form10kjan312009.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
______________
FORM
10-K
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x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended January 31, 2009
OR
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______________ to _____________
Commission
File Number: 000-07258
CHARMING SHOPPES, INC.
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(Exact
Name of Registrant as Specified in Its
Charter)
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PENNSYLVANIA
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23-1721355
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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3750 STATE ROAD, BENSALEM,
PA 19020
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(215) 245-9100
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(Address
of principal executive offices) (Zip
Code)
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(Registrant’s
telephone number, including Area Code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Common
Stock (par value $.10 per share)
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The
NASDAQ Stock Market LLC
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Chicago
Stock Exchange, Inc.
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Stock
Purchase Rights
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The
NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act:
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act:
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:
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K:
x
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
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Accelerated
Filer o
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Non-accelerated
Filer o
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Smaller
Reporting Company o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
The
aggregate market value of the outstanding common stock of the registrant held by
non-affiliates as of August 2, 2008 (the last day of the registrant’s most
recently completed second fiscal quarter), based on the closing price on August
1, 2008, was approximately $616,261,448.
As of
March 23, 2009, 115,291,618 shares of the registrant’s common stock were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
information required by Part III of this Form 10-K is incorporated by reference
herein from the registrant’s definitive proxy statement for its 2009 annual
shareholders meeting, which is expected to be filed within 120 days after the
end of the fiscal year covered by this Annual Report.
FORM
10-K ANNUAL REPORT
TABLE
OF CONTENTS
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TABLE OF
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(Continued)
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Item
8
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Financial
Statements and Supplementary Data (Continued)
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We are a
multi-brand, specialty apparel retailer with a leading market share in women’s
plus-size specialty apparel. During our fiscal year ended January 31,
2009 (“Fiscal 2009”) the sale of plus-size apparel represented approximately 80%
of our total net sales. Through our multiple channels, fashion
content, and broad merchandise assortments, we seek to appeal to customers from
a broad range of socioeconomic, demographic, and cultural
groups. During Fiscal 2009 our business operations consisted
primarily of three distinct core brands: LANE BRYANT®, FASHION
BUG®, and
CATHERINES PLUS SIZES®. These
core brands operate retail stores and store-related e-commerce websites under
our Retail Stores business segment.
LANE
BRYANT®
is a widely recognized brand name in plus-size fashion. Through
private labels such as VENEZIA®,
CACIQUE®, and
LANE BRYANT®, we
offer fashionable and sophisticated apparel in plus-sizes 14 – 28, including intimate
apparel, wear-to-work and casual sportswear, and accessories. LANE
BRYANT has a loyal customer base, generally ranging in age from 35 to 55 years
old, which shops for fashionable merchandise in the moderate price
range. Our 786 LANE BRYANT retail stores are located in 47 states, in
a combination of destination malls, lifestyle centers, and strip malls, and
average approximately 5,900 square feet. During Fiscal 2009 our LANE
BRYANT website (lanebryant.com) averaged 2.3
million unique visitors per month with an established on-line
community.
Our LANE
BRYANT intimate apparel side-by-side store pairs LANE BRYANT’s casual and
wear-to-work sportswear assortments with an expanded line of CACIQUE intimates
as well as additional national brands, presented in a double
store-front. This larger footprint of approximately 7,200 square feet
per combined store compares with the full-line LANE BRYANT store footprint of
approximately 5,600 square feet. Included in the 786 stores operated by
LANE BRYANT as of January 31, 2009 are 132 stores operated in the side-by-side
format.
LANE
BRYANT OUTLET® is the
only national chain exclusively offering women’s plus-size apparel in the outlet
sales channel. Through our private labels and selected national
brands we offer fashionable and sophisticated apparel in plus-sizes
14 – 28, including
intimate apparel, wear-to-work and casual sportswear, and accessories, as well
as selected footwear and social occasion apparel. As of January 31, 2009 we
operated 106 LANE BRYANT OUTLET stores in 34 states throughout the
country. LANE BRYANT OUTLET stores average approximately 5,800 square
feet.
FASHION
BUG®
stores specialize in selling plus-size and misses apparel in sizes 6 – 30
serving women’s lifestyle needs from casual to dressy, as well as accessories,
intimate apparel, and footwear. FASHION BUG customers generally range
in age from 20 to 49 years old and shop in the low-to-moderate price
range. Our 897 FASHION BUG stores are located in 43 states, primarily
in strip shopping centers, and average approximately 8,700 square
feet. During Fiscal 2009 our FASHION BUG website (fashionbug.com) averaged
988,000 unique visitors per month.
CATHERINES PLUS
SIZES®
is particularly known for extended sizes (over size 28) and petite
plus-sizes. CATHERINES® offers
classic apparel and accessories for wear-to-work and casual
lifestyles. CATHERINES customers are generally in the 40 years old
and older age group, shop in the moderate price range, and are concerned with
fit and value. Our 463 CATHERINES stores are located in 44 states,
primarily in strip shopping centers, and average approximately 4,200 square
feet. During Fiscal 2009 our CATHERINES website (catherines.com) averaged more
than 503,000 unique visitors per month.
PETITE
SOPHISTICATE OUTLET® is the
only national chain exclusively offering women’s petite-size apparel in the
outlet sales channel. PETITE SOPHISTICATE OUTLET targets women 35 –
55 years old and offers traditional and contemporary apparel in casual and
career assortments. We offer clothing tailored to women 4'11''
– 5'4'' who wear petite sizes 0 – 14. Substantially all of the PETITE
SOPHISTICATE OUTLET stores operate with a LANE BRYANT OUTLET store in
side-by-side locations. As of January 31, 2009 we operated 49 PETITE
SOPHISTICATE OUTLET stores in 24 states throughout the country. These
stores average approximately 2,600 square feet and the side-by-side locations
average a combined total of approximately 8,900 square feet. During
Fiscal 2009 our PETITE SOPHISTICATE OUTLET website (petitesophisticate.com) began
e-commerce operations and in March 2009 it transitioned from an e-commerce
website to a marketing and informational website.
In
addition to the core brands operated under our Retail Stores segment, during
Fiscal 2009 our Crosstown Traders and LANE BRYANT WOMAN catalog and
catalog-related e-commerce websites operated under our Direct-to-Consumer
segment. Crosstown Traders marketed women’s apparel through various
catalog titles and related e-commerce websites, and marketed food and specialty
gift products through its FIGI’S® catalog
and related e-commerce website. The LANE BRYANT WOMAN catalog and
related e-commerce website targeted a different core customer from our LANE
BRYANT retail stores with different fashion and price points. In
April 2008 we began to explore strategic alternatives for our Crosstown Traders
business in order to provide a greater focus on our core brands and to enhance
shareholder value. In September 2008 we completed the sale of our
Crosstown Traders non-core misses apparel catalogs. During the third
quarter of Fiscal 2009 we also decided to discontinue the LANE BRYANT WOMAN
catalog in order to focus on our core LANE BRYANT retail customer and began to
actively explore the sale of our FIGI’S gift catalog. We expect to
discontinue the LANE BRYANT WOMAN catalog operations during the first half of
our fiscal year ending January 30, 2010 (“Fiscal 2010”). These steps
will enable us to focus all of our direct-to-consumer efforts on our three core
brands, particularly on their e-commerce businesses.
Financial
information by business segment for each of our last three fiscal years is
included in “Item
8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements; NOTE 19. SEGMENT
REPORTING”
below.
We are
currently reviewing our organizational structure with a view towards empowering
each of our core brands to take full ownership of all aspects of the customers’
experience while collectively seeking to maximize synergies from being a
multi-brand retailer. With the assistance of a global management
consulting firm we are in the process of transforming our operations into a
vertical specialty store model and 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. Under the vertical specialty store
model, each of our brands can project a unique fashion point-of-view with a
consistent fit, color, and brand attitude. Increasing the percentage
of merchandise we source directly will lead to gross margin enhancement
opportunities and better value for our customers. During Fiscal 2009
we appointed experienced brand presidents for each of our core brands and hired
product design and development executives as part of our commitment to this
transformation and to support this process.
In
conjunction with these organizational initiatives, we also began to implement a
multi-year strategy to enhance our competitive position and improve our
financial results. The strategy includes: a re-focus on
our core retail brands; divestiture of non-core assets; substantial reductions
in operating expenses and a streamlining of our operations; and maintaining and
protecting our strong financial position. See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
OVERVIEW” below for further discussion of our planned organizational
initiatives and details of our multi-year strategy.
Stores
Our 2,301
retail stores (as of January 31, 2009) are primarily located in suburban areas
and small towns. Approximately 79% of these stores are located in
strip shopping centers and lifestyle centers, with the remainder located in
community and regional malls. The majority of our FASHION BUG,
CATHERINES, and outlet stores are strip-center based. Approximately
51% of our LANE BRYANT stores are located in strip and lifestyle shopping
centers, with the remaining stores located primarily in national
malls.
We
believe that our customers visit strip shopping centers frequently as a result
of the tenant mix and convenience of strip shopping centers. Our
long-term real estate strategy is to continue to increase the percentage of
total stores in strip and lifestyle centers, primarily through growth at the
LANE BRYANT brand. Availability of strip and lifestyle center retail
space significantly outpaces mall expansion. In addition, we benefit
in strip and lifestyle centers from substantially lower occupancy costs as
compared to occupancy costs in malls. We continue to seek additional
store locations that meet our financial and operational objectives.
Our
retail store merchandise displays enable our customers to assemble coordinated
and complete outfits that satisfy many of their lifestyle needs. We
frequently test and implement new store designs and fixture packages that are
aimed at providing an effective merchandise presentation. We relocate
or remodel our stores as appropriate to convey a fresh and contemporary shopping
environment. We emphasize customer service, including the presence of
helpful salespeople in the stores, layaway plans, customer loyalty programs, and
acceptance of merchandise returns for cash or credit within a reasonable time
period. Typically, our stores are open seven days per week, eleven
hours per day Monday through Saturday and seven hours on Sunday.
All
retail stores are operated under our direct management. Each store
has a manager and/or an assistant manager or supervisor who is in daily
operational control of the location. We also employ district managers
who travel to all stores in their district on a frequent basis to supervise
store operations. Each district manager has responsibility for an
average of 14 stores. Regional managers, who report to a Vice
President of Stores, supervise the district managers. Generally, we
appoint district managers from our pool of store managers and our store managers
from our pool of assistant store managers. We seek to motivate our
store management through internal advancement and promotion, competitive wages,
and various incentive, medical, and retirement plans. We centrally
develop store operations, merchandising, and buying policies, and assign to
individual store management the principal duties of display, selling, and
reporting through point-of-sale terminals.
The
recessionary economy that existed during Fiscal 2009 has resulted in a
continuing downward trend in traffic levels in our retail stores. The
women’s specialty apparel market has been particularly hard hit, as consumers
are delaying purchases in response to the increasingly uncertain economic
environment and a deteriorating job market. In response to the
continuing weak retail and economic environment, during February 2008 we
announced a significant reduction in the number of planned store openings and
the closing of approximately 150 under-performing stores during Fiscal
2009. In November 2008 we announced the closing of as many as 100
additional stores and a significant reduction in store openings and relocations
during Fiscal 2010. We also announced a substantial reduction in capital
spending in Fiscal 2010 that will result in the opening and relocation of fewer
stores than in prior years. See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
OVERVIEW” below for additional
information regarding our planned store openings and closings.
Our store
openings, closings, and number of locations over the past three fiscal years are
as follows:
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Year
Ended
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January
31,
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February
2,
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February
3,
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2009
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2008
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2007
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Store
Activity:
|
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Number
of stores open at beginning of
period
|
|
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2,409 |
|
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2,378 |
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2,236 |
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Opened
during
period
|
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48 |
(1) |
|
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103 |
(2) |
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198 |
(3) |
Closed
during
period
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|
(156 |
)(4) |
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(72 |
) |
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(56 |
) |
Number
of stores open at end of
period
|
|
|
2,301 |
|
|
|
2,409 |
|
|
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2,378 |
|
|
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|
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Number
of Stores Open at End of Period by Brand:
|
|
|
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|
FASHION
BUG
|
|
|
897 |
|
|
|
989 |
|
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|
1,009 |
|
LANE
BRYANT
|
|
|
892 |
(5) |
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896 |
(5) |
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859 |
(5) |
CATHERINES
|
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463 |
|
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|
468 |
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465 |
|
PETITE
SOPHISTICATE
OUTLET
|
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49 |
|
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56 |
(6) |
|
|
45 |
|
Number
of stores open at end of
period
|
|
|
2,301 |
|
|
|
2,409 |
|
|
|
2,378 |
|
____________________
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(1)
Includes 7 LANE BRYANT OUTLET stores, 11 LANE BRYANT/CACIQUE intimate
apparel side-by-side stores, and 4 PETITE SOPHISTICATE OUTLET
stores.
|
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(2)
Includes 19 LANE BRYANT OUTLET stores, 37 LANE BRYANT intimate apparel
side-by-side stores, 7 PETITE SOPHISTICATE OUTLET stores, and 4 PETITE
SOPHISTICATE stores.
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(3)
Includes 82 LANE BRYANT OUTLET stores and 45 PETITE SOPHISTICATE OUTLET
stores.
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(4)
Includes 78 FASHION BUG, 10 CATHERINES, 21 LANE BRYANT, 2 LANE BRYANT
OUTLET, 1 PETITE SOPHISTICATE OUTLET, and 4 PETITE SOPHISTICATE stores in
connection with the closure of under-performing stores announced in
February 2008.
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(5)
Includes LANE BRYANT OUTLET stores as follows: 106 in Fiscal 2009, 101 in
Fiscal 2008, and 82 in Fiscal 2007.
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(6)
Includes 4 PETITE SOPHISTICATE stores.
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Our
planned store activity by brand for Fiscal 2010 is as follows:
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Openings
|
|
|
Closings(1)
|
|
|
Relocations
|
|
|
|
|
|
|
|
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FASHION
BUG
|
|
|
0 |
|
|
|
45 |
|
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|
3 |
|
LANE
BRYANT
|
|
|
6 |
|
|
|
30 |
|
|
|
9 |
|
CATHERINES
|
|
|
0 |
|
|
|
13 |
|
|
|
0 |
|
PETITE
SOPHISTICATE OUTLET
|
|
|
0 |
|
|
|
12 |
|
|
|
0 |
|
Total
|
|
|
6 |
|
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100 |
|
|
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12 |
|
____________________
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(1)
Closure
of under-performing stores announced in November 2008.
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Merchandising
and Buying
We employ
a merchandising and buying strategy that is focused on providing an attractive
selection of apparel and accessories that reflect the fashion preferences of the
core customer for each of our retail store brands. The marketing and
merchandising operations for each of our core brands operate as separate
groups. We believe that the specialization of marketers and buyers
within each brand enhances each brand’s identity and
distinctiveness. We also use domestic and international fashion
market guidance, fashion advisory services, proprietary design, and in-store and
e-commerce testing to determine the optimal product assortments for each of our
brands. We believe that this approach results in greater success in
predicting customer preferences while reducing our inventory investment and
risk. We seek to maintain high quality standards with respect to
merchandise fabrication, construction, and fit. Our merchandising and
buying philosophy, coupled with enhancements in inventory management, helps
facilitate the timely and orderly purchase and flow of
merchandise. This enables our stores to offer fresh product
assortments on a regular basis.
We
continually refine our merchandise assortments to reflect the needs and demands
of our diverse customer groups and the demographics of each store
location. At LANE BRYANT we offer a combination of fashion basics,
seasonal fashions, and high fashion in casual and wear-to-work merchandise and
our CACIQUE brand of intimate apparel, as well as other national brand intimate
apparel and accessories. We translate current trends into plus-sizes
and strive to be first to market with our styles. At FASHION BUG we
offer a broad assortment of both casual and wear-to-work apparel in plus and
misses sizes at low-to-moderate prices. FASHION BUG’s merchandise
typically reflects established fashion trends and includes a broad offering of
ready-to-wear apparel as well as footwear, accessories, intimate apparel, and
seasonal items, such as outerwear. At CATHERINES we offer a broad
assortment of plus-size merchandise in classic styles designed to provide
“head-to-toe” dressing for our customers. CATHERINES features casual
and career sportswear, dresses, intimate apparel, suits, and accessories in a
variety of plus-sizes, including petites and extended
sizes. CATHERINES has developed a unique expertise in the fit,
design, and manufacturing of extended sizes, making it one of the few retailers
to emphasize these sizes. Our “Right Fit by Lane Bryant®”, “Right
Fit by Fashion Bug®”, and
“Right Fit by Catherines®”
campaigns support our core denim and career pant assortments using a unique fit
and sizing technology, based on an extensive fit survey. Right Fit
adapts to three different body shapes: straight, moderately curvy, and
curvy.
LANE
BRYANT OUTLET features products developed exclusively for our outlet stores,
which include updated key items and best-sellers from our full-line LANE BRYANT
brand. Selected national brands and expanded categories, such as
intimate apparel, footwear, and social occasion, are also offered at LANE BRYANT
OUTLET. PETITE SOPHISTICATE OUTLET offers career and casual
sportswear in petite sizes 0-14. The brand provides traditional,
updated classics, and collections to meet the customers’ everyday work and
casual needs, with an emphasis on outfitting.
As
discussed under the caption “GENERAL” above, we are in the
process of transforming our merchandising operations into a vertical specialty
store model and increasing our percentage of internally designed, developed and
sourced fashion product. We plan to develop more of our own
proprietary fashion merchandise, become more focused on fashion and less driven
by commodity product, present a strong fashion point-of-view, and ultimately
create an enhanced brand experience for our customers through an improved
assortment across each of our core brands.
For
stores that are identified as having certain attributes we use our distribution
capabilities to stock the stores with products specifically targeted to such
attributes. Our merchandising staff obtains store-wide and brand-wide
inventory information generated by merchandise information systems that use
point-of-sale terminals. The status of our merchandise can be tracked
from the placement of our initial order for the merchandise to the actual sale
to our customer. Based on this data, our merchandise managers compare
budgeted-to-actual sales and make merchandising decisions as needed, including
re-order, markdowns, and changes in the buying plans for upcoming
seasons. In addition, we continue to work to improve inventory
turnover by better managing the flow of seasonal merchandise to our stores
across all geographic regions.
We employ
a realistic pricing strategy for our stores that is aimed at setting the initial
price markup of fashion merchandise in order to increase the percentage of sales
at the original ticketed price. We believe this strategy has resulted
in a greater degree of credibility with the customer. However, our
pricing strategy typically does allow sufficient margin to permit merchandise
discounts in order to stimulate customer purchases when necessary.
Our
stores experience a normal seasonal sales pattern for the retail apparel
industry, with peak sales typically occurring during the spring and December
holiday seasons. We generally build inventory levels before these
peak sales periods. To maintain current and fashionable inventory we
reduce the price of slow-moving merchandise throughout the year. Much
of our merchandise is developed for one or more of our four seasons: Spring,
Summer, Fall, and Holiday. End-of-season sales are conducted with the
objective of carrying a minimal amount of seasonal merchandise over from one
season to another. Retail Stores segment sales for the four quarters
of Fiscal 2009, as a percent of annual Retail Stores segment sales, were 26.8%,
27.0%, 23.1%, and 23.1%, respectively.
Marketing
and Promotions
We use
several types of advertising to stimulate retail store customer
traffic. We primarily use targeted direct-mail and e-mail advertising
to preferred customers selected from a database of approximately 27.9 million
proprietary credit card, third-party credit card, and cash customers who have
purchased merchandise from us within the past three years. We may
also use radio, television, newspaper, and internet advertising and fashion
shows to stimulate traffic at certain strategic times of the year. We
also use pricing policies, displays, store promotions, and convenient store
hours to attract customers. We maintain websites for our LANE BRYANT,
FASHION BUG, CATHERINES, and PETITE SOPHISTICATE OUTLET brands that provide
information regarding current fashions and promotions and, except for PETITE
SOPHISTICATE OUTLET, also provide internet shopping. We believe that,
with the planning and guidance of our specialized home-office personnel, each
brand provides such displays and advertising as may be necessary to feature
certain merchandise or certain promotional selling prices from time to
time.
We offer
our FASHION BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE OUTLET retail
store customers various loyalty card programs. Customers who 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. These membership
fee programs include those administered by our proprietary credit card programs
as well as those administered outside of our proprietary credit card
programs. The proprietary credit card programs provide customers with
the option to cancel their membership within 30 days, entitling them to a full
refund of their annual fee. Other programs are offered that do not
require the payment of a membership fee but allow cardholders to earn points for
purchases using a proprietary credit card, which may be redeemed for merchandise
coupons upon the accumulation of a specified number of
points. Additional information on our loyalty card programs is
included in “Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; CRITICAL ACCOUNTING
POLICIES; Revenue
Recognition”
below.
Sourcing
To meet
the demands of our customers we access both the domestic wholesale and overseas
markets for our retail store merchandise purchases. This allows us to
maintain flexible lead times, respond quickly to current fashion trends, and
replenish merchandise inventory as necessary. During Fiscal 2009 we
purchased merchandise from approximately 580 suppliers located throughout the
world. We use our overseas sourcing operations, which generally
require longer lead times, primarily to purchase fashion-basic merchandise for
our stores. In Fiscal 2009 our overseas sourcing operations accounted
for approximately 40% of retail store merchandise purchases. Overseas
sourcing by brand, as a percent of merchandise purchases, was approximately 38%
for FASHION BUG, 41% for LANE BRYANT, 33% for CATHERINES, and 60% for LANE
BRYANT OUTLET and PETITE SOPHISTICATE OUTLET. We also purchase a
portion of our LANE BRYANT merchandise from Mast Industries, Inc. (“Mast”), a
contract manufacturer and apparel importer that is a wholly-owned subsidiary of
Limited Brands, Inc. These purchases from Mast accounted for
approximately 5% of our total retail store merchandise purchases and
approximately 15% of merchandise purchases for LANE BRYANT during Fiscal
2009. No other vendor accounted for more than 2% of total retail
store merchandise purchases during Fiscal 2009.
As
discussed under the caption “GENERAL” above, we are in the
process of transforming our operations into a vertical specialty store model and
increasing our percentage of internally sourced fashion
product. Increasing the percentage of merchandise we source directly
will lead to gross margin enhancement opportunities and better value for our
customers.
We pay
for a majority of our merchandise purchases outside the United States on an open
account basis. We pay for the remainder of our purchases outside the
United States through corporate-issued letters of credit and, to a lesser
extent, through bank-issued letters of credit where we are the importer of
record. The geographic diversification of our sourcing network
provides us with the flexibility to locate alternate sources for our products in
order to meet our pricing targets.
To date,
we have not experienced difficulties in purchasing merchandise overseas or
importing such merchandise into the United States. Should events such
as political instability or a natural disaster result in a disruption of normal
activities in any single country with which we do business, we believe that we
would have adequate alternative sources of supply.
Distribution
and Logistics
We
currently operate two distribution centers for our Retail Stores
segment. For our FASHION BUG, LANE BRYANT OUTLET, and PETITE
SOPHISTICATE OUTLET stores we operate a distribution center in Greencastle,
Indiana. This facility is located on a 150-acre tract of land and
contains a building of approximately 1,040,000 square feet. We
estimate that this facility has the capacity to service up to approximately
1,800 stores. For our LANE BRYANT and CATHERINES stores we operate a
distribution center in White Marsh, Maryland. The White Marsh
facility is located on 28 acres of land and contains a building of approximately
513,000 square feet that is currently designed to service up to approximately
1,800 stores.
The vast
majority of our merchandise purchases are received at these distribution
facilities, where they are prepared for distribution to our
stores. Automated sorting systems in the distribution centers enhance
the flow of merchandise from receipt to quality control inspection, receiving,
ticketing, packing, and final shipment. Merchandise is shipped to
each store principally by common carriers. We use computerized
automated distribution attributes to combine shipments when possible and improve
the efficiency of the distribution operations.
Inventory
and fulfillment activities for our store-related e-commerce operations are
handled by a third-party warehouse facility in Indianapolis,
Indiana. We utilize approximately 375,000 square feet of space that
is used for merchandise receipt, storage, picking, packing, shipping, and
returns processing. A majority of this merchandise is received from
our Greencastle and White Marsh distribution centers.
Our
distribution and logistics operations provide adequate capacity for the
foreseeable future, and we continually evaluate our overall long-term
distribution and logistics requirements.
We
established our Direct-to-Consumer segment in June 2005 with the acquisition of
Crosstown Traders, Inc. Crosstown Traders operated multiple catalog
titles and related websites, with the majority of revenues derived from the
catalog sales of women's apparel, footwear, and
accessories. Crosstown Traders also derived revenues from the catalog
sales of food and gifts through its FIGI’S catalog. A substantial
majority of sales through the FIGI’S catalog occur during the December holiday
season. In October 2007 the LANE BRYANT catalog trademark, which had
been licensed to a third party, reverted to us and we launched our LANE BRYANT
WOMAN catalog and related website.
In April
2008 we began to explore strategic alternatives for our Crosstown Traders
business in order to provide a greater focus on our core brands and to enhance
shareholder value. In September 2008 we completed the sale of our
Crosstown Traders non-core misses apparel catalogs to an affiliate of Orchard
Brands, a portfolio company owned by Golden Gate Capital. During the
third quarter of Fiscal 2009 we also decided to discontinue the LANE BRYANT
WOMAN catalog and began to actively explore the sale of our FIGI’S gift
catalog. As of the end of Fiscal 2009 our Direct-to-Consumer segment
consisted of the operations of our FIGI’S and LANE BRYANT WOMAN
catalogs. We expect to discontinue the LANE BRYANT WOMAN catalog
operations during the first half of our fiscal year ending January 30, 2010
(“Fiscal 2010”).
In
connection with the sale of the Crosstown Traders apparel catalogs we retained
certain components of its infrastructure. Accordingly, we entered
into transitional service agreements with an affiliate of 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, an
affiliate of Orchard Brands agreed to provide certain transitional services to
us, including distribution and call center services, for specified time periods
ranging up to one year from the date of the agreement. Subsequent to
the transitional period we will be responsible for any remaining lease
liabilities for the retained facilities and we will discontinue using the fixed
assets related to the retained facilities.
We own
125,000 square-feet of automated distribution center space in Marshfield,
Wisconsin that serves as the main distribution area for our FIGI’S catalog and
ships approximately 2,400,000 packages per year. A 122,000
square-foot leased facility in Stevens Point, Wisconsin and a 46,000 square-foot
owned facility in Neillsville, Wisconsin also service FIGI’S. These
facilities provide adequate capacity for our FIGI’S catalog operations for the
foreseeable future.
PROPRIETARY
CREDIT PROGRAMS
We seek
to encourage sales through the promotion of our proprietary credit
cards. We believe that our credit cards act as promotional vehicles
by engendering customer loyalty, creating a substantial base for targeted
direct-mail promotion, and encouraging incremental sales. Our FASHION
BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE brands each offer our
customers the convenience of proprietary credit card programs.
Our
FASHION BUG credit card program accounted for approximately 33% of FASHION BUG
retail sales in Fiscal 2009 and has approximately 2.0 million active
accounts. Our CATHERINES credit card program accounted for
approximately 35% of CATHERINES retail sales in Fiscal 2009 and has
approximately 0.6 million active accounts. The LANE BRYANT credit
card program accounted for approximately 30% of LANE BRYANT retail sales in
Fiscal 2009 and has approximately 1.9 million active accounts. The
PETITE SOPHISTICATE credit card program accounted for approximately 18% of
PETITE SOPHISTICATE OUTLET retail sales in Fiscal 2009 and has approximately 45
thousand active accounts. Our LANE BRYANT WOMAN CATALOG credit card
accounted for approximately 31% of LANE BRYANT WOMAN catalog apparel sales in
Fiscal 2009 and has approximately 128 thousand active accounts.
We
control credit policies and service the FASHION BUG, CATHERINES, LANE BRYANT,
PETITE SOPHISTICATE, and LANE BRYANT WOMAN CATALOG proprietary credit card files
and, through various agreements, we securitize and sell the credit card
receivables generated by these programs.
On August
25, 2008 we announced that we had entered into an agreement to sell our misses
apparel catalog credit card receivables in conjunction with the sale of the
related Crosstown Traders catalog titles (see “DIRECT-TO-CONSUMER SEGMENT”
above). On December 31, 2008, we finalized 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. The portfolio was sold for a par value of $43.5
million. We utilized a portion of the proceeds to pay off and
terminate the related securitization funding facility and realized net cash
proceeds of $12.5 million.
In
addition to our credit card programs our FIGI’S non-apparel catalog brand offers
interest-free, three-payment credit terms over three months to its customers,
with the first payment due on a defined date 30 to 60 days after a stated
holiday.
A more
comprehensive description of our proprietary credit programs and our asset
securitization process is included in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations; FINANCIAL
CONDITION; Off-Balance-Sheet
Arrangements” and
“Item 8. Financial
Statements and Supplementary Data: Notes to Consolidated Financial Statements;
NOTE
17. ASSET SECURITIZATION” below.
COMPETITION
The
women's specialty retail apparel business is highly competitive, with numerous
competitors, including individual and chain fashion specialty stores, department
stores, discount stores, catalog retailers, and Internet-based
retailers. We cannot reasonably estimate the number of our
competitors due to the large number of women’s apparel retailers. The
primary elements of competition are merchandise style, size, selection, fit,
quality, display, price, attractive website layout, efficient fulfillment of
website mail orders, and personalized service to our customers. For
our retail stores, store location, design, advertising, and promotion are also
significant elements of competition.
EMPLOYEES
As of the
end of Fiscal 2009 we employed approximately 28,700 associates, which included
approximately 20,700 part-time employees. In addition, we hire a
number of temporary employees during the December holiday
season. Approximately 60 of our employees are represented by unions
whose contracts are currently due to expire in August 2009. We
believe that our overall relationship with these unions and our associates in
general is satisfactory.
TRADEMARKS
AND SERVICEMARKS
We own,
or are in the process of obtaining, all rights to the trademarks and trade names
we believe are necessary to conduct our business as presently
operated. “FASHION BUG®”,
“FASHION BUG PLUS®”,
“FIGURE®”, “L.A.
BLUES®”,
“STUDIO 1940®”, “RIGHT
FIT BY FASHION BUG®”,
“CATHERINES®”,
“CATHERINES PLUS SIZES®”,
“MAGGIE BARNES®”, “ANNA
MAXWELL®”,
“LIZ&ME®”,
“SERENADA®”, “RIGHT
FIT BY CATHERINES®”, “LANE
BRYANT®”, “LANE
BRYANT OUTLET®”, “LANE
BRYANT WOMAN®”,
“VENEZIA®”,
“CACIQUE®”, “RIGHT
FIT BY LANE BRYANT®”,
“PETITE SOPHISTICATE®”,
“PETITE SOPHISTICATE OUTLET®”, “FIGI’S®”,
“SHOETRADER®”, and
several other trademarks and servicemarks of lesser importance to us have been
registered or are in the process of being registered with the United States
Patent and Trademark Office and in other countries.
We also
own the following Internet domain name registrations: catherines.com, charming.com,
charmingshoppes.com, fashionbug.com, fashionbugcard.com, fashionbugplus.com,
figuremagazine.com, lanebryant.com, lanebryantcatalog.com,
petitesophisticate.com, shoetrader.com, figis.com and others of lesser
importance.
EXECUTIVE
OFFICES
Charming
Shoppes, Inc. was incorporated in Pennsylvania in 1969. Our principal
offices are located at 3750 State Road, Bensalem, Pennsylvania
19020. Our telephone number is (215) 245-9100.
Copies of
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are
available free of charge on or through our website at www.charmingshoppes.com as
soon as reasonably practicable after we electronically file such material with,
or furnish it to, the Securities and Exchange Commission (“SEC”). Our
historical filings can also be read and copied at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549 or can be accessed directly from
the SEC’s website at www.sec.gov. Information
on the operation of the Public Reference Room can be obtained by calling the SEC
at (800) 732-0330. See “PART III; Item 10. Directors,
Executive Officers, and Corporate Governance” below for additional
information that is available on our Internet website.
You
should carefully consider and evaluate all of the information in this annual
report on Form 10-K and the documents incorporated by reference into this
report, including the risk factors listed below. Any of these risks
could materially and adversely affect our business, financial condition, and
operating results, and could cause our actual results to differ materially from
our plans, projections, or other forward-looking statements included in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” below
and elsewhere in this Report on Form 10-K, and in our other public
filings. The occurrence of one or more of these risks could also
materially and adversely affect the price of our common stock.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
A
continuing slowdown in the United States economy, an uncertain economic outlook,
and escalating energy costs could lead to further reductions in consumer demand
for our products in the future.
Consumer
spending habits, including spending for our products, are affected by, among
other things, prevailing economic conditions, levels of employment, salary
levels, wage rates, availability of consumer credit, consumer confidence,
fluctuating fuel and energy costs, and consumer perception of economic
conditions. Consumer discretionary spending, including purchases of
women’s apparel, tends to decline during recessionary periods. The
continuing general slowdown in the United States economy, the global credit
crisis, and an uncertain economic outlook have adversely affected consumer
spending habits and customer traffic, which have contributed to a reduction in
our net sales. We cannot reliably predict the extent to which the
current economic conditions will affect our business. A prolonged
economic downturn could have a material adverse effect on our business,
financial condition, and results of operations.
Our
business is dependent upon our ability to accurately predict rapidly changing
fashion trends, customer preferences, and other fashion-related
factors.
Customer
tastes and fashion trends are volatile and tend to change rapidly, particularly
for women's apparel. Our success depends in part on our ability to
effectively predict and respond to quickly changing fashion tastes and consumer
demands, and to translate market trends into appropriate, saleable product
offerings. These risks may increase as we shift a higher proportion
of our product from third-party vendors to internally-designed
merchandise. If we are unable to successfully implement our plans for
the transformation of our brands to a vertical store model or successfully
predict or respond to changing styles or trends and misjudge the market for our
products or any new product lines, our sales will be lower and we may be faced
with a substantial amount of unsold inventory or missed sales
opportunities. In response, we may be forced to rely on additional
markdowns or promotional sales to dispose of excess or slow-moving inventory,
which could have a material adverse effect on our business, financial condition,
and results of operations. This could also impact our reputation with
our customers, which could diminish brand loyalty.
Existing
and increased competition in the women's retail apparel and direct-to-consumer
markets may reduce our net revenues, profits, and market share.
The
women's specialty retail apparel and direct-to-consumer markets are highly
competitive. Our competitors include individual and chain fashion
specialty stores, department stores, discount stores, catalog retailers, and
Internet-based retailers. As a result of this competition we are
required to effectively market and competitively price our products to consumers
in diverse markets, and we may experience pricing pressures, increased marketing
expenditures, and loss of market share. This could have a material
adverse effect on our business, financial condition, and results of operations,
including reduced sales and margins.
We
believe that the principal bases upon which we compete are merchandise style,
size, selection, fit, quality, display, price, attractive website layout,
efficient fulfillment of website mail orders, and personalized service to our
customers, as well as store location, design, advertising, and
promotion. Other women's apparel and direct-to-consumer companies
with greater financial resources, marketing capabilities, or brand recognition
may enter the plus-size business. We cannot give assurance that we
will be able to compete successfully against existing or future
competitors.
Maintaining
and improving our operating margins are dependent on our ability to successfully
control our operating costs.
In order
to maintain or improve our operating margins we need to successfully manage our
operating costs. Our inability to successfully manage labor costs,
occupancy costs, or other operating costs, or our inability to take advantage of
opportunities to reduce operating costs, could adversely affect our operating
margins and our results of operations. 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, unionization, or other employee benefits could cause us
to incur additional wage and benefit costs, which could adversely affect our
results of operations. The finance charges on most of our proprietary
credit card accounts are billed using a floating rate index, subject to a floor
and limited by legal maximums. Changes in legislation limiting
interest rates and other credit card charges that can be billed on credit
card accounts could negatively impact the operating margins of our credit
operation. In addition, we may be unable to obtain adequate insurance
coverage for our operations at a reasonable cost.
We
may be unable to attain the expected results of our cost-cutting
initiatives.
In Fiscal
2009 we announced initiatives and actions designed to: streamline our business
operations and further sharpen our focus on our core businesses, including the
discontinuation of our LANE BRYANT WOMAN catalog and our figure
magazine, and reduction of operating expenses and capital expenditures; improve
cash flow; and enhance shareholder value. The benefits of our
initiatives are based on forecasts which could vary substantially from our
actual results. We cannot assure the successful implementation of our
planned cost reduction and capital budget reduction plans, and we cannot assure
the realization of our anticipated annualized expense savings from cost
reduction initiatives and restructuring programs announced in Fiscal
2009.
We
may not be able to obtain sufficient working capital financing.
Our
business requires substantial investment in our inventory for a long period
before sales of that inventory occur. Consequently, we require
significant amounts of working capital financing. We depend on the
availability of credit to fund our working capital, including credit we receive
from our suppliers and their agents, on our credit card securitization program,
and on our revolving credit facility. In addition, the current global
financial crisis could adversely affect our ability or the ability of our
vendors to secure adequate credit financing. If we or our vendors are
unable to obtain sufficient financing at an affordable cost, our ability to
merchandise our retail stores or e-commerce businesses could be adversely
affected.
We plan
to refinance our maturing credit card term securitization series with our credit
conduit facilities, which are renewed annually, or through the issuance of a new
term series. To the extent that our 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. These concerns are heightened by the current global
economic credit crisis. 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.
On
February 19, 2009, Moody's Investors Service, a nationally recognized
statistical rating organization (“NRSRO”) that has rated our term series
securitizations in the past, announced that it had downgraded the ratings of our
term series asset-backed securities. No other NRSRO took a similar
action. The Moody’s action could negatively impact our ability to complete
future term series securitization transactions on acceptable terms and cause our
asset securitization program to rely on other potentially more expensive funding
sources to the extent available. The Moody’s action does not affect our
current conduit and term series transactions, which we currently expect will
provide sufficient funding for our securitization program for Fiscal
2010.
Our
operating results fluctuate from season to season.
Our
retail store and direct-to-consumer operations experience seasonal fluctuations
in net sales and consequently in operating income, with peak sales typically
occurring during the Easter, Labor Day, and December holiday
seasons. In addition, extreme or unseasonable weather can affect our
sales. Any decrease in net sales or margins during our peak selling
periods similar to what we experienced during our December 2008 holiday season,
or in the availability of working capital needed in the months before these
periods, could have a material adverse effect on our business, financial
condition, and results of operations.
We
usually order merchandise in advance of peak selling periods and sometimes
before new fashion trends are confirmed by customer purchases. We
must carry a significant amount of inventory, including perishable products for
our FIGI’S food and gift catalog, before the peak selling periods. If
we are not successful in selling our inventory, especially during our peak
selling periods, we may be forced to rely on markdowns or promotional sales to
dispose of the inventory or we may not be able to sell the inventory at all,
which could have a material adverse effect on our business, financial condition,
and results of operations.
We
face challenges in managing our business.
Our
operating challenges and management responsibilities are increasing as we
re-focus on the development of our core brands, divestiture of our non-core
assets, and the implementation of our plans for the transformation of our brands
to a vertical store model. Successful long-term growth will require
that we continue to expand and improve our internal systems and our operations,
including our internal sourcing operations.
Our
long-term growth plan for our Retail Stores segment depends on our ability to
open and operate new retail stores and to convert, where applicable, the formats
of existing stores on a profitable basis. In addition, we will need
to identify, hire, and retain a sufficient number of qualified personnel to work
in our stores.
These
objectives have created, and may continue to create, additional demands on our
staff and on our operating systems. We cannot assure the successful
implementation of our business plan to re-focus on our core brands, divest
non-core assets (including the sale of our FIGI’S catalog), and transform our
operations to a vertical store model, or that we will achieve our objectives as
quickly or as effectively as we have planned. Any delays in achieving
our objectives could substantially increase the costs associated with such
initiatives.
Recent
changes in our management as part of an effort to improve our competitive
position and operating results may not achieve the desired results.
We
depend on key personnel and may not be able to retain or replace these employees
or recruit additional qualified personnel.
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 executive
leadership at both our corporate level and our operating division
level. The inability to find a suitable permanent replacement for our
Interim Chief Executive Officer within a reasonable time period 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.
Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market.
Our
business is primarily focused on sales of plus-size women’s apparel, which
represents a majority of our total net sales. Our operating results
could be adversely affected by a lack of continued growth in the plus-size
women’s apparel market.
We
could be materially and adversely affected if any of our distribution or
fulfillment centers are shut down.
We
operate distribution and fulfillment centers in Greencastle, Indiana; White
Marsh, Maryland; Marshfield, Wisconsin; and Stevens Point, Wisconsin and use a
third-party fulfillment center in Indianapolis, Indiana that services our
e-commerce operations. In addition, we use third-party freight
consolidators and service providers in Los Angeles, California and North Bergen,
New Jersey. Most of the merchandise we purchase is shipped directly
to our distribution and fulfillment centers or freight consolidators where it is
prepared for shipment to the appropriate stores or to the
customer. If any of our distribution centers, fulfillment centers, or
freight consolidators were to shut down or lose significant capacity for any
reason, the other locations may not be able to adequately support the resulting
additional distribution demands, in part because of capacity constraints and in
part because each location services a particular brand or brands. As
a result, we could incur significantly higher costs and longer lead times
associated with distributing our products to our stores or customers during the
time it takes for us to reopen or replace the affected distribution center,
fulfillment center, or freight consolidator.
The
occurrence of, or threat of, a natural disaster, war, acts of terrorism, or
other armed conflict on the United States or international economies may
negatively impact the availability of merchandise and otherwise adversely impact
our business.
The
occurrence of, or threat of, a natural disaster, war, acts of terrorism, or
other armed conflict could negatively affect our ability to obtain merchandise
for sale in our stores or through our direct-to-consumer business. A
significant portion of our merchandise is imported from other
countries. If imported goods become difficult or impossible to bring
into the United States and we cannot obtain such merchandise from other sources
at similar costs, our net sales and profit margins may be adversely
impacted. If commercial transportation is curtailed or substantially
delayed our business may be adversely impacted, as we may have difficulty
shipping merchandise to our distribution centers, fulfillment centers, freight
consolidators, stores, or our direct-to-consumer customers. As a
result of the occurrence of, or threat of, a natural disaster or acts of
terrorism in the United States we may be required to suspend operations in some
or all of our stores, which could have a material adverse impact on our
business, financial condition, and results of operations.
Our
inability to successfully manage customer service or fulfillment for our
e-commerce websites could adversely impact our operating results.
Successful
management of our e-commerce operations is dependent on our ability to maintain
efficient and uninterrupted customer service and order
fulfillment. 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. In addition, we may not be able to hire
sufficient qualified associates to support our e-commerce operations during peak
periods, especially during the December holiday season. The
occurrence of one or more of these events could adversely affect our e-commerce
business.
During
Fiscal 2009 we began to implement a new and upgraded e-commerce platform through
an outsourcing arrangement and the consolidation of our e-commerce business at
our Bensalem, Pennsylvania headquarters. If we are unsuccessful in
effectively implementing the new platform and consolidation our e-commerce
business could be adversely affected.
We
rely on foreign sources of production.
We
purchase a significant portion of our apparel directly in foreign markets and
indirectly through domestic vendors with foreign sources. We 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):
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political
instability;
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increased
security requirements applicable to imported goods;
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trade
restrictions;
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imposition
of or changes in duties, quotas, taxes, and other charges on
imports;
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currency
and exchange risks;
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issues
relating to compliance with domestic or international labor
standards;
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concerns
over anti-dumping;
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delays
in shipping; or
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increased
costs of transportation.
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New
requirements could be proposed that would have an impact on the trading status
of certain countries and could include retaliatory duties or other trade
sanctions that, if enacted, could increase the cost of products purchased from
suppliers in such countries or restrict the importation of products from such
countries.
Our
purchasing patterns are dictated by our seasonal inventory
requirements. We typically enter into purchase commitments with our
vendors for seasonal inventories up to six months ahead of when we take delivery
of those products. All of our purchase commitments with foreign
vendors are denominated in U.S. dollars and are settled in U.S.
dollars. These arrangements provide a natural hedge to the impacts of
changes in the value of the U.S. dollar relative to the foreign currencies
during the period from when we enter into purchase commitments with our vendors
to when we take delivery of the products in the countries from which we source
our products. However, changes in the value of the U.S. dollar
relative to other currencies can impact the negotiated pricing for products when
comparing one seasonal buying period to another. We have a network of
countries and vendors from which we can source, but additional weakening of the
U.S. dollar in relation to those foreign currencies could negatively impact the
cost of our foreign-sourced products. The future performance of our
business depends on our foreign suppliers and may be adversely affected by the
factors listed above, which are beyond our control.
Issues
of global workplace conditions may adversely affect our business.
If any
one of our manufacturers or vendors fails to operate in compliance with
applicable laws and regulations, is perceived by the public as failing to meet
certain labor standards in the United States, or employs unfair labor practices,
our business could be adversely affected. Current global workplace
concerns of the public include perceived low wages, poor working conditions, age
of employees, and various other employment standards. These
globalization issues may affect the available supply of certain manufacturers'
products, which may result in increased costs to us. Furthermore, a
negative customer perception of any of our key vendors or their products may
result in a lower customer demand for our apparel.
We
depend on strip shopping center and mall traffic and our ability to identify
suitable store locations for our Retail Stores segment.
Our sales
are dependent in part on a high volume of strip shopping center and mall
traffic. Strip shopping center and mall traffic may be adversely
affected by, among other things, economic downturns, the closing of anchor
stores, or changes in customer shopping preferences. A decline in the
popularity of strip shopping center or mall shopping among our target customers
could have a material adverse effect on our business. To take
advantage of customer traffic and the shopping preferences of our customers we
need to maintain or acquire stores in desirable locations. We cannot
assure that desirable store locations will continue to be
available. Acquisition of additional store locations is also
dependent on our ability to successfully negotiate lease terms for such
locations. In addition, the timely opening of new store locations
could be adversely affected by delays in obtaining necessary permits and
approvals, lack of availability of construction materials and labor, or work
stoppages. Our ability to acquire or maintain desirable store
locations could be adversely affected by financial difficulties encountered by
strip shopping center or mall landlords.
We
may be unable to protect our trademarks and other intellectual property
rights.
We
believe that our trademarks and servicemarks are important to our success and
our competitive position due to their name recognition with our
customers. We devote substantial resources to the establishment and
protection of our trademarks and servicemarks on a worldwide
basis. Nevertheless, there can be no assurance that the actions we
have taken to establish and protect our trademarks and servicemarks will be
adequate to prevent imitation of our products by others or to prevent others
from seeking to block sales of our products as a violation of their trademarks,
servicemarks, or proprietary rights. Also, others may assert rights
in, or ownership of, our trademarks and other proprietary rights and we may not
be able to successfully resolve these types of conflicts to our
satisfaction. In addition, the laws of certain foreign countries may
not protect proprietary rights to the same extent as do the laws of the United
States.
We
may acquire or divest businesses or enter into joint ventures or strategic
alliances, which may materially affect our business, financial condition, and
operating results.
We
continually evaluate our portfolio of businesses and may decide to buy or sell
businesses or enter into joint ventures or other strategic
alliances. Significant acquisitions and alliances may increase
demands on management, financial resources, and information and internal control
systems. Our success with respect to acquisitions and alliances will
depend, in part, on our ability to manage and integrate acquired businesses and
alliances with our existing businesses and to successfully implement, improve,
and expand our systems, procedures, and controls. In addition, we may
divest existing businesses, which would cause a decline in revenues and may make
our financial results more volatile. If we fail to integrate and
manage acquired businesses successfully or to manage the risks associated with
divestitures, joint ventures, or other alliances, our business, financial
condition, and operating results could be materially and adversely
affected.
OTHER
RISKS
Anti-takeover
provisions in our governing documents and Pennsylvania law may discourage other
companies from attempting to acquire us.
Some
provisions of our articles of incorporation and bylaws and of Pennsylvania law
may discourage some transactions where we would otherwise experience a change in
control, such as provisions that:
●
|
do
not permit cumulative voting;
|
●
|
permit
our board to issue "blank check" preferred stock without shareholder
approval;
|
●
|
require
certain advance notice procedures with regard to the nomination of
candidates for election as directors, other than nominations by or at the
direction of our board;
|
●
|
prevent
our directors from being removed without cause except upon super-majority
shareholder approval; and
|
●
|
prevent
a holder of 20% or more of our common stock from taking certain actions
without certain approvals.
|
We also
have adopted a Shareholder Rights Plan that expires in April
2009. This plan may make it more difficult and more expensive to
acquire us, and may discourage open market purchases of our common stock or a
non-negotiated tender or exchange offer for such stock and, accordingly, may
limit a shareholder's ability to realize a premium over the market price of our
common stock in connection with any such transaction.
Failure
to comply with the provisions of the Sarbanes-Oxley Act of 2002 could adversely
affect our business.
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 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.
We
could be required to repurchase our 1.125% Senior Convertible Notes due May 1,
2014 for cash prior to maturity of the notes.
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 on our ability to repurchase, such as
the risk of our inability to obtain funds for such repurchase, and could
adversely affect our financial condition. See “If we are unable
to maintain the standards necessary for continued listing on the NASDAQ Global
Select Market our common stock could be de-listed. Such de-listing
could have an adverse effect on the market liquidity of our common stock and
could harm our business.” below
for additional information.
If
we are unable to maintain the standards necessary for continued listing on the
NASDAQ Global Select Market our common stock could be de-listed. Such
de-listing could have an adverse effect on the market liquidity of our common
stock and could harm our business.
Our
common stock is currently listed on the NASDAQ Global Select
Market. NASDAQ rules require, among other things, that the minimum
closing bid price of our common stock be at least $1.00. Recently,
our common stock has traded below $1.00 per share. If the minimum
closing bid price of our common stock fails to meet NASDAQ’s minimum bid price
requirement for a period of 30 consecutive business days, NASDAQ may take steps
to de-list our common stock. However, before any de-listing could
occur, we would have an initial 180-day cure period in which to achieve
compliance with the minimum closing bid price. If we were unable to
achieve compliance within this 180-day period, we could transfer to the NASDAQ
Capital Market if we then meet its initial listing criteria (other than the
minimum bid price). Following such transfer, we would have an
additional 180-day period in which to achieve compliance with the minimum bid
price.
On March 23, 2009, NASDAQ suspended the $1.00 per share
minimum closing bid price
requirement through at
least July 20, 2009. Consequently, for as long as NASDAQ’s
rule suspension remains in effect, NASDAQ will not take steps to de-list our
common stock if the minimum closing bid price for our common stock trades below
$1.00 per share during the rule suspension period. We can provide no
assurance, however, that NASDAQ will extend this rule suspension period beyond
July 20, 2009.
Any
de-listing would likely have an adverse impact on the liquidity of our common
stock and, as a result, the market price for our common stock could become more
volatile and significantly decline. We may seek to avoid de-listing
by requesting shareholder approval for a reverse stock
split. However, we can give no assurance that such action would
stabilize the market price, improve the liquidity of our common stock, or would
prevent our common stock from dropping below the NASDAQ minimum closing bid
price requirement in the future. Such consequences may however be
mitigated by our dual-listing on the Chicago Stock Exchange.
Holders
of our 1.125% Notes have the right to require us to repurchase their notes for
cash prior to maturity upon a “fundamental change,” which is deemed to have
occurred if, among other events, our common stock at any time is not listed for
trading on a U.S. national or regional securities exchange. Due to
the above risk that we could be subject to de-listing from the NASDAQ Global
Select Market, we applied for dual-listing on the Chicago Stock Exchange (“CHX”)
and began trading on March 26, 2009. The CHX does not have a $1.00
minimum stock price requirement for listing.
New
accounting rules or regulations or changes in existing rules or regulations
could adversely impact our reported results of operations.
Changes
to existing accounting rules or the adoption of new rules could have an adverse
effect on our reported results of operations.
In
September 2008, the Financial Accounting Standards Board (“FASB”) issued
exposure drafts proposing amendments to Statement of Financial Accounting
Standards (“SFAS”) 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities,” and FASB Interpretation No. 46R, “Consolidation of Variable Interest
Entities.” Currently, transfers of our credit card receivables
in securitization transactions qualify for sale accounting
treatment. We do not consolidate the trust used in our
securitizations for financial reporting purposes because the trust is a
qualifying special purpose entity (“QSPE”). Because the transfers
qualify as sales and the trust is not subject to consolidation under current
generally accepted accounting principles, we do not include the assets and
liabilities of the trust in our consolidated balance sheets.
Under the
proposed amendments, the concept of a QSPE would be eliminated, the
consolidation model for variable interest entities would be modified, and a
continual reassessment of consolidation conclusions would be
required. If adopted, we would be required to adopt the amendments as
of the beginning of Fiscal 2011. As a result of adoption, we could be
required to consolidate the assets and liabilities of our securitization trust,
which could have a material impact on our financial condition and results of
operations.
Changes
in estimates related to our evaluation of property, plant, equipment, goodwill,
or intangible assets for impairment could adversely affect our reported results
of operations.
We make
certain significant assumptions, estimates, and projections related to the
useful lives and valuation 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, goodwill, 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.
Item
1B. Unresolved Staff Comments
Not
applicable.
We lease
all our stores with the exception of three stores that we
own. Typically, our store leases have initial terms of 5 to 10 years
and generally contain provisions for co-tenancies, renewal options, additional
rents based on a percentage of sales, and payment of real estate taxes and
common area charges. In addition, we lease certain of our corporate
office, distribution center, warehouse, and other administrative
facilities. Additional information with respect to our real estate
leases is included in “Item
8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements; NOTE
18. LEASES” below.
With
respect to leased stores open as of January 31, 2009 the following table shows
the number of store leases expiring during the calendar periods indicated,
assuming the exercise of our renewal options:
Period
|
Number
of
Leases Expiring
|
|
|
2009
|
126(1)
|
2010
– 2014
|
652
|
2015
– 2019
|
512
|
2020
– 2024
|
650
|
2025
– 2029
|
304
|
2030
– 2034
|
42
|
Thereafter
|
12
|
____________________
|
|
(1)Includes
70 stores on month-to-month
leases.
|
Additional
information with respect to facilities that we own or lease is as
follows:
Size
in
|
|
Leased/
|
|
Sq. Feet
|
Location
|
Owned
|
Description
|
|
|
|
|
1,040,000
|
Greencastle,
IN
|
Owned
|
FASHION
BUG, LANE BRYANT OUTLET, and PETITE SOPHISTICATE OUTLET distribution
center
|
513,000
|
White
Marsh, MD
|
Owned
|
LANE
BRYANT and CATHERINES distribution center
|
288,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders transitional distribution center(1)
|
240,000
|
Wilmington,
NC
|
Leased
|
Crosstown
Traders transitional distribution center(1)
|
145,000
|
Bensalem,
PA
|
Owned
|
Corporate
headquarters, technology center, and administrative
offices
|
142,000
|
Bensalem,
PA
|
Leased
|
FASHION
BUG, CATHERINES,(2)
LANE BRYANT OUTLET, and PETITE SOPHISTICATE OUTLET home offices and
corporate administrative offices
|
135,000
|
Columbus,
OH
|
Leased
|
LANE
BRYANT home office
|
125,000
|
Marshfield,
WI
|
Owned
|
FIGI’S
distribution center
|
122,000
|
Stevens
Point, WI
|
Leased
|
FIGI’S
distribution and call centers
|
108,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders transitional distribution center(1)
|
71,000
|
Marshfield,
WI
|
Owned
|
FIGI’S
warehouse
|
64,000
|
Marshfield,
WI
|
Owned
|
FIGI’S
administrative offices and call center
|
63,000
|
Memphis,
TN
|
Owned
|
Currently
idle(2)
|
52,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders transitional offices(1)
|
46,000
|
Neillsville,
WI
|
Owned
|
FIGI’S
catalog distribution center
|
40,000
|
Marshfield,
WI
|
Owned
|
FIGI’S
warehouse
|
36,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders transitional offices(1)
|
30,000
|
Miami
Township, OH
|
Leased
|
Spirit
of America National Bank (our wholly-owned credit card bank subsidiary)
and credit operations
|
23,000
|
Hong
Kong, PRC
|
Owned
|
International
sourcing offices
|
17,000
|
New
York, NY
|
Leased
|
e-commerce
operations (through March 2009)
|
16,000
|
Marshfield,
WI
|
Owned
|
FIGI’S
manufacturing facility
|
15,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders transitional offices(1)
|
11,000
|
Hangzhou,
PRC
|
Leased
|
International
sourcing offices
|
7,000
|
New
Delhi, India
|
Leased
|
International
sourcing offices
|
____________________
|
|
(1)
In September 2008 we sold our Crosstown Traders non-core misses apparel
catalogs to an affiliate of Orchard Brands. In connection with
the sale we retained certain components of their infrastructure and
entered into transitional service agreements with an affiliate of Orchard
Brands. See “Item 1. Business;
DIRECT-TO-CONSUMER SEGMENT” above for additional
information.
|
|
(2)
During Fiscal 2009 we relocated our CATHERINES operations from Memphis,
Tennessee to Bensalem, Pennsylvania in connection with the consolidation
of a number of our operating
functions.
|
Item
3. Legal Proceedings
Other
than ordinary routine litigation incidental to our business, there are no
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.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
The
following list contains certain information relative to our executive
officers. There are no family relationships among any of our
executive officers.
Alan Rosskamm, 59, has served
as Chairman of the Board of Directors since June 2008 and as a member of the
Board of Directors since 1992. He has also served as Interim Chief
Executive Officer since July 2008. Before that, he served as Chief
Executive Officer of Jo-Ann Stores, Inc. (“Jo-Ann”) from October 1985 to August
2006 and Chairman of the Board of Directors for Jo-Ann from July 1992 to August
2006, and continues to serve as a member of Jo-Ann’s Board of
Directors. Mr. Rosskamm’s term as a Director expires in June
2009.
Joseph M. Baron, 61, has
served as Executive Vice President and Chief Operating Officer since
2002.
James G. Bloise, 65, has
served as Executive Vice President – Supply Chain Management, Information
Technology, and Shared Business Services since December 2005 and as Senior Vice
President – Supply Chain Management from 2002 to December 2005.
Anthony M. Romano, 46, has
served as Executive Vice President – Business Transformation, since February
2009. Before that he served as Executive Vice President, Chief Supply
Chain Officer for Ann Taylor, Inc. from May 2005 through July 2008, as Executive
Vice President, Corporate Operations for Ann Taylor from March 2004 through May
2005, and as Senior Vice President, Logistics and Purchasing for Ann
Taylor from June 1997 to March 2004.
Eric M. Specter, 51, has
served as Executive Vice President – Chief Financial Officer
since January 1997, and he has been employed by us since 1983.
Colin D. Stern, 60, has served
as Executive Vice President and General Counsel since 1990, and he has been
employed by us since 1989. He has also served as Secretary since
February 1998.
Gale H. Varma, 58, has served
as Executive Vice President – Human Resources since July 2003.
Jay H. Levitt, 51, has served
as President – Fashion Bug since September 2008. Before that, he held
two consulting positions with international footwear retailers from April 2006 to September 2008
and was a managing partner at Gentsch Capital partners, a private equity firm,
from December 2005 to September 2008. From April 2001 to
September 2005 he
was Chief Executive Officer for the May Merchandising division of May Department
Stores Company.
Brian Woolf, 60, has served as
President – Lane Bryant since July 2008. Before that, he served as
Chairman of the Board and Chief Executive Officer for Cache, a women's specialty
retailer, from October 2000 to January 2008.
John J. Sullivan, 62, has
served as Senior Vice President – Corporate Controller since April 2007 and as
Vice President –
Corporate Controller since October 1998.
Our
common stock is traded on the over-the-counter market and quoted on the NASDAQ
Global Select Market (“NASDAQ”) and, as of March 26, 2009 on the Chicago Stock
Exchange (“CHX”) under the symbol “CHRS.” The following table sets
forth the high and low sale prices for our common stock during the indicated
periods, as reported by NASDAQ.
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$ |
6.83 |
|
|
$ |
4.26 |
|
|
$ |
13.38 |
|
|
$ |
11.33 |
|
2nd
Quarter
|
|
|
6.20 |
|
|
|
4.14 |
|
|
|
12.92 |
|
|
|
9.16 |
|
3rd
Quarter
|
|
|
6.35 |
|
|
|
1.01 |
|
|
|
9.72 |
|
|
|
6.79 |
|
4th
Quarter
|
|
|
2.88 |
|
|
|
0.57 |
|
|
|
7.34 |
|
|
|
4.01 |
|
The
approximate number of holders of record of our common stock as of March 23, 2009
was 1,615. This number excludes individual stockholders holding stock
under nominee security position listings.
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 near 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. (See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
FINANCIAL
CONDITION; Financing;
Long-term
Debt” and “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
8. LONG-TERM DEBT” below).
Information
regarding our equity compensation plans appears in “Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” below.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers:
|
|
|
|
|
|
|
|
Total
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
of
Shares
|
|
|
Shares
that
|
|
|
|
Total
|
|
|
|
|
|
Purchased
as
|
|
|
May
Yet be
|
|
|
|
Number
|
|
|
Average
|
|
|
Part
of Publicly
|
|
|
Purchased
|
|
|
|
of
Shares
|
|
|
Price
Paid
|
|
|
Announced
Plans
|
|
|
Under
the Plans
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
or Programs(2)
|
|
|
or Programs(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
2, 2008 through
|
|
|
|
|
|
|
|
|
|
|
|
|
November 29,
2008
|
|
|
6,926 |
(1) |
|
$ |
1.29 |
|
|
|
– |
|
|
|
|
November
30, 2008 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2009
|
|
|
39 |
(1) |
|
|
1.60 |
|
|
|
– |
|
|
|
|
January
4, 2009 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
2009
|
|
|
2,214 |
(1) |
|
|
1.28 |
|
|
|
– |
|
|
|
|
Total
|
|
|
9,179 |
|
|
$ |
1.29 |
|
|
|
– |
|
|
|
(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 January 31, 2009 no shares were purchased under
this plan. As of January 31, 2009, $197,364,592 was available for
future repurchases under this program. This repurchase program has no
expiration date.
|
|
The
following graph shows a five-year comparison of cumulative total returns on our
common stock, the Russell 2000 Composite Index, and the Dow Jones U.S. Retailers
– Apparel Index:
COMPARISON
OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among
Charming Shoppes, Inc., The Russell 2000 Index
And
The Dow Jones U.S. Retailers – Apparel Index
* Assumes
$100 invested on January 31, 2004 in Charming Shoppes, Inc. common stock, the
Russell 2000 Index, or the Dow Jones U.S. Retailers – Apparel Index, including
reinvestment of dividends.
The above
chart was plotted using the following data:
|
|
1/31/04
|
|
|
1/29/05
|
|
|
1/28/06
|
|
|
2/3/07
|
|
|
2/2/08
|
|
|
1/31/09
|
|
Charming
Shoppes, Inc.
|
|
$ |
100 |
|
|
$ |
137 |
|
|
$ |
214 |
|
|
$ |
225 |
|
|
$ |
117 |
|
|
$ |
18 |
|
Russell
2000 Composite Index
|
|
|
100 |
|
|
|
107 |
|
|
|
129 |
|
|
|
144 |
|
|
|
132 |
|
|
|
81 |
|
Dow
Jones U.S. Retailers – Apparel Index
|
|
|
100 |
|
|
|
121 |
|
|
|
138 |
|
|
|
167 |
|
|
|
132 |
|
|
|
69 |
|
The
following table presents selected financial data taken from our audited
financial statements for our five fiscal years ended as of January 29, 2005
through January 31, 2009 and should be read in conjunction with “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and “Item
8. Financial Statements and Supplementary Data.”
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
FIVE-YEAR
COMPARATIVE SUMMARY
|
|
Year
Ended
|
|
|
|
Jan.
31,
|
|
|
Feb.
2,
|
|
|
Feb.
3,
|
|
|
Jan.
28,
|
|
|
Jan.
29,
|
|
(Dollars
in thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,474,898 |
|
|
$ |
2,722,462 |
|
|
$ |
2,751,845 |
|
|
$ |
2,553,645 |
|
|
$ |
2,334,736 |
|
Cost
of goods sold, buying, catalog, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
occupancy
expenses
|
|
|
1,846,954 |
|
|
|
1,954,495 |
|
|
|
1,890,565 |
|
|
|
1,763,693 |
|
|
|
1,642,650 |
|
Selling,
general, and administrative expenses
|
|
|
692,110 |
|
|
|
719,107 |
|
|
|
699,009 |
|
|
|
638,403 |
|
|
|
577,301 |
|
Impairment
of store assets, goodwill, and trademarks
|
|
|
81,498 |
(2) |
|
|
27,197 |
(2) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Restructuring
and other
charges
|
|
|
33,145 |
(3) |
|
|
5,332 |
(3) |
|
|
0 |
|
|
|
0 |
|
|
|
605 |
(4) |
Total
operating
expenses
|
|
|
2,653,707 |
|
|
|
2,706,131 |
|
|
|
2,589,574 |
|
|
|
2,402,096 |
|
|
|
2,220,556 |
|
Income/(loss)
from
operations
|
|
|
(178,809 |
) |
|
|
16,331 |
|
|
|
162,271 |
|
|
|
151,549 |
|
|
|
114,180 |
|
Other
income
|
|
|
4,430 |
|
|
|
8,793 |
|
|
|
8,273 |
|
|
|
7,474 |
|
|
|
3,098 |
|
Interest
expense
|
|
|
(8,795 |
) |
|
|
(10,552 |
) |
|
|
(14,746 |
) |
|
|
(17,885 |
) |
|
|
(15,610 |
) |
Income/(loss)
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes and
extraordinary item
|
|
|
(183,174 |
) |
|
|
14,572 |
|
|
|
155,798 |
|
|
|
141,138 |
|
|
|
101,668 |
|
Income
tax
provision/(benefit)
|
|
|
(13,885 |
) |
|
|
13,858 |
|
|
|
53,839 |
|
|
|
48,718 |
|
|
|
37,142 |
|
Income/(loss)
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before extraordinary
item
|
|
|
(169,289 |
) |
|
|
714 |
|
|
|
101,959 |
|
|
|
92,420 |
|
|
|
64,526 |
|
Income/(loss)
from discontinued operations, net of income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes(5)
|
|
|
(74,922 |
) |
|
|
(85,039 |
) |
|
|
6,964 |
|
|
|
6,971 |
|
|
|
0 |
|
Extraordinary
item, net of income
taxes
|
|
|
0 |
|
|
|
912 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Net
income/(loss)
|
|
$ |
(244,211 |
) |
|
$ |
(83,413 |
) |
|
$ |
108,923 |
|
|
$ |
99,391 |
|
|
$ |
64,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations before extraordinary item
|
|
$ |
(1.48 |
) |
|
$ |
.01 |
|
|
$ |
.83 |
|
|
$ |
.77 |
|
|
$ |
.56 |
|
Discontinued
operations, net of income taxes(5)
|
|
|
(.65 |
) |
|
|
(.70 |
) |
|
|
.06 |
|
|
|
.06 |
|
|
|
.00 |
|
Net
income/(loss)(6)
|
|
$ |
(2.13 |
) |
|
$ |
(.69 |
) |
|
$ |
.89 |
|
|
$ |
.83 |
|
|
$ |
.56 |
|
Basic
weighted average common shares outstanding
|
|
|
114,690 |
|
|
|
121,160 |
|
|
|
122,388 |
|
|
|
119,831 |
|
|
|
116,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations before extraordinary item
|
|
$ |
(1.48 |
) |
|
$ |
.01 |
|
|
$ |
.76 |
|
|
$ |
.71 |
|
|
$ |
.52 |
|
Discontinued
operations, net of income taxes(5)
|
|
|
(.65 |
) |
|
|
(.69 |
) |
|
|
.05 |
|
|
|
.05 |
|
|
|
.00 |
|
Net
income/(loss)(6)
|
|
$ |
(2.13 |
) |
|
$ |
(.68 |
) |
|
$ |
.81 |
|
|
$ |
.76 |
|
|
$ |
.52 |
|
Diluted
weighted average common shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents
outstanding
|
|
|
114,690 |
|
|
|
122,426 |
|
|
|
139,763 |
|
|
|
137,064 |
|
|
|
133,174 |
|
_______________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Fiscal 2007 consisted of 53 weeks.
|
|
|
|
(2)
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMARKS” below.
|
|
|
|
(3)
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; “NOTE 14. RESTRUCTURING AND
OTHER CHARGES”
below.
|
|
|
|
(4)
Additional lease termination costs related to a cost reduction plan
implemented and substantially completed during Fiscal
2004.
|
|
|
|
(5)
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
2. DISCONTINUED OPERATIONS” below.
|
|
|
|
(6)
Results may not add due to rounding.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
FIVE-YEAR
COMPARATIVE SUMMARY
(Continued)
|
|
Year
Ended
|
|
|
|
Jan.
31,
|
|
|
Feb.
2,
|
|
|
Feb.
3,
|
|
|
Jan.
28,
|
|
|
Jan.
29,
|
|
(Dollars
in thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2007(2)
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
return on average stockholders’ equity
|
|
|
(28.3 |
)% |
|
|
0.1 |
% |
|
|
11.6 |
% |
|
|
12.3 |
% |
|
|
10.1 |
% |
Net
return on average total
assets
|
|
|
(12.2 |
) |
|
|
0.0 |
|
|
|
6.2 |
|
|
|
6.5 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Of
|
|
|
|
Jan.
31,
|
|
|
Feb.
2,
|
|
|
Feb.
3,
|
|
|
Jan.
28,
|
|
|
Jan.
29,
|
|
(Dollars
in thousands)
|
|
2009
|
|
|
2008(3)
|
|
|
2007(3)
|
|
|
2006(3)
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,279,692 |
|
|
$ |
1,613,304 |
|
|
$ |
1,705,723 |
|
|
$ |
1,572,583 |
|
|
$ |
1,303,771 |
|
Current
portion – long-term
debt
|
|
|
6,746 |
|
|
|
8,827 |
|
|
|
10,887 |
|
|
|
14,765 |
|
|
|
16,419 |
|
Long-term
debt
|
|
|
305,635 |
|
|
|
306,169 |
|
|
|
181,124 |
|
|
|
191,979 |
|
|
|
208,645 |
|
Working
capital
|
|
|
382,651 |
|
|
|
495,096 |
|
|
|
460,620 |
|
|
|
344,229 |
|
|
|
413,989 |
|
Stockholders’
equity
|
|
|
465,866 |
|
|
|
730,444 |
|
|
|
947,538 |
|
|
|
814,348 |
|
|
|
694,464 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Based on net income/(loss) from continuing operations.
|
|
|
|
(2)
Fiscal 2007 consisted of 53 weeks.
|
|
|
|
(3)
Includes
discontinued operations (see “Item
8. Financial Statements and Supplementary Data; Notes to Consolidated
Financial Statements; NOTE 2.
DISCONTINUED OPERATIONS”
below).
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) should be read in conjunction with the financial
statements and accompanying notes included in “Item 8. Financial
Statements and Supplementary Data” below. As used in this
report the terms “Fiscal 2009,” “Fiscal 2008,” and “Fiscal 2007” refer to our
fiscal years ended January 31, 2009, February 2, 2008, and February 3, 2007,
respectively. Fiscal 2009 and Fiscal 2008 each consisted of 52 weeks,
while Fiscal 2007 consisted of 53 weeks. The term “Fiscal 2010”
refers to our fiscal year which will end on January 30, 2010. The
terms “the Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc. and,
where applicable, our consolidated subsidiaries.
FORWARD-LOOKING
STATEMENTS
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, divestitures, financing needs or plans, store closings, merchandise
strategy, 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 “Item 1A. Risk
Factors,” above:
●
|
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.
|
|
|
●
|
The
women’s specialty retail apparel and direct-to-consumer markets are highly
competitive and we may be unable to compete successfully against existing
or future competitors.
|
|
|
●
|
We
cannot assure the successful implementation of our business plan for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments and we may be unable to successfully implement
our plan to improve merchandise assortments. Recent changes in
management may fail to achieve improvement in our operating
results.
|
|
|
●
|
A
continuing slowdown in the United States economy, an uncertain economic
outlook, and fluctuating energy costs could lead to reduced consumer
demand for our products in the future.
|
|
|
●
|
Our
inability to successfully manage labor costs, occupancy costs, or other
operating costs, or our inability to take advantage of opportunities to
reduce operating costs, could adversely affect our operating margins and
our results of operations. We cannot assure the successful
implementation of our planned cost reduction and capital budget reduction
plans or the realization of our anticipated annualized expense savings
from our restructuring programs. We may be unable to obtain
adequate insurance for our operations at a reasonable
cost.
|
|
|
●
|
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,
unionization, or other employee benefits could cause us to incur
additional wage and benefit costs, which could adversely affect our
results of operations. Changes in legislation limiting interest
rates and other credit card charges that can be billed on credit card
accounts could negatively impact the operating margins of our credit
operation.
|
|
|
●
|
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. The current global
financial crisis could adversely affect our ability or the ability of our
vendors to secure adequate credit financing. If we or our
vendors are unable to obtain sufficient financing at an affordable cost,
our ability to merchandise our retail stores or e-commerce businesses
could be adversely affected.
|
|
|
●
|
We
plan to refinance our maturing credit card term securitization series with
our credit conduit facilities, which are renewed annually, or through the
issuance of a new term series. To the extent that our 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.
|
|
|
●
|
Our
Retail Stores and Direct-to-Consumer segments experience seasonal
fluctuations in net sales and operating income. Any decrease in
sales or margins during our peak sales periods or in the availability of
working capital during the months preceding such periods could have a
material adverse effect on our business. In addition, extreme
or unseasonable weather conditions may have a negative impact on our
sales.
|
|
|
●
|
We
cannot assure the successful implementation of our business plan for the
development of our core brands and transformation to a vertical store
model, that we will realize increased profitability through operating
under a vertical store model, or that we will achieve our objectives as
quickly or as effectively as we hope. We cannot assure the
successful sale of our FIGI’S catalog.
|
|
|
●
|
We
depend on the efforts and abilities of our executive officers and their
management teams and we may not be able to retain or replace these
employees or recruit additional qualified personnel. The
inability to find a suitable permanent replacement for our Interim Chief
Executive Officer within a reasonable time period could have a material
adverse affect on our business.
|
|
|
●
|
Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market, which may not occur.
|
|
|
●
|
We
depend on our distribution and fulfillment centers and third-party freight
consolidators and service providers, and could incur significantly higher
costs and longer lead times associated with distributing our products to
our stores and shipping our products to our e-commerce and catalog
customers if operations at any of these locations were to be disrupted for
any reason.
|
|
|
●
|
Natural
disasters, as well as war, acts of terrorism, or other armed conflict, or
the threat of any such event may negatively impact availability of
merchandise and customer traffic to our stores, or otherwise adversely
affect our business.
|
|
|
●
|
Successful
operation of our e-commerce websites and our catalog business is dependent
on our ability to maintain efficient and uninterrupted customer service
and fulfillment operations. We cannot assure the successful
implementation of our new and upgraded e-commerce platform and the
consolidation of our e-commerce business at our Bensalem, Pennsylvania
headquarters.
|
|
|
●
|
We
rely significantly on foreign sources of production and face a variety of
risks generally associated with doing business in foreign markets and
importing merchandise from abroad. Such risks include (but are
not necessarily limited to) political instability; imposition of or
changes in duties or quotas; trade restrictions; increased security
requirements applicable to imports; delays in shipping; increased costs of
transportation; and issues relating to compliance with domestic or
international labor standards.
|
●
|
Our
manufacturers may be unable to manufacture and deliver merchandise to us
in a timely manner or to meet our quality standards. In
addition, if any one of our manufacturers or vendors fails to operate in
compliance with applicable laws and regulations, is perceived by the
public as failing to meet certain labor standards in the United States, or
employs unfair labor practices, our business could be adversely
affected.
|
|
|
●
|
Our
long-term growth plan depends on our ability to open and profitably
operate new retail stores, to convert, where applicable, the formats of
existing stores on a profitable basis, and continue to expand our outlet
distribution channel. Our retail stores depend 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. In addition,
we will need to identify, hire, and retain a sufficient number of
qualified personnel to work in our stores. We cannot assure
that desirable store locations will continue to be available, or that we
will be able to hire and retain a sufficient number of suitable sales
associates at our stores.
|
|
|
●
|
We
may be unable to protect our trademarks and other intellectual property
rights, which are important to our success and our competitive
position.
|
|
|
●
|
Inadequate
systems capacity, a disruption or slowdown in telecommunications services,
changes in technology, changes in government regulations, systems issues,
security breaches, a failure to integrate order management systems, or
customer privacy issues could result in reduced sales or increases in
operating expenses as a result of our efforts or our inability to remedy
such issues.
|
|
|
●
|
We
continually evaluate our portfolio of businesses and may decide to acquire
or divest businesses or enter into joint venture or strategic
alliances. If we fail to integrate and manage acquired
businesses successfully or fail to manage the risks associated with
divestitures, joint ventures, or other alliances, our business, financial
condition, and operating results could be materially and adversely
affected.
|
|
|
●
|
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
include our assessment of the effectiveness of our internal control over
financial reporting in our annual reports. Our independent
registered public accounting firm is also required to report on whether or
not they believe that we maintained, in all material respects, effective
internal control over financial reporting. If we are unable to
maintain effective internal control over financial reporting we could be
subject to regulatory sanctions and a possible loss of public confidence
in the reliability of our financial reporting. Such a failure
could result in our inability to provide timely and/or reliable financial
information and could adversely affect our business.
|
|
|
●
|
The
holders of our 1.125% Senior Convertible Notes due May 1, 2014 (the 1.125%
Notes) could require us to repurchase the principal amount of the notes
for cash before maturity of the notes 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 on our ability
to repurchase, such as the risk of our inability to obtain funds for such
repurchase, and could adversely affect our financial
condition.
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If
the minimum closing bid price of our common stock fails to meet NASDAQ’s
minimum closing bid price requirement of $1.00 per share for a consecutive
30-day period, NASDAQ may take steps to de-list our common
stock. On March 23, 2009, NASDAQ suspended the $1.00 per share
minimum closing bid price requirement through at least July 20,
2009. We can provide no assurance, however, that NASDAQ will
extend this rule suspension period beyond July 20, 2009. Such a de-listing
would likely have an adverse impact on our common stock. We may
seek to avoid this by requesting shareholder approval for a reverse stock
split. However, we can give no assurance that such action would
stabilize the market price, improve the liquidity of our common stock, or
would prevent our common stock from dropping below the NASDAQ minimum bid
price requirement in the future. Such consequences may however
be mitigated by our dual-listing on the Chicago Stock
Exchange.
Holders
of our 1.125% Notes have the right to require us to repurchase their notes
for cash prior to maturity upon a “fundamental change,” which is deemed to
have occurred if, among other events, our common stock at any time is not
listed for trading on a U.S. national or regional securities
exchange. Due to the above risk that we could be subject to
de-listing from the NASDAQ Global Select Market, we applied for
dual-listing on the Chicago Stock Exchange (“CHX”) and began trading on
March 26, 2009. The CHX does not have a $1.00 minimum stock
price requirement for listing.
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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
make certain significant assumptions, estimates, and projections related
to the useful lives and valuation 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. See “CRITICAL ACCOUNTING POLICIES;
Impairment
of Property, Plant, and Equipment, Intangible Assets, and Goodwill”
and “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND
TRADEMARKS” below.
|
CRITICAL
ACCOUNTING POLICIES
We have
prepared the financial statements and accompanying notes included elsewhere in
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. Our
significant accounting policies are described in the notes accompanying the
financial statements included elsewhere in this report. However, we
consider the following accounting policies and related assumptions to be more
critical to the preparation of our financial statements and accompanying notes
and involve the most significant management judgments and
estimates.
Revenue
Recognition
We
recognize revenue in accordance with SEC Codification of Staff Accounting
Bulletins Topic 13, “Revenue
Recognition.” Our revenues from merchandise sales are net of
sales discounts, returns, and allowances and exclude sales tax. We
record a reserve for estimated future sales returns based on an analysis of
actual returns and we defer recognition of layaway sales to the date of
delivery. A change in our actual rates of sales returns and layaway
sales experience would affect the level of revenue recognized.
Catalog
and e-commerce revenues include shipping and handling fees billed to
customers. These revenues are recognized after all of the following
have occurred: execution of the customer’s order, authorization of the
customer’s credit card has been received, and the product has been shipped to
and received by the customer. We defer recognition of revenue for
product shipped but not yet received by the customer based on an estimate of the
number of days the shipments are in-transit. A change in our actual
rates of sales returns and/or the time it takes for customers to receive our
products would affect the level of revenue recognized.
We sell
gift cards to our Retail Stores segment customers through our stores,
store-related websites, and through third parties. We recognize
revenue from gift cards when the gift card is redeemed by the
customer. Our gift cards do not currently contain expiration dates or
inactivity fees. We recognize gift card breakage (unused gift card
balances for which we believe the likelihood of redemption is remote) as net
sales based on an analysis of historical redemption patterns. A
change in the historical pattern of gift card redemptions would affect the level
of revenue recognized.
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. Certain loyalty card customers earn points for
purchases which may be redeemed for merchandise coupons upon the accumulation of
a specified number of points. No membership fees are charged in
connection with these programs. Costs we incur in connection with
administering these programs are recognized in cost of goods sold as
incurred.
Accounts
Receivable
Our
FIGI’S catalog offers credit to its customers using interest-free three-payment
credit terms over three months, with the first payment due on a defined date 30
to 60 days after a stated holiday. A substantial portion of the
FIGI’S catalog business is conducted during the December holiday
season. We evaluate the collectibility of our accounts receivable
based on a combination of factors, including analysis of historical trends,
aging of accounts receivable, write-off experience, past history of recoveries,
and expectations of future performance. Significant changes in future
performance relative to our historical experience could have an impact on the
levels of our accounts receivable valuation reserves.
Inventories
We value
our merchandise inventories at the lower of cost or market using the retail
inventory method (average cost basis). We adjust the valuation of
inventories at cost and the resulting gross margins in proportion to markdowns
and shrinkage on our retail inventories. The retail inventory method
results in the valuation of inventories at the lower of cost or market when
markdowns are currently taken as a reduction of the retail value of
inventories. The majority of these “permanent markdowns,” and the
resulting adjustments to the carrying cost of our inventories, are recorded in
our inventory costing system when the actual ticketed selling price of an item
is reduced and are therefore not subject to significant estimates on the part of
management. However, at the end of each quarter we perform a review
of merchandise that is currently on promotional markdowns (which is considered a
“temporary markdown”) and identify at an SKU-number level the merchandise that
will not be sold again above its current promotional price. As such
promotional markdowns have not yet been recorded in the perpetual inventory
system as permanent markdowns, we record a markdown reserve to properly record
the inventory at the lower of cost or market using the retail inventory
method. Our estimation of markdown reserves involves certain
management judgments and estimates that can significantly affect the ending
inventory valuation at cost, as well as the resulting gross
margins. The markdown reserve will fluctuate depending on the level
of seasonal merchandise on-hand, the level of promotional activity, and
management’s estimate of our ability to liquidate such promotional inventory
above its current promotional price in the future. Our failure to
properly estimate markdowns currently could result in an overstatement or
understatement of inventory cost under the lower of cost or market
principle. Our total reserves for these types of markdowns were $12.0
million as of January 31, 2009 and $10.6 million as of February 2,
2008. Historically, we have not had significant variances between our
estimates of these markdown reserves and the actual markdown experience for
which these reserves were established.
We
perform physical inventory observations at least once annually at each of our
stores. For stores with higher-than-average inventory loss rates, we
may perform physical inventory observations more frequently. Actual
inventory losses are recorded in our financial statements at the time these
physical inventory observations are performed. During the periods
between our physical inventory observations and our period-end reporting dates,
we record a reserve for estimated inventory losses (shrinkage). Our
estimates for shrinkage are based on actual inventory losses identified from the
results of physical inventory counts at our stores and distribution
centers. Historically, our physical inventory losses have averaged
between 1.5% and 2.5% of our net sales. Our reserves for estimated
inventory shrinkage were $2.0 million as of January 31, 2009 and $3.5 million as
of February 2, 2008.
FASB
Emerging Issues Task Force (“EITF”) Issue 02-16, “Accounting by a Customer (Including
a Reseller) for Cash Consideration Received from a
Vendor,” addresses the accounting for cash consideration received
from a vendor, including both a reseller of the vendor’s products and an entity
that purchases the vendor’s products from a reseller. In accordance
with the provisions of EITF Issue 02-16 we defer into inventory cash received
from vendors and recognize these amounts as a reduction of cost of goods sold as
the inventory is sold. We defer the recognition of cash received from
vendors during interim periods in order to better match the recognition of the
cash consideration to the period the inventory is sold.
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 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.
The
process of evaluating goodwill for impairment involves the determination of the
fair value of our reporting units. Inherent in such fair value
determinations are certain judgments and estimates relating to future cash
flows, including our interpretation of current economic indicators and market
valuations, and assumptions about our strategic plans with regard to our
operations. To the extent that additional information arises, market
conditions change or our strategies change, it is possible that our conclusion
regarding whether existing goodwill is impaired could change and result in a
material effect on our consolidated financial position or results of
operations.
We rely
principally on a discounted cash flow method of the income approach in
estimating the fair value of our reporting units. We have
consistently applied this methodology in previous goodwill impairment tests
because we have concluded that the methodology is the best measure of fair value
and is a methodology that market participants would use in valuing these
reporting units. The income approach values a business enterprise by
discounting future debt-free net cash flows available to the providers of the
invested capital to their present worth at a discount rate that reflects both
the current return requirements of the market and the risks inherent in the
specific investment. The discounted cash flow method estimates annual
future cash flows, and then discounts the cash flows to present
value. The discounted cash flow methodology uses our projections of
financial performance. The most significant assumptions used in the
discounted cash flow methodology are the discount rate, the terminal value, and
expected future revenues, gross margins, and operating margins, which vary among
our reporting units.
For
purposes of our annual impairment test of goodwill performed as of January 31,
2009 we utilized a discount rate of 14.4%. Our estimates of future
cash flows are based on our current budgets and are reflective of our current
expectations as to sales growth rates and profitability. We believe
that our estimates are appropriate under the circumstances. If
economic conditions continue to deteriorate and negatively affect or results of
operations, we may recognize additional goodwill impairments.
Our
identifiable intangible assets consist primarily of trademarks. These
intangible assets arise primarily from the allocation of the purchase price of
businesses acquired to identifiable intangible assets based on their respective
fair market values at the date of acquisition. Amounts assigned to
identifiable intangible assets, and their related useful lives, are derived from
established valuation techniques and management estimates.
Consistent
with prior periods and with the methodology used to initially establish and
record the fair value of the trademarks noted above, we have applied the
“relief-from-royalty” method of the income approach in measuring the fair value
of our tradenames in the current-year impairment test. Under this
method it is assumed that a company, without the rights to the trade names,
would license the right to utilize them for business purposes. The
fair value is estimated by discounting the hypothetical royalty payments to
their present value over the estimated economic life of the
asset. These estimates can be affected by a number of factors
including, but not limited to, general economic conditions and availability of
market information, as well as our profitability. The most
significant assumptions used by management in evaluating the fair value of our
tradenames are the discount rate, the royalty rate, and estimated future
revenues associated with the use of the tradename.
For
purposes of our annual impairment test of our tradenames performed as of January
31, 2009 we utilized a discount rate of 14.4% and a royalty rate in the range of
3% – 5%. Our estimates of future revenues associated with our
tradenames are based on our current budgets and are reflective of our current
expectations as to sales growth rates. We believe that our estimates
are appropriate in the circumstances. Given the significant excess of
fair value over the book values of our tradenames as derived from our discounted
cash flow analysis we have determined, based on the performance of various
sensitivity analyses, that our conclusion would not be affected by other
outcomes that are reasonably likely to occur.
Although
we believe we have sufficient current and historical information available to us
to test for impairment, it is possible that actual cash flows could differ from
the estimated cash flows used in our impairment tests.
As a
result of the significant decrease in the market value of our common stock
during Fiscal 2009 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 and
Fiscal 2009 Fourth Quarter. During Fiscal 2009 we recognized non-cash
impairment losses in connection with approximately 272 stores with asset
carrying values in excess of their forecasted undiscounted cash
flows. In addition, during Fiscal 2009 we recognized non-cash
impairment losses in connection with our CATHERINES goodwill and certain
acquired trademarks and tradenames. During Fiscal 2008 we recognized
non-cash impairment losses in connection with our Crosstown Traders goodwill and
intangible assets. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES; Goodwill and
Other Intangible Assets,” “NOTE 5. PROPERTY,
EQUIPMENT, AND LEASEHOLD IMPROVEMENTS,” “NOTE 6. INTANGIBLE ASSETS
AND GOODWILL,”
and “NOTE
13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMARKS”
below for additional information regarding our property, plant, and
equipment, goodwill, and intangible assets and the impairment losses recognized
during Fiscal 2009 and Fiscal 2008.
Asset
Securitization
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 to fund the
credit card receivables generated by our proprietary credit card programs.
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
17. ASSET SECURITIZATION” below for additional
discussion of our asset securitization facility.
We
account for our asset securitizations in accordance with SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” and
SFAS No. 156, “Accounting and
Servicing of Financial Assets – an amendment of FASB Statement No.
140.” We record a beneficial interest, referred to as the
interest-only strip (“I/O strip”), which represents the estimated present value
of cash flows we expect to receive over the period the receivables are
outstanding. In addition to the I/O strip, we recognize a servicing
liability since the servicing fees we expect to receive from the securitizations
do not provide adequate compensation for servicing the
receivables. The servicing liability 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.
We use
certain valuation assumptions related to the average life of the receivables
sold and anticipated credit losses, as well as an appropriate market discount
rate, in determining the estimated value of the I/O strip and the servicing
liability. We estimate the values for these assumptions using
historical data, the impact of the current economic environment on the
performance of the receivables sold, and the impact of the potential volatility
of the current market for similar instruments in assessing the fair value of
these retained interests. Changes in the average life of the
receivables sold, discount rate, and credit-loss percentage could cause actual
results to differ materially from the estimates, and changes in circumstances
could result in significant future changes to the assumptions currently being
used.
The
following table presents the decrease in our I/O strip receivable that would
result from hypothetical adverse changes of 10% and 20% in the assumptions used
to determine the fair value of the I/O strip:
(In
millions)
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10% Change
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20% Change
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|
|
|
|
|
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Assumption:
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|
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Payment
rate
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$ |
1.6 |
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$ |
2.8 |
|
Residual
cash flows discount
rate
|
|
|
0.1 |
|
|
|
0.1 |
|
Credit
loss
percentage
|
|
|
1.6 |
|
|
|
3.2 |
|
Costs
Associated With Exit or Disposal Activities
In
accordance with the provisions of SFAS No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities,” we recognize
liabilities for costs associated with an exit or disposal activity when the
liabilities are incurred. Commitment to a plan by itself does not
create an obligation that meets the definition of a liability. We
recognize one-time benefit payments over time rather than “up front” if the
benefit arrangement requires employees to render future service beyond a
“minimum retention period.” The liability for one-time benefits is
recognized as employees render service over the future service period, even if
the benefit formula used to calculate an employee’s termination benefit is based
on length of service. We use fair value for the initial measurement
of liabilities associated with exit or disposal activities. The
provisions of SFAS No. 146 result in the deferral of recognition of certain
costs for restructuring plans from the date of commitment to such a plan to the
date that costs are incurred under the plan. Severance payments that
are offered in accordance with an on-going benefit arrangement are accounted for
in accordance with SFAS No. 112, “Employers’ Accounting for
Postemployment Benefits.” Under SFAS No. 112 costs associated
with such ongoing benefit arrangements are recorded no later than the period
when it becomes probable that the costs will be incurred and the costs are
reasonably estimable.
Stock-Based
Compensation
We
account for stock-based compensation in accordance with SFAS No. 123 (revised
2004), “Share-Based
Payment” (“SFAS No. 123(R)”), a revision of SFAS No.
123. Under SFAS No. 123(R) we recognize the fair value of stock-based
payments as compensation expense in our financial statements. We use
the Black-Scholes valuation model to estimate the fair value of stock options
and stock appreciation rights (“SARs”) and straight-line amortization of
stock-based compensation. Our initial estimates of compensation cost
are based on the number of options, SARs, or awards for which we expect the
requisite service period to be completed. These initial estimates are
revised if subsequent information indicates that the number of options, SARs, or
awards expected to vest differs from our initial estimates. We
recognize the cumulative effect of such a change in estimated compensation
expense in the period of the change. We elected to calculate the
initial pool of excess tax benefits related to stock-based compensation as of
the adoption of SFAS No. 123(R) and the related presentation of excess tax
benefits in our consolidated statements of cash flows in accordance with the
provisions of paragraph 81 of SFAS No. 123(R).
The
Black-Scholes model requires estimates or assumptions as to the dividend yield
and price volatility of the underlying stock, the expected life of the option,
and a relevant risk-free interest rate. Periodic amortization of
compensation expense requires estimates as to the number of options expected to
be forfeited prior to completion of the requisite service period. The
use of different option-pricing models and different estimates or assumptions
could result in different estimates of compensation expense.
See “Item 8. Financial
Statements and Supplementary Data; NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES; Stock-based
Compensation”
below for further information on our stock-based compensation
expense.
Insurance
Liabilities
We use a
combination of third-party insurance and/or self-insurance for certain risks,
including workers’ compensation, medical, dental, automobile, and general
liability claims. Our insurance liabilities are a component of
“accrued expenses” on our consolidated balance sheet, and represent our estimate
of the ultimate cost of uninsured claims incurred as of the balance sheet
date. In estimating our self-insurance liabilities we use independent
actuarial estimates of expected losses, which are based on statistical analyses
of historical data. Loss estimates are adjusted based upon actual
claim settlements and reported claims. Although we do not expect the
amounts ultimately paid to differ significantly from our estimates,
self-insurance liabilities could be affected if future claim experience differs
significantly from the historical trends and the actuarial
assumptions. We evaluate the adequacy of these liabilities on a
regular basis, modifying our assumptions as necessary, updating our records of
historical experience, and adjusting our liabilities as
appropriate.
Operating
Leases
We lease
substantially all of our store properties as well as certain of our other
facilities and account for our store leases in accordance with SFAS No. 13 (as
amended), “Accounting for
Leases.” A majority of our store leases contain lease options
that we can unilaterally exercise. The lease term we use for such
operating leases includes lease option renewal periods only in instances in
which the failure to exercise such options would result in an economic penalty
for us and exercise of the renewal option is therefore reasonably assured at the
lease inception date. Store leasehold improvement assets are
depreciated over the shorter of their useful life or the lease
term.
For
leases that contain rent escalations, the lease term for recognition of
straight-line rent expense commences on the date we take possession of the
leased property for construction purposes, which for stores is generally two
months prior to a store opening date. Similarly, landlord incentives
or allowances under operating leases (tenant improvement allowances) are
recorded as a deferred rent liability and recognized as a reduction of rent
expense on a straight-line basis over the lease term, commencing on the date we
take possession of the leased property for construction purposes.
Senior
Convertible Notes
We
accounted for the issuance of our 1.125% Senior Convertible Notes due May 2014
(the “1.125% Notes”) in accordance with the guidance in EITF Issue 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.” Paragraph 11(a) of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” provides that contracts issued or
held by an entity that are both (1) indexed to the entity’s own common stock and
(2) classified in stockholders’ equity in its statement of financial position
are not considered to be derivative instruments under SFAS No. 133 if the
provisions of EITF Issue 00-19 are met. Accordingly, we have
recorded the 1.125% Notes as long-term debt in our consolidated balance
sheets.
Concurrent
with the issuance of the 1.125% Notes we entered into privately negotiated
common stock call options and warrants with affiliates of the initial
purchasers. We accounted for the call options and warrants in
accordance with the guidance in EITF Issue 00-19. The call options
and warrants meet the requirements of EITF Issue 00-19 to be accounted for as
equity instruments. Accordingly, the cost of the call options and the
proceeds from the sale of the warrants are included in additional paid-in
capital in our consolidated balance sheets.
In
accordance with SFAS No. 128, “Earnings Per Share,” the
1.125% Notes will have no impact on our diluted net income per share until the
price of our common stock exceeds the conversion price. Prior to
conversion we will include any dilutive effect of the 1.125% notes or the
warrants in the calculation of diluted net income per share using the treasury
stock method. The call options are excluded from the calculation of
diluted net income per share because their effect would be
anti-dilutive.
We
monitor the 1.125% Notes, call options, and warrants for compliance with the
provisions of EITF Issue 00-19 and paragraph 11(a) of SFAS No. 133 on a
quarterly basis. Should the issuance of the 1.125% Notes, the
purchase of the call options, or the sale of the warrants fail to continue to
qualify under the provisions of EITF Issue 00-19 or paragraph 11(a) of SFAS No.
133, we would be required to recognize derivative instruments in connection with
the transaction, include the effects of the transaction in assets or liabilities
instead of equity, and recognize changes in the fair values of the assets or
liabilities in consolidated net income as they occur until the provisions of
EITF Issue 00-19 and paragraph 11(a) of SFAS No. 133 are met.
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 changes the
accounting treatment for convertible securities that an issuer may settle
fully or partially in cash. Under FSP APB 14-1 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 a 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 interest expense at 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% Notes. We will be required to adopt the provisions of
FSP APB 14-1 as of the beginning of Fiscal 2010. As compared to our
current accounting for the 1.125% Notes, adoption of the proposal will initially
reduce long-term debt and increase stockholders’ equity by approximately $90 –
$100 million. The non-cash accretion of the discount component will
increase interest expense and long-term debt annually. The estimated
pre-tax accretion to interest expense and increase to long-term debt is
approximately $7.0 – $9.0 million for Fiscal 2008, $10.0 – $12.0 million for
Fiscal 2009 and $11 – $13 million for Fiscal 2010. Adoption of the
FSP will not affect our cash flows.
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 8. LONG-TERM
DEBT” below for
further information regarding our 1.125% Notes and related call options and
warrants.
Income
Taxes
We
adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109,” effective as of the
beginning of Fiscal 2008. FIN No. 48 prescribes the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN No. 48 also provides guidance on
de-recognition, measurement, classification, interest and penalties, accounting
in interim periods, expanded disclosures regarding tax uncertainties, and
transition. FIN No. 48 applies to all tax positions related to income taxes
subject to SFAS No. 109, “Accounting for Income
Taxes.”
Under FIN
No. 48 we recognize a tax benefit when a tax position is more-likely-than-not to
be sustained upon examination, based solely on its technical
merits. We measure the recognized benefit as the largest amount of
benefit which is more-likely-than-not to be realized on ultimate settlement,
based on a cumulative probability basis. We recognize a tax position
failing to qualify for initial recognition in the first interim period in which
it meets the FIN No. 48 recognition standard, or is resolved through
negotiation, litigation, or upon expiration of the statute of
limitations. We de-recognize a previously recognized tax position if
we subsequently determine that the tax position no longer meets the
more-likely-than-not threshold of being sustained. As of the
beginning of Fiscal 2008 we recognized a cumulative-effect adjustment of $5.0
million, increasing our liability for unrecognized tax benefits, interest, and
penalties and reducing retained earnings for differences between amounts
recognized in our balance sheets prior to the adoption of FIN No. 48 and amounts
reported after adoption. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 7. INCOME
TAXES” below for
further details of our adoption of FIN No. 48.
We
adopted the provisions of FSP FIN 48-1, “Definition of Settlement in FASB
Interpretation No. 48,” effective with our adoption of FIN No.
48. Accordingly, we consider a tax position to be “effectively
settled” upon completion of an examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled we recognize the full amount of the tax benefit, even if (1) the tax
position is not considered more-likely-than-not to be sustained solely on the
basis of its technical merits, and (2) the statute of limitations remains
open. The adoption of FSP FIN 48-1 did not have a material effect on
our financial position or results of operations.
In
accordance with SFAS No. 109, “Accounting for Income
Taxes,” we
recognize deferred tax assets for temporary differences that will result in
deductible amounts in future years and for net operating loss and credit
carryforwards. SFAS No. 109 requires recognition of a valuation
allowance to reduce deferred tax assets if, based on existing facts and
circumstances, it is more-likely-than-not that some portion or all of the
deferred tax assets will not be realized. During Fiscal 2009 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 established a
valuation allowance against our net deferred tax assets. Pursuant to
SFAS No. 109, when our results of operations 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.
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-K. 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-K and should not be
separately relied upon.
Net sales
for Fiscal 2009 were $2.47 billion, a decrease of 9.1% from Fiscal
2008. The challenging retail and macroeconomic environment
contributed to a 12% decrease in comparable store sales, which was the primary
driver of the decrease in net sales in our Retail Stores segment. The
closing of 156 stores during Fiscal 2009, which included the closing of
under-performing stores, also contributed to the decrease in net sales for our
Retail Stores segment. Net sales for our Direct-to-Consumer segment,
which excludes discontinued businesses, increased $46.9 million primarily from
our LANE BRYANT WOMAN catalog business, which began operations in the latter
half of last year. We have decided to discontinue our LANE BRYANT
WOMAN catalog (see “Divest Non-core
Assets and Reduce Costs” below).
The
ongoing impact of a challenging retail and macroeconomic environment resulted in
decreased net sales and gross margins in Fiscal 2009. However, our
proactive management of inventory in response to the reduced consumer demand
allowed us to reduce the levels of promotional markdown activity compared to the
prior year. We also continued to focus on reducing operating
expenses. Although our expenses de-leveraged as a percentage of sales
due to the negative comparable store sales, our strong expense management
initiatives resulted in reductions in expense dollars, particularly in our
selling and occupancy expenses.
In Fiscal
2009 we recorded restructuring and impairment charges of $114.6 million, of
which $90.1 million were non-cash. In Fiscal 2008 we recorded
restructuring and impairment charges of $32.5 million, of which $29.5 were
non-cash. The Fiscal 2009 restructuring and impairment charges relate
primarily to severance for our former chief executive officer and other
eliminated positions and the impairment of retail store assets and CATHERINES
goodwill.
We began
to execute on a multi-year strategy in Fiscal 2009, with the assistance of
third-party retail consultants, to enhance our competitive position and to
improve our financial results over time. The new strategy focuses on
the following:
●
|
Refocus
on our core retail brands.
|
|
|
●
|
Divest
non-core assets.
|
|
|
●
|
Substantially
reduce operating expenses and streamline operations.
|
|
|
●
|
Maintain
and protect our strong balance sheet and liquidity
position.
|
The
following summarizes our initiatives.
Organization
We have
begun the process of transforming into a vertical specialty store model that
will increase 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
should lead to gross margin enhancement opportunities and better value for our
customers.
In Fiscal
2009 we began the process of transforming each of our core brands into
independent, distinct brands by recruiting seasoned brand presidents with
extensive retail and executive leadership experience. The
appointments of these experienced brand presidents as well as the addition of
new product design and development executives signal our commitment to this
transformation.
We also
began the process of developing an entirely new and upgraded e-commerce platform
through an outsourcing arrangement and the consolidation of our Charming Direct
business at our Bensalem, Pennsylvania headquarters by closing our New York and
Tucson, Arizona e-commerce offices. By the fall of 2009 we expect all
of our core brands to share a common e-commerce infrastructure, and we will
begin to launch new websites one at a time, providing an improved online
experience for our customers. Our objective is to improve customer
conversion rates and to significantly increase our core brands’ e-commerce
penetration during the second half of Fiscal 2010.
Divest
Non-core Assets and Reduce Costs
In
accordance with our focus on our core brands, we began the divestiture of our
non-core assets. During the third quarter of Fiscal 2009 we completed
the sale of our misses apparel catalogs and our related misses apparel catalog
credit card receivables, which generated approximately $46.9 million in
cash. Additionally, we decided to discontinue our LANE BRYANT WOMAN
catalog, which services a different core customer, in order to focus on our core
LANE BRYANT customer. We are also exploring the sale of our FIGI’S
Gifts in Good Taste catalog business as well as reviewing financing options for
owned real estate. We also announced the discontinuation of our figure
magazine, effective immediately, and the closing of our shoetrader.com website during
the second half of Fiscal 2010. 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
continue to focus on reducing operating expenses to optimize our cash flow
through improvements to, and streamlining of, our operations. In
Fiscal 2009 we began to implement a two-year cost reduction program that we
originally estimated would result in expense savings of $100 – $125 million over
the two-year period, with $75 million expected to be realized in Fiscal
2010. Results to date have been favorable, with savings being
realized ahead of schedule. Our current expectation is for cost
savings of approximately $125 million during Fiscal 2010. These
initiatives will address the following five major cost areas:
●
|
Corporate
and Brand overhead;
|
|
|
●
|
Non-merchandise
expense;
|
|
|
●
|
Occupancy
expense;
|
|
|
●
|
Supply
chain; and
|
|
|
●
|
Store
operations.
|
In Fiscal
2009 we completed the relocation of our CATHERINES operations, the elimination
of 150 corporate and field management positions, and substantially all of our
program to close 150 under-performing stores. In November 2008 we
announced an additional store closing program of as many as 100 additional
stores in Fiscal 2010. Through negotiations with landlords we have
been able to achieve significant rent reductions on some of our store locations
and we expect to negotiate additional meaningful savings in Fiscal
2010. These initiatives have resulted in reductions to occupancy
expense dollars in Fiscal 2009 and we expect to further reduce our occupancy
costs in Fiscal 2010.
In
January 2009 we announced further reductions in our workforce of approximately
225 positions at our corporate support and brand headquarters
offices. These positions primarily represented a combination of
approximately 125 associate separations and the elimination of approximately 100
open positions.
Manage
Inventory
We
continue to focus on reducing our inventory levels through timely markdowns and
reduction of planned receipts in order to maximize gross margin
dollars. Our inventories as of the end of Fiscal 2009 have decreased
approximately 16% from the end of Fiscal 2008 on a comparable-store
basis. We are also reducing our planned receipts of Spring 2009
merchandise in response to the current retail trends. By taking these
actions our inventory is properly positioned at the end of Fiscal 2009 to limit
markdown exposure and positively impact our gross margins during Fiscal
2010.
Maintain
our Strong Balance Sheet
Our
balance sheet remains strong, with ample liquidity through our $100.2 million of
cash and available-for-sale securities as of the end of Fiscal 2009, compared to
$74.3 million as of the end of Fiscal 2008. We ended Fiscal 2009 with
no borrowings against our committed $375.0 million revolving credit
facility. As of the end of Fiscal 2009 our available borrowing
capacity on the facility was $205.8 million.
In
addition to our focus on reducing inventory levels and divesting non-core
assets, we have significantly reduced our capital expenditures for new store
development and store relocations, and have eliminated non-essential capital
expenditures. Our capital expenditures in Fiscal 2009 were half of
our original plan for the year and we expect our Fiscal 2010 capital
expenditures to be approximately half of our Fiscal 2009
expenditures. We are also continuing to explore additional
opportunities to strengthen our financial position, such as a re-financing of
certain company-owned real estate.
Subsequent
to the end of Fiscal 2009 we renewed our $50.0 million Series 1999-2 conduit
credit card securitization facility through March 30, 2010. Combined
with our other existing conduit and term credit card secutitization facilities,
our current receivables funding structure provides an availability of $655.0
million. In April 2009 our $180.0 million Series 2004-1 term facility
is scheduled to begin amortizing at a rate of approximately $14.4 million per
month. We expect to meet this amortization requirement through our
$155.0 million of available conduit facilities. We believe that the
availability of our combined securitization facilities will continue to exceed
our funding requirements during Fiscal 2010.
While we
are committed to executing our long-term growth strategy as a multi-brand
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 proactively control and reduce 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 “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 2. DISCONTINUED OPERATIONS”
below).
RESULTS
OF OPERATIONS
Financial
Summary
The
following table shows our results of operations expressed as a percentage of net
sales and on a comparative basis:
|
|
|
|
Percentage
Increase
|
|
|
|
|
(Decrease)
|
|
Percentage of Net
Sales(1)
|
From Prior Year
|
|
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
|
2009
|
2008
|
2007(2)
|
2009-2008
|
2008-2007(2)
|
|
|
|
|
|
|
Net
sales
|
100.0%
|
100.0%
|
100.0%
|
(9.1)%
|
(1.1)%
|
Cost
of goods sold, buying, catalog, and
|
|
|
|
|
|
occupancy
expenses
|
74.6
|
71.8
|
68.7
|
(5.5)
|
3.4
|
Selling,
general, and administrative expenses
|
28.0
|
26.4
|
25.4
|
(3.8)
|
2.9
|
Impairment
of store assets, goodwill, and trademarks
|
3.3
|
1.0
|
–
|
199.7
|
–
|
Restructuring
and other charges
|
1.3
|
0.2
|
–
|
521.6
|
–
|
Income/(loss)
from operations
|
(7.2)
|
0.6
|
5.9
|
**
|
(89.9)
|
Other
income
|
0.2
|
0.3
|
0.3
|
(49.6)
|
6.3
|
Interest
expense
|
0.4
|
0.4
|
0.5
|
(16.7)
|
(28.4)
|
Income
tax (benefit)/provision
|
(0.6)
|
0.5
|
2.0
|
(200.2)
|
(74.3)
|
Income/(loss)
from continuing operations
|
(6.8)
|
0.0
|
3.7
|
**
|
(99.3)
|
Income/(loss)
from discontinued operations, net of taxes
|
(3.0)
|
(3.1)
|
0.3
|
(11.9)
|
**
|
Net
income/(loss)
|
(9.9)
|
(3.1)
|
4.0
|
(192.8)
|
(176.6)
|
____________________
|
|
|
|
|
|
|
(1)
Results may not add due to rounding.
|
|
(2)
Fiscal 2007 consisted of 53 weeks.
|
|
**
Results not
meaningful.
|
The
following table shows details of our consolidated total net sales:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January 31, 2009
|
|
|
February 2, 2008
|
|
|
February 3, 2007(1)
|
|
|
|
Fiscal
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
Fourth
|
|
(In
millions)
|
|
Year
|
|
|
Quarter
|
|
|
Year
|
|
|
Quarter
|
|
|
Year
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LANE
BRYANT(2)
|
|
$ |
1,111.9 |
|
|
$ |
273.0 |
|
|
$ |
1,237.6 |
|
|
$ |
323.6 |
|
|
$ |
1,202.3 |
|
|
$ |
357.1 |
|
FASHION
BUG
|
|
|
843.8 |
|
|
|
183.8 |
|
|
|
984.1 |
|
|
|
225.8 |
|
|
|
1,058.3 |
|
|
|
269.1 |
|
CATHERINES
|
|
|
312.1 |
|
|
|
68.1 |
|
|
|
353.2 |
|
|
|
76.8 |
|
|
|
367.7 |
|
|
|
91.5 |
|
Other
retail stores(3)
|
|
|
24.3 |
|
|
|
5.5 |
|
|
|
15.8 |
|
|
|
5.7 |
|
|
|
8.1 |
|
|
|
6.2 |
|
Total
Retail Stores
segment
|
|
|
2,292.1 |
|
|
|
530.4 |
|
|
|
2,590.7 |
|
|
|
631.9 |
|
|
|
2,636.4 |
|
|
|
723.9 |
|
Total
Direct-to-Consumer segment
|
|
|
167.5 |
|
|
|
96.7 |
|
|
|
120.6 |
|
|
|
95.9 |
|
|
|
112.1 |
|
|
|
94.9 |
|
Corporate
and other(4)
|
|
|
15.3 |
|
|
|
4.8 |
|
|
|
11.2 |
|
|
|
4.0 |
|
|
|
3.3 |
|
|
|
1.9 |
|
Total
net
sales
|
|
$ |
2,474.9 |
|
|
$ |
631.9 |
|
|
$ |
2,722.5 |
|
|
$ |
731.8 |
|
|
$ |
2,751.8 |
|
|
$ |
820.7 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Fiscal Year 2007 and Fourth Quarter 2007 consisted of 53 weeks and 14
weeks, respectively.
|
|
|
|
(2)
Includes LANE BRYANT OUTLET stores.
|
|
|
|
(3)
Includes PETITE SOPHISTICATE OUTLET stores, which began operations in
September 2006, and PETITE SOPHISTICATE stores, which began operations in
October 2007 and were closed in August 2008.
|
|
|
|
(4)
Primarily revenue related to loyalty card fees.
|
|
The
following table shows additional information related to changes in our net
sales:
|
Year
Ended
|
Year
Ended
|
|
January 31, 2009
|
February 2, 2008(1)
|
|
Fiscal
|
Fourth
|
Fiscal
|
Fourth
|
|
Year
|
Quarter
|
Year
|
Quarter
|
|
|
|
|
|
Retail
Stores segment
|
|
|
|
|
Increase/(decrease)
in comparable store sales:(2)
|
|
|
|
|
Consolidated retail
stores
|
(12)%
|
(15)%
|
(5)%
|
(9)%
|
LANE BRYANT(4)
|
(12)
|
(17)
|
(6)
|
(9)
|
FASHION
BUG
|
(11)
|
(14)
|
(4)
|
(8)
|
CATHERINES
|
(13)
|
(11)
|
(3)
|
(11)
|
|
|
|
|
|
Sales
from new stores as a percentage of total
|
|
|
|
|
consolidated prior-period net
sales:(3)
|
|
|
|
|
LANE BRYANT(4)
|
4
|
3
|
6
|
3
|
FASHION
BUG
|
1
|
0
|
1
|
1
|
CATHERINES
|
0
|
0
|
0
|
0
|
Other retail stores(5)
|
0
|
0
|
0
|
2
|
|
|
|
|
|
Prior-period
sales from closed stores as a percentage
|
|
|
|
|
of total consolidated
prior-period net sales:
|
|
|
|
|
LANE BRYANT(4)
|
(3)
|
(3)
|
(1)
|
(1)
|
FASHION
BUG
|
(2)
|
(2)
|
(1)
|
(1)
|
CATHERINES
|
0
|
0
|
0
|
0
|
|
|
|
|
|
Decrease
in Retail Stores segment
sales
|
(12)
|
(16)
|
(2)
|
(13)
|
|
|
|
|
|
Direct-to-Consumer
segment
|
|
|
|
|
Increase
in Direct-to-Consumer segment
sales
|
39(6)
|
1(6)
|
8
|
(1)
|
|
|
|
|
|
Decrease
in consolidated total net
sales
|
(9)
|
(14)
|
(1)
|
(11)
|
____________________
|
|
|
|
|
|
(1)
Fiscal Year 2007 consisted of 53 weeks and Fourth Quarter 2007 consisted
of 14 weeks. Comparable store sales and changes in sales from
new stores and closed stores are based on equivalent 52-week and 13-week
periods. The decrease in Retail Stores segment sales,
increase/(decrease) in Direct-to-Consumer segment sales, and decrease in
consolidated net sales are based on the 52-week and 13-week periods for
Fiscal 2008 and the 53-week and 14-week periods for Fiscal
2007.
|
|
(2)
“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.
|
|
(3)
Includes incremental Retail Stores segment e-commerce
sales.
|
|
(4)
Includes LANE BRYANT OUTLET stores.
|
|
(5)
Includes PETITE SOPHISTICATE stores, which were closed in August 2008, and
PETITE SOPHISTICATE OUTLET stores.
|
|
(6)
Primarily due to LANE BRYANT WOMAN catalog, which began operations in the
latter half of Fiscal 2008. During the third quarter of Fiscal
2009 we decided to discontinue the LANE BRYANT WOMAN catalog during the
first quarter of Fiscal
2010.
|
The
following table sets forth information with respect to store activity for Fiscal
2009 and planned store activity for Fiscal 2010:
|
|
FASHION
|
|
|
LANE
|
|
|
|
|
|
|
|
|
|
|
|
|
BUG
|
|
|
BRYANT
|
|
|
CATHERINES
|
|
|
Other(1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at February 2, 2008
|
|
|
989 |
|
|
|
896 |
|
|
|
468 |
|
|
|
56 |
|
|
|
2,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
opened
|
|
|
5 |
|
|
|
32 |
(2) |
|
|
7 |
|
|
|
4 |
|
|
|
48 |
|
Stores
closed(3)
|
|
|
(97 |
) |
|
|
(36 |
) |
|
|
(12 |
) |
|
|
(11 |
) |
|
|
(156 |
) |
Net
change in
stores
|
|
|
(92 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Stores
at January 31, 2009
|
|
|
897 |
|
|
|
892 |
|
|
|
463 |
|
|
|
49 |
|
|
|
2,301 |
|
|
|
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|
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|
Stores
relocated during period
|
|
|
10 |
|
|
|
36 |
|
|
|
6 |
|
|
|
0 |
|
|
|
52 |
|
|
|
|
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Fiscal
2010
|
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|
|
|
|
|
|
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|
|
|
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|
|
Planned
store
openings
|
|
|
0 |
|
|
|
6 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6 |
|
Planned
store closings(4)
|
|
|
45 |
|
|
|
30 |
(5) |
|
|
13 |
|
|
|
12 |
(6) |
|
|
100 |
|
Planned
store
relocations
|
|
|
3 |
|
|
|
9 |
|
|
|
0 |
|
|
|
0 |
|
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|
12 |
|
____________________
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(1)
Includes PETITE SOPHISTICATE and PETITE SOPHISTICATE OUTLET
stores.
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(2)
Includes 7 LANE BRYANT OUTLET stores.
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(3)
Includes 78 FASHION BUG, 10 CATHERINES, 21 LANE BRYANT, 2 LANE BRYANT
OUTLET, 1 PETITE SOPHISTICATE OUTLET and 4 PETITE SOPHISTICATE stores
closed as part of the streamlining initiatives announced in February
2008.
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(4)
Includes approximately 100 under-performing stores to be closed as
announced in November 2008.
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(5)
Includes 1 LANE BRYANT OUTLET store.
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|
(6)
PETITE SOPHISTICATE OUTLET stores.
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|
Comparison
of Fiscal 2009 to Fiscal 2008
Consolidated
Results of Operations
Net
Sales
Fiscal
2009 consolidated net sales decreased as compared to Fiscal 2008 primarily as 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 156 stores
during Fiscal 2009, including 116 under-performing stores closed 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 third
quarter of Fiscal 2009 we decided to discontinue our LANE BRYANT WOMAN catalog
(see “OVERVIEW”
above).
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 2.8% as a
percentage of consolidated net sales in Fiscal 2009 as compared to Fiscal
2008. The increase resulted primarily from increased promotional
activity, particularly during the second half of Fiscal 2009, negative leverage
on occupancy expenses from the decrease in comparable store sales, and an
increase in catalog advertising expenses. Although occupancy expenses
as a percentage of consolidated net sales de-leveraged as compared to the prior
year, occupancy expenses decreased in dollar amount primarily as a result of the
closing of under-performing stores (which are discussed in the “OVERVIEW” above), as well as
other store-related occupancy savings. Consolidated occupancy
expenses for 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 due to a
full year of operations of our LANE BRYANT WOMAN catalog, which was launched in
the latter half of Fiscal 2008.
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 and the
closing of under-performing stores. During Fiscal 2009 we recognized
$6.6 million of expenses in connection with advisory and legal fees relating to
a proxy contest which was settled in May 2008. During Fiscal 2008 we
recognized a benefit to selling expenses of approximately $6.8 million in
connection with the purchase and securitization of the LANE BRYANT credit card
portfolio (see “Financing;
Off-Balance-Sheet
Financing; Asset Securitization Program” below), which was partially
offset by approximately $2.1 million of expenses in connection with the issuance
of 2.4 million new LANE BRYANT proprietary credit cards.
Retail
Stores Segment Results of Operations
Net
Sales
Comparable
store sales for Fiscal 2009 decreased at each of our Retail Stores brands as
compared to 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. Additionally, the closing of under-performing stores
contributed to the decrease in net sales at our Retail Stores
brands. 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, decreased for our CATHERINES stores,
and were flat for our FASHION BUG stores.
During
Fiscal 2009 we recognized revenues of $20.9 million in connection with our
loyalty card programs as compared to revenues of $21.8 million during Fiscal
2008.
Cost
of Goods Sold, Buying, and Occupancy
Cost of
goods sold, buying, and occupancy expenses as a percentage of net sales
increased 3.9% for FASHION BUG, 4.4% for CATHERINES, and 2.3% for LANE
BRYANT. The merchandise margin in our Retail Stores segment declined
in Fiscal 2009 as compared to Fiscal 2008 primarily as a result of increased
promotional activity during the current-year period to drive traffic and
liquidate seasonal merchandise. Although consolidated merchandise
margins in our Retail Stores segment declined, our strong management of
inventory levels allowed us to minimize the extent and depth of promotional
activity compared to the prior-year period and resulted in increased merchandise
margins at our LANE BRYANT brand. 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 under-performing stores and our other
expense reduction initiatives.
Selling,
General, and Administrative
Selling,
general, and administrative expenses for the Retail Stores segment as a
percentage of net sales increased 1.9% for FASHION BUG, 3.0% for CATHERINES, and
1.3% for LANE BRYANT primarily as a result of negative leverage from 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, particularly at FASHION BUG and LANE BRYANT, where our
closing of under-performing stores and other store expense reduction initiatives
resulted in reductions to selling expenses.
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. Sales from our FIGI’S catalog
business were comparable to Fiscal 2008. As noted in “OVERVIEW” above we have
decided to discontinue the LANE BRYANT WOMAN catalog, which we expect to
complete by the first half of Fiscal 2010.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
The 9.2%
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 the lack of leverage on catalog expenses from a full year of operations for
our LANE BRYANT WOMAN catalog, which was launched during the latter half of
Fiscal 2008. Additionally cost of goods sold, buying, catalog and
occupancy expenses for Fiscal 2009 included a markdown allowance of $2.8 million
related to our decision to discontinue the LANE BRYANT WOMAN
catalog.
Selling,
General, and Administrative
Selling,
general, and administrative expenses as a percentage of net sales decreased 4.7%
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, Goodwill, and Trademarks
Due to
our current-year operating results and the impact of the current economic
environment on the retail industry, during the third quarter of Fiscal 2009 we
identified, in accordance with SFAS No. 144, 120 stores with asset carrying
values in excess of such stores’ respective forecasted undiscounted cash
flows. During the fourth quarter of Fiscal 2009, with the continued
deterioration in the economic environment and our operating results, we
identified 152 additional stores with asset carrying values in excess of their
respective forecasted undiscounted cash flows. Accordingly, we
recognized an aggregate non-cash impairment charge of $36.8 million
to write down the long-lived assets at these stores to their respective fair
values. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
“NOTE 13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMARKS”
below.
As a
result of the significant decrease in the market value of our common stock
during the third quarter of Fiscal 2009 and the impact of the current economic
environment on our operating results we performed a review
of our goodwill and other intangible assets with indefinite lives in accordance
with the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets” for possible impairment. Based on our assessment we
determined that our goodwill and other indefinite-lived intangible assets were
not impaired as of the third quarter of Fiscal 2009.
During
the fourth quarter of Fiscal 2009 we performed our annual goodwill impairment
test for each of our reporting units that have recorded goodwill and
indefinite-lived intangible assets (LANE BRYANT, CATHERINES, and
FIGI’S). Based on our annual impairment test we determined that our
CATHERINES goodwill was impaired. Accordingly, we recognized a
non-cash impairment charge of $43.2 million related to the CATHERINES
goodwill. In addition, as a result of our plans to discontinue the
use of certain other acquired trademarks and tradenames, we recognized a
non-cash impairment charge of $1.5 million for such indefinite-lived intangible
assets during the fourth quarter of Fiscal 2009.
During
the fourth quarter of Fiscal 2008 we identified 157 under-performing stores to
be closed. As a result of the decision to close these
under-performing stores, 136 of the 157 stores identified were determined to be
impaired, which resulted in the recognition of a non-cash charge of $9.0 million
to write down the long-lived assets at these stores to their respective fair
values.
During
the fourth quarter of Fiscal 2008 we performed our annual goodwill impairment
test and determined that the carrying value of our FIGI’S goodwill exceeded its
implied fair value. Accordingly, we recognized a non-cash impairment
charge of $18.2 million related to the FIGI’S goodwill. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
6. INTANGIBLE ASSETS AND GOODWILL” and “NOTE 13. IMPAIRMENT OF
STORE ASSETS, GOODWILL, AND TRADEMARKS” below.
Restructuring
and Other Charges
As
discussed in “OVERVIEW”
above, during Fiscal 2009 we completed the relocation of our CATHERINES
operations in Memphis, Tennessee to our corporate headquarters in Bensalem,
Pennsylvania in conjunction with the consolidation of a number of our operating
functions and executed on the closing of a majority of the 150 under-performing
stores as announced in Fiscal 2008. We also began to implement
additional cost-saving and streamlining initiatives announced during Fiscal
2009, which included the divestiture of our non-core misses apparel catalogs,
the elimination of corporate and field positions, the identification of
additional under-performing stores for closure, discontinuation of the LANE
BRYANT WOMAN catalog, and the transformation of our operations into a vertical
specialty store model.
During
Fiscal 2009 we recognized the following pre-tax charges recorded as
restructuring and other charges:
●
|
$13.3
million for severance, retention, and related costs (including $9.4
million of severance costs in connection with the resignation of our
former Chief Executive Officer, Dorrit J. Bern, in July
2008).
|
|
|
●
|
$10.5
million for lease termination costs, non-cash accelerated depreciation,
and severance and retention related to initiatives announced during the
fourth quarter of Fiscal 2008.
|
|
|
●
|
$2.5
million for severance and non-cash accelerated depreciation for the
planned shutdown of the LANE BRYANT WOMAN catalog
operations.
|
|
|
●
|
$3.4
million for accelerated depreciation and asset write-downs related to
fixed assets retained from the sale of the non-core misses apparel catalog
business.
|
|
|
●
|
$3.4
million for costs related to other business transformation
initiatives.
|
During
Fiscal 2008 we recognized pre-tax charges of $3.0 million for severance,
retention, and relocation costs related to the consolidation of a number of our
operating functions and $2.3 million of non-cash pre-tax charges for accelerated
depreciation related to the closing of the Memphis facility.
Income
Tax Provision
Our
income tax benefit for Fiscal 2009 was $13.9 million on a loss from continuing
operations before taxes of $183.2 million as compared to a tax provision of
$13.9 million on income from continuing operations before taxes and
extraordinary item of $14.6 million for Fiscal 2008. The income tax
benefit for Fiscal 2009 was unfavorably impacted by a non-cash provision to
establish a valuation allowance against our net deferred tax
assets.
During
Fiscal 2009 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 limited to our available
tax loss carrybacks. Accordingly, in Fiscal 2009 we recognized a
non-cash provision of $38.6 million to establish a valuation allowance against
our net deferred tax assets. The recording of a tax valuation
allowance does not have any impact on cash, nor does such an allowance preclude
us from using the underlying tax net operating loss and credit carryforwards or
other deferred tax assets in the future when results are
profitable. 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. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
7. INCOME TAXES” below for further
information.
The
Fiscal 2009 tax provision was also unfavorably impacted by state and foreign
income taxes payable, and the non-deductibility for income tax purposes of the
impairment of goodwill 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 and the receipt of non-taxable life
insurance proceeds.
The
Fiscal 2008 tax provision was unfavorably impacted by the non-deductibility for
income tax purposes of the impairment of goodwill.
Discontinued
Operations
Discontinued
operations consist of the results of operations of the non-core misses catalog
titles operated under our Crosstown Traders brand, which were sold during the
third quarter of Fiscal 2009 (see “OVERVIEW” above and “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 2. DISCONTINUED OPERATIONS”
below). During 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.
Comparison
of Fiscal 2008 to Fiscal 2007
Consolidated
Results of Operations
Net
Sales
The
decrease in consolidated net sales for Fiscal 2008 as compared
to Fiscal 2007 was driven primarily by an extra week of sales in
Fiscal 2007 as compared to Fiscal 2008 (Fiscal 2007 was a 53-week year), as well
as by a decrease in comparable Retail Stores segment sales. The
decrease in comparable Retail Stores segment net sales was partially offset by
net sales from our outlet business, which began operations in July 2006, and net
sales from new stores. The increase in our Direct-to-Consumer segment
net sales was primarily as a result of sales from our new LANE BRYANT WOMAN
catalog and related website, which were launched in October 2007, and an
increase in sales from our FIGI’S catalog.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 3.1% as a
percentage of consolidated net sales in Fiscal 2008 as compared to Fiscal 2007
primarily as a result of reduced merchandise margins for both our Retail Stores
and Direct-to-Consumer segments and negative leverage on occupancy expenses from
the decrease in comparable store sales. Consolidated cost of goods sold
increased 5.9% as a percentage of consolidated net sales and consolidated buying
and occupancy expenses increased 0.7% as a percentage of consolidated net
sales.
Selling,
General, and Administrative
Consolidated
selling, general, and administrative expenses increased 1.0% as a percentage of
consolidated net sales, primarily as a result of negative leverage on selling
costs from the decrease in consolidated net sales. Additionally,
increases in payroll and payroll-related expenses, as well as marketing and
other corporate administrative expenses, contributed to the
increase. Selling, general, and administrative expenses for Fiscal
2008 included a benefit of approximately $6.8 million recognized in connection
with the purchase and securitization of the LANE BRYANT credit card portfolio
(see “Financing; Off-Balance-Sheet
Financing; Asset Securitization Program” below). In addition,
we recognized approximately $2.1 million of expenses during Fiscal 2008 in
connection with the issuance of 2.4 million new LANE BRYANT proprietary credit
cards. Selling, general, and administrative expenses for Fiscal 2007
included approximately $3.3 million of pre-opening operating expenses related to
our outlet stores, which began operations in July 2006.
Retail
Stores Segment Results of Operations
Net
Sales
Comparable
store sales for Fiscal 2008 decreased at each of our Retail Stores brands as
compared to Fiscal 2007. Net sales for all of our brands were negatively
impacted by aggressive promotional markdowns taken in response to reduced
traffic levels and weak consumer spending, especially during the latter half of
Fiscal 2008. The average number of transactions per store decreased
for each of our brands, while the average dollar sale per transaction increased
for FASHION BUG stores and decreased for LANE BRYANT stores and CATHERINES
stores.
During
Fiscal 2008 we recognized revenues of $21.8 million in connection with our
loyalty card programs as compared to revenues of $19.1 million during Fiscal
2007.
Cost
of Goods Sold, Buying, and Occupancy
Cost of
goods sold, buying, and occupancy expenses as a percentage of net sales
increased 3.0% for FASHION BUG, 1.4% for CATHERINES, and 3.1% for LANE
BRYANT. These increases were primarily a result of increased
promotional pricing and negative leverage on occupancy costs from the decrease
in comparable store sales. The increase in cost of goods sold at each
brand reflected the highly promotional retail environment, particularly during
the second half of Fiscal 2008 and the December holiday season. For
our LANE BRYANT OUTLET and PETITE SOPHISTICATE OUTLET stores, which began
operations in July 2006, cost of goods sold, buying, and occupancy expenses
decreased 4.3% as a percentage of net sales primarily as a result of the benefit
of a full year of operations in Fiscal 2008. Occupancy expenses for
Fiscal 2007 included approximately $4.5 million of pre-opening expenses related
to our outlet stores.
Selling,
General, and Administrative
Selling,
general and administrative expenses as a percentage of net sales increased 1.5%
for FASHION BUG, 0.1% for CATHERINES, and 0.1% for LANE BRYANT. The
increases primarily reflect the lack of leverage on selling expenses at each of
the brands as a result of the decrease in comparable store sales. General
and administrative expenses as a percentage of sales were essentially flat at
each brand reflecting efforts to control and reduce such
expenses. For our outlet business, selling, general, and
administrative expenses as a percentage of net sales decreased
5.9%. The decrease was primarily related to start up costs for the
outlets incurred during the second half of Fiscal 2007 as compared
to the benefit of a full year of operations in Fiscal 2008.
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.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
The 5.8%
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.
Selling,
General, and Administrative
Selling,
general, and administrative expenses as a percentage of net sales increased 7.6%
for our Direct-to-Consumer segment, primarily as a result of increased spending
of approximately $3.7 million related to the launch of our LANE BRYANT WOMAN
catalog.
Impairment
of Store Assets, Goodwill, and Trademarks
During
the fourth quarter of Fiscal 2008 we performed our annual goodwill impairment
test and determined that the carrying value of our FIGI’S goodwill exceeded its
implied fair value. Accordingly, we recognized a non-cash impairment
charge of $18.2 million related to the FIGI’S goodwill. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
6. INTANGIBLE ASSETS AND GOODWILL” and “NOTE 13. IMPAIRMENT OF
STORE ASSETS, GOODWILL, AND TRADEMARKS” below.
During
the fourth quarter of Fiscal 2008 we identified 157 under-performing stores to
be closed. As a result of the decision to close these
under-performing stores, 136 of the 157 stores identified were determined to be
impaired, which resulted in the recognition of a non-cash charge of $9.0 million
to write down the long-lived assets at these stores to their respective fair
values.
Restructuring
and Other Charges
During
Fiscal 2008 we recognized pre-tax charges of $3.0 million for severance,
retention, and relocation costs related to the consolidation of a number of our
operating functions and $2.3 million of non-cash pre-tax charges for accelerated
depreciation related to the closing of the Memphis facility.
Income
Tax Provision
Our tax
provision for Fiscal 2008 was $13.9 million on income before income taxes and
extraordinary item of $14.6 million, as compared to a tax provision of $53.8
million on income before income taxes of $155.8 million for Fiscal
2007. The Fiscal 2008 tax provision was unfavorably impacted by the
non-deductibility for income tax purposes of the impairment of
goodwill. We adopted the provisions of FASB Interpretation No. 48 as
of the beginning of Fiscal 2008 (see “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
7. INCOME TAXES” below). The
Fiscal 2007 tax provision was favorably affected by non-taxable insurance
proceeds that were included in pre-tax income and by adjustments relating to the
reconciliation of our Fiscal 2006 U.S. Federal tax provision to our filed tax
return, and was unfavorably affected by the reconciliation of our Fiscal 2006
state tax provision to our filed state tax returns.
Extraordinary
Item
During
the fourth quarter of Fiscal 2008 we recognized an extraordinary gain of $0.9
million, net of income taxes of $0.6 million, as the result of proceeds received
from an eminent domain settlement related to a portion of the land at our White
Marsh, Maryland distribution center.
Comparison
of Fourth Quarter 2009 to Fourth Quarter 2008
Consolidated
Results of Operations
Net
Sales
The
decrease in consolidated net sales in the fourth quarter of Fiscal 2009 as
compared to the fourth quarter 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 156 stores during
Fiscal 2009, including 116 under-performing stores closed as part of our
previously announced initiatives (see “OVERVIEW”
above). Net sales for our Direct-to-Consumer segment for the fourth
quarter of Fiscal 2009 were comparable to the fourth quarter of Fiscal
2008.
Cost
of Goods Sold, Buying, Catalog, and Occupancy Expenses
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 1.0% as a
percentage of consolidated net sales in the fourth quarter of Fiscal 2009 as
compared to the fourth quarter of Fiscal 2008. The increase was
primarily a result of negative leverage on occupancy expenses from the decrease
in comparable store sales partially offset by lower cost of goods sold as a
result of strong inventory management. Total consolidated cost of
goods sold, buying, and occupancy expenses decreased in dollar amount as
compared to the prior-year period as a result of the decrease in consolidated
net sales, our expense reduction initiatives, including the closing of
under-performing stores, and other store-related occupancy savings.
Selling,
General, and Administrative Expenses
Consolidated
selling, general, and administrative expenses for the fourth quarter of Fiscal
2009 increased 1.6% as a percentage of consolidated net sales as compared to the
fourth quarter of Fiscal 2008 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 and closing
of under-performing stores discussed above.
Retail
Stores Segment Results of Operations
Net
Sales
Comparable
store sales for the fourth quarter of Fiscal 2009 decreased at each of our
Retail Stores brands as compared to the fourth quarter of Fiscal
2008. Net sales for all of our brands continued to be negatively
impacted by reduced traffic levels and weak consumer
spending. Additionally, sales were negatively impacted by the closing
of under-performing stores during Fiscal 2009, 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
LANE BRYANT, FASHION BUG, and outlet stores and decreased slightly for our
CATHERINES stores.
We
recognized revenues of $5.3 million during the fourth quarter of Fiscal 2009 and
$5.4 million during the fourth quarter of Fiscal 2008 in connection with our
loyalty card programs.
Cost
of Goods Sold, Buying, and Occupancy
Gross
margins improved at each of our brands except for our CATHERINES stores, where
gross margins were flat as compared to the prior-year period. The
improvement in gross margins was primarily a result of our efforts to reduce
inventory levels earlier in the year, which allowed us to reduce the level of
promotional activity. Inventory levels were down 16% at the end of
Fiscal 2009 as compared to the end of Fiscal 2008 on a comparable-store
basis.
Buying
and occupancy expenses for our Retail Stores segment were 2.2% 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 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 1.9% for FASHION BUG, 3.8% for CATHERINES, and
2.2% 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 under-performing stores and expense reduction initiatives
discussed above.
Direct-to-Consumer
Segment Results of Operations
Net
Sales
Net sales
from our Direct-to-Consumer segment for the fourth quarter of Fiscal 2009 were
comparable to the same period of Fiscal 2008 and primarily consisted of net
sales from our FIGI’S catalog business, which recognizes a majority of its sales
in the December holiday period.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
The 5.3%
decrease 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 lower catalog advertising expenses in the current-year period as compared
to the prior-year period, which included an investment for the start-up of our
LANE BRYANT WOMAN catalog that was launched in the latter half of Fiscal
2008.
Selling,
General, and Administrative
Selling,
general, and administrative expenses as a percentage of net sales increased 3.0%
for our Direct-to-Consumer segment, primarily as a result of our LANE BRYANT
WOMAN catalog and related e-commerce website, which began operations during the
latter half of Fiscal 2008.
Impairment
of Store Assets, Goodwill, and Trademarks
During
the fourth quarter of Fiscal 2009 we performed our annual goodwill impairment
test for each of our reporting units that have recorded goodwill and
indefinite-lived intangible assets (LANE BRYANT, CATHERINES, and
FIGI’S). Based on our annual impairment test we determined that our
CATHERINES goodwill was impaired. Accordingly, we recognized a
non-cash impairment charge of $43.2 million related to the CATHERINES
goodwill. In addition, as a result of our plans to discontinue the
use of certain other acquired trademarks and tradenames, we recognized a
non-cash impairment charge of $1.5 million for such indefinite-lived intangible
assets during the fourth quarter of Fiscal 2009.
During
the fourth quarter of Fiscal 2009, with the continued deterioration in the
economic environment and our operating results, we identified 152 stores with
asset carrying values in excess of their respective forecasted undiscounted cash
flows. Accordingly, we recognized a non-cash charge of $16.6 million
to write down the long-lived assets at these stores to their respective fair
values. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
“NOTE 13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMARKS”
below.
During
the fourth quarter of Fiscal 2008 we performed our annual goodwill impairment
test and determined that the carrying value of our FIGI’S goodwill exceeded its
implied fair values. Accordingly, we recognized a non-cash impairment
charge of $18.2 million related to the FIGI’S goodwill. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
6. INTANGIBLE ASSETS AND GOODWILL” and “NOTE 13. IMPAIRMENT OF
STORE ASSETS, GOODWILL, AND TRADEMARKS” below.
During
the fourth quarter of Fiscal 2008 we identified 157 under-performing stores to
be closed. As a result of the decision to close these
under-performing stores, 136 of the 157 stores identified were determined to be
impaired, which resulted in the recognition of a non-cash charge of $9.0 million
to write down these stores to their respective fair values.
Restructuring
and Other Charges
As
discussed in “OVERVIEW”
above, During Fiscal 2009 we began to implement cost-saving and streamlining
initiatives announced during Fiscal 2009, which included the divestiture of our
non-core misses apparel catalogs, the elimination of corporate and field
positions, the identification of additional under-performing stores,
discontinuation of the LANE BRYANT WOMAN catalog, and the transformation of our
operations into a vertical specialty store model.
During
the fourth quarter of Fiscal 2009 we recognized the following pre-tax charges
that are included in restructuring and other charges:
●
|
$2.7
million for costs related to the transformation of our
operations into a vertical specialty store
model.
|
|
|
●
|
$2.4
million for accelerated depreciation and asset write-downs related to
fixed assets retained from the sale of the non-core misses apparel catalog
business.
|
|
|
●
|
$2.0
million for severance, retention, and related costs.
|
|
|
●
|
$1.3
million for severance and non-cash accelerated depreciation for the
planned shutdown of the LANE BRYANT CATALOG operations.
|
|
|
●
|
$(0.2)
million credit related to a reduction of a lease termination
liability.
|
During
Fiscal 2008 we recognized pre-tax charges of $3.0 million for severance,
retention, and relocation costs related to the consolidation of a number of our
operating functions and $2.3 million of non-cash pre-tax charges for accelerated
depreciation related to the closing of the Memphis facility.
Income
Tax Provision
Our
income tax benefit for the fourth quarter of Fiscal 2009 was $1.0 million on a
loss from continuing operations before taxes of $109.4 million as compared to a
tax benefit of $14.4 million on a loss from continuing operations before taxes
of $59.3 million for the fourth quarter of Fiscal 2008. The income
tax benefit for the fourth quarter of Fiscal 2009 was unfavorably affected by a
non-cash provision to establish a valuation allowance against our net operating
losses and the non-deductibility for income tax purposes of the impairment of
goodwill. The income tax benefit for the fourth quarter of Fiscal
2008 was unfavorably impacted by the non-deductibility for income tax purposes
of the impairment of goodwill.
Discontinued
Operations
Discontinued
operations for the fourth quarter of Fiscal 2008 consist of the results of
operations of the non-core misses apparel catalog titles operated under our
Crosstown Traders brand, which were sold during the third quarter of Fiscal 2009
(see “OVERVIEW” above
and “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 2. DISCONTINUED OPERATIONS”
below).
Liquidity
and Capital Resources
Our
primary sources of funding for our working capital requirements are cash flow
from operations, our proprietary credit card receivables securitization
agreements, our investment portfolio, and our revolving credit facility
described below. During Fiscal 2008 we also incurred long-term debt
financing as discussed further in “Financing; Long-term
Debt” and “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 8. LONG-TERM
DEBT”
below. The following table highlights certain information
related to our liquidity and capital resources:
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
(Dollars
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
93,759 |
|
|
$ |
60,978 |
|
|
$ |
143,349 |
|
Available-for-sale
securities
|
|
|
6,398 |
|
|
|
13,364 |
|
|
|
1,997 |
|
Cash
provided by operating activities
|
|
|
49,566 |
|
|
|
159,845 |
|
|
|
186,954 |
|
Working
capital
|
|
|
382,651 |
|
|
|
495,096 |
|
|
|
410,193 |
|
Current
ratio
|
|
|
2.4 |
|
|
|
2.4 |
|
|
|
2.2 |
|
Long-term
debt to equity ratio
|
|
|
65.6 |
% |
|
|
41.9 |
% |
|
|
19.1 |
% |
As of
January 31, 2009 we held $100.2 million in cash, cash equivalents, and
available-for-sale securities. As is consistent with our industry, our
cash balances are seasonal in nature. During Fiscal 2009 we received
$34.4 million from the sale of our discontinued operations, $12.5 million from
the sale of our Crosstown Traders credit card receivables, $4.8 million from the
sale of our Memphis, Tennessee distribution center, and $7.2 million of net
proceeds from purchases and sales of available-for-sale securities, which were
offset by $55.8 million of investments in capital assets, $11.0 million of
repurchases of our common stock, and $8.7 million of repayments of long-term
borrowings. In addition, during Fiscal 2009 we acquired approximately
$6.0 million of equipment through capital lease financing.
During
Fiscal 2008 we used $230.8 million of net funds provided from the issuance of
long-term debt and cash from operations primarily for $252.6 million of
repurchases of our common stock and $137.7 million of investments in capital
assets. In addition, during Fiscal 2008 we redeemed $150.0 million of
long-term debt due in 2012 through the issuance of approximately 15.1 million
shares of our common stock and cash payments of $0.4 million; used approximately
$11.8 million of cash for long-term debt repayments; and acquired approximately
$8.0 million of equipment through capital lease financing.
The
following discussion of cash flows is based on our consolidated statements of
cash flows included in “Item 8.
Financial Statements and Supplementary Data” below that, in accordance
with generally accepted accounting principles, includes the results of both our
continuing operations and our discontinued operations.
Cash
Provided by Operating Activities
The decrease
in cash provided by operating activities from Fiscal 2008 to Fiscal 2009 was
primarily attributable to the increase in our net loss, which was partially
offset by $12.5 million of proceeds from the sale of our Crosstown Traders
credit card receivables portfolio and a reduction in our net investment in
inventories. Inventories at the end of Fiscal 2009 decreased 16% on a
same-store basis as compared to the end of Fiscal 2008 as a result of the
clearance of seasonal inventory and planned reductions in inventory receipts for
our Spring seasonal inventory in response to continuing weak traffic levels in
our retail stores.
The
decrease in cash provided by operating activities from Fiscal 2007 to Fiscal
2008 was primarily attributable to an $82.8 million decrease in net income
excluding $109.5 million of non-cash impairment losses and write-downs and
accelerated depreciation related to facilities to be closed. Our net
investment in inventories decreased in Fiscal 2008 as compared to Fiscal
2007. Excluding incremental inventory purchased for new stores and
our LANE BRYANT WOMAN catalog business, inventories at the end of Fiscal 2008
decreased 19% on a same-store basis as compared to the end of Fiscal 2007 as a
result of improved inventory management and aggressive promotional activities
related to our fall and winter seasonal inventories. During Fiscal 2008 we
purchased and securitized the LANE BRYANT proprietary credit card portfolio,
which had been administered under a non-recourse agreement that expired in
October 2007 with a third-party (see “Financing;
Off-Balance-Sheet Financing” below).
Capital
Expenditures
Our gross
capital expenditures, excluding construction allowances received from landlords,
were $55.8 million in Fiscal 2009, $137.7 million in Fiscal 2008, and $133.2
million in Fiscal 2007. Construction allowances received from
landlords were $24.3 million in Fiscal 2009, $22.5 million in Fiscal 2008, and
$26.1 million in Fiscal 2007. Total gross investments in property,
equipment, and leasehold improvements, including cash expenditures and capital
lease financing and excluding construction allowances, were $61.8 million in
Fiscal 2009, $145.7 million in Fiscal 2008, and $133.2 million in Fiscal
2007. Our actual Fiscal 2009 capital expenditures were approximately
half of our planned capital expenditures for Fiscal 2009. Our capital
expenditures in each year were primarily for the construction, remodeling, and
fixturing of new and existing retail stores, corporate systems technology, and
improvements to our corporate and brand home offices and distribution
centers. In Fiscal 2009 we acquired $6.0 million and in Fiscal 2008
we acquired $8.0 million of distribution center, technology, and office
equipment under capital leases. These capital leases generally have
initial terms ranging from 36 months to 72 months and contain a bargain-purchase
option.
During
Fiscal 2007 and Fiscal 2008 we continued our new store opening plan for our LANE
BRYANT brand, including our LANE BRYANT/CACIQUE side-by-side stores and LANE
BRYANT OUTLET stores, as well as new PETITE SOPHISTICATE OUTLET
stores. As part of our streamlining initiatives announced in February
2008 and in response to the current difficult economic environment, we
significantly reduced capital expenditures for new store development, store
relocations, and corporate technology during Fiscal 2009 (see “OVERVIEW”
above). We opened 48 new stores in Fiscal 2009 as compared to 103 new
stores in Fiscal 2008 and 198 stores in Fiscal 2007. Approximately
67% of our Fiscal 2009 capital expenditures supported store development,
including openings, relocations, and store improvements, with the remainder of
the expenditures primarily for improvements to our information technology,
distribution centers, and corporate infrastructure.
We plan
to further reduce capital expenditures during Fiscal 2010 and anticipate that
our Fiscal 2010 gross capital expenditures will be approximately $29 million, or
approximately half of our actual Fiscal 2009 capital expenditures, before
construction allowances received from landlords. We expect to finance
these capital expenditures primarily through internally-generated funds and to a
lesser extent through capital lease financing.
Repurchases
of Common Stock
In
November 2007 we announced that our Board of Directors has authorized a new $200
million share repurchase program. We intend to make share purchases
from time to time in the open market or through privately-negotiated
transactions and expect to fund the repurchases primarily from operating cash
flow. The timing of such repurchases and the number of shares
repurchased will depend on market conditions and we intend to hold shares
repurchased as treasury shares. During the first quarter of Fiscal
2009 we repurchased an aggregate total of 0.5 million shares of common stock for
$2.6 million under this program and we purchased 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.
During
the first quarter of Fiscal 2008 we used $131.1 million of the proceeds from our
issuance of 1.125% Senior Convertible Notes due May 1, 2014 to repurchase 10.3
million shares of our common stock (see “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; NOTE 8. LONG-TERM
DEBT”
below). In addition, during Fiscal 2008 we repurchased an additional
aggregate total of 10.4 million shares of common stock for $100.0 million under
a program announced in May 2007 and 3.5 million shares of common stock for $21.5
million under a prior authorization from our Board of Directors.
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 “Item 5. Market for the
Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities” above for additional information related to our
repurchases of common stock.
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.
Debt,
Lease, and Purchase Commitments
As of
January 31, 2009, our commitments for future payments under our long-term debt
obligations, minimum lease payments under our capital leases and operating
leases, and payments due under our revolving credit facility, letters of credit,
long-term deferred compensation plans, unrecognized tax benefits, split-dollar
life insurance premiums, and purchase obligations were as follows:
|
|
Payments
Due by Period
|
|
|
|
|
|
|
|
|
|
One
to
|
|
|
Three
|
|
|
More
|
|
|
|
|
|
|
Less
Than
|
|
|
Three
|
|
|
To
Five
|
|
|
than
Five
|
|
(In
millions)
|
|
Total
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, including current portion(1)
|
|
$ |
316.4 |
|
|
$ |
7.6 |
|
|
$ |
19.5 |
|
|
$ |
282.6 |
|
|
$ |
6.7 |
|
Capital
leases
|
|
|
15.7 |
|
|
|
4.4 |
|
|
|
7.8 |
|
|
|
3.5 |
|
|
|
0.0 |
|
Operating
leases(2)
|
|
|
932.5 |
|
|
|
227.9 |
|
|
|
336.3 |
|
|
|
194.1 |
|
|
|
174.2 |
|
Revolving
credit facility(3)
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Letters
of credit(3)
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Stand-by
letters of credit(3)
|
|
|
15.7 |
|
|
|
15.7 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Long-term
deferred compensation(4)
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.0 |
|
|
|
0.1 |
|
Unrecognized
tax benefits(5)
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Split-dollar
life insurance premiums(6)
|
|
|
19.3 |
|
|
|
1.5 |
|
|
|
2.9 |
|
|
|
2.7 |
|
|
|
12.2 |
|
Purchase
commitments(7)
|
|
|
384.1 |
|
|
|
384.1 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Total
|
|
$ |
1,685.9 |
|
|
$ |
643.1 |
|
|
$ |
366.7 |
|
|
$ |
482.9 |
|
|
$ |
193.2 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amounts represent the expected cash payments (including interest) of our
long-term debt (including our convertible debt through maturity and
excluding capital leases) and do not include any fair value adjustments,
bond premiums, discounts, or revolving credit facilities.
|
|
|
|
(2)
Commitments under operating leases include $3.6 million payable under the
LANE BRYANT master sublease with Limited Brands, Inc., which we have
guaranteed.
|
|
|
|
(3)
We currently have a $375 million revolving credit facility that expires on
July 28, 2010, which provides for cash borrowings and the ability to issue
up to $300 million of letters of credit. As of January 31, 2009,
there were no borrowings outstanding under this facility.
|
|
|
|
(4)
Includes our non-qualified deferred compensation plan and supplemental
retirement plan. We have estimated the projected payment
obligations for participant planned in-service distributions of the
deferred compensation plan liability as of January 31, 2009. The
above estimate excludes $17.4 million of benefit distribution
obligations because the value of the obligations and the timing of
payments may vary annually due to changes in the fair value of the plan
assets and/or assumptions for participant retirement/termination.
We terminated our supplemental retirement plan as of December 31,
2008. Effective December 31, 2008 we will cease making retirement
credits to the plan, the interest rate to be credited on participants’
accounts will be reduced, and participants’ accounts will become fully
vested. Participants may elect to receive a distribution of their
accounts according to a fixed distribution schedule, which extends over
one to three years based on the account balance. The interest rate
reduction, distribution elections, and accelerated vesting only apply to
participants who are currently active employees.
|
|
|
|
(5)
In accordance with FIN No. 48 (see “CRITICAL ACCOUNTING POLICIES;
Income Taxes” above) we have recorded liabilities for unrecognized
tax benefits of $29.2 million and accrued interest and penalties of $12.7
as of January 31, 2009. These liabilities are included in “Other
long-term liabilities” on our consolidated balance sheet. With the
exception of $1.3 million of unrecognized tax benefits that are reasonably
possible of being recognized within 12 months, we have excluded these
liabilities from this table because we cannot make reasonably reliable
estimates of the amounts and/or periods that we expect to pay or settle
these liabilities.
|
|
|
|
(6)
Amounts represent insurance premiums related to split-dollar life
insurance agreements with former executive employees.
|
|
|
|
(7)
Purchase commitments include agreements to purchase goods or services in
the ordinary course of business.
|
|
Financing
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
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 “OVERVIEW” 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 facility is included
in “CRITICAL ACCOUNTING
POLICIES; Asset
Securitizations” above, “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; NOTE 17. ASSET SECURITIZATION” below, and under the
caption “MARKET RISK”
below.
As of
January 31, 2009 we had the following securitization facilities
outstanding:
(Dollars
in millions)
|
Series 1999-2
|
Series 2004-VFC
|
Series 2004-1
|
Series 2007-1
|
|
|
|
|
|
Date
of
facility
|
May
1999
|
January
2004
|
August
2004
|
October
2007
|
Type
of
facility
|
Conduit
|
Conduit
|
Term
|
Term
|
Maximum
funding
|
$50.0
|
$105.0(1)
|
$180.0
|
$320.0
|
Funding
as of January 31, 2009
|
$42.0
|
$0.0
|
$180.0
|
$320.0
|
First
scheduled principal payment
|
Not
applicable
|
Not
applicable
|
April
2009
|
April
2012
|
Expected
final principal payment
|
Not
applicable(2)
|
Not
applicable(2)
|
March
2010
|
March
2013
|
Next
renewal
date
|
March
2009(3)
|
January
2010
|
Not
applicable
|
Not
applicable
|
____________________
|
|
(1)
The maximum funding capacity of Series 2004-VFC was increased from $50.0
million to $105.0 million on November 14, 2008.
|
|
(2)
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.
|
|
(3)
Subsequent to January 31, 2009 the Series 1999-2 facility was renewed
through March 30,
2010.
|
On August
25, 2008 we announced that we entered into an agreement to sell our misses
apparel catalog credit card receivables in conjunction with the sale of the
related Crosstown Traders catalog titles (see “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 2. DISCONTINUED OPERATIONS”
below). On December 31, 2008, we finalized 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. The portfolio was sold for a par value of $43.5
million. In connection with the sale we paid off and terminated the
related Series 2005-RPA conduit securitization facility that was dedicated to
these receivables. 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 of $12.5
million.
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.
Prior to
November 1, 2007 we had an agreement under which a third party provided a
proprietary credit card sales accounts receivable funding facility for our LANE
BRYANT retail and outlet stores. In accordance with the terms of the
agreement we exercised our option to purchase the LANE
BRYANT portfolio on November 1, 2007 and assigned the right to purchase the
LANE BRYANT portfolio to Spirit of America National Bank (the “Bank”), our
wholly-owned credit card bank. Concurrent with the Bank’s acquisition
of the LANE BRYANT portfolio for $231.0 million, it sold the receivables to
Charming Shoppes Receivables Corp. (“CSRC”), which transferred the receivables
to the Charming Shoppes Master Trust (the “Trust”). The purchase of
the portfolio at par value and the subsequent securitization of the purchased
portfolio resulted in the recognition of a benefit of approximately $6.8
million, which is included in selling, general, and administrative expenses for
Fiscal 2008. In addition, we recognized approximately $2.1 million of
expenses in connection with the issuance of 2.4 million new LANE BRYANT
proprietary credit cards.
On
October 17, 2007 the Trust issued $320.0 million of five-year asset-backed
certificates (“Series 2007-1”) in a private placement under Rule
144A. Of the $320.0 million of certificates issued, $289.6 million
were sold to investors, and CSRC held $30.4 million as a retained
interest. CSRC may in the future sell all or a portion of such
retained interest. Of the certificates sold to investors, $203.5
million pay interest on a floating rate basis tied to one-month LIBOR while the
remaining $86.1 million of certificates were issued at fixed
rates. The Trust used $35.0 million of the proceeds to fund
receivables and to pay down other securitization series and placed the remaining
proceeds of $285.0 million into a pre-funding cash account.
The Trust
paid for its acquisition of the LANE BRYANT proprietary credit card
accounts receivable balances primarily by withdrawing $227.5 million of
proceeds from the pre-funding cash account for the Series 2007-1
Certificates. The remainder of the funds in the pre-funding cash
account was subsequently withdrawn to provide financing for additional
receivables, including receivables made available for financing by the
amortization of the Series 2002-1 facility.
Concurrent
with the issuance of Series 2007-1, the Trust entered into a series of
fixed-rate interest-rate swap agreements with respect to $174.7 million of the
floating-rate certificates sold to investors. The notional value of
these swaps equals the face value of these certificates. The blended
weighted-average interest rate on the swapped certificates is
6.39%. The Trust also acquired an interest-rate cap with respect to
$28.8 million of floating-rate certificates sold to investors. The
cap counterparty will make payments to the Trust when one-month LIBOR exceeds
10%. The fixed-rate certificates were sold at a discount and carry a
blended weighted average-yield of 6.43% and a blended weighted average coupon of
6.34%.
We
securitized $861.7 million of credit card receivables in Fiscal 2009 and $939.9
million of credit card receivables in Fiscal 2008, and had $535.9 million of
securitized credit card receivables outstanding as of January 31,
2009. We held certificates and retained interests in our
securitizations of $94.5 million as of January 31, 2009 that are generally
subordinated in right of payment to certificates issued by the QSPEs to
third-party investors. Our obligation to repurchase receivables sold
to the QSPEs is limited to those receivables that at the time of their transfer
fail to meet the QSPE’s eligibility standards under normal representations and
warranties. To date, our repurchases of receivables pursuant to this
obligation have been insignificant.
CSRC and
Charming Shoppes Seller, Inc., 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 January 31, 2009 included $51.4 million of QSPE certificates, an I/O strip of
$19.3 million, and other retained interests of $23.8 million. These
assets are first and foremost available to satisfy the claims of the respective
creditors of these separate corporate entities, including certain claims of
investors in the QSPEs.
Additionally,
with respect to certain Trust Certificates, if either the Trust or Charming
Shoppes, Inc. does not meet certain financial performance standards, the Trust
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. As of February 2, 2008 the Trust was in compliance with
its financial performance standards as of January 31, 2009, 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 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 January
31, 2009 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 term 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 $375.0 committed
revolving credit facilities to the extent available. Subsequent to
January 31, 2009 we renewed our Series 1999-2 conduit facility through March 30,
2010. 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.
On
February 19, 2009 Moody's Investors Service, a nationally recognized statistical
rating organization (“NRSRO”) that has rated our term series securitizations in
the past, announced that it had downgraded the ratings of our term series
asset-backed securities. No other NRSRO took a similar
action. The Moody’s action could negatively impact our ability to complete
future term series securitization transactions on acceptable terms and cause our
asset securitization program to rely on other potentially more expensive funding
sources to the extent available. The Moody’s action does not affect our
current conduit and term series transactions, which we currently expect will
provide sufficient funding for our securitization program for Fiscal
2010.
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 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:
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
securitization excess spread
revenues
|
|
$ |
98.5 |
|
|
$ |
79.0 |
|
|
$ |
69.8 |
|
Net
additions to the I/O strip and servicing liability
|
|
|
(4.0 |
) |
|
|
6.4 |
|
|
|
1.0 |
|
Other
credit card revenues, net(1)
|
|
|
12.3 |
|
|
|
11.2 |
|
|
|
9.4 |
|
Total
credit card
revenues
|
|
|
106.8 |
|
|
|
96.6 |
|
|
|
80.2 |
|
Less
total credit card program
expenses
|
|
|
68.3 |
|
|
|
58.5 |
|
|
|
44.0 |
|
Total
credit
contribution
|
|
$ |
38.5 |
|
|
$ |
38.1 |
|
|
$ |
36.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Excludes inter-company merchant fees between our credit entities and
our retail entities.
|
|
Further
details of our outstanding receivables are as follows:
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Average
managed receivables
outstanding
|
|
$ |
579.3 |
|
|
$ |
427.4 |
|
|
$ |
363.5 |
|
Ending
managed receivables
outstanding
|
|
$ |
535.9 |
|
|
$ |
613.2 |
|
|
$ |
366.7 |
|
Operating
Leases
We lease
substantially all of our operating stores and certain administrative facilities
under non-cancelable operating lease agreements. Additional details
on these leases, including minimum lease commitments, are included in “Liquidity and Capital
Resources” above, and in “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
18. LEASES” below.
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 $1.3 million of unamortized deferred debt acquisition costs
related to the facility as of January 31, 2009, 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 January 31, 2009 the “Excess Availability” under the
facility was $205.8 million, or 92.9% of the “Borrowing Base.” As of
January 31, 2009 we were not in violation of any of the covenants included in
the facility.
The
interest rate on borrowings under the facility is Prime for Prime Rate Loans and
LIBOR as adjusted for the “Reserve Percentage” (as defined in the facility
agreement) plus 1.0% to 1.5% per annum for Eurodollar Rate Loans. The
applicable rate is determined monthly, based on our average “Excess
Availability.” As of January 31, 2009 the applicable rates under the
facility were 3.25% for Prime Rate Loans and 1.66% (LIBOR plus 1.25%) for
Eurodollar Rate Loans. There were no borrowings outstanding under the
facility as of January 31, 2009.
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.
See “PART I. Item
1A. Risk Factors; OTHER RISKS” above for a discussion of the
potential impact to our liquidity as a result of the occurrence of a
“fundamental change” as defined in the prospectus filed in connection with the
1.125% 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 short-term and long-term borrowings is included in
“Item 8. Financial Statements
and Supplementary Data; Notes to Consolidated Financial Statements; NOTE 8. LONG-TERM
DEBT”
below.
In Fiscal
2010 we plan to continue to utilize our combined financial resources to fund our
inventory and inventory-related purchases, advertising and marketing
initiatives, and our store development and infrastructure strategies. We
believe our cash and available-for-sale securities, securitization
facilities, and borrowing facilities will provide adequate liquidity for our
business operations and growth opportunities during Fiscal
2010. 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. We may also elect to redeem
debt financing (including our 1.125% Senior Convertible Notes) prior to maturity
or to purchase the 1.125% Senior Convertible Notes in privately negotiated
transactions or in the open market under circumstances that we believe to be
favorable to us. 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 market value of our outstanding debt, the condition of financial
markets, and the nature and size of strategic business opportunities that we may
elect to pursue.
MARKET
RISK
We manage
our proprietary credit card programs (see “OVERVIEW” above) 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 January 31, 2009 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 2010, an increase of approximately
$384 thousand in selling, general, and administrative expenses would
result.
See “PART I; Item 1A. Risk
Factors” above for a further discussion of other market risks
related to our securitization facilities.
As of
January 31, 2009 there were no borrowings outstanding under our revolving credit
facility. Future borrowings made under the facility, if any, could be
exposed to variable interest rates.
We are
not subject to material foreign exchange risk, as our foreign transactions are
primarily U.S. Dollar-denominated and our foreign operations do not constitute a
material part of our business.
IMPACT
OF RECENT ACCOUNTING PRONOUNCEMENTS
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES; Impact of Recent
Accounting Pronouncements” below.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
MARKET RISK” above.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes
those policies and procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of our assets; (ii) provide reasonable assurance that our
transactions are recorded as necessary to permit preparation of our financial
statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and our Board of Directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect
on our financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Further, because of changes in
conditions or the degree of compliance with policies and procedures, the
effectiveness of internal control over financial reporting may vary over
time.
Management
assessed the effectiveness of our internal control over financial reporting as
of January 31, 2009. In making this assessment, our management used
the criteria set forth in “Internal Control – Integrated
Framework,”
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the “COSO criteria”). Based on this assessment, management concluded
that our internal control over financial reporting was effective as of January
31, 2009.
Ernst
& Young LLP, our independent registered public accounting firm, has audited
our internal control over financial reporting, as stated in their report that
appears on page 68 –
69.
CONTROL
OVER FINANCIAL REPORTING
The Board
of Directors and Stockholders
Charming
Shoppes, Inc.
We have
audited Charming Shoppes, Inc. and subsidiaries internal control over financial
reporting as of January 31, 2009, based on criteria established in “Internal Control – Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). Charming Shoppes, Inc. and
subsidiaries’ management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Charming Shoppes, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of January 31,
2009, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Charming
Shoppes, Inc. and subsidiaries as of January 31, 2009 and February 2, 2008, and
the related consolidated statements of operations and comprehensive income,
stockholders’ equity, and cash flows for each of the three fiscal years in the
period ended January 31, 2009 of Charming Shoppes, Inc. and subsidiaries and our
report dated March 31, 2009 expressed an unqualified opinion
thereon.
Philadelphia,
Pennsylvania
March 31,
2009
The Board
of Directors and Stockholders
Charming
Shoppes, Inc.
We have
audited the accompanying consolidated balance sheets of Charming Shoppes, Inc.
and subsidiaries as of January 31, 2009 and February 2, 2008, and the related
consolidated statements of operations and comprehensive income, stockholders’
equity, and cash flows for each of the three fiscal years in the period ended
January 31, 2009. Our audits also included the financial statement
schedule listed in the Index at Item 15(a)(2). These financial
statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Charming Shoppes, Inc.
and subsidiaries at January 31, 2009 and February 2, 2008, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 31, 2009, in conformity with United States
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” effective as of February 4, 2007. Also, as
discussed in Note 1 to the consolidated financial statements, the Company
adopted EITF Issue 06-4, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Agreements,” effective as of February 3, 2008.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Charming Shoppes, Inc. and subsidiaries’
internal control over financial reporting as of January 31, 2009, based on
criteria established in “Internal Control – Integrated
Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 31, 2009 expressed an unqualified
opinion thereon.
Philadelphia,
Pennsylvania
March 31,
2009
CONSOLIDATED
BALANCE SHEETS
|
|
January
31,
|
|
|
February
2,
|
|
(In
thousands, except share amounts)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$ |
93,759 |
|
|
$ |
60,978 |
|
Available-for-sale
securities
|
|
|
6,398 |
|
|
|
13,364 |
|
Accounts
receivable, net of allowances of $6,018 and $6,262
|
|
|
33,300 |
|
|
|
33,535 |
|
Investment
in asset-backed
securities
|
|
|
94,453 |
|
|
|
115,912 |
|
Merchandise
inventories
|
|
|
268,142 |
|
|
|
330,224 |
|
Deferred
taxes
|
|
|
4,066 |
|
|
|
9,686 |
|
Prepayments
and
other
|
|
|
155,430 |
|
|
|
155,997 |
|
Current
assets of discontinued
operations
|
|
|
0 |
|
|
|
121,695 |
|
Total current
assets
|
|
|
655,548 |
|
|
|
841,391 |
|
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold improvements – at cost
|
|
|
1,076,972 |
|
|
|
1,117,559 |
|
Less
accumulated depreciation and
amortization
|
|
|
693,796 |
|
|
|
658,410 |
|
Net property, equipment, and
leasehold improvements
|
|
|
383,176 |
|
|
|
459,149 |
|
|
|
|
|
|
|
|
|
|
Trademarks
and other intangible
assets
|
|
|
187,365 |
|
|
|
189,562 |
|
Goodwill
|
|
|
23,436 |
|
|
|
66,666 |
|
Other
assets
|
|
|
30,167 |
|
|
|
56,536 |
|
Total
assets
|
|
$ |
1,279,692 |
|
|
$ |
1,613,304 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
99,520 |
|
|
$ |
130,061 |
|
Accrued
expenses
|
|
|
166,631 |
|
|
|
161,476 |
|
Current
liabilities of discontinued
operations
|
|
|
0 |
|
|
|
45,931 |
|
Current
portion – long-term
debt
|
|
|
6,746 |
|
|
|
8,827 |
|
Total current
liabilities
|
|
|
272,897 |
|
|
|
346,295 |
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
46,824 |
|
|
|
37,942 |
|
Other
non-current
liabilities
|
|
|
188,470 |
|
|
|
192,454 |
|
Long-term
debt
|
|
|
305,635 |
|
|
|
306,169 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Common
stock $.10 par value
|
|
|
|
|
|
|
|
|
Authorized – 300,000,000
shares
|
|
|
|
|
|
|
|
|
Issued –153,482,368 shares and
151,569,850
shares
|
|
|
15,348 |
|
|
|
15,157 |
|
Additional
paid-in
capital
|
|
|
411,623 |
|
|
|
407,499 |
|
Treasury
stock at cost – 38,482,213 shares and 36,477,246 shares
|
|
|
(347,730 |
) |
|
|
(336,761 |
) |
Accumulated
other comprehensive
income
|
|
|
5 |
|
|
|
22 |
|
Retained
earnings
|
|
|
386,620 |
|
|
|
644,527 |
|
Total stockholders’
equity
|
|
|
465,866 |
|
|
|
730,444 |
|
Total
liabilities and stockholders’
equity
|
|
$ |
1,279,692 |
|
|
$ |
1,613,304 |
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,474,898 |
|
|
$ |
2,722,462 |
|
|
$ |
2,751,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
1,846,954 |
|
|
|
1,954,495 |
|
|
|
1,890,565 |
|
Selling,
general, and administrative expenses
|
|
|
692,110 |
|
|
|
719,107 |
|
|
|
699,009 |
|
Impairment
of store assets, goodwill, and
trademarks
|
|
|
81,498 |
|
|
|
27,197 |
|
|
|
0 |
|
Restructuring
and other
charges
|
|
|
33,145 |
|
|
|
5,332 |
|
|
|
0 |
|
Total
operating expenses
|
|
|
2,653,707 |
|
|
|
2,706,131 |
|
|
|
2,589,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from operations
|
|
|
(178,809 |
) |
|
|
16,331 |
|
|
|
162,271 |
|
Other
income
|
|
|
4,430 |
|
|
|
8,793 |
|
|
|
8,273 |
|
Interest
expense
|
|
|
(8,795 |
) |
|
|
(10,552 |
) |
|
|
(14,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
and extraordinary
item
|
|
|
(183,174 |
) |
|
|
14,572 |
|
|
|
155,798 |
|
Income
tax (benefit)/provision
|
|
|
(13,885 |
) |
|
|
13,858 |
|
|
|
53,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations before extraordinary item
|
|
|
(169,289 |
) |
|
|
714 |
|
|
|
101,959 |
|
Income/(loss)
from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit/(expense) of $10,241
in 2008 and $(3,361) in 2007
|
|
|
(74,922 |
) |
|
|
(85,039 |
) |
|
|
6,964 |
|
Extraordinary
item, net of income tax provision of $582
|
|
|
0 |
|
|
|
912 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
(244,211 |
) |
|
|
(83,413 |
) |
|
|
108,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains/(losses) on available-for-sale securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax
provision/(benefit) of $(10) in 2009,
|
|
|
|
|
|
|
|
|
|
|
|
|
$14 in 2008, and $3 in
2007
|
|
|
(17 |
) |
|
|
21 |
|
|
|
4 |
|
Total
other comprehensive income/(loss)
|
|
|
(17 |
) |
|
|
21 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income/(loss)
|
|
$ |
(244,228 |
) |
|
$ |
(83,392 |
) |
|
$ |
108,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations
|
|
$ |
(1.48 |
) |
|
$ |
.01 |
|
|
$ |
.83 |
|
Income/(loss)
from discontinued operations, net of income taxes
|
|
|
(.65 |
) |
|
|
(.70 |
) |
|
|
.06 |
|
Extraordinary
item, net of income taxes
|
|
|
.00 |
|
|
|
.01 |
|
|
|
.00 |
|
Net
income/(loss) per share(1)
|
|
$ |
(2.13 |
) |
|
$ |
(.69 |
) |
|
$ |
.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing operations
|
|
$ |
(1.48 |
) |
|
$ |
.01 |
|
|
$ |
.76 |
|
Income/(loss)
from discontinued operations, net of income taxes
|
|
|
(.65 |
) |
|
|
(.69 |
) |
|
|
.05 |
|
Extraordinary
item, net of income taxes
|
|
|
.00 |
|
|
|
.01 |
|
|
|
.00 |
|
Net
income/(loss) per share(1)
|
|
$ |
(2.13 |
) |
|
$ |
(.68 |
) |
|
$ |
.81 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Results may not add due to rounding.
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Treasury Stock
|
|
(Dollars
in thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 28,
2006
|
|
|
133,954,852 |
|
|
$ |
13,395 |
|
|
$ |
261,077 |
|
|
|
(12,265,993 |
) |
|
$ |
(84,136 |
) |
Issued
to employees,
net
|
|
|
361,477 |
|
|
|
36 |
|
|
|
783 |
|
|
|
|
|
|
|
|
|
Exercise
of stock
options
|
|
|
1,536,580 |
|
|
|
154 |
|
|
|
9,011 |
|
|
|
|
|
|
|
|
|
Withheld
for payment of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payroll taxes due on shares
issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under employee stock
plans
|
|
|
(90,378 |
) |
|
|
(9 |
) |
|
|
(1,217 |
) |
|
|
|
|
|
|
|
|
Stock-based
compensation
expense
|
|
|
|
|
|
|
|
|
|
|
10,386 |
|
|
|
|
|
|
|
|
|
Tax
benefit – employee stock programs
|
|
|
|
|
|
|
|
|
|
|
5,119 |
|
|
|
|
|
|
|
|
|
Balance,
February 3,
2007
|
|
|
135,762,531 |
|
|
|
13,576 |
|
|
|
285,159 |
|
|
|
(12,265,993 |
) |
|
|
(84,136 |
) |
Issued
to employees,
net
|
|
|
462,724 |
|
|
|
46 |
|
|
|
163 |
|
|
|
|
|
|
|
|
|
Exercise
of stock
options
|
|
|
304,120 |
|
|
|
30 |
|
|
|
1,412 |
|
|
|
|
|
|
|
|
|
Withheld
for payment of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payroll taxes due on shares
issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under employee stock
plans
|
|
|
(105,081 |
) |
|
|
(10 |
) |
|
|
(1,183 |
) |
|
|
|
|
|
|
|
|
Issued
for redemption of convertible notes
|
|
|
15,145,556 |
|
|
|
1,515 |
|
|
|
148,049 |
|
|
|
|
|
|
|
|
|
Sale
of common stock
warrants
|
|
|
|
|
|
|
|
|
|
|
53,955 |
|
|
|
|
|
|
|
|
|
Purchase
of common stock call options
|
|
|
|
|
|
|
|
|
|
|
(90,475 |
) |
|
|
|
|
|
|
|
|
Tax
benefit – call
options
|
|
|
|
|
|
|
|
|
|
|
2,705 |
|
|
|
|
|
|
|
|
|
Stock-based
compensation
expense
|
|
|
|
|
|
|
|
|
|
|
7,101 |
|
|
|
|
|
|
|
|
|
Tax
benefit – employee stock programs
|
|
|
|
|
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
|
|
Purchases
of treasury
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,211,253 |
) |
|
|
(252,625 |
) |
Balance,
February 2,
2008
|
|
|
151,569,850 |
|
|
|
15,157 |
|
|
|
407,499 |
|
|
|
(36,477,246 |
) |
|
|
(336,761 |
) |
Issued
to employees,
net
|
|
|
2,035,360 |
|
|
|
204 |
|
|
|
484 |
|
|
|
|
|
|
|
|
|
Exercise
of stock
options
|
|
|
232,898 |
|
|
|
23 |
|
|
|
911 |
|
|
|
|
|
|
|
|
|
Withheld
for payment of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payroll taxes due on shares
issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under employee stock
plans
|
|
|
(355,740 |
) |
|
|
(36 |
) |
|
|
(1,420 |
) |
|
|
|
|
|
|
|
|
Tax
benefit – call
options
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
Stock-based
compensation
expense
|
|
|
|
|
|
|
|
|
|
|
5,576 |
|
|
|
|
|
|
|
|
|
Write-down
of deferred taxes –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee stock
programs
|
|
|
|
|
|
|
|
|
|
|
(1,427 |
) |
|
|
|
|
|
|
|
|
Purchases
of treasury
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,004,967 |
) |
|
|
(10,969 |
) |
Balance,
January 31,
2009
|
|
|
153,482,368 |
|
|
$ |
15,348 |
|
|
$ |
411,623 |
|
|
|
(38,482,213 |
) |
|
$ |
(347,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
Income
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
Balance,
January 28,
2006
|
|
$ |
(3 |
) |
|
$ |
624,015 |
|
Unrealized
gains, net of income taxes of $(3)
|
|
|
4 |
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
108,923 |
|
Balance,
February 3,
2007
|
|
|
1 |
|
|
|
732,938 |
|
Cumulative
effect of adoption of FIN No. 48
|
|
|
|
|
|
|
(4,998 |
) |
Unrealized
gains, net of income taxes of $(14)
|
|
|
21 |
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
(83,413 |
) |
Balance,
February 2,
2008
|
|
|
22 |
|
|
|
644,527 |
|
Cumulative
effect of adoption of
|
|
|
|
|
|
|
|
|
EITF Issue
06-4
|
|
|
|
|
|
|
(13,696 |
) |
Unrealized
losses, net of income taxes of $10
|
|
|
(17 |
) |
|
|
|
|
Net
loss
|
|
|
|
|
|
|
(244,211 |
) |
Balance,
January 31,
2009
|
|
$ |
5 |
|
|
$ |
386,620 |
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
(244,211 |
) |
|
$ |
(83,413 |
) |
|
$ |
108,923 |
|
Adjustments
to reconcile net income/(loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
95,219 |
|
|
|
97,249 |
|
|
|
91,244 |
|
Loss on disposition of
discontinued operations
|
|
|
46,736 |
|
|
|
0 |
|
|
|
0 |
|
Impairment of store assets,
goodwill, and
trademarks
|
|
|
81,498 |
|
|
|
98,219 |
|
|
|
0 |
|
Deferred income
taxes
|
|
|
13,719 |
|
|
|
(4,933 |
) |
|
|
20,719 |
|
Stock-based
compensation
|
|
|
5,576 |
|
|
|
7,101 |
|
|
|
10,386 |
|
Excess tax benefits related to
stock-based
compensation
|
|
|
0 |
|
|
|
(613 |
) |
|
|
(5,119 |
) |
Write-down of deferred taxes
related to stock-based compensation
|
|
|
(1,427 |
) |
|
|
0 |
|
|
|
0 |
|
Write-down of capital
assets
|
|
|
6,105 |
|
|
|
11,325 |
|
|
|
0 |
|
Net (gain)/loss from
disposition of capital
assets
|
|
|
(559 |
) |
|
|
2,147 |
|
|
|
1,618 |
|
Net loss/(gain) from
securitization
activities
|
|
|
3,969 |
|
|
|
(6,445 |
) |
|
|
(1,012 |
) |
Extraordinary item, net of
income
taxes
|
|
|
0 |
|
|
|
(912 |
) |
|
|
0 |
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable,
net
|
|
|
235 |
|
|
|
(169 |
) |
|
|
5,237 |
|
Merchandise
inventories
|
|
|
72,530 |
|
|
|
37,906 |
|
|
|
(53,024 |
) |
Accounts
payable
|
|
|
(34,733 |
) |
|
|
(38,076 |
) |
|
|
45,393 |
|
Prepayments and
other
|
|
|
13,655 |
|
|
|
(514 |
) |
|
|
(55,506 |
) |
Income taxes
payable
|
|
|
0 |
|
|
|
0 |
|
|
|
3,376 |
|
Accrued expenses and
other
|
|
|
(21,201 |
) |
|
|
40,973 |
|
|
|
14,719 |
|
Proceeds
from sale of Crosstown Traders credit card receivables
portfolio
|
|
|
12,455 |
|
|
|
0 |
|
|
|
0 |
|
Purchase
of Lane Bryant credit card receivables
portfolio
|
|
|
0 |
|
|
|
(230,975 |
) |
|
|
0 |
|
Securitization
of Lane Bryant credit card receivables
portfolio
|
|
|
0 |
|
|
|
230,975 |
|
|
|
0 |
|
Net
cash provided by operating
activities
|
|
|
49,566 |
|
|
|
159,845 |
|
|
|
186,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in capital
assets
|
|
|
(55,800 |
) |
|
|
(137,709 |
) |
|
|
(133,156 |
) |
Proceeds
from sales of capital
assets
|
|
|
4,813 |
|
|
|
0 |
|
|
|
0 |
|
Gross
purchases of
securities
|
|
|
(3,143 |
) |
|
|
(84,665 |
) |
|
|
(37,022 |
) |
Proceeds
from sales of
securities
|
|
|
10,367 |
|
|
|
22,335 |
|
|
|
62,185 |
|
Net
proceeds from sale of discontinued
operations
|
|
|
34,440 |
|
|
|
0 |
|
|
|
0 |
|
Proceeds
from eminent domain settlement, net of
taxes
|
|
|
0 |
|
|
|
912 |
|
|
|
0 |
|
(Increase)/decrease
in other
assets
|
|
|
11,099 |
|
|
|
(11,502 |
) |
|
|
(14,399 |
) |
Net
cash provided/(used) by investing
activities
|
|
|
1,776 |
|
|
|
(210,629 |
) |
|
|
(122,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
of short-term
borrowings
|
|
|
0 |
|
|
|
0 |
|
|
|
(50,000 |
) |
Proceeds
from issuance of senior convertible
notes
|
|
|
0 |
|
|
|
275,000 |
|
|
|
0 |
|
Proceeds
from long-term
borrowings
|
|
|
108 |
|
|
|
1,316 |
|
|
|
0 |
|
Repayments
of long-term
borrowings
|
|
|
(8,682 |
) |
|
|
(11,814 |
) |
|
|
(14,733 |
) |
Payments
of deferred financing
costs
|
|
|
(48 |
) |
|
|
(7,640 |
) |
|
|
0 |
|
Excess
tax benefits related to stock-based
compensation
|
|
|
0 |
|
|
|
613 |
|
|
|
5,119 |
|
Purchase
of hedge on senior convertible
notes
|
|
|
0 |
|
|
|
(90,475 |
) |
|
|
0 |
|
Sale
of common stock
warrants
|
|
|
0 |
|
|
|
53,955 |
|
|
|
0 |
|
Purchases
of treasury
stock
|
|
|
(10,969 |
) |
|
|
(252,625 |
) |
|
|
|
|
Net
proceeds from shares issued under employee stock
plans
|
|
|
166 |
|
|
|
458 |
|
|
|
8,758 |
|
Net
cash used by financing
activities
|
|
|
(19,425 |
) |
|
|
(31,212 |
) |
|
|
(50,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in cash and cash
equivalents
|
|
|
31,917 |
|
|
|
(81,996 |
) |
|
|
13,706 |
|
Cash
and cash equivalents, beginning of
year
|
|
|
61,842 |
|
|
|
143,838 |
|
|
|
130,132 |
|
Cash
and cash equivalents, end of
year
|
|
$ |
93,759 |
|
|
$ |
61,842 |
|
|
$ |
143,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
|
|
(Continued
on next page)
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Continued)
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing activities
|
|
|
|
|
|
|
|
|
|
Common
stock issued on conversion of
debentures
|
|
$ |
0 |
|
|
$ |
149,564 |
|
|
$ |
0 |
|
Assets
acquired through capital
leases
|
|
$ |
5,959 |
|
|
$ |
8,047 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal
Year
We have a
52 – 53 week fiscal
year ending on the Saturday nearest to January 31. The fiscal year
ended February 3, 2007 consisted of 53 weeks. As used herein, the
terms “Fiscal 2009,” “Fiscal 2008,” and “Fiscal 2007,” refer to our fiscal years
ended January 31, 2009, February 2, 2008, and February 3, 2007. The
term “Fiscal 2010” refers to our fiscal year which will end on January 30, 2010
and the term “Fiscal 2011” refers to our fiscal year which will end on January
29, 2011.
Business
We
operate retail specialty stores located throughout the continental United States
and related websites that merchandise plus-size and misses sportswear, dresses,
coats, and intimate apparel, as well as accessories and casual footwear, at a
wide range of prices. We also conduct a direct marketing operation
that merchandises women’s apparel, footwear, accessories, and specialty gifts
throughout the continental United States through our LANE BRYANT WOMAN and
FIGI’S® Gifts
in Good Taste (“FIGI’S”) catalogs and related websites. During Fiscal
2009 we decided to discontinue the LANE BRYANT WOMAN catalog and began to
actively explore the sale of the FIGI’S catalog operations. We expect
to discontinue the LANE BRYANT WOMAN catalog operations during the first half of
Fiscal 2010.
During
Fiscal 2009 we began to explore strategic alternatives for our Crosstown Traders
non-core misses apparel catalog titles in order to provide a greater focus on
our core brands and enhance shareholder value. We completed the sale
of the Crosstown Traders apparel catalog operations in September
2008. We have accounted for the operations of the Crosstown Traders
apparel catalogs as discontinued operations for all periods presented in these
financial statements in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” and FASB Emerging Issues Task Force
(“EITF”) Issue 03-13, “Applying the Conditions in
Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report
Discontinued Operations,” (see “NOTE 2. DISCONTINUED
OPERATIONS” below). The results of operations of our FIGI’S
catalog, which we have not yet committed to a formal plan of sale, are not
reported as discontinued operations as they have not met the requirements of
SFAS No. 144 as of January 31, 2009. Except as otherwise indicated, the
financial information included in these Notes to Consolidated Financial
Statements reflects only the results of our continuing operations.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Charming Shoppes, Inc.
and our wholly-owned and majority-owned subsidiaries. All
inter-company accounts and transactions have been eliminated. The
terms “the Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc., and,
where applicable, our consolidated subsidiaries.
Business
Segments and Related Disclosures
We
operate 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The
Retail Stores segment derives its revenues from sales through retail stores and
store-related e-commerce sales under our LANE BRYANT (including
LANE BRYANT OUTLET),
FASHION BUG, CATHERINES PLUS SIZES, and PETITE SOPHISTICATE OUTLET
brands. The Direct-to-Consumer segment derives its revenues from catalog
sales and catalog-related e-commerce sales under our LANE BRYANT WOMAN® and
FIGI’S®
titles. Our foreign sourcing operations do not constitute a material
geographic segment. See “NOTE 19. SEGMENT
REPORTING” below
for further information regarding our operations by business
segment.
Foreign
Operations
We use a
December 31 fiscal year for our foreign subsidiaries in order to expedite our
year-end closing. There were no intervening events or transactions
with respect to our foreign subsidiaries during the period from January 1, 2009
to January 31, 2009 that would have a material effect on our financial position
or results of operations.
Use
of Estimates
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires that our management make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain
prior-year amounts, primarily related to discontinued operations, have been
reclassified to conform to the current-year presentation (see “NOTE 2. DISCONTINUED
OPERATIONS” below).
Cash
Equivalents
We
consider all highly-liquid investments with a maturity of three months or less
when purchased to be cash equivalents. These amounts are stated at
cost, which approximates market value.
Available-for-Sale
Securities
Our
investments are classified as available for sale. Securities traded
on an established market are carried at fair value and unrealized gains and
losses are reported in a separate component of stockholders’
equity. We adjust the cost of these investments for amortization of
premiums and the accretion of discounts to maturity where
applicable. Such adjustments are included in interest
income. We include interest income and realized gains and losses from
investments in other income. The cost of securities sold is based on
the specific identification method.
Short-term
available-for-sale securities include investments with an original maturity of
greater than three months and a remaining maturity of less than one
year.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Accounts
Receivable
Our
FIGI’S catalog offers credit to its customers using interest-free, three-payment
credit terms over three months, with the first payment due on a defined date 30
to 60 days after a stated holiday. A substantial portion of the
FIGI’S catalog business is conducted during the December holiday
season. We evaluate the collectibility of our accounts receivable
based on a combination of factors, including analysis of historical trends,
aging of accounts receivable, write-off experience, past history of recoveries,
and expectations of future performance.
Inventories
We value
merchandise inventories for our Retail Stores and Direct-to-Consumer segments at
the lower of cost or market using the retail inventory method (average cost
basis). Under the retail inventory method the valuation of
inventories at cost and the resulting gross margins are adjusted in proportion
to markdowns currently taken and shrinkage on the retail value of
inventories. In addition to markdowns that have been taken (i.e.,
selling price permanently reduced on the selling floor) we accrue an estimate
for promotional markdowns not yet recorded for merchandise that will not be sold
again above its current promotional price. We purchase inventory and
track inventory quantities on hand by season in order to determine aged seasonal
inventory. We liquidate aged seasonal inventory through markdowns or
sale to liquidators. We account for store inventory shrinkage based
on periodic physical inventories on a store-by-store basis, with supplemental
observations in locations exhibiting high shrinkage rates. We
determine interim shrinkage estimates on a store-by-store basis, based on our
most recent physical inventory results. We account for distribution
and fulfillment center inventory shrinkage based on cycle counts on a
center-by-center basis.
In
accordance with EITF Issue 02-16, “Accounting by a Customer (Including
a Reseller) for Cash Consideration Received from a Vendor,” we record
cash consideration received from vendors as a reduction of inventory and
recognize it in cost of goods sold as inventory is sold. We deferred
cash received from vendors of $6,409,000 as of January 31, 2009 and $7,286,000
as of February 2, 2008 into inventory in accordance with EITF Issue
02-16. We defer the recognition of cash received from vendors during
interim periods in order to better match the recognition of the cash
consideration to the period the inventory is sold.
In
accordance with Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs – an Amendment of
Accounting Research Bulletin No. 43, Chapter 4,” we recognize abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
costs as current-period expenses rather than capitalizing them into
inventory.
Prepayments
and Other
Prepayments
and other includes prepaid taxes, insurance, rent, marketing, and other prepaid
expenses. Prepayments and other also includes third-party credit card
receivables and income taxes receivable.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Deferred
and Non-Deferred Advertising Costs
With the
exception of direct-response advertising, we expense advertising costs as
incurred. In accordance with American Institute of Certified Public
Accountants (“AICPA”) Statement of Position (“SOP”) 93-7, “Reporting on Advertising Costs,”
we capitalize all direct costs incurred in the development, production,
and circulation of our direct-mail catalogs until the related catalog is
mailed. These capitalized costs are amortized as a component of cost
of goods sold, buying, catalog, and occupancy expenses over the expected sales
realization cycle of the catalog, which is generally within one to six
months.
Our initial estimation of the expected
sales realization cycle for a particular catalog merchandise offering is based
primarily on our historical sales and sell-through experience with similar
catalog merchandise offerings, our understanding of then-prevailing fashion
trends and influences, our assessment of prevailing economic conditions, and
various competitive factors, as well as on other possible factors. We continually track our subsequent
sales realization, compile customer feedback for indications of future
performance, reassess the marketplace, compare our findings to our previous
estimate, and adjust our amortization accordingly.
Advertising
costs charged to expense as incurred were $87,139,000 in Fiscal 2009,
$97,237,000 in Fiscal 2008, and $79,862,000 in Fiscal 2007.
Property
and Depreciation
For
financial reporting purposes we compute depreciation and amortization primarily
using the straight-line method over the estimated useful lives of the
assets. We amortize leasehold improvements over the shorter of their
useful lives or the related lease term as determined under our operating lease
accounting policy (see “Lease
Accounting” below). We use accelerated depreciation methods
for income tax reporting purposes. Depreciation and amortization of
property, equipment (including equipment acquired under capital leases), and
leasehold improvements was $90,443,000 in Fiscal 2009, $90,609,000 in Fiscal
2008, and $84,395,000 in Fiscal 2007.
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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Lease
Accounting
We lease
substantially all of our store properties as well as certain of our other
facilities and account for our leases in accordance with SFAS No. 13 (as
amended), "Accounting for
Leases." A majority of our store leases contain lease options
that we can unilaterally exercise. The lease term we use for such
operating leases includes lease option renewal periods only in instances in
which the failure to exercise such options would result in an economic penalty
for us and exercise of the renewal option is therefore reasonably assured at the
lease inception date.
For
leases that contain rent escalations, the lease term for recognition of
straight-line rent expense commences on the date we take possession of the
leased property for construction purposes, which for stores is generally two
months prior to a store opening date. Similarly, landlord incentives
or allowances under operating leases (tenant improvement allowances) are
recorded as a deferred rent liability. The deferred rent liability is
amortized as a reduction of rent expense on a straight-line basis over the lease
term, commencing on the date we take possession of the leased property for
construction purposes.
Contingent
rent is determined on a store by store basis based on criteria set forth in the
lease. Generally, a landlord is due incremental rent when a store
exceeds a sales threshold that is determined in the lease.
Goodwill
and Other Intangible Assets
We
account for goodwill and other intangible assets in accordance with the
provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” We own trademarks, tradenames, and Internet domain
names that we obtained primarily from our acquisition of LANE
BRYANT. We also own trademarks, tradenames, internet domain names,
and customer relationships for our FIGI’S catalog and related
website. In addition, we previously owned such assets in connection
with our acquisition of Crosstown Traders (see “NOTE 2. DISCONTINUED
OPERATIONS” below). The values of these intangible assets were
determined by management with the assistance of an independent appraiser using a
discounted cash flow method, based on the estimated future benefits to be
received from the assets. We allocated the excess of the cost of the
acquisitions over the estimated fair value of the identifiable tangible and
intangible net assets acquired to goodwill. In accordance with the
provisions of SFAS No. 142, we are not amortizing goodwill.
The LANE
BRYANT, FIGI’S, and other trademarks, tradenames, and Internet domain names are
well-recognized in the market. We expect to renew and protect these
trademarks, tradenames, and Internet domain names
indefinitely. Therefore, we are not amortizing the appraised value of
these trademarks, tradenames, and Internet domain names. We
periodically review these trademarks, tradenames, and Internet domain names for
indicators of a limited useful life. We amortize the customer
relationships for our FIGI’S catalog business on a straight-line basis over
their estimated useful life of four years.
We test
our goodwill and our indefinite-lived intangible assets for impairment in
accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” We test 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
In
accordance with the provisions of SFAS No. 142, we assigned the values of
goodwill and other indefinite-lived intangible assets recognized in connection
with our acquisitions of LANE BRYANT, CATHERINES, Crosstown Traders, and FIGI’S
to the respective reporting units within our reportable business
segments. The calculation of the estimated fair value of our
reporting units for the purpose of evaluating goodwill for impairment and the
fair values of other intangible assets require estimates, assumptions, and
judgments. The results of our evaluations might have been materially
different if different estimates, assumptions, and judgments had been
used. Information on goodwill by business segment is included in
“NOTE 6 INTANGIBLE ASSETS AND
GOODWILL” below.
See “NOTE 2. DISCONTINUED
OPERATIONS” and “NOTE
13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMARKS” below for
further details regarding our impairment testing and the recognition of
impairment losses related to our goodwill and other intangible
assets.
Asset
Securitization
We
account for our asset securitization facilities in accordance with the
requirements of SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.” Asset securitization primarily involves the sale
of proprietary credit card receivables to a separate and distinct
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 sheets and the
receivables transferred to the QSPE are isolated for purposes of the
securitization program. The QSPE issues asset-backed certificates
that represent undivided interests in those credit card receivables transferred
into the QSPE. These certificates are sold to investors and we retain
any undivided interests that remain unsold. We include these
remaining undivided interests and any other retained interests in “Investment in
asset-backed securities” in our accompanying consolidated balance
sheets. The carrying value of these retained interests approximates
their fair value.
We
adopted SFAS No. 156, “Accounting and Servicing of
Financial Assets – an amendment of FASB Statement No. 140,” prospectively
as of the beginning of Fiscal 2008. Accordingly, we initially measure
servicing assets and liabilities recognized in connection with our asset
securitizations at fair value. Subsequent to initial recognition of
the servicing assets or liabilities, we amortize the servicing assets or
liabilities in proportion to, and over the period of, estimated net servicing
income or loss and assess the assets or liabilities for impairment or increased
obligation based on fair value at each reporting date. Adoption of
SFAS No. 156 did not have a material impact on our consolidated financial
statements.
Transaction
expenses related to securitizations are deferred and amortized over the
reinvestment period of the transaction. Net securitization income,
including revaluation of our interest-only strip, is included as a reduction of
selling, general, and administrative expenses in our accompanying consolidated
statements of operations and comprehensive income.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Insurance
Liabilities
We use a
combination of third-party insurance and/or self-insurance for certain risks,
including workers’ compensation, medical, dental, automobile, and general
liability claims. Our insurance liabilities are a component of
“Accrued expenses” in our consolidated balance sheets and represent an estimate
of the ultimate cost of uninsured claims incurred as of the balance sheet
date. In estimating our self-insurance liabilities we use independent
actuarial estimates of expected losses, which are based on statistical analyses
of historical data. Loss estimates are adjusted based upon actual
claim settlements and reported claims. We evaluate the adequacy of
these liabilities on a regular basis, modifying our assumptions as necessary,
updating our records of historical experience, and adjusting our liabilities as
appropriate.
Senior
Convertible Notes
We
accounted for the issuance of our 1.125% Senior Convertible Notes due May 2014
(the “1.125% Notes”) in accordance with the guidance in EITF Issue 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (see “NOTE 8. LONG-TERM DEBT” below). Paragraph 11(a) of SFAS
No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” provides that contracts
issued or held by an entity that are both (1) indexed to the entity’s own common
stock and (2) classified in stockholders’ equity in its statement of financial
position are not considered to be derivative instruments under SFAS No. 133 if
the provisions of EITF Issue 00-19 are met. Accordingly, we have
recorded the 1.125% Notes as long-term debt in our condensed consolidated
balance sheets.
Concurrent
with the issuance of the 1.125% Notes we entered into privately negotiated
common stock call options with affiliates of the initial
purchasers. In addition, we sold warrants to affiliates of certain of
the initial purchasers. We accounted for the call options and
warrants in accordance with the guidance in EITF Issue 00-19. The
call options and warrants meet the requirements of EITF Issue 00-19 to be
accounted for as equity instruments. Accordingly, the cost of the
call options and the proceeds from the sale of the warrants are included in
additional paid-in capital in our condensed consolidated balance
sheets.
We will
monitor the 1.125% Notes, call options, and warrants on a quarterly basis for
compliance with the provisions of EITF Issue 00-19 and paragraph 11(a) of SFAS
No. 133. Should the issuance of the 1.125% Notes, the purchase of the
call options, or the sale of the warrants fail to continue to qualify under the
provisions of EITF Issue 00-19 or paragraph 11(a) of SFAS No. 133 we would be
required to recognize derivative instruments in connection with the transaction,
include the effects of the transaction in assets or liabilities instead of
equity, and recognize changes in the fair values of the assets or liabilities in
consolidated net income as they occur until the provisions of EITF Issue 00-19
and paragraph 11(a) of SFAS No. 133 are met.
Revenue
Recognition
Revenues
from merchandise sales are net of discounts, returns and allowances, and
coupons, and exclude sales tax. We record a reserve for estimated
future sales returns based on an analysis of actual returns received, and we
defer recognition of layaway sales to the date of delivery. Revenues
from sales of gift cards are recorded as deferred revenue and recognized upon
the redemption of the gift cards.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Catalog
and e-commerce revenues include shipping and handling fees billed to
customers. These revenues are recognized after the following have
occurred: execution of the customer’s order, authorization of the customer’s
credit card has been received, and the product has been shipped to and received
by the customer. We record a reserve for estimated future sales
returns based on an analysis of actual returns.
We sell
gift cards to our Retail Stores segment customers through our stores,
retail-store-related websites, and through third parties. We
recognize revenue from gift cards when the gift card is redeemed by the
customer. Our gift cards do not contain expiration dates or
inactivity fees. We recognize gift card breakage (unused gift card
balances for which we believe the likelihood of redemption is remote) as net
sales based on an analysis of historical redemption patterns.
Loyalty
Card Programs
We offer
our customers various loyalty card programs (see “NOTE 12. CUSTOMER LOYALTY
CARD PROGRAMS”
below). 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. Certain loyalty card customers earn points for purchases
which may be redeemed for merchandise coupons upon the accumulation of a
specified number of points. No membership fees are charged in
connection with these programs. Costs we incur in connection with
administering these programs are recognized in cost of goods sold as
incurred.
Cost
of Goods Sold, Buying, Catalog, and Occupancy Expenses
Cost of
goods sold includes merchandise costs net of discounts and allowances, freight,
inventory shrinkage, and shipping and handling costs associated with our catalog
and e-commerce businesses. We capitalize net merchandise costs and
freight as inventory costs. Cost of goods sold also includes costs
incurred in connection with our customer loyalty card programs (see “Revenue
Recognition” above). Buying
expenses include payroll, payroll-related costs, and operating expenses for our
buying departments and warehouses. Catalog expenses include the costs
of producing and distributing our merchandise catalogs (see “Deferred and
Non-Deferred Advertising Costs” above). Occupancy expenses
include rent; real estate taxes; insurance; common area maintenance; utilities;
maintenance; and depreciation for our stores, warehouse and fulfillment center
facilities, and equipment. Buying, catalog, and occupancy expenses
are treated as period costs and are not capitalized as part of
inventory.
Stock-based
Compensation
We
account for stock-based compensation in accordance with the provisions of SFAS
No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123(R)”), a revision of SFAS No. 123. We adopted SFAS No.
123(R) as of the beginning of Fiscal 2007 on the modified prospective
method. Stock-based compensation cost includes (i) compensation cost for
all stock-based awards granted prior to the beginning of Fiscal 2007 but not
fully vested as of the beginning of Fiscal 2007, based on the grant-date fair
value estimated in accordance with the provisions of SFAS No. 123, and (ii)
compensation cost for all stock-based awards granted subsequent to the beginning
of Fiscal 2007, based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123(R). Current grants of stock-based
compensation consist primarily of stock appreciation rights (“SARs”), restricted
stock, and restricted stock units (“RSUs”).
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
We use
the Black-Scholes valuation model to estimate the fair value of stock options
and SARs and amortize stock-based compensation on a straight-line basis over the
requisite service period of an award. The Black-Scholes model requires
estimates or assumptions as to the dividend yield and price volatility of the
underlying stock, the expected life of the option, and a relevant risk-free
interest rate, which are more fully described below. Stock-based
compensation for performance-based awards is initially determined using an
estimate of performance levels expected to be achieved and is periodically
reviewed and adjusted as required. We record stock-based compensation
related to cash-settled RSUs as a liability and adjust the liability and related
compensation expense for changes in the market value of our common
stock.
Total
stock-based compensation recognized in our results of operations was $5,576,000
for Fiscal 2009, $7,101,000 for Fiscal 2008, and $10,386,000 for Fiscal
2007. Total stock-based compensation not yet recognized, related to the
non-vested portion of stock options, stock appreciation rights and awards
outstanding, was $8,240,000 as of January 31, 2009. The
weighted-average period over which we expect to recognize this compensation is
approximately 3 years.
During
Fiscal 2009 we granted cash-settled restricted stock units (“RSUs”) under our
2003 Non-Employee Directors Compensation Plan. Excluded from the
above Fiscal 2009 stock-based compensation expense is $207,000 of compensation
expense related to cash-settled RSUs. Total compensation expense for
unvested cash-settled RSUs not yet recognized as of January 31, 2009 was
$182,000, which is included in accrued expenses in the accompanying consolidated
balance sheet as of January 31, 2009 and will be recognized during the first
half of Fiscal 2010.
In
applying the Black-Scholes model to determine the fair value of stock options
and SARs we used the following assumptions: historically estimated stock price
volatilities of 37.6 to 75.5; a dividend yield of 0.0%; expected lives of 5 to 7
years; and risk-free interest rates of 2.75% to 5.08%. For our
Employee Stock Purchase Plan we used historically estimated stock price
volatilities of 27.4 to 266.5; a dividend yield of 0.0%; expected lives of 3
months; and risk-free interest rates of 0.3% to 5.1%.
We
account for excess tax benefits related to stock-based compensation and the
related presentation of excess tax benefits in our consolidated statements of
cash flows in accordance with the provisions of paragraph 81 of SFAS No.
123(R). We present gross excess tax benefits related to stock-based
compensation as cash flows from financing activities in our statements of cash
flows and we reflect write-offs of deferred tax assets related to an excess of
stock-based compensation recognized in the financial statements over amounts
deductible for tax purposes as cash flows used by operating
activities.
Costs
Associated With Exit or Disposal Activities
We
recognize liabilities for costs associated with exit or disposal activities when
the liabilities are incurred and value the liabilities at fair value in
accordance with SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities.” One-time benefit payments
are recognized as employees render service over future periods if the benefit
arrangement requires employees to render future service beyond a minimum
retention period. We account for severance payments that are offered
in accordance with an on-going benefit arrangement in accordance with SFAS No.
112, “Employers’ Accounting
for Postemployment Benefits.” Under SFAS No. 112 costs
associated with such ongoing benefit arrangements are recorded no later than the
period when it becomes probable that the costs will be incurred and the costs
are reasonably estimable.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Income
Taxes
We use
the liability method of accounting for income taxes as prescribed by SFAS No.
109, “Accounting for Income
Taxes.”
We
adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109.” effective as
of the beginning of Fiscal 2008. In accordance with FIN No. 48 we
recognize a tax benefit for a tax position that is more-likely-than-not to be
sustained upon examination, based solely on its technical merits. We
measure the recognized benefit as the largest amount that is
more-likely-than-not to be realized on ultimate settlement, based on a
cumulative probability basis. We record interest and penalties
related to unrecognized tax benefits in income tax expense.
For tax
positions that initially fail to qualify for recognition, we recognize a
benefit in the first interim period in which the position meets the FIN No. 48
recognition standard or is resolved through negotiation, litigation, or upon
expiration of the statute of limitations. We subsequently
de-recognize a previously recognized tax benefit if we subsequently determine
that the tax position no longer meets the more-likely-than-not threshold of
being sustained.
In
accordance with FIN No. 48 we recognized a cumulative-effect adjustment as of
the beginning of Fiscal 2008 of $4,998,000, increasing our liability for
unrecognized tax benefits, interest, and penalties and reducing the February 4,
2007 balance of retained earnings.
We
adopted the provisions of FSP FIN 48-1, “Definition of Settlement in FASB
Interpretation No. 48,” effective with our adoption of FIN No.
48. Accordingly, we consider a tax position to be “effectively
settled” upon completion of an examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled we recognize the full amount of the tax benefit, even if (1) the tax
position is not considered more-likely-than-not to be sustained solely on the
basis of its technical merits, and (2) the statute of limitations remains
open. The adoption of FSP FIN 48-1 did not have a material effect on
our financial position or results of operations.
We
recognize deferred tax assets for temporary differences that will result in
deductible amounts in future years and for net operating loss and credit
carryforwards. We recognize a valuation allowance against our
deferred tax assets if, based on existing facts and circumstances, it is
more-likely-than-not that some portion or all of the deferred tax assets will
not be realized and we adjust the allowance for changes in our estimate of the
portion of deferred tax assets that are more-likely-than-not to be
realized.
We
permanently reinvest undistributed profits from our international operations and
therefore have not provided for incremental United States income taxes on such
undistributed profits.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Net
Income (Loss) Per Share
Net
income (loss) per share is based on the weighted-average number of common shares
outstanding during each fiscal year. Common shares that we hold as
treasury stock are excluded from the computation of net income (loss) per
share. Net income per share assuming dilution is based on the
weighted-average number of common shares and share equivalents
outstanding. Common share equivalents include the effect of dilutive
stock options and stock awards, using the treasury stock method. Our
1.125% Notes have no impact on our diluted net income per share until the price
of our common stock exceeds the conversion price of $15.379 per share because we
expect to settle the principal amount of the 1.125% Notes in cash upon
conversion. Our call options are not included in the calculation of
diluted net income per share because their effect would be
anti-dilutive. Should the price of our common stock exceed $21.607
per share we would include the dilutive effect of the additional potential
shares that may be issued related to our warrants, using the treasury stock
method. Share equivalents are not included in the weighted-average
shares outstanding for determining net loss per share, as the result would be
anti-dilutive.
Comprehensive
Income
The
consolidated statements of operations and comprehensive income include
transactions from non-owner sources that affect stockholders’
equity. Unrealized gains and losses recognized in comprehensive
income are reclassified to net income upon their realization.
Deferred
Debt Acquisition Costs
Debt
acquisition costs are deferred and amortized to interest expense on a
straight-line basis over the life of the related debt agreement.
Costs
of Computer Software Developed or Obtained for Internal Use
Costs
related to the development of internal-use software, other than those incurred
during the application development stage, are expensed as
incurred. Costs incurred during the application development stage are
capitalized and amortized over the estimated useful life of the
software.
Extraordinary
Item
In Fiscal
2008 we recognized the proceeds from eminent domain proceedings as a gain in
accordance with the provisions of FIN No. 30, “Accounting for Involuntary
Conversions of Nonmonetary Assets to Monetary Assets” and have classified
the gain as an extraordinary item in accordance with the provisions of APB
Opinion No. 30, “Reporting the
Results of Operations – Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions.”
Impact
of Recent Accounting Pronouncements
In
September 2006 the FASB ratified the consensus of EITF Issue 06-4, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Agreements.” EITF Issue 06-4 addresses accounting
for separate agreements that split life insurance policy benefits between an
employer and an employee. EITF Issue 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
We
adopted the provisions of EITF Issue 06-4 effective as of the beginning of
Fiscal 2009 and recognized a cumulative-effect adjustment of $13,696,000,
increasing our liability related to our split-dollar life insurance agreements
with former executive employees and reducing the February 3, 2008 balance of
retained earnings. As of January 31, 2009 the liability related to
our split-dollar life insurance agreements was $13,619,000.
In
September 2006 the FASB ratified the consensus of EITF Issue 06-5, “Accounting for Purchases of Life
Insurance – Determining the Amount That Could be Realized in Accordance with
FASB Technical Bulletin 85-4.” EITF Issue 06-5 addresses the
determination of the amount that could be realized under a life insurance
contract in accordance with Technical Bulletin 85-4. EITF Issue 06-5
requires a policyholder to consider any additional amounts included in the
contractual terms of the policy other than the cash surrender value in
determining the amount that could be realized under the insurance
contract. Policyholders should determine the amount that could be
realized under the life insurance contract assuming the surrender of an
individual-life by individual-life policy (or certificate-by-certificate in a
group policy). Any amount that is ultimately realized by the
policyholder upon the assumed surrender of the final policy (or final
certificate in a group policy) shall be included in the amount that could be
realized under the insurance contract. The effect of applying the
provisions of Issue No. 06-5 should be recognized either through a change in
accounting principle by a cumulative-effect adjustment to equity or through the
retrospective application to all prior periods. We adopted the
provisions of Issue No. 06-5 prospectively as of the beginning of Fiscal
2008. Adoption of EITF Issue 06-5 did not have a material impact on
our consolidated financial statements.
In
September 2006 the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 provides a single definition of
fair value along with a framework for measuring it, and requires additional
disclosure about using fair value to measure assets and
liabilities. SFAS No. 157 emphasizes that fair value measurement is
market-based, not entity-specific, and establishes a fair value hierarchy which
places the highest priority on the use of quoted prices in active markets to
determine fair value. It also requires, among other things, that
entities are to include their own credit standing when measuring their
liabilities at fair value.
In
February 2008 the FASB issued FSP FAS 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 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 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 157-1 was effective on the initial
adoption of SFAS No. 157.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
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 for non-financial
assets and non-financial liabilities that are not currently recognized or
disclosed at fair value on a recurring basis until fiscal years beginning after
November 15, 2008. 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 (see
“NOTE 20. FAIR VALUE
MEASUREMENTS” below). For
assets included within the scope of FSP FAS No. 157-2 (such as goodwill,
intangible assets, and fixed assets related to evaluation of potential
impairment), we will be required to adopt the provisions of SFAS No. 157
prospectively as of the beginning of Fiscal 2010. Adoption of
SFAS No. 157 did not have an impact on our consolidated financial
statements and we do not expect that the adoption of FSP FAS No. 157-2 will
have a material impact on our financial position or results of
operations.
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. The
adoption of FSP SFAS No. 157-3 did not have an impact on our financial position
or results of operations.
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, “Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51.” SFAS No. 141(R) establishes principles and requirements
for the recognition and measurement of identifiable assets acquired and
liabilities assumed by an acquirer in a business combination. SFAS
No. 160 amends ARB No. 51 to establish accounting and reporting standards for a
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. 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 CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
In
February 2008 the FASB issued FSP FAS 140-3, “Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions.” FSP
FAS 140-3 provides implementation guidance on accounting for a transfer of a
financial asset and repurchase financing. 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 140-3 are met, the initial transfer and repurchase financing may be
evaluated separately and not as a linked transaction 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 FSP APB 14-1, 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. We will be
required to adopt the provisions of FSP APB 14-1 as of the beginning of Fiscal
2010. As compared to our current accounting for the 1.125% Notes,
adoption of the proposal will initially reduce long-term debt and increase
stockholders’ equity by approximately $90,000,000 – $100,000,000. The
non-cash accretion of the discount component will increase interest expense and
long-term debt annually. The estimated pre-tax accretion to interest
expense and increase to long-term debt is approximately $7,000,000 – $9,000,000
for Fiscal 2008, $10,000,000 – $12,000,000 for Fiscal 2009, and $11,000,000 –
$13,000,000 for Fiscal 2010. Adoption of the FSP will not affect our
cash flows.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
In June
2008 the FASB ratified the consensus of EITF Issue 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity's Own
Stock.” EITF Issue 07-5 addresses the scope exception in
paragraph 11(a) of SFAS No. 133 that specifies that a contract that is both
indexed to its own stock and classified in stockholders’ equity is not a
derivative under SFAS No. 133. The objective of EITF Issue 07-5 is to
provide guidance for determining whether an equity-linked financial instrument
(or embedded feature) is indexed to an entity’s own stock.
We will
be required to adopt the provisions of EITF Issue 07-5 as of the beginning of
Fiscal 2010. The effect of applying the provisions of Issue No. 07-5
should be recognized through a change in accounting principle by a
cumulative-effect adjustment to the opening balance of retained earnings in the
year of adoption. We do not expect that the adoption of EITF Issue
07-5 will have a material effect on our financial position or results of
operations.
In
December 2008 the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities.” The FSP requires additional disclosures
about transfers of financial assets and involvement with variable interest
entities. The requirements apply to transferors, sponsors, servicers,
primary beneficiaries, and holders of significant variable interests in a
variable interest entity (“VIE”) or qualifying special purpose entity
(“QSPE”). The specified disclosures focus on continuing involvement
with transferred financial assets, including involvement related to
securitizations or asset-backed financing arrangements, and on an entity’s
involvement with VIEs. We adopted the provisions of FSP FAS 140-4 and
Fin 46(R)-8 as of Fiscal 2009 (see “NOTE 17. ASSET
SECURITIZATION” below).
NOTE
2. DISCONTINUED OPERATIONS
On April
25, 2008 we began to explore a broad range of operating and strategic
alternatives for our Crosstown Traders non-core misses apparel catalog titles in
order to provide a greater focus on our core brands and to enhance shareholder
value. The Crosstown Traders apparel catalog operations met the
requirements of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” to be accounted for as held for
sale. Accordingly, the assets, liabilities, and results of operations
of the Crosstown Traders apparel catalogs 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
the Crosstown Traders non-core misses apparel catalogs to an affiliate of
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’ apparel catalog 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
As part
of the definitive agreement we retained certain components of the infrastructure
of the Crosstown Traders apparel catalogs. Accordingly, we entered
into transitional service agreements with an affiliate of 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, an
affiliate of Orchard Brands agreed to provide certain transitional services to
us, including distribution and call center services, for specified time periods
ranging up to one year from the date of the agreement. 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.
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 Fiscal 2009 we
recognized
an aggregate
pre-tax loss
on disposition of $46,736,000 and a pre-tax loss from
discontinued operations of $28,186,000. During Fiscal 2009 we also recorded a valuation
allowance against our net deferred tax assets (see “NOTE
7. INCOME
TAXES” below)
for the discontinued operations. 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. This liability is being amortized to continuing
operations over the one-year term of the transitional services
agreement. As of January 31, 2009 the liability was
$4,800,000. In addition, we recognized $2,500,000 for costs to sell
the Crosstown Traders apparel catalog business.
During
the fourth quarter of Fiscal 2008 we performed our annual impairment review and
determined that the carrying value of our Crosstown Traders apparel-related
goodwill and certain trademarks exceeded the estimated fair values of those
assets. Accordingly, we recognized impairment charges of $68,654,000
related to the Crosstown Traders apparel-related goodwill and $7,086,000 (net of
an income tax benefit of $4,307,000) related to the trademarks during Fiscal
2008. These impairment charges are included in the loss from
discontinued operations in the Fiscal 2008 consolidated statement of operations
and comprehensive income.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Summarized
results from discontinued operations were as follows:
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
thousands)
|
|
2009(1)
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
155,811 |
|
|
$ |
287,491 |
|
|
$ |
315,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from discontinued operations
|
|
$ |
(74,922 |
)(2) |
|
$ |
(95,280 |
)(4) |
|
$ |
10,325 |
|
Income
tax (benefit)/provision
|
|
|
0 |
(3) |
|
|
(10,241 |
) |
|
|
3,361 |
|
Income/(loss)
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax
benefit
|
|
$ |
(74,922 |
) |
|
$ |
(85,039 |
) |
|
$ |
6,964 |
|
____________________
|
|
|
|
(1)
Through September 18, 2008 (the date of sale).
|
|
|
|
(2)
Includes $28,186,000 of losses from operations and a $46,736,000 loss on
disposition.
|
|
|
|
(3)
During Fiscal 2009 we established a valuation allowance against our
deferred tax assets (see “NOTE 7. INCOME
TAXES” below). As a result of the valuation allowance we did
not recognize an income tax benefit for the Fiscal 2009 loss from
discontinued operations.
|
|
|
|
(4)
Includes impairment of goodwill and trademarks of $80,047 and losses from
operations of $15,233.
|
|
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 |
|
|
$ |
61,303 |
|
Deferred
advertising and other, net
|
|
|
13,594 |
|
|
|
14,995 |
|
Intangible
assets
|
|
|
44,758 |
|
|
|
45,397 |
|
Current
assets of discontinued operations
|
|
$ |
109,207 |
|
|
$ |
121,695 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
6,300 |
|
|
$ |
10,492 |
|
Accrued
expenses
|
|
|
13,111 |
|
|
|
17,981 |
|
Deferred
taxes
|
|
|
18,820 |
|
|
|
17,458 |
|
Current
liabilities of discontinued operations
|
|
$ |
38,231 |
|
|
$ |
45,931 |
|
On August
25, 2008 we also announced that we entered into an agreement to sell the misses
apparel catalog credit card receivables that were directly related to the
catalog titles sold and on December 31, 2008 we completed the sale of the
receivables (see “NOTE 17. ASSET
SECURITIZATION”
below).
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
NOTE
3. AVAILABLE-FOR-SALE SECURITIES
|
|
|
|
|
Estimated
|
|
(In
thousands)
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
January
31, 2009
|
|
|
|
|
|
|
U.S.
Treasury
Bills
|
|
$ |
5,990 |
|
|
$ |
5,998 |
|
Other
|
|
|
400 |
|
|
|
400 |
|
|
|
$ |
6,390 |
|
|
$ |
6,398 |
|
February
2, 2008
|
|
|
|
|
|
|
|
|
U.S.
Treasury
Bills
|
|
$ |
12,929 |
|
|
$ |
12,964 |
|
Other
|
|
|
400 |
|
|
|
400 |
|
|
|
$ |
13,329 |
|
|
$ |
13,364 |
|
During
Fiscal 2009, Fiscal 2008 and Fiscal 2007 there were no realized gains or losses
on available-for-sale securities. The contractual maturities of
available-for-sale securities at January 31, 2009 were one year or
less.
NOTE
4. ACCOUNTS RECEIVABLE
Accounts
receivable consist of trade receivables from sales through our FIGI’S
catalog. Details of our accounts receivable are as
follows:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Due
from
customers
|
|
$ |
39,318 |
|
|
$ |
39,797 |
|
Allowance
for doubtful
accounts
|
|
|
(6,018 |
) |
|
|
(6,262 |
) |
Net
accounts
receivable
|
|
$ |
33,300 |
|
|
$ |
33,535 |
|
Details
of the allowance for doubtful accounts are as follows:
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(6,262 |
) |
|
$ |
(5,083 |
) |
|
$ |
(6,588 |
) |
Provision
for doubtful accounts
|
|
|
(6,145 |
) |
|
|
(6,327 |
) |
|
|
(4,924 |
) |
Collections
of accounts previously written off
|
|
|
(833 |
) |
|
|
(994 |
) |
|
|
(1,274 |
) |
Accounts
written off
|
|
|
7,222 |
|
|
|
6,142 |
|
|
|
7,703 |
|
Ending
balance
|
|
$ |
(6,018 |
) |
|
$ |
(6,262 |
) |
|
$ |
(5,083 |
) |
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
NOTE
5. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
|
|
Lives
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
(Years)
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
$ |
5,829 |
|
|
$ |
5,829 |
|
Buildings
and
improvements
|
|
10
to 40
|
|
|
|
72,532 |
|
|
|
79,805 |
|
Store
fixtures
|
|
5
to 10
|
|
|
|
160,881 |
|
|
|
185,934 |
|
Equipment
|
|
3
to 10
|
|
|
|
288,387 |
|
|
|
276,381 |
|
Equipment
acquired under capital
leases
|
|
|
7
|
|
|
|
60,928 |
|
|
|
57,215 |
|
Leasehold
improvements
|
|
|
10(1)
|
|
|
|
488,160 |
|
|
|
500,324 |
|
Construction
in
progress
|
|
|
–
|
|
|
|
255 |
|
|
|
12,071 |
|
Total
at
cost
|
|
|
|
|
|
|
1,076,972 |
|
|
|
1,117,559 |
|
Less:Accumulated
depreciation and amortization
|
|
|
|
|
|
|
654,421 |
|
|
|
622,832 |
|
Accumulated amortization of
capital lease assets
|
|
|
|
|
|
|
39,375 |
|
|
|
35,578 |
|
Total
accumulated depreciation and amortization
|
|
|
|
|
|
|
693,796 |
|
|
|
658,410 |
|
Net
property, equipment, and leasehold improvements
|
|
|
|
|
|
$ |
383,176 |
|
|
$ |
459,149 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Or the life of the lease, if shorter.
|
|
NOTE
6. INTANGIBLE ASSETS AND GOODWILL
Our
intangible assets are as follows:
|
|
Life
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
(Years)
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks,
tradenames, and Internet domain names
|
|
|
|
|
$ |
187,132 |
|
|
$ |
188,608 |
|
Customer
relationships
|
|
|
4
|
|
|
|
2,872 |
|
|
|
2,872 |
|
Total
at
cost
|
|
|
|
|
|
|
190,004 |
|
|
|
191,480 |
|
Less
accumulated amortization of customer relationships
|
|
|
|
|
|
|
2,639 |
|
|
|
1,918 |
|
Net
trademarks and other intangible
assets
|
|
|
|
|
|
$ |
187,365 |
|
|
$ |
189,562 |
|
Total
annual amortization of other intangible assets was $721,000 in Fiscal 2009,
Fiscal 2008, and Fiscal 2007. Estimated amortization of intangible
assets for the next five fiscal years is: Fiscal 2010 – $233,000; thereafter –
$0.
During
Fiscal 2009 we recognized a non-cash impairment charge of $1,476,000 as a result
of our plans to discontinue the use of certain acquired trademarks and
tradenames.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Our
goodwill by reportable business segment is as follows:
|
|
January
31,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Retail
Stores:
|
|
|
|
|
|
|
LANE
BRYANT
|
|
$ |
23,436 |
|
|
$ |
23,436 |
|
CATHERINES
|
|
|
0 |
|
|
|
43,230 |
|
|
|
$ |
23,436 |
|
|
$ |
66,666 |
|
During
Fiscal 2009 we recognized goodwill impairment charges of $43,230,000 related to
the CATHERINES goodwill. During Fiscal 2008 we recognized goodwill
impairment charges of $18,172,000 related to our FIGI’S catalog
business.
NOTE
7. INCOME TAXES
Income/(loss)
from continuing operations before income taxes and extraordinary
item:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
(194,426 |
) |
|
$ |
(667 |
) |
|
$ |
143,700 |
|
Foreign
|
|
|
11,252 |
|
|
|
15,239 |
|
|
|
12,098 |
|
|
|
$ |
(183,174 |
) |
|
$ |
14,572 |
|
|
$ |
155,798 |
|
Income
tax (benefit)/provision for continuing operations:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(33,800 |
) |
|
$ |
2,538 |
|
|
$ |
34,603 |
|
State
|
|
|
3,277 |
|
|
|
4,979 |
|
|
|
4,899 |
|
Foreign
|
|
|
1,426 |
|
|
|
2,092 |
|
|
|
1,649 |
|
|
|
|
(29,097 |
) |
|
|
9,609 |
|
|
|
41,151 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
16,052 |
|
|
|
3,546 |
|
|
|
13,012 |
|
State
|
|
|
(840 |
) |
|
|
703 |
|
|
|
(324 |
) |
|
|
|
15,212 |
|
|
|
4,249 |
|
|
|
12,688 |
|
|
|
$ |
(13,885 |
) |
|
$ |
13,858 |
|
|
$ |
53,839 |
|
Income
tax payments/(refunds), net were ($23,023,000) for Fiscal 2009, ($11,103,000)
for Fiscal 2008, and $72,559,000 for Fiscal 2007.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Reconciliation
of the statutory Federal income tax rate to the effective tax rate:
|
2009
|
2008(1)
|
2007
|
|
|
|
|
Statutory
Federal income tax
rate
|
(35.0)%
|
35.0%
|
35.0%
|
State
income tax, net of Federal income
tax
|
0.0
|
34.5
|
2.9
|
Foreign
income
|
(1.4)
|
(22.2)
|
(1.6)
|
Employee
benefits
|
(0.7)
|
(7.1)
|
(0.4)
|
Impairment
of
goodwill
|
8.3
|
43.6
|
0.0
|
Charitable
contributions
|
(0.1)
|
(1.1)
|
(0.1)
|
Valuation
allowance
|
21.0
|
0.0
|
0.0
|
Other,
net
|
0.3
|
12.4
|
(1.2)
|
Effective
tax
rate
|
(7.6)%
|
95.1%
|
34.6%
|
____________________
|
|
|
|
|
(1)
Percentages are based on a low pre-tax income from continuing operations
and are not necessarily comparable to other fiscal
years.
|
Components
of deferred tax assets and liabilities:
|
|
January
31,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Tax
credit and net operating loss
carryforwards
|
|
$ |
42,245 |
|
|
$ |
14,399 |
|
Prepaid
and accrued
expenses
|
|
|
7,924 |
|
|
|
0 |
|
Inventory
|
|
|
2,954 |
|
|
|
831 |
|
Deferred
compensation
|
|
|
12,233 |
|
|
|
18,026 |
|
Property,
equipment, and leasehold
improvements
|
|
|
7,115 |
|
|
|
0 |
|
Accrued
restructuring
expense
|
|
|
5,368 |
|
|
|
0 |
|
Deferred
rent
|
|
|
0 |
|
|
|
6,752 |
|
Other
|
|
|
13,570 |
|
|
|
12,102 |
|
Total deferred tax
assets
|
|
|
91,409 |
|
|
|
52,110 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold
improvements
|
|
|
0 |
|
|
|
(14,166 |
) |
Accounts
receivable
|
|
|
(3,583 |
) |
|
|
(6,098 |
) |
Prepaid
and accrued
expenses
|
|
|
0 |
|
|
|
(3,337 |
) |
Goodwill
and intangible
assets
|
|
|
(43,026 |
) |
|
|
(39,329 |
) |
Deferred
rent
|
|
|
(4,255 |
) |
|
|
0 |
|
Credit
card late
fees
|
|
|
(22,070 |
) |
|
|
(17,436 |
) |
Total deferred tax
liabilities
|
|
|
(72,934 |
) |
|
|
(80,366 |
) |
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(61,233 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Net
deferred tax
liability
|
|
$ |
(42,758 |
) |
|
$ |
(28,256 |
) |
|
|
|
|
|
|
|
|
|
The
Fiscal 2009 total net deferred tax liability is presented on the consolidated
balance sheet as a current asset of $4,066,000 and a long-term liability of
$46,824,000. The Fiscal 2008 total net deferred tax liability is
presented on the consolidated balance sheet as a current asset of $9,686,000 and
a long-term liability of $37,942,000.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
During
Fiscal 2009 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 $38,551,000 in continuing operations and
$18,861,000 in discontinued operations to establish 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.
The above
valuation allowance includes $3,821,000 which was recorded as an offset to
additional paid-in capital as a reserve against the Fiscal 2009 tax benefit we
recognized related to the call options that were entered into concurrent with
the issuance of our 1.125% Senior Convertible Notes. This tax benefit
will be credited to additional paid-in capital upon realization of the related
net operating loss carryforward.
We have
U.S. Federal net operating loss carryforwards of $83,498,000 and state net
operating loss carryforwards of $42,102,000 that are available to offset future
U.S. Federal and state taxable income. The U.S. Federal net operating
loss has a twenty-year carryforward period and will expire in
2030. The state net operating losses have carryforward periods of
five to twenty years and will expire at various dates and in varying amounts as
follows: $10,709,000 in 2015, $19,758,000 between 2020 and 2025, and
$11,635,000 in 2030. There are other state net operating losses not
included in the above amounts that have not been valued as a result of our
certainty that they will not be realized in the future.
Income
tax receivables, including net operating loss carrybacks for Fiscal 2009,
amended return receivables, and prepaid income taxes, of $47,303,000 as of
January 31, 2009 and $38,586,000 as of February 2, 2008 are included in
“prepayments and other” on our consolidated balance sheets.
We
adopted the provisions of FIN No. 48 effective as of February 4,
2007. In accordance with FIN No. 48, we recognized a
cumulative-effect adjustment of $4,998,000, increasing our liability for
unrecognized tax benefits, interest, and penalties and reducing the February 4,
2007 balance of retained earnings.
Reconciliation
of the change in our liability for unrecognized tax benefits:
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Gross
unrecognized tax benefits, beginning of
year
|
|
$ |
26,004 |
|
|
$ |
22,474 |
|
Additions
for tax positions related to prior
years
|
|
|
3,861 |
|
|
|
3,610 |
|
Additions
for tax positions related to current
year
|
|
|
1,040 |
|
|
|
492 |
|
Reductions
resulting from lapse of applicable statute of limitations
|
|
|
(1,403 |
) |
|
|
(545 |
) |
Settlements
|
|
|
(323 |
) |
|
|
(27 |
) |
Gross
unrecognized tax benefits, end of
year
|
|
$ |
29,179 |
|
|
$ |
26,004 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The
portion of the liability for gross unrecognized tax benefits that, if
recognized, would decrease our provision for income taxes and increase our net
income was $18,847,000 as of January 31, 2009 and $18,179,000 as of February 2,
2008.
A
substantial portion of the “other” deferred tax assets represents deferred tax
assets related to FIN No. 48.
Reconciliation
of accrued interest and penalties:
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accrued
interest and penalties, beginning of
year
|
|
$ |
12,575 |
|
|
$ |
9,488 |
|
Interest
and penalties recognized during
year
|
|
|
156 |
|
|
|
3,087 |
|
Accrued
interest and penalties, end of
year
|
|
$ |
12,731 |
|
|
$ |
12,575 |
|
Our
liabilities for unrecognized tax benefits and accrued interest and penalties are
included in “other non-current liabilities on our consolidated balance
sheets.
As of
January 31, 2009 it is reasonably possible that the total amount of unrecognized
tax benefits will decrease within the next twelve months by as much as
$1,261,000 due to resolutions of audits related to U.S. Federal and state tax
positions.
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
8. LONG-TERM DEBT
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
1.125%
Senior Convertible Notes due May
2014
|
|
$ |
275,000 |
|
|
$ |
275,000 |
|
Capital
lease
obligations
|
|
|
14,041 |
|
|
|
13,698 |
|
6.07%
mortgage note, due October
2014
|
|
|
10,419 |
|
|
|
11,078 |
|
6.53%
mortgage note, due November
2012
|
|
|
5,250 |
|
|
|
6,650 |
|
7.77%
mortgage note due December
2011
|
|
|
7,249 |
|
|
|
7,897 |
|
Other
long-term
debt
|
|
|
422 |
|
|
|
673 |
|
Total
long-term
debt
|
|
|
312,381 |
|
|
|
314,996 |
|
Less
current
portion
|
|
|
6,746 |
|
|
|
8,827 |
|
|
|
$ |
305,635 |
|
|
$ |
306,169 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
On April
30, 2007 we issued $250,000,000 in aggregate principal amount of 1.125% Senior
Convertible Notes due May 1, 2014 (the “1.125% Notes”) in a private offering for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended. On May 11, 2007 the initial
purchasers of the 1.125% Notes exercised their over-allotment option and
purchased an additional $25,000,000 in aggregate principal amount of the
notes. The 1.125% Notes were issued at par plus accrued interest, if
any, from April 30, 2007 and interest is payable semiannually in arrears on May
1 and November 1, beginning November 1, 2007. The 1.125% Notes will
mature on May 1, 2014 unless earlier repurchased by us or
converted. On August 24, 2007 we filed with the SEC an automatic
shelf registration statement covering re-sales of the 1.125% Notes and the
shares issuable on conversion of the notes.
We
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 $813,000 incurred in connection
with the issuance of the 1.125% Notes, are included in “Other assets” on our
condensed consolidated balance sheets and are being amortized to interest
expense on an effective interest rate basis over the life of the notes (seven
years).
Holders
of the 1.125% Notes may convert their notes based on a conversion rate of
65.0233 shares of our common stock per $1,000 principal amount of notes (the
equivalent of $15.379 per share), subject to adjustment upon certain events,
only under the following circumstances as described in the Indenture for the
1.125% Notes (the “Indenture”): (i) during specified periods, if the price of
our common stock reaches specified thresholds; (ii) if the trading price of the
1.125% Notes is below a specified threshold; (iii) at any time after November
15, 2013; or (iv) upon the occurrence of certain corporate
transactions.
Upon
conversion we intend to deliver an amount in cash equal to the lesser of the
aggregate principal amount of notes to be converted or our total conversion
obligation. If our conversion obligation exceeds the aggregate
principal amount of the 1.125% Notes we will deliver shares of our common stock
in respect of the excess. However, we have the option, subject to the
approval of our Board of Directors, to elect to satisfy our conversion
obligation entirely in shares of our common stock. In connection with
a “Fundamental Change” as defined in the Indenture, we also will deliver upon
conversion of the notes additional shares of common stock as described in the
Indenture.
In
addition, upon a change in control, liquidation, dissolution, or de-listing of
our common stock before maturity of the 1.125% Notes (each of which would
constitute a “Fundamental Change” as defined in the Indenture), we may be
required to repurchase for cash all or a portion of the 1.125% Notes for 100% of
the principal amount of the notes plus accrued and unpaid interest, if any, up
to but excluding the date of purchase. As of January 31, 2009 none of
the conditions allowing holders of the 1.125% Notes to convert or to require us
to repurchase the 1/125% Notes had been met.
We
accounted for the issuance of the 1.125% Notes in accordance with the guidance
in EITF Issue 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.” Accordingly, we have recorded the 1.125% Notes as
long-term debt in our condensed consolidated balance sheet as of January 31,
2009.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Concurrent
with the issuance of the 1.125% Notes we entered into privately negotiated
common stock call options with affiliates of the initial
purchasers. The call options allow us to purchase up to 17,881,000
shares of our common stock at an initial strike price of $15.379 per
share. The call options expire on May 1, 2014 and must be net-share
settled. The cost of the call options was $90,475,000.
In
addition, we sold warrants to affiliates of certain of the initial purchasers
that give them the option to purchase up to 18,775,000 shares of our common
stock at an initial strike price of $21.607 per share. The warrants
expire on various dates from July 30, 2014 through December 18, 2014 and must be
net-share settled. We received $53,955,000 in cash proceeds from the
sale of these warrants.
The call
options and warrants are intended to reduce the potential dilution to our common
stock upon conversion of the 1.125% Notes by effectively increasing the initial
conversion price of the notes to $21.607 per share, representing a 73%
conversion premium over the closing price of $12.49 per share for our common
stock on April 30, 2007.
Paragraph
11(a) of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” provides that contracts issued or
held by an entity that are both indexed to the entity’s own common stock and
classified in stockholders’ equity in its statement of financial position are
not considered to be derivative instruments under SFAS No. 133 if the provisions
of EITF Issue 00-19 are met.
We
accounted for the call options and warrants in accordance with the guidance in
EITF Issue 00-19. The call options and warrants meet the requirements
of EITF Issue 00-19 to be accounted for as equity
instruments. Accordingly, the cost of the call options and the
proceeds from the sale of the warrants are included in additional paid-in
capital in our accompanying condensed consolidated balance sheets. We
used a portion of the net proceeds from the 1.125% Notes to pay the $36,520,000
net cost of the call options and warrants.
In
accordance with SFAS No. 128, “Earnings Per Share,” the
1.125% Notes will have no impact on our diluted net income per share until the
price of our common stock exceeds the conversion price of $15.379 per share
because the principal amount of the 1.125% Notes will be settled in cash upon
conversion. Prior to conversion we will include the effect of the
additional shares that may be issued if our common stock price exceeds $15.379
per share using the treasury stock method. For the first $1.00 by
which the price of our common stock exceeds $15.379 per share there would be
dilution of approximately 1,093,000 shares. Further increases in the
share price would result in additional dilution at a declining rate, such that a
price of $21.607 per share would result in cumulative dilution of approximately
5,156,000 shares. Should the stock price exceed $21.607 per share we
would also include the dilutive effect of the additional potential shares that
may be issued related to the warrants using the treasury stock
method. The 1.125% Notes and warrants would have a combined dilutive
effect such that, for the first $1.00 by which the stock price exceeds $21.607
per share, there would be cumulative dilution of approximately 6,552,000 shares
prior to conversion. Further increases in the share price would
result in additional dilution at a declining rate.
The call
options are not included in the calculation of diluted net income per share
because their effect would be anti-dilutive. Upon conversion of the
1.125% Notes the call options will serve to neutralize the dilutive effect of
the notes up to a stock price of $21.607 per share. For the first
$1.00 by which the stock price exceeds $21.607 per share the call options would
reduce the cumulative dilution of approximately 6,552,000 shares in the example
above to approximately 833,000 shares.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The
preceding calculations assume that the average price of our common stock exceeds
the respective conversion prices during the period for which diluted net income
per share is calculated and exclude any potential adjustments to the conversion
ratio provided under the terms of the 1.125% Notes.
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. We will be required to adopt the provisions of FSP
APB 14-1 retrospectively as of the beginning of Fiscal 2010. In June
2008 the FASB ratified the consensus of EITF Issue 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock,” We
will be required to adopt the provisions of EITF Issue 07-5 as of the beginning
of Fiscal 2010. See “NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES; Impact of Recent
Accounting Pronouncements” above for further information on these
pronouncements.
On April
30, 2007 we called for the redemption on June 4, 2007 of our $149,999,000
outstanding aggregate principal amount of 4.75% Senior Convertible Notes, due
June 2012 (the “4.75% Notes”). The holders of the 4.75% Notes had the
option to convert their notes into shares of our common stock at a conversion
price of $9.88 per share until the close of business on June 1,
2007. As of June 4, 2007, the holders of $149,956,000 principal
amount of the 4.75% Notes had exercised their right to convert their notes into
an aggregate of 15,145,556 shares of our common stock and the remaining notes
were redeemed for $43,000. In addition, we paid $392,000 in lieu of
fractional shares.
Our
revolving credit facility agreement provides for a facility with a maximum
availability of $375,000,000, subject to certain limitations as defined in the
facility agreement, and provides that up to $300,000,000 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 $500,000,000. The agreement
expires on July 28, 2010. As of January 31, 2009 we had an aggregate
total of $1,263,000 of unamortized deferred debt acquisition costs related to
the facility that are being amortized on a straight-line basis over the life of
the amended facility agreement as interest expense. As of January 31,
2009 no cash borrowings were outstanding, and $235,000 of documentary
letters of credit and $15,661,000 of issued but undrawn standby letters of
credit were outstanding under the credit facility.
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 January 31, 2009 the “Excess Availability” under the
facility was $205,825,000, or 92.9% of the “Borrowing Base.” As of
January 31, 2009, we were not in violation of any of the covenants included in
the facility.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
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 January 31, 2009
the applicable rates under the facility were 3.25% for Prime Rate Loans and
1.66% (LIBOR plus 1.25%) for Eurodollar Rate Loans.
During
Fiscal 2009 we acquired $5,959,000 and during Fiscal 2008 we acquired $8,047,000
of distribution center, technology, and office equipment under capital
leases. These capital leases generally have initial terms ranging
from 36 months to 72 months and contain a bargain purchase option. As
of January 31, 2009 the imputed interest rates on our outstanding capital leases
ranged from 2.28% to 6.57%.
Repayment
of the 6.07% mortgage note is based on a 15-year amortization schedule, with 119
monthly installments of principal and interest of $110,000 and a balloon payment
of $5,923,000 in October 2014. The note may be prepaid upon the
payment of a premium or, upon certain other events, without the payment of a
premium. The note is secured by a mortgage on real property at our
distribution center in Greencastle, Indiana and an Assignment of Lease and Rents
and Security Agreement related to the Greencastle facility. The
proceeds from this borrowing were used to repay the scheduled maturities of
other debt and for other general corporate purposes.
The 6.53%
mortgage note has a ten-year term with 120 monthly installments of
principal of $117,000 plus interest. The note is secured by a
mortgage on land, a building, and certain fixtures we own at our distribution
center in White Marsh, Maryland. The net proceeds from this borrowing
were used to finance a substantial portion of the acquisition of the White Marsh
facility.
The 7.77%
mortgage note has a ten-year term with 119 monthly installments of principal and
interest of $103,000 and a balloon payment of $5,220,000 in December
2011. The note is secured by a mortgage on land, buildings, and
fixtures we own at our offices in Bensalem, Pennsylvania and by leases we own or
rents we receive, if any, from tenants of the Bensalem facility.
We made
interest payments of $6,828,000 during Fiscal 2009, $8,881,000 during Fiscal
2008, and $12,752,000 during Fiscal 2007, and did not capitalize any interest
expense during these three fiscal years.
Aggregate
maturities of long-term debt during the next five fiscal years are as
follows:
(In
thousands)
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
$ |
3,687 |
|
|
$ |
3,462 |
|
|
$ |
3,569 |
|
|
$ |
2,206 |
|
|
$ |
1,118 |
|
Mortgage
notes
|
|
|
2,801 |
|
|
|
2,901 |
|
|
|
7,984 |
|
|
|
1,893 |
|
|
|
896 |
|
Other
long-term debt
|
|
|
258 |
|
|
|
120 |
|
|
|
15 |
|
|
|
16 |
|
|
|
275,013 |
|
|
|
$ |
6,746 |
|
|
$ |
6,483 |
|
|
$ |
11,568 |
|
|
$ |
4,115 |
|
|
$ |
277,027 |
|
Minimum
lease payments under capital leases for the next five fiscal years
are: 2010 – $4,367,000; 2011 – $3,961,000; 2012 – $3,882,000; 2013 – $2,343,000; 2014 – $1,150,000; and
thereafter –
$0. Included in these minimum lease payments is aggregate imputed
interest of $1,661,000.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
NOTE
9. STOCKHOLDERS’ EQUITY
Our
authorized shares consist of:
|
·
|
1,000,000
shares of Series Participating Preferred Stock, $1.00 par value, of which
500,000 shares of Participating Series A Junior Preferred Stock, $1.00 par
value, have been authorized;
|
|
·
|
300,000,000
shares of common stock, $.10 par
value.
|
In Fiscal
1998 we publicly announced that our Board of Directors granted authority to
repurchase up to 10,000,000 shares of our common stock. In Fiscal
2000 we publicly announced that our Board of Directors granted authority to
repurchase up to an additional 10,000,000 shares of our common
stock. In Fiscal 2003 the Board of Directors granted an additional
authorization to repurchase 6,350,662 shares of common stock issued to Limited
Brands, Inc. (“Limited Brands”) in connection with our acquisition of LANE
BRYANT. The repurchase programs have no expiration date.
From
Fiscal 1998 through Fiscal 2003 we repurchased an aggregate total of 21,370,993
shares of common stock under these programs, which included shares purchased on
the open market as well as the 6,350,662 shares repurchased from Limited
Brands. During Fiscal 2008 we repurchased an aggregate total of
3,480,108 shares for $21,523,000 and during Fiscal 2009 we repurchased an
aggregate total of 1,499,561 shares for $8,334,000 under these
programs. As of January 31, 2009 no shares remain available for
repurchase under these programs.
During
Fiscal 2008 we also repurchased 10,314,900 shares of our common stock using
$131,102,000 of the proceeds from our issuance of 1.125% Senior Convertible
Notes due May 1, 2014 (see “NOTE 8. LONG-TERM DEBT”
above). In addition, we repurchased an aggregate total of 10,416,245
shares of common stock for $100,000,000 under a share repurchase program we
announced in May 2007 and completed during Fiscal 2008.
In
November 2007 we announced that our Board of Directors authorized a new
$200,000,000 share repurchase program. We intend to make share
purchases from time to time in the open market or through privately-negotiated
transactions and expect to fund the repurchases primarily from operating cash
flow. The timing of such repurchases and the number of shares
repurchased will depend on market conditions and we intend to hold shares
repurchased as treasury shares. This repurchase program has no
expiration date. During Fiscal 2009 we repurchased an aggregate total
of 505,406 shares of common stock for $2,635,000 under this
program. As of January 31, 2009, $197,365,000 was available for
future repurchases under this program.
As of
January 31, 2009 we held an aggregate total of 38,482,213 treasury shares with
an aggregate cost of $347,730,000. 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
NOTE
10. SHAREHOLDER RIGHTS PLAN
We have a
Rights Agreement between our company and American Stock Transfer & Trust
Company, as Rights Agent. On April 12, 1999, pursuant to the Rights
Agreement, our Board of Directors declared a dividend distribution of one Right
for each outstanding share of our common stock, payable upon the close of
business on April 26, 1999. Each Right entitles the registered holder
to purchase from us one three-hundredth of a share of Series A Junior
Participating Preferred Stock, or, under certain circumstances, a combination of
securities and assets of equivalent value, at a purchase price of $20.00,
subject to adjustment. The purchase price may be paid in cash or, if
we permit, by the delivery of Rights under certain circumstances. The
description and terms of the Rights are set forth in the Rights
Agreement. Initially, ownership of the Rights will be evidenced by
the certificates representing shares of common stock then outstanding, and no
separate Rights certificates will be distributed.
The
Rights will separate from the common stock and a “Distribution Date” will occur
upon the earlier of: (i) 10 days following a public announcement that a person
or group of affiliated or associated persons (an “Acquiring Person”) has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of our outstanding common stock (the “Stock Acquisition Date”); or (ii) the
close of business on such date as may be fixed by our Board of Directors after
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 20% or more of our outstanding common
stock. Until the Distribution Date: (i) the Rights will be evidenced
by the certificates representing shares of common stock and will be transferred
with, and only with, such certificates; (ii) certificates issued after April 26,
1999 will contain a notation incorporating the Rights Agreement by reference;
and (iii) the surrender for transfer of any certificates for our common stock
outstanding will also constitute the transfer of the Rights associated with the
common stock represented by such certificate.
In the
event that, at any time following the Distribution Date, a person becomes an
Acquiring Person, each holder of a Right will thereafter have the right to
receive, upon exercise, our common stock (or, in certain circumstances, cash,
property, or other securities of our company) having a value equal to two times
the exercise price of the Right. In lieu of requiring payment of the
purchase price upon exercise of the Rights following any such event, we may
permit the holders simply to surrender the Rights under certain circumstances,
in which event they will be entitled to receive our common stock (and other
property, as the case may be) with a value of 50% of what could be purchased by
payment of the full purchase price. Notwithstanding any of the
foregoing, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by the Acquiring Person will be null
and void. Rights are not exercisable until such time as the Rights
are no longer redeemable by us as set forth in the Rights
Agreement.
In the
event that, at any time following the Stock Acquisition Date: (i) we are
acquired in a merger or other business combination transaction in which we are
not the surviving corporation (other than a merger that is described in, or that
follows a tender offer or exchange offer described above); or (ii) 50% or more
of our assets or earning power is sold or transferred, each holder of a Right
(except Rights that previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the exercise price of the
Right. Again, provision is made to permit surrender of the Rights in
exchange for one-half of the value otherwise purchasable. The events
set forth in this paragraph and above are referred to as the “Triggering
Events.”
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The
purchase price payable and the number of shares of our common stock or other
securities or property to be issued upon exercise of the Rights are subject to
certain anti-dilution adjustments. With certain exceptions, no
adjustment in the purchase price will be required until cumulative adjustments
amount to at least 1% of the purchase price. Instead of fractional
shares of our common stock, an adjustment in cash will be made based on the
market price of our common stock on the last trading date before the date of
exercise.
At any
time until ten days following the Stock Acquisition Date we may redeem the
Rights in whole, but not in part, at a redemption price of $.01 per Right,
subject to adjustment. Our Board of Directors may extend the ten-day
period as long as the Rights are still redeemable. Immediately upon
the order of our Board of Directors to redeem the Rights, the Rights will
terminate and the holders of Rights will only be able to receive the redemption
price. Until a Right is exercised the holder of the Right will have
no rights as a shareholder of our company, including, without limitation, the
right to vote or to receive dividends.
NOTE
11. STOCK-BASED COMPENSATION PLANS
2004
Stock Award and Incentive Plan
Our 2004
Stock Award and Incentive Plan (the “2004 Plan”) was approved by our Board of
Directors on April 30, 2004 and by our shareholders on June 24,
2004. This plan replaces our 1993 Employees’ Stock Incentive Plan
(the “1993 Plan”), our 1999 Associates’ Stock Incentive Plan (the “1999 Plan”),
and our 2000 Associates’ Stock Incentive Plan (the “2000 Plan”), which are
described below. The plan is administered by our Board of Directors
and its Compensation Committee.
The 2004
Plan provides for the grant of options (including both incentive and
non-qualified stock options), restricted stock awards (“RSAs”), stock
appreciation rights (“SARs”), restricted stock units (“RSUs”), and a variety of
other types of awards. Awards representing an aggregate of up to
6,500,000 shares of our common stock, together with shares remaining available
under the 1993 Plan and shares recaptured from outstanding awards under the 1993
Plan, 1999 Plan, and 2000 Plan, may be issued under this plan. Of the
aggregate shares available, up to 2,000,000 shares may be issued in connection
with “full-value” awards (equity awards for which a participant does not pay at
least the grant-date fair market value of the award, such as RSAs or
RSUs). Additional shares may be used for full-value awards by
reducing the number of shares that remain available for options, SARs, and other
non-full-value awards by three shares for each share to be used for full-value
awards in excess of the 2,000,000 share limit.
The
aggregate number of shares subject to awards granted under the 2004 Plan in any
fiscal year will not exceed 2% of our common stock on a fully diluted basis as
of the last day of the preceding fiscal year. The 2004 Plan prohibits
the amendment or replacement of options or SARs granted under the plan in a
transaction that constitutes a “re-pricing” under generally accepted accounting
principles without shareholder approval.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Additional
information related to our 2004 Plan is as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock awards/RSUs
granted
|
|
|
824,879 |
|
|
|
1,035,422 |
|
|
|
926,346 |
|
Weighted
average market price at date of grant
|
|
|
$5.05 |
|
|
|
$11.98 |
|
|
|
$13.21 |
|
Stock
awards/RSUs vested with issuance deferred
|
|
|
0 |
|
|
|
240,979 |
|
|
|
305,250 |
|
Shares
issued under stock awards/RSUs
|
|
|
601,005 |
|
|
|
64,196 |
|
|
|
17,312 |
|
Cancellations
of stock
awards/RSUs
|
|
|
938,333 |
|
|
|
720,795 |
|
|
|
11,131 |
|
Restricted
awards/RSUs outstanding at year-end
|
|
|
1,086,192 |
|
|
|
1,800,651 |
|
|
|
1,791,199 |
|
SARs
exercisable at
year-end
|
|
|
231,660 |
|
|
|
– |
|
|
|
– |
|
2003
Non-Employee Directors Compensation Plan
Our 2003
Non-Employee Directors Compensation Plan (the “2003 Plan”) was approved by
shareholders on June 26, 2003. Directors who are not employed by our
company are eligible to participate in the plan. Our Board of
Directors administers the plan and approves the form and amount of awards under
the plan. This plan provides for the grant of stock options, SARs,
RSAs, RSUs, or deferred shares of up to an aggregate total of 600,000 shares of
our common stock. No more than 50% of the shares reserved for
issuance under the plan may be issued as restricted stock awards or
RSUs.
During
Fiscal 2007 the plan provided for a one-time RSA to a newly elected or appointed
non-employee director of 10,000 shares of common stock vesting over three years
and annual grants of options for 7,500 shares of common stock and 7,500 RSUs
vesting in one year to each non-employee director serving at the date of our
Annual Meeting of Shareholders. During Fiscal 2008 we amended the
plan to eliminate the one-time RSA to a newly elected or appointed non-employee
director and to grant annual RSUs for a number of shares equivalent to $135,000
of aggregate market value on the date of grant to each non-employee director
serving at the date of our Annual Meeting of Shareholders instead of the two
7,500-share awards.
Each RSU
represents a right to receive one share of common stock or cash of equal value,
at the company’s option, at the date of vesting or, if deferred by the director,
at a later date after termination of service. Non-employee directors
may also elect to receive deferred shares of common stock of an equivalent
market value instead of cash director’s fees.
The
exercise price of options or SARs granted under the 2003 Plan may not be less
than the fair market value of our common stock on the date of
grant. The maximum term of options and SARs issued under the plan is
ten years. The plan includes a provision that options previously
granted under the plan will not be amended or replaced in a transaction that
constitutes a “re-pricing” as defined in the plan without shareholder
approval.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Additional
information related to our 2003 Plan is as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
One-time
restricted stock awards granted
|
|
|
0 |
|
|
|
0 |
|
|
|
10,000 |
|
Weighted
average market price at date of grant
|
|
|
– |
|
|
|
– |
|
|
|
$13.84 |
|
RSUs
granted
|
|
|
33,000 |
|
|
|
80,703 |
|
|
|
61,233 |
|
Weighted
average market price at date of grant
|
|
|
$4.58 |
|
|
|
$11.71 |
|
|
|
$11.33 |
|
Shares
issued under stock awards/RSUs
|
|
|
58,920 |
|
|
|
24,999 |
|
|
|
8,482 |
|
RSUs
vested with issuance
deferred
|
|
|
46,116 |
|
|
|
42,536 |
|
|
|
37,500 |
|
Cancellations
of restricted stock awards/RSUs
|
|
|
0 |
|
|
|
9,131 |
|
|
|
0 |
|
Restricted
awards/RSUs outstanding at year-end
|
|
|
15,334 |
|
|
|
87,370 |
|
|
|
83,333 |
|
Options
exercisable at
year-end
|
|
|
331,158 |
|
|
|
341,587 |
|
|
|
283,140 |
|
2000
Associates’ Stock Incentive Plan
The 2000
Plan, adopted by our Board of Directors on January 27, 2000, provided for the
grant of options, SARS, RSAs, deferred stock, or other stock-based awards of up
to an aggregate total of 5,000,000 shares of our common stock. The
form of the grants, exercise price, and maximum term, where applicable, were at
the discretion of our Board of Directors and its Compensation
Committee.
Additional
information related to our 2000 Plan is as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock
awards
|
|
|
123,630 |
|
|
|
158,420 |
|
|
|
57,815 |
|
Cancellations
of restricted stock awards
|
|
|
15,900 |
|
|
|
17,990 |
|
|
|
91,950 |
|
Restricted
awards outstanding at year-end
|
|
|
58,560 |
|
|
|
198,090 |
|
|
|
374,500 |
|
Options
exercisable at
year-end
|
|
|
528,720 |
|
|
|
659,759 |
|
|
|
750,857 |
|
1999
Associates’ Stock Incentive Plan
The 1999
Plan, adopted by our Board of Directors in February 1999, provided for the grant
of options to purchase up to an aggregate total of 1,000,000 shares of our
common stock. The exercise price of such options could not be less
than the fair market value on the date of grant. The maximum term of
options issued under the plan is ten years. Options exercisable under
this plan were 62,900 as of January 31, 2009, 92,500 as of February 2, 2008, and
96,095 as of February 3, 2007.
As a
result of our adoption of the 2004 Plan, no further options or awards may be
granted under the 2000 Plan or the 1999 Plan.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
1993
Employees’ Stock Incentive Plan
The 1993
Plan provided for the grant of options or awards for up to an aggregate total of
10,898,726 shares of common stock plus 1,843,258 unissued shares available under
our discontinued 1990 Employees’ Stock Incentive Plan. The form of
the grants and exercise price, where applicable, were at the discretion of our
Board of Directors and its Compensation Committee (formerly the Compensation and
Stock Option Committee). The maximum term of options issued under the
1993 Plan is ten years. As a result of the adoption of the 2004 Plan,
we no longer intend to issue options or awards under this plan.
Additional
information related to our 1993 Plan is as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock
awards
|
|
|
200,850 |
|
|
|
160,060 |
|
|
|
160,960 |
|
Stock
awards vested with issuance deferred
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Cancellations
of restricted stock awards
|
|
|
2,000 |
|
|
|
0 |
|
|
|
0 |
|
Restricted
awards outstanding at year-end
|
|
|
73,440 |
|
|
|
276,290 |
|
|
|
436,350 |
|
Options
exercisable at
year-end
|
|
|
498,640 |
|
|
|
724,640 |
|
|
|
932,540 |
|
1988
Key Employee Stock Option Plan
Our 1988
Key Employee Stock Option Plan (the “1998 Plan”) provides for the grant of
options to our key employees to purchase up to an aggregate total of 3,000,000
shares of our common stock. The exercise price of options granted
under this plan is $1.00 per share. Options exercisable under this
plan were 20,984 as of January 31, 2009, 16,028 as of February 2, 2008, and
14,032 as of February 3, 2007.
The
shares issued and options granted under the above plans are subject to
forfeiture if the employees do not remain employed by us for a specified period
of time. Service-based awards issued under the 2004 plan generally
vest over 4 to 5 years. Vesting of performance-based awards under the
2004 plan is generally based on attaining a specified level of “free cash flows”
or “EBITDA” (as defined in the agreement) over a 2-3-year period and vesting
occurs at the end of that period. Under the 2003 Plan, shares issued
and options granted are subject to forfeiture if the individual does not remain
a Director of the Company for a specified period of time except, under certain
circumstances, in the case of retirement or voluntary
termination. Awards currently being issued under the 2003 Plan
generally vest on June 1 of the following year. Options issued under
the 1988 Plan are service-based and generally vest over 5 years.
As of
January 31, 2009 the following shares were available for grant under our various
stock plans: 2004 Plan – 4,828,092 shares; 2003 Plan – 100,397 shares; and 1988
Plan – 106,860
shares.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The table
below summarizes option/SARs activity in the above stock-based compensation
plans:
|
|
|
|
|
Average
|
|
|
|
|
|
|
Option
|
|
|
Option
|
|
|
Option
Prices
|
|
|
|
Shares
|
|
|
Price
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 28,
2006
|
|
|
3,672,108 |
|
|
$ |
5.819 |
|
|
$ |
1.00 |
|
|
|
– |
|
|
$ |
12.48 |
|
Granted – option price equal to
market price
|
|
|
61,233 |
|
|
|
11.332 |
|
|
|
11.28 |
|
|
|
– |
|
|
|
13.84 |
|
Granted – option price less than
market price
|
|
|
31,600 |
|
|
|
1.000 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
1.00 |
|
Canceled/forfeited
|
|
|
(10,571 |
) |
|
|
1.502 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
6.65 |
|
Exercised
|
|
|
(1,536,580 |
) |
|
|
5.965 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
9.10 |
|
Outstanding
at February 3,
2007
|
|
|
2,217,790 |
|
|
|
5.822 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
13.84 |
|
Granted – option price less than
market price
|
|
|
18,000 |
|
|
|
1.000 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
1.00 |
|
Canceled/forfeited
|
|
|
(36,796 |
) |
|
|
5.724 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
11.28 |
|
Exercised
|
|
|
(304,120 |
) |
|
|
4.741 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
8.46 |
|
Outstanding
at February 2,
2008
|
|
|
1,894,874 |
|
|
|
5.952 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
13.84 |
|
Granted – option price equal to
market price
|
|
|
3,475,674 |
|
|
|
4.569 |
|
|
|
1.13 |
|
|
|
– |
|
|
|
5.64 |
|
Granted – option price less than
market price
|
|
|
14,000 |
|
|
|
1.000 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
1.00 |
|
Canceled/forfeited
|
|
|
(1,857,665 |
) |
|
|
5.097 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
12.48 |
|
Exercised
|
|
|
(234,498 |
) |
|
|
4.016 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
5.47 |
|
Outstanding
at January 31,
2009
|
|
|
3,292,385 |
|
|
$ |
5.091 |
|
|
$ |
1.00 |
|
|
|
– |
|
|
$ |
13.84 |
|
The table
below summarizes information regarding weighted average exercise price and
weighted average remaining contractual life in years for options/SARs
outstanding and options/SARs exercisable as of January 31, 2009 for the ranges
of exercise prices shown:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Option
|
|
|
Option
|
|
|
Life
|
|
Ranges of Option Prices
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
$0.00 – $1.00:
|
|
|
|
|
|
|
|
|
|
Options
outstanding
|
|
|
65,545 |
|
|
$ |
1.000 |
|
|
|
2.2 |
|
Options
exercisable
|
|
|
20,984 |
|
|
|
1.000 |
|
|
|
|
|
$1.01 – $5.00:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding
|
|
|
1,819,572 |
|
|
$ |
4.022 |
|
|
|
5.7 |
|
Options
exercisable
|
|
|
436,160 |
|
|
|
4.434 |
|
|
|
|
|
$5.01 –
$10.00:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding
|
|
|
1,353,535 |
|
|
$ |
6.479 |
|
|
|
2.6 |
|
Options
exercisable
|
|
|
1,163,185 |
|
|
|
6.690 |
|
|
|
|
|
$10.01 –
$13.84:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding
|
|
|
53,733 |
|
|
$ |
11.339 |
|
|
|
7.4 |
|
Options
exercisable
|
|
|
53,733 |
|
|
|
11.339 |
|
|
|
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The table
below summarizes certain additional information with respect to our options,
SARs and awards:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Aggregate
intrinsic value of options/SARs outstanding at year-end(1)
|
|
$ |
0 |
|
|
$ |
1,777 |
|
Aggregate
intrinsic value of options/SARs exercisable at year-end(1)
|
|
|
0 |
|
|
|
1,422 |
|
Aggregate
market value of unvested stock awards at year-end
|
|
|
1,341 |
|
|
|
16,711 |
|
|
|
|
|
|
|
|
|
|
Aggregate
intrinsic value of options/SARs exercised during the year(2)
|
|
|
358 |
|
|
|
1,014 |
|
Aggregate
market value of stock awards vested during the year
|
|
|
5,140 |
|
|
|
6,755 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
(1)
Aggregate market value at year-end less aggregate exercise
price.
|
|
|
|
(2)
Aggregate market value on date of exercise less aggregate exercise
price.
|
|
The
weighted average grant date fair values for options and SARs granted under the
above plans, using the Black-Scholes model and assumptions described in “NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES; Stock-based
Compensation”
above, are as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
price equal to market
price
|
|
$ |
2.39 |
|
|
$ |
– |
|
|
$ |
5.41 |
|
Exercise
price less than market
price
|
|
|
4.86 |
|
|
|
11.95 |
|
|
|
13.06 |
|
Employee
Stock Purchase Plan
Our 1994
Employee Stock Purchase Plan permits employees to purchase shares of our common
stock during quarterly offering periods at a price equal to 85% of the lower of
the stock’s market price on the first day of, or the fifth business day after
the end of, the offering period. Employees purchase shares through
accumulation of payroll deductions of up to 10% of the employee’s compensation
during each offering period. An aggregate total of 2,000,000 shares
are reserved for grant under this plan. Shares purchased under this
plan were 212,430 during Fiscal 2009, 139,910 during Fiscal 2008, and 79,522
during Fiscal 2007. The weighted average grant date market value for
shares purchased during the year was $4.99 for Fiscal 2009, $10.14 for Fiscal
2008, and $13.15 for Fiscal 2007. At January 31, 2009, 804,328 shares
were available for future purchases under this plan.
NOTE
12. 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 we incur in connection with
administering these programs as cost of goods sold when incurred.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Our
FASHION BUG brand offers a customer loyalty card program that we operate under
our FASHION BUG proprietary credit card program. Like our other
loyalty programs, this program entitles customers to various rebates, discounts,
and other benefits upon payment of an annual membership fee. Through
Fiscal 2007 this program also provided customers with the option to cancel their
membership within 90 days, entitling them to a full refund of their annual
fee. Additionally, after 90 days customers that cancelled their
memberships were entitled to a pro rata fee refund based on the number of months
remaining on the annual membership. Accordingly, we recognized 25% of
the annual membership fee as revenue after 90 days, with the remaining fee
recognized on a pro rata basis over nine months. Effective February
22, 2007 this program was changed to provide customers with the option to cancel
their membership within 30 days, entitling them to a full refund of their annual
fee. We recognized revenues of $11,957,000 during Fiscal 2009,
$12,837,000 during Fiscal 2008, and $10,634,000 during Fiscal 2007 in connection
with this program. The FASHION BUG brand also offers a loyalty card program that
does not charge membership fees.
Our
CATHERINES brand also offers a loyalty card program. We recognized
revenues of $8,957,000 during Fiscal 2009, $8,980,000 during Fiscal 2008, and
$8,499,000 during Fiscal 2007 in connection with this program.
During
the third quarter of Fiscal 2008 we began offering a loyalty program in
connection with the issuance of our LANE BRYANT proprietary credit
card. Cardholders earn points for purchases using the credit card,
which may be redeemed for merchandise coupons upon the accumulation of a
specified number of points. No membership fees are charged in
connection with this program.
We
accrued $3,597,000 as of the end of Fiscal 2009, $2,000,000 as of the end of
Fiscal 2008, and $1,050,000 as of the end of Fiscal 2007 for the estimated costs
of discounts earned and coupons issued and not redeemed in connection with our
various loyalty card programs.
NOTE
13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMARKS
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.
Due to
our current-year operating results and the impact of the current economic
environment on the retail industry, during the third quarter of Fiscal 2009 we
identified, in accordance with SFAS No. 144, 120 stores with asset carrying
values in excess of such stores’ respective forecasted undiscounted cash
flows. During the fourth quarter of Fiscal 2009, with the continued
deterioration in the economic environment and our operating results, we
identified 152 additional stores with asset carrying values in excess of such
stores’ respective forecasted undiscounted cash flows. Accordingly,
we recognized an aggregate non-cash impairment charge of $36,792,000 to write
down the long-lived assets at these stores to their respective fair
values.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Our
intangible assets, consisting primarily of goodwill and trademarks, tradenames,
and internet domain names, resulting from business acquisitions, are carried at
cost. Separate intangible assets that are not deemed to have an
indefinite life are amortized over their useful lives. 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 test 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.
The
performance of the impairment test for goodwill involves a two-step
process. The first step of the test involves comparing the fair
values of the applicable reporting units with their aggregate carrying values,
including goodwill. We determine the fair value of our reporting
units using principally an income approach to valuation, which uses a discounted
cash flow method to estimate the fair value of the reporting unit. If
the carrying amount of a reporting unit exceeds the reporting unit’s fair value,
we perform the second step of the goodwill impairment test to determine the
amount of impairment loss. The second step of the goodwill impairment
test involves comparing the implied fair value of the affected reporting unit’s
goodwill with the carrying value of that goodwill.
Our
identifiable intangible assets consist primarily of trademarks. These
intangible assets arise primarily from the allocation of the purchase price of
businesses acquired to identifiable intangible assets based on their respective
fair market values at the date of acquisition. Amounts assigned to
identifiable intangible assets, and their related useful lives, are derived from
established valuation techniques and management estimates.
Consistent
with the methodology used to initially establish and record the fair value of
the trademarks, we apply the “relief-from-royalty” method of the income approach
in measuring the fair value of our tradenames for impairment
testing. Under this method it is assumed that a company, without the
rights to the trade names, would license the right to utilize them for business
purposes. The fair value is estimated by discounting the hypothetical
royalty payments to their present value over the estimated economic life of the
asset.
As a
result of the significant decrease in the market value of our common stock
during the third quarter of Fiscal 2009 and the impact of the current economic
environment on our operating results we performed a review
of our goodwill and other intangible assets with indefinite lives in accordance
with the provisions of SFAS No. 142 for possible impairment. Based on
our assessment we determined that our goodwill and other indefinite-lived
intangible assets were not impaired as of the third quarter of Fiscal
2009.
During
the fourth quarter of Fiscal 2009 we performed our annual goodwill impairment
test for each of our reporting units that have recorded goodwill and
indefinite-lived intangible assets (LANE BRYANT, CATHERINES, and
FIGI’S). Based on our annual impairment test we determined that our
CATHERINES goodwill was impaired. Accordingly, we recognized a
non-cash impairment charge of $43,230,000 related to the CATHERINES
goodwill. In addition, as a result of our plans to discontinue the
use of certain other acquired trademarks and tradenames, we recognized a
non-cash impairment charge of $1,476,000 for such indefinite-lived intangible
assets during the fourth quarter of Fiscal 2009.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
During
the fourth quarter of Fiscal 2008 we performed our annual impairment review and
determined that the carrying value of our FIGI’S goodwill exceeded the implied
or estimated fair values of those assets. Accordingly, we recognized
a pre-tax impairment charge of $18,172,000 related to FIGI’S
goodwill. During the fourth quarter of Fiscal 2007we conducted our
annual evaluation of goodwill and other indefinite-lived intangible assets and
determined that there was no impairment of these assets.
During
the fourth quarter of Fiscal 2008 we identified 157 under-performing stores to
be closed. As a result of the decision to close these
under-performing stores, 136 of the 157 stores identified were determined to be
impaired, which resulted in the recognition of a non-cash charge of $9,025,000
to write down these stores to their respective fair values.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
NOTE
14. RESTRUCTURING AND OTHER CHARGES
The
following tables summarize our restructuring and other costs:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Costs
|
|
|
Costs
Incurred
|
|
|
Estimated
|
|
|
Estimated/
|
|
|
|
Incurred
|
|
|
for
Fiscal Year
|
|
|
Remaining
|
|
|
Actual
|
|
|
|
as
of
|
|
|
Ended
|
|
|
Costs
|
|
|
Costs
as of
|
|
|
|
February
2,
|
|
|
January
31,
|
|
|
to
be
|
|
|
January
31,
|
|
(In
thousands)
|
|
2008
|
|
|
2009
|
|
|
Incurred
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
Relocation
of CATHERINES operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention costs
|
|
$ |
1,696 |
|
|
$ |
383 |
|
|
$ |
0 |
|
|
$ |
2,079 |
|
Non-cash
write down and accelerated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
depreciation
|
|
|
2,299 |
|
|
|
1,509 |
|
|
|
0 |
|
|
|
3,808 |
|
Relocation
and other charges
|
|
|
241 |
|
|
|
925 |
|
|
|
0 |
|
|
|
1,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing
of under-performing and PETITE SOPHISTICATE
full line stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
accelerated depreciation
|
|
|
0 |
|
|
|
691 |
|
|
|
0 |
|
|
|
691 |
|
Store
lease termination charges
|
|
|
0 |
|
|
|
6,909 |
|
|
|
740 |
|
|
|
7,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention costs related to the elimination of
positions
|
|
|
1,096 |
|
|
|
148 |
|
|
|
0 |
|
|
|
1,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
for departure of former CEO
|
|
|
0 |
|
|
|
9,446 |
|
|
|
142 |
|
|
|
9,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shutdown
of LANE BRYANT WOMAN catalog:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention
costs
|
|
|
0 |
|
|
|
1,557 |
|
|
|
639 |
|
|
|
2,196 |
|
Non-cash
accelerated depreciation
|
|
|
0 |
|
|
|
934 |
|
|
|
936 |
|
|
|
1,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention costs related to the elimination of
positions
|
|
|
0 |
|
|
|
3,873 |
|
|
|
0 |
|
|
|
3,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-core
misses apparel assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
accelerated depreciation
|
|
|
0 |
|
|
|
2,968 |
|
|
|
3,398 |
|
|
|
6,366 |
|
Other
costs
|
|
|
0 |
|
|
|
420 |
|
|
|
7,000 |
|
|
|
7,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformational
initiatives
|
|
|
0 |
|
|
|
2,563 |
|
|
|
5,223 |
|
|
|
7,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
figure
magazine shutdown costs
|
|
|
0 |
|
|
|
819 |
|
|
|
0 |
|
|
|
819 |
|
Total
|
|
$ |
5,332 |
|
|
$ |
33,145 |
|
|
$ |
18,078 |
|
|
$ |
56,555 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
|
|
|
|
|
Costs
Incurred
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
for
Fiscal Year
|
|
|
|
|
|
Accrued
|
|
|
|
as
of
|
|
|
Ended
|
|
|
|
|
|
as
of
|
|
|
|
February
2,
|
|
|
January
31,
|
|
|
Payments/
|
|
|
January
31,
|
|
(In
thousands)
|
|
2008(1)
|
|
|
2009
|
|
|
Settlements
|
|
|
2009(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
Relocation
of CATHERINES operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention costs
|
|
$ |
1,696 |
|
|
$ |
383 |
|
|
$ |
2,079 |
|
|
$ |
0 |
|
Relocation
and other charges
|
|
|
0 |
|
|
|
925 |
|
|
|
925 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing
of under-performing and PETITE SOPHISTICATE
full line stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
lease termination charges
|
|
|
0 |
|
|
|
6,909 |
|
|
|
5,222 |
|
|
|
1,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention costs related to the elimination of
positions
|
|
|
992 |
|
|
|
148 |
|
|
|
1,140 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
for departure of former CEO
|
|
|
0 |
|
|
|
9,446 |
|
|
|
3,993 |
|
|
|
5,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shutdown
of LANE BRYANT WOMAN Catalog:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention costs
|
|
|
0 |
|
|
|
1,557 |
|
|
|
67 |
|
|
|
1,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention costs related to the elimination of
positions
|
|
|
0 |
|
|
|
3,873 |
|
|
|
925 |
|
|
|
2,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-core
misses apparel assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
costs
|
|
|
0 |
|
|
|
420 |
|
|
|
0 |
|
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformational
initiatives
|
|
|
0 |
|
|
|
2,563 |
|
|
|
1,184 |
|
|
|
1,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
figure
magazine shutdown costs
|
|
|
0 |
|
|
|
819 |
|
|
|
0 |
|
|
|
819 |
|
Total
|
|
$ |
2,688 |
|
|
$ |
27,043 |
|
|
$ |
15,535 |
|
|
$ |
14,196 |
|
____________________
|
|
|
|
(1)
Included in “Accrued expenses” in the accompanying consolidated balance
sheets.
|
|
Relocation
of CATHERINES Operations
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 its operating
functions. The costs of this plan included accelerated depreciation,
severance and retention, and relocation costs.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
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 during the first quarter
of Fiscal 2009. 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 costs to relocate approximately 30 employees from Memphis to our
corporate headquarters in Bensalem, Pennsylvania. The involuntary
terminations and relocations were completed during the first quarter of Fiscal
2009. The relocation of CATHERINES operations was completed in Fiscal
2009.
Fiscal
2008 Closing of Stores and Elimination of Positions
In
February 2008 we announced additional initiatives and actions to streamline our
business operations in order to focus on our core businesses and reduce selling,
general, and administrative expenses and capital expenditures to improve cash
flow in response to the impact that the current economic environment was having
on our operating results. These initiatives resulted in the following
actions:
●
|
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.
|
As a
result of the decision to close the under-performing and full-line PETITE
SOPHISTICATE stores we recorded accelerated depreciation charges in Fiscal
2009. Additionally, in Fiscal 2009 we recorded store lease
termination charges related to the store closings. As of January 31,
2009, 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 under-performing store closing program by the first half of Fiscal
2010.
We
incurred severance and retention costs for the elimination of approximately 150
corporate positions in Fiscal 2008 and Fiscal 2009. The severance and
retention related to the elimination of these positions were completed in Fiscal
2009.
Departure
of Former CEO
As a
result of the resignation of our former chief executive officer during the
second quarter of Fiscal 2009 we recognized severance and related costs,
including $2,532,000 related to accelerated stock compensation costs, in
accordance with the employment agreement. The liability as of January
31, 2009 represents the present value of the severance obligation which is
scheduled to be paid over the next two years in accordance with her separation
agreement. Not withstanding the above, the payment of the severance
obligation is dependent on the resolution of certain matters in dispute that are
subject to pending arbitration.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Shutdown
of LANE BRYANT WOMAN Catalog
During
the third quarter of Fiscal 2009 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 properly state 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 Fiscal 2009 consolidated
statement of operations and comprehensive income. Additionally, we
recognized severance and retention costs for the elimination of approximately
100 positions and non-cash accelerated depreciation related to fixed assets that
we will cease to use after the closure of the catalog. We expect to
complete this shutdown of LANE BRYANT WOMAN catalog during the first half of
Fiscal 2010.
Fiscal
2009 Elimination of Positions
In the
Fiscal 2009 Third Quarter we announced a further workforce reduction of
approximately 225 positions, which represent both terminations and
elimination of open positions. Accordingly, we recognized severance costs
related to the terminated employees. We expect to complete the
payment of severance for the terminated employees in Fiscal 2010.
Non-core
Misses Apparel Assets
As part
of the definitive agreement for the sale of the Crosstown Traders apparel
catalogs (see “NOTE
2. DISCONTINUED OPERATIONS” above), we retained certain
components of the infrastructure of the Crosstown Traders apparel
catalogs. Accordingly, we entered into transitional service
agreements with an affiliate of Orchard Brands to provide certain services,
including information technology, use of existing facilities, and financial
services. Subsequent to the transitional period we will be
responsible for the remaining lease liabilities for the retained facilities and
will discontinue using the fixed assets related to the retained
facilities. Accordingly, we recognized non-cash accelerated
deprecation related to the retained fixed assets over the transitional services
period. We expect to recognize a lease termination liability of
approximately $7,000,000 in accordance with SFAS No. 146 at the end of the
transitional service agreement in the Fiscal 2010 Third Quarter when we cease to
use the retained leased facilities.
Transformational
Costs
We began
to execute on a new multi-year strategy in Fiscal 2009 with the assistance of
experienced third-party retail consultants to ensure the viability of the
Company and our brands, enhance our competitive position, and to improve our
financial results over time. The new strategy focuses on the
following:
●
|
Refocus
on our core retail brands.
|
|
|
●
|
Simplify
the business by eliminating distractions and divesting non-core
assets.
|
|
|
●
|
Substantially
reduce operating expenses and streamline operations.
|
|
|
●
|
Maintain
and protect our strong balance sheet and liquidity
position.
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Fiscal
2009 Closure of Under-performing Stores
In the
Fiscal 2009 Fourth Quarter, we announced a new under-performing store closing
program for approximately 100 stores. As a result of the decision to
close these under-performing stores we will incur non-cash accelerated
depreciation related to the under-performing store closing program in Fiscal
2010. We expect to complete the under-performing store closing program by the
first half of Fiscal 2011.
figure
Magazine Shutdown Costs
In the
Fiscal 2009 Fourth Quarter, we decided to shutdown our figure
magazine operation. As a result of this decision, we incurred
contract termination costs in accordance with the terms of our third-party
agreement. We expect to complete the shutdown of the figure
magazine in the second quarter of Fiscal 2010.
NOTE
15. EMPLOYEE RETIREMENT BENEFIT PLANS
We
provide a comprehensive retirement benefit program for our
employees. This program provides for a noncontributory profit-sharing
plan that covers substantially all full-time employees who meet age and service
requirements. Contributions to this plan are completely discretionary
and are determined by our Board of Directors on an annual basis.
The
program also includes a 401(k) employee savings plan under which eligible
participating employees may elect to contribute up to 80% of their compensation
to an investment trust. The 401(k) plan includes a provision for a
matching company contribution of 50% of the participant’s elective contribution
on up to 6% of the participant’s compensation. Participating
employees are immediately vested in their own contributions. Full
vesting in the matching company contribution occurs on the earlier of the
participant’s attainment of 5 years of service or upon retirement, death, or
disability, as defined in the plan. Company matching contributions
are made in cash, and the available trust investment options do not include
investment in our own common stock. The total expense for the program
was $3,243,000 for Fiscal 2009, $3,237,000 for Fiscal 2008, and $4,453,000 for
Fiscal 2007.
We
provide a non-qualified deferred compensation plan to officers and certain key
executives. Under this plan participants may contribute up to 77% of
their base compensation and 100% of bonus compensation. This plan
includes a provision for a matching company contribution of 50% of the
participant’s contribution on up to 6% of the participant’s compensation, less
any matching contributions made for the participant under our 401(k)
plan. The total expense for this plan was $1,512,000 for Fiscal 2009,
$1,531,000 for Fiscal 2008, and $297,000 for Fiscal 2007. The accrued
liability for benefits under this plan were $12,112,000 as of January 31, 2009
and $39,232,000 as of February 2, 2008. The decrease in the accrued
liability from February 2, 2008 to January 31, 2009 was due to a combination of
distributions under the plan and a decline in the market value of plan assets
during the year.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Through
December 31, 2008 we also provided a non-qualified defined contribution
supplemental retirement plan for certain management and key
executives. Under this plan we contributed amounts to participant
accounts based on age and years of plan service, as well as earnings as defined
in the plan. The total expense for this plan was
$2,960,000 for Fiscal 2009, $867,000 for Fiscal 2008, and $1,098,000 for Fiscal
2007.
Effective
December 31, 2008 we discontinued the non-qualified defined contribution
supplemental retirement plan and ceased making retirement credits to the
plan. In addition, we reduced the interest rate to be credited on
participants’ accounts under the plan to 3.5% and participants’ accounts became
fully vested. Distribution of participant accounts occur over
one-to-three years based on the account balance. The
accrued liability for benefits under this plan were $6,002,000 as of January 31,
2009 and $8,334,000 as of February 2, 2008.
NOTE
16. NET INCOME/(LOSS) PER SHARE
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
114,690 |
|
|
|
121,160 |
|
|
|
122,388 |
|
Dilutive
effect of assumed conversion of 4.75%
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Convertible Notes(1)(2)
|
|
|
0 |
|
|
|
0 |
|
|
|
15,182 |
|
Dilutive
effect of stock options, stock appreciation rights, and awards(2)
|
|
|
0 |
|
|
|
1,266 |
|
|
|
2,193 |
|
Diluted
weighted average common shares and equivalents outstanding
|
|
|
114,690 |
|
|
|
122,426 |
|
|
|
139,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from continuing
operations
|
|
$ |
(169,289 |
) |
|
$ |
714 |
|
|
$ |
101,959 |
|
Decrease
in interest expense from assumed conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
of 4.75% Senior Convertible
Notes, net of income taxes(1)(2)
|
|
|
0 |
|
|
|
0 |
|
|
|
4,514 |
|
Income/(loss)
from continuing operations used to determine
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted net income/(loss) per
share
|
|
|
(169,289 |
) |
|
|
714 |
|
|
|
106,473 |
|
Income/(loss)
from discontinued operations,
net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
in 2008 and
2007
|
|
|
(74,922 |
) |
|
|
(85,039 |
) |
|
|
6,964 |
|
Extraordinary
item, net of income
taxes
|
|
|
0 |
|
|
|
912 |
|
|
|
0 |
|
Net
income/(loss) used to determine diluted net income/(loss) per
share
|
|
$ |
(244,211 |
) |
|
$ |
(83,413 |
) |
|
$ |
113,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
with weighted average exercise price greater than market
price,
|
|
|
|
|
|
|
|
|
|
|
|
|
excluded from computation of
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
(thousands)
|
|
|
– |
(2) |
|
|
77 |
|
|
|
1 |
|
Weighted average exercise price
per
share
|
|
|
– |
(2) |
|
$ |
9.27 |
|
|
$ |
13.84 |
|
____________________
|
|
|
|
(1)
The 4.75% Senior Convertible Notes were converted or redeemed on June 4,
2007 (see “NOTE 8.
LONG-TERM DEBT” above).
|
|
|
|
(2)
The 4.75% Senior Convertible Notes are excluded from the computation of
diluted net loss per share for 2008, and stock options, stock appreciation
rights, and awards are excluded from the computation of diluted net
loss per share for 2009, as their effect would have been
anti-dilutive.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Grants of
stock awards under our restricted stock award programs generally require
continuing employment for a specified period of time as a condition for vesting
of the award. Grants that have not vested and are subject to a risk
of forfeiture are included in the calculation of diluted earnings per share
using the treasury stock method if the impact of the award is
dilutive. Upon vesting, shares issued under these award programs are
included in the calculation of basic earnings per share.
Our
1.125% Notes have no impact on our diluted net income per share until the price
of our common stock exceeds the conversion price of $15.379 per share because we
expect to settle the principal amount of the 1.125% Notes in cash upon
conversion. The call options are not included in the calculation of
diluted net income per share because their effect would be
anti-dilutive. Should the price of our common stock exceed $21.607
per share we would also include the dilutive effect of the additional potential
shares that may be issued related to the warrants, using the treasury stock
method. See “NOTE 8. LONG-TERM
DEBT” above for
further information regarding the 1.125% Notes, related call options and
warrants, and the conversion of our 4.75% Notes.
NOTE
17. 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 proprietary 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 2. DISCONTINUED
OPERATIONS” above). On December 31, 2008, we finalized 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. The portfolio was sold for a
par value of $43,526,000.
The sale
of the Crosstown Traders portfolio 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 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
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 a capacity of
$105,000,000. In January 2009 we renewed our Series 2004-VFC conduit
facility for one year. Subsequent to the end of Fiscal 2009 we
renewed our Series 1999-2 conduit facility for one year.
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.
We record
gains or losses on the securitization of our proprietary credit card receivables
based on the estimated fair value of the assets retained and liabilities
incurred in the sale. Gains represent the present value of the
estimated cash flows that we have retained over the estimated outstanding period
of the receivables. This excess cash flow essentially represents an
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.
During
Fiscal 2009, Fiscal 2008, and Fiscal 2007 we recognized the following activity
related to the I/O strip:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Value
of the I/O strip at beginning of
year
|
|
$ |
23,259 |
|
|
$ |
15,878 |
|
|
$ |
15,061 |
|
Additions
to the I/O
strip
|
|
|
34,353 |
|
|
|
38,129 |
|
|
|
24,125 |
|
Amortization
of the I/O
strip
|
|
|
(38,347 |
) |
|
|
(30,643 |
) |
|
|
(24,608 |
) |
Valuation
adjustments
|
|
|
33 |
|
|
|
(105 |
) |
|
|
1,300 |
|
Value
of the I/O strip at end of
year
|
|
$ |
19,298 |
|
|
$ |
23,259 |
|
|
$ |
15,878 |
|
In
addition, we recognized a servicing liability in Fiscal Years 2009, 2008, and
2007 because the servicing fees we expect to receive from the securitizations do
not provide adequate compensation for servicing the receivables. The
servicing liability represents the present value of the excess of our cost of
servicing over the servicing fees received and is recorded at its estimated fair
value. Because quoted market prices are generally not available for
the servicing of proprietary credit card portfolios of comparable credit
quality, we determine the fair value of the cost of servicing 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 for the
I/O strip.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
During
Fiscal 2009, Fiscal 2008, and Fiscal 2007 we recognized the following activity
related to the servicing liability:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Value
of the servicing liability at beginning of year
|
|
$ |
3,038 |
|
|
$ |
2,103 |
|
|
$ |
2,297 |
|
Additions
to the servicing
liability
|
|
|
5,175 |
|
|
|
4,659 |
|
|
|
2,972 |
|
Amortization
of the servicing
liability
|
|
|
(5,167 |
) |
|
|
(3,724 |
) |
|
|
(3,166 |
) |
Value
of the servicing liability at end of
year
|
|
$ |
3,046 |
|
|
$ |
3,038 |
|
|
$ |
2,103 |
|
We
amortize the I/O strip and servicing liability on a straight-line basis over the
expected life of the credit card receivables, which is generally less than one
year. We estimate the expected life primarily by using the historical
average of principal payments as a percent of outstanding trust receivables
sold. The amortization of the servicing liability is included in
selling, general, and administrative expenses in our consolidated statements of
operations and comprehensive income and the value of the servicing liability at
the end of the year is included in accrued expenses on our consolidated balance
sheets.
The
impact of our securitization activity on our consolidated statements of
operations and comprehensive income are as follows (all items are included in
selling, general, and administrative expenses):
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of receivables to the Trust
|
|
$ |
34,353 |
|
|
$ |
38,129 |
|
|
$ |
24,125 |
|
Amortization
of the I/O strip
|
|
|
(38,347 |
) |
|
|
(30,643 |
) |
|
|
(24,608 |
) |
Valuation
adjustments of the I/O strip
|
|
|
33 |
|
|
|
(105 |
) |
|
|
1,300 |
|
Residual
cash flow earned related to I/O interest(1)
|
|
|
104,750 |
|
|
|
84,085 |
|
|
|
73,899 |
|
Additions
to the servicing liability
|
|
|
(5,175 |
) |
|
|
(4,659 |
) |
|
|
(2,972 |
) |
Amortization
of the servicing liability
|
|
|
5,167 |
|
|
|
3,724 |
|
|
|
3,166 |
|
Decrease
in selling, general, and administrative expenses
|
|
$ |
100,781 |
|
|
$ |
90,531 |
|
|
$ |
74,910 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes servicing fees of $11,258 in 2009, $8,211 in 2008, and $6,981 in
2007.
|
|
The cash
flow related to our sale of the receivables to the Trust, the activity related
to amortization and valuation adjustments to the I/O Strip and servicing
liability, and the activity related to the excess spread revenues are treated as
operating cash flows. These activities are included in net cash
provided by operating activities on the consolidated statements of cash
flows. Our purchases and (sales) of certificates issued by the Trust
are reported as investing cash flows and amounted to $(285,000) in fiscal 2009,
$40,635,000 in fiscal 2008, and $360,000 in fiscal 2007.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The
following table presents additional information relating to the QSPEs for Fiscal
2009, Fiscal 2008, and Fiscal 2007:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of new receivables to QSPE
|
|
$ |
861,730 |
|
|
$ |
939,888 |
|
|
$ |
619,597 |
|
Collections
reinvested in revolving-period securitizations
|
|
|
1,065,207 |
|
|
|
804,866 |
|
|
|
701,859 |
|
Cash
flows received on retained interests
|
|
|
104,750 |
|
|
|
84,085 |
|
|
|
73,899 |
|
Servicing
fees received
|
|
|
11,258 |
|
|
|
8,211 |
|
|
|
6,981 |
|
Net
credit losses
|
|
|
47,669 |
|
|
|
26,838 |
|
|
|
16,822 |
|
Investor
certificates outstanding at end of year
|
|
|
544,100 |
|
|
|
628,085 |
|
|
|
358,100 |
|
Credit
card balances 90 or more days delinquent at end of year
|
|
|
23,422 |
|
|
|
22,240 |
|
|
|
9,904 |
|
We are
the servicer of the receivables transferred to the QSPEs and we receive a
servicing fee of approximately 2% of the investor interest. The
investor certificates outstanding as of January 31, 2009 mature as follows:
$189,000,000 in the fiscal year ending January 30, 2010, $35,100,000 in the
fiscal year ending January 29, 2011, $260,800,000 in the fiscal year ending
February 2, 2013, and $59,200,000 in the fiscal year ending February 1,
2014. We held certificates and retained interests in our
securitizations, which aggregated $94,453,000 at January 31, 2009 and
$115,912,000 at February 2, 2008, that are generally subordinated in right of
payment to certificates issued by the QSPEs to third-party
investors. Our obligation to repurchase receivables sold to the QSPEs
is limited to those receivables that, at the time of their transfer, fail to
meet the QSPE’s eligibility standards under normal representations and
warranties. To date, our repurchases of receivables pursuant to this
obligation have been insignificant.
Prior to
November 1, 2007 we had an agreement under which a third party provided a
proprietary credit card sales accounts receivable funding facility for our LANE
BRYANT retail and outlet stores. In accordance with the terms of the
agreement, we exercised our option to purchase the LANE
BRYANT portfolio and, pursuant to a purchase agreement with the third-party
bank, assigned the right to purchase the LANE BRYANT portfolio to the Bank,
which purchased the portfolio on November 1, 2007. Concurrent with
the Bank’s acquisition of the LANE BRYANT portfolio for $230,975,000 it sold the
receivables to CSRC, which transferred the receivables to the
Trust. The purchase of the portfolio at par value and the subsequent
securitization of the purchased portfolio resulted in the recognition of a gain
of approximately $6,830,000, which is included in selling, general, and
administrative expenses for Fiscal 2008. In addition, we recognized
approximately $2,120,000 of selling, general, and administrative expenses in
connection with the issuance of approximately 2.4 million new LANE BRYANT
proprietary credit cards.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Under the
previous agreement the third party reimbursed us daily with respect to the
proprietary credit card sales generated by the LANE BRYANT credit card
accounts. Additional information for Fiscal 2008 (through November 1,
2007) and Fiscal 2007 regarding the agreement is as follows:
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
funding received from sales of LANE BRYANT receivables
|
|
$ |
256,889 |
|
|
$ |
350,270 |
|
|
|
|
|
|
|
|
|
|
Net LANE BRYANT accounts receivable balance held by third
party at end of year(1):
|
|
|
0 |
|
|
|
233,793 |
|
____________________
|
|
|
|
|
|
|
|
|
|
|
(1)
The LANE BRYANT net accounts receivable balances include amounts allocated
to the use of the LANE BRYANT credit card at our LANE BRYANT stores and
amounts allocated to the use of the LANE BRYANT credit card through a
third-party catalog program. Our purchase of the LANE BRYANT credit
card receivables applied only to the receivables associated with accounts
whose primary use of the credit card was at our LANE BRYANT
stores.
|
|
On
October 17, 2007 the Trust issued $320,000,000 of five-year asset-backed
certificates (“Series 2007-1”) in a private placement under Rule
144A. Of the $320,000,000 of certificates issued, $289,600,000 were
sold to investors and CSRC held $30,400,000 as a retained
interest. CSRC may in the future sell all or a portion of such
retained interest. Of the certificates sold to investors,
$203,500,000 pay interest on a floating rate basis tied to one-month LIBOR and
the remaining $86,100,000 of certificates were issued at fixed
rates. The Trust used $35,000,000 of the proceeds to fund receivables
and to pay down other securitization series and placed the remaining proceeds of
$285,000,000 into a pre-funding cash account.
The Trust
paid for its acquisition of the LANE BRYANT proprietary credit card
accounts receivable balances (see above) primarily by withdrawing
$227,500,000 of proceeds from the pre-funding cash account for the Series 2007-1
Certificates. The remainder of the funds in the pre-funding cash
account were subsequently withdrawn to provide financing for additional
receivables, including receivables made available for financing by the
amortization of the Series 2002-1 certificates issued by the Trust, which was
repaid in full as of May 2008.
Concurrent
with the issuance of Series 2007-1 the Trust entered into a series of fixed-rate
interest-rate swap agreements with respect to $174,700,000 of the floating-rate
certificates sold to investors. The notional value of these swaps
equals the face value of these certificates. The blended
weighted-average interest rate on the swapped certificates is
6.39%. The Trust also acquired an interest-rate cap with respect to
$28,800,000 of floating-rate certificates sold to investors. The
interest-rate cap counterparty will make payments to the Trust when one-month
LIBOR exceeds 10%. The fixed-rate certificates were sold at a
discount and carry a blended weighted average-yield of 6.43% and a blended
weighted average coupon of 6.34%.
Our
management uses various valuation assumptions in determining the fair value of
our I/O strip. We estimate the values for these assumptions using
historical data, the impact of the current economic environment on the
performance of the receivables sold, and the impact of the potential volatility
of the current market for similar instruments in assessing the fair value of the
retained interests.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The key
assumptions used to value our retained interest were as follows:
|
January
31,
|
February
2,
|
|
2009
|
2008
|
|
|
|
Payment
rate
|
12.1
– 14.6%
|
12.7
– 16.4%
|
Residual
cash flows discount
rate
|
15.5
– 16.5%
|
15.5
– 16.5%
|
Net
credit loss
percentage
|
6.75
– 11.75%
|
4.75
– 13.45%
|
Average
life of receivables
sold
|
0.6
– 0.7 years
|
0.5
– 0.7 years
|
The
following table presents the decrease in our I/O strip receivable that would
result from hypothetical adverse changes of 10% and 20% in the assumptions used
to determine the fair value of the I/O strip. This information is
presented in accordance with the requirements of SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.”
(In
thousands)
|
|
10% Change
|
|
|
20% Change
|
|
|
|
|
|
|
|
|
Payment
rate
|
|
$ |
1,575 |
|
|
$ |
2,850 |
|
Residual
cash flows discount
rate
|
|
|
74 |
|
|
|
148 |
|
Credit
loss
percentage
|
|
|
1,593 |
|
|
|
3,174 |
|
CSRC and
Charming Shoppes Seller, Inc., our consolidated wholly-owned indirect
subsidiaries, are separate special-purpose entities (“SPEs”) created for the
securitization program. Our investment in asset-backed securities,
which 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, consisted of the following:
|
|
January
31,
|
|
|
February
2,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Trading
securities:
|
|
|
|
|
|
|
I/O
Strip
|
|
$ |
19,298 |
|
|
$ |
23,259 |
|
Retained
interest (primarily collateralized
cash)
|
|
|
23,755 |
|
|
|
40,968 |
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
Ownership
interest
|
|
|
51,400 |
|
|
|
51,685 |
|
|
|
|
|
|
|
|
|
|
Investment
in asset-backed
securities
|
|
$ |
94,453 |
|
|
$ |
115,912 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
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 January 31, 2009, 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 January 31, 2009 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.
NOTE
18. LEASES
We lease
substantially all of our store properties under non-cancelable operating lease
agreements. These leases generally have initial periods of 5 to 20
years and contain provisions for co-tenancies, renewal options, additional rents
based on a percentage of sales, and payment of real estate taxes and common area
charges. We also lease certain other buildings and
equipment.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Our rent
expense for the fiscal years indicated was as follows:
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rent
|
|
$ |
238,477 |
|
|
$ |
243,119 |
|
|
$ |
236,839 |
|
Contingent
rent
|
|
|
40,055 |
|
|
|
41,122 |
|
|
|
39,364 |
|
|
|
$ |
278,532 |
|
|
$ |
284,241 |
|
|
$ |
276,203 |
|
Minimum
annual rent commitments for all non-cancelable leases for the next five fiscal
years and thereafter are: Fiscal 2010 – $227,891,000; Fiscal
2011 –
$188,979,000; Fiscal 2012 – $147,291,000; Fiscal
2013 –
$112,302,000; Fiscal 2014 – $81,800,000;
Thereafter –
$174,225,000.
LANE
BRYANT currently subleases 10 properties from Limited Brands pursuant to a
Master Sublease. The properties subject to the Master Sublease were
operated as LANE BRYANT stores prior to our acquisition of LANE
BRYANT. We have guaranteed the obligations of LANE BRYANT under the
Master Sublease. The minimum annual rent commitments shown above
include amounts payable under the LANE BRYANT master sublease with Limited
Brands that we have guaranteed as follows: Fiscal 2010 – $1,387,000; Fiscal
2011 – $913,000;
Fiscal 2012 –
$517,000; Fiscal 2013 – $403,000; Fiscal
2014 – $219,000;
Thereafter –
$158,000.
Deferred
rent liabilities related to rent escalations and landlord incentives or
allowances of $121,253,000 as of January 31, 2009 and $113,696,000 as of
February 2, 2008 are included in other non-current liabilities on our
consolidated balance sheets.
NOTE
19. 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
“NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” above. 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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
“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 income taxes.
Operating
segment assets are those directly used in, or allocable to, that segment’s
operations. Operating assets for the Retail Stores segment consist
primarily of inventories; the net book value of store facilities; goodwill; and
intangible assets. Operating assets for the Direct-to-Consumer
segment consist primarily of trade receivables; inventories; deferred
advertising costs; the net book value of catalog operating facilities; goodwill;
and intangible assets. Corporate and Other assets include corporate
cash and cash equivalents; the net book value of corporate facilities; deferred
income taxes; and other corporate long-lived assets.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
Selected
financial information for our operations by reportable segments and a
reconciliation of the information by segment to our consolidated totals is as
follows:
|
|
Retail
|
|
|
Direct-to-
|
|
|
Corporate
|
|
|
|
|
(In
thousands)
|
|
Stores
|
|
|
Consumer(1)
|
|
|
and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,292,106 |
|
|
$ |
167,547 |
|
|
$ |
15,245 |
|
|
$ |
2,474,898 |
|
Depreciation
and
amortization
|
|
|
71,778 |
|
|
|
1,126 |
|
|
|
21,539 |
|
|
|
94,443 |
(3) |
Income/(loss)
before interest and taxes
|
|
|
38,653 |
|
|
|
(6,288 |
) |
|
|
(206,744 |
)(2) |
|
|
(174,379 |
) |
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(8,795 |
) |
|
|
(8,795 |
) |
Income
tax
benefit
|
|
|
|
|
|
|
|
|
|
|
13,885 |
|
|
|
13,885 |
|
Income/(loss)
from continuing operations
|
|
|
38,653 |
|
|
|
(6,288 |
) |
|
|
(201,654 |
) |
|
|
(169,289 |
) |
Capital
expenditures
|
|
|
48,247 |
|
|
|
362 |
|
|
|
6,710 |
|
|
|
55,319 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
734,820 |
|
|
$ |
90,450 |
|
|
$ |
454,422 |
|
|
$ |
1,279,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,590,715 |
|
|
$ |
120,593 |
|
|
$ |
11,154 |
|
|
$ |
2,722,462 |
|
Depreciation
and
amortization
|
|
|
59,440 |
|
|
|
1,142 |
|
|
|
33,844 |
|
|
|
94,426 |
(3) |
Income
before interest and taxes
|
|
|
168,307 |
|
|
|
847 |
|
|
|
(144,030 |
)(4) |
|
|
25,124 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(10,552 |
) |
|
|
(10,552 |
) |
Income
tax
provision
|
|
|
|
|
|
|
|
|
|
|
(13,858 |
) |
|
|
(13,858 |
) |
Extraordinary
item, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
912 |
|
|
|
912 |
|
Income
from continuing
operations
|
|
|
168,307 |
|
|
|
847 |
|
|
|
(167,528 |
) |
|
|
1,626 |
|
Capital
expenditures
|
|
|
109,510 |
|
|
|
1,092 |
|
|
|
24,812 |
|
|
|
135,414 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
887,862 |
|
|
$ |
104,509 |
|
|
$ |
499,238 |
|
|
$ |
1,491,609 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007 (53 weeks)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,636,409 |
|
|
$ |
112,088 |
|
|
$ |
3,348 |
|
|
$ |
2,751,845 |
|
Depreciation
and
amortization
|
|
|
46,746 |
|
|
|
1,183 |
|
|
|
40,404 |
|
|
|
88,333 |
(3) |
Income
before interest and
taxes
|
|
|
253,594 |
|
|
|
15,839 |
|
|
|
(98,889 |
) |
|
|
170,544 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(14,746 |
) |
|
|
(14,746 |
) |
Income
tax
provision
|
|
|
|
|
|
|
|
|
|
|
(53,839 |
) |
|
|
(53,839 |
) |
Income
from continuing
operations
|
|
|
253,594 |
|
|
|
15,839 |
|
|
|
(167,474 |
) |
|
|
101,959 |
|
Capital
expenditures
|
|
|
103,510 |
|
|
|
2,614 |
|
|
|
19,692 |
|
|
|
125,816 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
869,776 |
|
|
$ |
134,007 |
|
|
$ |
489,206 |
|
|
$ |
1,492,989 |
(5) |
____________________
|
|
|
|
(1)
Fiscal 2009 and Fiscal 2008 includes LANE BRYANT WOMAN
catalog.
|
|
|
|
(2)
Includes impairment of store assets goodwill, and trademarks of $81,498
and restructuring and other costs of $33,145(see “NOTE 13. IMPAIRMENT OF
STORE ASSETS, GOODWILL, AND TRADEMARKS” and “NOTE 14. RESTRUCTURING
AND OTHER CHARGES” above).
|
|
|
|
(3)
Excludes $776 of depreciation and amortization and $481 of capital
expenditures in Fiscal 2009; $2,823 of depreciation and amortization and
$2,295 of capital expenditures in Fiscal 2008; and $2,911 of depreciation
and amortization and $7,340 of capital expenditures in Fiscal 2007 related
to our discontinued operations.
|
|
|
|
(4)
Includes impairment of goodwill of $18,172 and restructuring charges of
$14,357.
|
|
|
|
(5)
Excludes assets related to our discontinued operations of $121,695 in
Fiscal 2008 amd $212,734 in Fiscal 2007.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
NOTE
20. FAIR VALUE MEASUREMENTS
SFAS No.
157, “Fair Value
Measurements,” defines fair value as 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 (see NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES; Impact of Recent
Accounting Pronouncements” above). 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.
Our
financial assets and liabilities subject to SFAS No. 157 as of January 31, 2009
were as follows:
|
|
Balance
|
|
|
|
|
|
|
|
|
|
January
31,
|
|
|
Fair Value Method Used
|
|
(In
thousands)
|
|
2009
|
|
|
Level 2
|
|
|
Level 3(1)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities(2)
|
|
$ |
6,398 |
|
|
$ |
6,398 |
|
|
|
|
Certificates
and retained interests in securitized receivables
|
|
|
94,453 |
|
|
|
|
|
|
$ |
94,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing
liability
|
|
|
3,046 |
|
|
|
|
|
|
|
3,046 |
|
____________________
|
|
|
|
(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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
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 fiscal year ended January 31, 2009:
|
|
Retained
|
|
|
Servicing
|
|
(In
thousands)
|
|
Interests
|
|
|
Liability
|
|
|
|
|
|
|
|
|
Balance,
February 2, 2008
|
|
$ |
115,912 |
|
|
$ |
3,038 |
|
Additions
to I/O strip and servicing liability
|
|
|
34,353 |
|
|
|
5,175 |
|
Net
reductions to other retained interests
|
|
|
(17,213 |
) |
|
|
– |
|
Reductions
and maturities of QSPE certificates
|
|
|
(285 |
) |
|
|
– |
|
Amortization
of the I/O strip and servicing liability
|
|
|
(38,347 |
) |
|
|
(5,167 |
) |
Valuation
adjustments to the I/O strip and servicing liability
|
|
|
33 |
|
|
|
0 |
|
Balance,
January 31, 2009
|
|
$ |
94,453 |
|
|
$ |
3,046 |
|
NOTE
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The
carrying amounts and estimated fair values of our financial instruments are as
follows:
|
|
January 31, 2009
|
|
|
February 2, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In
thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
93,759 |
|
|
$ |
93,759 |
|
|
$ |
60,978 |
|
|
$ |
60,978 |
|
Available-for-sale
securities
|
|
|
6,398 |
|
|
|
6,398 |
|
|
|
13,364 |
|
|
|
13,364 |
|
Investment
in asset-backed securities
|
|
|
94,453 |
|
|
|
94,453 |
|
|
|
115,912 |
|
|
|
115,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.125%
Senior Convertible Notes due 2014
|
|
|
275,000 |
|
|
|
75,295 |
|
|
|
275,000 |
|
|
|
196,676 |
|
6.07%
mortgage note, due October 2014
|
|
|
10,419 |
|
|
|
11,330 |
|
|
|
11,078 |
|
|
|
11,626 |
|
6.53%
mortgage note, due November 2012
|
|
|
5,250 |
|
|
|
5,493 |
|
|
|
6,650 |
|
|
|
6,863 |
|
7.77%
mortgage note, due December 2011
|
|
|
7,249 |
|
|
|
7,959 |
|
|
|
7,897 |
|
|
|
8,585 |
|
Other
long-term debt
|
|
|
422 |
|
|
|
414 |
|
|
|
673 |
|
|
|
651 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
The fair
value of cash and cash equivalents approximates their carrying amount because of
the short maturities of such instruments. The fair value of
available-for-sale securities is based on quoted market prices of the
securities. The fair values of our convertible notes are based on
quoted market prices for the securities. The fair values of the
mortgage notes and other long-term debt are based on estimated current interest
rates that we could obtain on similar borrowings.
NOTE
22. QUARTERLY FINANCIAL INFORMATION (Unaudited)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
(In
thousands, except per share amounts)
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(Restated)(5)
|
|
|
(Restated)(5)
|
|
|
(Restated)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
641,346 |
|
|
$ |
648,616 |
|
|
$ |
553,066 |
|
|
$ |
631,870 |
|
Gross
profit
|
|
|
194,163 |
|
|
|
174,748 |
|
|
|
124,728 |
|
|
|
134,305 |
|
Income/(loss)
from continuing operations
|
|
|
657 |
(1) |
|
|
(3,710 |
)(2) |
|
|
(57,785 |
)(3) |
|
|
(108,451 |
)(4) |
Loss
from discontinued operations(5)
|
|
|
(45,894 |
) |
|
|
(5,153 |
) |
|
|
(23,875 |
) |
|
|
0 |
|
Net
loss(5)
|
|
|
(45,237 |
)(1) |
|
|
(8,863 |
)(2) |
|
|
(81,660 |
)(3) |
|
|
(108,451 |
)(4) |
Basic
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
.01 |
(1) |
|
$ |
(.03 |
)(2) |
|
$ |
(.50 |
)(3) |
|
$ |
(.94 |
)(4) |
Discontinued operations(5)
|
|
|
(.40 |
) |
|
|
(.05 |
) |
|
|
(.21 |
) |
|
|
.00 |
|
Net loss(5)
|
|
|
(.39 |
)(1) |
|
|
(.08 |
)(2) |
|
|
(.71 |
)(3) |
|
|
(.94 |
)(4) |
Diluted
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
.01 |
(1) |
|
|
(.03 |
)(2) |
|
|
(.50 |
)(3) |
|
|
(.94 |
)(4) |
Discontinued operations(5)
|
|
|
(.40 |
) |
|
|
(.05 |
) |
|
|
(.21 |
) |
|
|
.00 |
|
Net loss(5)
|
|
|
(.39 |
)(1) |
|
|
(.08 |
)(2) |
|
|
(.71 |
)(3) |
|
|
(.94 |
)(4) |
____________________
|
|
|
|
(1)
Includes restructuring charges of $3,611 ($2,257 after tax or $(.02) per
diluted share). See “NOTE 14. RESTRUCTURING
AND OTHER CHARGES” above.
|
|
|
|
(2)
Includes restructuring and other charges of $14,945 ($9,341after tax or
$(.08) per diluted share). See “NOTE 14. RESTRUCTURING
AND OTHER CHARGES” above.
|
|
|
|
(3)
Includes store impairment charges of $20,216 ($(.18) per diluted share)
and restructuring and other charges of $6,391 ($(.06) per diluted
share). See “NOTE
13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMARKS” and
“NOTE
14. RESTRUCTURING AND OTHER CHARGES” above.
|
|
|
|
(4)
Includes store impairment charges of $16,576 ($(.14) per diluted share),
goodwill and trademark impairment charges of $44,706 ($(.39) per diluted
share), and restructuring charges of $8,198 ($(.07) per diluted
share). See “NOTE
13. IMPAIRMENT OF STORE ASSETS, GOODWILL, AND TRADEMAR,S” and
“NOTE
14. RESTRUCTURING AND OTHER CHARGES” above.
|
|
|
|
(5)
Loss from discontinued operations and net loss and the related per-share
amounts as previously reported for the first three quarters have been
restated for excess tax benefits related to discontinued operations of
$10,780 ($(.09) per diluted share) recognized in the first quarter and
$526 ($(.01) per diluted share) recognized in the second quarter that were
reversed in the third quarter of $11,306 ($.10 per diluted share) as a
result of the correction of an error. The error was identified as
part of the finalization of the sale of the discontinued operations during
the Fiscal 2009 Third Quarter, and was related to our treatment of
deferred tax balances in calculating the estimated loss on
disposal. In determining the net book value used to calculate the
estimated pre-tax loss on disposal, we included the balance of the net
deferred tax liability relating to temporary differences of the assets and
liabilities to be disposed. We then included the reversal of the same
net deferred tax liability in our calculation of the tax benefit
associated with the pre-tax loss, thereby double-counting the impact of
the net deferred tax liability. The loss from discontinued operations
for the first quarter included an estimated loss on disposition of $39,170
($(.34) per diluted share), net of a tax benefit of
$6,081.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR
ENDED JANUARY 31, 2009
(Continued)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
(In
thousands, except per share amounts)
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
696,614 |
|
|
$ |
694,359 |
|
|
$ |
599,665 |
|
|
$ |
731,824 |
|
Gross
profit
|
|
|
224,365 |
|
|
|
209,941 |
|
|
|
170,569 |
|
|
|
163,092 |
|
Income/(loss)
from continuing operations
|
|
|
26,466 |
|
|
|
20,894 |
|
|
|
(1,740 |
)
(1) |
|
|
(44,906 |
)(2) |
Income/(loss)
from discontinued operations
|
|
|
(168 |
) |
|
|
(2,615 |
) |
|
|
(1,828 |
) |
|
|
(80,428 |
)(2) |
Income/(loss)
before extraordinary item
|
|
|
26,298 |
|
|
|
18,279 |
|
|
|
(3,568 |
) |
|
|
(125,334 |
)(2) |
Net
income/(loss)
|
|
|
26,298 |
|
|
|
18,279 |
|
|
|
(3,568 |
)(1) |
|
|
(124,422 |
)(2) |
Basic
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
.22 |
|
|
$ |
.17 |
|
|
$ |
(.01 |
) |
|
$ |
(.39 |
)(2) |
Discontinued
operations
|
|
|
.00 |
|
|
|
(.02 |
) |
|
|
(.02 |
) |
|
|
(.69 |
)(2) |
Extraordinary
item
|
|
|
.00 |
|
|
|
.00 |
|
|
|
.00 |
|
|
|
.01 |
|
Net income/(loss)(3)
|
|
|
.21 |
|
|
|
.15 |
|
|
|
(.03 |
) |
|
|
(1.07 |
)(2) |
Diluted
net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
.20 |
|
|
|
.16 |
|
|
|
(.01 |
) |
|
|
(.39 |
)(2) |
Discontinued
operations
|
|
|
.00 |
|
|
|
(.02 |
) |
|
|
(.02 |
) |
|
|
(.69 |
)(2) |
Extraordinary
item
|
|
|
.00 |
|
|
|
.00 |
|
|
|
.00 |
|
|
|
.01 |
|
Net income/(loss)(3)
|
|
|
.20 |
|
|
|
.14 |
|
|
|
(.03 |
) |
|
|
(1.07 |
)(2) |
____________________
|
|
|
|
(1)
Includes pre-tax gain of $6,830 from the purchase and subsequent
securitization of the LANE BRYANT credit card portfolio. See “NOTE 17. ASSET
SECURITIZATION” above.
|
|
|
|
(2)
Loss from continuing operations includes impairment of goodwill of
$18,172 ($(.16) per diluted share), impairment of store assets of $9,025
($5,596 after tax or $(.05) per diluted share), and restructuring charges
of $5,332 ($3,306 after tax or $(.03) per diluted share. Loss from
discontinued operations includes impairment of goodwill and trademarks of
$80,047 ($75,740 after tax or $(.65) per diluted share. See “NOTE 2. DISCONTINUED
OPERATIONS,” “NOTE 13. IMPAIRMENT OF STORE ASSETS, GOODWILL AND
TRADEMARKS,” and “NOTE 14. RESTRUCTURING
AND OTHER CHARGES” above.
|
|
|
|
(3)
Results may not add due to rounding.
|
|
Not
applicable.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports we file under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate and in such a manner as to
allow timely decisions regarding required disclosure. Our Disclosure
Committee, which is made up of several key management employees and reports
directly to the CEO and CFO, assists our management, including our CEO and CFO,
in fulfilling their responsibilities for establishing and maintaining such
controls and procedures and providing accurate, timely, and complete
disclosure.
As of the
end of the period covered by this report on Form 10-K (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.
Evaluation
of Internal Control Over Financial Reporting
Management’s
Report on Internal Control Over Financial Reporting as of January 31, 2009
appears on page 65 of this Report on Form 10-K, and is incorporated herein by
reference. The Report of our Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting appears on pages 66 - 67 of
this Report on Form 10-K, and is incorporated herein by reference.
Changes
in Internal Control Over Financial Reporting
There has
been no change in our internal control over financial reporting that occurred
during the fiscal quarter ended January 31, 2009 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
Item
9B. Other Information
Not
applicable.
Information
regarding our directors and executive officers is included under the captions
“Directors Standing for
Election,” “Biographies
of Directors,” “Corporate Governance at Charming
Shoppes,” “Compensation
of Directors,” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in our definitive proxy statement to be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year, which is incorporated herein by reference. Information
regarding Executive Officers is included under “Additional Part I Information – Our
Executive Officers,” in Part I of this Report.
We have
adopted the Charming Shoppes, Inc. Business Ethics and Standards of Conduct
Policy (the “Policy”) that applies to all of our directors, officers, and
associates, including our principal executive officer, principal financial
officer, and principal accounting officer. The Policy has been filed
as Exhibit 14 to this report on Form 10-K. We have also adopted the
Charming Shoppes, Inc. Complete Principles of Corporate Governance (the
“Principles”) and charters (the “Charters”) for the audit committee, the
compensation committee, the corporate governance and nominating committee, and
the finance committee of our Board of Directors. The Policy,
Principles, and Charters are available on our Internet website, www.charmingshoppes.com, in
the “About Us” section,
under “Corporate
Governance”. A copy of the Policy, Principles, and Charters
are also available, at no charge, upon written request to Charming Shoppes,
Inc., Attn. Director of Investor Relations, 450 Winks Lane, Bensalem, PA,
19020.
Our Board
of Directors has sole authority for making any amendments to, or granting
waivers from, any provision of the Policy that affects our executive officers or
directors, including our principal executive officer, principal financial
officer, or principal accounting officer. We intend to satisfy the
disclosure requirement under Item 5.05 of Form 8-K regarding any such amendment
or waiver by disclosing the nature of such amendment or waiver in a report on
Form 8-K within four days.
Information
regarding executive compensation is included under the captions “Compensation of Executive
Officers” and “Report of
the Compensation Committee” in our definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days of the end of our
fiscal year, which is incorporated herein by reference.
Information
regarding the security ownership of certain beneficial owners and management and
securities authorized for issuance under equity compensation plans is included
under the captions “Equity
Compensation Plan Information” and “Principal Shareholders and
Management Ownership” in our definitive proxy statement to be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year, which is incorporated herein by reference.
Information
regarding certain relationships and director independence is included under the
captions “Corporate Governance
at Charming Shoppes” and “Compensation Committee Interlocks
and Insider Participation” in our definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days of the end of our
fiscal year, which is incorporated herein by reference.
Information
regarding principal accountant fees and services is included under the caption
“Audit and Other Fees”
in our definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days of the end of our fiscal year, which is incorporated
herein by reference.
|
Page
|
(a)(1) Financial
Statements
|
|
|
|
|
67
|
|
|
|
|
|
68-69
|
|
|
|
70
|
|
|
|
71
|
|
|
|
|
|
72
|
|
|
|
|
|
73
|
|
|
|
|
|
74
|
|
|
|
76
|
|
|
|
|
(a)(2) Financial
Statement Schedules
|
|
|
|
|
167
|
All other
schedules required by Rule 5-04 of Regulation S-X have been omitted as they are
not applicable, not required, or the information has been provided in the Notes
to Consolidated Financial Statements included in Part II, Item 8 of this Report
on Form 10-K.
(b) Exhibits,
including those incorporated by reference
The
following is a list of Exhibits filed as part of this Annual Report on Form
10-K. 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
parenthesis.
Plan
of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession
2.1
|
Covenant
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31, 2001 (File No.
000-07258, Exhibit 2.3).
|
|
|
2.2
|
Master
Sublease, dated as of August 16, 2001, between Limited Brands, Inc. and
Lane Bryant, Inc., incorporated by reference to Form 8-K of the Registrant
dated August 16, 2001, filed on August 31, 2001 (File No. 000-07258,
Exhibit 2.4).
|
|
|
2.3
|
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).
|
Articles
of Incorporation and By-Laws
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended ended August 2, 2008 (File No. 000-07258,
Exhibit 3.1).
|
|
|
|
|
Instruments
Defining the Rights of Security Holders, Including Indentures
4.1
|
Amended
and Restated Rights Agreement, dated as of February 1, 2001, between
Charming Shoppes, Inc. and American Stock Transfer & Trust Company, as
Rights Agent, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 3, 2001 (File No. 000-07258, Exhibit
4.1).
|
|
|
4.2
|
Registration
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31, 2001 (File No.
000-07258, Exhibit 4.1).
|
|
|
4.3
|
Second
Amended and Restated Loan and Security Agreement, dated July 28, 2005, by
and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI
Industries, Inc., FB Apparel, Inc., Catherines Stores Corporation, Lane
Bryant, Inc., and Crosstown Traders, Inc. as borrowers; a syndicate of
banks and other financial institutions as lenders, including Wachovia
Bank, National Association as agent for the lenders; and certain of the
Company’s subsidiaries as guarantors, incorporated by reference to Form
8-K of the Registrant dated July 28, 2005, filed on August 3, 2005 (File
No. 000-07258, Exhibit 10.1).
|
|
|
4.4
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated Loan and
Security Agreement, dated July 28, 2005, by and among Charming Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc., and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 29, 2006 (File No. 000-07258,
Exhibit 99.1).
|
|
|
4.5
|
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).
|
|
|
4.6
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.5).
|
Our
miscellaneous long-term debt instruments and credit facility agreements, under
which the underlying authorized debt is equal to less than 10% of our
consolidated total assets, may not be filed as exhibits to this
report. We agree to furnish to the Commission, upon request, copies
of any such instruments not filed.
Material
Contracts
10.1.1
|
Second
Amended and Restated Pooling and Servicing Agreement, dated as of November
25, 1997, as amended on July 22, 1999, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and First Union
National Bank as Trustee, incorporated by reference to Form 8-K of
Charming Shoppes Master Trust and Charming Shoppes Receivables Corp.,
dated July 22, 1999 (File No. 333-71757, Exhibit No.
4.1).
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10.1.2
|
Fourth
Amendment, dated as of August 5, 2004, to Second Amended and Restated
Pooling and Servicing Agreement, dated as of November 25, 1997, as amended
on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association (formerly known as First Union National Bank) as
Trustee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended July 31, 2004 (File No. 000-07258, Exhibit
10.4).
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10.1.3
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Amendment,
dated as of March 18, 2005, to Second Amended and Restated Pooling and
Servicing Agreement, dated as of November 25, 1997, as amended on July 22,
1999, May 8, 2001, and August 5, 2004, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association, as Trustee, incorporated by reference to Form 10-K
of the Registrant for the fiscal year ended January 29, 2005 (File No.
000-07258, Exhibit 10.1.3).
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10.1.4
|
Amendment
dated as of October 17, 2007 to Second Amended and Restated Pooling and
Servicing Agreement dated as of November 25, 1997 and heretofore amended
among Charming Shoppes Receivables Corp. (“CSRC”), Spirit of America, Inc.
(“SOAI”), and U.S. Bank National Association, as Trustee (“Trustee”),
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.1).
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10.1.5
|
Series
1999-1 Supplement, dated as of July 22, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $150,000,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-1, incorporated by reference to Form
8-K of Charming Shoppes Master Trust and Charming Shoppes Receivables
Corp., dated July 22, 1999 (File No. 333-71757, Exhibit No.
4.2).
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10.1.6
|
Receivables
Purchase Agreement, dated as of May 28, 1999, among Charming Shoppes
Seller, Inc. as Seller, Spirit of America, Inc., as Servicer, Clipper
Receivables Corporation, as Purchaser, State Street Capital Corporation,
as Administrator, and State Street Bank & Trust Company, as
Relationship Bank, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 2, 2002 (File No. 000-07258,
Exhibit 10.1.4).
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10.1.7
|
Series
1999-2 Supplement, dated as of May 28, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $55,750,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-2, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29, 2000 (File
No. 000-07258, Exhibit 10.1.23).
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Letter Agreement, dated as of March 13, 2009
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.
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10.1.9
|
Series
2000-VFC Supplement, dated as of November 9, 2000, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997,
among Charming Shoppes Receivables Corp., as Seller, Spirit of America,
Inc., as Servicer, and First Union National Bank, as Trustee, on behalf of
the Series 2000-VFC Certificateholders, for up to $60,122,700 Charming
Shoppes Master Trust Series 2000-VFC, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 3, 2001 (File
No. 000-07258, Exhibit 10.1.16).
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10.1.10
|
Certificate
Purchase Agreement, dated as of November 9, 2000, among Charming Shoppes
Receivables Corp. as Seller and as the Class B Purchaser, Spirit of
America, Inc. as Servicer, Monte Rosa Capital Corporation as the Conduit
Purchaser, and ING Baring (U.S.) Capital Markets LLC as Administrator for
the Conduit Purchaser, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2001 (File No. 000-07258,
Exhibit 10.1.17).
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10.1.11
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Purchase
Agreement dated as of March 14, 2005 between Citibank USA, N.A., Spirit of
America National Bank and Catherines, Inc., incorporated by reference to
Form 8-K of the Registrant dated March 18, 2005, filed on March 22, 2005
(File No. 000-07258, Exhibit 99).
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10.1.12
|
Credit
Card Processing Agreement, among World Financial Network National Bank,
Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated as of January
31, 1996, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 2, 2002 (File No. 000-07258, Exhibit
10.1.9).
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10.1.13
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Amendment
to Credit Card Processing Agreement, among World Financial Network
National Bank, Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated
as of January 28, 2005, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 2005 (File No. 000-07258,
Exhibit 10.1.12).
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10.1.14
|
Purchase
Agreement dated as of October 31, 2007 between World Financial Network
National Bank, Spirit of America National Bank, Lane Bryant, Inc., Sierra
Nevada Factoring, Inc., and Charming Shoppes Outlet Stores, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 31,
2007, filed on November 5, 2007 (File No. 000-07258, Exhibit
99.1).
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10.1.15
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Purchase
and Sale Agreement, among Spirit of America National Bank, as Seller, and
Charming Shoppes Receivables Corp., as Purchaser, dated as of November 25,
1997, incorporated by reference to Form S-1/A of Charming Shoppes
Receivables Corp. (File No. 333-71757, Exhibit
10.1(a)).
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10.1.16
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First
Amendment to Purchase and Sale Agreement, among Spirit of America National
Bank, as Seller, and Charming Shoppes Receivables Corp., as Purchaser,
dated as of July 22, 1999, incorporated by reference to Form 8-K of
Charming Shoppes Receivables Corp. (File No. 333-71757, Exhibit
10.1).
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10.1.17
|
Series
2002-1 Supplement, dated as of November 20, 2002, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee, for $100,000,000 Charming
Shoppes Master Trust Asset-Backed Certificates Series 2002-1, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended November
2, 2002 (File No. 000-07258, Exhibit 10.1).
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10.1.18
|
Charming
Shoppes Master Trust $63,500,000 Fixed Rate Class A Asset Backed
Certificates, Series 2002-1 and $16,500,000 Fixed Rate Class B Asset
Backed Certificates, Series 2002-1 Certificate Purchase Agreement, dated
as of November 22, 2002, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002 (File No. 000-07258,
Exhibit 10.2).
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10.1.19
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class C Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002 (File No. 000-07258,
Exhibit 10.3).
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10.1.20
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class D Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002 (File No. 000-07258,
Exhibit 10.4).
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10.1.21
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$14,000,000
Promissory Note, dated October 2002, between White Marsh Distribution,
LLC, as Borrower, and General Electric Capital Business Asset Funding
Corporation, as Payee and Holder, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended November 2, 2002 (File No.
000-07258, Exhibit 10.5).
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10.1.22
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Commercial
Deed of Trust, Security Agreement, Assignment of Leases and Rents, and
Fixture Filing, made as of October 2002, among the Grantor, White Marsh
Distribution, LLC, as Borrower, in favor of James M. Smith, as Trustee,
for the benefit of the Beneficiary, General Electric Capital Business
Asset Funding Corporation, as Lender, incorporated by reference to Form
10-Q of the Registrant for the quarter ended November 2, 2002 (File No.
000-07258, Exhibit 10.6).
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10.1.23
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Certificate
Purchase Agreement, dated as of January 21, 2004, among Charming Shoppes
Receivables Corp., as Seller and as the Class B Purchaser, Spirit of
America, Inc., as Servicer, Sheffield Receivables Corporation, as the
Conduit Purchaser, and Barclay’s Bank PLC as Administrator for the Conduit
Purchaser, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 31, 2004 (File No. 000-07258, Exhibit
10.1.17).
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10.1.24
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Series
2004-VFC Supplement, dated as of January 21, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 and
amended as of July 22, 1999 and as of May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee on behalf of the Series
2004-VFC Certificateholders, for up to $132,000,000 Charming Shoppes
Master Trust Asset-Backed Certificates Series 2004-VFC, incorporated by
reference to Form 10-K of the Registrant for the fiscal year ended January
31, 2004 (File No. 000-07258, Exhibit 10.1.18).
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10.1.25
|
Series
2004-1 Supplement, dated as of August 5, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 (as
amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among
Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as
Servicer, and Wachovia Bank, National Association, as Trustee, on behalf
of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes
Master Trust Series 2004-1, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.5).
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10.1.26
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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.,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended November 1, 2008 (File No. 000-07258, Exhibit
10.23).
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10.1.27
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Certificate
Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes
Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and
Barclay’s Capital Inc. (as representative of the Initial Purchasers),
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended July 31, 2004 (File No. 000-07258, Exhibit 10.6).
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10.1.28
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Certificate
Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables
Company LLC as Initial Class C Holder, incorporated by reference to Form
10-Q of the Registrant for the quarter ended July 31, 2004 (File No.
000-07258, Exhibit 10.7).
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10.1.29
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Mortgage,
Assignment of Leases and Rents and Security Agreement, dated as of October
6, 2004, between FB Distro Distribution Center, LLC, as Mortgagor, and
BankAtlantic Commercial Mortgage Capital, LLC, as Mortgagee, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended October
30, 2004 (File No. 000-07258, Exhibit 10.9).
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10.1.30
|
$13,000,000
Mortgage Note, dated October 6, 2004, between FB Distro Distribution
Center, LLC, as Maker, and BankAtlantic Commercial Mortgage Capital, LLC,
as Payee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.10).
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10.1.31
|
Guaranty,
executed as of October 6, 2004, by Charming Shoppes, Inc., as Guarantor,
for the benefit of BankAtlantic Commercial Mortgage Capital, LLC, as
Lender, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.11).
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10.1.32
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Hazardous
Substances Indemnity Agreement, dated October 6, 2004, by FB Distro
Distribution Center, LLC and by Charming Shoppes, Inc., jointly and
severally as Indemnitors, in favor of BankAtlantic Commercial Mortgage
Capital, LLC, as Holder, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.12).
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10.1.33
|
Amended
and Restated Class D Certificate Purchase Agreement, dated as of August
25, 2004, among Wachovia Bank, National Association as Trustee, Charming
Shoppes Receivables Corp. as Seller and as Initial Class D-1 Holder,
Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC,
as the Class D-1 Holder, incorporated by reference to Form 8-K of the
Registrant dated August 24, 2004, filed on August 27, 2004 (File No.
000-07258, Exhibit 99.1).
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10.1.34
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Amended
and Restated Certificate Purchase Agreement, dated as of November 22, 2004
and Amended and Restated as of November 18, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and the Class D-2
Certificateholders Described Herein, incorporated by reference to Form
10-Q of the Registrant for the quarter ended October 30, 2004 (File No.
000-07258, Exhibit 10.13).
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10.1.35
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Series
2007-1 Supplement dated as of October 17, 2007 to the Second Amended and
Restated Pooling and Servicing Agreement dated as of November 25, 1997 and
heretofore amended among CSRC, SOAI and Trustee, incorporated by reference
to Form 8-K of the Registrant dated October 17, 2007, filed on October 22,
2007 (File No. 000-07258, Exhibit 10.2).
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10.1.36
|
Class
A, Class M, and Class B Certificate Purchase Agreement dated as of October
10, 2007 among CSRC, SOAI, Barclays Capital, Inc. and Fashion Service
Corp, incorporated by reference to Form 8-K of the Registrant dated
October 17, 2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.3).
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10.1.37
|
Class
C Purchase Agreement dated as of October 17, 2007 among CSRC, SOAI,
Trustee, Galleon Capital, LLC, and Clipper Receivables Company, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.4).
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10.1.38
|
Amended
and Restated Receivables Purchase Agreement, dated as of June 2, 2005,
among Catalog Receivables LLC as Seller, Spirit of America, Inc. as
Servicer, Sheffield Receivables Corporation as Purchaser, and Barclays
Bank PLC as Administrator, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.1.31).
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10.1.39
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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).
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10.1.40
|
Letter
Agreement, dated as of May 16, 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 May 3, 2008 (File No. 000-07258, Exhibit
10.11).
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10.1.41
|
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
10.12).
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10.1.42
|
Registration
Rights Agreement among the Company and Banc of America Securities LLC and
J.P. Morgan Securities Inc., dated as of April 30, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 30, 2007, filed on May
3, 2007 (File No. 000-07258, Exhibit 10.1).
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10.1.43
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Bank of America, N.A., dated April 24, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 25, 2007, filed on May
1, 2007 (File No. 000-07258, Exhibit 10.1).
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10.1.44
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and JPMorgan Chase Bank, National Association, dated April 24,
2007, incorporated by reference to Form 8-K of the Registrant dated April
25, 2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.2).
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10.1.45
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.3).
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10.1.46
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Bank of America, N.A., dated April 24, 2007, incorporated by reference
to Form 8-K of the Registrant dated April 25, 2007, filed on May 1, 2007
(File No. 000-07258, Exhibit 10.4).
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10.1.47
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Issuer
Warrant Transaction Confirmation entered into by and between the Company
and JPMorgan Chase Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.5).
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10.1.48
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.6).
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10.1.49
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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).
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10.1.50
|
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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10.1.51
|
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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10.1.52
|
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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10.1.53
|
Amendment
No. 1 to Stock Purchase Agreement dated as of September 18, 2008 by and
among Crosstown Traders, Inc. and Norm Thompson Outfitters, Inc.,
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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10.1.54
|
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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* Schedules
and attachments have been omitted but will be provided to the Commission
upon request.
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Management
Contracts and Compensatory Plans and Arrangements
10.2.1
|
The
1988 Key Employee Stock Option Plan of Charming Shoppes, Inc., as amended
and restated January 25, 2006, incorporated by reference to Form 10-K of
the Registrant for the fiscal year ended January 28, 2006 (File No.
000-07258, Exhibit 10.2.1).
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10.2.2
|
Form
of Charming Shoppes, Inc. 1988 Key Employee Stock Option Plan Key Employee
Stock Option Agreement, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.2.2).
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10.2.3
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 10.1).
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10.2.4
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated at June 27, 2002, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 1, 2003 (File
No. 000-07258, Exhibit 10.2.6).
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10.2.5
|
The
Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan,
Amended and Restated Effective January 1, 2005, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 3, 2007
(File No. 000-07258, Exhibit 10.2.5).
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10.2.6
|
Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, amended and
restated effective June 21, 2007, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended August 4, 2007 (File No.
000-07258, Exhibit 10.8).
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10.2.7
|
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).
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10.2.8
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program Stock
Option Agreement, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended July 31, 1999 (File No. 000-07258, Exhibit
10.2).
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10.2.9
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program
Restricted Stock Agreement, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 10.3).
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10.2.10
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Stock Option Agreement, incorporated by reference to Form 8-K of the
Registrant dated June 23, 2005, filed on June 29, 2005 (File No.
000-07258, Exhibit 10.1).
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10.2.11
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Restricted Share Units Agreement, incorporated by reference to Form 8-K of
the Registrant dated June 23, 2005, filed on June 29, 2005 (File No.
000-07258, Exhibit 10.2).
|
|
|
10.2.12
|
The
1993 Employees’ Stock Incentive Plan of Charming Shoppes, Inc.,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 29, 1994 (File No. 000-07258, Exhibit
10.2.10).
|
|
|
10.2.13
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of February 11, 2002, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.8).
|
|
|
10.2.14
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (regular vesting schedule), incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 2, 2002 (File
No. 000-07258, Exhibit 10.2.20).
|
|
|
10.2.15
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (accelerated vesting schedule), incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.21).
|
|
|
10.2.16
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan
Performance-Accelerated Stock Option Agreement, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.22).
|
|
|
10.2.17
|
The
Charming Shoppes, Inc. Employee Stock Purchase Plan, as amended,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 3, 1996 (File No. 000-07258, Exhibit
10.2.10).
|
|
|
10.2.18
|
The
Charming Shoppes Inc. 1999 Associates’ Stock Incentive Plan, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 30, 1999 (File No. 000-07258, Exhibit 10.2.24).
|
|
|
10.2.19
|
Charming
Shoppes, Inc. 1999 Associates’ Stock Incentive Plan Stock Option
Agreement, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1999 (File No. 000-07258, Exhibit
10.2.25).
|
|
|
10.2.20
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2001 (File No. 000-07258, Exhibit
10.2.29).
|
|
|
10.2.21
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (regular vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002 (File No. 000-07258, Exhibit
10.2.23).
|
|
|
10.2.22
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (accelerated vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002 (File No. 000-07258, Exhibit
10.2.24).
|
|
|
10.2.23
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Restricted Stock Agreement, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.25).
|
|
|
|
|
|
|
|
|
|
|
10.2.26
|
Form
of Time-Based Stock Appreciation Rights Agreement for Executive Officers,
incorporated by reference to Form 8-K of the Registrant dated March 23,
2009, filed on March 27, 2009 (File No. 000-07258, Exhibit
10.1).
|
|
|
|
|
|
|
10.2.28
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Stock Option Agreement,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended October 30, 2004 (File No. 000-07258, Exhibit
10.15).
|
|
|
10.2.29
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement – Section 16 Officers, incorporated by reference to Form
8-K of the Registrant dated February 7, 2005, filed on February 11, 2005
(File No. 000-07258, Exhibit 99.2).
|
|
|
10.2.30
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement, incorporated by reference to Form 8-K of the Registrant
dated February 7, 2005, filed on February 11, 2005 (File No. 000-07258,
Exhibit 99.4).
|
|
|
10.2.31
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement, incorporated by reference to Form 8-K of the
Registrant dated March 15, 2006, filed on March 20, 2006 (File No.
000-07258, Exhibit 99.1).
|
|
|
10.2.32
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement – Associates Other Than Section 16 Officers, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended October 30,
2004 (File No. 000-07258, Exhibit 10.17).
|
|
|
10.2.33
|
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).
|
|
|
10.2.34
|
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).
|
|
|
10.2.35
|
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).
|
|
|
10.2.36
|
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).
|
|
|
10.2.37
|
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).
|
|
|
10.2.38
|
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).
|
|
|
10.2.39
|
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).
|
|
|
10.2.40
|
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).
|
|
|
10.2.41
|
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).
|
|
|
10.2.42
|
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).
|
|
|
10.2.43
|
Charming
Shoppes, Inc. Supplemental Retirement Plan, effective February 1, 2003,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended May 3, 2003 (File No. 000-07258, Exhibit 10.1).
|
|
|
10.2.44
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes, Inc. Supplemental
Retirement Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2007 (File No. 000-07258, Exhibit
10.2.29).
|
|
|
10.2.45
|
Amendment
2008-1 to Charming Shoppes, Inc. Supplemental Executive Retirement Plan,
incorporated by reference to Form 8-K of the Registrant dated December 17,
2008, filed on December 19, 2008 (File No. 000-07258, Exhibit
99.1).
|
|
|
10.2.46
|
2003
Incentive Compensation Plan, incorporated by reference to Appendix A of
the Registrant’s Proxy Statement Pursuant to Section 14 of the Securities
Exchange Act of 1934, filed on May 23, 2008 (File No.
000-07258).
|
|
|
10.2.47
|
Form
of Charming Shoppes, Inc. 2003 Incentive Compensation Plan Inducement
Grant Stock Appreciation Rights Agreement, incorporated by reference to
Form 10-Q of the Registrant for the quarter ended November 1, 2008 (File
No. 000-07258, Exhibit 10.24).
|
|
|
10.2.48
|
Charming
Shoppes Variable Deferred Compensation Plan For Executives, Amended and
Restated Effective January 1, 2005, incorporated by reference to Form 8-K
of the Registrant dated December 13, 2005, filed December 16, 2005 (File
No. 000-07258, Exhibit 99.1).
|
|
|
10.2.49
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes Variable Deferred
Compensation Plan for Executives and the Charming Shoppes Non-Employee
Director Compensation Plan, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2007 (File No. 000-07258,
Exhibit 10.2.32).
|
|
|
10.2.50
|
Form
of Bonus Agreement by and between Charming Shoppes, Inc. and the Executive
Officer named in the Agreement, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.14).
|
|
|
10.2.51
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 19,
2005, incorporated by reference to Form 8-K of the Registrant dated
January 19, 2005, filed January 25, 2005 (File No. 000-07258, Exhibit
99.1).
|
|
|
10.2.52
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated February 2,
2006, incorporated by reference to Form 8-K of the Registrant dated
February 2, 2006, filed February 8, 2006 (File No. 000-07258, Exhibit
99.1).
|
|
|
10.2.53
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 24,
2007, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 3, 2007 (File No. 000-07258, Exhibit
10.2.36).
|
|
|
10.2.54
|
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).
|
|
|
10.2.55
|
Employment
Agreement, dated as of January 1, 2005, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated January 3, 2005, filed on January 4, 2005 (File No.
000-07258, Exhibit 99.1)
|
|
|
10.2.56
|
Employment
Agreement, dated as of December 31, 2007, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated December 31, 2007, filed on January 2, 2008 (File No.
000-07258, Exhibit 99.1)
|
|
|
10.2.57
|
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
10.16).
|
|
|
10.2.58
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc.
and Dorrit J. Bern, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.8).
|
|
|
10.2.59
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement, dated as of January 3, 2005, between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 29, 2005 (File No. 000-07258, Exhibit
10.2.37).
|
|
|
10.2.60
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005 (File No. 000-07258, Exhibit
99.1)
|
|
|
10.2.61
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005 (File No. 000-07258, Exhibit
99.3)
|
|
|
10.2.62
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006 (File No. 000-07258, Exhibit
99.2)
|
|
|
10.2.63
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006 (File No. 000-07258, Exhibit
99.3)
|
|
|
10.2.64
|
Forms
of Executive Severance Agreements by and between Charming Shoppes, Inc.,
the named executive officers in the company’s Proxy Statement for the
Annual Meeting held on June 15, 2000, and certain other executive officers
and officers of Charming Shoppes, Inc. and its subsidiaries, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 29, 2000 (File No. 000-07258, Exhibit 10.2.33).
|
|
|
10.2.65
|
Forms
of First Amendment, dated as of February 6, 2003, to Forms of Executive
Severance Agreements, dated July 15, 1999, by and between Charming
Shoppes, Inc., and the executive officers and officers named in the
Agreements, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 1, 2003 (File No. 000-07258, Exhibit
10.2.30).
|
|
|
10.2.66
|
Form
of Second Amendment to Form of Executive Severance Agreement, dated July
15, 1999, as amended by First Amendment, dated as of February 6, 2003, by
and between Charming Shoppes, Inc. and the executive officers and officers
named in the agreements, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 2, 2008 (File No. 000-07258,
Exhibit 10.2.48).
|
|
|
10.2.67
|
Form
of Executive Severance Agreement, dated February 6, 2003, by and between
Charming Shoppes, Inc. and certain executive officers and officers of
Charming Shoppes, Inc. and its subsidiaries, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 1, 2003
(File No. 000-07258, Exhibit 10.2.31).
|
|
|
10.2.68
|
Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain executive vice presidents named in the
agreements, incorporated by reference to Form 8-K of the Registrant dated
February 1, 2008, Filed on February 5, 2008 (File No. 000-07258, Exhibit
10.1).
|
|
|
10.2.69
|
Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain senior vice presidents named in the agreements,
incorporated by reference to Form 8-K of the Registrant dated February 1,
2008, Filed on February 5, 2008 (File No. 000-07258, Exhibit
10.2).
|
|
|
10.2.70
|
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).
|
|
|
Other
Exhibits
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Charming Shoppes, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
CHARMING SHOPPES, INC.
|
|
(Registrant)
|
|
|
Date: March
30, 2009
|
/S/ ALAN ROSSKAMM
|
|
Alan
Rosskamm
|
|
Chairman
of the Board
|
|
Interim
Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of Charming Shoppes, Inc. and in
the capacities and on the dates indicated:
/S/ ALAN ROSSKAMM
|
/S/ ERIC M. SPECTER
|
Alan
Rosskamm
|
Eric
M. Specter
|
Chairman
of the Board
|
Executive
Vice President
|
Interim
Chief Executive Officer
|
Chief
Financial Officer
|
March
30, 2009
|
March
30, 2009
|
|
|
/S/ JOHN J. SULLIVAN
|
/S/ ARNAUD AJDLER
|
John
J. Sullivan
|
Arnaud
Ajdler
|
Vice
President, Corporate Controller
|
Director
|
Chief
Accounting Officer
|
March
30, 2009
|
March
30, 2009
|
|
|
|
/S/ MICHAEL C. APPEL
|
/S/ RICHARD W. BENNET,
III
|
Michael
C. Appel
|
Richard
W. Bennet, III
|
Director
|
Director
|
March
30, 2009
|
March
30, 2009
|
|
|
/S/ YVONNE M. CURL
|
/S/ PAMELA DAVIES
|
Yvonne
M. Curl
|
Pamela
Davies
|
Director
|
Director
|
March
30, 2009
|
March
30, 2009
|
|
|
/S/ MICHAEL GOLDSTEIN
|
/S/ CHARLES T. HOPKINS
|
Michael
Goldstein
|
Charles
T. Hopkins
|
Director
|
Director
|
March
30, 2009
|
March
30, 2009
|
|
|
/S/ KATHERINE M. HUDSON
|
/S/ M. JEANNINE
STRANDJORD
|
Katherine
M. Hudson
|
M.
Jeannine Strandjord
|
Director
|
Director
|
March
30, 2009
|
March
30,
2009
|
2.1
|
Covenant
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31, 2001 (File No.
000-07258, Exhibit 2.3).
|
|
|
|
|
2.2
|
Master
Sublease, dated as of August 16, 2001, between Limited Brands, Inc. and
Lane Bryant, Inc., incorporated by reference to Form 8-K of the Registrant
dated August 16, 2001, filed on August 31, 2001 (File No. 000-07258,
Exhibit 2.4).
|
|
|
|
|
2.3
|
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 ended August 2, 2008 (File No. 000-07258,
Exhibit 3.1).
|
|
|
|
|
|
|
|
|
|
|
4.1
|
Amended
and Restated Rights Agreement, dated as of February 1, 2001, between
Charming Shoppes, Inc. and American Stock Transfer & Trust Company, as
Rights Agent, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 3, 2001 (File No. 000-07258, Exhibit
4.1).
|
|
|
|
|
4.2
|
Registration
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31, 2001 (File No.
000-07258, Exhibit 4.1).
|
|
|
|
|
4.3
|
Second
Amended and Restated Loan and Security Agreement, dated July 28, 2005, by
and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI
Industries, Inc., FB Apparel, Inc., Catherines Stores Corporation, Lane
Bryant, Inc., and Crosstown Traders, Inc. as borrowers; a syndicate of
banks and other financial institutions as lenders, including Wachovia
Bank, National Association as agent for the lenders; and certain of the
Company’s subsidiaries as guarantors, incorporated by reference to Form
8-K of the Registrant dated July 28, 2005, filed on August 3, 2005 (File
No. 000-07258, Exhibit 10.1).
|
|
|
4.4
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated Loan and
Security Agreement, dated July 28, 2005, by and among Charming Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc., and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 29, 2006 (File No. 000-07258,
Exhibit 99.1).
|
|
|
4.5
|
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).
|
|
|
4.6
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.5).
|
|
|
|
10.1.1
|
Second
Amended and Restated Pooling and Servicing Agreement, dated as of November
25, 1997, as amended on July 22, 1999, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and First Union
National Bank as Trustee, incorporated by reference to Form 8-K of
Charming Shoppes Master Trust and Charming Shoppes Receivables Corp.,
dated July 22, 1999 (File No. 333-71757, Exhibit No. 4.1).
|
|
|
|
|
10.1.2
|
Fourth
Amendment, dated as of August 5, 2004, to Second Amended and Restated
Pooling and Servicing Agreement, dated as of November 25, 1997, as amended
on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association (formerly known as First Union National Bank) as
Trustee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended July 31, 2004 (File No. 000-07258, Exhibit
10.4).
|
|
|
|
|
10.1.3
|
Amendment,
dated as of March 18, 2005, to Second Amended and Restated Pooling and
Servicing Agreement, dated as of November 25, 1997, as amended on July 22,
1999, May 8, 2001, and August 5, 2004, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association, as Trustee, incorporated by reference to Form 10-K
of the Registrant for the fiscal year ended January 29, 2005 (File No.
000-07258, Exhibit 10.1.3).
|
|
|
|
|
10.1.4
|
Amendment
dated as of October 17, 2007 to Second Amended and Restated Pooling and
Servicing Agreement dated as of November 25, 1997 and heretofore amended
among Charming Shoppes Receivables Corp. (“CSRC”), Spirit of America, Inc.
(“SOAI”), and U.S. Bank National Association, as Trustee (“Trustee”),
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.1).
|
|
|
|
|
10.1.5
|
Series
1999-1 Supplement, dated as of July 22, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $150,000,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-1, incorporated by reference to Form
8-K of Charming Shoppes Master Trust and Charming Shoppes Receivables
Corp., dated July 22, 1999 (File No. 333-71757, Exhibit No.
4.2).
|
|
|
|
|
10.1.6
|
Receivables
Purchase Agreement, dated as of May 28, 1999, among Charming Shoppes
Seller, Inc. as Seller, Spirit of America, Inc., as Servicer, Clipper
Receivables Corporation, as Purchaser, State Street Capital Corporation,
as Administrator, and State Street Bank & Trust Company, as
Relationship Bank, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 2, 2002 (File No. 000-07258,
Exhibit 10.1.4).
|
|
10.1.7
|
Series
1999-2 Supplement, dated as of May 28, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $55,750,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-2, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29, 2000 (File
No. 000-07258, Exhibit 10.1.23).
|
|
|
|
Letter Agreement, dated as of March 13, 2009
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.
|
|
|
10.1.9
|
Series
2000-VFC Supplement, dated as of November 9, 2000, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997,
among Charming Shoppes Receivables Corp., as Seller, Spirit of America,
Inc., as Servicer, and First Union National Bank, as Trustee, on behalf of
the Series 2000-VFC Certificateholders, for up to $60,122,700 Charming
Shoppes Master Trust Series 2000-VFC, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 3, 2001 (File
No. 000-07258, Exhibit 10.1.16).
|
|
|
10.1.10
|
Certificate
Purchase Agreement, dated as of November 9, 2000, among Charming Shoppes
Receivables Corp. as Seller and as the Class B Purchaser, Spirit of
America, Inc. as Servicer, Monte Rosa Capital Corporation as the Conduit
Purchaser, and ING Baring (U.S.) Capital Markets LLC as Administrator for
the Conduit Purchaser, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2001 (File No. 000-07258,
Exhibit 10.1.17).
|
|
|
10.1.11
|
Purchase
Agreement dated as of March 14, 2005 between Citibank USA, N.A., Spirit of
America National Bank and Catherines, Inc., incorporated by reference to
Form 8-K of the Registrant dated March 18, 2005, filed on March 22, 2005
(File No. 000-07258, Exhibit 99).
|
|
|
10.1.12
|
Credit
Card Processing Agreement, among World Financial Network National Bank,
Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated as of January
31, 1996, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 2, 2002 (File No. 000-07258, Exhibit
10.1.9).
|
|
|
10.1.13
|
Amendment
to Credit Card Processing Agreement, among World Financial Network
National Bank, Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated
as of January 28, 2005, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 2005 (File No. 000-07258,
Exhibit 10.1.12).
|
|
|
10.1.14
|
Purchase
Agreement dated as of October 31, 2007 between World Financial Network
National Bank, Spirit of America National Bank, Lane Bryant, Inc., Sierra
Nevada Factoring, Inc., and Charming Shoppes Outlet Stores, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 31,
2007, filed on November 5, 2007 (File No. 000-07258, Exhibit
99.1).
|
|
|
10.1.15
|
Purchase
and Sale Agreement, among Spirit of America National Bank, as Seller, and
Charming Shoppes Receivables Corp., as Purchaser, dated as of November 25,
1997, incorporated by reference to Form S-1/A of Charming Shoppes
Receivables Corp. (File No. 333-71757, Exhibit
10.1(a)).
|
|
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10.1.16
|
First
Amendment to Purchase and Sale Agreement, among Spirit of America National
Bank, as Seller, and Charming Shoppes Receivables Corp., as Purchaser,
dated as of July 22, 1999, incorporated by reference to Form 8-K of
Charming Shoppes Receivables Corp. (File No. 333-71757, Exhibit
10.1).
|
|
|
10.1.17
|
Series
2002-1 Supplement, dated as of November 20, 2002, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee, for $100,000,000 Charming
Shoppes Master Trust Asset-Backed Certificates Series 2002-1, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended November
2, 2002 (File No. 000-07258, Exhibit 10.1).
|
|
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10.1.18
|
Charming
Shoppes Master Trust $63,500,000 Fixed Rate Class A Asset Backed
Certificates, Series 2002-1 and $16,500,000 Fixed Rate Class B Asset
Backed Certificates, Series 2002-1 Certificate Purchase Agreement, dated
as of November 22, 2002, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002 (File No. 000-07258,
Exhibit 10.2).
|
|
|
10.1.19
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class C Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002 (File No. 000-07258,
Exhibit 10.3).
|
|
|
10.1.20
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class D Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002 (File No. 000-07258,
Exhibit 10.4).
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|
|
10.1.21
|
$14,000,000
Promissory Note, dated October 2002, between White Marsh Distribution,
LLC, as Borrower, and General Electric Capital Business Asset Funding
Corporation, as Payee and Holder, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended November 2, 2002 (File No.
000-07258, Exhibit 10.5).
|
|
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10.1.22
|
Commercial
Deed of Trust, Security Agreement, Assignment of Leases and Rents, and
Fixture Filing, made as of October 2002, among the Grantor, White Marsh
Distribution, LLC, as Borrower, in favor of James M. Smith, as Trustee,
for the benefit of the Beneficiary, General Electric Capital Business
Asset Funding Corporation, as Lender, incorporated by reference to Form
10-Q of the Registrant for the quarter ended November 2, 2002 (File No.
000-07258, Exhibit 10.6).
|
|
|
10.1.23
|
Certificate
Purchase Agreement, dated as of January 21, 2004, among Charming Shoppes
Receivables Corp., as Seller and as the Class B Purchaser, Spirit of
America, Inc., as Servicer, Sheffield Receivables Corporation, as the
Conduit Purchaser, and Barclay’s Bank PLC as Administrator for the Conduit
Purchaser, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 31, 2004 (File No. 000-07258, Exhibit
10.1.17).
|
|
|
10.1.24
|
Series
2004-VFC Supplement, dated as of January 21, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 and
amended as of July 22, 1999 and as of May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee on behalf of the Series
2004-VFC Certificateholders, for up to $132,000,000 Charming Shoppes
Master Trust Asset-Backed Certificates Series 2004-VFC, incorporated by
reference to Form 10-K of the Registrant for the fiscal year ended January
31, 2004 (File No. 000-07258, Exhibit
10.1.18).
|
10.1.25
|
Series
2004-1 Supplement, dated as of August 5, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 (as
amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among
Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as
Servicer, and Wachovia Bank, National Association, as Trustee, on behalf
of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes
Master Trust Series 2004-1, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.5).
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|
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10.1.26
|
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.,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended November 1, 2008 (File No. 000-07258, Exhibit
10.23).
|
|
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10.1.27
|
Certificate
Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes
Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and
Barclay’s Capital Inc. (as representative of the Initial Purchasers),
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended July 31, 2004 (File No. 000-07258, Exhibit 10.6).
|
|
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10.1.28
|
Certificate
Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables
Company LLC as Initial Class C Holder, incorporated by reference to Form
10-Q of the Registrant for the quarter ended July 31, 2004 (File No.
000-07258, Exhibit 10.7).
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|
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10.1.29
|
Mortgage,
Assignment of Leases and Rents and Security Agreement, dated as of October
6, 2004, between FB Distro Distribution Center, LLC, as Mortgagor, and
BankAtlantic Commercial Mortgage Capital, LLC, as Mortgagee, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended October
30, 2004 (File No. 000-07258, Exhibit 10.9).
|
|
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10.1.30
|
$13,000,000
Mortgage Note, dated October 6, 2004, between FB Distro Distribution
Center, LLC, as Maker, and BankAtlantic Commercial Mortgage Capital, LLC,
as Payee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.10).
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|
|
10.1.31
|
Guaranty,
executed as of October 6, 2004, by Charming Shoppes, Inc., as Guarantor,
for the benefit of BankAtlantic Commercial Mortgage Capital, LLC, as
Lender, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.11).
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|
|
10.1.32
|
Hazardous
Substances Indemnity Agreement, dated October 6, 2004, by FB Distro
Distribution Center, LLC and by Charming Shoppes, Inc., jointly and
severally as Indemnitors, in favor of BankAtlantic Commercial Mortgage
Capital, LLC, as Holder, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.12).
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|
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10.1.33
|
Amended
and Restated Class D Certificate Purchase Agreement, dated as of August
25, 2004, among Wachovia Bank, National Association as Trustee, Charming
Shoppes Receivables Corp. as Seller and as Initial Class D-1 Holder,
Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC,
as the Class D-1 Holder, incorporated by reference to Form 8-K of the
Registrant dated August 24, 2004, filed on August 27, 2004 (File No.
000-07258, Exhibit 99.1).
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|
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10.1.34
|
Amended
and Restated Certificate Purchase Agreement, dated as of November 22, 2004
and Amended and Restated as of November 18, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and the Class D-2
Certificateholders Described Herein, incorporated by reference to Form
10-Q of the Registrant for the quarter ended October 30, 2004 (File No.
000-07258, Exhibit 10.13).
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|
|
10.1.35
|
Series
2007-1 Supplement dated as of October 17, 2007 to the Second Amended and
Restated Pooling and Servicing Agreement dated as of November 25, 1997 and
heretofore amended among CSRC, SOAI and Trustee, incorporated by reference
to Form 8-K of the Registrant dated October 17, 2007, filed on October 22,
2007 (File No. 000-07258, Exhibit 10.2).
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|
|
10.1.36
|
Class
A, Class M, and Class B Certificate Purchase Agreement dated as of October
10, 2007 among CSRC, SOAI, Barclays Capital, Inc. and Fashion Service
Corp, incorporated by reference to Form 8-K of the Registrant dated
October 17, 2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.3).
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|
|
10.1.37
|
Class
C Purchase Agreement dated as of October 17, 2007 among CSRC, SOAI,
Trustee, Galleon Capital, LLC, and Clipper Receivables Company, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.4).
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|
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10.1.38
|
Amended
and Restated Receivables Purchase Agreement, dated as of June 2, 2005,
among Catalog Receivables LLC as Seller, Spirit of America, Inc. as
Servicer, Sheffield Receivables Corporation as Purchaser, and Barclays
Bank PLC as Administrator, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.1.31).
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|
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10.1.39
|
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).
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|
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10.1.40
|
Letter
Agreement, dated as of May 16, 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 May 3, 2008 (File No. 000-07258, Exhibit
10.11).
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|
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10.1.41
|
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
10.12).
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|
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10.1.42
|
Registration
Rights Agreement among the Company and Banc of America Securities LLC and
J.P. Morgan Securities Inc., dated as of April 30, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 30, 2007, filed on May
3, 2007 (File No. 000-07258, Exhibit 10.1).
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|
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10.1.43
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Bank of America, N.A., dated April 24, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 25, 2007, filed on May
1, 2007 (File No. 000-07258, Exhibit
10.1).
|
10.1.44
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and JPMorgan Chase Bank, National Association, dated April 24,
2007, incorporated by reference to Form 8-K of the Registrant dated April
25, 2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.2).
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|
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10.1.45
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.3).
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|
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10.1.46
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Bank of America, N.A., dated April 24, 2007, incorporated by reference
to Form 8-K of the Registrant dated April 25, 2007, filed on May 1, 2007
(File No. 000-07258, Exhibit 10.4).
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|
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10.1.47
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and JPMorgan Chase Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.5).
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|
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10.1.48
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.6).
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|
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10.1.49
|
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).
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|
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10.1.50
|
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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|
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10.1.51
|
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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|
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10.1.52
|
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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|
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10.1.53
|
Amendment
No. 1 to Stock Purchase Agreement dated as of September 18, 2008 by and
among Crosstown Traders, Inc. and Norm Thompson Outfitters, Inc.,
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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|
|
10.1.54
|
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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|
|
* Schedules
and attachments have been omitted but will be provided to the Commission
upon request.
|
10.2.1
|
The
1988 Key Employee Stock Option Plan of Charming Shoppes, Inc., as amended
and restated January 25, 2006, incorporated by reference to Form 10-K of
the Registrant for the fiscal year ended January 28, 2006 (File No.
000-07258, Exhibit 10.2.1).
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|
|
10.2.2
|
Form
of Charming Shoppes, Inc. 1988 Key Employee Stock Option Plan Key Employee
Stock Option Agreement, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.2.2).
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|
|
10.2.3
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 10.1).
|
|
|
10.2.4
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated at June 27, 2002, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 1, 2003 (File
No. 000-07258, Exhibit 10.2.6).
|
|
|
10.2.5
|
The
Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan,
Amended and Restated Effective January 1, 2005, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 3, 2007
(File No. 000-07258, Exhibit 10.2.5).
|
|
|
10.2.6
|
Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, amended and
restated effective June 21, 2007, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended August 4, 2007 (File No.
000-07258, Exhibit 10.8).
|
|
|
10.2.7
|
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).
|
|
|
10.2.8
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program Stock
Option Agreement, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended July 31, 1999 (File No. 000-07258, Exhibit
10.2).
|
|
|
10.2.9
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program
Restricted Stock Agreement, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 10.3).
|
|
|
10.2.10
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Stock Option Agreement, incorporated by reference to Form 8-K of the
Registrant dated June 23, 2005, filed on June 29, 2005 (File No.
000-07258, Exhibit 10.1).
|
|
|
10.2.11
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Restricted Share Units Agreement, incorporated by reference to Form 8-K of
the Registrant dated June 23, 2005, filed on June 29, 2005 (File No.
000-07258, Exhibit 10.2).
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|
|
10.2.12
|
The
1993 Employees’ Stock Incentive Plan of Charming Shoppes, Inc.,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 29, 1994 (File No. 000-07258, Exhibit
10.2.10).
|
|
|
10.2.13
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of February 11, 2002, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.8).
|
|
|
10.2.14
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (regular vesting schedule), incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 2, 2002 (File
No. 000-07258, Exhibit 10.2.20).
|
|
|
10.2.15
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (accelerated vesting schedule), incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.21).
|
|
|
10.2.16
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan
Performance-Accelerated Stock Option Agreement, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.22).
|
|
|
10.2.17
|
The
Charming Shoppes, Inc. Employee Stock Purchase Plan, as amended,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 3, 1996 (File No. 000-07258, Exhibit
10.2.10).
|
|
|
10.2.18
|
The
Charming Shoppes Inc. 1999 Associates’ Stock Incentive Plan, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 30, 1999 (File No. 000-07258, Exhibit 10.2.24).
|
|
|
10.2.19
|
Charming
Shoppes, Inc. 1999 Associates’ Stock Incentive Plan Stock Option
Agreement, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1999 (File No. 000-07258, Exhibit
10.2.25).
|
|
|
10.2.20
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2001 (File No. 000-07258, Exhibit
10.2.29).
|
|
|
10.2.21
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (regular vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002 (File No. 000-07258, Exhibit
10.2.23).
|
|
|
10.2.22
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (accelerated vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002 (File No. 000-07258, Exhibit
10.2.24).
|
|
|
10.2.23
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Restricted Stock Agreement, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2, 2002
(File No. 000-07258, Exhibit 10.2.25).
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2.26
|
Form
of Time-Based Stock Appreciation Rights Agreement for Executive Officers,
incorporated by reference to Form 8-K of the Registrant dated March 23,
2009, filed on March 27, 2009 (File No. 000-07258, Exhibit
10.1).
|
|
|
|
|
|
|
10.2.28
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Stock Option Agreement,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended October 30, 2004 (File No. 000-07258, Exhibit
10.15).
|
|
|
10.2.29
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement – Section 16 Officers, incorporated by reference to Form
8-K of the Registrant dated February 7, 2005, filed on February 11, 2005
(File No. 000-07258, Exhibit 99.2).
|
|
|
10.2.30
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement, incorporated by reference to Form 8-K of the Registrant
dated February 7, 2005, filed on February 11, 2005 (File No. 000-07258,
Exhibit 99.4).
|
|
|
10.2.31
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement, incorporated by reference to Form 8-K of the
Registrant dated March 15, 2006, filed on March 20, 2006 (File No.
000-07258, Exhibit 99.1).
|
|
|
10.2.32
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement – Associates Other Than Section 16 Officers, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended October 30,
2004 (File No. 000-07258, Exhibit 10.17).
|
|
|
10.2.33
|
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).
|
|
|
10.2.34
|
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).
|
|
|
10.2.35
|
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).
|
|
|
10.2.36
|
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).
|
|
|
10.2.37
|
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).
|
|
|
10.2.38
|
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).
|
|
|
10.2.39
|
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).
|
|
|
10.2.40
|
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).
|
|
|
10.2.41
|
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).
|
|
|
10.2.42
|
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).
|
|
|
10.2.43
|
Charming
Shoppes, Inc. Supplemental Retirement Plan, effective February 1, 2003,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended May 3, 2003 (File No. 000-07258, Exhibit 10.1).
|
|
|
10.2.44
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes, Inc. Supplemental
Retirement Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2007 (File No. 000-07258, Exhibit
10.2.29).
|
|
|
10.2.45
|
Amendment
2008-1 to Charming Shoppes, Inc. Supplemental Executive Retirement Plan,
incorporated by reference to Form 8-K of the Registrant dated December 17,
2008, filed on December 19, 2008 (File No. 000-07258, Exhibit
99.1).
|
|
|
10.2.46
|
2003
Incentive Compensation Plan, incorporated by reference to Appendix A of
the Registrant’s Proxy Statement Pursuant to Section 14 of the Securities
Exchange Act of 1934, filed on May 23, 2008 (File No.
000-07258).
|
|
|
10.2.47
|
Form
of Charming Shoppes, Inc. 2003 Incentive Compensation Plan Inducement
Grant Stock Appreciation Rights Agreement, incorporated by reference to
Form 10-Q of the Registrant for the quarter ended November 1, 2008 (File
No. 000-07258, Exhibit 10.24).
|
|
|
10.2.48
|
Charming
Shoppes Variable Deferred Compensation Plan For Executives, Amended and
Restated Effective January 1, 2005, incorporated by reference to Form 8-K
of the Registrant dated December 13, 2005, filed December 16, 2005 (File
No. 000-07258, Exhibit 99.1).
|
|
|
10.2.49
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes Variable Deferred
Compensation Plan for Executives and the Charming Shoppes Non-Employee
Director Compensation Plan, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2007 (File No. 000-07258,
Exhibit 10.2.32).
|
|
|
10.2.50
|
Form
of Bonus Agreement by and between Charming Shoppes, Inc. and the Executive
Officer named in the Agreement, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.14).
|
|
|
10.2.51
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 19,
2005, incorporated by reference to Form 8-K of the Registrant dated
January 19, 2005, filed January 25, 2005 (File No. 000-07258, Exhibit
99.1).
|
|
|
10.2.52
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated February 2,
2006, incorporated by reference to Form 8-K of the Registrant dated
February 2, 2006, filed February 8, 2006 (File No. 000-07258, Exhibit
99.1).
|
|
|
10.2.53
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 24,
2007, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 3, 2007 (File No. 000-07258, Exhibit
10.2.36).
|
|
|
10.2.54
|
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).
|
|
|
10.2.55
|
Employment
Agreement, dated as of January 1, 2005, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated January 3, 2005, filed on January 4, 2005 (File No.
000-07258, Exhibit 99.1)
|
|
|
10.2.56
|
Employment
Agreement, dated as of December 31, 2007, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated December 31, 2007, filed on January 2, 2008 (File No.
000-07258, Exhibit 99.1)
|
|
|
10.2.57
|
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
10.16).
|
|
|
10.2.58
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc.
and Dorrit J. Bern, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.8).
|
|
|
10.2.59
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement, dated as of January 3, 2005, between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 29, 2005 (File No. 000-07258, Exhibit
10.2.37).
|
|
|
10.2.60
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005 (File No. 000-07258, Exhibit
99.1)
|
|
|
10.2.61
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005 (File No. 000-07258, Exhibit
99.3)
|
|
|
10.2.62
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006 (File No. 000-07258, Exhibit
99.2)
|
|
|
10.2.63
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006 (File No. 000-07258, Exhibit
99.3)
|
|
|
10.2.64
|
Forms
of Executive Severance Agreements by and between Charming Shoppes, Inc.,
the named executive officers in the company’s Proxy Statement for the
Annual Meeting held on June 15, 2000, and certain other executive officers
and officers of Charming Shoppes, Inc. and its subsidiaries, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 29, 2000 (File No. 000-07258, Exhibit 10.2.33).
|
|
|
10.2.65
|
Forms
of First Amendment, dated as of February 6, 2003, to Forms of Executive
Severance Agreements, dated July 15, 1999, by and between Charming
Shoppes, Inc., and the executive officers and officers named in the
Agreements, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 1, 2003 (File No. 000-07258, Exhibit
10.2.30).
|
|
|
10.2.66
|
Form
of Second Amendment to Form of Executive Severance Agreement, dated July
15, 1999, as amended by First Amendment, dated as of February 6, 2003, by
and between Charming Shoppes, Inc. and the executive officers and officers
named in the agreements, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 2, 2008 (File No. 000-07258,
Exhibit 10.2.48).
|
|
|
10.2.67
|
Form
of Executive Severance Agreement, dated February 6, 2003, by and between
Charming Shoppes, Inc. and certain executive officers and officers of
Charming Shoppes, Inc. and its subsidiaries, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 1, 2003
(File No. 000-07258, Exhibit 10.2.31).
|
|
|
10.2.68
|
Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain executive vice presidents named in the
agreements, incorporated by reference to Form 8-K of the Registrant dated
February 1, 2008, Filed on February 5, 2008 (File No. 000-07258, Exhibit
10.1).
|
|
|
10.2.69
|
Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain senior vice presidents named in the agreements,
incorporated by reference to Form 8-K of the Registrant dated February 1,
2008, Filed on February 5, 2008 (File No. 000-07258, Exhibit
10.2).
|
|
|
10.2.70
|
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
VALUATION
AND QUALIFYING ACCOUNTS AND RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Additions
|
|
|
Adjustments
|
|
|
Balance
at
|
|
|
|
Beginning
|
|
|
Charged
to
|
|
|
And
|
|
|
End
of
|
|
(In
thousands)
|
|
Of Year
|
|
|
Income
|
|
|
Deductions
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for sales
returns
|
|
$ |
2,162 |
|
|
$ |
98,692 |
|
|
$ |
98,817 |
|
|
$ |
2,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for sales
returns
|
|
|
2,655 |
|
|
|
107,547 |
|
|
|
108,040 |
|
|
|
2,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for sales
returns
|
|
|
3,608 |
|
|
|
125,448 |
|
|
|
126,401 |
|
|
|
2,655 |
|