funding facility for our
LANE
BRYANT retail and outlet stores. In accordance with the terms of the
agreement, we exercised our option to purchase the LANE
BRYANT portfolio on November 1, 2007 and assigned the right to purchase the
LANE BRYANT portfolio to the Bank. Concurrent with the Bank’s
acquisition of the LANE BRYANT portfolio for $230,975,000, it sold the
receivables to CSRC, which transferred the receivables to the
Trust. The purchase of the portfolio at par value and the subsequent
securitization of the purchased portfolio resulted in the recognition of a
benefit of approximately $6,830,000, which is included in selling, general,
and
administrative expenses for the thirteen weeks and thirty-nine weeks ended
November 3, 2007. In addition, we recognized approximately $2,119,000
of selling, general, and administrative expenses in connection with the issuance
of approximately 2.4 million new LANE BRYANT proprietary credit
cards.
On
October 17, 2007, the Trust issued $320,000,000 of five-year asset-backed
certificates (“Series 2007-1”) in a private placement under Rule
144A. Of the $320,000,000 of certificates issued, $289,600,000 were
sold to investors, and CSRC held $30,400,000 as a retained
interest. CSRC may in the future sell all or a portion of such
retained interest. Of the certificates sold to investors,
$203,500,000 pay interest on a floating rate basis tied to one-month LIBOR,
while the remaining $86,100,000 of certificates were issued at fixed
rates. The Trust used $35,000,000 of the proceeds to fund receivables
and to pay down other securitization series and placed the remaining proceeds
of
$285,000,000 into a pre-funding cash account.
Concurrent
with the issuance of Series 2007-1, the Trust entered into a series of
fixed-rate interest-rate swap agreements with respect to $174,700,000 of the
floating-rate certificates sold to investors. The notional value of
these swaps equals the face value of these certificates in excess of the
certificate’s pro-rata share of the outstanding pre-funding cash account at any
measurement date. The blended weighted-average interest rate on the
swapped certificates is 6.39%. The Trust also acquired an
interest-rate cap with respect to $28,800,000 of floating-rate certificates
sold
to investors. The interest-rate cap counterparty will make payments
to the Trust when one-month LIBOR exceeds 10%. The fixed-rate
certificates were sold at a discount and carry a blended weighted average-yield
of 6.43% and a blended weighted average coupon of 6.34%.
The
Trust
paid for its acquisition of the LANE BRYANT proprietary credit card
accounts receivable balances primarily by withdrawing $227,500,000 of
proceeds from the pre-funding cash account for the Series 2007-1
Certificates. The remainder of the funds in the pre-funding cash
account will provide financing for additional receivables, including receivables
made available for financing by the amortization of the Series 2002-1
certificates issued by the Trust. Series 2002-1 has been in
amortization since July 2007 and we currently expect it to be repaid in full
by
May 2008.
Note
10. Segment Reporting
We
operate and report in two segments: Retail Stores and Direct-to-Consumer (see
“Note 1. Condensed Consolidated Financial
Statements; Segment
Reporting” above). 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 February 3, 2007 Annual Report on Form
10-K.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
10. Segment Reporting (Continued)
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. We do not allocate certain corporate
costs, such as shared services costs, information systems support costs, and
insurance costs, to our Retail Stores or Direct-to-Consumer
segments. Operating costs for our Retail Stores segment consist
primarily of store-related selling, buying, occupancy, and warehousing
costs. Operating costs for our Direct-to-Consumer segment consist
primarily of catalog development, production, and circulation costs; E-commerce
advertising costs; warehousing costs; and order processing costs.
“Corporate
and Other” includes unallocated general and administrative
costs; shared services costs; insurance 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/(loss) before interest and income taxes.
Operating
segment assets are those directly used in, or allocable to, that segment’s
operations. Operating assets for the Retail Stores segment consist
primarily of inventories, the net book value of store facilities, goodwill,
and
intangible assets. Operating assets for the Direct-to-Consumer
segment consist primarily of trade receivables, inventories, deferred
advertising costs, the net book value of catalog operating facilities, 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.
Selected
financial information for our operations by reportable segment and a
reconciliation of the information by segment to our consolidated totals is
as
follows:
|
|
Retail
|
|
|
Direct-to-
|
|
|
Corporate
|
|
|
|
|
(In
thousands)
|
|
Stores
|
|
|
Consumer
|
|
|
and
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended November 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
588,777
|
|
|
$ |
78,979
|
|
|
$ |
1,633
|
|
|
$ |
669,389
|
|
Depreciation
and amortization
|
|
|
15,678
|
|
|
|
401
|
|
|
|
7,157
|
|
|
|
23,236
|
|
Loss
before interest and income taxes
|
|
|
32,586
|
|
|
|
(4,529 |
) |
|
|
(30,497 |
) |
|
|
(2,440 |
) |
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(2,206 |
) |
|
|
(2,206 |
) |
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
1,078
|
|
|
|
1,078
|
|
Net
loss
|
|
|
32,586
|
|
|
|
(4,529 |
) |
|
|
(31,625 |
) |
|
|
(3,568 |
) |
Capital
expenditures
|
|
|
27,672
|
|
|
|
1,484
|
|
|
|
5,603
|
|
|
|
34,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended November 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,960,754
|
|
|
$ |
259,044
|
|
|
$ |
5,228
|
|
|
$ |
2,225,026
|
|
Depreciation
and amortization
|
|
|
42,459
|
|
|
|
1,125
|
|
|
|
25,908
|
|
|
|
69,492
|
|
Income
before interest and income taxes
|
|
|
177,430
|
|
|
|
(7,440 |
) |
|
|
(96,110 |
) |
|
|
73,880
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(8,287 |
) |
|
|
(8,287 |
) |
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
(24,584 |
) |
|
|
(24,584 |
) |
Net
income
|
|
|
177,430
|
|
|
|
(7,440 |
) |
|
|
(128,981 |
) |
|
|
41,009
|
|
Capital
expenditures
|
|
|
83,264
|
|
|
|
2,294
|
|
|
|
23,217
|
|
|
|
108,775
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
10. Segment Reporting (Continued)
|
|
Retail
|
|
|
Direct-to-
|
|
|
Corporate
|
|
|
|
|
(In
thousands)
|
|
Stores
|
|
|
Consumer
|
|
|
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 income taxes
|
|
|
58,974
|
|
|
|
346
|
|
|
|
(26,221 |
) |
|
|
33,099
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(3,540 |
) |
|
|
(3,540 |
) |
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
(10,202 |
) |
|
|
(10,202 |
) |
Net
income
|
|
|
58,974
|
|
|
|
346
|
|
|
|
(39,963 |
) |
|
|
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
|
|
|
|
1,285
|
|
|
|
28,453
|
|
|
|
66,431
|
|
Income
before interest and income taxes
|
|
|
206,642
|
|
|
|
8,416
|
|
|
|
(72,975 |
) |
|
|
142,083
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(11,475 |
) |
|
|
(11,475 |
) |
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
(46,627 |
) |
|
|
(46,627 |
) |
Net
income
|
|
|
206,642
|
|
|
|
8,416
|
|
|
|
(131,077 |
) |
|
|
83,981
|
|
Capital
expenditures
|
|
|
64,064
|
|
|
|
3,221
|
|
|
|
25,239
|
|
|
|
92,524
|
|
Note
11. Impact of Recent Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 provides a single definition of fair
value, along with a framework for measuring it, and requires additional
disclosure about using fair value to measure assets and
liabilities. SFAS No. 157 emphasizes that fair value measurement is
market-based, not entity-specific, and establishes a fair value hierarchy which
places the highest priority on the use of quoted prices in active markets to
determine fair value. It also requires, among other things, that
entities are to include their own credit standing when measuring their
liabilities at fair value. In November 2007, the FASB drafted a
proposed FASB Staff Position (“FSP”) that would partially defer the effective
date of SFAS No. 157 for one year for non-financial assets and liabilities
that
are recognized or disclosed at fair value in the financial statements on a
non-recurring basis. The proposed FSP would not defer recognition and
disclosure requirements for financial assets and liabilities or for
non-financial assets and liabilities that are re-measured at least
annually. We will be required to adopt the provisions of SFAS No. 157
prospectively, effective as of the beginning of Fiscal 2009. We are
evaluating the impact that adoption of SFAS No. 157 would have on our 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 as of the beginning of Fiscal 2009, with
earlier application permitted. We are evaluating the impact that
adoption of EITF Issue No. 06-4 would have on our financial position or results
of operations.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
11. Impact of Recent Accounting Pronouncements (Continued)
In
May
2007, the FASB issued FSP FIN 48-1, “Definition of Settlement in
FASB Interpretation No. 48,” which clarifies when a tax position is
considered to be “settled” under FIN No. 48. Under FSP FIN 48-1, a
tax position can be “effectively settled” upon completion of an examination by a
taxing authority without being legally extinguished. For tax
positions considered effectively settled, we would recognize the full amount
of
the tax benefit, even if (1) the tax position is not considered
more-likely-than-not to be sustained solely on the basis of its technical
merits, and (2) the statute of limitations remains open. In applying
the provisions of the FSP, we are required to document our analyses and
conclusions. The provisions of FSP FIN 48-1 are effective upon
adoption of FIN No. 48. The adoption of FSP FIN 48-1 did not have a
material effect on our financial position or results of operations.
Note
12. Subsequent Events
Subsequent
to the end of the Fiscal 2008 Third Quarter, we repurchased an aggregate total
of 500,000 additional shares of our common stock for $3,529,000 under the prior
authorization from our Board of Directors allowing us to repurchase up to
approximately 4,980,000 shares of our common stock (see “Note 5.
Stockholders’ Equity” above).
On
November 8, 2007, we announced that our Board of Directors authorized a new
$200
million share repurchase program. We intend to make share purchases
from time to time in the open market or through privately-negotiated
transactions, and expect to fund the repurchases primarily from operating cash
flow. The timing of such repurchases and the number of shares
repurchased will depend on market conditions, and we intend to hold shares
repurchased as treasury shares. We expect to complete the program
over the next several years.
On
November 8, 2007, we also announced our plan to relocate our CATHERINES
operations located in Memphis, Tennessee to our corporate headquarters in
Bensalem, Pennsylvania in conjunction with the consolidation of a number of
its
operating functions. We expect to complete the relocation by the end
of March 2008. As a result, we expect to recognize one-time pre-tax
charges of approximately $4.0 million related to severance, retention, and
relocation costs. We also expect to recognize approximately $4.5
million of non-cash pre-tax charges for acceleration of depreciation related
to
the Memphis facility. On an after-tax basis, we expect the impact of
the combined charges to be slightly cash-flow negative. We expect to
recognize approximately $5.4 million of these pre-tax charges during the Fiscal
2008 Fourth Quarter, and we expect to complete the relocation and recognize
the
remainder of the charges during the Fiscal 2009 First Quarter.
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This
management’s discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes included in Item 1 of this report. It should also be
read in conjunction with the financial statements, accompanying notes, and
management’s discussion and analysis of financial condition and results of
operations appearing in our Annual Report on Form 10-K for the fiscal year
ended
February 3, 2007 and in our Quarterly Reports on Form 10-Q for the fiscal
periods ended May 5, 2007 and August 4, 2007. As used in this management’s
discussion and analysis, “Fiscal 2008” refers to our fiscal year ending February
2, 2008 and “Fiscal 2007” refers to our fiscal year ended February 3, 2007.
“Fiscal 2008 Third Quarter” refers to our thirteen week fiscal
period ended November 3, 2007 and “Fiscal 2007 Third Quarter” refers to our
thirteen week fiscal period ended October 28, 2006. “Fiscal 2008
First Quarter” refers to our thirteen week fiscal period ended May 5, 2007,
“Fiscal 2008 Second Quarter” refers to our thirteen-week fiscal period ended
August 4, 2007, and “Fiscal 2008 Fourth Quarter” refers to our thirteen-week
fiscal period ending February 2, 2008. The term “Fiscal 2009 First Quarter”
refers to our fiscal quarter ending May 3, 2008. The terms “Charming
Shoppes, Inc.,” “the Company,” “we,” “us,” and “our” refer to Charming Shoppes,
Inc. and its consolidated subsidiaries, except where the context otherwise
requires or as otherwise indicated.
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,” “could,” “should,” “project,” “estimate,”
“predict,” “anticipate,” “plan,” “intend,” “believes,” and similar expressions
are also intended to identify forward-looking statements.
We
operate in a rapidly changing and competitive environment. New risk
factors emerge from time to time and it is not possible for us to predict all
risk factors that may affect us. 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, which speak only as of the date
on
which they were made. 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. Given
those risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
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.
|
·
|
Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market, which may not
occur.
|
·
|
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
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 third-party
freight
consolidators and service providers, 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 locations were to be disrupted
for
any reason.
|
·
|
Natural
disasters, as well as war, acts of terrorism, or other armed conflict,
or
the threat of either may negatively impact availability of merchandise
and
customer traffic to our stores, or otherwise adversely affect our
business.
|
·
|
Our
manufacturers may be unable to manufacture and deliver merchandise
to us
in a timely manner or to meet our quality
standards.
|
·
|
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.
|
·
|
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.
|
·
|
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.
|
·
|
Inadequate
systems capacity, a disruption or slowdown in telecommunications
services,
changes in technology, changes in government regulations, systems
issues,
security breaches, a failure to integrate order management systems,
or
customer privacy issues could result in reduced sales or increases
in
operating expenses as a result of our efforts or our inability to
remedy
such issues.
|
·
|
We
cannot assure the successful implementation of our business plan
for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments. Recent changes in management may fail to
achieve improvement in our operating results. We cannot assure
the realization of our anticipated annual expense savings from
the consolidation of operations and new organizational
structure at our CATHERINES brand.
|
·
|
We
may be unable to successfully implement our plan to improve merchandise
assortments in our Retail Stores or Direct-to-Consumer
segments.
|
·
|
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 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
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.
|
·
|
We
cannot assure the successful implementation of our business plans
for our
outlet store distribution channel and expansion of our CACIQUE® product
line
through new store formats.
|
·
|
We
cannot assure the realization of our anticipated benefits from the
re-launch of our LANE BRYANT credit card
program.
|
·
|
We
cannot assure the successful implementation of our business plan
for
Crosstown Traders, including the successful launch of our LANE BRYANT
catalog.
|
·
|
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
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 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
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.
|
·
|
The
holders of our 1.125% Senior Convertible Notes due May 1, 2014 (the
“1.125% Notes”) could require us to repurchase the principal amount of the
notes for cash before maturity of the notes under certain circumstances
(see “Notes to Condensed Consolidated Financial Statements; Note
4. Long-term Debt” above). Such a repurchase would
require significant amounts of cash and could adversely affect our
financial condition.
|
·
|
The
Financial Accounting Standards Board (“FASB”) has issued a proposed Staff
Position (“FSP”) that, if adopted, would apply to any convertible debt
instrument that may be settled in whole or in part with cash upon
conversion, which would include our 1.125% Notes. We would be
required to adopt the proposal as of February 3, 2008 (the beginning
of
Fiscal 2009), with retrospective application to financial statements
for
periods prior to the date of adoption. As compared to our
current accounting for the 1.125% Notes, adoption of the proposal
would
reduce long-term debt, increase stockholders’ equity, and reduce net
income and earnings per share. Adoption of the proposal would
not affect our cash flows.
|
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
notes and management’s discussion and analysis of financial condition and
results of operations accompanying the consolidated financial statements that
appear in our Annual Report on Form 10-K for the fiscal year ended February
3,
2007.
We
perform a review of our goodwill and other intangible assets for possible
impairment on an annual basis during the fourth quarter of our fiscal
year. Our fourth quarter operating results are significant to us and
are therefore integral to our ability to prepare our annual impairment
analyses. In addition, we prepare our financial plan for the
following fiscal year, which is an important part of our impairment analyses,
during the fourth quarter of our fiscal year.
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.
Senior
Convertible Notes
On
April
30, 2007, we issued $250.0 million in aggregate principal amount of our 1.125%
Notes in a private offering for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as
amended. On May 11, 2007, the initial purchasers of the 1.125% Notes
exercised their over-allotment option and purchased an additional $25.0 million
in aggregate principal amount of the notes. See “Notes to
Condensed Consolidated Financial Statements; Note 4. Long-term Debt”
above for further details of the transaction.
We
will
be required on a quarterly basis to monitor the 1.125% Notes, call options,
and
warrants for compliance with the provisions of EITF Issue 00-19 and paragraph
11(a) of SFAS No. 133. Should the issuance of the 1.125% Notes, the
purchase of the call options, or the sale of the warrants fail to qualify under
the provisions of EITF Issue 00-19 or paragraph 11(a) of SFAS No. 133, we would
be required to recognize derivative instruments in connection with the
transaction, include the effects of the transaction in assets or liabilities
instead of equity, and recognize changes in the fair values of the assets or
liabilities in consolidated net income as they occur until the provisions of
EITF Issue 00-19 and paragraph 11(a) of SFAS No. 133 are met.
Income
Taxes
We
adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
109” effective as of February 4, 2007 (see “Notes to Condensed
Consolidated Financial Statements; Note
8. Income Taxes”
above).
In
October 2007, we announced our intention to complete the repurchase of
additional shares of our common stock during the remainder of Fiscal 2008 under
a prior authorization from our Board of Directors that allows us to repurchase
up to approximately 4,980,000 shares of our common stock. During the
Fiscal 2008 Third Quarter, we purchased an aggregate total of 1.2 million shares
for $9.2 million under this program. Subsequent to the end of the
Fiscal 2008 Third Quarter, we repurchased an aggregate total of 0.5 million
additional shares of our common stock for $3.5 million under this
program.
On
November 8, 2007, we announced that our Board of Directors has authorized a
new
$200 million share repurchase program. We intend to make share
purchases from time to time in the open market or through privately-negotiated
transactions, and expect to fund the repurchases primarily from operating cash
flow. The timing of such repurchases and the number of shares
repurchased will depend on market conditions, and we intend to hold shares
repurchased as treasury shares. We expect to complete the program
over the next several years.
See
“Notes to Condensed Consolidated Financial Statements; Note 5.
Stockholders’ Equity and Note 12. Subsequent Events” above for further
details of the repurchases.
On
November 8, 2007, we also announced our plan to relocate our CATHERINES
operations located in Memphis, Tennessee to our corporate headquarters in
Bensalem, Pennsylvania in conjunction with the consolidation of a number of
its
operating functions. We expect to complete the relocation by the end
of March 2008. As a result, we expect to recognize one-time pre-tax
charges of approximately $4.0 million related to severance, retention, and
relocation costs. We also expect to recognize approximately $4.5
million of non-cash pre-tax charges for acceleration of depreciation related
to
the Memphis facility. On an after-tax basis, we expect the impact of
the combined charges to be slightly cash-flow negative. We expect to
recognize approximately $5.4 million of these pre-tax charges during the Fiscal
2008 Fourth Quarter and to complete the relocation and recognize the remainder
of the charges during the Fiscal 2009 First Quarter. We anticipate
that the execution of the new organizational structure will result in
approximately $8 million of annual expense savings, primarily in the areas
of
payroll and occupancy costs.
On
October 21, 2007, the LANE BRYANT catalog trademark, which had been licensed
to
a third party, reverted to us and we launched our Lane Bryant Woman
catalog. During the Fiscal 2008 Third Quarter we also launched the
Lane Bryant Woman website. Revenues from the Lane Bryant Woman
catalog will be included in our Direct-to-Consumer segment.
Overview
During
the Fiscal 2008 Third Quarter, we continued to face a number of challenges
that
are negatively impacting our short-term results. These challenges,
which include continuing pressure on our consumers’ disposable income,
unseasonably warm weather, and the lack of a current fashion driver in our
industry, resulted in a difficult retail sales environment. The
downward-trending store traffic levels we experienced during the Fiscal 2008
Second Quarter at our Retail Stores segment continued throughout the Fiscal
2008
Third Quarter, particularly at our LANE BRYANT brand. As a result, we
continued to be more aggressive in clearing seasonal Retail Stores inventory,
leading to deeper-than-planned markdowns and continued pressure on our
merchandise margins. At our Direct-to-Consumer segment, the changes
that we have implemented have led to a significant moderation of the
downward-trending catalog sales that we experienced during the first half of
Fiscal 2008.
The
initiatives we put in place in response to our first half performance continued
throughout our Fiscal 2008 Third Quarter. Accordingly, we continued
to focus on reducing selling, general, and administrative expenses, managing
to
lower inventory levels, and reducing our capital budget spending by
approximately $12 - $15 million during the second half of Fiscal 2008 through
the reduction of certain store development and non-critical infrastructure
projects.
Our
consolidated net sales for the Fiscal 2008 Third Quarter were $669.4 million,
as
compared to net sales for the Fiscal 2007 Third Quarter of $695.3 million,
a
decrease of 3.7%. Diluted net loss per share for the Fiscal 2008
Third Quarter was $(0.03), as compared to diluted net income per share for
the
Fiscal 2007 Third Quarter of $0.15. For the first three quarters of
Fiscal 2008, our consolidated net sales were $2,225.0 million, as compared
to
net sales for the first three quarters of Fiscal 2007 of $2,193.6 million,
an
increase of 1.4%. Diluted net income per share for the first three
quarters of Fiscal 2008 was $0.32, as compared to diluted net income per share
of $0.63 for the first three quarters of Fiscal 2007, a decrease of
49.2%.
The
year-over-year reductions in net income and net income per share are primarily
attributable to reduced traffic levels, the decline in Retail Stores merchandise
margins, lower response rates and average order values from our apparel-related
catalogs, and negative expense leverage on lower-than-planned
sales. Each of our Retail Stores brands and our Direct-to-Consumer
segment experienced declines in operating results in the Fiscal 2008 Third
Quarter as compared to the prior-year period. The Fiscal 2008 Third
Quarter includes a net pre-tax benefit of approximately $4.7 million related
to
our purchase and subsequent securitization of the LANE BRYANT credit card
portfolio on November 1, 2007 and our re-issuance of new credit cards (see
“LIQUIDITY AND CAPITAL RESOURCES; Off-Balance-Sheet
Financing” below). Fiscal 2007
year-to-date results included pre-opening operating expenses of approximately
$7.8 million pre-tax, ($5.0 million after tax, or $0.04 per diluted share)
relating to our opening of 80 LANE BRYANT OUTLET stores in July
2006.
We
continue to execute on a number of new product and marketing initiatives that
were initiated during the Fiscal 2008 Third Quarter to improve traffic and
sales
trends. We are encouraged by the initial response to our new “Right
Fit by Lane Bryant™” campaign, which supports our launch of new core denim and
career pant assortments using new fit technology. Our FASHION
BUG stores began stocking Gitano® brand fashionable
casual merchandise offerings during the Fiscal 2008 Third Quarter under our
exclusive licensing agreement, and will carry the new merchandise into the
December holiday season and beyond.
At
the
end of the Fiscal 2008 Third Quarter, we acquired and securitized the LANE
BRYANT proprietary credit card portfolio, which had previously been serviced
under an agreement with a third party. We re-launched the LANE BRYANT
proprietary credit card program with the issuance of approximately 2.4 million
new credit cards in connection with a new loyalty card program designed to
stimulate traffic and sales at our LANE BRYANT brand.
While
we
are committed to executing our long-term growth strategy as a multi-brand,
multi-channel retailer, we are currently facing a number of challenges that
continue to negatively impact our short-term results. In view of
uncertain economic conditions and indications that the December holiday season
is expected to be highly promotional for retail sales, we remain cautious for
the remainder of Fiscal 2008. In response, we are implementing the
additional near-term actions described in the following three paragraphs, which
are designed to enable us to manage through the difficult retail
environment.
In
addition to the relocation and consolidation of our CATHERINES operations
(discussed in “RECENT DEVELOPMENTS” above) and the expansion of
our LANE BRYANT credit card program (discussed above), we are taking additional
steps to enhance merchandise and marketing at our Retail Stores brands and
making additional improvements to our catalog business.
In
response to reduced demand by our customers for basic fashions, we plan to
improve our merchandise content at LANE BRYANT by including a higher fashion
component. Changes to the LANE BRYANT product mix are in process for
the December holiday season, with more significant changes being made for the
Spring season. We are also being more aggressive in our marketing
efforts, which include increases in direct-mail advertising for each of our
brands throughout the December holiday season and cable television advertising
for our LANE BRYANT brand during the Thanksgiving holiday.
In
our
catalog business, we launched the Lane Bryant Woman catalog, which offers
clothing, footwear, and intimate apparel in an expanded range of plus sizes
at a
value price point. We have also launched our
www.lanebryantcatalog.com website to complement the catalog
launch. We are also continuing to initiate new creative marketing
programs and product offerings for other catalog titles, as well as streamlining
apparel catalog operations. We plan to discontinue the Regalia® catalog,
one of our
smaller catalog titles, and to begin marketing efforts to migrate the Regalia
customer base to our other catalog titles.
Comparative
Operating Data
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
|
|
|
|
November
3,
|
|
|
October
28,
|
|
|
From
Prior
|
|
|
November
3,
|
|
|
October
28,
|
|
|
From
Prior
|
|
|
|
2007
|
|
|
2006
|
|
|
Period
|
|
|
2007
|
|
|
2006
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(3.7 |
)% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
1.4 |
% |
Cost
of goods sold, buying,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
catalog, and
occupancy
expenses
|
|
|
72.7
|
|
|
|
69.2
|
|
|
|
1.2
|
|
|
|
71.2
|
|
|
|
69.1
|
|
|
|
4.5
|
|
Selling,
general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
|
28.1
|
|
|
|
26.4
|
|
|
|
2.5
|
|
|
|
25.8
|
|
|
|
24.7
|
|
|
|
6.2
|
|
Income/(loss)
from operations
|
|
|
(0.8 |
) |
|
|
4.5
|
|
|
|
(116.5 |
) |
|
|
3.0
|
|
|
|
6.2
|
|
|
|
(51.3 |
) |
Other
income
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
29.5
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
20.0
|
|
Interest
expense
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
(37.7 |
) |
|
|
0.4
|
|
|
|
0.5
|
|
|
|
(27.8 |
) |
Income
tax provision/(benefit)
|
|
|
(0.2 |
) |
|
|
1.5
|
|
|
|
(110.6 |
) |
|
|
1.1
|
|
|
|
2.1
|
|
|
|
(47.3 |
) |
Net
income/(loss)
|
|
|
(0.5 |
) |
|
|
2.8
|
|
|
|
(118.4 |
) |
|
|
1.8
|
|
|
|
3.8
|
|
|
|
(51.2 |
) |
____________________
|
|
(1)
Results may not add due to rounding.
|
|
The
following table shows details of our consolidated total net sales:
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
|
November
3,
|
|
|
October
28,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
$ |
221.6
|
|
|
$ |
240.7
|
|
|
$ |
761.8
|
|
|
$ |
789.2
|
|
LANE
BRYANT(1)
|
|
|
279.7
|
|
|
|
287.0
|
|
|
|
907.5
|
|
|
|
845.2
|
|
CATHERINES
|
|
|
82.2
|
|
|
|
85.7
|
|
|
|
276.3
|
|
|
|
276.2
|
|
Other
retail stores(2)
|
|
|
5.3
|
|
|
|
1.9
|
|
|
|
15.2
|
|
|
|
1.9
|
|
Total
Retail Stores segment
sales
|
|
|
588.8
|
|
|
|
615.3
|
|
|
|
1,960.8
|
|
|
|
1,912.5
|
|
Total
Direct-to-Consumer segment sales
|
|
|
79.0
|
|
|
|
79.8
|
|
|
|
259.0
|
|
|
|
279.6
|
|
Corporate
and other(3)
|
|
|
1.6
|
|
|
|
0.2
|
|
|
|
5.2
|
|
|
|
1.5
|
|
Total
net
sales
|
|
$ |
669.4
|
|
|
$ |
695.3
|
|
|
$ |
2,225.0
|
|
|
$ |
2,193.6
|
|
____________________
|
|
(1)
Includes LANE BRYANT OUTLET stores, which began operations in July
2006.
|
|
(2)
Includes PETITE SOPHISTICATE stores, which began operations in October
2007, and PETITE SOPHISTICATE OUTLET stores, which began operations
in
September 2006.
|
|
(3)
Primarily revenue related to loyalty card fees.
|
|
The
following table shows our year-to-date retail store activity for Fiscal 2008
and
planned store activity for all of Fiscal 2008:
|
|
FASHION
|
|
|
LANE
|
|
|
|
|
|
|
|
|
|
|
|
|
BUG
|
|
|
BRYANT
|
|
|
CATHERINES
|
|
|
Other(1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008 Year-to-Date(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at February 3, 2007
|
|
|
1,009
|
|
|
|
859
|
|
|
|
465
|
|
|
|
45
|
|
|
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
opened
|
|
|
7
|
|
|
|
73 |
(3) |
|
|
9
|
|
|
|
10
|
|
|
|
99
|
|
Stores
closed
|
|
|
(12 |
) |
|
|
(10 |
) |
|
|
(3 |
) |
|
|
(0 |
) |
|
|
(25 |
) |
Net
change in
stores
|
|
|
(5 |
) |
|
|
63
|
|
|
|
6
|
|
|
|
10
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at November 3, 2007
|
|
|
1,004
|
|
|
|
922
|
|
|
|
471
|
|
|
|
55
|
|
|
|
2,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
relocated during period
|
|
|
15
|
|
|
|
27
|
|
|
|
11
|
|
|
|
0
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned
store openings(4)
|
|
|
8
|
|
|
|
79 |
(5) |
|
|
9
|
|
|
|
11 |
(6) |
|
|
107
|
|
Planned
store
closings
|
|
|
21
|
|
|
|
39
|
|
|
|
6
|
|
|
|
0
|
|
|
|
66
|
|
Planned
store relocations(4)
|
|
|
15
|
|
|
|
45 |
(7) |
|
|
11
|
|
|
|
0
|
|
|
|
71
|
|
____________________
|
|
(1)
Includes PETITE SOPHISTICATE and PETITE SOPHISTICATE OUTLET
stores.
|
|
(2)
Excludes 2 Crosstown Traders outlet stores that are included in our
Direct-to-Consumer segment.
|
|
(3)
Includes 18 LANE BRYANT OUTLET stores and 37 LANE BRYANT intimate
apparel
side-by-side stores.
|
|
(4)
Reflects reduced capital expenditures forecast (see “LIQUIDITY AND
CAPITAL RESOURCES; Capital Expenditures”
below).
|
|
(5)
Includes approximately 19 LANE BRYANT OUTLET stores and 37 LANE BRYANT
intimate apparel side-by-side stores.
|
|
(6)
Includes 4 PETITE SOPHISTICATE stores and 7 PETITE SOPHISTICATE OUTLET
stores.
|
|
(7)
Includes approximately 27 conversions to LANE BRYANT intimate apparel
side-by-side stores.
|
|
The
following table shows information related to the change in our consolidated
total net sales:
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
3,
|
|
|
October
28,
|
|
|
November
3,
|
|
|
October
28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Stores segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in comparable store sales(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
retail stores
|
|
|
(8 |
)% |
|
|
1 |
% |
|
|
(4 |
)% |
|
|
1 |
% |
FASHION
BUG
|
|
|
(7 |
) |
|
|
0
|
|
|
|
(3 |
) |
|
|
(1 |
) |
LANE
BRYANT(3)
|
|
|
(9 |
) |
|
|
0
|
|
|
|
(5 |
) |
|
|
2
|
|
CATHERINES
|
|
|
(6 |
) |
|
|
4
|
|
|
|
(1 |
) |
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from new stores as a percentage of total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
prior-period
sales(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
LANE
BRYANT(3)
|
|
|
4
|
|
|
|
9
|
|
|
|
6
|
|
|
|
5
|
|
CATHERINES
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
Other
retail stores(4)
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-period
sales from closed stores as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total consolidated
prior-period sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
LANE
BRYANT
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
CATHERINES
|
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in Retail Stores segment sales
|
|
|
(4 |
) |
|
|
8
|
|
|
|
3
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in Direct-to-Consumer segment sales
|
|
|
(1 |
) |
|
|
(15 |
) |
|
|
(7 |
) |
|
|
— |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in consolidated total net sales
|
|
|
(4 |
) |
|
|
5 |
(6) |
|
|
1
|
|
|
|
12 |
(6) |
____________________
|
|
(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.
|
|
(4)
Includes PETITE SOPHISTICATE and PETITE SOPHISTICATE OUTLET
stores.
|
|
(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).
|
|
(6)
The increase in consolidated total net sales includes a decrease
of 2% for
the thirteen weeks ended October 28, 2006 and an increase of 7% for
the
thirty-nine weeks ended October 28, 2006 as a result of the
acquisition of Crosstown Traders, Inc. on June 2,
2005.
|
|
Comparison
of Thirteen Weeks Ended November 3, 2007 and October 28,
2006
Net
Sales
The
decrease in consolidated net sales in our Fiscal 2008 Third Quarter as
compared to our Fiscal 2007 Third Quarter resulted primarily from reduced
traffic levels at our Retail Stores segment. Decreases in sales from
full-line stores across all brands in our Retail Stores segment were partially
offset by increases in sales from our outlet business.
Retail
Stores Segment Net Sales
Comparable
store sales for our Fiscal 2008 Third Quarter decreased as compared to our
Fiscal 2007 Third Quarter, and were below our plan for the
quarter. The decreased traffic levels at each of our brands resulted
in increased markdowns of merchandise as compared to our plan for the
quarter. We operated 2,452 stores as of November 3, 2007, as compared
to 2,386 stores as of October 28, 2006.
Decreased
sales from our LANE BRYANT, FASHION BUG, and CATHERINES stores were partially
offset by an increase in sales from our LANE BRYANT OUTLET stores, which began
operations in July 2006. Each of our brands experienced
a decrease in the average number of transactions per store and the average
dollar sale per transaction except for FASHION BUG, which experienced an
increase in the average dollar sale per transaction.
We
offer
various loyalty card programs to our Retail Stores segment customers (see
“Notes to Condensed Consolidated Financial Statements;
Note 6. Customer Loyalty Card
Programs” above). During the Fiscal
2008 Third Quarter we recognized revenues of $5.4 million and during the
Fiscal 2007 Third Quarter we recognized revenues of $4.9 million in
connection with our loyalty card programs. At the end of the Fiscal 2008
Third Quarter, we began offering a loyalty program in connection with the
issuance of our new LANE BRYANT proprietary credit card. Cardholders
earn points for purchases using the credit card, which may be redeemed for
merchandise coupons upon the accumulation of a specified number of
points. No membership fees are charged in connection with this
program. This program had no impact on our Fiscal 2008 Third Quarter
results of operations.
Direct-to-Consumer
Segment Net Sales
The
decrease in net sales from our Direct-to-Consumer segment was primarily
attributable to below-plan performance in our apparel-related catalogs, which
resulted from a decline in response rates from both our core customer and
prospecting mailing lists and a decrease in the average order value.
Recent management changes, including the appointment of a new president for
Crosstown Traders, and improved creative marketing programs and merchandise
offerings for several of our fall catalogs have resulted in a significant
moderation in the rate of decline in response rates during the current
quarter. In addition, we launched our Lane Bryant Woman catalog at the end
of the Fiscal 2008 Third Quarter.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased as a
percentage of consolidated net sales in the Fiscal 2008 Third Quarter as
compared to the Fiscal 2007 Third Quarter, primarily as a result of reduced
merchandise margins for our Retail Stores and Direct-to-Consumer segments and
negative leverage on fixed buying and occupancy expenses from reduced
sales. Consolidated cost of goods sold increased 2.2% as a percentage of
consolidated net sales, while consolidated buying and occupancy expenses
increased 1.3% as a percentage of consolidated net sales.
For
our
Retail Stores segment, cost of goods sold, buying, and occupancy expenses as
a
percentage of net sales were 2.6% higher in the Fiscal 2008 Third Quarter as
compared to the Fiscal 2007 Third Quarter. The merchandise margin in our
Retail Stores segment for the Fiscal 2008 Third Quarter was adversely affected
by increased markdowns in response to a continuation of the reduced traffic
levels experienced during the Fiscal 2008 Second Quarter. Buying and
occupancy expenses for our Retail Stores segment were 2.1% higher in the Fiscal
2008 Third Quarter as compared to the Fiscal 2007 Third Quarter, primarily
as a result of occupancy costs associated with new stores in the LANE BRYANT
and
LANE BRYANT OUTLET brands, as well as negative leverage from reduced Retail
Stores segment sales.
The
reduced merchandise margin in our Direct-to-Consumer segment resulted primarily
from negative leverage on increased catalog advertising costs from reduced
Direct-to-Consumer segment sales, which were driven by the decreases in response
rates and average order value. 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. Conversely, the Direct-to-Consumer segment
incurs lower levels of buying and occupancy costs.
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
Consolidated
selling, general, and administrative expenses increased 1.7% as a percentage
of
consolidated net sales, primarily as a result of negative leverage from reduced
sales for the Retail Stores and Direct-to-Consumer segments. Selling,
general, and administrative expenses for the Fiscal 2008 Third Quarter include
a
pre-tax benefit of approximately $6.8 million recognized in connection with
the
purchase and securitization of the LANE BRYANT credit card portfolio (see
“LIQUIDITY AND CAPITAL RESOURCES: Off-Balance-Sheet
Financing” below). In addition, we recognized
approximately $2.1 million of expenses in connection with the issuance of the
2.4 million new LANE BRYANT proprietary credit cards (see
“Overview” above).
Income
Tax Provision
The
effective income tax rate was a benefit of 23.2% for the Fiscal 2008 Third
Quarter as compared to a provision of 34.5% for the Fiscal 2007 Third
Quarter. The Fiscal 2008 Third Quarter tax benefit reflects an
increase in the annual estimated effective tax rate, which resulted from a
lower
estimated annual pretax income on relatively consistent tax adjustment amounts,
applied to a small quarterly pretax loss. (See “Comparison of
Thirty-nine Weeks Ended November 3, 2007 and October 28, 2006;
Income Tax Provision”
below). We adopted the provisions of FASB Interpretation No. 48 as of
the beginning of Fiscal 2008 (see “Notes to Condensed Consolidated
Financial Statements; Note 8. Income
Taxes” above).
Comparison
of Thirty-nine Weeks Ended November 3, 2007 and October 28,
2006
Net
Sales
The
increase in consolidated net sales for the first three quarters of Fiscal
2008 as compared to the first three quarters of Fiscal 2007 was driven
primarily by our outlet business, which began operations in July 2006, as well
as increases at each of our brands’ E-commerce businesses in our Retail Stores
segment. The increase in our Retail Stores segment net sales was
partially offset by a decrease in net sales from our Direct-to-Consumer
segment.
Retail
Stores Segment Net Sales
Comparable
store sales for the first three quarters of Fiscal 2008 decreased at each of
our
Retail Stores brands as compared to the first three quarters of Fiscal
2007. Net sales for all of the brands were negatively impacted by reduced
traffic levels during the latter half of the nine-month period.
Sales
from our LANE BRYANT OUTLET and PETITE SOPHISTICATE OUTLET stores (which began
operations in the latter half of Fiscal 2007) and sales from new LANE BRYANT
stores offset decreased comparable store sales from our LANE BRYANT, FASHION
BUG, and CATHERINES stores. CATHERINES’ relatively strong performance
during Fiscal 2007 and the first half of Fiscal 2008 did not continue into
the
Fiscal 2008 Third Quarter. Each of our Retail Stores brands
experienced an increase in store-related E-commerce sales. The
average number of transactions per store decreased for each of our brands,
while
the average dollar sale per transaction decreased for LANE BRYANT stores,
increased for FASHION BUG stores, and was flat for CATHERINES
stores.
During
the first three quarters of Fiscal 2008 we recognized revenues of $16.4 million
and during the first three quarters of Fiscal 2007 we recognized revenues of
$14.0 million in connection with our loyalty card programs. At the end of
the Fiscal 2008 Third Quarter, we began offering a loyalty program in connection
with the issuance of our new LANE BRYANT proprietary credit
card. Cardholders earn points for purchases using the credit card,
which may be redeemed for merchandise coupons upon the accumulation of a
specified number of points. No membership fees are charged in
connection with this program. This program had no impact on our
Fiscal 2008 results of operations.
Direct-to-Consumer
Segment Net Sales
The
decrease in net sales from our Direct-to-Consumer segment was primarily
attributable to a continuing decline in response rates from both our core
customer and prospecting mailing lists and a decrease in the average order
value. As discussed in the quarter-to-quarter comparison above, we made a
series of management changes, including the appointment of a new president
for
Crosstown Traders, and improved creative marketing programs and merchandise
offerings for several of our fall catalogs. These changes have
significantly moderated the rate of decline in response rates during the Fiscal
2008 Third Quarter. In addition, we launched our Lane Bryant Woman catalog
at the end of the Fiscal 2008 Third Quarter.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, and occupancy expenses increased as a percentage
of
consolidated net sales in the first three quarters of Fiscal 2008 as compared
to
the first three quarters of Fiscal 2007, primarily as a result of reduced
merchandise margins for both our Retail Stores and Direct-to-Consumer
segments. Consolidated cost of goods sold increased 1.4% 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 1.4% higher in the first three quarters of Fiscal
2008 as compared to the first three quarters of Fiscal 2007. The reduced
merchandise margin in our Retail Stores segment was primarily as a result of
increased promotional pricing in response to reduced traffic
levels. In addition, our LANE BRYANT brand entered Fiscal 2008 with
excess holiday inventories, and experienced a higher-than-planned level of
markdowns to exit the season. Buying and occupancy expenses for the
Retail Stores segment, as a percentage of net sales, were 0.7% higher in the
first three quarters of Fiscal 2008 as compared to the first three quarters
of
Fiscal 2007, reflecting negative leverage from the decrease in comparable store
sales.
The
reduced merchandise margin in our Direct-to-Consumer segment resulted primarily
from negative leverage on catalog advertising costs from reduced
Direct-to-Consumer segment sales, which were driven by the decreases in response
rates and average order value. 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. Conversely, the Direct-to-Consumer segment
incurs lower levels of buying and occupancy costs.
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
Consolidated
selling, general, and administrative expenses increased 1.1% as a percentage
of
consolidated net sales, primarily as a result of negative leverage for the
Retail Stores and Direct-to-Consumer segments. Additionally, we
experienced increases in store payroll and payroll-related expenses, as well
as
marketing and other corporate administrative expenses. Selling,
general, and administrative expenses for the first three quarters of Fiscal
2008
include a benefit of approximately $6.8 million recognized in connection with
the purchase and securitization of the LANE BRYANT credit card portfolio (see
“LIQUIDITY AND CAPITAL RESOURCES: Off-Balance-Sheet
Financing” below). In addition, we recognized
approximately $2.1 million of expenses in connection with the issuance of the
2.4 million new LANE BRYANT proprietary credit cards (see
“Overview” above).
Income
Tax Provision
The
effective income tax rate was 37.5% for the first three quarters of Fiscal
2008
as compared to 35.7% for the first three quarters of Fiscal 2007. The
effective tax rate increased in Fiscal 2008 as compared to Fiscal 2007 primarily
as a result of the impact of relatively consistent tax adjustment dollar amounts
on a reduced pre-tax book income. We adopted the provisions of FASB
Interpretation No. 48 as of the beginning of Fiscal 2008 (see “Notes to
Condensed Consolidated Financial Statements; Note
8. Income Taxes” above).
Our
primary sources of funding for our working capital requirements are cash flow
from operations, our proprietary credit card receivables securitization
agreements, our investment portfolio, and our revolving credit
facility. During the first three quarters of Fiscal 2008, we also
incurred long-term debt financing as discussed further in “FINANCING;
Long-term Debt” below and in “Notes
to Condensed Consolidated Financial Statements; Note 4. Long-term Debt”
above). The following table highlights certain information related to
our liquidity and capital resources:
|
|
November
3,
|
|
|
February
3,
|
|
(Dollars
in millions)
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
36.4
|
|
|
$ |
143.8
|
|
Available-for-sale
securities
|
|
$ |
26.9
|
|
|
$ |
2.0
|
|
Working
capital
|
|
$ |
465.0
|
|
|
$ |
460.6
|
|
Current
ratio
|
|
|
2.2
|
|
|
|
2.2
|
|
Long-term
debt to equity ratio
|
|
|
35.3 |
% |
|
|
19.1 |
% |
Cash
Provided by Operating Activities
Our
net
cash provided by operating activities decreased to $104.1 million for the first
three quarters of Fiscal 2008 from $140.8 million for the first three quarters
of Fiscal 2007. The decrease was primarily attributable to a $43.0
million decrease in net income. Our net investment in inventories
increased in the first three quarters of Fiscal 2008 as compared to the first
three quarters of Fiscal 2007. Excluding incremental inventory
purchased for our Lane Bryant Woman catalog business, inventories at the end
of
the Fiscal 2008 Third Quarter were consistent with the end of the Fiscal 2007
Third Quarter. On a same-store basis, inventories decreased 2% as of
the end of the Fiscal 2008 Third Quarter as compared to the end of the Fiscal
2007 Third Quarter.
Capital
Expenditures
Our
gross
capital expenditures, excluding construction allowances received from landlords,
were $108.8 million during the first three quarters of Fiscal 2008.
Construction allowances received from landlords for the first three
quarters of Fiscal 2008 were $34.7 million. During Fiscal 2008, we
continued our new store opening plan for our LANE BRYANT brand,
including our LANE BRYANT/CACIQUE side-by-side retail stores and our LANE
BRYANT OUTLET stores. We also plan to invest approximately $10 million
during the Fiscal 2008 Fourth Quarter in connection with the launch of our
Lane
Bryant Woman catalog.
For
all
of Fiscal 2008, we have reduced our previously forecasted capital expenditures
from approximately $160 – $165 million to approximately $145 – $150 million
before construction allowances received from landlords. The $15
million decrease in forecasted capital expenditures resulted primarily from
a
reduction in planned store openings, relocations, and improvements for the
remainder of Fiscal 2008 and a reduction in planned spending on certain
non-critical information technology projects. We expect that the
majority of our planned capital expenditures for the Fiscal 2008 Fourth Quarter
will support store development, with the remainder of the expenditures primarily
for improvements to our information technology and corporate
infrastructure. We expect to finance these additional capital expenditures
primarily through internally-generated funds and capital lease
financing.
Debt,
Lease, and Purchase Commitments
The
financial table in “PART
II; Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations; FINANCIAL CONDITION;
Debt, Lease, and Purchase
Commitments” on page 50 of our Annual Report on
Form 10-K for the fiscal year ended February 3, 2007 does not include our
liability for unrecognized tax benefits that we have recorded in accordance
with
our adoption of FIN No. 48 (see “CRITICAL ACCOUNTING POLICIES;
Income Taxes” above) as
of
the beginning of Fiscal 2008. As a result of the adoption of FIN No.
48, we had $44.2 million of unrecognized tax benefits and $7.4 million of
accrued interest and penalties. As of November 3, 2007, the gross
unrecognized tax benefits were $52.6 million. The accrued interest
and penalties as of November 3, 2007 were $8.4 million. During the
Fiscal 2008 Third Quarter, the gross unrecognized tax benefits increased by
$3.5
million and accrued interest and penalties increased by $0.5
million. We expect that the amount of unrecognized tax benefits will
change within the next 12 months. Although we cannot determine the
amount of the change at this time, based on currently available information
we
do not expect the change to have a material impact on our financial position
or
results of operations.
Repurchases
of Common Stock
During
the Fiscal 2008 First Quarter, we used $131.1 million of the proceeds from
our
issuance of our 1.125% Senior Convertible Notes due May 1, 2014 to repurchase
10.3 million shares of our common stock (see “FINANCING;
Long-term Debt”
below).
During
the first three quarters of Fiscal 2008, we repurchased an additional aggregate
total of 10.4 million shares of common stock for $100.0 million under a program
announced in May 2007 and 1.2 million shares of common stock for $9.2 million
under a prior authorization from our Board of Directors. In November
2007, we announced a new $200 million share repurchase program. See
“Notes to Condensed Consolidated Financial Statements; Note 5.
Stockholders’ Equity,”“Notes to Condensed
Consolidated Financial Statements; Note 12 Subsequent Events,” and
“RECENT DEVELOPMENTS” above and “PART II. OTHER
INFORMATION; Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds” below for further details of these share repurchase
programs.
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
Asset
securitization primarily involves the sale of proprietary credit card
receivables to a special-purpose entity, which in turn transfers the receivables
to a separate and distinct qualified special-purpose entity
(“QSPE”). The QSPE’s assets and liabilities are not consolidated in
our balance sheet and the receivables transferred to the QSPEs are isolated
for
purposes of the securitization program. We use asset securitization
to fund the credit card receivables generated by our FASHION BUG, LANE BRYANT,
CATHERINES, PETITE SOPHISTICATE, and Crosstown Traders proprietary credit card
programs. Additional information regarding our asset securitization
facility is included in “Note 9. Asset Securitization” above;
“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
16. Asset Securitization” of our
Annual Report on Form 10-K for the fiscal year ended February 3, 2007; and
under
the caption “MARKET RISK” below.
As
of
November 3, 2007, we had the following securitization facilities
outstanding:
(Dollars
in millions)
|
|
Series
1999-2
|
|
Series
2002-1
|
|
Series
2004
|
|
Series
2004-1
|
|
2005-RPA(1)
|
|
Series
2007-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
of facility
|
|
May
1999
|
|
November
2002
|
|
January
2004
|
|
August
2004
|
|
May
2005
|
|
October
2007
|
Type
of facility
|
|
Conduit
|
|
Term
|
|
Conduit
|
|
Term
|
|
Conduit
|
|
Term
|
Maximum
funding
|
|
$50.0
|
|
$100.0
|
|
$50.0
|
|
$180.0
|
|
$55.0
|
|
$320.0
|
Funding
as of
|
|
|
|
|
|
|
|
|
|
|
|
|
November
3, 2007
|
|
$33.2
|
|
$68.2
|
|
$0.0
|
|
$180.0
|
|
$41.5
|
|
$320.0
|
First
scheduled
|
|
|
|
|
|
|
|
|
|
|
|
|
principal
payment
|
|
Not
applicable
|
|
August
2007
|
|
Not
applicable
|
|
April
2009
|
|
Not
applicable
|
|
April
2012
|
Expected
final
|
|
|
|
|
|
|
|
|
|
|
|
|
principal
payment
|
|
Not
applicable(2)
|
|
May
2008
|
|
Not
applicable(2)
|
|
March
2010
|
|
Not
applicable(2)
|
|
March
2013
|
Renewal
|
|
Annual
|
|
Not
applicable
|
|
Annual
|
|
Not
applicable
|
|
Annual
|
|
Not
applicable
|
____________________
|
(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.
|
Prior
to
November 1, 2007, we had an agreement under which a third party provided a
proprietary credit card sales accounts receivable funding facility for our
LANE
BRYANT retail and outlet stores. In accordance with the terms of the
agreement, we exercised our option to purchase the LANE
BRYANT portfolio on November 1, 2007 and assigned the right to purchase the
LANE BRYANT portfolio to Spirit of America National Bank (the “Bank”), our
wholly-owned credit card bank. Concurrent with the Bank’s acquisition
of the LANE BRYANT portfolio for $231.0 million, it sold the receivables to
CSRC, which transferred the receivables to the Trust. The purchase of
the portfolio at par value and the subsequent securitization of the purchased
portfolio resulted in the recognition of a benefit of approximately $6.8
million, which is included in selling, general, and administrative expenses
for
the thirteen weeks and thirty-nine weeks ended November 3, 2007. In
addition, we recognized approximately $2.1 million of expenses in connection
with the issuance of 2.4 million new LANE BRYANT proprietary credit cards (see
“RESULTS OF OPERATIONS; Overview” above).
On
October 17, 2007, the Charming Shoppes Master Trust (“the Trust”) issued $320
million of five-year asset-backed certificates (“Series 2007-1”) in a private
placement under Rule 144A. Of the $320 million of certificates
issued, $289.6 million were sold to investors, and Charming Shoppes Receivables
Corp. (“CSRC”) held $30.4 million as a retained interest. CSRC may in
the future sell all or a portion of such retained interest. Of the
certificates sold to investors, $203.5 million pay interest on a floating rate
basis tied to one-month LIBOR, while the remaining $86.1 million of certificates
were issued at fixed rates. The Trust used $35.0 million of the
proceeds to fund receivables and to pay down other securitization series and
placed the remaining proceeds of $285.0 million into a pre-funding cash
account.
Concurrent
with the issuance of Series 2007-1, the Trust entered into a series of
fixed-rate interest-rate swap agreements with respect to $174.7 million of
the
floating-rate certificates sold to investors. The notional value of
these swaps equals the face value of these certificates in excess of the
certificate’s pro-rata share of the outstanding pre-funding cash account at any
measurement date. The blended weighted-average interest rate on the
swapped certificates is 6.39%. The Trust also acquired an
interest-rate cap with respect to $28.8 million of floating-rate certificates
sold to investors. The cap counterparty will make payments to the
Trust when one-month LIBOR exceeds 10%. The fixed-rate certificates
were sold at a discount and carry a blended weighted average-yield of 6.43%
and
a blended weighted average coupon of 6.34%.
The
Trust
paid for its acquisition of the LANE BRYANT proprietary credit card
accounts receivable balances primarily by withdrawing $227.5 million of
proceeds from the pre-funding cash account for the Series 2007-1
Certificates. The remainder of the funds in the pre-funding cash
account will provide financing for additional receivables, including receivables
made available for financing by the amortization of the Series 2002-1
certificates issued by the Trust. Series 2002-1 has been in
amortization since July 2007 and we currently expect it to be repaid in full
by
May 2008.
We
securitized $679.2 million of private label credit card receivables in the
first
three quarters of Fiscal 2008 and had $595.5 million of securitized credit
card
receivables outstanding as of November 3, 2007. We held certificates and
retained interests in our securitizations of $113.5 million as of November
3,
2007, 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.
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 November 3, 2007,
our investment in asset-backed securities included $41.5 million of QSPE
certificates, an I/O strip of $24.3 million, and other retained interests of
$47.7 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. does not 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 $9.45 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,
with the third-party investor retaining an economic interest in the
certificates. Subsequent to such a transfer occurring, and upon certain
conditions being met, these same investors would be required to repurchase
these
interests when the financial performance standards are again
satisfied. Our net loss for the Fiscal 2008 Third Quarter has
resulted in the requirement to begin the reallocation of collections as
discussed above. We anticipate that $9.45 million of collections will
be fully transferred on December 17, 2007. The requirement for the
reallocation of these collections will cease and such investors would be
required to repurchase such interests upon our announcement of a quarter with
net income. As of November 3, 2007, the Trust was in compliance with
its financial performance standards.
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 or the QSPEs do
not 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 although
we cannot provide assurance in that regard. As of November 3, 2007, we and
the QSPEs were in compliance with the applicable financial performance standards
referred to in this paragraph.
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.
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.
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
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
17. Leases” of our Annual Report on
Form 10-K for the fiscal year ended February 3, 2007.
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 November 3, 2007, we had an
aggregate total of $2.3 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 (1)
assets related to our credit card securitization facilities, (2) real property,
(3) equipment, (4) the assets of our non-U.S. subsidiaries, and (5) certain
other assets. As of November 3, 2007, 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 November 3,
2007, the applicable rates under the facility were 7.50% for Prime Rate Loans
and 5.71% (LIBOR plus 1%) for Eurodollar Rate Loans. There were no
borrowings outstanding under the facility as of November 3, 2007.
Long-term
Debt
On
April
30, 2007, we issued $250.0 million principal amount of our 1.125% Notes in
a
private offering for resale to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933, as amended. On May 11, 2007,
the initial purchasers of the 1.125% Notes exercised their over-allotment option
and purchased an additional $25.0 million in principal amount of
notes. The 1.125% Notes were issued at par, and interest is payable
semiannually in arrears on May 1 and November 1, beginning November 1,
2007. The 1.125% Notes will mature on May 1, 2014, unless earlier
repurchased by us or converted.
We
received proceeds of approximately $268.1 million from the issuance, net of
underwriting fees of approximately $6.9 million. The underwriting
fees, as well as additional transaction costs of $0.7 million incurred in
connection with the issuance of the 1.125% Notes, are included in “Other
assets,” and amortized to interest expense on an effective interest rate basis
over the remaining life of the notes (seven years).
See
“Notes to Condensed Consolidated Financial Statements; Note
4. Long-term
Debt” above for additional details of the issuance of
the notes.
On
April
30, 2007, we called for the redemption on June 4, 2007 of our $149.999 million
outstanding aggregate principal amount of 4.75% Notes. The holders of
the 4.75% Notes had the option to convert their notes into shares of our common
stock at a conversion price of $9.88 per share until the close of business
on
June 1, 2007. As of June 4, 2007, the holders of $149.956 million
principal amount of the 4.75% Notes had exercised their right to convert their
notes into an aggregate of 15.146 million shares of our common stock and the
remaining notes were redeemed for $43 thousand. In addition, we paid
$392 thousand in lieu of fractional shares.
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 February 3, 2007.
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, LANE BRYANT, CATHERINES, PETITE SOPHISTICATE, and Crosstown
Traders 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 proprietary credit card accounts are billed
using
a floating rate index (the Prime Rate), subject to a floor and limited by legal
maximums. 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 November 3, 2007, 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.
As
a
result of the Trust entering into a series of fixed-rate interest rate swap
agreements with notional values at November 3, 2007 of $278.3 million with
respect to $335.8 million of floating-rate certificates, entering into an
interest-rate cap with respect to an additional $28.8 million of floating-rate
certificates, and $143.9 million of certificates 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 2008, an
increase of approximately $206 thousand in selling, general, and
administrative expenses would result.
See
“PART II. OTHER INFORMATION; Item 1A. Risk Factors” below
for a further discussion of other market risks related to our securitization
facilities.
As
of
November 3, 2007, 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.
IMPACT
OF RECENT ACCOUNTING
PRONOUNCEMENTS
See
“Item 1. Notes to Condensed Consolidated Financial Statements
(Unaudited); Note 11. Impact of Recent
Accounting Pronouncements” above.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
See
“Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; MARKET RISK,” above.
Item
4. Controls and Procedures
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. Our disclosure
Committee, which is made up of several key management employees and reports
directly to the CEO and CFO, assists 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. Furthermore, 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.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
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.
During
Fiscal 2008, we issued $275.0 million principal amount of 1.125% Senior
Convertible Notes due May 1, 2014 (the “1.125% Notes) in a private offering for
resale to qualified institutional buyers pursuant to Rule 144A under The
Securities Act of 1933. The holders of the 1.125% Notes could require
us to repurchase the principal amount of the notes for cash before maturity
of
the notes under certain circumstances (see “PART 1.
FINANCIAL INFORMATION; Notes to Condensed Consolidated
Financial Statements; Note 4. Long-term Debt” above). Such a
repurchase would require significant amounts of cash and could adversely affect
our financial condition.
The
Financial Accounting Standards Board (“FASB”) has issued a proposed Staff
Position (“FSP”) that, if adopted, would apply to any convertible debt
instrument that may be settled in whole or in part with cash upon conversion,
which would include our 1.125% Senior Convertible Notes due May
2014. We would be required to adopt the proposal as of February 3,
2008 (the beginning of Fiscal 2009), with retrospective application to financial
statements for periods prior to the date of adoption. As compared to
our current accounting for the 1.125% Notes, adoption of the proposal would
reduce long-term debt, increase stockholders’ equity, and reduce net income and
earnings per share. Adoption of the proposal would not affect our
cash flows.
We
have
traditionally relied upon the securitization market to finance our proprietary
credit card receivables. The current disruption in the securitization
market caused by, among other things, an increased default rate on residential
mortgage loans, an increase in the number of rating downgrades with respect
to
bonds issued in connection with the securitization of loans, the lack of
liquidity in the bond market, and the financial condition of many companies
that
typically participate in this market may negatively affect our ability to enter
into financing arrangements on terms and conditions that are favorable to
us. An inability to enter into a favorable securitization series or
satisfactory alternative financing arrangements could adversely affect our
financial condition.
We
have
made recent changes in management as part of an effort to improve our
competitive position. We cannot assure that these changes in
management will achieve an improvement in our competitive position.
We
cannot
assure the realization of our anticipated annual expense savings from the
consolidation of operations and new organizational structure at our CATHERINES
brand.
We
cannot
assure the realization of our anticipated benefits from the re-launch of our
LANE BRYANT credit card program.
Other
than the above, we have not become aware of any material changes since February
3, 2007 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 February 3, 2007. See
also “PART I. FINANCIAL
INFORMATION; Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations; FORWARD-LOOKING
STATEMENTS” above.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers:
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|
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Total
|
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|
Maximum
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
of
Shares
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|
Shares
that
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|
|
|
|
|
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|
Purchased
as
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|
May
Yet be
|
|
|
|
Total
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|
|
|
|
|
Part
of Publicly
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Purchased
|
|
|
|
Number
|
|
|
Average
|
|
|
Announced
|
|
|
Under
the
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|
of
Shares
|
|
|
Price
Paid
|
|
|
Plans
or
|
|
|
Plans
or
|
|
Period
|
|
Purchased
|
|
|
per
Share
|
|
|
Programs(4)(5)
|
|
|
Programs(4)(6)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
August
5, 2007 through
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|
|
|
|
|
|
|
|
|
|
|
|
September
1, 2007
|
|
|
4,416,392 |
(1) |
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$ |
9.98
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|
|
4,415,299 |
(5) |
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September
2, 2007 through
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|
|
|
|
|
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|
October
6, 2007
|
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|
4,262,563 |
(2) |
|
|
8.69
|
|
|
|
4,261,243 |
(5) |
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|
October
7, 2007 through
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|
|
|
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|
|
|
|
|
|
|
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November
3, 2007
|
|
|
1,300,200 |
(3) |
|
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7.50
|
|
|
|
1,300,000 |
(4)(5) |
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Total
|
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|
9,979,155
|
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|
$ |
9.11
|
|
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|
9,976,542 |
(5) |
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3,752,693 |
(4)(6) |
____________________
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(1)
Includes 1,093 shares ($8.57 average price paid per share) withheld
for
the payment of payroll taxes on employee stock awards that vested
during
the period and 4,415,299 shares ($9.98 average price paid per share)
purchased in the open market (see Note (5) below).
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(2)
Includes 1,320 shares ($8.90 average price paid per share) withheld
for
the payment of payroll taxes on employee stock awards that vested
during
the period and 4,261,243 shares ($8.69 average price paid per share)
purchased in the open market (see Note (5) below).
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(3)
Includes 200 shares ($8.15 average price paid per share) withheld
for the
payment of payroll taxes on employee stock awards that vested during
the
period and 1,300,000 shares ($7.50 average price paid per share)
purchased
in the open market (see Notes (4) and (5) below).
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(4) 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, pursuant to
these authorizations, 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. During the period from
October 7, 2007 through November 3, 2007, we repurchased a total
of
1,226,976 shares of common stock under these programs. As of November
3, 2007, 3,752,693 shares of our common stock remain available for
repurchase under these programs. Subsequent to the period covered by
this Report, we repurchased a total of 500,000 shares of our common
stock
under these programs. The repurchase programs have no expiration
date.
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(5) In
May 2007, we announced a program to use $80 to $100 million of the
proceeds from our issuance of 1.125% Senior Convertible Notes due
May 1,
2014 to repurchase shares of common stock through the remainder of
our
fiscal year ending February 2, 2008. During the quarter ended August
4, 2007, we repurchased 1,666,679 shares of common stock in the open
market under this program. During the quarter ended November 3, 2007,
we repurchased 4,790,728 shares of common stock in the open market
and 3,958,838 shares of common stock under an agreement with a
third-party financial institution that provided the third party with
discretionary authority to purchase shares of our common stock on
our
behalf. As of November 3, 2007, we have completed our planned
repurchases of common stock under this program.
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(6) On
November 8, 2007 (subsequent to the period covered by this Report),
we
publicly announced that our Board of Directors granted authority
to
repurchase shares of our common stock up to an aggregate value of
$200
million. Shares may be purchased in the open market or through
privately-negotiated transactions, as market conditions allow. This
repurchase program has no expiration date.
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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
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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).
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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).
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3.2
|
Amended
Article 5, Subsection (d) to the Articles of Incorporation of Charming
Shoppes, Inc., incorporated by reference to Form 8-K of the Registrant
dated September 25, 2007, filed on September 26, 2007 (Exhibit
3.1).
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3.3
|
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).
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4.1
|
Indenture
between the Company and Wells Fargo Bank, National Association, dated
as
of April 30, 2007, incorporated by reference to Form 8-K of the Registrant
dated April 30, 2007, filed on May 3, 2007 (Exhibit 4.1).
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4.2
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.1).
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10.1
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Registration
Rights Agreement among the Company and Banc of America Securities
LLC and
J.P. Morgan Securities Inc., dated as of April 30, 2007, incorporated
by
reference to Form 8-K of the Registrant dated April 30, 2007, filed
on May
3, 2007 (Exhibit 10.1).
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10.2
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Bank of America, N.A., dated April 24, 2007, incorporated
by
reference to Form 8-K of the Registrant dated April 25, 2007, filed
on May
1, 2007 (Exhibit 10.1).
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10.3
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and JPMorgan Chase Bank, National Association, dated April
24,
2007, incorporated by reference to Form 8-K of the Registrant dated
April
25, 2007, filed on May 1, 2007 (Exhibit 10.2).
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10.4
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Wachovia Bank, National Association, dated April 24,
2007,
incorporated by reference to Form 8-K of the Registrant dated April
25,
2007, filed on May 1, 2007 (Exhibit 10.3).
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10.5
|
Issuer
Warrant Transaction Confirmation entered into by and between the
Company
and Bank of America, N.A., dated April 24, 2007, incorporated by
reference
to Form 8-K of the Registrant dated April 25, 2007, filed on May
1, 2007
(Exhibit 10.4).
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10.6
|
Issuer
Warrant Transaction Confirmation entered into by and between the
Company
and JPMorgan Chase Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April
25,
2007, filed on May 1, 2007 (Exhibit 10.5).
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10.7
|
Issuer
Warrant Transaction Confirmation entered into by and between the
Company
and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April
25,
2007, filed on May 1, 2007 (Exhibit 10.6).
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10.8
|
Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, amended
and
restated effective June 21, 2007, incorporated by reference to Form
10-Q
of the Registrant for the quarter ended August 4, 2007 (File No.
000-07258, Exhibit 10.8).
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10.9
|
Amendment
dated as of October 17, 2007 to Second Amended and Restated Pooling
and
Servicing Agreement dated as of November 25, 1997 and heretofore
amended
among Charming Shoppes Receivables Corp. (“CSRC”), Spirit of America, Inc.
(“SOAI”), and U.S. Bank National Association, as Trustee (“Trustee”),
incorporated by reference to Form 8-K of the Registrant dated October
17,
2007, filed on October 22, 2007 (Exhibit 10.1).
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10.10
|
Series
2007-1 Supplement dated as of October 17, 2007 to the Second Amended
and
Restated Pooling and Servicing Agreement dated as of November 25,
1997 and
heretofore amended among CSRC, SOAI and Trustee, incorporated by
reference
to Form 8-K of the Registrant dated October 17, 2007, filed on October 22,
2007 (Exhibit 10.2).
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10.11
|
Class
A, Class M, and Class B Certificate Purchase Agreement dated as of
October
10, 2007 among CSRC, SOAI, Barclays Capital, Inc. and Fashion Service
Corp, incorporated by reference to Form 8-K of the Registrant dated
October 17, 2007, filed on October 22, 2007 (Exhibit 10.3).
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10.12
|
Class
C Purchase Agreement dated as of October 17, 2007 among CSRC, SOAI,
Trustee, Galleon Capital, LLC, and Clipper Receivables Company, LLC,
incorporated by reference to Form 8-K of the Registrant dated October
17,
2007, filed on October 22, 2007 (Exhibit 10.4).
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10.13
|
Purchase
Agreement dated as of October 31, 2007 between World Financial Network
National Bank, Spirit of America National Bank, Lane Bryant, Inc.,
Sierra
Nevada Factoring, Inc., and Charming Shoppes Outlet Stores, LLC,
incorporated by reference to Form 8-K of the Registrant dated October
31,
2007, filed on November 5, 2007 (Exhibit 99.1).
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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.
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CHARMING
SHOPPES, INC.
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(Registrant)
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Date:
December 7, 2007
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/S/
DORRIT J. BERN
|
|
Dorrit
J. Bern
|
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Chairman
of the Board
|
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President
and Chief Executive Officer
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Date:
December 7, 2007
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/S/
ERIC M. SPECTER
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Eric
M. Specter
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Executive
Vice President
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Chief
Financial Officer
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Exhibit
No.
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Item
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2.1
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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).
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3.1
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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).
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3.2
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Amended
Article 5, Subsection (d) to the Articles of Incorporation of Charming
Shoppes, Inc., incorporated by reference to Form 8-K of the Registrant
dated September 25, 2007, filed on September 26, 2007 (Exhibit
3.1).
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3.3
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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).
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4.1
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Indenture
between the Company and Wells Fargo Bank, National Association, dated
as
of April 30, 2007, incorporated by reference to Form 8-K of the Registrant
dated April 30, 2007, filed on May 3, 2007. (Exhibit
4.1).
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4.2
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Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.1).
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10.1
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Registration
Rights Agreement among the Company and Banc of America Securities
LLC and
J.P. Morgan Securities Inc., dated as of April 30, 2007, incorporated
by
reference to Form 8-K of the Registrant dated April 30, 2007, filed
on May
3, 2007. (Exhibit 10.1).
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10.2
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Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Bank of America, N.A., dated April 24, 2007, incorporated
by
reference to Form 8-K of the Registrant dated April 25, 2007, filed
on May
1, 2007. (Exhibit 10.1).
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10.3
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Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and JPMorgan Chase Bank, National Association, dated April
24,
2007, incorporated by reference to Form 8-K of the Registrant dated
April
25, 2007, filed on May 1, 2007. (Exhibit 10.2).
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10.4
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Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Wachovia Bank, National Association, dated April 24,
2007,
incorporated by reference to Form 8-K of the Registrant dated April
25,
2007, filed on May 1, 2007. (Exhibit 10.3).
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10.5
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Issuer
Warrant Transaction Confirmation entered into by and between the
Company
and Bank of America, N.A., dated April 24, 2007, incorporated by
reference
to Form 8-K of the Registrant dated April 25, 2007, filed on May
1,
2007. (Exhibit 10.4).
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10.6
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Issuer
Warrant Transaction Confirmation entered into by and between the
Company
and JPMorgan Chase Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April
25,
2007, filed on May 1, 2007. (Exhibit 10.5).
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Exhibit
No.
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Item
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10.7
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Issuer
Warrant Transaction Confirmation entered into by and between the
Company
and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April
25,
2007, filed on May 1, 2007. (Exhibit 10.6).
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10.8
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Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, amended
and
restated effective June 21, 2007, incorporated by reference to Form
10-Q
of the Registrant for the quarter ended August 4, 2007 (File No.
000-07258, Exhibit 10.8).
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10.9
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Amendment
dated as of October 17, 2007 to Second Amended and Restated Pooling
and
Servicing Agreement dated as of November 25, 1997 and heretofore
amended
among Charming Shoppes Receivables Corp. (“CSRC”), Spirit of America, Inc.
(“SOAI”), and U.S. Bank National Association, as Trustee (“Trustee”),
incorporated by reference to Form 8-K of the Registrant dated October
17,
2007, filed on October 22, 2007 (Exhibit 10.1).
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10.10
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Series
2007-1 Supplement dated as of October 17, 2007 to the Second Amended
and
Restated Pooling and Servicing Agreement dated as of November 25,
1997 and
heretofore amended among CSRC, SOAI and Trustee, incorporated by
reference
to Form 8-K of the Registrant dated October 17, 2007, filed on October
22,
2007 (Exhibit 10.2).
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10.11
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Class
A, Class M, and Class B Certificate Purchase Agreement dated as of
October
10, 2007 among CSRC, SOAI, Barclays Capital, Inc. and Fashion Service
Corp, incorporated by reference to Form 8-K of the Registrant dated
October 17, 2007, filed on October 22, 2007 (Exhibit 10.3).
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10.12
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Class
C Purchase Agreement dated as of October 17, 2007 among CSRC, SOAI,
Trustee, Galleon Capital, LLC, and Clipper Receivables Company, LLC,
incorporated by reference to Form 8-K of the Registrant dated October
17,
2007, filed on October 22, 2007 (Exhibit 10.4).
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10.13
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Purchase
Agreement dated as of October 31, 2007 between World Financial Network
National Bank, Spirit of America National Bank, Lane Bryant, Inc.,
Sierra
Nevada Factoring, Inc., and Charming Shoppes Outlet Stores, LLC,
incorporated by reference to Form 8-K of the Registrant dated October
31,
2007, filed on November 5, 2007 (Exhibit 99.1).
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