form10qnov12008.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 1,
2008
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, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-accelerated
Filer o
|
Smaller
Reporting Company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
Yes o No x
The
number of shares outstanding of the issuer’s Common Stock (par value $.10 per
share) as of November 28, 2008 was 113,884,069 shares.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
|
|
Page
|
|
|
|
PART
I.
|
|
2
|
|
|
|
Item
1.
|
|
2
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
2
|
|
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive
Income
|
|
|
|
3
|
|
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
5
|
|
|
|
|
|
7
|
|
|
|
Item
2.
|
|
27
|
|
|
|
|
|
27
|
|
|
|
|
|
30
|
|
|
|
|
|
31
|
|
|
|
|
|
33
|
|
|
|
|
|
35
|
|
|
|
|
|
44
|
|
|
|
|
|
49
|
|
|
|
|
|
51
|
|
|
|
|
|
52
|
|
|
|
Item
3.
|
|
52
|
|
|
|
Item
4.
|
|
52
|
|
|
|
PART
II.
|
|
53
|
|
|
|
Item
1.
|
|
53
|
|
|
|
Item
1A.
|
|
53
|
|
|
|
Item
2.
|
|
54
|
|
|
|
Item
6.
|
|
55
|
|
|
|
|
|
58
|
|
|
|
|
|
59
|
Item
1. Financial Statements
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
(Unaudited)
|
|
November
1,
|
|
|
February
2,
|
|
(In
thousands, except share amounts)
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
67,829 |
|
|
$ |
61,335 |
|
Available-for-sale
securities
|
|
|
6,375 |
|
|
|
13,364 |
|
Accounts
receivable, net of allowances of $1,579 and $6,262
|
|
|
4,477 |
|
|
|
33,535 |
|
Investment
in asset-backed securities
|
|
|
112,801 |
|
|
|
115,912 |
|
Merchandise
inventories
|
|
|
406,102 |
|
|
|
330,216 |
|
Deferred
advertising
|
|
|
12,908 |
|
|
|
5,546 |
|
Deferred
taxes
|
|
|
0 |
|
|
|
9,773 |
|
Prepayments
and other
|
|
|
177,765 |
|
|
|
151,716 |
|
Current
assets of discontinued operations
|
|
|
0 |
|
|
|
119,994 |
|
Total
current
assets
|
|
|
788,257 |
|
|
|
841,391 |
|
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold improvements – at cost
|
|
|
1,075,629 |
|
|
|
1,117,559 |
|
Less
accumulated depreciation and amortization
|
|
|
657,884 |
|
|
|
658,410 |
|
Net
property, equipment, and leasehold improvements
|
|
|
417,745 |
|
|
|
459,149 |
|
|
|
|
|
|
|
|
|
|
Trademarks
and other intangible assets
|
|
|
189,021 |
|
|
|
189,562 |
|
Goodwill
|
|
|
66,666 |
|
|
|
66,666 |
|
Other
assets
|
|
|
31,801 |
|
|
|
56,536 |
|
Total
assets
|
|
$ |
1,493,490 |
|
|
$ |
1,613,304 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
177,102 |
|
|
$ |
122,629 |
|
Accrued
expenses
|
|
|
190,447 |
|
|
|
168,573 |
|
Current
liabilities of discontinued operations
|
|
|
0 |
|
|
|
46,086 |
|
Current
portion – long-term debt
|
|
|
6,601 |
|
|
|
8,827 |
|
Total
current
liabilities
|
|
|
374,150 |
|
|
|
346,115 |
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
42,465 |
|
|
|
38,122 |
|
Other
non-current liabilities
|
|
|
192,525 |
|
|
|
192,454 |
|
Long-term
debt
|
|
|
307,649 |
|
|
|
306,169 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Common
Stock $.10 par value:
|
|
|
|
|
|
|
|
|
Authorized
– 300,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
– 152,352,569 shares and 151,569,850 shares
|
|
|
15,235 |
|
|
|
15,157 |
|
Additional
paid-in capital
|
|
|
414,127 |
|
|
|
407,499 |
|
Treasury
stock at cost – 38,482,213 shares and 36,477,246 shares
|
|
|
(347,730 |
) |
|
|
(336,761 |
) |
Accumulated
other comprehensive income/(loss)
|
|
|
(2 |
) |
|
|
22 |
|
Retained
earnings
|
|
|
495,071 |
|
|
|
644,527 |
|
Total
stockholders’
equity
|
|
|
576,701 |
|
|
|
730,444 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
1,493,490 |
|
|
$ |
1,613,304 |
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirteen Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
thousands, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
553,066 |
|
|
$ |
599,665 |
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
428,338 |
|
|
|
429,175 |
|
Selling,
general, and administrative expenses
|
|
|
167,585 |
|
|
|
172,423 |
|
Impairment
of store assets
|
|
|
20,216 |
|
|
|
0 |
|
Restructuring
and other charges
|
|
|
5,685 |
|
|
|
0 |
|
Total
operating expenses
|
|
|
621,824 |
|
|
|
601,598 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(68,758 |
) |
|
|
(1,933 |
) |
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
1,876 |
|
|
|
2,686 |
|
Interest
expense
|
|
|
(2,172 |
) |
|
|
(2,206 |
) |
|
|
|
|
|
|
|
|
|
Loss from
continuing operations before income taxes
|
|
|
(69,054 |
) |
|
|
(1,453 |
) |
Income
tax (benefit)/provision
|
|
|
(11,269 |
) |
|
|
287 |
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(57,785 |
) |
|
|
(1,740 |
) |
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income tax
(provision)/benefit
|
|
|
|
|
|
|
|
|
of ($24,004) in 2008 and $1,365
in 2007
|
|
|
(35,181 |
) |
|
|
(1,828 |
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(92,966 |
) |
|
|
(3,568 |
) |
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
Unrealized
gains on available-for-sale securities, net of income tax
|
|
|
|
|
|
|
|
|
provision of $8 in
2007
|
|
|
0 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$ |
(92,966 |
) |
|
$ |
(3,553 |
) |
|
|
|
|
|
|
|
|
|
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(.50 |
) |
|
$ |
(.01 |
) |
Loss
from discontinued operations, net of tax
|
|
|
(.31 |
) |
|
|
(.02 |
) |
Net
loss
|
|
$ |
(.81 |
) |
|
$ |
(.03 |
) |
|
|
|
|
|
|
|
|
|
Diluted
net loss per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(.50 |
) |
|
$ |
(.01 |
) |
Loss
from discontinued operations, net of tax
|
|
|
(.31 |
) |
|
|
(.02 |
) |
Net
loss
|
|
$ |
(.81 |
) |
|
$ |
(.03 |
) |
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
thousands, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,843,028 |
|
|
$ |
1,990,638 |
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
1,349,389 |
|
|
|
1,387,562 |
|
Selling,
general, and administrative expenses
|
|
|
519,375 |
|
|
|
528,744 |
|
Impairment
of store assets
|
|
|
20,216 |
|
|
|
0 |
|
Restructuring
and other charges
|
|
|
24,241 |
|
|
|
0 |
|
Total
operating expenses
|
|
|
1,913,221 |
|
|
|
1,916,306 |
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from operations
|
|
|
(70,193 |
) |
|
|
74,332 |
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
3,183 |
|
|
|
7,787 |
|
Interest
expense
|
|
|
(6,742 |
) |
|
|
(8,287 |
) |
|
|
|
|
|
|
|
|
|
Income/(loss) from
continuing operations before income taxes
|
|
|
(73,752 |
) |
|
|
73,832 |
|
Income
tax (benefit)/provision
|
|
|
(12,914 |
) |
|
|
28,212 |
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations
|
|
|
(60,838 |
) |
|
|
45,620 |
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income tax benefit of $3,628 in
2007
|
|
|
(74,922 |
) |
|
|
(4,611 |
) |
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
(135,760 |
) |
|
|
41,009 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
|
Unrealized
gains/(losses) on available-for-sale securities, net of income
tax
|
|
|
|
|
|
|
|
|
(provision)/benefit of $12 in
2008 and ($11) in 2007
|
|
|
(24 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income/(loss)
|
|
$ |
(135,784 |
) |
|
$ |
41,026 |
|
|
|
|
|
|
|
|
|
|
Basic
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations
|
|
$ |
(.53 |
) |
|
$ |
.37 |
|
Loss
from discontinued operations, net of tax
|
|
|
(.65 |
) |
|
|
(.04 |
) |
Net
income/(loss)
|
|
$ |
(1.18 |
) |
|
$ |
.33 |
|
|
|
|
|
|
|
|
|
|
Diluted
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations
|
|
$ |
(.53 |
) |
|
$ |
.36 |
|
Loss
from discontinued operations, net of tax
|
|
|
(.65 |
) |
|
|
(.04 |
) |
Net
income/(loss)
|
|
$ |
(1.18 |
) |
|
$ |
.32 |
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
(Unaudited)
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(135,760 |
) |
|
$ |
41,009 |
|
Adjustments
to reconcile net income/(loss) to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
73,774 |
|
|
|
69,492 |
|
Loss
on disposition of discontinued
operations
|
|
|
46,736 |
|
|
|
0 |
|
Impairment
of store
assets
|
|
|
20,216 |
|
|
|
0 |
|
Deferred
income
taxes
|
|
|
13,428 |
|
|
|
8,856 |
|
Stock-based
compensation
|
|
|
4,708 |
|
|
|
8,494 |
|
Excess
tax benefits related to stock-based
compensation
|
|
|
0 |
|
|
|
(847 |
) |
Write-down
of deferred taxes related to stock-based compensation
|
|
|
(1,352 |
) |
|
|
0 |
|
Write-down
of capital
assets
|
|
|
2,456 |
|
|
|
0 |
|
Net
(gain)/loss from disposition of capital
assets
|
|
|
(722 |
) |
|
|
1,926 |
|
Net
loss/(gain) from securitization
activities
|
|
|
531 |
|
|
|
(7,486 |
) |
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable,
net
|
|
|
29,058 |
|
|
|
29,807 |
|
Merchandise
inventories
|
|
|
(65,430 |
) |
|
|
(68,763 |
) |
Accounts
payable
|
|
|
51,768 |
|
|
|
15,778 |
|
Deferred
advertising
|
|
|
(5,317 |
) |
|
|
(10,423 |
) |
Prepayments
and
other
|
|
|
(6,005 |
) |
|
|
980 |
|
Accrued
expenses and
other
|
|
|
(8,971 |
) |
|
|
15,278 |
|
Purchase
of Lane Bryant credit card receivables portfolio
|
|
|
0 |
|
|
|
(230,975 |
) |
Securitization
of Lane Bryant credit card receivables portfolio
|
|
|
0 |
|
|
|
230,975 |
|
Net
cash provided by operating activities
|
|
|
19,118 |
|
|
|
104,101 |
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Investment
in capital assets
|
|
|
(49,498 |
) |
|
|
(108,775 |
) |
Proceeds
from sales of capital assets
|
|
|
4,813 |
|
|
|
0 |
|
Net
proceeds from sale of discontinued operations
|
|
|
34,440 |
|
|
|
0 |
|
Gross
purchases of securities
|
|
|
(3,935 |
) |
|
|
(73,089 |
) |
Proceeds
from sales of securities
|
|
|
11,651 |
|
|
|
2,206 |
|
(Increase)/decrease
in other assets
|
|
|
6,635 |
|
|
|
(15,650 |
) |
Net
cash provided by/(used by) investing activities
|
|
|
4,106 |
|
|
|
(195,308 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of senior convertible notes
|
|
|
0 |
|
|
|
275,000 |
|
Proceeds
from long term borrowings
|
|
|
108 |
|
|
|
986 |
|
Repayments
of long-term borrowings
|
|
|
(6,813 |
) |
|
|
(9,044 |
) |
Payments
of deferred financing costs
|
|
|
(47 |
) |
|
|
(7,611 |
) |
Excess
tax benefits related to stock-based compensation
|
|
|
0 |
|
|
|
847 |
|
Purchase
of hedge on senior convertible notes
|
|
|
0 |
|
|
|
(90,475 |
) |
Sale
of common stock warrants
|
|
|
0 |
|
|
|
53,955 |
|
Purchases
of treasury stock
|
|
|
(10,969 |
) |
|
|
(240,289 |
) |
Net
proceeds from shares issued under employee stock
plans
|
|
|
484 |
|
|
|
389 |
|
Net
cash used by financing activities
|
|
|
(17,237 |
) |
|
|
(16,242 |
) |
|
|
|
|
|
|
|
|
|
Increase/(decrease) in
cash and cash equivalents
|
|
|
5,987 |
|
|
|
(107,449 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
61,842 |
|
|
|
143,838 |
|
Cash
and cash equivalents, end of period
|
|
$ |
67,829 |
|
|
$ |
36,389 |
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
(Continued
on next page)
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing activities
|
|
|
|
|
|
|
Common
stock issued on redemption of convertible notes
|
|
$ |
0 |
|
|
$ |
149,564 |
|
Assets
acquired through capital leases
|
|
$ |
5,959 |
|
|
$ |
5,509 |
|
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. In our opinion,
we have made all adjustments (which, except as otherwise disclosed in these
notes, 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 financial
statements, primarily related to discontinued operations (see below), have been
reclassified to conform to the current-year presentation. We have
condensed or omitted certain information and footnote disclosures normally
included in financial statements prepared in accordance with United States
generally accepted accounting principles. These financial statements and
related notes should be read in conjunction with our financial statements and
related notes included in our February 2, 2008 Annual Report on Form 10-K.
The results of operations for the thirteen weeks and thirty-nine weeks
ended November 1, 2008 and November 3, 2007 are not necessarily indicative of
operating results for the full fiscal year.
As used
in these notes, the term “Fiscal 2009” refers to our fiscal year ending January
31, 2009 and the term “Fiscal 2008” refers to our fiscal year ended February 2,
2008. The term “Fiscal 2010” refers to our fiscal year ending January 30,
2010. The term “Fiscal 2009 Third Quarter” refers to our fiscal
quarter ended November 1, 2008 and the term “Fiscal 2008 Third Quarter” refers
to our fiscal quarter ended November 3, 2007. The term “Fiscal 2009
First Quarter” refers to our fiscal quarter ended May 3, 2008 and the term
“Fiscal 2009 Second Quarter” refers to our fiscal quarter ended August 2,
2008. The terms “the Company,” “we,” “us,” and “our” refer to
Charming Shoppes, Inc. and, where applicable, our consolidated
subsidiaries.
Discontinued
Operations
On April
25, 2008 we announced that our Board of Directors began exploring a broad range
of operating and strategic alternatives for our non-core misses apparel catalog
titles (collectively, “Crosstown Traders”) in order to provide a greater focus
on our core brands and to enhance shareholder value. Crosstown
Traders met the requirements of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” (“SFAS No. 144”) to be accounted for as
held for sale. Accordingly, the assets, liabilities, and results of
operations of Crosstown Traders have been reported as discontinued operations in
our consolidated statements of operations and balance sheets for all periods
presented.
On August
25, 2008 we announced that we had entered into a definitive agreement to sell
our Crosstown Traders non-core misses apparel catalogs to Orchard Brands, a
portfolio company owned by Golden Gate Capital, for a cash purchase price of
approximately $35,000,000. The sale was completed on September 18,
2008. Crosstown Traders’ operations and cash flows have been
eliminated from our financial statements as of the date of sale and we will not
have any significant involvement in the operations after the sale.
As part
of the definitive agreement we have retained certain components of the
infrastructure of Crosstown Traders. Accordingly, we entered into
transitional service agreements with Orchard Brands to provide certain services,
including information technology, use of existing facilities, and financial
services. These services are to be provided for specified time
periods ranging up to one year from the date of the agreement, depending on the
services provided. In addition, Orchard Brands agreed to provide
certain transitional services to us, including distribution and call center
services. Subsequent to the transitional period we will be
responsible for the remaining lease liabilities for the retained
facilities. We will discontinue using the fixed assets related to the
retained facilities after the transitional period. Accordingly, we
will fully depreciate these fixed assets over the transitional services
period.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
We
evaluated the impact of the retained cash flows with regards to the transitional
service agreements in accordance with EITF 03-13, “Applying the Conditions in
Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report
Discontinued Operations,” and determined that the cash inflows and
outflows over the transitional period are not expected to be
significant. Accordingly, the reporting of discontinued operations
was deemed appropriate in accordance with SFAS No. 144.
During
the Fiscal 2009 Third Quarter we finalized our calculation of the loss on
disposition of the discontinued operations by increasing the aggregate pre-tax
loss on disposition to $46,736,000. The $3,968,000 increase in the
pre-tax loss on disposition during the Fiscal 2009 Third Quarter was primarily a
result of changes in working capital during the quarter. During the
Fiscal 2009 Third Quarter we also recognized an increase in the net pre-tax loss
from discontinued operations of $7,209,000. During our Fiscal 2009 Third
Quarter we recorded a valuation allowance against our net deferred tax assets
(see “Note 8. Income
Taxes” below) for the discontinued operations. This had the effect
of reversing $24,004,000 of tax benefits recognized during the Fiscal 2009 First
and Second Quarters. In addition, no tax benefit was recorded on the
additional losses recorded in the Fiscal 2009 Third Quarter. A
portion of the reversal of previously recognized tax benefits that was recorded
in the Fiscal 2009 Third Quarter related to an excess tax benefit of $10,780,000
that was initially recorded in the Fiscal 2009 First Quarter. As a result
of the completion of the sale, the computation of the tax benefit related to the
disposition of the discontinued operations was finalized during the Fiscal 2009
Third Quarter.
Results
from discontinued operations for the thirteen weeks and thirty-nine weeks ended
November 1, 2008 and November 3, 2007 were as follows:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
thousands)
|
|
2008(1)
|
|
|
2007
|
|
|
2008(1)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
34,563 |
|
|
$ |
69,724 |
|
|
$ |
155,811 |
|
|
$ |
234,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
$ |
(11,177 |
)(2) |
|
$ |
(3,193 |
) |
|
$ |
(74,922 |
)(3) |
|
$ |
(8,239 |
) |
Income
tax benefit
|
|
|
(24,004 |
)(4) |
|
|
1,365 |
|
|
|
0 |
|
|
|
3,628 |
|
Loss
from discontinued operations, net of income tax benefit
|
|
$ |
(35,181 |
) |
|
$ |
(1,828 |
) |
|
$ |
(74,922 |
) |
|
$ |
(4,611 |
) |
____________________
|
|
(1)
Through September 18, 2008 (the date of sale).
|
|
(2)
Includes $7,209,000 of losses from operations and an increase of
$3,968,000 in the loss on disposition.
|
|
(3)
Includes $28,186,000 of losses from operations and a $46,736,000 loss on
disposition.
|
|
(4)
Reversal of previously recognized tax benefit as a result of our
recognition of a valuation allowance against net deferred tax assets and
the correction of an error.
|
|
We
received net proceeds from the disposition of $34,440,000 and recognized a
liability of $7,700,000 for the fair value of certain transitional services to
be provided to the buyer at no cost. The liability will be amortized
to continuing operations over the term of the transitional service agreements as
the services are performed. In addition, we recognized a liability of
$2,500,000 for costs to sell the Crosstown Traders business.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Current
assets and liabilities of discontinued operations as of September 18, 2008 (the
date of sale) and February 2, 2008 were as follows:
|
|
September
18,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Merchandise
inventories
|
|
$ |
50,855 |
|
|
$ |
61,311 |
|
Deferred
advertising and other, net
|
|
|
13,594 |
|
|
|
13,286 |
|
Intangible
assets
|
|
|
44,758 |
|
|
|
45,397 |
|
Current
assets of discontinued operations
|
|
$ |
109,207 |
|
|
$ |
119,994 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
15,219 |
|
|
$ |
17,924 |
|
Accrued
expenses
|
|
|
4,192 |
|
|
|
10,884 |
|
Deferred
taxes
|
|
|
18,820 |
|
|
|
17,278 |
|
Current
liabilities of discontinued operations
|
|
$ |
38,231 |
|
|
$ |
46,086 |
|
On August
25, 2008 we also announced that we entered into an agreement to sell the misses
apparel catalog credit card receivables, which are directly related to the
catalog titles sold to Orchard Brands, to World Financial Network National Bank,
a unit of Alliance Data Systems Corporation. On November 14, 2008 we
completed the sale of the receivables at par value for $43,294,000, and utilized
the proceeds to pay off and terminate the related securitization funding
facility (see “Note 15. Subsequent Event”
below). The sale of the credit card receivables and the elimination
of funding-related cash collateral requirements, less the prepayment of
securitized indebtedness, resulted in net cash proceeds to us of
$12,455,000.
In
addition, we announced our plans to explore the sale of our FIGI’S® Gifts
in Good Taste catalog business based in Wisconsin. The results of
operations of FIGI’S are not reported as discontinued operations as they have
not met the requirements of SFAS No. 144.
The
financial information included in these Notes to Condensed Consolidated
Financial Statements reflects only the results of our continuing
operations.
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 consider our retail stores and store-related e-commerce as
operating segments that are similar in terms of economic characteristics,
production processes, and operations. Accordingly, we have aggregated
our retail stores and store-related e-commerce 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 OUTLET® brands.
The Direct-to-Consumer segment, excluding discontinued operations,
derives its revenues from catalog sales and catalog-related e-commerce sales
under our LANE BRYANT WOMAN® and
FIGI’S® titles
and e-commerce sales under our SHOETRADER.COM®
website. See “Discontinued
Operations” above and “Note 10. Segment Reporting” below
for further information regarding our discontinued operations and segment
reporting.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
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 2,
2008 Annual Report on Form 10-K.
Shares
available for future grants under our stock-based compensation plans as of
November 1, 2008:
2004
Stock Award and Incentive Plan
|
|
|
4,744,437 |
|
2003
Non-Employee Directors Compensation Plan
|
|
|
155,924 |
|
1994
Employee Stock Purchase Plan
|
|
|
874,664 |
|
1988
Key Employee Stock Option Plan
|
|
|
104,292 |
|
Stock
option and stock appreciation rights activity for the thirty-nine weeks ended
November 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Intrinsic
|
|
|
|
Option
|
|
|
Option
|
|
|
Option
Prices
|
|
|
Value(1)
|
|
|
|
Shares
|
|
|
Price
|
|
|
Per Share
|
|
|
(000's) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at February 2, 2008
|
|
|
1,894,874 |
|
|
$ |
5.95 |
|
|
$ |
1.00 |
|
–
|
|
$ |
13.84 |
|
|
$ |
1,777 |
|
Granted
– option price
equal to market price
|
|
|
3,255,674 |
|
|
|
4.79 |
|
|
|
1.13 |
|
– |
|
|
5.64 |
|
|
|
|
|
Granted
– option price
less than market price
|
|
|
14,000 |
|
|
|
1.00 |
|
|
|
1.00 |
|
– |
|
|
1.00 |
|
|
|
|
|
Canceled/forfeited
|
|
|
(1,061,581 |
) |
|
|
5.10 |
|
|
|
1.00 |
|
– |
|
|
12.48 |
|
|
|
|
|
Exercised
|
|
|
(234,198 |
) |
|
|
4.02 |
|
|
|
1.00 |
|
– |
|
|
5.47 |
|
|
|
357 |
(2) |
Outstanding
at November 1, 2008
|
|
|
3,868,769 |
|
|
$ |
5.31 |
|
|
$ |
1.00 |
|
– |
|
$ |
13.84 |
|
|
$ |
0 |
|
Exercisable
at November 1, 2008
|
|
|
1,718,283 |
|
|
$ |
6.22 |
|
|
$ |
1.00 |
|
– |
|
$ |
13.84 |
|
|
$ |
0 |
|
____________________
|
|
(1)
Aggregate market value less aggregate exercise price.
|
|
(2)
As of date of exercise.
|
|
Stock-based
compensation expense includes compensation cost for (i) 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) 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. 123(R)”), a revision of SFAS No. 123. Current grants of stock-based
compensation consist primarily of restricted stock unit and stock appreciation
right awards.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
$ |
(306 |
)(1) |
|
$ |
734 |
|
|
$ |
4,708 |
(1) |
|
$ |
8,494 |
|
____________________
|
|
(1)
Includes $955 reversal of previously recognized stock-based compensation
related to performance-based awards.
|
|
During
the Fiscal 2009 Second Quarter we granted cash-settled restricted stock units
(“RSUs”) under the 2003 Non-Employee Directors Compensation
Plan. These cash-settled RSUs have been accounted for as liabilities
in accordance with SFAS No. 123(R). Excluded from the $(306,000) and
$4,708,000 of compensation expense in the above table are a decrease of $214,000
and an increase of $267,000, respectively, in compensation expense related to
these cash-settled RSUs. The $214,000 decrease in compensation
expense is a result of a reduction in the market value of our common stock
during the Fiscal 2009 Third Quarter. Total compensation expense for
unvested cash-settled RSUs not yet recognized as of November 1, 2008 was
$145,000, which is included in accrued expenses in the accompanying condensed
consolidated balance sheet as of November 1, 2008, and will be recognized over a
one-year period from the date of grant.
We use
the Black-Scholes valuation model to estimate the fair value of stock options
and stock appreciation rights, and amortize stock-based compensation on a
straight-line basis over the requisite service period of an
award. Estimates or assumptions we use under the Black-Scholes model
are more fully described in “Item 8. Financial Statements and
Supplementary Data; Note 1. Summary of Significant Accounting Policies;
Stock-based
Compensation” in
our February 2, 2008 Annual Report on Form 10-K.
Total
stock-based compensation expense not yet recognized, related to the non-vested
portion of stock options, stock appreciation rights, and awards outstanding
(excluding cash-settled RSUs), was $10,810,000 as of November 1,
2008. The weighted-average period over which we expect to recognize
this compensation expense is approximately 3 years.
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
1,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Due
from customers
|
|
$ |
6,056 |
|
|
$ |
39,797 |
|
Allowance
for doubtful accounts
|
|
|
(1,579 |
) |
|
|
(6,262 |
) |
Net
accounts receivable
|
|
$ |
4,477 |
|
|
$ |
33,535 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
3. Trademarks and Other Intangible Assets
|
|
November
1,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Trademarks,
tradenames, and internet domain names
|
|
$ |
188,608 |
|
|
$ |
188,608 |
|
Customer
lists, customer relationships, and covenant not to compete
|
|
|
6,172 |
|
|
|
6,172 |
|
Total
at cost
|
|
|
194,780 |
|
|
|
194,780 |
|
Less
accumulated amortization of customer lists, customer
|
|
|
|
|
|
|
|
|
relationships, and covenant not
to compete
|
|
|
5,759 |
|
|
|
5,218 |
|
Net
trademarks and other intangible assets
|
|
$ |
189,021 |
|
|
$ |
189,562 |
|
Note
4. Long-term Debt
|
|
November
1,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
|
|
|
1.125%
Senior Convertible Notes, due May 2014
|
|
$ |
275,000 |
|
|
$ |
275,000 |
|
Capital
lease obligations
|
|
|
15,163 |
|
|
|
13,698 |
|
6.07%
mortgage note, due October 2014
|
|
|
10,586 |
|
|
|
11,078 |
|
6.53%
mortgage note, due November 2012
|
|
|
5,600 |
|
|
|
6,650 |
|
7.77%
mortgage note, due December 2011
|
|
|
7,416 |
|
|
|
7,897 |
|
Other
long-term debt
|
|
|
485 |
|
|
|
673 |
|
Total
long-term debt
|
|
|
314,250 |
|
|
|
314,996 |
|
Less
current portion
|
|
|
6,601 |
|
|
|
8,827 |
|
Long-term
debt
|
|
$ |
307,649 |
|
|
$ |
306,169 |
|
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.
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 $812,000 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 seven-year life of the
notes. The issuance of the 1.125% Notes is more fully described in
“Item 8. Financial
Statements and Supplementary Data; Note 8. Long-term Debt” in our
February 2, 2008 Annual Report on Form 10-K.
On April
30, 2007 we called for the June 4, 2007 redemption 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
1,
|
|
(Dollars
in thousands)
|
|
2008
|
|
|
|
|
|
Total
stockholders’ equity, beginning of period
|
|
$ |
730,444 |
|
Cumulative
effect of adoption of EITF Issue No. 06-4(1)
|
|
|
(13,696 |
) |
Net
loss
|
|
|
(135,760 |
) |
Issuance
of common stock (782,719 shares), net of shares withheld for payroll
taxes
|
|
|
484 |
|
Purchase
of treasury shares (2,004,967 shares)
|
|
|
(10,969 |
) |
Stock-based
compensation expense
|
|
|
4,708 |
|
Tax
benefit related to call options
|
|
|
2,866 |
|
Write-down
of deferred taxes related to stock-based compensation
|
|
|
(1,352 |
) |
Unrealized
losses on available-for-sale securities, net of income tax
benefit
|
|
|
(24 |
) |
Total
stockholders’ equity, end of period
|
|
$ |
576,701 |
|
____________________
|
|
|
|
|
(1)
See “Note 14. Impact of
Recent Accounting Pronouncements” 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 join some of these
programs by paying an annual membership fee. For these programs, we
recognize revenue as a component of net sales over the life of the
membership period based on when the customer earns the benefits and when the fee
is no longer refundable. We recognize costs in connection with
administering these programs as cost of goods sold when incurred. During
the thirteen weeks ended November 1, 2008 we recognized revenues of
$5,270,000 and during the thirteen weeks ended November 3, 2007 we recognized
revenues of $5,438,000 in connection with our loyalty card programs.
During the thirty-nine weeks ended November 1, 2008 we recognized revenues
of $15,644,000 and during the thirty-nine weeks ended November 3, 2007 we
recognized revenues of $16,449,000 in connection with these
programs.
During
Fiscal 2008 we began offering loyalty programs in connection with the issuance
of our LANE BRYANT and PETITE SOPHISTICATE proprietary credit
cards. 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. We do not charge membership fees in
connection with these programs. Our FASHION BUG brand also offers a
similar loyalty card program that does not charge membership fees.
We
accrued $3,460,000 as of November 1, 2008 and $2,000,000 as of February 2, 2008
for the estimated costs of discounts earned and coupons issued and not redeemed
under these programs.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
7. Net Income/(Loss) Per Share
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
thousands, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
114,877 |
|
|
|
121,196 |
|
|
|
114,602 |
|
|
|
122,688 |
|
Dilutive
effect of assumed conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.75% Senior Convertible
Notes(1)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6,674 |
|
Dilutive
effect of stock options, stock appreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rights, and awards(2)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,478 |
|
Diluted
weighted average common shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents
outstanding
|
|
|
114,877 |
|
|
|
121,196 |
|
|
|
114,602 |
|
|
|
130,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations
|
|
$ |
(57,785 |
) |
|
$ |
(1,740 |
) |
|
$ |
(60,838 |
) |
|
$ |
45,620 |
|
Decrease
in interest expense from assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion of 4.75% Senior
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes, net of income tax
benefit(1)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,476 |
|
Income/(loss)
from continuing operations used to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
determine diluted net
income/(loss) per share
|
|
|
(57,785 |
) |
|
|
(1,740 |
) |
|
|
(60,838 |
) |
|
|
47,096 |
|
Loss
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit in
2007
|
|
|
(35,181 |
) |
|
|
(1,828 |
) |
|
|
(74,922 |
) |
|
|
(4,611 |
) |
Net
income/(loss) used to determine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted net
income/(loss) per share
|
|
$ |
(92,966 |
) |
|
$ |
(3,568 |
) |
|
$ |
(135,760 |
) |
|
$ |
42,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
with weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater
than market price, excluded from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
computation
of net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
(2)
|
|
|
(2)
|
|
|
(2)
|
|
|
|
77 |
|
Weighted
average exercise price per share
|
|
(2)
|
|
|
(2)
|
|
|
(2)
|
|
|
$ |
9.30 |
|
____________________
|
|
(1) The
4.75% Senior Convertible Notes were converted or redeemed on June 4, 2007
(see “Note 4. Long-term
Debt” above).
|
|
(2)
Stock options, stock appreciation rights, and awards are excluded from the
computation of diluted net loss per share for the 2008 periods and for the
thirteen weeks ended November 3, 2007 as their effect would have been
anti-dilutive.
|
|
Our
1.125% Notes will not impact 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. Our call options are not considered for purposes of the
diluted net income per share calculation as their effect would be
anti-dilutive. Should the price of our common stock exceed $21.607
per share, we would include the dilutive effect of the additional potential
shares that may be issued related to our warrants, using the treasury stock
method. See “Note 4.
Long-term Debt” above and “Item 8. Financial
Statements and Supplementary Data; Note 8. Long-term Debt” in our
February 2, 2008 Annual Report on Form 10-K for further information regarding
our 1.125% Notes, our call options and warrants, and the conversion of our 4.75%
Notes.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
8. Income Taxes
We
calculate our interim tax provision in accordance with the provisions of
Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial
Reporting,” and FASB Interpretation No. 18, “Accounting for Income Taxes in
Interim Periods.” For each interim period we estimate our
annual effective income tax rate and apply the estimated rate to our
year-to-date income or loss before income taxes. We also compute the
tax provision or benefit related to items separately reported, such as
discontinued operations, and recognize the items net of their related tax effect
in the interim periods in which they occur. We also recognize the
effect of changes in enacted tax laws or rates in the interim periods in which
the changes occur.
In
computing the annual estimated effective tax rate we make certain estimates and
management judgments, such as estimated annual taxable income or loss, the
nature and timing of permanent and temporary differences between taxable income
for financial reporting and tax reporting, and the recoverability of deferred
tax assets. Our estimates and assumptions may change as new events
occur, additional information is obtained, or as the tax environment
changes.
SFAS No.
109 “Accounting for Income
Taxes,” provides
that a deferred tax asset is recognized for temporary differences that will
result in deductible amounts in future years and for net operating loss and
credit carryforwards. In addition, SFAS No. 109 requires recognition
of a valuation allowance if, based on existing facts and circumstances, it is
more likely than not that some portion or all of the deferred tax asset will not
be realized. During the Fiscal 2009 Third Quarter we evaluated our
assumptions regarding the recoverability of our deferred tax
assets. Based on all available evidence we determined that the
recoverability of our deferred tax assets is more likely than not limited to our
available tax loss carrybacks. Accordingly, we recognized a non-cash
provision of $17,466,000 during the Fiscal 2009 Third Quarter to establish a
valuation allowance against our net deferred tax assets, which includes
$2,541,000 of net operating loss carryforwards. Pursuant to SFAS No.
109, when our results demonstrate a pattern of future profitability the
valuation allowance may be adjusted, which would result in the reinstatement of
all or a part of the net deferred tax assets.
We
adopted the provisions of FIN No. 48, “Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement
No. 109,” effective as of February 4, 2007. See “Item 8. Financial
Statements and Supplementary Data; Note 7. Income Taxes” in our February
2, 2008 Annual Report on Form 10-K for further information regarding our
adoption of FIN No. 48.
As of
November 1, 2008 our gross unrecognized tax benefits were
$27,916,000. 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 $19,580,000. The accrued interest and
penalties as of November 1, 2008 were $12,660,000. During the
thirty-nine weeks ended November 1, 2008 the gross unrecognized tax benefits
increased by $1,251,000 and the portion of the liabilities for gross
unrecognized tax benefits that, if recognized, would decrease our provision for
income taxes and increase our net income increased by
$992,000. Accrued interest and penalties increased during the
thirty-nine weeks ended November 1, 2008 by $86,000.
As of
November 1, 2008 it is reasonably possible that the total amount of unrecognized
tax benefits will decrease within the next twelve months by as much as $200,000
due to resolutions of audits or expirations of statutes of limitations related
to U.S. Federal and state tax positions.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
8. Income Taxes (Continued)
Our U.S.
Federal income tax returns for Fiscal 2006 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 2004 and beyond,
depending upon the jurisdiction, generally remain subject to
examination. The statute of limitations on a limited number of
returns for years prior to Fiscal 2005 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, and PETITE SOPHISTICATE proprietary credit
card receivables are originated by Spirit of America National Bank (the “Bank”),
our wholly-owned credit card bank. The Bank transfers its interest in
all the receivables associated with these programs 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 credit card
receivables, which we securitized subsequent to our Fiscal 2006 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 credit cards and all subsequent new receivables were
originations of the Bank. This acquisition did not cause a change in
the securitization entities used by the Crosstown Traders credit card
program. On August 25, 2008 we announced that we entered into an
agreement to sell our misses apparel catalog credit card receivables in
connection with the sale of the related Crosstown Traders catalog titles (see
“Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations” above). On November 14, 2008 we completed the sale
of the receivables at par value and utilized the proceeds to pay off and
terminate the related securitization funding facility (see “Note 15. Subsequent Event”
below).
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 17. Asset Securitization” in our February 2, 2008
Annual Report on Form 10-K.
We
securitized $674,817,000 of private label credit card receivables during the
thirty-nine weeks ended November 1, 2008 and had $588,456,000 of securitized
credit card receivables outstanding as of November 1, 2008. We held
certificates and retained interests in our securitizations of $112,801,000 as of
November 1, 2008, which are generally subordinated in right of payment to
certificates issued by the QSPEs to third-party investors. The amount
of securitized credit card receivables as of November 1, 2008 includes
$43,656,000 of securitized credit card receivables associated with the sold
Crosstown Traders credit card receivables portfolio and the retained interests
in our securitizations as of November 1, 2008 include $15,164,000 associated
with the portfolio (see “Note 15. Subsequent Event”
below). Our obligation to repurchase receivables sold to the QSPEs is
limited to those receivables that, at the time of their transfer, fail to meet
the QSPE’s eligibility standards under normal representations and warranties.
To date, our repurchases of receivables pursuant to this obligation have
been insignificant.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
9. Asset Securitization (Continued)
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 1, 2008
our investment in asset-backed securities included $51,200,000 of QSPE
certificates, an I/O strip of $23,057,000, and other retained interests of
$38,544,000. Included in these balances are $2,927,000 for the I/O strip
and $12,237,000 for the other retained interests which are associated with the
sold Crosstown Traders credit card receivables portfolio. 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
is 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 is 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 are required to repurchase
these interests when the financial performance standards are again
satisfied. Our net loss for the third quarter of Fiscal 2008 resulted
in the requirement to reallocate collections as discussed
above. Accordingly, $9,450,000 of collections was fully transferred
as of February 2, 2008. 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 and the fulfillment
of such conditions. With the exception of the requirement to
reallocate collections of $9,450,000 that were fully transferred as of February
2, 2008, the Trust was in compliance with its financial performance standards as
of November 1, 2008, including all financial performance standards related to
the performance of the underlying receivables.
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. As of November 1, 2008 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
10. 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 consider our retail stores and store-related
e-commerce as operating segments that are similar in terms of economic
characteristics, production processes, and operations. Accordingly,
we have aggregated our retail stores and store-related e-commerce into a single
reporting segment (the “Retail Stores” segment). Our catalog and
catalog-related e-commerce operations, excluding discontinued operations, are
separately reported under the Direct-to-Consumer segment.
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 2, 2008 Annual Report on Form 10-K. Our chief
operating decision-makers evaluate the performance of our operating segments
based on a measure of their contribution to operations, which consists of net
sales less the cost of merchandise sold and certain directly identifiable and
allocable operating costs. We do not allocate certain corporate
costs, such as shared services, information systems support, and insurance to
our Retail Stores or Direct-to-Consumer segments. Operating costs for
our Retail Stores segment consist primarily of store selling, buying, occupancy,
and warehousing. Operating costs for our Direct-to-Consumer segment
consist primarily of catalog development, production, and circulation;
e-commerce advertising; warehousing; and order processing.
Corporate
and Other net sales consist primarily of revenue related to loyalty card
fees. Corporate and Other operating costs include unallocated general
and administrative expenses; shared services; insurance; information
systems support; corporate depreciation and amortization; corporate occupancy;
the results of our proprietary credit card operations; and other non-routine
charges. Operating contribution for the Retail Stores and
Direct-to-Consumer segments less Corporate and Other net expenses equals income
before interest and taxes.
Operating
segment assets are those directly used in, or allocable to, that segment’s
operations. 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; 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 (excluding
discontinued operations) and a reconciliation of the information by segment to
our consolidated totals is presented in the table on the following
page.
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(1)
|
|
|
and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended November 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
528,501 |
|
|
$ |
21,311 |
|
|
$ |
3,254 |
|
|
$ |
553,066 |
|
Depreciation
and amortization
|
|
|
14,375 |
|
|
|
43 |
|
|
|
8,568 |
|
|
|
22,986 |
(3) |
Loss
before interest and taxes
|
|
|
(12,784 |
) |
|
|
(9,673 |
) |
|
|
(44,425 |
)(2) |
|
|
(66,882 |
) |
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(2,172 |
) |
|
|
(2,172 |
) |
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
11,269 |
|
|
|
11,269 |
|
Loss
from continuing operations
|
|
|
(12,784 |
) |
|
|
(9,673 |
) |
|
|
(35,328 |
) |
|
|
(57,785 |
) |
Capital
expenditures
|
|
|
9,314 |
|
|
|
78 |
|
|
|
1,633 |
|
|
|
11,025 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended November 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,761,680 |
|
|
$ |
70,804 |
|
|
$ |
10,544 |
|
|
$ |
1,843,028 |
|
Depreciation
and amortization
|
|
|
40,596 |
|
|
|
117 |
|
|
|
32,255 |
|
|
|
72,968 |
(3) |
Income/(loss)
before interest and taxes
|
|
|
63,320 |
|
|
|
(20,202 |
) |
|
|
(110,128 |
)(2) |
|
|
(67,010 |
) |
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(6,742 |
) |
|
|
(6,742 |
) |
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
12,914 |
|
|
|
12,914 |
|
Income/(loss)
from continuing operations
|
|
|
63,320 |
|
|
|
(20,202 |
) |
|
|
(103,956 |
) |
|
|
(60,838 |
) |
Capital
expenditures
|
|
|
41,473 |
|
|
|
354 |
|
|
|
7,190 |
|
|
|
49,017 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended November 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
588,055 |
|
|
$ |
9,255 |
|
|
$ |
2,355 |
|
|
$ |
599,665 |
|
Depreciation
and amortization
|
|
|
15,678 |
|
|
|
137 |
|
|
|
7,158 |
|
|
|
22,973 |
(4) |
Income/(loss)
before interest and taxes
|
|
|
32,776 |
|
|
|
(1,337 |
) |
|
|
(30,686 |
) |
|
|
753 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(2,206 |
) |
|
|
(2,206 |
) |
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
(287 |
) |
|
|
(287 |
) |
Income/(loss)
from continuing operations
|
|
|
32,776 |
|
|
|
(1,337 |
) |
|
|
(33,179 |
) |
|
|
(1,740 |
) |
Capital
expenditures
|
|
|
27,672 |
|
|
|
624 |
|
|
|
5,603 |
|
|
|
33,899 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended November 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,958,827 |
|
|
$ |
24,656 |
|
|
$ |
7,155 |
|
|
$ |
1,990,638 |
|
Depreciation
and amortization
|
|
|
42,459 |
|
|
|
253 |
|
|
|
26,065 |
|
|
|
68,777 |
(4) |
Income/(loss)
before interest and taxes
|
|
|
175,456 |
|
|
|
(4,504 |
) |
|
|
(88,833 |
) |
|
|
82,119 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(8,287 |
) |
|
|
(8,287 |
) |
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
(28,212 |
) |
|
|
(28,212 |
) |
Income/(loss)
from continuing operations
|
|
|
175,456 |
|
|
|
(4,504 |
) |
|
|
(125,332 |
) |
|
|
45,620 |
|
Capital
expenditures
|
|
|
83,264 |
|
|
|
751 |
|
|
|
23,217 |
|
|
|
107,232 |
(4) |
____________________
|
|
(1) Current-year
periods include LANE BRYANT WOMAN catalog.
|
|
(2)
Includes restructuring charges of $1,585 for the thirteen weeks ended
November 1, 2008 and $10,812 for the thirty-nine weeks ended November 1,
2008, severance and restructure costs of $1,971 for the thirteen and
thirty-nine weeks ended November 1, 2008, and severance, restructure, and
store impairment costs of $22,345 for the thirteen weeks ended November 1,
2008 and $31,674 for the thirty-nine weeks ended November 1, 2008 (see
“Note
12. Restructuring and Other Charges” below).
|
|
(3)
Excludes $222 of depreciation and amortization and $14 of capital
expenditures for the thirteen weeks ended November 1, 2008, and $806 of
depreciation and amortization and $481 of capital expenditures for the
thirty-nine weeks ended November 1, 2008, related to our discontinued
operations.
|
|
(4)
Excludes $264 of depreciation and amortization and $860 of capital
expenditures for the thirteen weeks ended November 3, 2007, and $715 of
depreciation and amortization and $1,543 of capital expenditures for the
thirty-nine weeks ended November 3, 2007, related to our discontinued
operations.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
11. Impairment of Store Assets
We
evaluate the recoverability of our long-lived assets in accordance
with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” We assess our long-lived
assets for recoverability whenever events or changes in circumstances indicate
that the carrying amounts of long-lived assets may not be
recoverable. We consider historical performance and future estimated
results when evaluating an asset for potential impairment, and we compare the
carrying amount of the asset to the estimated future undiscounted cash flows
expected to result from the use of the asset. If the estimated future
undiscounted cash flows are less than the carrying amount of the asset we write
down the asset to its estimated fair value and recognize an impairment
loss. Our estimate of fair value is generally based on either
appraised value or the present value of future cash flows. The
estimates and assumptions that we use to evaluate possible impairment require
certain significant assumptions regarding factors such as future sales growth
and operating performance, and they may change as new events occur or as
additional information is obtained.
Based on
our assessment of the carrying value of long-lived assets conducted in
accordance with SFAS No. 144, during the Fiscal 2009 Third Quarter we identified
approximately 120 stores with asset carrying values in excess of such stores’
respective forecasted undiscounted cash flows. Accordingly, we
recognized a non-cash charge of $20,216,000 to write down these stores to their
respective fair values.
In
accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets,” we also performed a review during the Fiscal 2009 Third Quarter
of our goodwill and other intangible assets with indefinite lives for possible
impairment and determined that these assets were not impaired.
Note
12. Restructuring and Other Charges
In
November 2007 we 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 our operating
functions. The costs of this plan included accelerated depreciation,
severance and retention, and relocation costs.
The
accelerated depreciation represents the change in the estimated useful life of
the Memphis facility and was recognized over the period from the inception of
the plan to the closing date of the facility, which was the end of the Fiscal
2009 First Quarter. Severance and retention costs represent
involuntary termination benefits for approximately 80 employees who did not
relocate from the Memphis facility to our Bensalem
headquarters. Relocation costs represent estimated costs to relocate
approximately 30 employees from Memphis to Bensalem. The involuntary
terminations and relocations were completed during the Fiscal 2009 First
Quarter.
On May
21, 2008 we completed the sale of our Memphis, Tennessee distribution
center. We received $4,813,000 of cash in connection with the sale of
the facility and we recognized a pre-tax gain on the sale of approximately
$1,842,000 during the Fiscal 2009 Second Quarter.
In
February 2008 we announced additional initiatives and actions to: streamline our
business operations and further sharpen our focus on our core businesses; reduce
selling, general, and administrative expenses and capital expenditures; improve
cash flow; and enhance shareholder value. The initiatives and actions
include: the elimination of approximately 150 corporate and field management
positions; a decrease in the capital budget for Fiscal 2009, primarily through a
significant reduction in the number of planned store openings for Fiscal 2009;
the closing of approximately 150 under-performing stores; and the closing of our
full-line PETITE SOPHISTICATE stores. To date, we have completed the
elimination of corporate and field positions and closed 100 of the identified
under-performing stores, including our full-line PETITE SOPHISTICATE
stores. We expect to complete the remainder of these initiatives by
the end of February 2009.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
12. Restructuring and Other Charges (Continued)
During
the Fiscal 2009 Second Quarter we recognized $9,328,000 of severance costs in
connection with the resignation of our former Chief Executive Officer, Dorrit J.
Bern. During the Fiscal 2009 Third Quarter we recognized $1,941,000
of severance costs related to the elimination of 20 corporate
positions. Additionally, as a result of the sale of our non-core
misses apparel catalog titles we recognized $972,000 of accelerated
depreciation related to fixed assets we retained in connection with the sale,
which we will cease to use after a transitional period (see “Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations” above).
During
the Fiscal 2009 Third Quarter we decided to discontinue our LANE BRYANT WOMAN
catalog. As a result of this decision we recognized a markdown
allowance of $4,220,000 to reflect catalog-related inventory at the lower of
cost or market. The markdown allowance is included in cost of goods
sold, buying, catalog, and occupancy expenses in our condensed consolidated
statements of operations and comprehensive income. We also recognized
$1,187,000 of severance costs, which are included in restructuring and other
charges, for the elimination of approximately 100 positions.
We
accounted for the above plans in accordance with the provisions of SFAS No. 146,
“Accounting for Costs
Associated with Exit or Disposal Activities” and SFAS No. 112, “Employers’ Accounting for
Postemployment Benefits.”
The
following table summarizes the costs incurred to-date and the total estimated
costs to be recognized under the plans:
|
|
Costs
|
|
|
Costs
Incurred
|
|
|
Estimated
|
|
|
Total
|
|
|
|
Incurred
|
|
|
for
Thirty-nine
|
|
|
Remaining
|
|
|
Estimated
|
|
|
|
as
of
|
|
|
Weeks
Ended
|
|
|
Costs
|
|
|
Costs
as of
|
|
|
|
February
2,
|
|
|
November
1,
|
|
|
to
be
|
|
|
November
1,
|
|
(In
thousands)
|
|
2008
|
|
|
2008
|
|
|
Incurred
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance,
retention, and related costs
|
|
$ |
2,792 |
|
|
$ |
12,988 |
|
|
$ |
201 |
|
|
$ |
15,981 |
|
Store
lease termination costs
|
|
|
0 |
|
|
|
7,151 |
|
|
|
1,756 |
|
|
|
8,907 |
|
Asset
write-downs and accelerated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
depreciation
|
|
|
11,325 |
|
|
|
3,240 |
|
|
|
29 |
|
|
|
14,594 |
|
Relocation
and other closing costs
|
|
|
241 |
|
|
|
862 |
|
|
|
207 |
|
|
|
1,310 |
|
Total
|
|
$ |
14,358 |
|
|
$ |
24,241 |
|
|
$ |
2,193 |
|
|
$ |
40,792 |
|
The
following table summarizes the severance, retention, and related costs accrued
in accordance with SFAS No. 146 and SFAS No. 112 and the payments/settlements
for the above plans as of November 1, 2008:
|
|
|
|
|
Costs
Accrued
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
for
Thirty-nine
|
|
|
|
|
|
Accrued
|
|
|
|
as
of
|
|
|
Weeks
Ended
|
|
|
|
|
|
as
of
|
|
|
|
February
2,
|
|
|
November
1,
|
|
|
Payments/
|
|
|
November
1,
|
|
(In
thousands)
|
|
2008(1)
|
|
|
2008
|
|
|
Settlements
|
|
|
2008(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance,
retention, and related costs
|
|
$ |
2,688 |
|
|
$ |
12,988 |
|
|
$ |
(7,223 |
) |
|
$ |
8,453 |
|
____________________
|
|
(1)
Included in “Accrued expenses” in the accompanying condensed consolidated
balance sheets.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
13. Fair Value Measurements
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
disclosures 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
February 2008 the FASB issued FASB Staff Position (“FSP”) FAS No. 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13.” The FSP amends SFAS No. 157 to exclude
SFAS No. 13, “Accounting for
Leases,” and certain related accounting pronouncements that address fair
value measurements for purposes of lease classification or measurement under
SFAS No. 13. The scope exception of FSP FAS No. 157-1 does not apply
to assets acquired or liabilities assumed in a business combination that are
required to be measured at fair value under SFAS No. 141, “Business Combinations,” or
SFAS No. 141(R) (see “Note 14 Impact of Recent Accounting
Pronouncements”
below), regardless of whether those assets and liabilities are related to
leases. The scope exception also does not apply to fair value
measurements required by SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities,” or FASB Interpretation No. 21, “Accounting for Leases in a Business
Combination.” FSP FAS No. 157-1 is effective on the initial
adoption of SFAS No. 157. In February 2008 the FASB also
issued FSP FAS No. 157-2, “Effective Date of FASB Statement
No. 157,” which delays the effective date of SFAS 157 until fiscal years
beginning after November 15, 2008 for non-financial assets and non-financial
liabilities that are not currently recognized or disclosed at fair value on a
recurring basis. In October 2008 the FASB issued FSP FAS No. 157-3,
“Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active,” which
clarifies the application of SFAS No. 157 in a market that is not active and
provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. FSP FAS No. 157-3 was effective upon issuance.
Under
SFAS No. 157, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. We use various methods to
determine fair value, including discounted cash flow projections based on
available market interest rates and management estimates of future cash
payments.
Financial
assets and liabilities that are measured and reported at fair value are
classified and disclosed in one of the following categories:
· Level
1 – Quoted market prices in active markets for identical assets or
liabilities
· Level
2 – Observable market-based inputs or unobservable inputs that are corroborated
by market data
· Level
3 – Unobservable inputs that are not corroborated by market data
With the
exception of assets and liabilities included within the scope of FSP FAS No.
157-2, we adopted the provisions of SFAS No. 157 prospectively effective as of
the beginning of Fiscal 2009. For financial assets and liabilities
included within the scope of FSP FAS No. 157-2, we will be required to adopt the
provisions of SFAS No. 157 prospectively as of the beginning of Fiscal
2010. The adoption of SFAS No. 157 did not have an impact on our
financial position or results of operations, and we do not believe that the
adoption of FSP FAS No. 157-2 will have a material impact on our financial
position or results of operations. The adoption of FSP SFAS No. 157-3 did
not have an impact on our financial position or results of
operations.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
13. Fair Value Measurements (Continued)
Our
financial assets and liabilities subject to SFAS No. 157 as of November 1, 2008
were as follows:
|
|
Balance
|
|
|
|
|
|
|
|
|
|
November
1,
|
|
|
Fair Value Method Used
|
|
(In
thousands)
|
|
2008
|
|
|
Level 2
|
|
|
Level 3(1)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities(2)
|
|
$ |
6,375 |
|
|
$ |
6,375 |
|
|
|
|
Certificates
and retained interests in securitized receivables
|
|
|
112,801 |
|
|
|
|
|
|
$ |
112,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing
liability
|
|
|
3,367 |
|
|
|
|
|
|
|
3,367 |
|
____________________
|
|
(1)
Fair value is estimated based on internally-developed models or
methodologies utilizing significant inputs that are unobservable from
objective sources.
|
|
(2)
Unrealized gains and losses on our available-for-sale securities are
included in stockholders’ equity until realized and realized gains and
losses are recognized in income when the securities are
sold.
|
|
We
estimate the fair value of our certificates and retained interests in our
securitized receivables based on the present value of future expected cash flows
using assumptions for the average life of the receivables sold, anticipated
credit losses, and the appropriate market discount rate commensurate with the
risks involved. This cash flow includes an “interest-only” (“I/O”)
strip, consisting of the present value of the finance charges and late fees in
excess of the amounts paid to certificate holders, credit losses, and servicing
fees.
The fair
value of our servicing liability represents the present value of the excess of
our cost of servicing over the servicing fees received. We determine
the fair value by calculating all costs associated with billing, collecting,
maintaining, and providing customer service during the expected life of the
securitized credit card receivable balances. We discount the amount
of these costs in excess of the servicing fees over the estimated life of the
receivables sold. The discount rate and estimated life assumptions
used for the present value calculation of the servicing liability are consistent
with those used to value the certificates and retained interests.
The table
below presents a reconciliation of the beginning and ending balances of
our certificates and retained interests and our servicing liability
during the thirty nine weeks ended November 1, 2008:
|
|
Retained
|
|
|
Servicing
|
|
(In
thousands)
|
|
Interests
|
|
|
Liability
|
|
|
|
|
|
|
|
|
Balance,
February 2, 2008
|
|
$ |
115,912 |
|
|
$ |
3,038 |
|
Additions
to I/O strip and servicing liability
|
|
|
29,617 |
|
|
|
4,283 |
|
Net
reductions to other retained interests
|
|
|
(2,424 |
) |
|
|
|
|
Reductions
and maturities of QSPE certificates
|
|
|
(485 |
) |
|
|
|
|
Amortization
and valuation adjustments to I/O strip and servicing
liability
|
|
|
(29,819 |
) |
|
|
(3,954 |
) |
Balance,
November 1, 2008
|
|
$ |
112,801 |
|
|
$ |
3,367 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
14. Impact of Recent Accounting Pronouncements
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. We adopted the provisions of EITF
Issue No. 06-4 effective as of the beginning of Fiscal 2009 and recognized a
cumulative-effect adjustment of $13,696,000, increasing our liabilities related
to our split-dollar life insurance agreements with former executive employees
and reducing the February 3, 2008 balance of retained earnings.
In
February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities–Including an amendment of FASB Statement No.
115,” which permits an entity to measure certain financial assets and
financial liabilities at fair value. The intent of SFAS No. 159 is to
reduce volatility in reported earnings caused by the measurement of related
assets and liabilities using different attributes without the need for applying
hedge accounting. Entities that elect the fair value option will
report unrealized gains and losses in earnings as of each subsequent reporting
date. Generally, the fair value option may be elected on an
instrument-by-instrument basis as long as it is applied to the instrument in its
entirety. Election of the fair value option is irrevocable unless a
new election date occurs.
The
provisions of SFAS No. 159 were effective as of the beginning of Fiscal
2009. We did not elect the fair value option for any existing or new
financial assets or liabilities that were not previously accounted for at fair
value; therefore, SFAS No. 159 had no impact on our financial position or
results of operations.
In
December 2007 the FASB issued SFAS No. 141(R), “Business Combinations,” and
SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51.” As compared to SFAS No. 141 and ARB No. 51, these
statements change the accounting for business combinations and non-controlling
interests in subsidiaries by requiring:
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Measurement
of additional assets acquired and liabilities assumed at fair value as of
the acquisition date;
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Re-measurement
of liabilities related to contingent consideration at fair value in
periods subsequent to acquisition;
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Expensing
in pre-acquisition periods of acquisition-related costs incurred by the
acquirer; and
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Initial
measurement of non-controlling interests in subsidiaries at fair value and
classification of the interest as a separate component of
equity.
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We will
be required to adopt the provisions of SFAS No. 141(R) and SFAS No. 160
prospectively effective as of the beginning of Fiscal 2010.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
14. Impact of Recent Accounting Pronouncements (Continued)
In
February 2008 the FASB issued FSP FAS No. 140-3, “Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions.” FSP
FAS No. 140-3 addresses whether there are circumstances that would permit a
transferor and a transferee to evaluate the accounting for the transfer of a
financial asset separately from a repurchase financing when the counterparties
to the two transactions are the same. The FSP presumes that the
initial transfer of a financial asset and a repurchase financing are considered
part of the same arrangement (a linked transaction) under SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.” However, if certain criteria specified in FSP
FAS No. 140-3 are met, the initial transfer and repurchase financing may be
evaluated separately under SFAS No. 140.
The
provisions of FSP FAS No. 140-3 will be effective prospectively as of the
beginning of Fiscal 2010. We do not expect that the adoption of FSP
FAS No. 140-3 will have a material effect on our financial position or results
of operations.
In March
2008 the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133.” Under SFAS No. 161, entities are required to provide
enhanced disclosures about: how and why an entity uses derivative instruments;
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations; and how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations, and cash flows.
We will
be required to adopt the provisions of SFAS No. 161 prospectively as of the
beginning of Fiscal 2010. We do not expect that the adoption of SFAS
No. 161 will have a material effect on our financial position or results of
operations.
In
May 2008 the FASB issued FSP APB 14-1 “Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlements)” (previously FSP APB 14-a), which will change the accounting
treatment for convertible securities that the issuer may settle fully or
partially in cash. Under the final FSP, cash-settled convertible
securities will be separated into their debt and equity components. The
value assigned to the debt component will be the estimated fair value, as of the
issuance date, of a similar debt instrument without the conversion
feature. As a result, the debt will be recorded at a discount to
adjust its below-market coupon interest rate to the market coupon interest rate
for the similar debt instrument without the conversion feature. The
difference between the proceeds for the convertible debt and the amount
reflected as the debt component represents the value of the conversion feature
and will be recorded as additional paid-in capital. The debt will
subsequently be accreted to its par value over its expected life, with an
offsetting increase in interest expense on the income statement to reflect the
market rate for the debt component at the date of issuance.
FSP APB
14-1 is to be applied retrospectively to all past periods presented, and will
apply to our 1.125% Senior Convertible Notes due May 2014. As
compared to our current accounting for the 1.125% Notes, adoption of the
proposal will reduce long-term debt, increase stockholders’ equity, and reduce
net income and earnings per share. Adoption of the proposal will not
affect our cash flows. We will be required to adopt the provisions of
FSP APB 14-1 as of the beginning of Fiscal 2010. We are currently
evaluating the extent of the impact of the adoption of FSP APB 14-1 on our
financial statements.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
15. Subsequent Event
On
November 14, 2008 we completed the sale of the credit card receivables portfolio
associated with the Crosstown Traders misses apparel catalogs to World Financial
Network National Bank, a unit of Alliance Data Systems Corporation (see “Note 1. Condensed Consolidated
Financial Statements;
Discontinued
Operations” and “Note 9.
Asset Securitization” above). The portfolio was sold for a par
value of $43,294,000, subject to a true-up of the amount by December 31,
2008. The sale enabled us to pay off and terminate the related Series
2005-RPA conduit securitization facility that was dedicated to these
receivables. The sale of the receivables resulted in a one-time
negative impact to the credit earnings contribution subsequent to November 1,
2008 of $618,000 associated with the elimination of the I/O strip and prepaid
balances associated with the Crosstown portfolio, offset by the discount under
which the receivables were conveyed to the conduit facility. The
$39,000,000 outstanding under the 2005-RPA facility was paid off on the closing
date. The sale of the credit card receivables and the elimination of
funding-related cash collateral requirements, less the prepayment of securitized
indebtedness, resulted in net cash proceeds to us of
$12,455,000. Also, on November 14, 2008 we completed a $55,000,000
increase in the conduit capacity of our existing Series 2004-VFC facility,
increasing the conduit to $105,000,000 in capacity.
This
management’s discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes included in Item 1 of this report. It should also be
read in conjunction with the management’s discussion and analysis of financial
condition and results of operations, financial statements, and accompanying
notes appearing in our Annual Report on Form 10-K for the fiscal year ended
February 2, 2008. As used in this management’s discussion and analysis,
“Fiscal 2009” refers to our fiscal year ending January 31, 2009, “Fiscal 2008”
refers to our fiscal year ended February 2, 2008, and “Fiscal 2010” refers to
our fiscal year ending January 30, 2010. “Fiscal 2009 Third Quarter”
refers to our fiscal quarter ended November 1, 2008 and “Fiscal 2008 Third
Quarter” refers to our fiscal quarter ended November 3, 2007. “Fiscal
2009 First Quarter” refers to our fiscal quarter ended May 3, 2008, “Fiscal 2009
Second Quarter” refers to our fiscal quarter ended August 2, 2008, and “Fiscal
2008 Fourth Quarter” refers to our fiscal quarter ended February 2,
2008. “Fiscal 2010 First Quarter” refers to our fiscal quarter ending
May 2, 2009. The terms “Charming Shoppes,” “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, which are discussed in more detail in “PART I; Item 1A. Risk
Factors” of our Annual Report on Form 10-K for the fiscal year ended
February 2, 2008 and in “PART
II. OTHER INFORMATION; Item 1A. Risk Factors” below:
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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.
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Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market, which may not
occur.
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A
continuing slowdown or recession in the United States economy, an
uncertain economic outlook, and escalating energy and food costs could
lead to reduced consumer demand for our products in the future, which
could adversely affect our
business.
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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.
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We
cannot assure the successful sale of our FIGI’S
catalog.
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We
cannot assure the successful implementation of our business plan for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments. We cannot assure the successful
implementation of our plans for the transformation of our brands to a
vertical specialty store model. Recent changes in management
may result in a failure to achieve improvement in our operating
results.
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We
cannot assure the successful implementation of our planned cost reduction
and capital budget reduction plans; the effective implementation of our
plans for consolidation of our CATHERINES brand, a new organizational
structure, and enhancements in our merchandise and marketing; and we
cannot assure the realization of our anticipated annualized expense
savings from restructuring programs announced in February 2008 and
November 2008.
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Our
success and our ability to execute our business strategy depend largely on
the efforts and abilities of our executive officers and their management
teams. We also must motivate employees to remain focused on our
strategies and goals, particularly during a period of changing leadership
for the Company and a number of our operating divisions. The
inability to find a suitable permanent replacement for our former Chief
Executive Officer within a reasonable time period, as well as management
personnel to replace departing executives, could have a material adverse
effect on our business. We do not maintain key-person life insurance
policies with respect to any of our
employees.
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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 one of these locations were to be disrupted
for any reason.
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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. In addition, the current
global financial crisis could adversely affect our ability to secure
adequate credit financing. If we were unable to obtain sufficient
financing at an affordable cost, our ability to merchandise our stores,
e-commerce, or catalog businesses could be adversely
affected.
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We
plan to refinance our maturing credit card securitization series with our
credit conduit facilities, which are renewed annually. To the
extent that these conduit facilities are not renewed they would begin to
amortize and we would finance this amortization using our committed
revolving credit facilities to the extent available. There is
no assurance that we can refinance or renew our conduit facilities on
terms comparable to our existing facilities or that there would be
sufficient availability under our revolving credit facilities for such
financing. Without adequate liquidity, our ability to offer our
credit program to our customers and consequently our financial condition
and results of operations, would be adversely
affected.
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Natural
disasters, as well as war, acts of terrorism, or other armed conflict, or
the threat of any such event may negatively impact availability of
merchandise and customer traffic to our stores, or otherwise adversely
affect our business.
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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.
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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.
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We
may be unable to obtain adequate insurance for our operations at a
reasonable cost.
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We
may be unable to protect our trademarks and other intellectual property
rights, which are important to our success and our competitive
position.
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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.
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Our
manufacturers may be unable to manufacture and deliver merchandise to us
in a timely manner or to meet our quality
standards.
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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.
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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.
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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.
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We
may be unable to successfully implement our plan to improve merchandise
assortments in our Retail Stores or Direct-to-Consumer
segments.
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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 upon the occurrence of a
“fundamental change” as defined in the prospectus filed in connection with
the 1.125% Notes. Such a repurchase would require significant
amounts of cash, would be subject to important limitations, and could
adversely affect our financial
condition.
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We
make certain significant assumptions, estimates, and projections related
to the useful lives of our property, plant, and equipment and the
valuation of goodwill and other intangible assets related to
acquisitions. The carrying amount and/or useful life of these
assets are subject to periodic and/or annual 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 could have an adverse impact on our reported results of
operations.
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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.
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Changes
to existing accounting rules or the adoption of new rules could have an
adverse impact on our reported results of
operations.
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We have
prepared the financial statements and accompanying notes included in Item 1 of
this report in conformity with United States generally accepted accounting
principles. This requires us to make estimates and assumptions that affect
the amounts reported in our financial statements and accompanying notes.
These estimates and assumptions are based on historical experience,
analysis of current trends, and various other factors that we believe to be
reasonable under the circumstances. Actual results could differ from those
estimates under different assumptions or conditions.
We
periodically reevaluate our accounting policies, assumptions, and estimates and
make adjustments when facts and circumstances warrant. Historically,
actual results have not differed materially from those determined using required
estimates. Our critical accounting policies are discussed in the
management’s discussion and analysis of financial condition and results of
operations and notes accompanying the consolidated financial statements that
appear in our Annual Report on Form 10-K for the fiscal year ended February 2,
2008.
Except as
otherwise disclosed in this section 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.
Income
Taxes
We
calculate our interim tax provision in accordance with the provisions of
Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial
Reporting,” and FASB Interpretation No. 18, “Accounting for Income Taxes in
Interim Periods” (see “Notes to Condensed Consolidated
Financial Statements; Note 8. Income Taxes” above). For each
interim period, we estimate our annual effective income tax rate and apply the
estimated rate to our year-to-date income or loss before income
taxes. We also compute the tax provision or benefit related to items
we separately report, such as discontinued operations, and recognize the items
net of their related tax effect in the interim periods in which they
occur. We also recognize the effect of changes in enacted tax laws or
rates in the interim periods in which the changes occur.
In
computing the annual estimated effective tax rate we make certain estimates and
management judgments, such as estimated annual taxable income or loss, the
nature and timing of permanent and temporary differences between taxable income
for financial reporting and tax reporting, and the recoverability of deferred
tax assets. Our estimates and assumptions may change as new events
occur, as additional information is obtained, or as the tax environment
changes.
SFAS No.
109, “Accounting for Income
Taxes,” provides
that a deferred tax asset is recognized for temporary differences that will
result in deductible amounts in future years and for net operating loss and
credit carryforwards. In addition, SFAS No. 109 requires recognition
of a valuation allowance if, based on existing facts and circumstances, it is
more likely than not that some portion or all of the deferred tax asset will not
be realized. During the Fiscal 2009 Third Quarter we evaluated our
assumptions regarding the recoverability of our deferred tax
assets. Based on all available evidence we determined that the
recoverability of our deferred tax assets is more likely than not limited to our
available tax loss carrybacks. Accordingly, during the Fiscal 2009
Third Quarter we established a valuation allowance against our net deferred tax
assets. Pursuant to SFAS No. 109, when our results demonstrate a
pattern of future profitability the valuation allowance may be adjusted, which
would result in the reinstatement of all or a part of the net deferred tax
assets.
Impairment
of Property, Plant, and Equipment, Intangible Assets, and Goodwill
We
evaluate the recoverability of our property, plant, and equipment and
amortizable intangible assets in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” Under SFAS No.
144 we are required to assess our long-lived assets for recoverability whenever
events or changes in circumstances indicate that the carrying amounts of
long-lived assets may not be recoverable. We consider historical
performance and estimated future results in our evaluation of potential
impairment and compare the carrying amount of the asset to the estimated future
undiscounted cash flows expected to result from the use of the
asset. If the estimated future undiscounted cash flows are less than
the carrying amount of the asset, we write down the asset to its estimated fair
value and recognize an impairment loss. Our estimate of fair value is
generally based on either appraised value or the present value of future cash
flows, based on a number of assumptions and estimates.
We test
our goodwill and our indefinite-lived intangible assets in accordance with the
provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” We re-evaluate goodwill and other intangible assets
for impairment at least annually or more frequently if there is an indication of
possible impairment. We perform our annual impairment analysis during
the fourth quarter of our fiscal year because our fourth quarter operating
results are significant to us and are an integral part of our
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. If our re-evaluation
determines that our goodwill or other intangible assets have become impaired, a
write-down of the carrying value of the assets would result.
We make
certain significant assumptions, estimates, and projections related to the
useful lives of our property, plant, and equipment and the valuation of goodwill
and other intangible assets related to acquisitions. In addition, the
estimates and assumptions that we use to evaluate possible impairment require
certain significant assumptions regarding factors such as future sales growth
and operating performance, and they may change as new events occur or as
additional information is obtained. 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 could have an adverse impact on our reported results of
operations.
As a
result of the significant decrease in the market value of our common stock
during the Fiscal 2009 Third Quarter and the impact of the current economic
environment on our operating results, we evaluated our property, plant, and
equipment, intangible assets, and goodwill for impairment during the Fiscal 2009
Third Quarter (see “Notes to Condensed Consolidated
Financial Statements; Note 11. Impairment of Store Assets”
above).
On August
25, 2008 we announced that we had entered into a definitive agreement to sell
our Crosstown Traders non-core misses apparel catalogs to Orchard Brands, a
portfolio company owned by Golden Gate Capital, for a cash purchase price of
approximately $35,000,000. The sale was completed on September 18,
2008. Crosstown Traders’ operations and cash flows have been
eliminated from our financial statements as of the date of sale and we will not
have any significant involvement in the operations after the sale.
As part
of the definitive agreement we have retained certain components of the
infrastructure of Crosstown Traders. Accordingly, we entered into a
transitional services agreement with Orchard Brands to provide certain services,
including information technology, use of existing facilities, and financial
services. These services are to be provided for specified time
periods ranging up to one year from the date of the agreement, depending on the
services provided. In addition, Orchard Brands agreed to provide
certain transitional services to us, including distribution and call center
services. Subsequent to the transitional period we will be
responsible for the remaining lease liabilities for the retained
facilities. We will discontinue using the fixed assets related to the
retained facilities after the transitional period. Accordingly, we
will fully depreciate these fixed assets over the transitional
period.
On August
25, 2008 we also announced that we had entered into an agreement to sell the
misses apparel catalog credit card receivables, which are directly related to
the catalog titles sold to Orchard Brands, to World Financial Network National
Bank, a unit of Alliance Data Systems Corporation. On November 14,
2008 we completed the sale of the receivables at par value, totaling $43.3
million, and utilized the proceeds to pay off and terminate the related
securitization funding facility. The sale of the credit card
receivables and the elimination of funding-related cash collateral requirements,
less the prepayment of securitized indebtedness, resulted in net cash proceeds
to us of $12.5 million (see “Off-Balance-Sheet
Financing; Asset Securitization Program” below and “Notes to Condensed Consolidated
Financial Statements; Note 15. Subsequent Event” above).
During
the Fiscal 2009 Third Quarter we decided to discontinue our LANE BRYANT WOMAN
catalog. As a result of this decision we recognized a markdown
allowance of $4.2 million to reflect catalog-related inventory at the lower of
cost or market. The markdown allowance is included in cost of goods
sold, buying, catalog, and occupancy expenses in our condensed consolidated
statements of operations and comprehensive income. We also recognized
$1.2 million of severance costs, which are included in restructuring and other
charges, for the elimination of approximately 100 positions. The
results of operations of the LANE BRYANT WOMAN catalog are not reported as
discontinued operations as they have not met the requirements of SFAS No. 144,
“Accounting for the Impairment
or Disposal of Long-Lived Assets.”
We expect
to discontinue the LANE BRYANT WOMAN catalog operations by the end of the Fiscal
2010 First Quarter. The decision will allow us to focus our time and
resources on executing the strategies of our core retail brands, which is
further discussed in “OVERVIEW”
below. Exiting the business will also allow for additional cost
savings and generate cash during Fiscal 2010 as the catalog inventories are
liquidated. We estimate that losses from the operation of the LANE
BRYANT WOMAN catalog will approximate $10 million during Fiscal
2009.
During
the Fiscal 2009 Third Quarter we announced the following
appointments:
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Jay
H. Levitt, the former President and CEO of May Merchandising and May
Department Stores International, was appointed President of
our FASHION BUG brand. Mr. Levitt has served in various
retail-industry leadership and merchandising positions over the past three
decades. From 2001 through 2005 he was the President and Chief
Executive Officer of May Merchandising and May Department Stores
International, based in St. Louis. Previously, he had held the
position of President and Chief Executive Officer of Robinsons May,
following his responsibilities as the General Merchandise Manager for a
number of May divisions over several years. Before joining May, he
was a divisional merchandise manager at J.W. Robinsons and The
Broadway.
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Carol
L.Williams was appointed President of our CATHERINES PLUS SIZES
brand. Ms. Williams has served in various retail-industry
executive and merchandising positions over the past three decades.
Most recently, she served as the President of May Department Stores
International from 2002 through 2006. She was also the
President and Chief Executive Officer of Jacobson Stores, Inc., following
executive leadership and merchandising positions at Saks, Inc., Edison
Brothers, Inc., and Limited Stores.
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Jeffrey A.
Elliott was appointed President of our Charming Outlets division, which
includes our LANE BRYANT OUTLET and PETITE SOPHISTICATE OUTLET
chains. Since 2006 Mr. Elliott has served as Senior Vice
President and General Merchandise Manager of Charming Outlets.
Previously, he served as Vice President and General Merchandise Manager of
Casual Sportswear for our LANE BRYANT brand and as a buyer
for our FASHION BUG brand. Mr. Elliott’s retail apparel
merchandising experience spans more than 25 years, including positions
with The May Company, Sears, Carson Pirie Scott, and Montgomery
Ward.
|
This
overview of our Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) presents a high-level summary of more
detailed information contained elsewhere in this Report on Form
10-Q. The intent of this overview is to put this detailed information
into perspective and to introduce the discussion and analysis contained in this
MD&A. Accordingly, this overview should be read in conjunction
with the remainder of this MD&A and with the financial statements and other
detailed information included in this Report on Form 10-Q and should not be
separately relied upon.
The
downward trend in traffic levels that we experienced in the first half of Fiscal
2009 continued to negatively impact our financial performance during the Fiscal
2009 Third Quarter. We believe that the continued deterioration of
the economic environment has contributed to our negative results by reducing
demand for core seasonal and casual apparel merchandise offerings as consumers
have become more selective with their purchases. As a result of these
negative trends, in September we accelerated our markdowns of in-season Fall
merchandise, primarily at our FASHION BUG brand, in order to stimulate
sell-through of seasonal Fall merchandise. To a lesser extent we also
accelerated price reductions at our LANE BRYANT and CATHERINES
brands. These actions resulted in improved comparable store sales in
October, particularly at FASHION BUG, but created downward pressure on
merchandise margins. Our consolidated comparable store sales were 9%
lower for the Fiscal 2009 Third Quarter and 11% lower for the first three
quarters of Fiscal 2009.
Given the
continuing uncertain economic climate, we anticipate continued weak traffic
trends for the Fiscal 2009 Fourth Quarter, with low-double-digit decreases in
consolidated comparable store sales for our Retail Stores segment as compared to
a 9% decrease in the corresponding prior-year period.
We have a
number of initiatives that we have begun to implement to address our operating
results and to focus on turning our business around in this difficult retail
environment. The following paragraphs summarize some of our
initiatives.
Organization
We are
reviewing our organizational structure with a view towards developing each of
our core brands as independent, empowered brands. With the assistance
of a global management consulting firm we have begun the process of transforming
Charming Shoppes into a vertical specialty store model, significantly increasing
our percentage of internally designed, developed and sourced fashion
product. We plan to develop and source more of our own proprietary
fashion merchandise, become more focused on fashion and less driven by commodity
product, and ultimately create an enhanced brand experience for our customers
through an improved assortment across each of our core
brands. Increasing the percentage of merchandise we source directly
will lead to gross margin enhancement opportunities and better value for our
customers. Our recent appointment of strong and empowered brand
presidents (see “RECENT
DEVELOPMENTS” above) and the subsequent hiring of product design and
development executives support this process and signal our commitment to this
transformation.
Divest
Non-core Assets and Contain Costs
During
the Fiscal 2009 Third Quarter we completed the sale of our non-core misses
apparel catalogs and our related misses apparel catalog credit card receivables,
and we decided to discontinue our LANE BRYANT WOMAN catalog (see “RECENT DEVELOPMENTS”
above). In addition, we are actively exploring the sale of our FIGI’S
catalog. These actions are in line with our strategy to return our
focus and energies to our core brands – LANE BRYANT, FASHION BUG, and
CATHERINES.
We expect
to continue to benefit from our previously announced expense-control initiatives
during the remainder of the year. These initiatives, which have been
completed as of the Fiscal 2009 Third Quarter, include the relocation of our
CATHERINES operations, the elimination of 150 corporate and field management
positions, and the closing of our full-line PETITE SOPHISTICATE
stores. We anticipate that these initiatives will continue to
generate pre-tax expense savings, primarily in payroll and occupancy costs,
during the remainder of the year.
We also
continued to implement our initiative to close approximately 150
under-performing stores, which will result in the elimination of losses from the
under-performing stores upon closing. During the first three quarters
of Fiscal 2009 we closed 100 under-performing stores and expect to complete the
remaining store closures by the end of February 2009. On November 25,
2008 we announced the closure of as many as 100 additional stores during Fiscal
2010. During Fiscal 2009 we have been successful in achieving
significant occupancy cost reductions through renegotiations of leases with our
landlords. We expect that our review of our retail store portfolio
will identify opportunities for further occupancy cost reductions.
We
continued to reduce our expenses during the first three quarters of Fiscal
2009. Although our expenses increased as a percentage of sales as a
result of negative leverage from the decrease in comparable store sales, we were
able to reduce expense dollars as compared to the comparable prior-year
period. We will continue to aggressively pursue additional cost
savings opportunities.
On
November 25, 2008 we announced that we have engaged the services of a management
consultant to assist in our restructuring and cost reduction
efforts. The objectives of this program include improving and
simplifying critical processes, consolidating activities and infrastructure, and
reducing our expense structure in order for it to be more appropriately aligned
with our generation of revenues in a recessionary environment. When
combined with the cost reductions and store closings already initiated, we
expect to achieve net cost reductions of approximately $100 - $125 million over
the next two fiscal years through this process, with approximately $75 million
expected to be realized in Fiscal 2010.
Manage
Inventory
We
continue to focus on reducing our inventory levels through timely markdowns and
reduction of planned receipts. In addition to accelerating our
markdowns of seasonal Fall merchandise we are also reducing our planned receipts
of Spring 2009 merchandise in response to the current retail
trends. By taking these actions we expect to have our inventory
properly positioned at the end of Fiscal 2009 to positively impact our gross
margins during Fiscal 2010. For the Fiscal 2009 Third Quarter total
inventory decreased approximately 13% on a comparable-store basis as compared to
the comparable prior-year period.
Maintain
our Strong Balance Sheet
Our
balance sheet remains strong, with ample liquidity through our $74.2 million of
cash and available-for-sale securities, which is comparable to $74.7 million as
of the end of Fiscal 2008. We ended the Fiscal 2009 Third quarter
with no borrowings on our committed $375.0 million revolving credit facility,
which is in place through July 2010. As of November 1, 2008 our
available borrowing capacity on the facility was $255 million. In
addition to our focus on reducing inventory levels and divesting our non-core
assets, we have significantly reduced our capital expenditures for new store
development and store relocations, and have eliminated non-essential capital
expenditures. We are also exploring additional opportunities to
strengthen our financial position, such as a sale and leaseback of certain
company-owned real estate.
While we
are committed to executing our long-term growth strategy as a multi-brand,
multi-channel retailer, we continue to take a conservative operating approach
given the current uncertain economic climate and our expectations for continuing
weak traffic trends. In response, we will continue to maintain lean
inventories and carefully control operating expenses in order to generate
positive free cash flow, preserve cash, and maintain a strong balance
sheet.
The
following discussion of our results of operations, liquidity, and capital
resources is based on our continuing operations, and excludes the impact of our
discontinued operations (see “Notes to Condensed
Consolidated Financial Statements; Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations” above).
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
1,
|
|
|
November
3,
|
|
|
From
Prior
|
|
|
November
1,
|
|
|
November
3,
|
|
|
From
Prior
|
|
|
|
2008
|
|
|
2007
|
|
|
Period
|
|
|
2008
|
|
|
2007
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(7.8 |
)% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(7.4 |
)% |
Cost
of goods sold, buying,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
catalog, and occupancy
expenses
|
|
|
77.4 |
|
|
|
71.6 |
|
|
|
(0.2 |
) |
|
|
73.2 |
|
|
|
69.7 |
|
|
|
(2.8 |
) |
Selling,
general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
|
30.3 |
|
|
|
28.8 |
|
|
|
(2.8 |
) |
|
|
28.2 |
|
|
|
26.6 |
|
|
|
(1.8 |
) |
Impairment
of store assets
|
|
|
3.7 |
|
|
|
– |
|
|
|
– |
|
|
|
1.1 |
|
|
|
– |
|
|
|
– |
|
Restructuring
and other charges
|
|
|
1.0 |
|
|
|
– |
|
|
|
– |
|
|
|
1.3 |
|
|
|
0.0 |
|
|
|
– |
|
Income/(loss)
from operations
|
|
|
(12.4 |
) |
|
|
(0.3 |
) |
|
|
** |
|
|
|
(3.8 |
) |
|
|
3.7 |
|
|
|
** |
|
Other
income
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
(30.2 |
) |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
(59.1 |
) |
Interest
expense
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
(1.5 |
) |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
(18.6 |
) |
Income
tax (benefit)/provision
|
|
|
(2.0 |
) |
|
|
0.0 |
|
|
|
** |
|
|
|
(0.7 |
) |
|
|
1.4 |
|
|
|
** |
|
Income/(loss)
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
operations
|
|
|
(10.4 |
) |
|
|
(0.3 |
) |
|
|
** |
|
|
|
(3.3 |
) |
|
|
2.3 |
|
|
|
** |
|
Loss
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
|
(6.4 |
) |
|
|
(0.3 |
) |
|
|
** |
|
|
|
(4.1 |
) |
|
|
(0.2 |
) |
|
|
** |
|
Net
income/(loss)
|
|
|
(16.8 |
) |
|
|
(0.6 |
) |
|
|
** |
|
|
|
(7.4 |
) |
|
|
2.1 |
|
|
|
** |
|
____________________
|
|
(1)
Results may not add due to rounding.
|
|
**
Not meaningful.
|
|
The
following table shows details of our consolidated total net sales:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
$ |
191.1 |
|
|
$ |
221.4 |
|
|
$ |
660.0 |
|
|
$ |
758.3 |
|
LANE
BRYANT(1)
|
|
|
257.2 |
|
|
|
279.6 |
|
|
|
838.9 |
|
|
|
909.0 |
|
CATHERINES
|
|
|
74.2 |
|
|
|
82.0 |
|
|
|
244.0 |
|
|
|
276.3 |
|
Other
retail stores(2)
|
|
|
6.0 |
|
|
|
5.1 |
|
|
|
18.8 |
|
|
|
15.2 |
|
Total
Retail Stores segment
|
|
|
528.5 |
|
|
|
588.1 |
|
|
|
1,761.7 |
|
|
|
1,958.8 |
|
Total
Direct-to-Consumer segment
|
|
|
21.3 |
|
|
|
9.3 |
|
|
|
70.8 |
|
|
|
24.7 |
|
Corporate
and other(3)
|
|
|
3.3 |
|
|
|
2.3 |
|
|
|
10.5 |
|
|
|
7.1 |
|
Total
net sales
|
|
$ |
553.1 |
|
|
$ |
599.7 |
|
|
$ |
1,843.0 |
|
|
$ |
1,990.6 |
|
____________________
|
|
(1)
Includes LANE BRYANT OUTLET stores.
|
|
(2)
Includes PETITE SOPHISTICATE stores, which began operations in October
2007 and were closed in August 2008, and PETITE SOPHISTICATE OUTLET
stores, which began operations in September 2006.
|
|
(3)
Primarily revenue related to loyalty card fees.
|
|
The
following table shows information related to the change in our consolidated
total net sales:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Stores segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in comparable store sales(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
retail stores
|
|
|
(9 |
)% |
|
|
(8 |
)% |
|
|
(11 |
)% |
|
|
(4 |
)% |
FASHION
BUG
|
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(10 |
) |
|
|
(3 |
) |
LANE
BRYANT(3)
|
|
|
(10 |
) |
|
|
(9 |
) |
|
|
(11 |
) |
|
|
(5 |
) |
CATHERINES
|
|
|
(10 |
) |
|
|
(6 |
) |
|
|
(13 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from new stores as a percentage of total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated prior-period
sales(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
LANE
BRYANT(3)
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
6 |
|
CATHERINES
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Other
retail stores(4)
|
|
|
0 |
|
|
|
1 |
|
|
|
0 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-period
sales from closed stores as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of total consolidated
prior-period sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
LANE
BRYANT(3)
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
CATHERINES
|
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in Retail Stores segment sales
|
|
|
(10 |
) |
|
|
(4 |
) |
|
|
(10 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Direct-to-Consumer segment sales
|
|
|
129 |
(5) |
|
|
27 |
|
|
|
187 |
(5) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in consolidated total net sales
|
|
|
(8 |
) |
|
|
(14 |
) |
|
|
(7 |
) |
|
|
(9 |
) |
____________________
|
|
(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 stores, which were closed in August
2008, and PETITE SOPHISTICATE OUTLET stores.
|
|
(5)
Primarily due to LANE BRYANT WOMAN catalog which began operations in the
Fiscal 2008 Fourth Quarter.
|
|
The
following table shows details of our consolidated income from
operations:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
$ |
(27.7 |
) |
|
$ |
(0.9 |
) |
|
$ |
(2.3 |
) |
|
$ |
49.8 |
|
LANE
BRYANT(1)
|
|
|
16.7 |
|
|
|
27.5 |
|
|
|
55.0 |
|
|
|
93.1 |
|
CATHERINES
|
|
|
(2.3 |
) |
|
|
6.7 |
|
|
|
10.3 |
|
|
|
33.2 |
|
Other
retail stores(2)
|
|
|
0.5 |
|
|
|
(0.5 |
) |
|
|
0.3 |
|
|
|
(0.7 |
) |
Total
Retail Stores segment
|
|
|
(12.8 |
) |
|
|
32.8 |
|
|
|
63.3 |
|
|
|
175.4 |
|
Total
Direct-to-Consumer segment
|
|
|
(9.7 |
) |
|
|
(1.3 |
) |
|
|
(20.2 |
) |
|
|
(4.5 |
) |
Corporate
and other
|
|
|
(46.3 |
) |
|
|
(33.4 |
) |
|
|
(113.3 |
) |
|
|
(96.6 |
) |
Total
income/(loss) from operations
|
|
$ |
(68.8 |
) |
|
$ |
(1.9 |
) |
|
$ |
(70.2 |
) |
|
$ |
74.3 |
|
____________________
|
|
(1)
Includes LANE BRYANT OUTLET stores.
|
|
(2)
Includes PETITE SOPHISTICATE stores, which began operations in October
2007 and were closed in August 2008, and PETITE SOPHISTICATE OUTLET
stores, which began operations in September 2006.
|
|
The
following table sets forth information with respect to our year-to-date retail
store activity for Fiscal 2009 and planned store activity for all of Fiscal
2009:
|
|
FASHION
|
|
|
LANE
|
|
|
|
|
|
|
|
|
|
|
|
|
BUG
|
|
|
BRYANT
|
|
|
CATHERINES
|
|
|
Other(1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009 Year-to-Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at February 2, 2008
|
|
|
989 |
|
|
|
896 |
|
|
|
468 |
|
|
|
56 |
|
|
|
2,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
opened
|
|
|
5 |
|
|
|
33 |
(2) |
|
|
7 |
|
|
|
4 |
|
|
|
49 |
|
Stores
closed(3)
|
|
|
(83 |
) |
|
|
(16 |
) |
|
|
(11 |
) |
|
|
(4 |
) |
|
|
(114 |
) |
Net
change in stores
|
|
|
(78 |
) |
|
|
17 |
|
|
|
(4 |
) |
|
|
0 |
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at November 1, 2008
|
|
|
911 |
|
|
|
913 |
|
|
|
464 |
|
|
|
56 |
|
|
|
2,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
relocated during period
|
|
|
10 |
|
|
|
32 |
|
|
|
6 |
|
|
|
0 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned
store openings
|
|
|
5 |
|
|
|
33-35 |
(4) |
|
|
7 |
|
|
|
4 |
(5) |
|
|
49-51 |
|
Planned
store closings(6)
|
|
|
96-99 |
|
|
|
35-40 |
|
|
|
12 |
|
|
|
5 |
(7) |
|
|
148-156 |
|
Planned
store relocations
|
|
|
10 |
|
|
|
36-39 |
(8) |
|
|
6 |
|
|
|
0 |
|
|
|
52-55 |
|
____________________
|
|
(1)
Includes PETITE SOPHISTICATE and PETITE SOPHISTICATE OUTLET
stores.
|
|
(2)
Includes 6 LANE BRYANT OUTLET stores.
|
|
(3)
Includes 72 FASHION BUG, 10 CATHERINES, 12 LANE BRYANT, 2 LANE BRYANT
OUTLET, and 4 PETITE SOPHISTICATE stores closed as part of the
streamlining initiatives announced in February 2008.
|
|
(4)
Includes 13 LANE BRYANT intimate apparel side-by-side stores and 7 LANE
BRYANT OUTLET stores.
|
|
(5)
PETITE SOPHISTICATE OUTLET stores.
|
|
(6)
Includes approximately 150 under-performing stores to be closed as part of
the streamlining initiatives announced in February 2008.
|
|
(7)
PETITE SOPHISTICATE and PETITE SOPHISTICATE OUTLET stores.
|
|
(8)
Includes approximately 13-16 conversions to LANE BRYANT intimate apparel
side-by-side stores.
|
|
Comparison
of Thirteen Weeks Ended November 1, 2008 and November 3, 2007
Consolidated
Results of Operations
Net
Sales
The
decrease in consolidated net sales in the Fiscal 2009 Third Quarter as compared
to the Fiscal 2008 Third Quarter was primarily a result of decreases in net
sales from each of the brands in our Retail Stores segment driven by negative
comparable store sales and the closing of 100 under-performing stores during the
first three quarters of Fiscal 2009 as part of our previously announced
initiatives (see “OVERVIEW”
above). These decreases were partially offset by net sales from our
LANE BRYANT WOMAN catalog, launched during the latter half of Fiscal 2008, which
is included in our Direct-to-Consumer segment. During the Fiscal 2009
Third Quarter we decided to discontinue our LANE BRYANT WOMAN catalog (see “RECENT DEVELOPMENTS”
above).
Cost
of Goods Sold, Buying, Catalog, and Occupancy Expenses
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 5.9% as a
percentage of consolidated net sales in the Fiscal 2009 Third Quarter as
compared to the Fiscal 2008 Third Quarter. The increase was primarily
a result of increased promotional activity during the current-year period to
drive traffic and liquidate seasonal merchandise, negative leverage on buying
and occupancy expenses from the decrease in comparable store sales, and an
increase in catalog advertising expenses. However, total consolidated
cost of goods sold, buying, and occupancy expenses were comparable in dollar
amount to the prior-year period as a result of our expense reduction
initiatives, including the closing of the under-performing stores (which are
discussed in the “OVERVIEW” above), as well as
other store-related occupancy savings. Catalog advertising expenses
increased in the Fiscal 2009 Third Quarter as compared to the prior-year period
as a result of the start-up of our LANE BRYANT WOMAN catalog launched in the
latter half of Fiscal 2008. During the Fiscal 2009 Third Quarter we
decided to discontinue our LANE BRYANT WOMAN catalog (see “RECENT DEVELOPMENTS”
above).
Selling,
General, and Administrative Expenses
Consolidated
selling, general, and administrative expenses for the Fiscal 2009 Third Quarter
increased 1.5% as a percentage of consolidated net sales in the Fiscal 2009
Third Quarter as compared to the Fiscal 2008 Third Quarter as a result of
negative leverage from the decrease in comparable store
sales. However, consolidated selling, general, and administrative
expenses decreased in dollar amount from the prior-year period, primarily as a
result of our expense reduction initiatives discussed above.
Retail
Stores Segment Results of Operations
Net
Sales
Comparable
store sales for the Fiscal 2009 Third Quarter decreased at each of our Retail
Stores brands as compared to the Fiscal 2008 Third Quarter. Net sales
for all of our brands continued to be negatively impacted by reduced traffic
levels and weak consumer spending that we began to experience during the latter
half of Fiscal 2008 and the first half of Fiscal 2009. Additionally,
sales were negatively impacted by the closing of the under-performing stores,
particularly at our FASHION BUG brand. Consistent with the difficult
retail environment, the average number of transactions per store decreased for
each of our brands. The average dollar sale per transaction increased
for our outlet stores and LANE BRYANT stores, and decreased for our FASHION BUG
and CATHERINES stores.
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). We recognized revenues of $5.3 million during the Fiscal 2009
Third Quarter and $5.4 million during the Fiscal 2008 Third Quarter in
connection with our loyalty card programs. As of November 2007 we
began offering a loyalty program in connection with the issuance of our new LANE
BRYANT proprietary credit card.
Cost
of Goods Sold, Buying, and Occupancy
Except
for our LANE BRYANT brand, gross margins deteriorated at each of our brands,
particularly at our FASHION BUG brand. Gross margins at our LANE
BRYANT brand improved as compared to the prior-year period as a result of our
efforts to reduce inventory levels, which allowed us to reduce the level of
promotions. Inventory levels were down 17% at the LANE BRYANT brand
at the end of the Fiscal 2009 Third Quarter as compared to the prior-year
period. As a result of sales trends at FASHION BUG, we decided to
accelerate our markdowns of in-season Fall product in order to increase
sell-through of the merchandise, which negatively impacted FASHION BUG
merchandise margins. We also took similar steps, to a lesser extent,
at our LANE BRYANT and CATHERINES brands. Additionally we reduced
planned receipts of Spring 2009 merchandise. We expect these actions
to positively affect our inventory position at the end of Fiscal
2009.
Buying
and occupancy expenses for our Retail Stores segment were 1.8% higher as a
percentage of net sales, primarily as a result of negative leverage from the
decrease in comparable store sales. However, expense dollars
decreased as a result of the closing of the under-performing stores and expense
reduction initiatives discussed above.
Selling,
General, and Administrative
Selling,
general, and administrative expenses for the Retail Stores segment as a
percentage of net sales increased 1.5% for FASHION BUG, 2.3% for CATHERINES, and
1.6% for LANE BRYANT. Although selling, general and administrative
expenses increased as a percentage of net sales, primarily as a result of the
lack of leverage on selling expenses from the decrease in comparable store
sales, they decreased in dollar amount at each of our brands. The
decrease in expense dollars from the prior-year period was primarily a result of
the closing of the under-performing stores and expense reduction initiatives
discussed above.
Direct-to-Consumer
Segment Results of Operations
Net
Sales
The
increase in net sales from our Direct-to-Consumer segment was primarily
attributable to sales from our LANE BRYANT WOMAN catalog and website, launched
in the latter half of Fiscal 2008, and an increase in sales from our FIGI’S
catalog. As noted in “RECENT DEVELOPMENTS” above we
have decided to discontinue the LANE BRYANT WOMAN catalog, which we expect to
complete by the Fiscal 2010 First Quarter.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
The 34.1%
increase in cost of goods sold, buying, catalog, and occupancy expenses as a
percentage of net sales for our Direct-to-Consumer segment resulted primarily
from higher-than-normal catalog advertising expenses incurred in connection with
the start-up of our LANE BRYANT WOMAN catalog, which was launched in the latter
half of Fiscal 2008. Cost of goods sold, buying, catalog, and
occupancy expenses for the Fiscal 2009 Third Quarter include a markdown
allowance of $4.2 million related to our decision to discontinue the LANE BRYANT
WOMAN catalog (see “RECENT
DEVELOPMENTS” above).
Selling,
General, and Administrative
Selling,
general, and administrative expenses as a percentage of net sales decreased
12.4% for our Direct-to-Consumer segment, primarily as a result of new sales
from our LANE BRYANT WOMAN catalog and related e-commerce website, which began
operations during the latter half of Fiscal 2008.
Impairment
of Store Assets
We
evaluate the recoverability of our long-lived assets in accordance
with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” We assess our long-lived
assets for recoverability whenever events or changes in circumstances indicate
that the carrying amounts of long-lived assets may not be
recoverable. We consider historical performance and future estimated
results when evaluating an asset for potential impairment, and we compare the
carrying amount of the asset to the estimated future undiscounted cash flows
expected to result from the use of the asset. If the estimated future
undiscounted cash flows are less than the carrying amount of the asset we write
down the asset to its estimated fair value and recognize an impairment
loss. Our estimate of fair value is generally based on either
appraised value or the present value of future cash flows. The
estimates and assumptions that we use to evaluate possible impairment require
certain significant assumptions regarding factors such as future sales growth
and operating performance, which may change as new events occur or as additional
information is obtained.
Based on
our assessment of the carrying value of long-lived assets conducted in
accordance with SFAS No. 144, during the Fiscal 2009 Third Quarter we identified
approximately 120 stores with asset carrying values in excess of such stores’
respective forecasted undiscounted cash flows. Accordingly, we
recognized a non-cash charge of $20.2 million to write down these stores to
their respective fair values.
In
accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets,” we also performed a review during the Fiscal 2009 Third Quarter
of our goodwill and other intangible assets with indefinite lives for possible
impairment and determined that these assets were not impaired.
Restructuring
and Other Charges
In
November 2007 we 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 our operating
functions and in February 2008 we announced additional cost-saving and
streamlining initiatives. During the Fiscal 2009 Third Quarter we
recognized pre-tax charges of approximately $1.6 million for lease termination,
severance, and relocation costs related to these programs and approximately $0.1
million of non-cash pre-tax charges for write-downs of assets related to
under-performing stores we expect to close. We anticipate that the
execution of the new organizational structure and cost-saving initiatives will
result in approximately $28 million of annualized expense savings, primarily in
the areas of non-store payroll, elimination of losses from under-performing
stores, and occupancy costs. We also recognized approximately $0.9
million of non-cash charges for write-downs of assets retained from the sale of
the non-core misses apparel catalog business.
During
the Fiscal 2009 Third Quarter we made the decision to discontinue our LANE
BRYANT WOMAN catalog operations, which resulted in the recognition of
approximately $1.2 million of severance costs. We also eliminated 20
additional corporate positions and recognized approximately $1.9 million of
severance costs. See “Notes to Condensed Consolidated
Financial Statements; Note 12. Restructuring and Other Charges” and “OVERVIEW” above for
additional information regarding our restructuring programs.
Income
Tax Provision
Our
income tax benefit for the Fiscal 2009 Third Quarter was $11.3 million on a loss
from continuing operations before taxes of $69.1 million as compared to a tax
provision of $0.3 million on a loss from continuing operations before taxes of
$1.5 million for the Fiscal 2008 Third Quarter. The Fiscal 2009 Third
Quarter income tax benefit was unfavorably affected by a non-cash provision to
establish a valuation allowance against our net deferred tax assets, adjustments
relating to the reconciliation of our Fiscal 2008 Federal tax provision to our
filed tax return, and an increase in our liability for unrecognized tax
benefits, interest, and penalties in accordance with FIN No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109.”. We adopted the
provisions of FIN No. 48 as of the beginning of Fiscal
2008. Additionally, the Fiscal 2009 Third Quarter income tax benefit
was favorably affected by the filing of amended returns for which we were able
to realize the benefits of certain tax credits that were previously not
benefited due to uncertainty regarding their realization.
During
the Fiscal 2009 Third Quarter we evaluated our assumptions regarding the
recoverability of our deferred tax assets. Based on our cumulative
three-year loss, including our projected loss for the current year, as well as
other available evidence, we determined that the recoverability of our deferred
tax assets is limited to our available tax loss carrybacks. A
three-year cumulative loss is a form of objective negative evidence that carries
more weight than subjective positive evidence, such as
forecasts. Accordingly, we recognized a non-cash provision of $17.5
million to establish a valuation allowance against our net deferred tax
assets.
This
valuation allowance will have no impact on our cash flow or future prospects,
nor does it alter our ability to utilize the underlying tax net operating loss
and credit carryforwards in the future, the utilization of which is limited to
achieving future taxable income. Pursuant to SFAS No. 109, when our
results demonstrate a pattern of future profitability and a reversal of the
current three-year cumulative loss trend, the valuation allowance may be
adjusted which would result in the reinstatement of all or a part of the net
deferred tax assets.
Discontinued
Operations
Discontinued
operations consist of the results of operations of the non-core misses apparel
catalog titles operated under our Crosstown Traders brand (see “RECENT DEVELOPMENTS” and
“Notes to Condensed
Consolidated Financial Statements; Note 1. Condensed Consolidated Financial
Statements; Discontinued
Operations”
above).
During
the Fiscal 2009 Third Quarter we finalized our calculation of the loss on
disposition of the discontinued operations by increasing the aggregate pre-tax
loss on disposition to $46.7 million. The $4.0 million increase in
the pre-tax loss on disposition during the Fiscal 2009 Third Quarter was
primarily a result of changes in working capital during the
quarter. During the Fiscal 2009 Third Quarter we also recognized an
increase in the net pre-tax loss from discontinued operations of $7.2
million. During our Fiscal 2009 Third Quarter we recorded a valuation
allowance against our net deferred tax assets (see “Note 8. Income Taxes” below)
for the discontinued operations. This had the effect of reversing $24.0
million of tax benefits recognized during the Fiscal 2009 First and Second
Quarters. In addition, no tax benefit was recorded on the additional
losses recorded in the Fiscal 2009 Third Quarter. A portion of the
reversal of previously recognized tax benefits that was recorded in the Fiscal
2009 Third Quarter related to an excess tax benefit of $10.8 million that was
initially recorded in the Fiscal 2009 First Quarter. As a result of the
completion of the sale, the computation of the tax benefit related to the
disposition of the discontinued operations was finalized during the Fiscal 2009
Third Quarter.
Comparison
of Thirty-nine Weeks Ended November 1, 2008 and November 3, 2007
Consolidated
Results of Operations
Net
Sales
The
decrease in consolidated net sales in the first three quarters of Fiscal 2009 as
compared to the first three quarters of Fiscal 2008 was primarily a result of
decreases in net sales from each of the brands in our Retail Stores segment
driven by negative comparable store sales and the closing of 100
under-performing stores during the first three quarters of Fiscal 2009 as part
of our previously announced initiatives (see “OVERVIEW”
above). These decreases were partially offset by net sales from our
new LANE BRYANT WOMAN catalog, launched during the latter half of Fiscal 2008,
which is included in our Direct-to-Consumer segment. During the
Fiscal 2009 Third Quarter we decided to discontinue our LANE BRYANT WOMAN
catalog (see “RECENT
DEVELOPMENTS” above).
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 3.5% as a
percentage of consolidated net sales in the first three quarters of Fiscal 2009
as compared to the first three quarters of Fiscal 2008. The increase
resulted primarily from increased promotional activity, particularly during the
Fiscal 2009 Third Quarter, negative leverage on buying and occupancy expenses
from the decrease in comparable store sales, and an increase in catalog
advertising expenses. However, total consolidated cost of goods sold,
buying, catalog, and occupancy expenses decreased in dollar amount as compared
to the prior-year period as a result of our expense reduction initiatives,
including the closing of the under-performing stores (which are discussed in the
“OVERVIEW” above), as
well as other store-related occupancy savings. Consolidated occupancy
expenses for the first three quarters of Fiscal 2009 include a gain on the sale
of our Memphis, Tennessee distribution center of approximately $1.8
million. Catalog advertising expenses increased as compared to the
prior-year period as a result of the start-up of our LANE BRYANT WOMAN catalog
launched in the latter half of Fiscal 2008. During the Fiscal 2009
Third Quarter we decided to discontinue our LANE BRYANT WOMAN catalog (see “RECENT DEVELOPMENTS”
above).
Selling,
General, and Administrative
Although
consolidated selling, general, and administrative expenses increased 1.6% as a
percentage of consolidated net sales, primarily as a result of negative leverage
on selling costs from the decrease in consolidated net sales, they decreased in
dollar amount from the prior-year period. The decrease in expense
dollars was primarily attributable to our expense reduction
initiatives. During the first three quarters of Fiscal 2009 we
recognized $5.9 million of expenses in connection with advisory and legal fees
relating to a proxy contest which was settled in May 2008.
Retail
Stores Segment Results of Operations
Net
Sales
Comparable
store sales for the first three quarters of Fiscal 2009 decreased at each of our
Retail Stores brands as compared to the first three quarters of Fiscal
2008. Net sales for all of our brands continued to be negatively
impacted by reduced traffic levels and weak consumer spending that we began to
experience during the latter half of Fiscal 2008, as well as the closing of the
under-performing stores. The average number of transactions per store
decreased for each of our brands, while the average dollar sale per transaction
increased for our outlet stores and LANE BRYANT stores, and decreased for our
FASHION BUG and CATHERINES stores.
During
the first three quarters of Fiscal 2009 we recognized revenues of $15.6 million
in connection with our loyalty card programs as compared to revenues of $16.4
million during the first three quarters of Fiscal 2008.
Cost
of Goods Sold, Buying, and Occupancy
For our
Retail Stores segment, cost of goods sold, buying, and occupancy expenses
increased 3.8% as a percentage of net sales in the first three quarters of
Fiscal 2009 as compared to the first three quarters of Fiscal
2008. The merchandise margin in our Retail Stores segment declined in
the first three quarters of Fiscal 2009 as compared to the first three quarters
of Fiscal 2008 primarily as a result of increased promotional activity during
the current-year period to drive traffic and liquidate seasonal
merchandise. Buying and occupancy expenses were 1.9% higher as a
percentage of net sales in the current-year period as compared to the prior-year
period, primarily as a result of negative leverage from the decrease in
comparable store sales. However, expense dollars decreased as a
result of the closing of the under-performing stores and our expense reduction
initiatives.
Selling,
General, and Administrative
Selling,
general, and administrative expenses for the Retail Stores segment as a
percentage of net sales increased 2.0% for FASHION BUG, 2.8% for CATHERINES, and
1.1% for LANE BRYANT. Selling, general and administrative expenses
increased as a percentage of net sales, primarily reflecting the lack of
leverage on selling expenses at each of the brands as a result of the decrease
in comparable store sales. However, selling, general, and
administrative expenses decreased in dollar amount from the prior-year period at
each of our brands. The decrease in expense dollars from the
prior-year period was primarily a result of the closing of the under-performing
stores and expense reduction initiatives discussed above.
Direct-to-Consumer
Segment Results of Operations
Net
Sales
The
increase in net sales from our Direct-to-Consumer segment was primarily
attributable to sales from our LANE BRYANT WOMAN catalog and website launched in
the latter half of Fiscal 2008 and an increase in sales from our FIGI’S
catalog. As noted in “RECENT DEVELOPMENTS” above we
have decided to discontinue the LANE BRYANT WOMAN catalog, which we expect to
complete by the Fiscal 2010 First Quarter.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
The 27.2%
increase in cost of goods sold, buying, catalog, and occupancy expenses as a
percentage of net sales for our Direct-to-Consumer segment resulted primarily
from higher-than-normal catalog advertising expenses incurred in connection with
the start-up of our LANE BRYANT WOMAN catalog which was launched during the
latter half of Fiscal 2008. Cost of goods sold, buying, catalog and
occupancy expenses include a markdown allowance of $4.2 million related to our
decision during the Fiscal 2009 Third Quarter to discontinue the LANE BRYANT
WOMAN catalog (see “RECENT
DEVELOPMENTS” above).
Selling,
General, and Administrative
Selling,
general, and administrative expenses as a percentage of net sales decreased
19.7% for our Direct-to-Consumer segment, primarily as a result of new sales
from our LANE BRYANT WOMAN catalog and related e-commerce website, which began
operations during the latter half of Fiscal 2008.
Impairment
of Store Assets
Based on
our assessment of the carrying value of long-lived assets conducted in
accordance with SFAS No. 144 (see the quarterly comparison above), during the
Fiscal 2009 Third Quarter we identified approximately 120 stores with asset
carrying values in excess of such stores’ respective forecasted undiscounted
cash flows. Accordingly, we recognized a non-cash charge of $20.2
million to write down these stores to their respective fair values.
Restructuring
and Other Charges
As
discussed in the overview and quarterly analysis above, we relocated our
CATHERINES operations in conjunction with the consolidation of a number of our
operating functions and began to implement additional cost-saving and
streamlining initiatives announced in February 2008. During the first
three quarters of Fiscal 2009 we recognized pre-tax charges of approximately
$8.5 million for lease termination, severance, retention, and relocation
costs. We also recognized approximately $2.3 million of non-cash
pre-tax charges for write-downs of assets related to under-performing stores we
expect to close and accelerated depreciation related to the closing of our
Memphis facility. In addition, we recognized $9.3 million of
severance costs in connection with the resignation of our former Chief Executive
Officer, Dorrit J. Bern, in July 2008.
During
the Fiscal 2009 Third Quarter we also recognized approximately $3.1 million of
severance costs related to the elimination of 20 corporate positions
and our decision to discontinue the LANE BRYANT WOMAN
catalog. We also recognized approximately $0.9 million of non-cash
charges for write-downs of assets retained from the sale of our non-core misses
apparel catalog business.
Income
Tax Provision
Our
income tax benefit for the first three quarters of Fiscal 2009 was $12.9 million
on a loss from continuing operations before taxes of $73.8 million as compared
to a tax provision of $28.2 million on income from continuing operations before
taxes of $73.8 million for the first three quarters of Fiscal
2008. The current-year benefit was unfavorably impacted by a non-cash
provision to establish a valuation allowance against our net deferred tax assets
(see the quarterly comparison above), adjustments relating to the reconciliation
of our Fiscal 2008 Federal tax provision to our filed tax return, and an
increase in our liability for unrecognized tax benefits, interest, and penalties
in accordance with FIN No. 48. We adopted the provisions of FIN No.
48 as of the beginning of Fiscal 2008. These unfavorable impacts were
partially offset by the filing of amended returns for which we were able to
realize the benefits of certain tax credits that were previously not benefited
due to uncertainty regarding their realization, the receipt of non-taxable life
insurance proceeds, and adjustments to certain state tax accruals.
Discontinued
Operations
Discontinued
operations consist of the results of operations of the non-core misses catalog
titles operated under our Crosstown Traders brand (see “RECENT DEVELOPMENTS” and “Notes to
Condensed Consolidated Financial Statements; Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations”
above). During the first three quarters of Fiscal 2009 we
recognized a net loss from discontinued operations of $28.2 million and a loss
on disposition of the discontinued operations of $46.7
million. During the Fiscal 2009 Third Quarter we recognized a $24.0
million reversal of tax benefits recognized in the previous quarters of Fiscal
2009 as a result of our recognition of a valuation allowance against our net
deferred tax assets (see the quarterly comparison and “Income Tax
Provision” above).
Our
primary sources of working capital are cash flow from operations, our
proprietary credit card receivables securitization agreements, our investment
portfolio, and our revolving credit facility. The following table
highlights certain information related to our liquidity and capital
resources:
|
|
November
1,
|
|
|
February
2,
|
|
(Dollars
in millions)
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
67.8 |
|
|
$ |
61.3 |
|
Available-for-sale
securities
|
|
$ |
6.4 |
|
|
$ |
13.4 |
|
Working
capital
|
|
$ |
414.1 |
|
|
$ |
495.3 |
|
Current
ratio
|
|
|
2.1 |
|
|
|
2.4 |
|
Long-term
debt to equity ratio
|
|
|
53.3 |
% |
|
|
41.9 |
% |
Our net
cash provided by operating activities decreased to $19.1 million for the first
three quarters of Fiscal 2009 from $104.1 million for the first three quarters
of Fiscal 2008, primarily as a result of a $106.5 million decrease in income
from continuing operations. Our net investment in inventories
decreased $39.3 million in the current-year period as compared to the prior-year
period as a result of our continued efforts to reduce inventory
levels. On a comparable-store basis, inventories decreased 13% as of
November 1, 2008 as compared to November 3, 2007. Although our total
long-term debt decreased slightly during the first three quarters of Fiscal
2008, our long-term debt to equity ratio increased as a result of a decrease in
total stockholders’ equity.
Capital
Expenditures
Our gross
capital expenditures, excluding construction allowances received from landlords,
were $49.5 million during the first three quarters of Fiscal 2009 as compared to
$108.8 million for the first three quarters of Fiscal 2008. Construction
allowances received from landlords were $24.6 million for the current-year
period as compared to $34.7 million for the prior-year period.
As part
of our streamlining initiatives announced in February 2008 and in response to
the current difficult economic environment, we plan to significantly reduce
capital expenditures for new store development, store relocations, and corporate
technology during Fiscal 2009 and Fiscal 2010. We plan to open
approximately 45-50 new stores in Fiscal 2009 as compared to 103 new stores in
Fiscal 2008, and anticipate that our Fiscal 2009 gross capital expenditures will
be approximately $74 million before construction allowances received from
landlords as compared to gross capital expenditures of $137.7 million for Fiscal
2008. We expect that 75%-80% of our Fiscal 2009 gross capital
expenditures before construction allowances will support store development,
including openings, relocations, and store improvements, with the remainder of
the expenditures to be primarily for information technology and improvements to
our distribution centers. We expect to finance these capital
expenditures primarily through internally-generated funds and to a lesser extent
through capital lease financing. We plan to further reduce capital
expenditures during Fiscal 2010 and anticipate that our Fiscal 2010 gross
capital expenditures will be approximately $27 million before construction
allowances received from landlords.
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” in our Annual Report on
Form 10-K for the fiscal year ended February 2, 2008 does not include our
liability for future benefits payable to former executive employees under
split-dollar life insurance agreements that we have recorded in accordance with
our adoption of EITF Issue No. 06-4 (see “Notes to Condensed Consolidated
Financial Statements; Note 14. Impact of Recent Accounting
Pronouncements”
above). As a result of the adoption of EITF Issue No. 06-4, we
recognized a $13.7 million increase in our split-dollar life insurance
benefits payable through a cumulative effect adjustment as of February 3,
2008. We recognized $1.6 million of the increase as a current
liability (due in less than 1 year) and the remaining $12.1 million as a
long-term liability.
Repurchases
of Common Stock
During
the Fiscal 2009 First Quarter we repurchased an aggregate total of 0.5
million shares of common stock for $2.6 million under a $200 million share
repurchase program announced in November 2007 and 1.5 million shares of common
stock for $8.3 million under a prior authorization from our Board of
Directors. We did not repurchase any shares of common stock
subsequent to the Fiscal 2009 First Quarter. Our revolving credit
facility allows the repurchase of our common stock subject to maintaining a
minimum level of “Excess Availability” (as defined in the facility agreement)
for 30 days before and immediately after such repurchase. See “PART II, Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds” below for additional
information regarding the share-repurchase program announced in November
2007.
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 Program
Our asset
securitization program 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
facilities to fund the credit card receivables generated by our FASHION BUG,
LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE proprietary credit card
programs. Prior to the sale of our Crosstown Traders misses apparel
catalog credit card receivables (see “RECENT DEVELOPMENTS” above),
we were also using an asset securitization facility to fund the credit card
receivables generated by the Crosstown Traders credit card
program. Additional information regarding our asset securitization
facilities is included in “Notes to Condensed Consolidated
Financial Statements; Note 9. Asset Securitization” above; under the
caption “MARKET RISK”
below; and in “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations; CRITICAL ACCOUNTING POLICIES; Asset
Securitization” and “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; NOTE 17. ASSET
SECURITIZATION” of our February 2, 2008
Annual Report on Form 10-K.
As of
November 1, 2008, we had the following securitization facilities
outstanding:
(Dollars
in millions)
|
Series 1999-2
|
Series 2004-VFC
|
Series 2004-1
|
2005-RPA(1)
|
Series 2007-1
|
|
|
|
|
|
|
Date
of facility
|
May
1999
|
January
2004
|
August
2004
|
May
2005
|
October
2007
|
Type
of facility
|
Conduit
|
Conduit
|
Term
|
Conduit
|
Term
|
Maximum
funding
|
$50.0
|
$50.0(2)
|
$180.0
|
$55.0
|
$320.0
|
Funding
as of November 1, 2008
|
$38.0
|
$0.0
|
$180.0
|
$39.0
|
$320.0
|
First
scheduled principal payment
|
Not
applicable
|
Not
applicable
|
April
2009
|
Not
applicable
|
April
2012
|
Expected
final principal payment
|
Not
applicable(3)
|
Not
applicable(3)
|
March
2010
|
Not
applicable
|
March
2013
|
Next
renewal date
|
March
2009
|
January
2009
|
Not
applicable
|
May
2009
|
Not
applicable
|
____________________
|
(1)
Receivables Purchase Agreement (for the Crosstown Traders catalog credit
card receivables program). The sale of the misses apparel
catalog credit card receivables related to Crosstown Traders catalog
titles was completed on November 14, 2008 (see “RECENT DEVELOPMENTS”
above). At the close of the sale the 2005-RPA was repaid in
full and the facility was terminated.
|
(2)
On November 14, 2008 the maximum funding capacity of Series 2004-VFC was
increased to $105.0 million.
|
(3)
Series 1999-2 and Series 2004-VFC have scheduled final payment dates that
occur in the twelfth month following the month in which the series begins
amortizing. These series begin amortizing on the next renewal
date subject to the further extension of the renewal date as a result of
renewal of the purchase commitment.
|
In May
2008 the Series 2002-1 facility completed its scheduled amortization, which had
begun in August 2007 in accordance with its scheduled terms, and is no longer an
outstanding series.
We
securitized $674.8 million of private label credit card receivables in the first
three quarters of Fiscal 2009 and had $588.5 million of securitized credit card
receivables outstanding as of November 1, 2008. We held certificates and
retained interests in our securitizations of $112.8 million as of November 1,
2008 that are generally subordinated in right of payment to certificates issued
by the QSPEs to third-party investors. The amount of securitized
credit card receivables as of November 1, 2008 includes $43.7 million of
securitized credit card receivables associated with the sold Crosstown Traders
credit card receivables portfolio and the retained interests in our
securitizations as of November 1, 2008 include $15.2 million associated with the
portfolio (see “RECENT DEVELOPMENTS”
above). 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. The outstanding amounts will be reduced as a
result of the sale of the Crosstown Traders catalog receivables
portfolio.
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. Our investment in
asset-backed securities as of November 1, 2008 included $51.2 million of QSPE
certificates, an interest-only (“I/O”) strip of $23.1 million, and other
retained interests of $38.5 million. Included in these balances are $2.9
million for the I/O strip and $12.2 million for the other retained interests
which are associated with the sold Crosstown Traders credit card receivables
portfolio. 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
is 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 is 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 are required to repurchase
these interests when the financial performance standards are again
satisfied. Our net loss for the third quarter of Fiscal 2008 resulted
in the requirement to begin the reallocation of collections as discussed above
and $9.45 million of collections were fully transferred as of February 2,
2008. 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 and the fulfillment of such
conditions. With the exception of the requirement to reallocate
collections of $9.45 million that were fully transferred as of February 2, 2008,
the Trust was in compliance with its financial performance standards as of
November 1, 2008, including all financial performance standards related to the
performance of the underlying receivables.
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 1, 2008 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.
We plan
to refinance our maturing securitization series with our credit conduit
facilities totaling $155.0 million, which are renewed annually. To
the extent that these conduit facilities are not renewed they would begin to
amortize and we would finance this amortization using our $275.0 committed
revolving credit facilities to the extent available. There is no
assurance that we can refinance or renew our conduit facilities on terms
comparable to our existing facilities or that there would be sufficient
availability under our revolving credit facilities for such
financing. Without adequate liquidity our ability to offer our credit
program to our customers, and consequently our financial condition and results
of operations, would be adversely affected.
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.
Benefits
from Operating Our Proprietary Credit Card Programs
We manage
our proprietary credit card programs primarily to enhance customer loyalty and
to allow us to integrate our direct-mail marketing strategy when communicating
with our core customers. We also earn revenue from operating the
credit card programs. As discussed above, we utilize asset
securitization as the primary funding source for our proprietary credit card
receivables programs. As a result, our primary source of benefits is
derived from the distribution of net excess spread revenue from our
QSPEs.
The
transfer of credit card receivables under our asset securitization program is
without recourse and we account for the program in accordance with SFAS No. 140,
“Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.” Under
SFAS No. 140, our benefit from the credit card receivables represents primarily
the net excess spread revenues we receive from monthly securitization
distributions associated with the collections on managed outstanding
receivables. We recognize on an accrual basis these net excess spread
revenues, which generally represent finance charge revenues in excess of
securitization funding costs, net credit card charge-offs, and the
securitization servicing fee. Finance charge revenues include finance
charges and fees assessed to the credit card customers. Net credit
card charge-offs represent gross monthly charge-offs on customer accounts less
recoveries on accounts previously charged-off. For purposes of the
table provided below, we also include any collection agency costs associated
with recoveries as part of the net excess spread revenues from credit card
receivables.
In
addition to the actual net excess spread revenues described above we record our
beneficial interest in the Trust as an “interest-only strip” (“I/O strip”),
which represents the estimated present value of cash flows we expect to receive
over the estimated period the receivables are outstanding. In
addition to the I/O strip we recognize a servicing liability, which represents
the present value of the excess of the costs of servicing over the servicing
fees we expect to receive, and is recorded at estimated fair
value. We use the same discount rate and estimated life assumptions
in valuing the I/O strip and the servicing liability. We amortize the
I/O strip and the servicing liability on a straight-line basis over the expected
life of the credit card receivables.
The
benefits from operating our proprietary credit card programs also include other
revenues generated from the programs. These other net revenues
include revenue from additional products and services that customers may
purchase with their credit cards, including debt cancellation protection,
fee-based loyalty program revenues, and net commissions from third-party
products that customers may buy through their credit cards. Other
credit card revenues also include interest income earned on funds invested in
the credit entities. The credit contribution is net of expenses
associated with operating the program. These expenses include the
costs to originate, bill, collect, and operate the credit card
programs. Except for net fees associated with the fee-based loyalty
programs that we include in net sales, we include the net credit contribution as
a reduction of selling, general, and administrative expenses in our consolidated
statements of operations and comprehensive income.
Further
details of our net credit contribution are as follows:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
securitization excess spread revenues
|
|
$ |
25.6 |
|
|
$ |
17.0 |
|
|
$ |
75.2 |
|
|
$ |
51.1 |
|
Net
additions to the I/O strip and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
servicing
liability
|
|
|
(0.6 |
) |
|
|
6.3 |
|
|
|
(0.6 |
) |
|
|
7.5 |
|
Other
credit card revenues, net(1)
|
|
|
3.9 |
|
|
|
3.2 |
|
|
|
9.8 |
|
|
|
8.6 |
|
Total
credit card revenues
|
|
|
28.9 |
|
|
|
26.5 |
|
|
|
84.4 |
|
|
|
67.2 |
|
Less
total credit card program expenses
|
|
|
17.4 |
|
|
|
14.1 |
|
|
|
52.4 |
|
|
|
37.9 |
|
Total
credit contribution
|
|
$ |
11.5 |
|
|
$ |
12.4 |
|
|
$ |
32.0 |
|
|
$ |
29.3 |
|
____________________
|
|
(1)
Excludes inter-company merchant fees between our credit entities and
our retail entities.
|
|
Further
details of our outstanding receivables are as follows:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
November
1,
|
|
|
November
3,
|
|
|
November
1,
|
|
|
November
3,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
managed receivables outstanding
|
|
$ |
583.7 |
|
|
$ |
369.4 |
|
|
$ |
587.0 |
|
|
$ |
365.9 |
|
Ending
managed receivables outstanding
|
|
$ |
588.5 |
|
|
$ |
598.1 |
|
|
$ |
588.5 |
|
|
$ |
598.1 |
|
Operating
Leases
We lease
substantially all of our operating stores under non-cancelable operating lease
agreements. Additional details on these leases, including minimum lease
commitments, are included in “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; Note
18. Leases” of our Annual Report
on Form 10-K for the fiscal year ended February 2, 2008.
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. We had an aggregate total of $1.5
million of unamortized deferred debt acquisition costs related to the facility
as of November 1, 2008, 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. In addition, the facility agreement provides that if
“Excess Availability” falls below 10% of the “Borrowing Base,” through high
levels of borrowing or letter of credit issuance for example, we may be required
to maintain a minimum “Fixed Charge Coverage Ratio” (terms in quotation marks in
this paragraph and the following paragraph are defined in the facility
agreement). The facility is secured by our general assets, except for
assets related to our credit card securitization facilities, real property,
equipment, the assets of our non-U.S. subsidiaries, and certain other
assets. As of November 1, 2008 the “Excess Availability” under the
facility was $273.6 million, or 94.6% of the “Borrowing Base.” As of
November 1, 2008, 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” 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 of November 1, 2008,
the applicable rates under the facility were 4.00% for Prime Rate Loans and
4.37% (LIBOR plus 1.25%) for Eurodollar Rate Loans. There were no
borrowings outstanding under the facility as of November 1, 2008.
Long-term
Debt
On April
30, 2007 we issued $250.0 million 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 $25.0 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 $0.8 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.
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% Senior Convertible Notes due
June 1, 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 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. Long-term Debt” of our Annual Report on Form 10-K for the fiscal
year ended February 2, 2008.
In Fiscal
2009 we plan to continue to utilize our combined financial resources to fund our
inventory and inventory-related purchases, catalog advertising and marketing
initiatives, and our store development and infrastructure
strategies. We believe our cash on-hand, securitization facilities,
and borrowing facilities will provide adequate liquidity for our business
operations and growth opportunities over the next twelve
months. However, our liquidity is affected by many factors, including
some that are based on normal operations and some that are related to our
industry and the economy. We may seek, as we believe appropriate,
additional debt or equity financing to provide capital for corporate purposes or
to fund strategic business opportunities. At this time, we cannot
determine the timing or amount of such potential capital requirements, which
will depend on a number of factors, including demand for our merchandise,
industry conditions, competitive factors, the condition of financial markets,
and the nature and size of strategic business opportunities that we may elect to
pursue.
We manage
our FASHION BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE proprietary
credit card programs and, prior to the sale of the Crosstown Traders catalog
receivables (see “RECENT
DEVELOPMENTS” above), the Crosstown Traders credit card program 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 1, 2008 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 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 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 $86.1 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 on a
pro-rated basis by the end of Fiscal 2009, an increase of approximately $176
thousand in selling, general, and administrative expenses would
result. Excluding the certificates associated with the Crosstown
Traders portfolio that were sold on November 14, 2008, the risk associated with
a one-percentage-point pro-rated increase by the end of Fiscal 2009 would be
approximately $111 thousand.
As of
November 1, 2008, there were no borrowings outstanding under our revolving
credit facility. Future borrowings made under the facility, if any,
could be exposed to variable interest rates.
We are
not subject to material foreign exchange risk, as our foreign transactions are
primarily U.S. Dollar-denominated and our foreign operations do not constitute a
material part of our business.
See “Item 1. Notes To Condensed
Consolidated Financial Statements (Unaudited); Note 14. Impact of Recent Accounting
Pronouncements” above.
See “Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations; MARKET RISK,”
above.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports we file under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate and in such a manner as to
allow timely decisions regarding required disclosure. 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.
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.
Our Form
10-K for the fiscal year ended February 2, 2008 included disclosure of the
following risk factor:
Changes
to existing accounting rules or the adoption of new rules could have an adverse
effect on our reported results of operations. The Financial
Accounting Standards Board (“FASB”) has issued a proposed FASB 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. If the
proposed FSP is approved in 2008 we would be required to adopt the proposal as
of February 1, 2009 (the beginning of Fiscal 2010), 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.
In
May 2008 the FASB issued FASB Staff Position (“FSP”) APB 14-1 “Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlements),” which will change the accounting treatment for convertible
securities that the issuer may settle fully or partially in cash. See
“Part I Item 1. Notes To Condensed
Consolidated Financial Statements (Unaudited); Note 14. Impact of Recent Accounting
Pronouncements” above for further information with respect to FSP APB
14-1.
Our Form
10-K for the fiscal year ended February 2, 2008 also included disclosure of the
following risk factor:
Our
success and our ability to execute our business strategy depend largely on the
efforts and abilities of our Chief Executive Officer, Dorrit J. Bern, and her
management team. The loss of services of one or more of our key
personnel could have a material adverse effect on our business, as we may not be
able to find suitable management personnel to replace departing executives on a
timely basis. We do not maintain key-person life insurance policies
with respect to any of our employees.
On July
9, 2008 we announced that Dorrit J. Bern tendered her resignation as President,
Chief Executive Officer and a Director of the Company. As a result of
the resignation and certain other changes in our management team, we are
updating this risk factor as follows:
Our
success and our ability to execute our business strategy depend largely on the
efforts and abilities of our executive officers and their management
teams. We also must motivate employees to remain focused on our
strategies and goals, particularly during a period of changing leadership for
the Company and a number of our operating divisions. The inability to
find a suitable permanent replacement for our Chief Executive Officer within a
reasonable time period, as well as management personnel to replace departing
executives, could have a material adverse effect on our business. We
do not maintain key-person life insurance policies with respect to any of our
employees.
We plan
to refinance our maturing credit card securitization series with our credit
conduit facilities, which are renewed annually. To the extent that
these conduit facilities are not renewed they would begin to amortize and we
would finance this amortization using our committed revolving credit facilities
to the extent available. There is no assurance that we can refinance
or renew our conduit facilities on terms comparable to our existing facilities
or that there would be sufficient availability under our revolving credit
facilities for such financing. Without adequate liquidity, our
ability to offer our credit program to our customers and consequently our
financial condition and results of operations, would be adversely
affected.
Other
than the above, we have not become aware of any material changes since February
2, 2008 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 2, 2008. See also “Part I; Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
FORWARD-LOOKING STATEMENTS” and “RECENT DEVELOPMENTS”
above.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers:
|
|
|
|
|
|
|
|
Total
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
of
Shares
|
|
|
Shares
that
|
|
|
|
|
|
|
|
|
|
Purchased
as
|
|
|
May
Yet be
|
|
|
|
Total
|
|
|
|
|
|
Part
of Publicly
|
|
|
Purchased
|
|
|
|
Number
|
|
|
Average
|
|
|
Announced
|
|
|
Under
the
|
|
|
|
of
Shares
|
|
|
Price
Paid
|
|
|
Plans
or
|
|
|
Plans
or
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs(2)
|
|
|
Programs(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
3, 2008 through
|
|
|
|
|
|
|
|
|
|
|
|
|
August
30, 2008
|
|
|
1,657 |
(1) |
|
$ |
5.53 |
|
|
|
– |
|
|
|
|
August
31, 2008 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
4, 2008
|
|
|
12,185 |
(1) |
|
|
4.67 |
|
|
|
– |
|
|
|
|
October
5, 2008 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1, 2008
|
|
|
4,175 |
(1) |
|
|
3.75 |
|
|
|
– |
|
|
|
|
Total
|
|
|
18,017 |
|
|
$ |
4.54 |
|
|
|
– |
|
|
|
|
(2) |
____________________
|
|
(1)
Shares withheld for the payment of payroll taxes on employee stock awards
that vested during the period.
|
|
(2)
On November 8, 2007 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. As of February 2, 2008 no shares had been purchased under this
plan. During the period from February 3, 2008 through May 3, 2008 we
repurchased a total of 505,406 shares of stock ($5.21 average price paid
per share) in the open market under this program. During the period
from May 4, 2008 through November 1, 2008 no shares were purchased under
this plan. As of November 1, 2008, $197,364,592 was available for
future repurchases under this program. This repurchase program has no
expiration date.
|
|
The
following is a list of Exhibits filed as part of this Quarterly Report on Form
10-Q. Where so indicated, Exhibits that were previously filed are
incorporated by reference. For Exhibits incorporated by reference, the
location of the Exhibit in the previous filing is indicated in
parentheses.
2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June 2,
2005, filed on June 8, 2005. (File No. 000-07258, Exhibit
2.1).
|
|
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended August 2, 2008. (File No.
000-07258, Exhibit 3.1).
|
|
|
3.2
|
Bylaws,
as Amended and Restated through July 10, 2008, incorporated by reference
to Form 10-Q of the Registrant for the quarter ended August 2,
2008. (File No. 000-07258, Exhibit 3.2).
|
|
|
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. (File No.
000-07258, Exhibit 4.1).
|
|
|
4.2
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.1).
|
|
|
10.1
|
Form
of Time-Based Restricted Stock Units Agreement for Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.1).
|
|
|
10.2
|
Form
of Time-Based Stock Appreciation Rights Agreement for Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.2).
|
|
|
10.3
|
Form
of Time-Based Restricted Stock Units Agreement for Other Executive
Officers, incorporated by reference to Form 8-K of the Registrant dated
April 1, 2008, filed on April 7, 2008. (File No. 000-07258,
Exhibit 10.3).
|
|
|
10.4
|
Form
of Time-Based Stock Appreciation Rights Agreement for Other Executive
Officers, incorporated by reference to Form 8-K of the Registrant dated
April 1, 2008, filed on April 7, 2008. (File No. 000-07258,
Exhibit 10.4).
|
|
|
10.5
|
Form
of Performance-Based Restricted Stock Units Agreement for Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.5).
|
|
|
10.6
|
Form
of Performance-Based Stock Appreciation Rights Agreement for Dorrit J.
Bern, incorporated by reference to Form 8-K of the Registrant dated April
1, 2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.6).
|
|
|
10.7
|
Form
of Additional Time-Based Restricted Stock Units Agreement for Other
Executive Officers, incorporated by reference to Form 8-K of the
Registrant dated April 1, 2008, filed on April 7, 2008. (File
No. 000-07258, Exhibit 10.7).
|
|
|
10.8
|
Form
of Additional Time-Based Stock Appreciation Rights Agreement for Other
Executive Officers, incorporated by reference to Form 8-K of the
Registrant dated April 1, 2008, filed on April 7, 2008. (File
No. 000-07258, Exhibit 10.8).
|
10.9
|
Form
of Performance-Based EBITDA Stock Appreciation Rights Agreement,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.9).
|
|
|
10.10
|
Form
of Stock Appreciation Rights Agreement for Alan Rosskamm, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended August
2, 2008. (File No. 000-07258, Exhibit 10.10).
|
|
|
10.11
|
Amendment,
dated as of May 15, 2008, to Amended and Restated Receivables Purchase
Agreement dated as of June 2, 2005, by and among Catalog Receivables LLC
as seller; Spirit of America, Inc. as servicer; Sheffield Receivables
Corporation as Purchaser; and Barclays Bank PLC as administrator for the
Purchaser, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended May 3, 2008. (File No. 000-07258, Exhibit
10.10).
|
|
|
10.12
|
Letter
Agreement, dated as of June 20, 2008, to Certificate Purchase Agreement,
dated as of May 28, 1999, as amended, among Charming Shoppes Receivables
Corp., as Seller and Class B Purchaser; Spirit of America, Inc., as
Servicer; Clipper Receivables Company, LLC, as Class A Purchaser; and
State Street Global Markets, LLC, as Administrator for the Class A
Purchaser, incorporated by reference to Form 10-Q of the Registrant for
the quarter ended August 2, 2008. (File No. 000-07258, Exhibit
10.1).
|
|
|
10.13
|
Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, Amended and
Restated, Effective May 7, 2008, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended May 3, 2008. (File No.
000-07258, Exhibit 10.12).
|
|
|
10.14
|
Charming
Shoppes, Inc. Annual Incentive Program – Fiscal 2009, as amended and
restated March 27, 2008, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended May 3, 2008. (File No.
000-07258, Exhibit 10.13).
|
|
|
10.15
|
Settlement
Agreement by and between Charming Shoppes, Inc. and The Charming Shoppes
Full Value Committee dated as of May 8, 2008, incorporated by reference to
Form 8-K of the Registrant dated May 8, 2008, filed on May 9,
2008. (File No. 000-07258, Exhibit 10.1).
|
|
|
10.16
|
Separation
Agreement, dated July 8, 2008, by and between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended August 2, 2008. (File No. 000-07258,
Exhibit 10.1).
|
|
|
10.17
|
Stock
Purchase Agreement dated as of August 25, 2008 by and between Crosstown
Traders, Inc., Norm Thompson Outfitters, Inc., Charming Shoppes, Inc. and
the other persons listed on the signature page thereto, incorporated by
reference to Form 8-K of the Registrant dated August 25, 2008, filed on
August 28, 2008. (File No. 000-07258, Exhibit
10.1).
|
|
|
10.18
|
Purchase
Agreement dated as of August 25, 2008 between Spirit of America National
Bank and World Financial Network National Bank, incorporated by reference
to Form 8-K of the Registrant dated August 25, 2008, filed on August 28,
2008. (File No. 000-07258, Exhibit 10.2).
|
|
|
10.19
|
Private
Label Credit Card Plan Agreement dated as of August 25, 2008 by and
between Arizona Mail Order Company, Inc. and Spirit of America National
Bank, incorporated by reference to Form 8-K of the Registrant dated August
25, 2008, filed on August 28, 2008. (File No. 000-07258,
Exhibit 10.3).
|
|
|
10.20
|
Amendment
No. 1 to Stock Purchase Agreement dated as of August 25, 2008 by and among
Crosstown Traders, Inc., Norm Thompson Outfitters, Inc., Charming Shoppes,
Inc. and the other signatories thereto, made and entered into as of
September 18, 2008, incorporated by reference to Form 8-K of the
Registrant dated September 18, 2008, filed on September 19,
2008. (File No. 000-07258, Exhibit
10.2).
|
10.21
|
Transition
Services Agreement dated as of September 18, 2008 by and between Charming
Shoppes of Delaware Inc. and Arizona Mail Order Company, incorporated by
reference to Form 8-K of the Registrant dated September 18, 2008, filed on
September 19, 2008. (File No. 000-07258, Exhibit
10.3).
|
|
|
10.22
|
Form
of Amendment dated September 18, 2008 to the Severance Agreements between
certain executive vice presidents and the Company, including the following
named executive officers: Eric M. Specter, Joseph M. Baron, and Colin D.
Stern, incorporated by reference to Form 8-K of the Registrant dated
September 18, 2008, filed on September 24, 2008. (File No.
000-07258, Exhibit 10.1).
|
|
|
|
Second
Amendment dated as of November 14, 2008 to Series 2004-VFC Supplement,
dated as of January 21, 2004, among Charming Shoppes Receivables Corp, as
Seller, Spirit of America, Inc., as Servicer, and U.S. Bank National
Association, as successor in interest to Wachovia Bank, National
Association, as Trustee, and consented to by Barclays Bank,
PLC.
|
|
|
|
Form
of Charming Shoppes, Inc. 2003 Incentive Compensation Plan Inducement
Grant Stock Appreciation Rights Agreement.
|
|
|
|
Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
CHARMING SHOPPES,
INC.
|
|
(Registrant)
|
|
|
|
|
|
|
Date:
December 9, 2008
|
/S/
ALAN
ROSSKAMM
|
|
Alan
Rosskamm
|
|
Chairman
of the Board
|
|
Interim
Chief Executive Officer
|
|
|
|
|
|
|
Date:
December 9, 2008
|
/S/ ERIC M.
SPECTER
|
|
Eric
M. Specter
|
|
Executive
Vice President
|
|
Chief
Financial Officer
|
Exhibit
No.
|
Item
|
2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June 2,
2005, filed on June 8, 2005. (File No. 000-07258, Exhibit
2.1).
|
|
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended August 2, 2008. (File No.
000-07258, Exhibit 3.1).
|
|
|
3.2
|
Bylaws,
as Amended and Restated through July 10, 2008, incorporated by reference
to Form 10-Q of the Registrant for the quarter ended August 2,
2008. (File No. 000-07258, Exhibit 3.2).
|
|
|
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. (File No.
000-07258, Exhibit 4.1).
|
|
|
4.2
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.1).
|
|
|
10.1
|
Form
of Time-Based Restricted Stock Units Agreement for Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.1).
|
|
|
10.2
|
Form
of Time-Based Stock Appreciation Rights Agreement for Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.2).
|
|
|
10.3
|
Form
of Time-Based Restricted Stock Units Agreement for Other Executive
Officers, incorporated by reference to Form 8-K of the Registrant dated
April 1, 2008, filed on April 7, 2008. (File No. 000-07258,
Exhibit 10.3).
|
|
|
10.4
|
Form
of Time-Based Stock Appreciation Rights Agreement for Other Executive
Officers, incorporated by reference to Form 8-K of the Registrant dated
April 1, 2008, filed on April 7, 2008. (File No. 000-07258,
Exhibit 10.4).
|
|
|
10.5
|
Form
of Performance-Based Restricted Stock Units Agreement for Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.5).
|
|
|
10.6
|
Form
of Performance-Based Stock Appreciation Rights Agreement for Dorrit J.
Bern, incorporated by reference to Form 8-K of the Registrant dated April
1, 2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.6).
|
|
|
10.7
|
Form
of Additional Time-Based Restricted Stock Units Agreement for Other
Executive Officers, incorporated by reference to Form 8-K of the
Registrant dated April 1, 2008, filed on April 7, 2008. (File
No. 000-07258, Exhibit 10.7).
|
10.8
|
Form
of Additional Time-Based Stock Appreciation Rights Agreement for Other
Executive Officers, incorporated by reference to Form 8-K of the
Registrant dated April 1, 2008, filed on April 7, 2008. (File
No. 000-07258, Exhibit 10.8).
|
|
|
10.9
|
Form
of Performance-Based EBITDA Stock Appreciation Rights Agreement,
incorporated by reference to Form 8-K of the Registrant dated April 1,
2008, filed on April 7, 2008. (File No. 000-07258, Exhibit
10.9).
|
|
|
10.10
|
Form
of Stock Appreciation Rights Agreement for Alan Rosskamm, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended August
2, 2008. (File No. 000-07258, Exhibit 10.10).
|
|
|
10.11
|
Amendment,
dated as of May 15, 2008, to Amended and Restated Receivables Purchase
Agreement dated as of June 2, 2005, by and among Catalog Receivables LLC
as seller; Spirit of America, Inc. as servicer; Sheffield Receivables
Corporation as Purchaser; and Barclays Bank PLC as administrator for the
Purchaser, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended May 3, 2008. (File No. 000-07258, Exhibit
10.10).
|
|
|
10.12
|
Letter
Agreement, dated as of June 20, 2008, to Certificate Purchase Agreement,
dated as of May 28, 1999, as amended, among Charming Shoppes Receivables
Corp., as Seller and Class B Purchaser; Spirit of America, Inc., as
Servicer; Clipper Receivables Company, LLC, as Class A Purchaser; and
State Street Global Markets, LLC, as Administrator for the Class A
Purchaser, incorporated by reference to Form 10-Q of the Registrant for
the quarter ended August 2, 2008. (File No. 000-07258, Exhibit
10.1).
|
|
|
10.13
|
Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, Amended and
Restated, Effective May 7, 2008, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended May 3, 2008. (File No.
000-07258, Exhibit 10.12).
|
|
|
10.14
|
Charming
Shoppes, Inc. Annual Incentive Program – Fiscal 2009, as amended and
restated March 27, 2008, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended May 3, 2008. (File No.
000-07258, Exhibit 10.13).
|
|
|
10.15
|
Settlement
Agreement by and between Charming Shoppes, Inc. and The Charming Shoppes
Full Value Committee dated as of May 8, 2008, incorporated by reference to
Form 8-K of the Registrant dated May 8, 2008, filed on May 9,
2008. (File No. 000-07258, Exhibit 10.1).
|
|
|
10.16
|
Separation
Agreement, dated July 8, 2008, by and between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended August 2, 2008. (File No. 000-07258,
Exhibit 10.1).
|
|
|
10.17
|
Stock
Purchase Agreement dated as of August 25, 2008 by and between Crosstown
Traders, Inc., Norm Thompson Outfitters, Inc., Charming Shoppes, Inc. and
the other persons listed on the signature page thereto, incorporated by
reference to Form 8-K of the Registrant dated August 25, 2008, filed on
August 28, 2008. (File No. 000-07258, Exhibit
10.1).
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10.18
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Purchase
Agreement dated as of August 25, 2008 between Spirit of America National
Bank and World Financial Network National Bank, incorporated by reference
to Form 8-K of the Registrant dated August 25, 2008, filed on August 28,
2008. (File No. 000-07258, Exhibit
10.2).
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10.19
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Private
Label Credit Card Plan Agreement dated as of August 25, 2008 by and
between Arizona Mail Order Company, Inc. and Spirit of America National
Bank, incorporated by reference to Form 8-K of the Registrant dated August
25, 2008, filed on August 28, 2008. (File No. 000-07258,
Exhibit 10.3).
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10.20
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Amendment
No. 1 to Stock Purchase Agreement dated as of August 25, 2008 by and among
Crosstown Traders, Inc., Norm Thompson Outfitters, Inc., Charming Shoppes,
Inc. and the other signatories thereto, made and entered into as of
September 18, 2008, incorporated by reference to Form 8-K of the
Registrant dated September 18, 2008, filed on September 19,
2008. (File No. 000-07258, Exhibit 10.2).
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10.21
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Transition
Services Agreement dated as of September 18, 2008 by and between Charming
Shoppes of Delaware Inc. and Arizona Mail Order Company, incorporated by
reference to Form 8-K of the Registrant dated September 18, 2008, filed on
September 19, 2008. (File No. 000-07258, Exhibit
10.3).
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10.22
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Form
of Amendment dated September 18, 2008 to the Severance Agreements between
certain executive vice presidents and the Company, including the following
named executive officers: Eric M. Specter, Joseph M. Baron, and Colin D.
Stern, incorporated by reference to Form 8-K of the Registrant dated
September 18, 2008, filed on September 24, 2008. (File No.
000-07258, Exhibit 10.1).
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Second
Amendment dated as of November 14, 2008 to Series 2004-VFC Supplement,
dated as of January 21, 2004, among Charming Shoppes Receivables Corp, as
Seller, Spirit of America, Inc., as Servicer, and U.S. Bank National
Association, as successor in interest to Wachovia Bank, National
Association, as Trustee, and consented to by Barclays Bank,
PLC.
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Form
of Charming Shoppes, Inc. 2003 Incentive Compensation Plan Inducement
Grant Stock Appreciation Rights Agreement.
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Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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