form10qoct312009.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended October 31,
2009
Or
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ______________ to _______________
Commission
File No. 000-07258
CHARMING SHOPPES,
INC.
(Exact
name of registrant as specified in its charter)
|
PENNSYLVANIA
|
|
23-1721355
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
3750 STATE ROAD, BENSALEM, PA
19020
|
|
(215) 245-9100
|
|
|
(Address
of principal executive offices) (Zip Code)
|
|
(Registrant’s
telephone number, including Area Code)
|
|
NOT
APPLICABLE
(Former
name, former address, and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files):
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-accelerated
Filer o
|
Smaller
Reporting Company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
Yes o No x
The
number of shares outstanding of the issuer’s Common Stock (par value $.10 per
share) as of November 30, 2009 was 115,585,753 shares.
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
PART
I.
|
|
2
|
|
|
|
Item
1.
|
|
2
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
2
|
|
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive
Income
|
|
|
|
3
|
|
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
5
|
|
|
|
|
|
7
|
|
|
|
Item
2.
|
|
34
|
|
|
|
|
|
34
|
|
|
|
|
|
38
|
|
|
|
|
|
38
|
|
|
|
|
|
39
|
|
|
|
|
|
42
|
|
|
|
|
|
56
|
|
|
|
|
|
58
|
|
|
|
|
|
61
|
|
|
|
|
|
62
|
|
|
|
Item
3.
|
|
62
|
|
|
|
Item
4.
|
|
62
|
|
|
|
PART
II.
|
|
63
|
|
|
|
Item
1.
|
|
63
|
|
|
|
Item
1A.
|
|
63
|
|
|
|
Item
2.
|
|
65
|
|
|
|
Item
6.
|
|
66
|
|
|
|
|
|
69
|
|
|
|
|
|
70
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
October
31,
|
|
|
January
31,
|
|
(In
thousands, except share amounts)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
223,944 |
|
|
$ |
93,759 |
|
Available-for-sale
securities
|
|
|
400 |
|
|
|
6,398 |
|
Accounts
receivable, net of allowances of $2,017 and $6,018
|
|
|
4,100 |
|
|
|
33,300 |
|
Investment
in asset-backed securities
|
|
|
0 |
|
|
|
94,453 |
|
Merchandise
inventories
|
|
|
334,462 |
|
|
|
268,142 |
|
Deferred
taxes
|
|
|
3,439 |
|
|
|
3,439 |
|
Prepayments
and other
|
|
|
131,166 |
|
|
|
155,430 |
|
Total
current
assets
|
|
|
697,511 |
|
|
|
654,921 |
|
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold improvements – at cost
|
|
|
1,067,100 |
|
|
|
1,076,972 |
|
Less
accumulated depreciation and amortization
|
|
|
734,768 |
|
|
|
693,796 |
|
Net
property, equipment, and leasehold improvements
|
|
|
332,332 |
|
|
|
383,176 |
|
|
|
|
|
|
|
|
|
|
Trademarks
and other intangible assets
|
|
|
187,132 |
|
|
|
187,365 |
|
Goodwill
|
|
|
23,436 |
|
|
|
23,436 |
|
Other
assets
|
|
|
25,497 |
|
|
|
28,243 |
|
Total
assets
|
|
$ |
1,265,908 |
|
|
$ |
1,277,141 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
163,142 |
|
|
$ |
99,520 |
|
Accrued
expenses
|
|
|
184,344 |
|
|
|
166,631 |
|
Current
portion – long-term debt
|
|
|
6,470 |
|
|
|
6,746 |
|
Total
current
liabilities
|
|
|
353,956 |
|
|
|
272,897 |
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
48,730 |
|
|
|
46,197 |
|
Other
non-current liabilities
|
|
|
188,979 |
|
|
|
188,470 |
|
Long-term
debt, net of debt discount of $47,962 and $72,913
|
|
|
183,630 |
|
|
|
232,722 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Common
Stock $.10 par value:
|
|
|
|
|
|
|
|
|
Authorized
– 300,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
– 154,098,888 shares and 153,482,368 shares
|
|
|
15,410 |
|
|
|
15,348 |
|
Additional
paid-in capital
|
|
|
502,339 |
|
|
|
498,551 |
|
Treasury
stock at cost – 38,514,410 shares and 38,482,213 shares
|
|
|
(347,877 |
) |
|
|
(347,730 |
) |
Accumulated
other comprehensive income
|
|
|
0 |
|
|
|
5 |
|
Retained
earnings
|
|
|
320,741 |
|
|
|
370,681 |
|
Total
stockholders’
equity
|
|
|
490,613 |
|
|
|
536,855 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
1,265,908 |
|
|
$ |
1,277,141 |
|
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirteen Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
(In
thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
460,237 |
|
|
$ |
553,066 |
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
223,421 |
|
|
|
299,196 |
|
Gross
profit
|
|
|
236,816 |
|
|
|
253,870 |
|
|
|
|
|
|
|
|
|
|
Occupancy
and buying expenses
|
|
|
95,020 |
|
|
|
106,552 |
|
Selling,
general, and administrative expenses
|
|
|
135,479 |
|
|
|
166,338 |
|
Depreciation
and amortization
|
|
|
18,260 |
|
|
|
23,131 |
|
Sale
of proprietary credit card receivables programs
|
|
|
13,379 |
|
|
|
0 |
|
Impairment
of store assets
|
|
|
0 |
|
|
|
20,216 |
|
Restructuring
and other charges
|
|
|
14,746 |
|
|
|
6,391 |
|
Total
operating expenses
|
|
|
276,884 |
|
|
|
322,628 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(40,068 |
) |
|
|
(68,758 |
) |
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
198 |
|
|
|
1,876 |
|
Gain
on repurchases of 1.125% Senior Convertible Notes
|
|
|
1,264 |
|
|
|
0 |
|
Interest
expense
|
|
|
(4,822 |
) |
|
|
(4,862 |
) |
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(43,428 |
) |
|
|
(71,744 |
) |
Income
tax provision/(benefit)
|
|
|
4,934 |
|
|
|
(11,858 |
) |
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(48,362 |
) |
|
|
(59,886 |
) |
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income tax benefit
|
|
|
|
|
|
|
|
|
of $12,698 in
2008
|
|
|
0 |
|
|
|
(23,875 |
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(48,362 |
) |
|
$ |
(83,761 |
) |
|
|
|
|
|
|
|
|
|
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.42 |
) |
|
$ |
(0.52 |
) |
Loss
from discontinued operations
|
|
|
0.00 |
|
|
|
(0.21 |
) |
Net
loss
|
|
$ |
(0.42 |
) |
|
$ |
(0.73 |
) |
|
|
|
|
|
|
|
|
|
Diluted
net loss per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.42 |
) |
|
$ |
(0.52 |
) |
Loss
from discontinued operations
|
|
|
0.00 |
|
|
|
(0.21 |
) |
Net
loss
|
|
$ |
(0.42 |
) |
|
$ |
(0.73 |
) |
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
(In
thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,525,590 |
|
|
$ |
1,843,028 |
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
737,340 |
|
|
|
959,409 |
|
Gross
profit
|
|
|
788,250 |
|
|
|
883,619 |
|
|
|
|
|
|
|
|
|
|
Occupancy
and buying expenses
|
|
|
297,660 |
|
|
|
318,900 |
|
Selling,
general, and administrative expenses
|
|
|
427,260 |
|
|
|
517,119 |
|
Depreciation
and amortization
|
|
|
57,534 |
|
|
|
72,630 |
|
Sale
of proprietary credit card receivables programs
|
|
|
13,379 |
|
|
|
0 |
|
Impairment
of store assets
|
|
|
0 |
|
|
|
20,216 |
|
Restructuring
and other charges
|
|
|
31,219 |
|
|
|
24,947 |
|
Total
operating expenses
|
|
|
827,052 |
|
|
|
953,812 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(38,802 |
) |
|
|
(70,193 |
) |
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
679 |
|
|
|
3,183 |
|
Gain
on repurchases of 1.125% Senior Convertible Notes
|
|
|
12,828 |
|
|
|
0 |
|
Interest
expense
|
|
|
(14,327 |
) |
|
|
(14,665 |
) |
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(39,622 |
) |
|
|
(81,675 |
) |
Income
tax provision/(benefit)
|
|
|
10,318 |
|
|
|
(15,317 |
) |
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(49,940 |
) |
|
|
(66,358 |
) |
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
0 |
|
|
|
(74,922 |
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(49,940 |
) |
|
|
(141,280 |
) |
|
|
|
|
|
|
|
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
Unrealized
losses on available-for-sale securities, net of income tax
|
|
|
|
|
|
|
|
|
benefit of $12 in
2008
|
|
|
(5 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$ |
(49,945 |
) |
|
$ |
(141,304 |
) |
|
|
|
|
|
|
|
|
|
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.43 |
) |
|
$ |
(0.58 |
) |
Loss
from discontinued operations
|
|
|
0.00 |
|
|
|
(0.65 |
) |
Net
loss
|
|
$ |
(0.43 |
) |
|
$ |
(1.23 |
) |
|
|
|
|
|
|
|
|
|
Diluted
net loss per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.43 |
) |
|
$ |
(0.58 |
) |
Loss
from discontinued operations
|
|
|
0.00 |
|
|
|
(0.65 |
) |
Net
loss
|
|
$ |
(0.43 |
) |
|
$ |
(1.23 |
) |
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(49,940 |
) |
|
$ |
(141,280 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
58,908 |
|
|
|
73,498 |
|
Stock-based
compensation
|
|
|
4,301 |
|
|
|
4,708 |
|
Sale
of proprietary credit card receivables
programs
|
|
|
13,379 |
|
|
|
0 |
|
Net
loss/(gain) from disposition of capital
assets
|
|
|
182 |
|
|
|
(722 |
) |
Net
loss/(gain) from securitization
activities
|
|
|
(2,465 |
) |
|
|
531 |
|
Accretion
of discount on 1.125% Senior Convertible
Notes
|
|
|
7,786 |
|
|
|
8,199 |
|
Loss
on disposition of discontinued
operations
|
|
|
0 |
|
|
|
46,736 |
|
Impairment
of store
assets
|
|
|
0 |
|
|
|
20,216 |
|
Deferred
income
taxes
|
|
|
2,536 |
|
|
|
11,025 |
|
Gain
on repurchases of 1.125% Senior Convertible
Notes
|
|
|
(12,828 |
) |
|
|
0 |
|
Write-down
of deferred taxes related to stock-based compensation
|
|
|
0 |
|
|
|
(1,352 |
) |
Write-down
of capital
assets
|
|
|
8,935 |
|
|
|
2,456 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable,
net
|
|
|
29,200 |
|
|
|
29,058 |
|
Merchandise
inventories
|
|
|
(66,320 |
) |
|
|
(65,430 |
) |
Accounts
payable
|
|
|
63,622 |
|
|
|
51,768 |
|
Prepayments
and
other
|
|
|
(13,369 |
) |
|
|
(11,322 |
) |
Accrued
expenses and other
|
|
|
5,395 |
|
|
|
(8,971 |
) |
Proceeds
from sale of retained interests in proprietary credit card
receivables
|
|
|
85,050 |
|
|
|
0 |
|
Net
cash provided by operating activities
|
|
|
134,372 |
|
|
|
19,118 |
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Investment
in capital assets
|
|
|
(16,313 |
) |
|
|
(49,498 |
) |
Proceeds
from sale of certificates related to proprietary credit card
receivables
|
|
|
51,250 |
|
|
|
0 |
|
Proceeds
from sales of capital assets
|
|
|
1,719 |
|
|
|
4,813 |
|
Net
proceeds from sale of discontinued operations
|
|
|
0 |
|
|
|
34,440 |
|
Gross
purchases of securities
|
|
|
(2,448 |
) |
|
|
(3,935 |
) |
Proceeds
from sales of securities
|
|
|
8,588 |
|
|
|
11,651 |
|
Decrease
in other assets
|
|
|
4,357 |
|
|
|
6,635 |
|
Net
cash provided by investing activities
|
|
|
47,153 |
|
|
|
4,106 |
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from long-term borrowings
|
|
|
0 |
|
|
|
108 |
|
Repayments
of long-term borrowings
|
|
|
(5,076 |
) |
|
|
(6,813 |
) |
Repurchases
of 1.125% Senior Convertible Notes
|
|
|
(39,323 |
) |
|
|
0 |
|
Net
payments for settlements of hedges on convertible notes
|
|
|
(31 |
) |
|
|
0 |
|
Payments
of deferred financing costs
|
|
|
(7,308 |
) |
|
|
(47 |
) |
Purchases
of treasury stock
|
|
|
0 |
|
|
|
(10,969 |
) |
Net
proceeds from shares issued under employee stock plans
|
|
|
398 |
|
|
|
484 |
|
Net
cash used by financing activities
|
|
|
(51,340 |
) |
|
|
(17,237 |
) |
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
130,185 |
|
|
|
5,987 |
|
Cash
and cash equivalents, beginning of period
|
|
|
93,759 |
|
|
|
61,842 |
|
Cash
and cash equivalents, end of period
|
|
$ |
223,944 |
|
|
$ |
67,829 |
|
|
|
|
|
|
|
|
|
|
(Continued
on next page)
|
|
|
|
|
|
|
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing activities
|
|
|
|
|
|
|
Assets
acquired through capital leases
|
|
$ |
0 |
|
|
$ |
5,959 |
|
|
|
See
Notes to Condensed Consolidated Financial Statements
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
accompanying interim unaudited condensed consolidated financial statements have
been prepared in accordance with the rules and regulations of the United States
Securities and Exchange Commission (“SEC”). In our opinion, we have
made all adjustments (which, except as otherwise disclosed in these notes,
include only normal recurring adjustments) necessary to present fairly our
financial position, results of operations and comprehensive income, and cash
flows. Certain prior-year amounts in the condensed consolidated
statements of cash flows have been reclassified to conform to the current-year
presentation. We have condensed or omitted certain information and
footnote disclosures normally included in financial statements prepared in
accordance with United States generally accepted accounting
principles. These financial statements and related notes should be
read in conjunction with our financial statements and related notes included in
Exhibit 99.1 of our Form 8-K dated June 19, 2009, which retrospectively revised
the financial statements and related notes included in our January 31, 2009
Annual Report on Form 10-K as a result of our adoption of certain provisions of
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Subtopic 470-20, “Debt With Conversion and Other Options” (formerly FASB
Staff Position APB 14-1 “Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash Settlements)”) in
accordance with the transition provisions of ASC 470-20-65-1 (see “Change in
Accounting Principle” and “Note 4. Long-term Debt”
below). The results of operations for the thirteen and thirty-nine
weeks ended October 31, 2009 and November 1, 2008 are not necessarily indicative
of operating results for the full fiscal year.
In June
2009 the FASB established the ASC as the official single source of authoritative
accounting principles to be applied by non-governmental entities in the
preparation of financial statements in conformity with generally accepted
accounting principles (“GAAP”) in the United States (see “Note 16. Recent Accounting
Pronouncements” below). Information in the FASB ASC is
organized numerically in descending order by topic, subtopic, section, and
subsection. References to the ASC shown in these footnotes are
abbreviated as “ASC” followed by the specific topic, subtopic, section, or
subsection where the relevant literature is contained.
As used
in these notes, the term “Fiscal 2009” refers to our fiscal year ending January
30, 2010, the term “Fiscal 2008” refers to our fiscal year ended January 31,
2009, and the term “Fiscal 2007” refers to our fiscal year ended February 2,
2008. The term “Fiscal 2009 Third Quarter” refers to our fiscal
quarter ended October 31, 2009 and the term “Fiscal 2008 Third Quarter” refers
to our fiscal quarter ended November 1, 2008. The term “Fiscal 2009
Second Quarter” refers to our fiscal quarter ended August 1, 2009 and the term
“Fiscal 2008 Second Quarter” refers to our fiscal quarter ended August 2,
2008. The term “Fiscal 2008 First Quarter” refers to our fiscal
quarter ended May 3, 2008. The term “Fiscal 2010” refers to our
fiscal year ending January 29, 2011 and the term “Fiscal 2010 First Quarter”
refers to our fiscal quarter ending May 1, 2010. The terms “the
Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc. and, where
applicable, our consolidated subsidiaries.
Reclassifications
Effective
with the Fiscal 2009 Second Quarter we modified the presentation of our
condensed consolidated statements of operations and comprehensive income to
provide additional details of our operating expenses. The
modifications consist primarily of separate disclosure of cost of goods sold and
occupancy and buying expenses, and the reclassification of depreciation and
amortization from occupancy, buying, selling, general, and administrative
expenses to a separate line within operating expenses. A table
presenting our cost of goods sold, gross profit, and operating expenses by
quarter for Fiscal 2008 prepared on a consistent basis with the current-year
presentation is included in “Note 1. Condensed Consolidated
Financial Statements” of our Report on Form 10-Q for the quarterly period
ended August 1, 2009.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Change
in Accounting Principle
The
accompanying condensed consolidated balance sheet as of January 31, 2009 and the
condensed consolidated statements of operations and comprehensive income for the
thirteen and thirty-nine weeks ended November 1, 2008 have been adjusted to
reflect the retrospective adoption as of February 1, 2009, in accordance with
the transition provisions of ASC 470-20-65-1, of certain provisions of ASC
470-20, “Debt With Conversion and Other Options,” related to certain debt
instruments that may be settled in cash upon conversion. Our 1.125%
Senior Convertible Notes due May 2014 (the “1.125% Notes”) are within the scope
of these provisions (see “Note
4. Long-term Debt” below for further information).
In
connection with our adoption of these provisions we identified an error related
to the accounting for deferred taxes for a purchased call option that we entered
into contemporaneously with the issuance of our 1.125% Notes in Fiscal
2007. Concurrent with the issuance of the Notes we entered into a
series of hedge transactions, which included the purchase of a call option with
a cost of approximately $90,500,000. The cost of the call option was
accounted for as an equity transaction in our financial
statements. For income tax purposes the cost of the call option is
treated as original issue discount (“OID”) and amortized over the life of the
1.125% Notes. We were recording the resulting tax benefit in our
financial statements as an increase to additional paid-in capital as the tax
benefit was reported in our annual income tax returns. However, the
treatment of the call option as OID for income tax purposes created a book-tax
basis difference on the issuance date of the debt for which a deferred tax asset
of approximately $33,000,000 should have been recognized, with a corresponding
increase to additional paid-in capital.
During
Fiscal 2008, based on our evaluation of the realization of deferred tax assets
and negative evidence provided by recent losses, we recognized a non-cash income
tax provision to establish a full valuation allowance against our net deferred
tax assets. Accordingly, the understatement of deferred tax assets
resulted in an understatement of the valuation allowance for deferred tax assets
and the income tax provision in Fiscal 2008 of approximately
$30,000,000.
In
evaluating these errors we considered the requirements in ASC 250, “Accounting
Changes and Error Corrections,” SEC Staff Accounting
Bulletin No. 99 (ASC 250-10-S99-1), “Materiality,” and ASC 270, “Interim
Reporting.” We
considered both the quantitative and qualitative factors in evaluating the
materiality of the errors and concluded that the errors are not material to the
Fiscal 2007 and Fiscal 2008 financial statements. Accordingly, we
have not restated our previously issued financial statements to correct these
errors. However, the correction of these errors has been considered
when adjusting the historical financial statements and related notes that are
included in Exhibit 99.1 of our Form 8-K dated June 19, 2009 for the
retrospective application of ASC 470-20. The financial statements and
related footnotes included in the Form 8-K dated June 19, 2009 revise the
financial statements included in our Form 10-K for the fiscal year ended January
31, 2009.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
In
accordance with ASC 470-20-25 and ASC 470-20-30, the 1.125% Notes are separated
into their debt and equity components. The carrying amount of the
liability component is determined by measuring the fair value of a similar
liability that does not have an associated equity component. The
carrying amount of the equity component represented by the embedded conversion
option is then determined by deducting the fair value of the liability component
from the initial proceeds ascribed to the convertible debt instrument as a
whole. Upon measuring the liability in accordance with ASC
470-20-30, we determined that the tax basis and book basis of the debt are
substantially the same; therefore the effects of the aforementioned financial
statement errors in Fiscal 2007 and Fiscal 2008 related to deferred income taxes
and income tax expense were substantially offset by the effects of adopting ASC
470-20.
Discontinued
Operations
On April
25, 2008 we announced that our Board of Directors began exploring a broad range
of operating and strategic alternatives for our non-core misses apparel catalog
titles (collectively, “Crosstown Traders”) in order to provide a greater focus
on our core brands and to enhance shareholder value. Crosstown
Traders met the requirements to be accounted for as held for
sale. Accordingly, the results of operations of Crosstown Traders
were reported as discontinued operations in our consolidated statements of
operations as of the beginning of the Fiscal 2008 First Quarter. In
August 2008 we entered into a definitive agreement to sell the Crosstown Traders
non-core misses apparel catalogs and the sale was completed in September
2008. Crosstown Traders’ operations have been eliminated from our
financial statements as of the date of sale.
In August
2008 we announced our plans to explore the sale of our FIGI’S® Gifts
in Good Taste catalog business based in Wisconsin, stating at that time that we
would only enter into a transaction at an acceptable valuation. The
results of operations of FIGI’S were not reported as discontinued operations as
they had not met the requirements to be accounted for as held for
sale. In July 2009 we announced the discontinuation of the
exploration of the sale of FIGI’S.
Results
from discontinued operations for the thirteen and thirty-nine weeks ended
November 1, 2008 (as restated) were as follows:
|
|
Thirteen
|
|
|
Thirty-nine
|
|
|
|
Weeks
Ended
|
|
|
Weeks
Ended
|
|
|
|
November
1,
|
|
|
November
1,
|
|
(In
thousands)
|
|
2008(1)
|
|
|
2008(1)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
34,563 |
|
|
$ |
155,811 |
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
$ |
(11,177 |
)(2) |
|
$ |
(74,922 |
)(2) |
Income
tax benefit
|
|
|
(12,698 |
)(3) |
|
|
0 |
|
Loss
from discontinued operations, net of income tax benefit
|
|
$ |
(23,875 |
) |
|
$ |
(74,922 |
) |
____________________
|
|
(1)
Through September 18, 2008 (the date of sale).
|
|
(2)
Includes $7,209,000 of losses from operations and an increase of
$3,968,000 in the loss on disposition for the thirteen weeks ended
November 1, 2008, and $28,186,000 of losses from operations and a
$46,736,000 loss on disposition for the thirty-nine weeks ended November
1, 2008.
|
|
(3)
Reversal of previously recognized tax benefit as a result of our
recognition of a valuation allowance against net deferred tax
assets.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
During
the Fiscal 2008 Third Quarter we announced the closing of our LANE
BRYANT WOMAN®
catalog, which was completed during the Fiscal 2009 Second
Quarter. The customers served by this catalog sales channel will
continue to be served by our other LANE BRYANT® sales
channels; therefore, the closing of the LANE BRYANT WOMAN catalog operations did
not meet the requirements for being reported as a discontinued
operation.
On August
13, 2009 we announced an agreement for the sale of our proprietary credit card
receivables programs to World Financial Network National Bank, a subsidiary of
Alliance Data Systems Corporation (“Alliance Data”). We also entered
into ten-year operating agreements with Alliance Data for the provision of
private-label credit card programs for our customers (see “Note 9. Sale of Proprietary Credit
Card Receivables Programs” below). Due to our significant
continuing involvement and retained cash flows as a result of the ten-year
operating agreements with Alliance Data, the sale of the proprietary credit card
receivables programs did not meet the requirements for being reported as a
discontinued operation.
The
financial information for the Fiscal 2008 periods included in these Notes to
Condensed Consolidated Financial Statements reflects only the results of our
continuing operations.
Segment
Reporting
We
operate and report in two segments: Retail Stores and
Direct-to-Consumer. We determine our operating segments based on the
way our chief operating decision-makers review our results of
operations. Additional information regarding our segment reporting is
included in “Note 11. Segment
Reporting” below. We also include sales and operating profit
by brand in our Management’s Discussion and Analysis of Results of Operations in
order to provide additional information for our Retail Stores
segment.
Stock-based
Compensation
We have
various stock-based compensation plans under which we are currently granting
awards, which are more fully described in “Item 8. Financial
Statements and Supplementary Data; Note 11. Stock-Based Compensation
Plans” of Exhibit 99.1 to our Form 8-K dated June 19, 2009.
Shares
available for future grants under our stock-based compensation plans as of
October 31, 2009 were as follows:
2004
Stock Award and Incentive Plan
|
|
|
2,321,480 |
|
2003
Non-Employee Directors Compensation Plan
|
|
|
161,897 |
|
1994
Employee Stock Purchase Plan
|
|
|
578,070 |
|
1988
Key Employee Stock Option Plan
|
|
|
122,105 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Current
grants of stock-based compensation consist primarily of stock appreciation
rights. Stock option and stock appreciation rights activity for the
thirty-nine weeks ended October 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Intrinsic
|
|
|
|
Option
|
|
|
Option
|
|
|
Option
Prices
|
|
|
Value(1)
|
|
|
|
Shares
|
|
|
Price
|
|
|
Per Share
|
|
|
(000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 31, 2009
|
|
|
3,292,385 |
|
|
$ |
5.09 |
|
|
$ |
1.00 |
|
|
|
– |
|
|
$ |
13.84 |
|
|
$ |
0 |
|
Granted
– exercise price
equal to market price
|
|
|
4,771,540 |
|
|
|
1.74 |
|
|
|
0.99 |
|
|
|
– |
|
|
|
5.72 |
|
|
|
|
|
Canceled/forfeited
|
|
|
(513,894 |
) |
|
|
4.96 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
11.28 |
|
|
|
|
|
Exercised
|
|
|
(7,260 |
) |
|
|
1.00 |
|
|
|
1.00 |
|
|
|
– |
|
|
|
1.00 |
|
|
|
23 |
(2) |
Outstanding
at October 31, 2009
|
|
|
7,542,771 |
|
|
$ |
2.99 |
|
|
$ |
0.99 |
|
|
|
– |
|
|
$ |
13.84 |
|
|
$ |
11,653 |
|
Exercisable
at October 31, 2009
|
|
|
1,516,235 |
|
|
$ |
5.82 |
|
|
$ |
1.00 |
|
|
|
– |
|
|
$ |
13.84 |
|
|
$ |
0 |
|
____________________
|
|
(1)
Aggregate market value less aggregate exercise price.
|
|
(2)
As of date of exercise.
|
|
Total
stock-based compensation expense was as follows:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
|
October
31,
|
|
|
November
1,
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
$ |
1,327 |
|
|
$ |
(306 |
)(1) |
|
$ |
4,301 |
|
|
$ |
4,708 |
(1) |
____________________
|
|
(1)
Includes $955 reversal of previously recognized stock-based compensation
related to performance-based awards.
|
|
During
the Fiscal 2009 Second Quarter and the Fiscal 2008 Second Quarter we granted
cash-settled restricted stock units (“RSUs”) under our 2003 Non-Employee
Directors Compensation Plan. These cash-settled RSUs have been
accounted for as liabilities in accordance with ASC 718-10-25-11, “Compensation
– Stock Compensation; Recognition.” Compensation expense related to
cash-settled RSUs is recognized over a one-year period from the date of grant
and included in “Accrued expenses” in our consolidated balance
sheets. Compensation expense of $199,000 for the thirteen weeks and
$761,000 for the thirty-nine weeks ended October 31, 2009 related to these
cash-settled RSUs has been excluded from the above table. In
addition, a decrease in compensation expense of $214,000 for the thirteen weeks
and an increase in compensation expense of $267,000 for the thirty-nine weeks
ended November 1, 2008 have been excluded from the above table. The
$214,000 decrease in compensation expense is a result of a reduction in the
market value of our common stock during the Fiscal 2008 Third
Quarter. Total compensation expense for unvested cash-settled RSUs
not yet recognized as of October 31, 2009 was $426,000.
We use
the Black-Scholes valuation model to estimate the fair value of stock options
and stock appreciation rights. We amortize stock-based compensation
on a straight-line basis over the requisite service period of an award except
for awards that include a market condition, which are amortized on a graded
vesting basis over their derived service period. Estimates and
assumptions we use under the Black-Scholes model are more fully described in
“Item 8. Financial Statements
and Supplementary Data; Note 1. Summary of Significant Accounting Policies;
Stock-based
Compensation” of
Exhibit 99.1 to our Form 8-K dated June 19, 2009.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Total
stock-based compensation expense not yet recognized, related to the non-vested
portion of stock options, stock appreciation rights, and awards outstanding, was
$10,490,000 as of October 31, 2009. The weighted-average period over
which we expect to recognize this compensation expense is approximately 3
years.
Note
2. Accounts Receivable
Accounts
receivable consist of trade receivables from sales through our FIGI’S
catalog. Details of our accounts receivable are as
follows:
|
|
October
31,
|
|
|
January
31,
|
|
(In
thousands)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
Due
from customers
|
|
$ |
6,117 |
|
|
$ |
39,318 |
|
Allowance
for doubtful accounts
|
|
|
(2,017 |
) |
|
|
(6,018 |
) |
Net
accounts receivable
|
|
$ |
4,100 |
|
|
$ |
33,300 |
|
Note
3. Trademarks and Other Intangible Assets
|
|
October
31,
|
|
|
January
31,
|
|
(In
thousands)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
Trademarks,
tradenames, and internet domain names
|
|
$ |
187,132 |
|
|
$ |
187,132 |
|
Customer
relationships, net
|
|
|
0 |
|
|
|
233 |
|
Net
trademarks and other intangible assets
|
|
$ |
187,132 |
|
|
$ |
187,365 |
|
Note
4. Long-term Debt
|
|
October
31,
|
|
|
January
31,
|
|
(In
thousands)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
|
|
|
1.125%
Senior Convertible Notes, due May 2014
|
|
$ |
205,757 |
|
|
$ |
275,000 |
|
Capital
lease obligations
|
|
|
11,192 |
|
|
|
14,041 |
|
6.07%
mortgage note, due October 2014
|
|
|
9,954 |
|
|
|
10,419 |
|
6.53%
mortgage note, due November 2012
|
|
|
4,200 |
|
|
|
5,250 |
|
7.77%
mortgage note, due December 2011
|
|
|
6,729 |
|
|
|
7,249 |
|
Other
long-term debt
|
|
|
230 |
|
|
|
422 |
|
Total
long-term debt principal
|
|
|
238,062 |
|
|
|
312,381 |
|
Less
unamortized discount on 1.125% Senior Convertible Notes
|
|
|
(47,962 |
) |
|
|
(72,913 |
) |
Long-term
debt – carrying value
|
|
|
190,100 |
|
|
|
239,468 |
|
Current
portion
|
|
|
(6,470 |
) |
|
|
(6,746 |
) |
Net
long-term debt
|
|
$ |
183,630 |
|
|
$ |
232,722 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
4. Long-term Debt (Continued)
ASC
470-20, “Debt With Conversion and Other Options,” specifies, among other things,
the accounting treatment for convertible securities that an issuer may settle
fully or partially in cash. In accordance with ASC 470-20-65-1, we
adopted the provisions of ASC 470-20 as of January 31, 2009 for our 1.125%
Senior Convertible Notes due May 2014 (the “1.125% Notes”), which were issued in
Fiscal 2007, and applied the provisions retrospectively to all past periods
presented. Additional details regarding the 1.125% Notes are included
in “Item 8. Financial
Statements and Supplementary Data; Note 8. Long-term Debt” of Exhibit
99.1 to our Form 8-K dated June 19, 2009.
Prior to
the adoption of ASC 470-20 we recorded the liability for our 1.125% Notes at
their principal value and recognized the contractual interest on the notes as
interest expense. Under ASC 470-20-25 and ASC 470-20-30, cash-settled
convertible securities are separated into their debt and equity
components. The value assigned to the debt component is the estimated
fair value, as of the issuance date, of a similar debt instrument without the
conversion feature. As a result, the debt is 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 fair value of the
conversion feature and has been recognized as additional paid-in
capital. We will accrete the debt to its principal value over its
expected life using the effective interest method, with an offsetting increase
in interest expense on our statements of operations to reflect the market rate
for the debt component at the date of issuance. Upon maturity of the
1.125% Notes we will be obligated to repay the principal value of the notes to
holders of outstanding notes ($205,757,000 as of October 31, 2009).
Our
adoption of ASC 470-20 resulted in an initial reduction in long-term debt and
increase in stockholders’ equity of $91,715,000 as of the date of issuance of
the debt (May 2007). The non-cash amortization of this discount
component increases interest expense and long-term debt over the life of the
1.125% Notes (54 months as of October 31, 2009). The pre-tax
amortization to interest expense and increase to long-term debt recognized
retrospectively was $7,770,000 for Fiscal 2007 (from the date of original
issuance) and $11,032,000 for Fiscal 2008. Adoption of ASC 470-20
does not affect our cash flows.
Our
adoption of ASC 470-20 also resulted in the reclassification of $2,564,000 of
debt issuance costs from other assets to equity to allocate a proportionate
share of the issuance costs related to the 1.125% Notes to the equity component
recognized.
The
carrying amount of the equity component of the 1.125% Notes and the principal
value, unamortized discount, and net carrying amount of the liability component
of the 1.125% Notes were as follows:
|
|
October
31,
|
|
|
January
31,
|
|
(In
thousands)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
Equity
component of 1.125% Senior Convertible Notes
|
|
$ |
90,750 |
|
|
$ |
91,715 |
|
|
|
|
|
|
|
|
|
|
Principal
value of 1.125% Senior Convertible Notes
|
|
$ |
205,757 |
|
|
$ |
275,000 |
|
Unamortized
discount
|
|
|
(47,962 |
) |
|
|
(72,913 |
) |
Liability
component of 1.125% Senior Convertible Notes
|
|
$ |
157,795 |
|
|
$ |
202,087 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
4. Long-term Debt (Continued)
Our
retrospective adoption of ASC 470-20 resulted in the following adjustments to
our condensed consolidated balance sheet as of January 31, 2009:
|
|
January
31, 2009
|
|
|
|
As
Previously
|
|
|
Other
|
|
|
ASC
470-20
|
|
|
As
|
|
(In
thousands)
|
|
Reported
|
|
|
Adjustments(1)
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
$ |
4,066 |
|
|
|
|
|
$ |
(627 |
)(2) |
|
$ |
3,439 |
|
Other
assets
|
|
|
30,167 |
|
|
|
|
|
|
(1,924 |
)(3) |
|
|
28,243 |
|
Total
assets
|
|
|
1,279,692 |
|
|
|
|
|
|
(2,551 |
) |
|
|
1,277,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
46,824 |
|
|
|
|
|
|
(627 |
)(2) |
|
|
46,197 |
|
Long-term
debt
|
|
|
305,635 |
|
|
|
|
|
|
(72,913 |
)(4) |
|
|
232,722 |
|
Additional
paid-in capital
|
|
|
411,623 |
|
|
$ |
30,208 |
|
|
|
56,720 |
(5) |
|
|
498,551 |
|
Retained
earnings
|
|
|
386,620 |
|
|
|
(30,208 |
) |
|
|
14,269 |
(6) |
|
|
370,681 |
|
Total
stockholders’ equity
|
|
|
465,866 |
|
|
|
|
|
|
|
70,989 |
|
|
|
536,855 |
|
Total
liabilities and stockholders’ equity
|
|
|
1,279,692 |
|
|
|
|
|
|
|
(2,551 |
) |
|
|
1,277,141 |
|
____________________
|
|
(1)
Correction of accounting for deferred taxes related to purchased call
option (see “Note 1.
Condensed Consolidated Financial Statements; Change in Accounting
Principle” above).
|
|
(2)
Reallocation of deferred taxes.
|
|
(3)
Cumulative adjustment to debt issuance costs related to 1.125%
Notes.
|
|
(4)
Unamortized discount as of January 31, 2009.
|
|
(5)
Equity component of 1.125% Notes and debt issuance costs.
|
|
(6)
Cumulative impact of amortization of debt discount and amortization of
equity component of debt issuance costs, net of tax
benefit.
|
|
The
contractual interest expense, amortization of debt discount, and effective
interest rate for the 1.125% Notes were as follows:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
|
October
31,
|
|
|
November
1,
|
|
(Dollars
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
interest expense
|
|
$ |
612 |
|
|
$ |
773 |
|
|
$ |
2,057 |
|
|
$ |
2,320 |
|
Amortization
of debt discount
|
|
|
2,352 |
|
|
|
2,782 |
|
|
|
7,786 |
|
|
|
8,199 |
|
Total
interest expense
|
|
$ |
2,964 |
|
|
$ |
3,555 |
|
|
$ |
9,843 |
|
|
$ |
10,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
interest rate
|
|
|
7.4 |
% |
|
|
7.4 |
% |
|
|
7.4 |
% |
|
|
7.4 |
% |
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
4. Long-term Debt (Continued)
Our
adoption of ASC 470-20 resulted in the following adjustments to our condensed
consolidated statements of operations for the thirteen and thirty-nine weeks
ended October 31, 2009:
|
|
Before
|
|
|
Adoption
of
|
|
|
As
|
|
(In
thousands, except per-share amounts)
|
|
Adoption
|
|
|
ASC 470-20
|
|
|
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
2,562 |
|
|
$ |
2,260 |
(1) |
|
$ |
4,822 |
|
Income
tax provision
|
|
|
4,934 |
|
|
|
0 |
|
|
|
4,934 |
|
Loss
from continuing operations
|
|
|
(46,102 |
) |
|
|
(2,260 |
) |
|
|
(48,362 |
) |
Net
loss
|
|
|
(46,102 |
) |
|
|
(2,260 |
) |
|
|
(48,362 |
) |
Basic
net loss per share
|
|
|
(0.40 |
) |
|
|
(0.02 |
) |
|
|
(0.42 |
) |
Diluted
net loss per share
|
|
|
(0.40 |
) |
|
|
(0.02 |
) |
|
|
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
6,816 |
|
|
$ |
7,511 |
(1) |
|
$ |
14,327 |
|
Income
tax provision
|
|
|
10,318 |
|
|
|
0 |
|
|
|
10,318 |
|
Loss
from continuing operations
|
|
|
(42,429 |
) |
|
|
(7,511 |
) |
|
|
(49,940 |
) |
Net
loss
|
|
|
(42,429 |
) |
|
|
(7,511 |
) |
|
|
(49,940 |
) |
Basic
net loss per share(2)
|
|
|
(0.37 |
) |
|
|
(0.07 |
) |
|
|
(0.43 |
) |
Diluted
net loss per share(2)
|
|
|
(0.37 |
) |
|
|
(0.07 |
) |
|
|
(0.43 |
) |
____________________
|
|
(1)
Amortization of the debt discount related to the 1.125% Notes less
amortization of debt issue costs related to the equity
component.
|
|
(2)
Results do not add across due to rounding.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
4. Long-term Debt (Continued)
Our
adoption of ASC 470-20 resulted in the following adjustments to our condensed
consolidated statements of operations for the thirteen and thirty-nine weeks
ended November 1, 2008:
|
|
As
Previously
|
|
|
Other
|
|
|
Adoption
of
|
|
|
As
|
|
(In
thousands, except per-share amounts)
|
|
Reported
|
|
|
Adjustments(1)
|
|
|
ASC 470-20
|
|
|
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended November 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
2,172 |
|
|
|
|
|
$ |
2,690 |
(2) |
|
$ |
4,862 |
|
Income
tax benefit
|
|
|
(11,269 |
) |
|
$ |
27,283 |
|
|
|
(27,872 |
)(3) |
|
|
(11,858 |
) |
Loss
from continuing operations
|
|
|
(57,785 |
) |
|
|
(27,283 |
) |
|
|
25,182 |
|
|
|
(59,886 |
) |
Net
loss
|
|
|
(81,660 |
) |
|
|
(27,283 |
) |
|
|
25,182 |
|
|
|
(83,761 |
) |
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.50 |
) |
|
|
(0.24 |
) |
|
|
0.22 |
|
|
|
(0.52 |
) |
Net loss
|
|
|
(0.71 |
) |
|
|
(0.24 |
) |
|
|
0.22 |
|
|
|
(0.73 |
) |
Diluted
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.50 |
) |
|
|
(0.24 |
) |
|
|
0.22 |
|
|
|
(0.52 |
) |
Net loss
|
|
|
(0.71 |
) |
|
|
(0.24 |
) |
|
|
0.22 |
|
|
|
(0.73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended November 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
6,742 |
|
|
|
|
|
|
$ |
7,923 |
(2) |
|
$ |
14,665 |
|
Income
tax benefit
|
|
|
(12,914 |
) |
|
$ |
27,293 |
|
|
|
(29,696 |
)(3) |
|
|
(15,317 |
) |
Loss
from continuing operations
|
|
|
(60,838 |
) |
|
|
(27,293 |
) |
|
|
21,773 |
|
|
|
(66,358 |
) |
Net
loss
|
|
|
(135,760 |
) |
|
|
(27,293 |
) |
|
|
21,773 |
|
|
|
(141,280 |
) |
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.53 |
) |
|
|
(0.24 |
) |
|
|
0.19 |
|
|
|
(0.58 |
) |
Net loss
|
|
|
(1.18 |
) |
|
|
(0.24 |
) |
|
|
0.19 |
|
|
|
(1.23 |
) |
Diluted
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.53 |
) |
|
|
(0.24 |
) |
|
|
0.19 |
|
|
|
(0.58 |
) |
Net loss
|
|
|
(1.18 |
) |
|
|
(0.24 |
) |
|
|
0.19 |
|
|
|
(1.23 |
) |
____________________
|
|
(1)
Correction of accounting for deferred taxes related to purchased call
option (see “Note
1. Condensed Consolidated Financial Statements; Change in Accounting
Principle” above).
|
|
(2)
Amortization of the debt discount related to the 1.125% Notes less
amortization of debt issue costs related to the equity
component.
|
|
(3)
Tax effect of adoption of ASC 470-20.
|
|
During
the thirteen weeks ended October 31, 2009 we repurchased $17,508,000 aggregate
principal amount of 1.125% Notes with $4,145,000 of unamortized discount for a
purchase price of $12,706,000 and recognized a gain of $1,264,000 net of
unamortized issue costs. During the thirty-nine weeks ended October
31, 2009 we repurchased $69,243,000 aggregate principal amount of 1.125% Notes
with $17,165,000 of unamortized discount for a purchase price of $39,323,000 and
recognized a gain of $12,828,000 net of unamortized issue costs. In
accordance with ASC 470-20 approximately $965,000 of the aggregate purchase
price was accounted for as a reduction of stockholders’ equity during the
thirty-nine weeks ended October 31, 2009. In conjunction with the
repurchases, during the Fiscal 2009 Second Quarter and Fiscal 2009 Third Quarter
we unwound a portion of our positions in the warrants and call options that we
had sold and purchased in Fiscal 2007 to hedge the impact of the convertible
debt, which had an immaterial impact on our consolidated financial
statements. Subsequent to October 31, 2009 we repurchased additional
1.125% Notes (see “Note 17.
Subsequent Events” below).
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
4. Long-term Debt (Continued)
The 6.07%
mortgage 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 6.53% mortgage
note is secured by a mortgage on land, a building, and certain fixtures we own
at our distribution center in White Marsh, Maryland and by leases we own or
rents we receive, if any, from tenants of the White Marsh
facility. The 7.77% mortgage 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.
On July
31, 2009 we entered into an amended and restated loan and security agreement
(the “Agreement”) for a $225,000,000 senior secured revolving credit
facility. The amended facility replaced our then-existing
$375,000,000 revolving credit facility and provides for committed revolving
credit availability through July 31, 2012. The amount of credit
available from time to time under the Agreement is determined as a percentage of
the value of eligible inventory, accounts receivable, and cash, as reduced by
certain reserves. In addition, the Agreement includes an option
allowing us to increase our credit facility up to $300,000,000, based on certain
terms and conditions. The credit facility may be used for general
corporate purposes, and provides that up to $100,000,000 of the $225,000,000 may
be used for letters of credit.
The
Agreement provides for borrowings under either “Base Rate” loans or “Eurodollar
Rate” loans. Borrowings under Base Rate loans will generally accrue
interest at a margin ranging from 2.75% to 3.25% over the Base Rate (as defined
in the agreement) and Eurodollar Rate loans will generally accrue interest at a
margin ranging from 3.75% to 4.25% over the London Interbank Offered Rate
(“LIBOR”).
The
Agreement provides for customary representations and warranties and affirmative
covenants. The Agreement also contains customary negative covenants
providing limitations, subject to negotiated exceptions, for sales of assets;
encumbrances; indebtedness; loans, advances and investments; acquisitions;
guarantees; new subsidiaries; dividends and redemptions; transactions with
affiliates; change in business; limitations or restrictions affecting
subsidiaries; credit card agreements; proprietary credit cards; and changes in
control of certain of our subsidiaries. If at any time “Excess
Availability” (as defined in the Agreement) is less than $40,000,000 then, in
each month in which Excess Availability is less than $40,000,000, we will be
required to maintain a minimum fixed charge coverage ratio of at least 1.1 to 1
for the then preceding twelve-month fiscal period. The Agreement also
provides for certain rights and remedies if there is an occurrence of one or
more events of default under the terms of the Agreement. Under
certain conditions the maximum amount available under the Agreement may be
reduced or terminated by the lenders and the obligation to repay amounts
outstanding under the Agreement may be accelerated.
In
connection with the Agreement we executed an Amended and Restated Guaranty (the
“Amended Guaranty”). Pursuant to the Amended Guaranty, we and most of
our subsidiaries jointly and severally guaranteed the borrowings and obligations
under the Agreement, subject to standard insolvency
limitations. Under the Amended Guaranty, collateral for the
borrowings under the Agreement consists of pledges by us and certain of our
subsidiaries of the capital stock of each such entity’s
subsidiaries. The Agreement also provides for a security interest in
substantially all of our assets excluding, among other things, equipment, real
property, and stock or other equity and assets of excluded
subsidiaries. Excluded subsidiaries are not Guarantors under the
Agreement and the Amended Guaranty.
As of
October 31, 2009 we had an aggregate total of $6,700,000 of unamortized deferred
debt acquisition costs related to the facility that will be amortized on a
straight-line basis over the life of the facility as interest
expense. There were no borrowings outstanding under the facility as
of October 31, 2009.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
5. Stockholders’ Equity
|
|
Thirty-nine
|
|
|
|
Weeks
Ended
|
|
|
|
October
31,
|
|
(Dollars
in thousands)
|
|
2009
|
|
|
|
|
|
Total
stockholders’ equity, beginning of period (as adjusted)
|
|
$ |
536,855 |
(1) |
Net
loss
|
|
|
(49,940 |
) |
Issuance
of common stock (616,520 shares), net of shares withheld for payroll
taxes
|
|
|
398 |
|
Stock-based
compensation
|
|
|
4,301 |
|
Net
payments for settlement of hedges on convertible notes
|
|
|
(31 |
)(2) |
Equity
component of repurchases of 1.125% Senior Convertible Notes
|
|
|
(965 |
)(2) |
Unrealized
losses on available-for-sale securities
|
|
|
(5 |
) |
Total
stockholders’ equity, end of period
|
|
$ |
490,613 |
|
____________________
|
|
(1)
We adopted the provisions of ASC 470-20 retrospectively as of the
beginning of Fiscal 2009 and recognized a net increase in stockholders’
equity of $70,989,000 as of January 31, 2009 (see “Note 4. Long-term Debt”
above).
|
|
(2)
See “Note 4. Long-term
Debt” above.
|
|
Note
6. Customer Loyalty Card Programs
We offer
our customers various loyalty card programs. Customers that join
these programs are entitled to various benefits, including discounts and rebates
on purchases during the membership period. Customers join some of
these programs by paying an annual membership fee. For these
programs, we recognize revenue as a component of net sales over the life of the
membership period based on when the customer earns the benefits and when the fee
is no longer refundable. We recognize costs in connection with
administering these programs as cost of goods sold when incurred.
We
recognized revenues of $4,836,000 during the thirteen weeks ended October 31,
2009, $14,810,000 during the thirty-nine weeks ended October 31, 2009,
$5,270,000 during the thirteen weeks ended November 1, 2008, and $15,644,000
during the thirty-nine weeks ended November 1, 2008 in connection with our
loyalty card programs. We accrued $2,935,000 as of October 31, 2009
and $3,597,000 as of January 31, 2009 for the estimated costs of discounts
earned and coupons issued and not yet redeemed under these
programs.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
7. Net Loss Per Share
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
|
October
31,
|
|
|
November
1,
|
|
(In
thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
(As
Adjusted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
115,816 |
|
|
|
114,877 |
|
|
|
115,536 |
|
|
|
114,602 |
|
Dilutive
effect of stock options, stock appreciation rights, and awards(1)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Diluted
weighted average common shares and equivalents outstanding
|
|
|
115,816 |
|
|
|
114,877 |
|
|
|
115,536 |
|
|
|
114,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(48,362 |
) |
|
$ |
(59,886 |
) |
|
$ |
(49,940 |
) |
|
$ |
(66,358 |
) |
Loss
from discontinued operations, net of income tax benefit
|
|
|
0 |
|
|
|
(23,875 |
) |
|
|
0 |
|
|
|
(74,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss used to determine diluted net loss per share
|
|
$ |
(48,362 |
) |
|
$ |
(83,761 |
) |
|
$ |
(49,940 |
) |
|
$ |
(141,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
with weighted average exercise price greater
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
than market price, excluded from
computation of net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loss per share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Weighted
average exercise price per share
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
____________________
|
|
(1)
Stock options, stock appreciation rights, and awards are excluded from the
computation of diluted net loss per share as their effect would have been
anti-dilutive.
|
|
Our
1.125% Notes will not impact our diluted net income per share until the price of
our common stock exceeds the conversion price of $15.379 per share because we
expect to settle the principal amount of the 1.125% Notes in cash upon
conversion. Our call options are not included in the diluted net
income per share calculation as their effect would be
anti-dilutive. Should the price of our common stock exceed $21.607
per share, we would include the dilutive effect of the additional potential
shares that may be issued related to our warrants, using the treasury stock
method. See “Note 4.
Long-term Debt” above and “Item 8. Financial
Statements and Supplementary Data; Note 8. Long-term Debt” of Exhibit
99.1 to our Form 8-K dated June 19, 2009 for further information regarding our
1.125% Notes, call options, and warrants.
Note
8. Income Taxes
We
calculate our interim tax provision in accordance with the provisions of ASC
740-270, “Income Taxes; Interim Reporting.” For interim periods, we
estimate our annual effective income tax rate and apply the estimated rate to
our year-to-date income or loss before income taxes. We also compute
the tax provision or benefit related to items we report separately, such as
discontinued operations, and recognize the items net of their related tax effect
in the interim periods in which they occur. We also recognize the
effect of changes in enacted tax laws or rates in the interim periods in which
the changes occur.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
8. Income Taxes (Continued)
In
computing the annual estimated effective tax rate we make certain estimates and
management judgments, such as estimated annual taxable income or loss, the
nature and timing of permanent and temporary differences between taxable income
for financial reporting and tax reporting, and the recoverability of deferred
tax assets. Our estimates and assumptions may change as new events
occur, additional information is obtained, or as the tax environment
changes.
In
accordance with ASC 740, “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. ASC 740 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 the
Fiscal 2008 Third Quarter we evaluated our assumptions regarding the
recoverability of our deferred tax assets. Based on all available
evidence we determined that the recoverability of our deferred tax assets is
more-likely-than-not limited to our available tax loss
carrybacks. Accordingly, we established a valuation allowance against
our net deferred tax assets. In future periods we will continue to
recognize a valuation allowance until such time as the certainty of future tax
benefits can be reasonably assured. Pursuant to ASC 740, 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.
Income
tax receivables, which include available net operating loss carrybacks for
Fiscal 2008, amended return receivables, and prepaid income taxes and are net of
income tax payables, of $17,125,000 as of October 31, 2009 and $47,303,000 as of
January 31, 2009 are included in “Prepayments and other” on our condensed
consolidated balance sheets. The decrease in the net income tax
receivables is substantially due to the receipt during the Fiscal 2009 Third
Quarter of a Federal tax refund related to our available net operating loss
carryback for Fiscal 2008.
The sale
of our proprietary credit card receivables programs (see “Note 9. Sale of Proprietary Credit
Card Receivables Programs” below) resulted in the reversal of deferred
tax liabilities relating to these receivables. After considering
these reversals, as well as our financial statement loss from continuing
operations and other estimated movements in deferred taxes, we are expecting a
Federal and state income tax liability for Fiscal 2009. However, we
are able to fully offset this liability using some of our available net
operating loss carryforwards as of January 31, 2009. There is no
resulting benefit to our income tax provision from the utilization of the net
operating loss carryforwards as the previously-mentioned deferred tax
liabilities associated with our proprietary credit card receivables programs had
been considered in determining the required valuation allowance.
As of
October 31, 2009 our gross unrecognized tax benefits associated with uncertain
tax positions were $29,813,000. If recognized, the portion of the
liabilities for gross unrecognized tax benefits that would decrease our
provision for income taxes and increase our net income was
$19,704,000. The accrued interest and penalties as of October 31,
2009 were $12,993,000. During the thirty-nine weeks ended October 31,
2009 the gross unrecognized tax benefits increased by $635,000 and the portion
of the liabilities for gross unrecognized tax benefits that, if recognized,
would decrease our provision for income taxes and increase our net income
increased by $857,000. Accrued interest and penalties increased by
$262,000 during the thirty-nine weeks ended October 31, 2009.
As of
October 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
$3,582,000 as a result of resolutions of audits related to U.S. Federal and
state tax positions.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
8. Income Taxes (Continued)
Our U.S.
Federal income tax returns for Fiscal 2005 and beyond remain subject to
examination by the U.S. Internal Revenue Service (“IRS”) and the IRS is
currently examining our amended return for Fiscal 2004. We file
returns in numerous state jurisdictions, with varying statutes of
limitations. Our state tax returns for Fiscal 2004 and subsequent
years, depending upon the jurisdiction, generally remain subject to
examination. The statute of limitations on a limited number of
returns for years prior to Fiscal 2004 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 1998.
On
November 6, 2009, H.R. 3548, the “Worker, Homeownership, and Business Assistance
Act of 2009” (the “Act”) was signed into law. The Act contains a
number of tax law changes, including a provision that permits companies to
carryback applicable 2008 or 2009 net operating losses (“NOL”) up to five years,
instead of the general two-year carryback. The Act defines an
applicable NOL as a NOL that arises in a tax year either beginning or ending in
2008 or 2009. We previously carried a portion of our Fiscal 2008 NOL
back two years; however, we now have the opportunity to carry back the remaining
NOL to the preceding three years to offset taxable income in those years and
receive a cash refund. Under ASC 740, “Income Taxes,” the tax effects
of the Act, including the re-measurement of existing current and deferred tax
assets and liabilities, as well as related valuation allowances, are recognized
in the interim period that includes the enactment date of the change (our Fiscal
2009 Fourth Quarter). We are currently evaluating the Act, and any
resulting impact on our income tax provision has not yet been
determined.
Note
9. Sale of Proprietary Credit Card Receivables Programs
On August
13, 2009 we announced an agreement for the sale of our proprietary credit card
receivables programs to World Financial Network National Bank (“WFNNB”), a
subsidiary of Alliance Data Systems Corporation (“Alliance Data”). We
also entered into ten-year operating agreements with Alliance Data for the
provision of private-label credit card programs for our
customers. The transaction closed on October 30, 2009. We
received net cash proceeds of $136,300,000 related to the transaction and
recognized one-time net charges as a result of the sale of $13,379,000 for the
thirteen weeks and thirty-nine weeks ended October 31, 2009, primarily related
to contract termination, transaction, severance, and retention
costs.
The
transaction consisted of the sale of our proprietary credit card portfolio,
along with certain other assets and liabilities that are required to support
these card programs, including our consolidated balance sheet asset “Investment
in asset-backed securities.” The components of the investment in
asset-backed securities comprising the net sales proceeds were $51,250,000 of
outstanding trust certificates owned by Charming Shoppes Receivables Corp.
(“CSRC”), $59,690,000 of cash account balances in the Charming Shoppes Master
Trust (the “Trust”) that had been funded by CSRC, an interest-only strip of
$21,700,000, and other retained interests of $3,660,000.
The
proceeds of the transaction are subject to a true-up within 60 days of the
closing of the sale, which could increase or decrease the final proceeds of the
sale. Gross proceeds from the transaction were
$166,300,000. Approximately $30,000,000 of the gross proceeds were
used to fund the termination of contractual obligations related to the
transaction as well as exit costs. In addition, on the sale date, we
surrendered the charter of the Spirit of America National Bank (the “Bank”), our
wholly-owned credit card bank, and merged the remaining assets and liabilities
of the Bank into another non-banking subsidiary.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
9. Sale of Proprietary Credit Card Receivables Programs (Continued)
We will
receive ongoing payments from Alliance Data under the ten-year operating
agreements based on credit sales generated by our private-label credit card
customers. Alliance Data will assume the servicing obligations for
the Trust, which was renamed the World Financial Network Credit Card Trust II
effective as of the date of sale. Prior to the sale, the Trust was an
unconsolidated qualified special-purpose entity (“QSPE”) through which the
Charming Shoppes credit card receivables were financed. Therefore, we
will have no further obligations with respect to financing our credit card
programs. The ten-year operating agreements may be terminated early
by either party for cause upon the occurrence of certain events as specified in
the agreements including, but not limited to: unsatisfactory performance by
WFNNB under the terms of the agreements; substantial declines in private-label
credit card sales volume or substantial closings of sales channels; and events
of insolvency or other material defaults.
Note
10. Asset Securitization
Prior to
the sale of our proprietary credit card receivables programs our FASHION
BUG®, LANE
BRYANT, CATHERINES®, and
PETITE SOPHISTICATE®
proprietary credit card receivables were originated by Spirit of America
National Bank (the “Bank”), our wholly-owned credit card bank. The
Bank transferred its interest in all of the receivables associated with these
programs to the Charming Shoppes Master Trust (the “Trust”) through Charming
Shoppes Receivables Corp., a separate and distinct special-purpose
entity. In connection with the sale of our proprietary credit card
receivables programs to WFNNB we paid off and terminated the two conduit
securitization facilities previously in the Trust and WFNNB assumed all future
responsibility for the Trust and all remaining securitization series in the
Trust.
Prior to
the November 14, 2008 sale of our misses apparel catalog credit card receivables
in connection with the sale of the related Crosstown Traders catalog titles (see
“Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations” above), our Crosstown Traders apparel-related catalog credit
card receivables were also originated by the Bank. On December 31,
2008 we finalized the sale of these receivables. In connection with
the sale we paid off and terminated the related Series 2005-RPA conduit
securitization facility that was dedicated to these receivables.
Our asset
securitization program prior to the sale of our proprietary credit card
receivables programs is more fully described in “Item 8. Financial Statements and
Supplementary Data; Note 17. Asset Securitization” of Exhibit 99.1 to our
Form 8-K dated June 19, 2009.
We held
certificates and retained interests in our securitizations of $136,300,000 as of
October 30, 2009, which were sold to Alliance Data in connection with the sale
of our proprietary credit card receivables programs (see “Note 9. Sale of Proprietary Credit
Card Receivables Programs” above).
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
10. Asset Securitization (Continued)
The
following table presents additional information relating to the receivables in
our Trust prior to the sale of the credit card portfolio:
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
(In
thousands)
|
|
2009(1)
|
|
|
2008
|
|
|
|
|
|
|
|
|
Proceeds
from sales of new receivables to
QSPE
|
|
$ |
530,544 |
|
|
$ |
674,817 |
|
Collections
reinvested in revolving-period
securitizations
|
|
|
667,611 |
|
|
|
829,188 |
|
Cash
flows received on retained
interests
|
|
|
68,326 |
|
|
|
82,679 |
|
Servicing
fees
received
|
|
|
7,228 |
|
|
|
8,590 |
|
Net
credit
losses
|
|
|
37,035 |
|
|
|
34,027 |
|
____________________
|
|
|
|
|
|
|
|
|
(1)
Through October 30, 2009 (the date of sale of the proprietary credit card
receivables programs).
|
|
Prior to
the sale of our proprietary credit card receivables programs we accounted for
the securitization of our proprietary credit card receivables as
follows:
●
|
We
recorded 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 represented the
present value of the estimated cash flows that we retained over the
estimated outstanding period of the receivables. This excess
cash flow essentially represented 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.
|
|
|
●
|
We
used various valuation assumptions in determining the fair value of our
I/O strip. We estimated 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.
|
|
|
●
|
In
addition, we recognized a servicing liability because the servicing fees
we expected to receive from the securitizations did not provide adequate
compensation for servicing the receivables. The servicing
liability represented the present value of the excess of our cost of
servicing over the servicing fees received and was recorded at its
estimated fair value. Because quoted market prices were
generally not available for the servicing of proprietary credit card
portfolios of comparable credit quality, we determined 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 discounted 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 were consistent with those used for the I/O
strip.
|
See “Note 14. Fair Value
Measurements” below for further information related to our certificates
and retained interests in our securitized receivables, including activity
related to our I/O strip and servicing liability.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
11. 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
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 and e-commerce sales under our SHOETRADER.COM®
website.
During
Fiscal 2008 we decided to discontinue our LANE BRYANT WOMAN catalog and our
SHOETRADER.COM website. During the Fiscal 2009 Second Quarter we
completed the closing of our LANE BRYANT WOMAN catalog and during the Fiscal
2009 Third Quarter we completed the closing of our SHOETRADER.COM
website. During the Fiscal 2009 Third Quarter we also completed the
sale of our proprietary credit card receivables programs (see “Note 9. Sale of Proprietary Credit
Card Receivables Programs” above).
The
accounting policies of the segments are generally the same as those described in
“Item 8. Financial Statements
and Supplementary Data; Note 1. Summary of Significant Accounting Policies”
of Exhibit 99.1 to our Form 8-K dated June 19, 2009. 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. Retail Stores
segment operating costs consist primarily of store selling, occupancy, buying,
and warehousing. Direct-to-Consumer segment operating costs consist
primarily of catalog development, production, and circulation; e-commerce
advertising; warehousing; and order processing.
“Corporate
and Other” net sales consist primarily of revenue related to loyalty card
fees. Corporate and Other operating costs include: unallocated
general and administrative expenses; shared services; insurance; information
systems support; corporate depreciation and amortization; corporate occupancy;
the results of our private-label credit card operations; and other non-routine
charges. Operating contribution for the Retail Stores and
Direct-to-Consumer segments less Corporate and Other net expenses equals
income/(loss) before interest and income taxes.
Operating
segment assets are those directly used in, or allocable to, that segment’s
operations. Operating assets for the Retail Stores segment consist
primarily of inventories; the net book value of store facilities; goodwill; and
intangible assets. Operating assets for the Direct-to-Consumer
segment consist primarily of trade receivables; inventories; deferred
advertising costs; the net book value of catalog operating facilities; and
intangible assets. Corporate and Other assets include: corporate cash
and cash equivalents; the net book value of corporate facilities; deferred
income taxes; and other corporate long-lived assets.
Selected
financial information for our operations by reportable segments and a
reconciliation of the information by segment to our consolidated totals is
included in the table on the following page.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
11. Segment Reporting (Continued)
|
|
Retail
|
|
|
Direct-to-
|
|
|
Corporate
|
|
|
|
|
(In
thousands)
|
|
Stores
|
|
|
Consumer
|
|
|
and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
448,298 |
|
|
$ |
9,419 |
|
|
$ |
2,520 |
|
|
$ |
460,237 |
|
Depreciation
and amortization
|
|
|
12,829 |
|
|
|
227 |
|
|
|
5,204 |
|
|
|
18,260 |
|
Loss
from operations
|
|
|
3,715 |
|
|
|
(3,968 |
) |
|
|
(39,815 |
)(1) |
|
|
(40,068 |
) |
Gain
on repurchases of 1.125% Senior Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
1,264 |
|
|
|
1,264 |
|
Net
interest expense and other income
|
|
|
|
|
|
|
|
|
|
|
(4,624 |
) |
|
|
(4,624 |
) |
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
4,934 |
|
|
|
4,934 |
|
Net
loss
|
|
|
3,715 |
|
|
|
(3,968 |
) |
|
|
(48,109 |
) |
|
|
(48,362 |
) |
Capital
expenditures
|
|
|
2,426 |
|
|
|
0 |
|
|
|
4,121 |
|
|
|
6,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended November 1, 2008 (As adjusted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
528,501 |
|
|
$ |
21,311 |
|
|
$ |
3,254 |
|
|
$ |
553,066 |
|
Depreciation
and amortization
|
|
|
14,979 |
|
|
|
228 |
|
|
|
7,924 |
|
|
|
23,131 |
|
Loss
from operations
|
|
|
(12,104 |
) |
|
|
(6,077 |
) |
|
|
(50,577 |
)(2) |
|
|
(68,758 |
) |
Net
interest expense and other income
|
|
|
|
|
|
|
|
|
|
|
(2,986 |
) |
|
|
(2,986 |
) |
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
(11,858 |
) |
|
|
(11,858 |
) |
Loss
from continuing operations
|
|
|
(12,104 |
) |
|
|
(6,077 |
) |
|
|
(41,705 |
) |
|
|
(59,886 |
) |
Capital
expenditures
|
|
|
9,314 |
|
|
|
78 |
|
|
|
1,633 |
|
|
|
11,025 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,482,118 |
|
|
$ |
35,222 |
|
|
$ |
8,250 |
|
|
$ |
1,525,590 |
|
Depreciation
and amortization
|
|
|
38,338 |
|
|
|
667 |
|
|
|
18,529 |
|
|
|
57,534 |
|
Loss
from operations
|
|
|
67,210 |
|
|
|
(11,578 |
) |
|
|
(94,434 |
)(4) |
|
|
(38,802 |
) |
Gain
on repurchases of 1.125% Senior Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
12,828 |
|
|
|
12,828 |
|
Net
interest expense and other income
|
|
|
|
|
|
|
|
|
|
|
(13,648 |
) |
|
|
(13,648 |
) |
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
10,318 |
|
|
|
10,318 |
|
Net
loss
|
|
|
67,210 |
|
|
|
(11,578 |
) |
|
|
(105,572 |
) |
|
|
(49,940 |
) |
Capital
expenditures
|
|
|
7,574 |
|
|
|
6 |
|
|
|
8,733 |
|
|
|
16,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine weeks ended November 1, 2008 (As adjusted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,762,604 |
|
|
$ |
70,804 |
|
|
$ |
9,620 |
|
|
$ |
1,843,028 |
|
Depreciation
and amortization
|
|
|
43,417 |
|
|
|
672 |
|
|
|
28,541 |
|
|
|
72,630 |
(6) |
Loss
from operations
|
|
|
69,473 |
|
|
|
(16,244 |
) |
|
|
(123,422 |
)(5) |
|
|
(70,193 |
) |
Net
interest expense and other income
|
|
|
|
|
|
|
|
|
|
|
(11,482 |
) |
|
|
(11,482 |
) |
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
(15,317 |
) |
|
|
(15,317 |
) |
Loss
from continuing operations
|
|
|
69,473 |
|
|
|
(16,244 |
) |
|
|
(119,587 |
) |
|
|
(66,358 |
) |
Capital
expenditures
|
|
|
41,473 |
|
|
|
354 |
|
|
|
7,190 |
|
|
|
49,017 |
(6) |
____________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes restructuring and other charges of $14,746 (see “Note 13. Restructuring and
Other Charges” below) and one-time net charges as a result of the
sale of our proprietary credit card receivables programs of $13,379 (see
“Note 9. Sale of
Proprietary Credit Card Receivables Programs”
above).
|
|
(2)
Includes restructuring and other charges of $6,391 and impairment of store
assets of $20,216 (see “Note 12. Impairment of Store
Assets” and “Note
13. Restructuring and Other Charges” below).
|
|
(3)
Excludes $14 of capital expenditures related to our discontinued
operations.
|
|
(4)
Includes restructuring and other charges of $31,219 (see “Note 13. Restructuring and
Other Charges” below) and one-time net charges as a result of the
sale of our proprietary credit card receivables programs of $13,379 (see
“Note 9. Sale of
Proprietary Credit Card Receivables Programs”
above).
|
|
(5)
Includes restructuring and other charges of $24,947 and impairment of
store assets of $20,216 (see “Note 12. Impairment of Store
Assets” and “Note
13. Restructuring and Other Charges” below).
|
|
(6)
Excludes $777 of depreciation and amortization and $481 of capital
expenditures related to our discontinued operations.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
12. Impairment of Store Assets
We
evaluate the recoverability of our long-lived assets in accordance with ASC
360-10, “Property, Plant, and Equipment; Overall.” We assess our
long-lived assets for recoverability whenever events or changes in circumstances
indicate that the carrying amounts of long-lived assets may not be
recoverable. We consider historical performance and future estimated
results when evaluating an asset for potential impairment, and we compare the
carrying amount of the asset to the estimated future undiscounted cash flows
expected to result from the use of the asset. If the estimated future
undiscounted cash flows are less than the carrying amount of the asset we write
down the asset to its estimated fair value and recognize an impairment
loss. Our estimate of fair value is generally based on either
appraised value or the present value of future cash flows. The
estimates and assumptions that we use to evaluate possible impairment require
certain significant assumptions regarding factors such as future sales growth
and operating performance, and they may change as new events occur or as
additional information is obtained.
Based on
our assessment of the carrying value of long-lived assets conducted in
accordance with ASC 360-10, during the Fiscal 2008 Third Quarter we identified
approximately 120 stores with asset carrying values in excess of such stores’
respective forecasted undiscounted cash flows. Accordingly, we
recognized a non-cash charge of $20,216,000 to write down these stores to their
respective fair values.
In
accordance with the provisions of ASC 350-20-35, “Goodwill; Subsequent
Measurement,” we
also performed a review during the Fiscal 2008 Third Quarter of our goodwill and
other intangible assets with indefinite lives for possible impairment and
determined that these assets were not impaired.
Note
13. Restructuring and Other Charges
During
the Fiscal 2009 Third Quarter we continued to execute on our multi-year
transformational initiatives announced during Fiscal 2008. These
initiatives include the closing of under-performing stores, discontinuation of
the LANE BRYANT WOMAN catalog, and the transformation of our operations into a
vertical specialty store model. See “Item 8. Financial Statements and
Supplementary Data; Note 14. Restructuring and Other Charges” of Exhibit
99.1 to our Form 8-K dated June 19, 2009 for further discussion of these
initiatives.
As part
of the definitive agreement announced in Fiscal 2008 to sell our Crosstown
Traders non-core misses apparel catalogs, we retained certain components of the
infrastructure of the Crosstown apparel catalogs. Accordingly, we
entered into transitional service agreements with the buyer to provide certain
services for specified time periods ranging up to one year from the date of the
agreement, depending on the services provided. Subsequent to the
transitional period we are responsible for the remaining lease liabilities for
the retained facilities. We ceased to use the retained facilities
during the Fiscal 2009 Third Quarter when the transitional service agreements
ended. In accordance with ASC 420-10, “Exit or Disposal Cost
Obligations,” we recorded the fair value of the remaining lease liability,
reduced by estimated sublease rentals, as of the “cease use”
date. This fair value measurement was performed using level 3 inputs
(see “Note 14. Fair Value
Measurements” below for further discussion of fair value
measurements). In accordance with ASC 420-10 we will recognize the
effect of any changes in estimated sublease rentals or other assumptions as an
adjustment to the remaining lease liability in the period of the
change.
During
the Fiscal 2009 Second Quarter and Fiscal 2009 Third Quarter, as part of our
multi-year transformational initiatives, we outsourced certain information
technology and business service center functions to a third-party
provider. These actions will result in the elimination of
approximately 50 positions at our Bensalem, Pennsylvania corporate
offices. We completed the outsourcing of the information technology
functions during the Fiscal 2009 Third Quarter and expect to complete the
outsourcing of the business service center functions during the Fiscal 2010
First Quarter.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
13. Restructuring and Other Charges (Continued)
The
following two tables summarize our restructuring and other charges as of October
31, 2009:
|
|
|
|
|
Costs
Incurred
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
for
Thirty-nine
|
|
|
|
|
|
Accrued
|
|
|
|
as
of
|
|
|
Weeks
Ended
|
|
|
|
|
|
as
of
|
|
|
|
January
31
|
|
|
October
31,
|
|
|
Payments/
|
|
|
October
31,
|
|
(In thousands)
|
|
2009(1)
|
|
|
2009
|
|
|
Settlements
|
|
|
2009(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
Relocation of CATHERINES operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Relocation
and other charges
|
|
$ |
0 |
|
|
$ |
212 |
|
|
$ |
212 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing of under-performing stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
lease termination charges
|
|
|
1,687 |
|
|
|
1,145 |
|
|
|
1,129 |
|
|
|
1,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and retention costs(2)
|
|
|
9,891 |
|
|
|
763 |
|
|
|
3,870 |
|
|
|
6,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-core misses apparel assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
termination charges
|
|
|
0 |
|
|
|
12,131 |
|
|
|
568 |
|
|
|
11,563 |
|
Other
costs
|
|
|
420 |
|
|
|
0 |
|
|
|
79 |
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformational initiatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
|
1,379 |
|
|
|
7,078 |
|
|
|
7,340 |
|
|
|
1,117 |
|
Severance
and retention costs
|
|
|
0 |
|
|
|
1,002 |
|
|
|
205 |
|
|
|
797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
figure®
magazine closing costs
|
|
|
819 |
|
|
|
(48 |
) |
|
|
766 |
|
|
|
5 |
|
Total
|
|
$ |
14,196 |
|
|
$ |
22,283 |
|
|
$ |
14,169 |
|
|
$ |
22,310 |
|
____________________
|
|
(1)
Included in “Accrued expenses” in the accompanying consolidated balance
sheets.
|
|
(2)
Primarily severance for departure of former CEO, the closing of our LANE
BRYANT WOMAN catalog, and the elimination of other
positions.
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
13. Restructuring and Other Charges (Continued)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Costs
|
|
|
Costs
Incurred
|
|
|
Estimated
|
|
|
Estimated/
|
|
|
|
Incurred
|
|
|
for
Thirty-nine
|
|
|
Remaining
|
|
|
Actual
|
|
|
|
As
of
|
|
|
Weeks
Ended
|
|
|
Costs
|
|
|
Costs
as of
|
|
|
|
January
31,
|
|
|
October
31,
|
|
|
to
be
|
|
|
October
31,
|
|
(In thousands)
|
|
2009
|
|
|
2009
|
|
|
Incurred
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
Relocation of CATHERINES operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention
costs
|
|
$ |
2,079 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
2,079 |
|
Non-cash
write down and accelerated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,808 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3,808 |
|
Relocation
and other
charges
|
|
|
1,166 |
|
|
|
212 |
|
|
|
0 |
|
|
|
1,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing of under-performing stores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
accelerated depreciation
|
|
|
691 |
|
|
|
170 |
|
|
|
0 |
|
|
|
861 |
|
Store
lease termination
charges
|
|
|
6,909 |
|
|
|
1,145 |
|
|
|
0 |
|
|
|
8,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and retention costs related to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the elimination of
positions
|
|
|
1,244 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Announcements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance for departure of former CEO
|
|
|
9,446 |
|
|
|
104 |
|
|
|
38 |
|
|
|
9,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing of LANE BRYANT WOMAN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catalog:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention
costs
|
|
|
1,557 |
|
|
|
504 |
|
|
|
0 |
|
|
|
2,061 |
|
Non-cash
accelerated depreciation
|
|
|
934 |
|
|
|
838 |
|
|
|
0 |
|
|
|
1,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and retention costs related to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the elimination of
positions
|
|
|
3,873 |
|
|
|
155 |
|
|
|
0 |
|
|
|
4,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-core misses apparel assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
accelerated depreciation
|
|
|
2,968 |
|
|
|
7,928 |
|
|
|
0 |
|
|
|
10,896 |
|
Lease
termination
charges
|
|
|
0 |
|
|
|
12,131 |
|
|
|
1,177 |
|
|
|
13,308 |
|
Other
costs
|
|
|
420 |
|
|
|
0 |
|
|
|
0 |
|
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformational initiatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
|
2,563 |
|
|
|
7,078 |
|
|
|
0 |
|
|
|
9,641 |
|
Severance
and retention
costs
|
|
|
0 |
|
|
|
1,002 |
|
|
|
35 |
|
|
|
1,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
figure magazine closing
costs
|
|
|
819 |
|
|
|
(48 |
) |
|
|
0 |
|
|
|
771 |
|
Total
|
|
$ |
38,477 |
|
|
$ |
31,219 |
|
|
$ |
1,250 |
|
|
$ |
70,946 |
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
14. Fair Value Measurements
ASC
820-10-20, “Fair Value Measurements and Disclosures,” 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. 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 ASC 820-10 as of October 31, 2009
were as follows:
|
|
As
of
|
|
|
Fair
Value
|
|
|
|
October
31,
|
|
|
Method Used
|
|
(In
thousands)
|
|
2009
|
|
|
Level 2
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Available-for-sale
securities(1)
|
|
$ |
400 |
|
|
$ |
400 |
|
____________________
|
|
(1)
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.
|
|
Prior to
the sale of our proprietary credit card receivables programs during the Fiscal
2009 Third Quarter (see “Note
9. Sale of Proprietary Credit Card Receivables Programs” above) our
financial assets included certificates and retained interests in our securitized
receivables and our financial liabilities included a servicing liability related
to our asset securitization program. We measured these assets and
liabilities using level 3 inputs and reported them at fair value in accordance
with ASC 820-10.
We
estimated 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 included an “interest-only” (“I/O”)
strip, consisting of the present value of the finance charges and late fees in
excess of the amounts paid to certificate holders, credit losses, and servicing
fees.
The fair
value of our servicing liability represented the present value of the excess of
our cost of servicing over the servicing fees received. We determined
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 discounted 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 were
consistent with those used to value the certificates and retained
interests.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
14. Fair Value Measurements (Continued)
The table
below presents a reconciliation of the beginning and ending balances of our
certificates and retained interests and our servicing liability during the
thirty-nine weeks ended October 31, 2009:
|
|
Retained
|
|
|
Servicing
|
|
(In
thousands)
|
|
Interests
|
|
|
Liability
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2009
|
|
$ |
94,453 |
|
|
$ |
3,046 |
|
Additions
to I/O strip and servicing liability
|
|
|
24,341 |
|
|
|
2,977 |
|
Net
additions to other retained interests
|
|
|
39,964 |
|
|
|
0 |
|
Reductions
and maturities of QSPE certificates
|
|
|
(150 |
) |
|
|
0 |
|
Amortization
of the I/O strip and servicing liability
|
|
|
(26,865 |
) |
|
|
(3,149 |
) |
Valuation
adjustments to the I/O strip and servicing liability
|
|
|
4,939 |
|
|
|
110 |
|
Sale
of asset securitization program assets and liabilities
|
|
|
(136,682 |
) |
|
|
(2,984 |
) |
Balance,
October 31, 2009
|
|
$ |
0 |
|
|
$ |
0 |
|
Note
15. Fair Value of Financial Instruments
The
carrying amounts and estimated fair values of our financial instruments are as
follows:
|
|
October 31, 2009
|
|
|
January 31, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In
thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
223,944 |
|
|
$ |
223,944 |
|
|
$ |
93,759 |
|
|
$ |
93,759 |
|
Available-for-sale
securities
|
|
|
400 |
|
|
|
400 |
|
|
|
6,398 |
|
|
|
6,398 |
|
Investment
in asset-backed securities
|
|
|
0 |
|
|
|
0 |
|
|
|
94,453 |
|
|
|
94,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.125%
Senior Convertible Notes, due 2014
|
|
|
157,795 |
(1) |
|
|
146,129 |
|
|
|
202,087 |
(1) |
|
|
75,295 |
|
6.07%
mortgage note, due October 2014
|
|
|
9,954 |
|
|
|
9,209 |
|
|
|
10,419 |
|
|
|
11,330 |
|
6.53%
mortgage note, due November 2012
|
|
|
4,200 |
|
|
|
4,098 |
|
|
|
5,250 |
|
|
|
5,493 |
|
7.77%
mortgage note, due December 2011
|
|
|
6,729 |
|
|
|
6,731 |
|
|
|
7,249 |
|
|
|
7,959 |
|
Other
long-term debt
|
|
|
230 |
|
|
|
248 |
|
|
|
422 |
|
|
|
414 |
|
____________________
|
|
(1)
Net of unamortized discount of $47,962 at October 31, 2009 and $72,913 at
January 31, 2009 (see “Note 4. Long-term Debt”
above).
|
|
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 value of our 1.125% Senior Convertible Notes is
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.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
16. Impact of Recent Accounting Pronouncements
In June
2009 the FASB established the “FASB Accounting Standards Codification” (the
“ASC”) as the official single source of authoritative accounting principles to
be applied by non-governmental entities in the preparation of financial
statements in conformity with generally accepted accounting principles (“GAAP”)
in the United States. All guidance in the ASC carries an equal level
of authority. Rules and interpretive releases of the SEC under
authority of Federal securities laws are also considered authoritative for SEC
registrants and are included in the ASC. As of the effective date of
the ASC all non-grandfathered non-SEC accounting guidance that is not
included in the ASC is considered non-authoritative. The ASC is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. Initial adoption of the ASC is not intended
to change existing GAAP. Therefore, other than updating citations to
accounting standards included in our financial statements and related footnotes
to reflect the ASC, our adoption of the ASC did not have an impact on our
financial position or results of operations.
In
December 2007 the FASB issued standards included in ASC 805, “Business
Combinations,” that establish principles and requirements for the recognition
and measurement of identifiable assets acquired and liabilities assumed by an
acquirer in a business combination and establish accounting and reporting
standards for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. These provisions, which were
effective prospectively as of the beginning of Fiscal 2009, did not have an
impact on our financial position or results of operations.
In April
2009 the FASB also issued standards included in ASC 805 that amended previous
guidance to require that assets acquired and liabilities assumed in a business
combination that arise from contingencies (“pre-acquisition contingencies”) be
recognized at fair value if the fair value can be determined during the
measurement period. If the fair value of a pre-acquisition
contingency cannot be determined during the measurement period, the contingency
should be recognized at the acquisition date in accordance with ASC 450,
“Contingencies,” if it meets the criteria for recognition in that
guidance. These provisions, which were effective as of the beginning
of Fiscal 2009, did not have an impact on our financial position or results of
operations.
In
February 2008 the FASB issued standards included in ASC 860, “Transfers and
Servicing” that provide implementation guidance on accounting for a transfer of
a financial asset and repurchase financing. These standards presume
that the initial transfer of a financial asset and a repurchase financing are
considered part of the same arrangement (a linked transaction) under ASC
860. However, if certain criteria specified in the guidance are met,
the initial transfer and repurchase financing may be evaluated separately and
not as a linked transaction under ASC 860. These provisions, which
were effective prospectively as of the beginning of Fiscal 2009, did not have an
impact on our financial position or results of operations.
In
February 2008 the FASB issued standards included in ASC 820-10, “Fair
Value Measurements and Disclosures,” which delayed the effective date of ASC
820-10 until fiscal years beginning after November 15, 2008 for non-financial
assets and non-financial liabilities that are not currently being recognized or
disclosed at fair value on a recurring basis. We adopted the
provisions of ASC 820-10 prospectively as of the
beginning of Fiscal 2009 for assets included within the scope of the standards
issued in February 2008 (such as goodwill, intangible assets, and fixed assets
related to evaluation of potential impairment). Our adoption of these
standards did not have an impact on our financial position or results of
operations.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
16. Impact of Recent Accounting Pronouncements (Continued)
In March
2008 the FASB issued standards included in ASC 815-10, “Derivatives and
Hedging,” that require entities to provide enhanced disclosures about: how and
why an entity uses derivative instruments; how derivative instruments and
related hedged items are accounted for under ASC 815-10; and how derivative
instruments and related hedged items affect an entity’s financial position,
results of operations, and cash flows. These provisions, which were
effective prospectively as of the beginning of Fiscal 2009, did not have an
impact on our financial position or results of operations.
In June
2008 the FASB issued standards included in ASC 815-40-15, “Derivatives and
Hedging; Contracts in Entity’s Own Equity,” that address the scope
exception in ASC 815-10-15-74 that specifies that a contract that is both
indexed to its own stock and classified in stockholders’ equity is not a
derivative. The objective of these standards is to provide guidance
for determining whether an equity-linked financial instrument (or embedded
feature) is indexed to an entity’s own stock. These standards, which
we adopted as of the beginning of Fiscal 2009, did not have an impact on our
financial position or results of operations.
In April
2009 the FASB issued standards included in ASC 820-10, “Fair Value Measurements and
Disclosures,” that provide additional guidance on estimating fair value
when the volume and level of activity for an asset or liability have
significantly decreased in relation to normal market activity for the asset or
liability. The standards also provide additional guidance on
circumstances that may indicate that a transaction is not orderly and requires
additional disclosures about fair value measurements in annual and interim
reporting periods. The FASB also issued standards that extended the
disclosure requirements of ASC 820-10 to interim financial statements of
publicly traded companies. These standards, which were effective
prospectively for annual and interim periods as of the beginning of our Fiscal
2009 Second Quarter, did not have a material impact on our financial position or
results of operations.
In April
2009 the FASB issued standards included in ASC 320-10-35, “Investments – Debt
and Equity Securities; Subsequent Measurement,” that provide new guidance on the
recognition and presentation of other-than-temporary impairments of debt
securities classified as available-for-sale or held-to-maturity and require
additional disclosures for both debt and equity securities within the scope of
ASC 320-10. These standards, which were effective prospectively as of
the beginning of our Fiscal 2009 Second Quarter, did not have a material impact
on our financial position or results of operations.
In May
2009 the FASB issued standards included in ASC 855-10, “Subsequent Events,” that
require entities to disclose the date through which the entity has evaluated
subsequent events and the basis for that date (whether that date represents the
date the financial statements were issued or were available to be
issued). This disclosure should alert all users of financial
statements that an entity has not evaluated subsequent events after that date in
the set of financial statements being presented. Our adoption of
these standards did not have a material impact on our financial position or
results of operations.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets, an amendment of FASB Statement 140,” and SFAS No. 167, “Amendments to
FASB Interpretation No. 46(R).” These statements have not yet been
integrated with the ASC and are, therefore, still considered authoritative until
such time as they are integrated. These statements change the way
entities account for transfers of financial assets and determine what entities
must be consolidated. As a result of the sale of our proprietary
credit card receivables programs (see “Note 9. Sale of Proprietary Credit
Card Receivables Programs” above, the adoption of these statements will
have no impact on our financial position or results of operations.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note
17. Subsequent Events
Subsequent
to the end of the Fiscal 2009 Third Quarter we repurchased 1.125% Senior
Convertible Notes with an aggregate principal amount of $16,121,000 for an
aggregate purchase price of $11,310,000 (see “Note 4. Long -term Debt”
above). We expect to recognize a gain on the repurchase of
approximately $1,151,000 net of unamortized issue costs during the Fiscal 2009
Fourth Quarter. Including the 1.125% Notes purchased during the first
three quarters of Fiscal 2009, we have repurchased notes with an aggregate
principal amount of $85,364,000 for an aggregate purchase price of $50,633,000,
and will recognize an aggregate gain on the repurchases of approximately
$13,979,000 net of unamortized issue costs.
There
were no other material subsequent events through December 2, 2009 (the issuance
date of this report on Form 10-Q).
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This
management’s discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes included in Item 1 of this report. It should also
be read in conjunction with the management’s discussion and analysis of
financial condition and results of operations, financial statements, and
accompanying notes appearing in Exhibit 99.1 of our Form 8-K dated June 19,
2009, which retrospectively revised the financial statements and related notes
included in our January 31, 2009 Annual Report on Form 10-K as a result of our
adoption of certain provisions of Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Subtopic 470-20 related to certain
debt instruments that may be settled in cash upon conversion (see “Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 1. Condensed Consolidated
Financial Statements” above). As used in this management’s
discussion and analysis, “Fiscal 2009” refers to our fiscal year ending January
30, 2010, “Fiscal 2008” refers to our fiscal year ended January 31, 2009, and
“Fiscal 2007” refers to our fiscal year ended February 2,
2008. “Fiscal 2009 First Quarter” refers to our fiscal quarter ended
May 2, 2009 and “Fiscal 2008 First Quarter” refers to our fiscal quarter ended
May 3, 2008. “Fiscal 2009 Second Quarter” refers to our fiscal
quarter ended August 1, 2009 and “Fiscal 2008 Second Quarter” refers to our
fiscal quarter ended August 2, 2008. “Fiscal 2009 Third Quarter”
refers to our fiscal quarter ended October 31, 2009 and “Fiscal 2008 Third
Quarter” refers to our fiscal quarter ended November 1, 2008. “Fiscal
2009 Fourth Quarter” refers to our fiscal quarter ending January 30, 2010 and
“Fiscal 2007 Fourth Quarter” refers to our fiscal quarter ended February 2,
2008. The terms “Charming Shoppes,” “the Company,” “we,” “us,” and
“our” refer to Charming Shoppes, Inc. and its consolidated subsidiaries except
where the context otherwise requires or as otherwise indicated.
With the
exception of historical information, the matters contained in the following
analysis and elsewhere in this report are “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements may include, but are not limited to,
projections of revenues, income or loss, cost reductions, capital expenditures,
liquidity, 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 “PART I; Item 1A. Risk
Factors” of our Annual Report on Form 10-K for the fiscal year ended
January 31, 2009 and in “PART
II. OTHER INFORMATION; Item 1A. Risk Factors” below:
●
|
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 the
development of our core brands, the increased profitability and growth in
our Retail Stores or Direct-to-Consumer segments, or that we will achieve
our objectives as quickly or as effectively as we plan. 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.
|
|
|
●
|
We
depend on the availability of credit for our working capital needs,
including credit we receive from our bankers, our factors, our suppliers
and their agents, and on our ongoing payments from our strategic alliance
related to private-label credit card sales. 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
cannot assure that we will realize the expected benefits from the ten-year
private-label credit card operating agreements with Alliance
Data. A significant portion of our sales revenues are generated
through our private-label credit cards. Therefore, changes in
the private-label credit card programs that adversely impact our ability
to facilitate customer credit may adversely impact our results of
operations. Alliance Data will have discretion over certain
policies and arrangements with the cardholders and may change these
policies and arrangements in ways that could affect our relationship with
the cardholders. Any such changes could adversely affect our
private-label credit card sales and our results of
operations. Our ability to continue to offer private-label
credit card programs to our customers will depend on the success of our
strategic alliance with Alliance Data.
Credit
card operations are subject to numerous Federal and state laws that impose
disclosure and other requirements upon the origination, servicing, and
enforcement of credit accounts, and limitations on the amount of finance
charges that may be charged by a credit card provider. Alliance
Data may be subject to regulations to which we were not subject prior to
the sale of the proprietary credit card portfolio on October 30,
2009. To the extent that such limitations or regulations
materially limit the availability of credit or increase the cost of credit
to our cardholders or negatively impact provisions which affect our
revenue streams associated with the ten-year operating agreements, our
results of operations could be adversely affected. In addition,
changes in credit card use, payment patterns, or default rates could be
affected by a variety of economic, legal, social, or other factors over
which we have no control and cannot predict with certainty and which could
also negatively impact the availability of credit or increase the cost of
credit to our cardholders or negatively impact provisions that affect our
revenue streams associated with the ten-year operating
agreements.
|
●
|
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.
|
|
|
●
|
Certain
of our business processes that are dependent on technology are outsourced
to third parties. Such processes include credit card
authorization and processing, our e-commerce platform, and certain other
information technology functions. Although we make a diligent
effort to insure that all providers of outsourced services observe proper
internal control practices and procedures, we cannot assure that failures
will not occur. The failure of such third parties to provide
adequate services could adversely affect our results of operations,
liquidity, or our ability to provide adequate financial and management
reporting.
|
|
|
●
|
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.
|
|
|
●
|
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 for prompt and efficient deliveries of
merchandise to our stores and customers, 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
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 United States labor standards, 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 to 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 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.
|
|
|
●
|
Changes
to existing accounting rules or the adoption of new rules could have an
adverse impact on 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, 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.
|
We have
prepared the financial statements and accompanying notes included in Item 1 of
this report in conformity with United States generally accepted accounting
principles. This requires us to make estimates and assumptions that
affect the amounts reported in our financial statements and accompanying
notes. These estimates and assumptions are based on historical
experience, analysis of current trends, and various other factors that we
believe to be reasonable under the circumstances. Actual results
could differ from those estimates under different assumptions or
conditions.
We
periodically reevaluate our accounting policies, assumptions, and estimates and
make adjustments when facts and circumstances warrant. Our
significant accounting policies are described in the notes accompanying the
consolidated financial statements that appear in Exhibit 99.1 to our Form 8-K
dated June 19, 2009.
Except as
otherwise disclosed in this section and in the financial statements and
accompanying notes included in Item 1 of this report, there were no material
changes in, or additions to, our critical accounting policies or in the
assumptions or estimates we used to prepare the financial information appearing
in this report.
Senior
Convertible Notes
In May
2008 the FASB adopted certain provisions of ASC 470-20, “Debt With Conversion
and Other Options” that changed the accounting treatment for convertible
securities that an issuer may settle fully or partially in
cash. Under ASC 470-20, cash-settled convertible securities are
separated into their debt and equity components. The value assigned
to the debt component is the estimated fair value, as of the issuance date, of a
similar debt instrument without the conversion feature. As a result,
the debt is 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 is recorded as additional paid-in
capital. The debt is subsequently accreted to its par value over its
expected life with an offsetting non-cash 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.
We
adopted the provisions of ASC 470-20 for our 1.125% Senior Convertible Notes and
applied the provisions retrospectively to all past periods presented (see “Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 1. Condensed Consolidated
Financial Statements” and “Note 4. Long-term Debt” above).
On August
13, 2009 we announced an agreement for the sale of our proprietary credit card
receivables programs to World Financial Network National Bank, a subsidiary of
Alliance Data Systems Corporation (“Alliance Data”). We also entered
into ten-year operating agreements with Alliance Data for the provision of
private-label credit card programs for our customers. During the
Fiscal 2009 Third Quarter we obtained the customary regulatory approvals and the
transaction was closed on October 30, 2009. See “Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 9. Sale of Proprietary
Credit Card Receivables Programs” and “Note 10. Asset
Securitization” above for further information regarding our private-label
credit card receivables programs.
We
received net cash proceeds of approximately $136.3 million related to the
transaction and recognized a loss as a result of the sale of approximately $13.4
million, primarily related to one-time contract termination and
transaction-related costs, as well as severance and retention
costs. The transaction consisted of the sale of our proprietary
credit card portfolio, along with certain other assets and liabilities that are
required to support these credit card programs, including our consolidated
balance sheet asset “Investment in Asset-Backed Securities.” The
proceeds of the transaction are subject to a true-up within 60 days of the
closing of the sale, which could increase or decrease the final proceeds of the
sale. This true-up is not projected to be material to our results of
operations.
Gross
proceeds from the transaction were approximately $166.3 million of which
approximately $30 million was used to fund the termination of contractual
obligations related to the transaction as well as exit costs. In
addition, as of the sale date we reclassified $34.9 million of cash in Spirit of
America National Bank (the “Bank”), our wholly-owned credit card bank, that
prior to the sale was held to satisfy regulatory capital and collateral
requirements, from “Prepayments and other” to “Cash and cash equivalents” on our
consolidated balance sheet as of October 31, 2009. Additionally, on
the sale date we surrendered the charter of the Bank and merged the remaining
assets and liabilities of the Bank into another non-banking
subsidiary.
Under the
ten-year operating agreements, Alliance Data will continue to offer
private-label credit cards bearing our retail brand names and we will receive
ongoing payments from Alliance Data related to private-label credit card sales,
reimbursement of some private-label credit card program marketing costs, and net
revenue sharing associated with the marketing of certain enhancement services to
cardholders. The level of ongoing payments we receive may increase or
decrease as a result of changes in the performance of the private-label credit
card programs or changes in the legal and regulatory requirements affecting
Alliance Data in its conduct of the program.
This
overview of our Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) presents a high-level summary of more
detailed information contained elsewhere in this Report on Form
10-Q. The intent of this overview is to put this detailed information
into perspective and to introduce the discussion and analysis contained in this
MD&A. Accordingly, this overview should be read in conjunction
with the remainder of this MD&A and with the financial statements and other
detailed information included in this Report on Form 10-Q and should not be
separately relied upon.
Results
of Operations
Consolidated
net sales for the Fiscal 2009 Third Quarter decreased 17% as compared to the
Fiscal 2008 Third Quarter due primarily to a 13% decrease in comparable store
sales. Our sales decline reflected both the positive and the
negative: on the positive side it reflected our focus on profitable revenue; on
the negative side it reflected assortments that were not yet where we want them
to be. The sales decline reflected (1) weak traffic across our brands
(particularly in our mall stores); (2) substantial declines in the amount of
markdown sales without requisite increases in non-markdown business; (3) a
sub-optimal bottoms program across our brands; and (4) a core assortment that
did not deliver on our customer’s need for fashion basics positioned with entry
price points in the context of both the substantial reductions in markdowns
available to customers in our stores and today’s value-conscious
customer.
Reflecting
our focus on profitable revenue and EBITDA (Earnings Before Income Taxes,
Depreciation, and Amortization), our gross margin did increase 560 basis points
as compared to the prior-year period, and we did control expenses, which
together allowed us to mitigate the impact of our volume declines on the bottom
line. As we move into 2010 we will continue with our culture of
driving profitable revenue while we address our assortment weakness as noted
above. Our inventory decreased approximately 17% on a
comparable-store basis as compared to the end of the Fiscal 2008 Third
Quarter. Furthermore, we entered the fourth quarter with reduced
seasonal carry-over inventory in our stores as compared to the prior-year
period.
We
believe we can be more intensively customer-focused and can improve our store
traffic conversion rates and sales by providing the customer with a more
balanced assortment. We know through recent customer research that
size and fit are the leading priority for our customer. We are
working to leverage and improve our fit expertise and sizing approach to
strengthen our overall merchandise programs. We are focused on
offering a more balanced assortment with a stronger focus on our core
merchandise assortment while also addressing the fashion needs of our
customers.
Our
occupancy and buying expenses increased as a percent of sales for the Fiscal
2009 Third Quarter as a result of negative leverage from the decrease in net
sales. However, total expense dollars decreased as a result of the
operation of fewer stores and occupancy reductions secured from
landlords. Our selling, general, and administrative expenses
decreased as a percentage of sales and in total expense dollars for the Fiscal
2009 Third Quarter as compared to the prior-year period as a result of our
expense reduction initiatives and the closing of under-performing
stores.
Our
consolidated operating results for the Fiscal 2009 Third Quarter continued to
reflect a difficult retail environment, with disappointing comparable store
sales. However, improvements in gross margins in each of our brands
and reductions in occupancy and buying expenses and in selling, general, and
administrative expenses improved operating results as compared to the prior-year
period. Our loss from operations was $40.1 million for the Fiscal
2009 Third Quarter, a $28.7 million improvement from our loss from operations of
$68.8 million for the comparable prior-year period.
Financial
Position
Our
balance sheet remained strong, with ample liquidity through our $224.3 million
of cash and available-for-sale securities as of the end of the Fiscal 2009 Third
Quarter as compared to $100.2 million as of the end of Fiscal
2008. We continued to generate positive operating cash flow and ended
the quarter with no borrowings against our $225.0 million committed revolving
credit facility. As of October 31, 2009 our available borrowing
capacity under the facility was $196.6 million.
During
the Fiscal 2009 Third Quarter we completed the sale of our proprietary credit
card receivables programs (see “RECENT DEVELOPMENTS”
above). In addition to partnering with one of the country’s
premier credit card providers, the benefits of this transaction include the
following:
●
|
It
allows us to further focus on our core business;
|
|
|
●
|
It
eliminates the financing risk associated with our proprietary credit card
receivables programs and the credit risk of the underlying credit card
portfolio;
|
|
|
●
|
The
net cash proceeds to us of $136.3 million has strengthened our liquidity
and financial flexibility; and
|
|
|
●
|
We
will receive ongoing payments from Alliance Data based on credit sales
generated by our private-label credit card
portfolio.
|
Additionally,
during the Fiscal 2009 Third Quarter we received a Federal income tax refund in
the amount of $27.7 million related to a carryback of net operating
losses.
Our
liquidity allowed us to opportunistically repurchase $17.5 million principal
amount of our 1.125% Senior Convertible Notes at a 27% discount during the
Fiscal 2009 Third Quarter. The total principal amount of debt
repurchased to-date as of the end of the Fiscal 2009 Third Quarter was $69.2
million.
Management
Initiatives
We
continue to execute on the following key priorities to guide our organization:
(1) focus on the customer; (2) stabilize and begin to grow profitable revenue;
(3) increase EBITDA; (4) increase cash flow; and (5) employee empowerment with
accountability. Our management initiatives are designed to reinforce
and support the execution of our key priorities.
The
following are our key initiatives:
●
|
We
are working to improve our marketing to insure a balance between marketing
to our current customers and to inactive and new customers. We
believe we can better succeed by focusing on the basics of efficiently
driving traffic both to our stores and online, and by focusing on
increasing the conversion rate for customers in our stores and on our
websites.
|
|
|
●
|
We
are focused on assortments planning and selling outfits. We
believe we can better succeed by improving our buying and in-store
merchandising of appropriate assortments of bottoms, tops, accessories,
intimates, and related products. We believe we can improve our
store traffic and conversion rates by providing the customer with a more
balanced assortment. We know through customer research that
size and fit are the leading priority for our customer. We are
working to leverage and improve our fit expertise and sizing approach to
strengthen our overall merchandise programs. Additionally, we
are focused on offering a more balanced assortment with a stronger focus
on our core merchandise while also addressing the fashion needs of our
customers.
|
|
|
●
|
We
are working to increase our internally designed and developed product and
we are transforming each of our core brands into more independent,
distinct brands. During the Fiscal 2009 Third Quarter we added
global sourcing talent at each of our brands to assist in this process and
to better leverage our scale in order to deliver more efficient cost of
goods expense.
|
|
|
●
|
We
are focused on increasing our e-commerce penetration across all of our
brands. We overhauled each of our core brands’ websites and
successfully converted our core brands to a new e-commerce technology
platform during the beginning of the Fiscal 2009 Third
Quarter. Our objective is to provide an improved on-line
customer experience that will result in increased website traffic and
sales conversion rates.
|
|
|
●
|
We
are committed to adopting a multi-channel mindset. We will
encourage and make it easy for our customer to shop in three convenient
ways – in our stores, online, and via telephone. We will also
be multi-vehicle in our communications with both existing and new
customers, whether via direct mail, email, online, or in our
stores.
|
To
further focus on our core brands, during the Fiscal 2009 Third Quarter we
decided to close the PETITE SOPHISTICATE OUTLET stores and convert a majority of
the space to CATHERINES outlet stores. We expect the conversion to
CATHERINES outlet stores to be complete by February 2010.
The
changes we have made to our core retail brands, including new floor-set and
merchandise strategies, will take time to mature and for our customer to become
accustomed to and embrace. Compared to the prior year, we reduced
inventory levels, enjoyed better sell-through generally, and, as a result,
reduced the magnitude of markdown inventory, thereby improving our gross margin
and the profitability of our sales. We will continue to maintain
appropriate inventory levels while focusing on presenting a more balanced and
compelling assortment of merchandise and we will continue to proactively control
our operating expenses.
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 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations”
above).
The
following table shows our results of operations expressed as a percentage of net
sales and on a comparative basis:
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
Thirteen Weeks Ended(1)
|
|
|
Change
|
|
|
Thirty-nine Weeks Ended(1)
|
|
|
Change
|
|
|
|
October
31,
|
|
|
November
1,
|
|
|
From
Prior
|
|
|
October
31,
|
|
|
November
1,
|
|
|
From
Prior
|
|
|
|
2009
|
|
|
2008
|
|
|
Period
|
|
|
2009
|
|
|
2008
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(16.8 |
)% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(17.2 |
)% |
Cost
of goods
sold
|
|
|
48.5 |
|
|
|
54.1 |
|
|
|
(25.3 |
) |
|
|
48.3 |
|
|
|
52.1 |
|
|
|
(23.1 |
) |
Gross
profit
|
|
|
51.5 |
|
|
|
45.9 |
|
|
|
(6.7 |
) |
|
|
51.7 |
|
|
|
47.9 |
|
|
|
(10.8 |
) |
Occupancy
and buying expenses
|
|
|
20.6 |
|
|
|
19.3 |
|
|
|
(10.8 |
) |
|
|
19.5 |
|
|
|
17.3 |
|
|
|
(6.7 |
) |
Selling,
general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
expenses
|
|
|
29.4 |
|
|
|
30.1 |
|
|
|
(18.6 |
) |
|
|
28.0 |
|
|
|
28.1 |
|
|
|
(17.4 |
) |
Depreciation
and amortization
|
|
|
4.0 |
|
|
|
4.2 |
|
|
|
(21.1 |
) |
|
|
3.8 |
|
|
|
3.9 |
|
|
|
(20.8 |
) |
Sale
of proprietary credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivables
programs
|
|
|
2.9 |
|
|
|
– |
|
|
|
– |
|
|
|
0.9 |
|
|
|
– |
|
|
|
– |
|
Impairment
of store
assets
|
|
|
– |
|
|
|
3.7 |
|
|
|
– |
|
|
|
– |
|
|
|
1.1 |
|
|
|
– |
|
Restructuring
and other charges
|
|
|
3.2 |
|
|
|
1.2 |
|
|
|
130.7 |
|
|
|
2.0 |
|
|
|
1.3 |
|
|
|
25.1 |
|
Loss
from
operations
|
|
|
(8.7 |
) |
|
|
(12.4 |
) |
|
|
(41.7 |
) |
|
|
(2.5 |
) |
|
|
(3.8 |
) |
|
|
(44.7 |
) |
Other
income
|
|
|
0.0 |
|
|
|
0.3 |
|
|
|
(89.4 |
) |
|
|
0.0 |
|
|
|
0.2 |
|
|
|
(78.7 |
) |
Gain
on repurchase of debt
|
|
|
0.3 |
|
|
|
– |
|
|
|
– |
|
|
|
0.8 |
|
|
|
– |
|
|
|
– |
|
Interest
expense
|
|
|
1.0 |
|
|
|
0.9 |
|
|
|
(0.8 |
) |
|
|
(0.9 |
) |
|
|
0.8 |
|
|
|
(2.3 |
) |
Income
tax provision/(benefit)
|
|
|
1.1 |
|
|
|
(2.1 |
) |
|
|
(141.6 |
) |
|
|
0.7 |
|
|
|
(0.8 |
) |
|
|
(167.4 |
) |
Loss
from continuing operations
|
|
|
(10.5 |
) |
|
|
(10.8 |
) |
|
|
(19.2 |
) |
|
|
(3.3 |
) |
|
|
(3.6 |
) |
|
|
(24.7 |
) |
Loss
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of
tax
|
|
|
– |
|
|
|
(4.3 |
) |
|
|
– |
|
|
|
– |
|
|
|
(4.1 |
) |
|
|
– |
|
Net
loss
|
|
|
(10.5 |
) |
|
|
(15.1 |
) |
|
|
(42.3 |
) |
|
|
(3.3 |
) |
|
|
(7.7 |
) |
|
|
(64.7 |
) |
____________________
|
|
(1)
Results may not add due to rounding.
|
|
The
following table shows information related to the change in our consolidated
total net sales:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
|
October
31,
|
|
|
November
1,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Stores segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in comparable store sales(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
retail stores
|
|
|
(13 |
)% |
|
|
(9 |
)% |
|
|
(14 |
)% |
|
|
(11 |
)% |
LANE
BRYANT(3)
|
|
|
(14 |
) |
|
|
(10 |
) |
|
|
(14 |
) |
|
|
(11 |
) |
FASHION
BUG
|
|
|
(14 |
) |
|
|
(9 |
) |
|
|
(15 |
) |
|
|
(10 |
) |
CATHERINES
|
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(7 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from new stores as a percentage of total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated prior-period
sales(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LANE
BRYANT(3)
|
|
|
1 |
|
|
|
4 |
|
|
|
2 |
|
|
|
4 |
|
FASHION
BUG
|
|
|
0 |
|
|
|
1 |
|
|
|
0 |
|
|
|
1 |
|
CATHERINES
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Other
retail stores(4)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-period
sales from closed stores as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of total consolidated
prior-period sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LANE
BRYANT(3)
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
FASHION
BUG
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
CATHERINES
|
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
Other
retail stores(4)
|
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in Retail Stores segment sales
|
|
|
(15 |
) |
|
|
(10 |
) |
|
|
(16 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in Direct-to-Consumer segment sales(5)
|
|
|
(56 |
) |
|
|
130 |
|
|
|
(50 |
) |
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in consolidated total net sales
|
|
|
(17 |
) |
|
|
(8 |
) |
|
|
(17 |
) |
|
|
(7 |
) |
____________________
|
|
(1)
“Comparable store sales” is not a measure that has been defined under
generally accepted accounting principles. The method of calculating
comparable store sales varies across the retail industry and, therefore,
our calculation of comparable store sales is not necessarily comparable to
similarly-titled measures reported by other companies. We define
comparable store sales as sales from stores operating in both the current
and prior-year periods. New stores are added to the comparable store
sales base 13 months after their open date. Sales from stores that
are relocated within the same mall or strip-center, remodeled, or have a
legal square footage change of less than 20% are included in the
calculation of comparable store sales. Sales from stores that are
relocated outside the existing mall or strip-center, or have a legal
square footage change of 20% or more, are excluded from the calculation of
comparable store sales until 13 months after the relocated store is
opened. Stores that are temporarily closed for a period of 4 weeks or
more are excluded from the calculation of comparable store sales for the
applicable periods in the year of closure and the subsequent
year. Non-store sales, such as catalog and internet sales, are
excluded from the calculation of comparable store sales.
|
|
(2)
Includes incremental Retail Stores segment e-commerce
sales.
|
|
(3)
Includes LANE BRYANT OUTLET stores.
|
|
(4)
Includes PETITE SOPHISTICATE stores, which were closed in August 2008, and
PETITE SOPHISTICATE OUTLET stores.
|
|
(5)
Primarily LANE BRYANT WOMAN catalog which began operations in the Fiscal
2007 Fourth Quarter. During the Fiscal 2008 Third Quarter we
announced our decision to discontinue the LANE BRYANT WOMAN catalog, which
we completed during the Fiscal 2009 Second Quarter.
|
|
The
following table shows details of our consolidated net sales, depreciation and
amortization, and loss from operations:
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
Net
|
|
|
and
|
|
|
Loss
From
|
|
(In
millions)
|
|
Sales
|
|
|
Amortization
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
LANE
BRYANT(1)
|
|
$ |
218.0 |
|
|
$ |
8.0 |
|
|
$ |
15.4 |
|
FASHION
BUG
|
|
|
155.0 |
|
|
|
3.1 |
|
|
|
(12.2 |
) |
CATHERINES
|
|
|
71.3 |
|
|
|
1.7 |
|
|
|
0.6 |
|
Other
retail stores(2)
|
|
|
4.0 |
|
|
|
0.0 |
|
|
|
(0.1 |
) |
Total
Retail Stores segment
|
|
|
448.3 |
|
|
|
12.8 |
|
|
|
3.7 |
|
Total
Direct-to-Consumer segment
|
|
|
9.4 |
|
|
|
0.2 |
|
|
|
(4.0 |
) |
Credit
operations
|
|
|
2.5 |
(3) |
|
|
0.4 |
|
|
|
18.0 |
(4) |
Corporate
and other
|
|
|
– |
|
|
|
4.9 |
|
|
|
(29.7 |
) |
Sale
of proprietary credit card receivables programs
|
|
|
– |
|
|
|
– |
|
|
|
(13.4 |
) |
Restructuring
and other charges
|
|
|
– |
|
|
|
– |
|
|
|
(14.7 |
) |
Total
consolidated
|
|
$ |
460.2 |
|
|
$ |
18.3 |
|
|
$ |
(40.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended November 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
LANE
BRYANT(1)
|
|
$ |
257.2 |
|
|
$ |
8.9 |
|
|
$ |
17.2 |
|
FASHION
BUG
|
|
|
191.1 |
|
|
|
4.1 |
|
|
|
(27.6 |
) |
CATHERINES
|
|
|
74.2 |
|
|
|
2.0 |
|
|
|
(1.7 |
) |
Other
retail stores(2)
|
|
|
6.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Total
Retail Stores segment
|
|
|
528.5 |
|
|
|
15.0 |
|
|
|
(12.1 |
) |
Total
Direct-to-Consumer segment
|
|
|
21.3 |
|
|
|
0.2 |
|
|
|
(6.1 |
) |
Credit
operations
|
|
|
2.9 |
(3) |
|
|
0.4 |
|
|
|
13.1 |
(4) |
Corporate
and other
|
|
|
0.4 |
(5) |
|
|
7.5 |
|
|
|
(37.1 |
) |
Impairment
of store assets
|
|
|
– |
|
|
|
– |
|
|
|
(20.2 |
) |
Restructuring
and other charges
|
|
|
– |
|
|
|
– |
|
|
|
(6.4 |
) |
Total
consolidated
|
|
$ |
553.1 |
|
|
$ |
23.1 |
|
|
$ |
(68.8 |
) |
____________________
|
|
(1)
Includes LANE BRYANT OUTLET stores.
|
|
(2)
Includes PETITE SOPHISTICATE stores, which began operations in October
2007 and were closed in August 2008, and PETITE SOPHISTICATE OUTLET
stores, which began operations in September 2006.
|
|
(3)
Primarily revenue related to loyalty card fees.
|
|
(4)
Net of expenses allocated to Retail Stores brands.
|
|
(5)
Revenues related to our figure magazine, which
was discontinued in the Fiscal 2009 First Quarter.
|
|
|
|
Continued
on next page)
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
Net
|
|
|
and
|
|
|
Loss
From
|
|
(In
millions)
|
|
Sales
|
|
|
Amortization
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
LANE
BRYANT(1)
|
|
$ |
718.8 |
|
|
$ |
24.1 |
|
|
$ |
58.7 |
|
FASHION
BUG
|
|
|
523.1 |
|
|
|
9.0 |
|
|
|
(5.8 |
) |
CATHERINES
|
|
|
227.2 |
|
|
|
5.1 |
|
|
|
14.4 |
|
Other
retail stores(2)
|
|
|
13.0 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
Total
Retail Stores segment
|
|
|
1,482.1 |
|
|
|
38.3 |
|
|
|
67.2 |
|
Total
Direct-to-Consumer segment
|
|
|
35.2 |
|
|
|
0.7 |
|
|
|
(11.6 |
) |
Credit
operations
|
|
|
7.9 |
(3) |
|
|
1.3 |
|
|
|
38.0 |
(4) |
Corporate
and other
|
|
|
0.4 |
(5) |
|
|
17.2 |
|
|
|
(87.8 |
) |
Sale
of proprietary credit card receivables programs
|
|
|
– |
|
|
|
– |
|
|
|
(13.4 |
) |
Restructuring
and other charges
|
|
|
– |
|
|
|
– |
|
|
|
(31.2 |
) |
Total
consolidated
|
|
$ |
1,525.6 |
|
|
$ |
57.5 |
|
|
$ |
(38.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine
weeks ended November 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
LANE
BRYANT(1)
|
|
$ |
839.6 |
|
|
$ |
25.5 |
|
|
$ |
59.1 |
|
FASHION
BUG
|
|
|
659.8 |
|
|
|
13.4 |
|
|
|
(0.9 |
) |
CATHERINES
|
|
|
244.3 |
|
|
|
4.4 |
|
|
|
11.2 |
|
Other
retail stores(2)
|
|
|
18.9 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Total
Retail Stores segment
|
|
|
1,762.6 |
|
|
|
43.4 |
|
|
|
69.5 |
|
Total
Direct-to-Consumer segment
|
|
|
70.8 |
|
|
|
0.7 |
|
|
|
(16.3 |
) |
Credit
operations
|
|
|
8.5 |
(3) |
|
|
1.3 |
|
|
|
36.6 |
(4) |
Corporate
and other
|
|
|
1.1 |
(5) |
|
|
27.2 |
|
|
|
(114.9 |
) |
Impairment
of store assets
|
|
|
– |
|
|
|
– |
|
|
|
(20.2 |
) |
Restructuring
and other charges
|
|
|
– |
|
|
|
– |
|
|
|
(24.9 |
) |
Total
consolidated
|
|
$ |
1,843.0 |
|
|
$ |
72.6 |
|
|
$ |
(70.2 |
) |
____________________
|
|
(1)
Includes LANE BRYANT OUTLET stores.
|
|
(2)
Includes PETITE SOPHISTICATE stores, which began operations in October
2007 and were closed in August 2008, and PETITE SOPHISTICATE OUTLET
stores, which began operations in September 2006.
|
|
(3)
Primarily revenue related to loyalty card fees.
|
|
(4)
Net of expenses allocated to Retail Stores brands.
|
|
(5)
Revenues related to our figure magazine, which
was discontinued in the Fiscal 2009 First Quarter.
|
|
The
following table sets forth information with respect to our year-to-date retail
store activity for Fiscal 2009 and planned store activity for all of Fiscal
2009:
|
|
|
|
|
|
|
|
|
|
|
PETITE
|
|
|
|
|
|
|
LANE
|
|
|
FASHION
|
|
|
|
|
|
SOPHISTICATE
|
|
|
|
|
|
|
BRYANT
|
|
|
BUG
|
|
|
CATHERINES
|
|
|
OUTLET
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009 Year-to-Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at January 31, 2009
|
|
|
892 |
|
|
|
897 |
|
|
|
463 |
|
|
|
49 |
|
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
opened
|
|
|
8 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9 |
|
Stores
converted(1)
|
|
|
– |
|
|
|
– |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
– |
|
Stores
closed(2)
|
|
|
(21 |
) |
|
|
(50 |
) |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(83 |
) |
Net
change in stores
|
|
|
(13 |
) |
|
|
(49 |
) |
|
|
0 |
|
|
|
(12 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at October 31, 2009
|
|
|
879 |
|
|
|
848 |
|
|
|
463 |
|
|
|
37 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
relocated during period
|
|
|
5 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned
store openings
|
|
|
8 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9 |
|
Planned
store conversions(1)
|
|
|
– |
|
|
|
– |
|
|
|
5 |
|
|
|
(33 |
) |
|
|
– |
|
Planned
store closings
|
|
|
42 |
|
|
|
95 |
|
|
|
9 |
|
|
|
16 |
|
|
|
162 |
|
Planned
store relocations
|
|
|
5 |
|
|
|
2 |
|
|
|
0 |
|
|
|
0 |
|
|
|
7 |
|
____________________
|
|
(1) During
Fiscal 2009 we decided to close our PETITE SOPHISTICATE OUTLET stores and
convert a majority of the locations to CATHERINES outlet stores. We
completed the conversion of 5 stores during the first three quarters of
Fiscal 2009 and we expect to complete the remaining 28 conversions by the
end of February 2010.
|
|
(2) Includes
14 FASHION BUG and 6 LANE BRYANT stores closed as part of the store
closing initiatives announced in February 2008 and November
2008.
|
|
Comparison
of Thirteen Weeks Ended October 31, 2009 and November 1, 2008
Consolidated
Results of Operations
Net
Sales
Fiscal
2009 Third Quarter consolidated net sales decreased as compared to the Fiscal
2008 Third Quarter as a result of decreases in net sales from each of the brands
in our Retail Stores segment, which were driven primarily by negative comparable
store sales. Reduced store traffic levels and our efforts to reduce
non-productive promotional markdowns contributed to our negative comparable
store sales. Retail Stores segment sales were also impacted by 115
net store closings during the preceding twelve-month
period. Additionally, a lack of balanced assortments in inventory
continued to negatively impact our Retail Stores segment
sales. Retail Stores segment e-commerce sales for the Fiscal 2009
Third Quarter increased 5.7% from the Fiscal 2008 Third Quarter and represented
4.7% of consolidated net sales for the current-year period as compared to 3.7%
of consolidated net sales for the prior-year period. Net sales from
our Direct-to-Consumer segment decreased primarily as a result of the closing of
our Lane Bryant Woman catalog business, which we completed during the Fiscal
2009 Second Quarter.
Gross
Profit
Consolidated
gross profit declined $17.1 million due to store closings and negative
comparable-store sales, partially offset by an improved gross
margin. Consolidated gross margin increased 560 basis points in the
Fiscal 2009 Third Quarter as compared to the prior-year period. The
increase is primarily attributable to reduced markdown activity during the
current-year period as a result of our continuing efforts to tightly manage our
inventories. We were significantly less promotional during the Fiscal
2009 Third Quarter as compared to the prior-year period, especially at FASHION
BUG, which contributed to the improvement in gross margin in the current year
period. Catalog advertising expenses decreased as compared to the
prior-year period primarily as a result of the closing of our LANE BRYANT WOMAN
catalog business, which was completed in the Fiscal 2009 Second
Quarter.
Occupancy
and Buying
Although
consolidated occupancy and buying expenses increased 1.4% as a percentage of
consolidated net sales as compared to the prior-year period, they decreased
$11.5 million primarily as a result of operating fewer stores, as well as other
store-related occupancy savings.
Selling,
General, and Administrative
Consolidated
selling, general, and administrative expenses decreased 0.6% as a percentage of
consolidated net sales and decreased $30.9 million from the prior-year
period. The decrease was primarily in store selling payroll and other
store related expenses and was attributable to operating fewer stores and our
expense reduction initiatives. The decrease in selling, general, and
administrative expenses as a percentage of sales in spite of double-digit
declines in comparable store sales is reflective of our continued focus on
controlling operating expenses.
Retail
Stores Segment Results of Operations
Net
Sales
Comparable
store sales for the Fiscal 2009 Third Quarter decreased at each of our Retail
Stores brands as compared to the Fiscal 2008 Third Quarter. Net sales
for all of our brands continued to be negatively impacted by reduced store
traffic levels, a lack of a balanced merchandise assortment, and weak consumer
spending due to the current economic environment. Additionally, the
115 net store closings during the preceding 12-month period contributed to the
decrease in net sales at our Retail Stores brands. Retail Stores
segment e-commerce sales for the Fiscal 2009 Third Quarter increased 5.7% from
the Fiscal 2008 Third Quarter and represented 4.8% of Retail Stores segment net
sales for the current-year period as compared to 3.9% of Retail Stores segment
net sales for the prior-year period.
LANE
BRYANT sales decreased as compared to the prior-year period primarily as a
result of negative comparable store sales and net store closings. A
double-digit decrease in traffic was only partially offset by an improvement in
conversion rate and average dollar sale. A 16% decrease in LANE
BRYANT inventories on a comparable-store basis resulted in less promotional
activity and less carryover of spring clearance sales, which contributed to the
decrease in net sales but benefited gross margin.
FASHION
BUG sales decreased as a result of negative comparable store sales, net store
closings, the elimination of the girls and juniors departments during the
current year, and decreased spring clearance and closeout sales, which were
partially offset by improved fall and year-round merchandise
sales. The lower clearance volume resulted from reduced inventory,
which decreased 28% on a comparable-store basis, and from improved management of
in-season merchandise markdowns. Additionally, FASHION BUG sales in
the prior-year period included significantly greater promotional markdowns to
sell-through slow-moving seasonal inventory as compared to the current-year
period. The reduction in traffic at FASHION BUG and a decrease in
average dollar sale were partially offset by an improvement in the conversion
rate.
CATHERINES
sales were below the prior year primarily as a result of negative comparable
store sales due to a double-digit decrease in traffic, which was partially
offset by an improvement in average dollar sale. At our CATHERINES
brand we made progress on more balanced and compelling assortments, as well as
reduced promotional activity as compared to the prior-year period.
During
the Fiscal 2009 Third Quarter we recognized revenues of $4.8 million in
connection with our loyalty card programs as compared to revenues of $5.3
million during the Fiscal 2008 Third Quarter.
Gross
Profit
Gross
profit for the Retail Stores segment as a percentage of net sales increased 5.2%
due to reduced markdown activity on fall and fall transitional merchandise
during the current-year period as a result of lean
inventories. Markdowns as a percentage of sales decreased as compared
to the prior-year period at each of our brands, especially at FASHION BUG, which
had significantly lower promotional activity in the current-year period due to
lower inventory purchases. Gross profit as a percentage of net sales
increased 3.2% for LANE BRYANT, 8.3% for FASHION BUG, and 4.0% for
CATHERINES.
Although
LANE BRYANT experienced reduced levels of promotional activity in the current
year at a higher initial markup, which resulted in an increased gross margin
rate, the increase in the gross margin rate was not sufficient to offset the
negative impact from the decrease in sales. CATHERINES experienced
increased gross margins due to reduced markdown activity as a result of improved
inventory management, a higher initial markup, and better sell-through of fall
and spring merchandise.
Occupancy
and Buying
Occupancy
and buying expenses for the Retail Stores segment increased 1.1% 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 Retail Stores
net sales. However, expense dollars decreased as a result of
operating fewer stores and other expense reduction
initiatives. Occupancy and buying expenses as a percentage of net
sales increased 2.0% for LANE BRYANT and 1.2% for FASHION BUG, and decreased
0.4% for CATHERINES.
Selling,
General, and Administrative
Selling,
general, and administrative expenses for the Retail Stores segment as a
percentage of net sales increased 0.9% primarily as a result of negative
leverage from the decrease in Retail Stores net 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 the closing of stores and other store expense reduction
initiatives resulted in reductions of store selling payroll and store related
expenses. Selling, general, and administrative expenses as a
percentage of net sales increased 1.3% for LANE BRYANT, 0.7% for FASHION BUG,
and 1.6% for CATHERINES.
Direct-to-Consumer
Segment Results of Operations
Net
Sales
The
decrease in net sales from our Direct-to-Consumer segment was primarily
attributable to the closing of our LANE BRYANT WOMAN catalog and related website
during the Fiscal 2009 Second Quarter. Net sales from our FIGI’S
catalog were comparable to the prior-year period.
Gross
Profit
Gross
profit for the Direct-to-Consumer segment increased 17.4% as a percentage of
sales as compared to the prior-year period. The increase resulted
primarily from the markdowns recorded in the prior year for the closing of our
LANE BRYANT WOMAN catalog business, which was announced during the Fiscal 2008
Third Quarter and completed in the Fiscal 2009 Second Quarter.
Occupancy
and Buying
Occupancy
and buying expenses as a percentage of net sales for our Direct-to-Consumer
segment increased 5.5% primarily as a result of negative leverage from the
decrease in net sales and from costs associated with the retained facilities and
fixed assets from the sale of our non-core misses apparel catalog business,
which was completed in the prior year period, and the closing of our LANE BRYANT
WOMAN catalog business.
Selling,
General, and Administrative
Selling,
general, and administrative expenses for our Direct-to-Consumer segment
increased 24.2% as a percentage of sales primarily as a result of the reduction
in net sales from the closing of our LANE BRYANT WOMAN catalog business, but
decreased in dollar amount as compared to the prior-year period.
Depreciation
and Amortization
Depreciation
and amortization expense was flat as a percentage of sales as compared to the
prior-year period, but decreased in dollar amount primarily as a result of our
operation of fewer stores in the current-year period as compared to the
prior-year period.
Sale
of Proprietary Credit Card Receivables Programs
On August
13, 2009 we announced an agreement for the sale of our proprietary credit card
receivables programs (see “RECENT DEVELOPMENTS”
above). The transaction was closed on October 30, 2009 and we
recognized one-time net charges of $13.4 million as a result of the sale during
the Fiscal 2009 Third Quarter, primarily related to contract termination and
transaction-related costs and severance and retention costs. See
“Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 9. Sale of Proprietary
Credit Card Receivables Programs” above for further
information regarding our proprietary credit card receivables
programs.
Impairment
of Store Assets
As a
result of the impact of the economic environment on our operating results during
Fiscal 2008, during the Fiscal 2008 Third Quarter we identified approximately
120 stores with asset carrying values in excess of such stores’ respective
forecasted undiscounted cash flows. Accordingly, we recognized a
non-cash charge of $20.2 million to write down these stores to their respective
fair values. There were no indicators of impairment identified during
the Fiscal 2009 Third Quarter.
Restructuring
and Other Charges
During
the Fiscal 2009 Third Quarter we continued to execute on our multi-year
transformational initiatives and recognized the following pre-tax charges
recorded as restructuring and other charges:
●
|
$11.1
million for lease termination and related costs for the retained lease
facilities from the sale of the non-core misses apparel catalog business
that ceased operations during the Fiscal 2009 Third
Quarter.
|
|
|
●
|
$1.7
million for accelerated depreciation related to fixed assets retained from
the sale of the non-core misses apparel catalog business and our decision
to outsource the development and hosting of our new e-commerce
platform. These fixed assets were fully depreciated as of the
Fiscal 2009 Third Quarter.
|
|
|
●
|
$1.9
million for costs related to our multi-year business transformation
initiatives and other costs.
|
During
the Fiscal 2008 Third Quarter we recognized charges of approximately $2.4
million for lease termination, severance, relocation, and other costs related to
restructuring initiatives announced during 2007 and 2008. We also
recognized approximately $0.9 million of non-cash charges for write-downs of
assets retained from the sale of the non-core misses apparel catalog
business. In addition, we recognized a total of approximately $3.1
million of severance costs related to our decision to discontinue our LANE
BRYANT WOMAN catalog operations and the elimination of 20 corporate
positions.
Gain
on Repurchase of 1.125% Senior Convertible Notes
During
the Fiscal 2009 Third Quarter we repurchased 1.125% Notes with an aggregate
principal amount of $17.5 million and an aggregate unamortized discount of $4.1
million for an aggregate purchase price of $12.7 million and recognized a gain
on the repurchase of $1.3 million net of unamortized issue costs. In
accordance with ASC 470-20, “Debt With Conversion and Other Options,”
approximately $0.8 million of the aggregate purchase price was accounted for as
a reduction of stockholders’ equity.
Subsequent
to the end of the Fiscal 2009 Third Quarter we repurchased 1.125% Senior
Convertible Notes with an aggregate principal amount of $16.1 million for an
aggregate purchase price of $11.3 million. We expect to recognize a
gain on the repurchase of approximately $1.2 million net of unamortized issue
costs during the Fiscal 2009 Fourth Quarter. Including the 1.125%
Notes purchased during the first three quarters of Fiscal 2009, we have
repurchased notes with an aggregate principal amount of $85.4 million for an
aggregate purchase price of $50.6 million, and will recognize an aggregate gain
on the repurchases of approximately $14.0 million net of unamortized issue
costs.
Income
Tax Provision/(Benefit)
Our
income tax provision for the Fiscal 2009 Third Quarter was $4.9 million on a
loss from continuing operations before taxes of $43.4 million as compared to a
tax benefit of $11.9 million on a loss from continuing operations before taxes
of $71.7 million for the Fiscal 2008 Third Quarter. We continue to
have a valuation allowance recorded against our net deferred tax assets and, as
such, the income tax provision for the Fiscal 2009 Third Quarter was primarily a
result of state income taxes payable as well as required deferred taxes, and a
net increase in our liability for unrecognized tax benefits, interest, and
penalties in accordance with ASC 740-10, “Income Taxes.”
The
Fiscal 2008 Third Quarter income tax benefit was unfavorably affected by a
non-cash provision to establish a valuation allowance against our net deferred
tax assets, adjustments relating to the reconciliation of our Fiscal 2007
Federal tax provision to our filed tax return, and an increase in our liability
for unrecognized tax benefits, interest, and penalties. Additionally,
the Fiscal 2008 Third Quarter benefit was favorably impacted by the filing of
amended returns for which we were able to realize the benefits of certain tax
credits that were previously not benefited due to uncertainty regarding their
realization.
During
the Fiscal 2008 Third Quarter we evaluated our assumptions regarding the
recoverability of our net 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, we
recognized a non-cash provision of $17.9 million to establish a valuation
allowance against our net deferred tax assets. We will continue to
record a valuation allowance until such time as the certainty of future tax
benefits can be reasonably assured.
The
recognition 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 ASC 740-10, 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 portion of the net
deferred tax assets.
On
November 6, 2009 H.R. 3548, the “Worker, Homeownership, and Business Assistance
Act of 2009” (the “Act”) was signed into law. The Act contains a
number of tax law changes, including a provision that permits companies to
carryback applicable 2008 or 2009 net operating losses (“NOL”) up to five years,
instead of the general two-year carryback. The Act defines an
applicable NOL as a NOL that arises in a tax year either beginning or ending in
2008 or 2009. We previously carried a portion of our Fiscal 2008 NOL
back two years; however, we now have the opportunity to carry back the remaining
NOL to the preceding three years to offset taxable income in those years and
receive a cash refund. Under ASC 740, “Income Taxes,” the tax effects
of the Act, including the re-measurement of existing current and deferred tax
assets and liabilities, as well as related valuation allowances, are recognized
in the interim period that includes the enactment date of the change (our Fiscal
2009 Fourth Quarter). We are currently evaluating the Act, and any
resulting impact on our income tax provision has not yet been
determined.
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
Fiscal 2008 Third Quarter (see “Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); “Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations”
above). During the Fiscal 2008 Third Quarter we recognized a net loss
from discontinued operations of $7.2 million, an increase in the loss on
disposition of the discontinued operations of $4.0 million, and a reversal of
previously recognized tax benefits related to the discontinued operations of
$12.7 million as a result of our recognition of a valuation allowance against
net deferred tax assets.
Comparison
of Thirty-nine Weeks Ended October 31, 2009 and November 1, 2008
Consolidated
Results of Operations
Net
Sales
Consolidated
net sales for the first three quarters of Fiscal 2009 decreased as compared to
the first three quarters of Fiscal 2008 as a result of decreases in net sales
from each of the brands in our Retail Stores segment driven primarily by
negative comparable store sales. Reduced store traffic levels and our
efforts to reduce non-productive promotional markdowns contributed to our
negative comparable store sales. Retail Stores segment sales were
also impacted by 115 net store closings during the preceding twelve-month
period. Additionally, conservative inventory planning and a lack of
balanced assortments in inventory negatively impacted our Retail Stores segment
sales. Retail Stores segment e-commerce sales for the first three
quarters of Fiscal 2009 increased 4.3% from the first three quarters of Fiscal
2008 and represented 4.4% of consolidated net sales for the current-year period
as compared to 3.5% of consolidated net sales for the prior-year
period. Net sales from our Direct-to-Consumer segment decreased
primarily as a result of the closing of our LANE BRYANT WOMAN catalog business,
which we completed during the Fiscal 2009 Second Quarter.
Gross
Profit
Consolidated
gross profit increased 3.7% as a percentage of consolidated net sales in the
first three quarters of Fiscal 2009 as compared to the first three quarters of
Fiscal 2008. The increase is primarily attributable to reduced
markdown activity during the current-year period as a result of our efforts to
tightly manage our inventories. During the prior-year period we were
significantly more promotional in order to sell-through slow-moving seasonal
inventory. Catalog advertising expenses decreased as compared to the
prior-year period primarily as a result of the closing of our LANE BRYANT WOMAN
catalog, which was completed during the Fiscal 2009 Second Quarter.
Occupancy
and Buying
Consolidated
occupancy and buying expenses increased 2.2% as a percentage of consolidated net
sales in the first three quarters of Fiscal 2009 as compared to the prior-year
period primarily as a result of negative leverage from the decrease in
consolidated net sales. Although occupancy and buying expenses
de-leveraged as compared to the prior year, they decreased in dollar amount
primarily as a result of the closing of under-performing stores, as well as
other store-related occupancy savings. Consolidated occupancy and
buying expenses for the first three quarters of Fiscal 2008 included a gain of
approximately $1.8 million from the sale of our Memphis, Tennessee distribution
center.
Selling,
General, and Administrative
Consolidated
selling, general, and administrative expenses were flat as a percentage of
consolidated net sales in the first three quarters of Fiscal 2009 and decreased
in dollar amount from the prior-year period. The decrease in expense
dollars was primarily attributable to the closing of under-performing stores and
our expense reduction initiatives. During the first three quarters of
Fiscal 2008 we recognized $5.9 million of expenses in connection with advisory
and legal fees related to a proxy contest which was settled in May
2008.
Retail
Stores Segment Results of Operations
Net
Sales
Comparable
store sales for the first three quarters of Fiscal 2009 decreased at each of our
Retail Stores brands as compared to the first three quarters of Fiscal
2008. Net sales for all of our brands continued to be negatively
impacted by reduced traffic levels and weak consumer spending due to the current
economic environment. Additionally, the 115 net store closings during
the preceding 12-month period 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 unit retail per transaction
increased for each of our brands except for FASHION BUG. Retail
Stores segment e-commerce sales for the first three quarters of Fiscal 2009
increased 4.3% from the first three quarters of Fiscal 2008 and represented 4.5%
of Retail Stores segment net sales for the current-year period as compared to
3.7% of Retail Stores segment net sales for the prior-year period.
LANE
BRYANT sales decreased as compared to the prior-year period primarily as a
result of negative comparable store sales and net store
closings. Reductions in traffic attributable to reduced consumer
demand and a lack of a balanced assortment of fashion and core merchandise
contributed to the reduction in sales. LANE BRYANT sales experienced
reduced levels of promotional activity in the current-year period.
FASHION
BUG sales decreased as a result of negative comparable store sales, net store
closings, and the elimination of the girls and juniors departments during the
current year. Additionally, FASHION BUG sales in the prior-year
period included significantly greater promotional markdowns to sell-through
slow-moving seasonal inventory as compared to the current-year
period. Although the prior year’s promotional activity had a negative
impact on this year’s comparable store sales, the reduced level of promotions in
the current-year period contributed to an improvement in gross
margins.
CATHERINES
sales were below the prior year primarily as a result of negative comparable
store sales, but CATHERINES experienced reduced levels of promotional activity
in the current-year period.
During
the first three quarters of Fiscal 2009 we recognized revenues of $14.8 million
in connection with our loyalty card programs as compared to revenues of $15.6
million during the first three quarters of Fiscal 2008.
Gross
Profit
Gross
profit for the Retail Stores segment as a percentage of net sales increased
2.8%, reflecting reduced markdown activity during the current-year period as a
result of our proactive management of inventory in response to reduced consumer
demand. Gross profit as a percentage of net sales increased 3.7% for
LANE BRYANT, 1.2% for FASHION BUG , and 3.5% for CATHERINES. The
increases in merchandise margins at LANE BRYANT and CATHERINES were a result of
reduced markdown activity and higher initial markups while increased merchandise
margins at FASHION BUG were partially offset by markdown activity related to
clearance of slow-moving seasonal merchandise.
Occupancy
and Buying
Occupancy
and buying expenses increased 1.5% 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 Retail Stores net
sales. However, expense dollars decreased as a result of the closing
of under-performing stores and other expense reduction
initiatives. Occupancy and expenses as a percentage of net sales
increased 1.8% for LANE BRYANT and 2.1% for FASHION BUG, and
decreased 0.3% for CATHERINES.
Selling,
General, and Administrative
Selling,
general, and administrative expenses for the Retail Stores segment as a
percentage of net sales increased 0.6% primarily as a result of negative
leverage from the decrease in Retail Stores net 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 the closing of under-performing stores and other store
expense reduction initiatives resulted in reductions to selling, general, and
administrative expenses. Selling, general, and administrative
expenses as a percentage of net sales increased 1.0% for LANE BRYANT, 0.4% for
FASHION BUG, and 1.6% for CATHERINES.
Direct-to-Consumer
Segment Results of Operations
Net
Sales
The
decrease in net sales from our Direct-to-Consumer segment was primarily
attributable to reduced sales from our LANE BRYANT WOMAN catalog and related
website. During the Fiscal 2009 Second Quarter we completed the
closing of our LANE BRYANT WOMAN catalog business.
Gross
Profit
Gross
profit for the Direct-to-Consumer segment increased 5.6% as a percentage of
sales as compared to the prior-year period. The increase resulted
from improved merchandise margins from the closing of our LANE BRYANT WOMAN
catalog business, which was completed in the Fiscal 2009 Second Quarter and
reduced catalog advertising expenses at FIGI’S.
Occupancy
and Buying
Occupancy
and buying expenses as a percentage of net sales for our Direct-to-Consumer
segment increased 6.7% primarily as a result of negative leverage from the
decrease in net sales related to the closing of our LANE BRYANT WOMAN catalog
business.
Selling,
General, and Administrative
Selling,
general, and administrative expenses for our Direct-to-Consumer segment
increased 7.8% as a percentage of sales as compared to the prior-year period
primarily as a result of the closing of our LANE BRYANT WOMAN catalog
business.
Depreciation
and Amortization
Depreciation
and amortization expense was flat as a percentage of sales as compared to the
prior-year period, but decreased in dollar amount primarily as a result of our
operation of fewer stores in the current-year period as compared to the
prior-year period.
Sale
of Proprietary Credit Card Receivables Programs
On August
13, 2009 we announced an agreement for the sale of our proprietary credit card
receivables programs (see “RECENT DEVELOPMENTS”
above). The transaction was closed on October 30, 2009 and we
recognized one-time net charges of $13.4 million as a result of the sale during
the Fiscal 2009 Third Quarter, primarily related to contract termination and
transaction-related costs and severance and retention costs. See
“Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 9. Sale of Proprietary
Credit Card Receivables Programs” and “Note 10. Asset
Securitization”
above for further information regarding our proprietary credit card receivables
programs.
Impairment
of Store Assets
As
discussed in the quarterly comparisons above, during the Fiscal 2008 Third
Quarter we identified approximately 120 stores with asset carrying values in
excess of such stores’ respective forecasted undiscounted cash
flows. Accordingly, we recognized a non-cash charge of $20.2 million
to write down these stores to their respective fair values. There
were no indicators of impairment identified during the current-year
period.
Restructuring
and Other Charges
During
the first three quarters of Fiscal 2009 we continued to execute on our
multi-year transformational initiatives and recognized the following pre-tax
charges recorded as restructuring and other charges:
●
|
$12.1
million for lease termination costs related to the retained leased
facilities from the sale of the non-core misses apparel catalog
business. These retained facilities ceased operations by the
end of the Fiscal 2009 Third Quarter.
|
|
|
●
|
$8.6
million for costs related to our multi-year business transformation
initiatives.
|
|
|
●
|
$7.9
million for accelerated depreciation related to fixed assets retained from
the sale of the non-core misses apparel catalog business and our decision
to outsource the development and hosting of our new e-commerce
platform. These fixed assets were fully depreciated by the end
of the Fiscal 2009 Third Quarter.
|
|
|
●
|
$1.3
million for retention costs and accelerated depreciation for the planned
closing of the LANE BRYANT WOMAN catalog operations, which we completed
during the Fiscal 2009 Second Quarter.
|
|
|
●
|
$1.3
million for lease termination costs and accelerated depreciation related
to the closing of under-performing stores and other
costs.
|
During
the first three quarters of Fiscal 2008 we recognized pre-tax charges of $9.3
million for lease termination, severance, retention, and relocation costs
related to the closing of under-performing stores and the consolidation of our
CATHERINES operations from Memphis, Tennessee to our Bensalem
headquarters. We also recognized $2.3 million of non-cash pre-tax
charges for write-downs of assets related to under-performing stores to be
closed and accelerated depreciation related to the closing of the Memphis
facility, and $0.9 million of asset write-downs from the sale of our non-core
misses apparel catalog business. Additionally, during the first three
quarters of Fiscal 2008 we recognized $9.3 million of severance costs in
connection with the resignation of our former Chief Executive Officer, Dorrit J.
Bern and approximately $3.1 million of severance costs related to our decision
to discontinue our LANE BRYANT WOMAN catalog operations and the elimination of
20 corporate positions.
Gain
on Repurchase of 1.125% Senior Convertible Notes
During
the first three quarters of Fiscal 2009 we repurchased 1.125% Notes with an
aggregate principal amount of $69.2 million and an aggregate unamortized
discount of $17.1 million for an aggregate purchase price of $39.3 million and
recognized a gain on the repurchase of $12.8 million net of unamortized issue
costs. In accordance with ASC 470-20, “Debt With Conversion and Other
Options,” approximately $1.0 million of the aggregate purchase price was
accounted for as a reduction of stockholders’ equity.
Subsequent
to the end of the Fiscal 2009 Third Quarter we repurchased 1.125% Senior
Convertible Notes with an aggregate principal amount of $16.1 million for an
aggregate purchase price of $11.3 million. We expect to recognize a
gain on the repurchase of approximately $1.2 million net of unamortized issue
costs during the Fiscal 2009 Fourth Quarter. Including the 1.125%
Notes purchased during the first three quarters of Fiscal 2009, we have
repurchased notes with an aggregate principal amount of $85.4 million for an
aggregate purchase price of $50.6 million, and will recognize an aggregate gain
on the repurchases of approximately $14.0 million net of unamortized issue
costs.
Income
Tax Provision/(Benefit)
Our
income tax provision for the first three quarters of Fiscal 2009 was $10.3
million on a loss from continuing operations before taxes of $39.6 million as
compared to a tax benefit of $15.3 million on a loss from continuing operations
before taxes of $81.7 million for the first three quarters of Fiscal
2008. We continue to have a valuation allowance recorded against our
net deferred tax assets and, as such, the income tax provision for the first
three quarters of Fiscal 2009 was primarily a result of: (i) a net increase in
our liability for unrecognized tax benefits, interest, and penalties in
accordance with ASC 740-10, “Income Taxes,” after a decrease due to settlements
with state tax authorities; (ii) state income taxes payable; and (iii) required
deferred taxes.
The tax
benefit for the first three quarters of Fiscal 2008 was unfavorably impacted by
a non-cash provision to establish a valuation allowance against our net deferred
tax assets (see the quarterly comparison above), adjustments relating to the
reconciliation of our Fiscal 2007 Federal tax provision to our filed tax return,
and an increase in our liability for unrecognized tax benefits, interest, and
penalties in accordance with ASC 740-10. These unfavorable impacts
were partially offset by the filing of amended returns for which we were able to
realize the benefits of certain tax credits that were previously not benefited
due to uncertainty regarding their realization, the receipt of non-taxable life
insurance proceeds, and adjustments to certain state tax accruals.
On
November 6, 2009 H.R. 3548, the “Worker, Homeownership, and Business Assistance
Act of 2009” (the “Act”) was signed into law. The Act contains a
number of tax law changes, including a provision that permits companies to
carryback applicable 2008 or 2009 net operating losses (“NOL”) up to five years,
instead of the general two-year carryback. The Act defines an
applicable NOL as a NOL that arises in a tax year either beginning or ending in
2008 or 2009. We previously carried a portion of our Fiscal 2008 NOL
back two years; however, we now have the opportunity to carry back the remaining
NOL to the preceding three years to offset taxable income in those years and
receive a cash refund. Under ASC 740, “Income Taxes,” the tax effects
of the Act, including the re-measurement of existing current and deferred tax
assets and liabilities, as well as related valuation allowances, are recognized
in the interim period that includes the enactment date of the change (our Fiscal
2009 Fourth Quarter). We are currently evaluating the Act, and any
resulting impact on our income tax provision has not yet been
determined.
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
Fiscal 2008 Third Quarter (see “Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 1. Condensed Consolidated
Financial Statements; Discontinued
Operations”
above). During the first three quarters of Fiscal 2008 we recognized
a net loss from discontinued operations of $28.2 million and an estimated loss
on disposition of the discontinued operations of $46.7 million.
Our
primary sources of working capital are cash flow from operations, our
private-label credit card receivables programs (see “Item 1. Notes to Condensed
Consolidated Financial Statements (Unaudited); Note 9. Sale of Proprietary
Credit Card Receivables Programs” and “Note 10. Asset
Securitization,”
and “RECENT
DEVELOPMENTS” above for further information regarding our
proprietary credit card programs), our investment portfolio, and our revolving
credit facility. The following table highlights certain information
related to our liquidity and capital resources:
|
|
October
31,
|
|
|
January
31,
|
|
(Dollars
in millions)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
223.9 |
|
|
$ |
93.8 |
|
Available-for-sale
securities
|
|
$ |
0.4 |
|
|
$ |
6.4 |
|
Working
capital
|
|
$ |
343.6 |
|
|
$ |
382.0 |
|
Current
ratio
|
|
|
2.0 |
|
|
|
2.4 |
|
Long-term
debt to equity ratio
|
|
|
37.4 |
% |
|
|
43.3 |
% |
The
following discussion of cash flows is based on our consolidated statements of
cash flows included in “Item 1.
Financial Statements (Unaudited)” above, which includes the results of
both our continuing operations and our discontinued operations for the first
three quarters of Fiscal 2008.
Our net
cash provided by operating activities increased to $134.4 million for the first
three quarters of Fiscal 2009 from $19.1 million for the first three quarters of
Fiscal 2008. The increase was primarily a result of $85.1 million in
net proceeds from the sale of our retained interests in our proprietary credit
card receivable program (the remaining $51.3 million of the net proceeds from
the sale was recorded as cash from investing activities), a $16.4 million
decrease in the loss from continuing operations, and an $11.0 million decrease
in our investment in inventories (net of accounts payable) as compared to the
prior-year period. Additionally, during the Fiscal 2009 Third Quarter
we received a Federal income tax refund of $27.7 million related to a carryback
of net operating losses previously recorded as a component of “Prepayments and
other” on our consolidated balance sheet. On a comparable-store
basis, inventories decreased 17% as of October 31, 2009 as compared to November
1, 2008.
During
the first three quarters of Fiscal 2009 we repurchased 1.125% Senior Convertible
Notes with an aggregate principal amount of $69.2 million and a carrying value
of $52.1 million (net of unamortized discount) for an aggregate purchase price
of $39.3 million. Subsequent to the end of the Fiscal 2009 Third
Quarter we repurchased additional 1.125% Notes with an aggregate principal
amount of $16.1 million and a carrying value of $12.4 million (net of
unamortized discount) for an aggregate purchase price of $11.3
million. In addition, during the first three quarters of Fiscal 2009
we used $5.1 million for repayments of other long-term borrowings and $7.3
million for deferred financing costs related to our new revolving credit
facility (see “FINANCING;
Revolving Credit
Facility” below). During the first three quarters of Fiscal
2008 we used $6.8 million of cash for repayments of long-term debt and $11.0
million of cash to purchase 2.0 million shares of common stock.
Capital
Expenditures
Our gross
capital expenditures, excluding construction allowances received from landlords,
were $16.3 million during the first three quarters of Fiscal 2009 as compared to
$49.5 million for the first three quarters of Fiscal 2008. Capital
expenditures net of construction allowances received from landlords were $12.1
million during the first three quarters of Fiscal 2009 as compared to $24.9
million for the first three quarters of Fiscal 2008. We also acquired
equipment through capital leases of $6.0 million during the first three quarters
of Fiscal 2008.
We
significantly reduced capital expenditures during Fiscal 2009. We
plan to open approximately 14 new stores in Fiscal 2009 as compared to 48 new
stores in Fiscal 2008, and anticipate that our Fiscal 2009 gross capital
expenditures will be approximately $32.5 million before construction allowances
received from landlords as compared to gross capital expenditures of $55.8
million for Fiscal 2008. 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
During
the Fiscal 2008 First Quarter we repurchased an aggregate total of 0.5 million
shares of common stock for $2.7 million under a $200 million share repurchase
program announced in November 2007 and 1.5 million shares of common stock for
$8.3 million under a prior authorization from our Board of
Directors. We have not repurchased any shares of common stock
subsequent to the Fiscal 2008 First Quarter. Our amended 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 such repurchase, immediately after such repurchase, and on a
projected pro-forma basis for the 12 consecutive fiscal months
thereafter. See “PART II, Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds” below for additional
information regarding the share-repurchase program announced in November
2007.
Dividends
We have
not paid any dividends since 1995, and we do not expect to declare or pay any
dividends on our common stock in the foreseeable future. The payment
of future dividends is within the discretion of our Board of Directors and will
depend upon our future earnings, if any; our capital requirements; our financial
condition; and other relevant factors. Our amended revolving credit
facility allows the payment of dividends on our common stock not to exceed $15
million in any fiscal year. Such payments are subject to maintaining
a minimum level of “Excess Availability” (as defined in the facility agreement)
for 30 days before the payment of such dividends, immediately after the payment
of such dividends, and on a projected pro-forma basis for the 12 consecutive
fiscal months thereafter.
Off-Balance-Sheet
Financing
Sale
of Proprietary Credit Card Receivables Programs
On August
13, 2009 we announced an agreement for the sale of our proprietary credit card
receivables programs to World Financial Network National Bank (“WFNNB”), a
subsidiary of Alliance Data Systems Corporation (“Alliance Data”). We
also entered into ten-year operating agreements with Alliance Data for the
provision of private-label credit card programs for our
customers. The transaction was closed on October 30,
2009. See “Item 1. Notes to Condensed Consolidated
Financial Statements (Unaudited); Note 9. Sale of Proprietary Credit Card
Receivables Programs” and “RECENT DEVELOPMENTS” above
for further details regarding the sale of our proprietary credit card
receivables programs.
Asset
Securitization Program
Prior to
the sale of our proprietary credit card receivables programs, our asset
securitization program primarily involved the sale of proprietary credit card
receivables to a special-purpose entity, which in turn transferred the
receivables to a separate and distinct qualified special-purpose entity
(“QSPE”). The QSPE’s assets and liabilities were not consolidated in
our balance sheet and the receivables transferred to the QSPEs were isolated for
purposes of the securitization program. We used our asset
securitization facilities to fund the credit card receivables generated by our
FASHION BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE proprietary credit
card programs. Additional information regarding our asset
securitization facilities, including the sale of our proprietary credit card
receivables programs, is included in “Item 1. Notes to Condensed Consolidated
Financial Statements (Unaudited); Note 9. Sale of Proprietary Credit Card
Receivables Programs” and “Note 10. Asset
Securitization” above; under the caption “MARKET RISK” below; and in
“Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
CRITICAL ACCOUNTING POLICIES; Asset
Securitization” and “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; NOTE 17. ASSET
SECURITIZATION”
of Exhibit 99.1 to our Form 8-K dated June 19, 2009.
Our
Proprietary Credit Card Programs
Prior to
the October 30, 2009 sale of the proprietary credit card portfolio we managed
our proprietary credit card programs to enhance customer loyalty and to allow us
to integrate our direct-mail marketing strategy when communicating with our core
customers. We also earned revenue from operating the proprietary
credit card programs. As discussed above, we utilized asset
securitization as the primary funding source for our proprietary credit card
receivables programs. As a result, our primary source of benefits was
derived from the distribution of net excess spread revenue from our
QSPEs.
The
transfer of proprietary credit card receivables under our previous asset
securitization program was without recourse and we accounted for the program in
accordance with ASC 860, “Transfers and Servicing.” Under ASC 860,
our benefit from the proprietary credit card receivables represented primarily
the net excess spread revenues we received from monthly securitization
distributions associated with the collections on managed outstanding
receivables. We recognized on an accrual basis these net excess
spread revenues, which generally represented finance charge revenues in excess
of securitization funding costs, net credit card charge-offs, and the
securitization servicing fee. Finance charge revenues included
finance charges and fees assessed to the proprietary credit card
customers. Net credit card charge-offs represented gross monthly
charge-offs on customer accounts less recoveries on accounts previously
charged-off. For purposes of the table provided below, we also
included any collection agency costs associated with recoveries as part of the
net excess spread revenues from proprietary credit card
receivables.
In
addition to the actual net excess spread revenues described above we recorded
our beneficial interest in the Trust as an “interest-only strip” (“I/O strip”),
which represented the estimated present value of cash flows we expected to
receive over the estimated period the receivables were
outstanding. In addition to the I/O strip we recognized a servicing
liability, which represented the present value of the excess of the costs of
servicing over the servicing fees we expected to receive, and was recorded at
estimated fair value. We used the same discount rate and estimated
life assumptions in valuing the I/O strip and the servicing
liability. We amortized the I/O strip and the servicing liability on
a straight-line basis over the expected life of the proprietary credit card
receivables.
The
benefits from operating our proprietary credit card programs also included other
revenues generated from the program. These other net revenues
included 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
proprietary credit card revenues also included interest income earned on funds
invested in the credit entities. The credit contribution was net of
expenses associated with operating the program. These expenses
included the costs to originate, bill, collect, and operate the proprietary
credit card programs. Except for net fees associated with the
fee-based loyalty programs that we included in net sales, we included the net
credit contribution as a reduction of selling, general, and administrative
expenses in our consolidated statements of operations and comprehensive
income.
Subsequent
to the sale of the program, under the ten-year operating agreements Alliance
Data will continue to offer private-label credit cards bearing our retail brand
names and we will receive ongoing payments from Alliance Data related to
private-label credit card sales, reimbursement of some private-label credit card
program marketing costs, and net revenue sharing associated with marketing of
certain enhancement services to cardholders. The level of ongoing
payments we receive may increase or decrease as a result of changes in the
performance of the private-label credit card programs or changes in the legal
and regulatory requirements affecting Alliance Data in its conduct of the
program.
The
enhancement programs described above give Alliance Data the exclusive right (but
not the obligation) to offer to our private-label credit cardholders credit
protection programs (including debt cancellation) and other enhancement
marketing services and to market these programs through credit card billing
statements and other channels. In addition, we may offer third-party
vendor products that do not compete with Alliance Data’s products and services
as described in this paragraph subject to certain limitations and
fees.
Further
details of our net credit contribution prior to the sale of the program are as
follows:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
|
October
31,
|
|
|
November
1,
|
|
(In millions)
|
|
2009(1)
|
|
|
2008
|
|
|
2009(1)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net securitization excess spread revenues
|
|
$ |
23.7 |
|
|
$ |
25.6 |
|
|
$ |
63.7 |
|
|
$ |
75.2 |
|
Net changes to the I/O strip and servicing liability
|
|
|
2.7 |
|
|
|
(0.6 |
) |
|
|
2.5 |
|
|
|
(0.6 |
) |
Other credit card revenues, net(2)
|
|
|
2.7 |
|
|
|
3.9 |
|
|
|
8.8 |
|
|
|
9.8 |
|
Total proprietary credit card revenues
|
|
|
29.1 |
|
|
|
28.9 |
|
|
|
75.0 |
|
|
|
84.4 |
|
Less total credit card program expenses
|
|
|
13.4 |
|
|
|
17.4 |
|
|
|
42.3 |
|
|
|
52.4 |
|
Total credit contribution
|
|
$ |
15.7 |
|
|
$ |
11.5 |
|
|
$ |
32.7 |
|
|
$ |
32.0 |
|
____________________
|
|
(1) Through October 30, 2009 (the date of sale of the proprietary
credit card receivables programs).
|
|
(2) Excludes inter-company merchant fees between our credit entities
and our retail entities.
|
|
The
changes in the total credit contribution for the thirteen weeks and thirty-nine
weeks ended October 30, 2009 as compared to the thirteen weeks and thirty-nine
weeks ended November 1, 2008 reflect the impact of the decreases in outstanding
balances as a result of the November 2008 sale of the Crosstown Traders
apparel-related catalog credit card receivables as well as receivables declines
in the other brand credit card portfolios as a result of reduced
sales. These balance decreases lowered both net securitization excess
spread revenues and program expenses. However, the reduction in net
securitization excess spread revenues was partially offset by increased
collection of fee income. Also, the increased collection of fee
income had a positive impact on the I/O strip valuation.
Further
details of our outstanding receivables are as follows:
|
|
Thirteen Weeks Ended
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
October
31,
|
|
|
November
1,
|
|
|
October
31,
|
|
|
November
1,
|
|
(In millions)
|
|
2009(1)
|
|
|
2008
|
|
|
2009(1)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average managed receivables outstanding
|
|
$ |
484.9 |
|
|
$ |
583.7 |
|
|
$ |
496.9 |
|
|
$ |
587.0 |
|
Ending managed receivables outstanding(2)
|
|
|
– |
|
|
$ |
588.5 |
|
|
|
– |
|
|
$ |
588.5 |
|
____________________
|
|
(1) Through October 30, 2009 (the date of sale of the proprietary
credit card receivables programs).
|
|
(2) There are no managed receivables as of October 31, 2009 due to
the sale of the credit card portfolio.
|
|
Subsequent
to the sale of our proprietary credit card receivables programs, the revenues
associated with the program will change. Revenues associated with the
securitization net excess spread revenues, the I/O valuation, and a portion of
the other credit revenues will be replaced with the payments from Alliance Data
under the ten-year operating agreements. The majority of the expenses
associated with the proprietary credit card receivables programs will be
eliminated.
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 “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; Note 18.
Leases” of Exhibit 99.1 to our Form 8-K dated June 19, 2009.
Revolving
Credit Facility
Through
July 30, 2009 we had a revolving credit facility agreement that provided for a
revolving credit facility with a maximum availability of $375 million, subject
to certain limitations as defined in the facility agreement, which was scheduled
to expire on July 28, 2010. On July 31, 2009 we entered into an
amended and restated loan and security agreement (the “amended agreement” or
“amended facility”) for a $225 million senior secured revolving credit
facility. The amended agreement includes an option allowing us to
increase our credit facility up to $300 million, based on certain terms and
conditions. The credit facility may be used for general corporate
purposes, and provides that up to $100 million of the $225 million
may be used for letters of credit. The amended facility replaces the
$375 million revolving credit facility and provides for committed revolving
credit availability through July 31, 2012. See “Item 1. Notes to Condensed Consolidated
Financial Statements (Unaudited); Note 4. Long-term Debt” above for
further details regarding the amended facility. There were no
borrowings outstanding under the facility as of October 31, 2009.
The
amended agreement provides for borrowings under either “Base Rate” loans or
“Eurodollar Rate” loans. As of October 31, 2009 the applicable
interest rates under the amended facility were 6.00% for Base Rate loans and
3.99% for 30 day Eurodollar Rate loans.
The
amended agreement provides for customary representations and warranties and
affirmative covenants, and contains customary negative covenants. The
amended agreement also provides for certain rights and remedies if there is an
occurrence of one or more events of default under the terms of the amended
agreement. Under certain conditions the maximum amount available
under the amended agreement may be reduced or terminated by the lenders and the
obligation to repay amounts outstanding under the amended agreement may be
accelerated. In each month in which Excess Availability (as defined
in the amended agreement) is less than $40 million, we will be required to
maintain a fixed charge coverage ratio of at least 1.1 to 1 for the then
preceding twelve-month fiscal period. As of October 31, 2009 the
Excess Availability under the amended facility was $196.6 million and we were in
compliance with all of the covenants included in the facility.
Long-term
Debt
During
the first three quarters of Fiscal 2009 we repurchased 1.125% Senior Convertible
Notes with an aggregate principal amount of $69.2 million and a carrying value
(net of unamortized discount) of $52.1 million for an aggregate purchase price
of $39.3 million and we repurchased additional 1.125% notes subsequent to the
end of the Fiscal 2009 Third Quarter (see “Item 1. Notes to Condensed Consolidated
Financial Statements (Unaudited); Note 4. Long-term Debt” and
“Note 17. Subsequent
Events” above). We may elect to repurchase additional notes in
privately negotiated transactions or in the open market under circumstances that
we believe to be favorable to us as circumstances may allow.
See “FORWARD-LOOKING STATEMENTS”
above and “PART I; Item 1A.
Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended
January 31, 2009 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.
Additional
information regarding our long-term borrowings is included in “Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and “Part II, Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
Note 8. Long-term Debt” of Exhibit 99.1 to our Form 8-K dated June 19,
2009.
In Fiscal
2009 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,
our ten-year operating agreements with Alliance Data related to our proprietary
credit cards, and our borrowing facilities will provide adequate liquidity for
our business operations and growth opportunities during Fiscal
2009. 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 prior to maturity or to purchase additional 1.125% Senior
Convertible Notes 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.
As a
result of the sale of our proprietary credit card receivables portfolio on
October 30, 2009, we are no longer exposed to interest-rate risk or basis risk
associated with the portfolio.
As of
October 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 1. Notes To Condensed
Consolidated Financial Statements (Unaudited); Note 16. Impact of Recent
Accounting Pronouncements” above.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
See “Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations; MARKET RISK,”
above.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports we file under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate and in such a manner as to
allow timely decisions regarding required disclosure. Our Disclosure
Committee, which is made up of several key management employees and reports
directly to the CEO and CFO, assists our management, including our CEO and CFO,
in fulfilling their responsibilities for establishing and maintaining such
controls and procedures and providing accurate, timely, and complete
disclosure.
As of the
end of the period covered by this report on Form 10-Q (the “Evaluation Date”),
our Disclosure Committee, under the supervision and with the participation of
management, including our CEO and CFO, carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our management, including our
CEO and CFO, has concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective. Furthermore, there has been
no change in our internal control over financial reporting that occurred during
the period covered by this report on Form 10-Q that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
Other
than ordinary routine litigation incidental to our business, there are no other
pending material legal proceedings that we or any of our subsidiaries are a
party to, or of which any of their property is the subject. There are
no proceedings that are expected to have a material adverse effect on our
financial condition or results of operations.
“Part I. Item 1A. Risk
Factors” of our Form 10-K for the fiscal year ended January 31, 2009
included disclosure of the following risk factor:
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.
On April
3, 2009 we announced the appointment of James P. Fogarty as President and Chief
Executive Officer and a member of our Board of Directors, replacing Alan
Rosskamm, our then Interim Chief Executive Officer. Mr. Rosskamm
continues to serve as Chairman of our Board of
Directors. Nevertheless, we remain largely dependent on our executive
officers and their management team to execute our business
strategy.
“Part I. Item 1A. Risk
Factors” of our Form 10-K for the fiscal year ended January 31, 2009 also
included disclosure of the following risk factor:
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.
Subsequent
to our filing on April 1, 2009 of our Form 10-K for the fiscal year ended
January 31, 2009 our common stock has traded in a price range between $1.33 and
$5.84 (through December 2, 2009). We believe that our dual listing on
the Chicago Stock Exchange and the recent trading prices of our common stock
have mitigated this risk factor.
As a
result of our announcement on August 13, 2009 that we have entered into an
agreement for the sale of our proprietary credit card receivables programs we
have modified our risk factors relating to our private-label credit card
programs to the following:
We cannot
assure that we will realize the expected benefits from the ten-year
private-label credit card operating agreements with Alliance Data. A
significant portion of our sales revenues are generated through our
private-label credit cards. Therefore, changes in the private-label
credit card programs that adversely impact our ability to facilitate customer
credit may adversely impact our results of operations. Alliance Data
will have discretion over certain policies and arrangements with the cardholders
and may change these policies and arrangements in ways that could affect our
relationship with the cardholders. Any such changes could adversely
affect our private-label credit card sales and our results of
operations. Our ability to continue to offer private-label credit
card programs to our customers will depend on the success of our strategic
alliance with Alliance Data.
Credit
card operations are subject to numerous Federal and state laws that impose
disclosure and other requirements upon the origination, servicing, and
enforcement of credit accounts, and limitations on the amount of finance charges
that may be charged by a credit card provider. Alliance Data may be
subject to regulations to which we were not subject prior to the sale of the
credit card portfolio on October 30, 2009. To the extent that such
limitations or regulations materially limit the availability of credit or
increase the cost of credit to our cardholders or negatively impact provisions
which affect our revenue streams associated with the ten-year operating
agreements, our results of operations could be adversely affected. In
addition, changes in credit card use, payment patterns, or default rates could
be affected by a variety of economic, legal, social, or other factors over which
we have no control and cannot predict with certainty and which could also
negatively impact the availability of credit or increase the cost of credit to
our cardholders or negatively impact provisions that affect our revenue streams
associated with the ten-year operating agreements.
As a
result of our entering into certain third-party outsourcing arrangements, we are
adding the following to the risk factors that we have previously
disclosed:
Certain
of our business processes that are dependent on technology are outsourced to
third parties. Such processes include credit card authorization and
processing, our e-commerce platform, and certain other information technology
functions. Although we make a diligent effort to insure that all
providers of outsourced services observe proper internal control practices and
procedures, we cannot assure that failures will not occur. The
failure of such third parties to provide adequate services could adversely
affect our results of operations, liquidity, or our ability to provide adequate
financial and management reporting.
Other
than the above, we have not become aware of any material changes in the risk
factors previously disclosed in “Part I; Item 1A. Risk
Factors” of our Annual Report on Form 10-K for the fiscal year ended
January 31, 2009. See also “Part I; Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
FORWARD-LOOKING STATEMENTS” and “RECENT DEVELOPMENTS”
above.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
Total
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
of
Shares
|
|
|
Shares
that
|
|
|
|
|
|
|
|
|
|
Purchased
as
|
|
|
May
Yet be
|
|
|
|
Total
|
|
|
|
|
|
Part
of Publicly
|
|
|
Purchased
|
|
|
|
Number
|
|
|
Average
|
|
|
Announced
|
|
|
Under
the
|
|
|
|
of
Shares
|
|
|
Price
Paid
|
|
|
Plans
or
|
|
|
Plans
or
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs(2)
|
|
|
Programs(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
2, 2009 through
|
|
|
|
|
|
|
|
|
|
|
|
|
August
29, 2009
|
|
|
1,363 |
(1) |
|
$ |
5.14 |
|
|
|
– |
|
|
|
|
August
30, 2009 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
3, 2009
|
|
|
1,076 |
(1) |
|
|
4.93 |
|
|
|
– |
|
|
|
|
October
4, 2009 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
31, 2009
|
|
|
0 |
|
|
|
0.00 |
|
|
|
– |
|
|
|
|
Total
|
|
|
2,439 |
|
|
$ |
5.05 |
|
|
|
– |
|
|
|
|
(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. 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. No
shares have been purchased under this plan subsequent to May 3,
2008. As of October 31, 2009, $197,364,592 was available for future
repurchases under this program. This repurchase program has no
expiration date.
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The
following is a list of Exhibits filed as part of this Quarterly Report on Form
10-Q. Where so indicated, Exhibits that were previously filed are
incorporated by reference. For Exhibits incorporated by reference,
the location of the Exhibit in the previous filing is indicated in
parentheses.
2.1
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Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June 2,
2005, filed on June 8, 2005 (File No. 000-07258, Exhibit
2.1).
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2.2
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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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2.3
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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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2.4
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Transition
Services Agreement dated as of September 18, 2008 by and between Charming
Shoppes of Delaware, Inc. and Arizona Mail Order Company, incorporated by
reference to Form 8-K of the Registrant dated September 18, 2008, filed on
September 19, 2008 (File No. 000-07258, Exhibit 10.3).
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3.1
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Restated
Articles of Incorporation, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended August 2, 2008 (File No. 000-07258,
Exhibit 3.1).
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3.2
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Bylaws,
as Amended and Restated, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 31, 2009 (File No. 000-07258,
Exhibit 3.2).
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4.1
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Third
Amended and Restated Loan and Security Agreement, dated July 31, 2009, by
and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI
Industries, Inc., FB Apparel, Inc., Catherines Stores Corporation, and
Lane Bryant, Inc. as borrowers; a syndicate of banks and other financial
institutions as lenders, including Wells Fargo Retail Finance, LLC 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 31, 2009, filed on August 6, 2009 (File No. 000-07258, Exhibit
4.1).
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10.1
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Offer
Letter dated as of April 2, 2009 by and between Charming Shoppes, Inc. and
James P. Fogarty, incorporated by reference to Form 8-K of the Registrant
dated April 2, 2009, filed on April 7, 2009 (File No. 000-07258, Exhibit
10.1).
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10.2
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Severance
Agreement dated as of April 2, 2009 by and between Charming Shoppes, Inc.
and James P. Fogarty, incorporated by reference to Form 8-K of the
Registrant dated April 2, 2009, filed on April 7, 2009 (File No.
000-07258, Exhibit 10.2).
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10.3
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Stock
Appreciation Rights Agreement dated as of April 2, 2009 by and between
Charming Shoppes, Inc. and James P. Fogarty (Inducement Grant),
incorporated by reference to Form 8-K of the Registrant dated April 2,
2009, filed on April 7, 2009 (File No. 000-07258, Exhibit
10.3).
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10.4
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Stock
Appreciation Rights Agreement dated as of April 2, 2009 by and between
Charming Shoppes, Inc. and James P. Fogarty (Time-Based Grant),
incorporated by reference to Form 8-K of the Registrant dated April 2,
2009, filed on April 7, 2009 (File No. 000-07258, Exhibit
10.4).
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10.5
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Form
of Amendment to the Severance Agreements between certain executive vice
presidents and the Company, including the following named executive
officers: Eric M. Specter, Joseph M. Baron, James G. Bloise and Colin D.
Stern, incorporated by reference to Form 8-K of the Registrant dated May
1, 2009, filed on May 5, 2009 (File No. 000-07258, Exhibit
10.1).
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10.6
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Purchase
Agreement dated as of August 12, 2009 among SOANB and CSRC, as sellers,
SOAI, and WFNNB, as purchaser, incorporated by reference to Form 8-K of
the Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.1).
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10.7
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Private
Label Credit Card Plan Agreement for Lane Bryant and Petite Sophisticate
dated as of August 12, 2009 between WFNNB and Lane Bryant, Inc., Petite
Sophisticate, Inc., Outlet Division Management Co., Inc., and Sierra
Nevada Factoring, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.2).
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10.8
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Private
Label Credit Card Plan Agreement for Fashion Bug dated as of August 12,
2009 between WFNNB and Fashion Bug Retail Companies, Inc. and Sierra
Nevada Factoring, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.3).
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10.9
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Private
Label Credit Card Plan Agreement for Catherines dated as of August 12,
2009 among WFNNB, Catherines Stores Corporation, and Sierra Nevada
Factoring, Inc., incorporated by reference to Form 8-K of the Registrant
dated August 12, 2009, filed on August 14, 2009 (File No. 000-07258,
Exhibit 10.4).
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10.10
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Agreement
Regarding CHRS Subsidiary Private Label Plans dated as of August 12, 2009
between CSI and WFNNB, incorporated by reference to Form 8-K of the
Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.5).
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10.11
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Fourth
Amendment to the Purchase and Sale Agreement, dated October 30, 2009,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.1).
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10.12
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Sixth
Amendment to Pooling and Servicing Agreement, dated October 30, 2009,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.2).
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10.13
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Series
2004-VFC Payoff and Release Agreement, dated October 25, 2009,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.3).
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10.14
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Series
1999-2 Payoff and Release Agreement, dated October 25, 2009, incorporated
by reference to Form 8-K of the Registrant dated October 30, 2009, filed
on November 3, 2009 (File No. 000-07258, Exhibit 10.4).
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10.15
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Second
Amendment to Purchase and Sale Agreement, dated November 9, 2000,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.5).
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10.16
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Third
Amendment to Purchase and Sale Agreement, dated May 8, 2001, incorporated
by reference to Form 8-K of the Registrant dated October 30, 2009, filed
on November 3, 2009 (File No. 000-07258, Exhibit 10.6).
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10.17
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Second
Amendment to the Second Amended and Restated Pooling and Servicing
Agreement, dated May 8, 2001, incorporated by reference to Form 8-K of the
Registrant dated October 30, 2009, filed on November 3, 2009 (File No.
000-07258, Exhibit 10.7).
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10.18
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Charming
Shoppes, Inc. 2004 Stock Award and Incentive 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 15, 2009
(File No. 000-07258).
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10.19
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2003
Non-Employee Directors Compensation Plan, Amended and Restated Effective
May 1, 2009, incorporated by reference to Form 10-Q of the Registrant for
the quarter ended August 1, 2009 (File No. 000-07258, Exhibit
10.12).
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Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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CHARMING SHOPPES, INC.
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(Registrant)
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Date:
December 2, 2009
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/S/ JAMES P. FOGARTY
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James
P. Fogarty
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President
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Chief
Executive Officer
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Date:
December 2, 2009
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/S/ ERIC M. SPECTER
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Eric
M. Specter
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Executive
Vice President
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Chief
Financial Officer
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Exhibit No.
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Item
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2.1
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Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June 2,
2005, filed on June 8, 2005 (File No. 000-07258, Exhibit
2.1).
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2.2
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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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2.3
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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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2.4
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Transition
Services Agreement dated as of September 18, 2008 by and between Charming
Shoppes of Delaware, Inc. and Arizona Mail Order Company, incorporated by
reference to Form 8-K of the Registrant dated September 18, 2008, filed on
September 19, 2008 (File No. 000-07258, Exhibit 10.3).
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3.1
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Restated
Articles of Incorporation, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended August 2, 2008 (File No. 000-07258,
Exhibit 3.1).
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3.2
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Bylaws,
as Amended and Restated, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 31, 2009 (File No. 000-07258,
Exhibit 3.2).
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4.1
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Third
Amended and Restated Loan and Security Agreement, dated July 31, 2009, by
and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI
Industries, Inc., FB Apparel, Inc., Catherines Stores Corporation, and
Lane Bryant, Inc. as borrowers; a syndicate of banks and other financial
institutions as lenders, including Wells Fargo Retail Finance, LLC 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 31, 2009, filed on August 6, 2009 (File No. 000-07258, Exhibit
4.1).
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10.1
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Offer
Letter dated as of April 2, 2009 by and between Charming Shoppes, Inc. and
James P. Fogarty, incorporated by reference to Form 8-K of the Registrant
dated April 2, 2009, filed on April 7, 2009 (File No. 000-07258, Exhibit
10.1).
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10.2
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Severance
Agreement dated as of April 2, 2009 by and between Charming Shoppes, Inc.
and James P. Fogarty, incorporated by reference to Form 8-K of the
Registrant dated April 2, 2009, filed on April 7, 2009 (File No.
000-07258, Exhibit 10.2).
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10.3
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Stock
Appreciation Rights Agreement dated as of April 2, 2009 by and between
Charming Shoppes, Inc. and James P. Fogarty (Inducement Grant),
incorporated by reference to Form 8-K of the Registrant dated April 2,
2009, filed on April 7, 2009 (File No. 000-07258, Exhibit
10.3).
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10.4
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Stock
Appreciation Rights Agreement dated as of April 2, 2009 by and between
Charming Shoppes, Inc. and James P. Fogarty (Time-Based Grant),
incorporated by reference to Form 8-K of the Registrant dated April 2,
2009, filed on April 7, 2009 (File No. 000-07258, Exhibit
10.4).
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10.5
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Form
of Amendment to the Severance Agreements between certain executive vice
presidents and the Company, including the following named executive
officers: Eric M. Specter, Joseph M. Baron, James G. Bloise and Colin D.
Stern, incorporated by reference to Form 8-K of the Registrant dated May
1, 2009, filed on May 5, 2009 (File No. 000-07258, Exhibit
10.1).
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10.6
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Purchase
Agreement dated as of August 12, 2009 among SOANB and CSRC, as sellers,
SOAI, and WFNNB, as purchaser, incorporated by reference to Form 8-K of
the Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.1).
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10.7
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Private
Label Credit Card Plan Agreement for Lane Bryant and Petite Sophisticate
dated as of August 12, 2009 between WFNNB and Lane Bryant, Inc., Petite
Sophisticate, Inc., Outlet Division Management Co., Inc., and Sierra
Nevada Factoring, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.2).
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10.8
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Private
Label Credit Card Plan Agreement for Fashion Bug dated as of August 12,
2009 between WFNNB and Fashion Bug Retail Companies, Inc. and Sierra
Nevada Factoring, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.3).
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10.9
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Private
Label Credit Card Plan Agreement for Catherines dated as of August 12,
2009 among WFNNB, Catherines Stores Corporation, and Sierra Nevada
Factoring, Inc., incorporated by reference to Form 8-K of the Registrant
dated August 12, 2009, filed on August 14, 2009 (File No. 000-07258,
Exhibit 10.4).
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10.10
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Agreement
Regarding CHRS Subsidiary Private Label Plans dated as of August 12, 2009
between CSI and WFNNB, incorporated by reference to Form 8-K of the
Registrant dated August 12, 2009, filed on August 14, 2009 (File No.
000-07258, Exhibit 10.5).
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10.11
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Fourth
Amendment to the Purchase and Sale Agreement, dated October 30, 2009,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.1).
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10.12
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Sixth
Amendment to Pooling and Servicing Agreement, dated October 30, 2009,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.2).
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10.13
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Series
2004-VFC Payoff and Release Agreement, dated October 25, 2009,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.3).
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10.14
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Series
1999-2 Payoff and Release Agreement, dated October 25, 2009, incorporated
by reference to Form 8-K of the Registrant dated October 30, 2009, filed
on November 3, 2009 (File No. 000-07258, Exhibit 10.4).
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10.15
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Second
Amendment to Purchase and Sale Agreement, dated November 9, 2000,
incorporated by reference to Form 8-K of the Registrant dated October 30,
2009, filed on November 3, 2009 (File No. 000-07258, Exhibit
10.5).
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10.16
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Third
Amendment to Purchase and Sale Agreement, dated May 8, 2001, incorporated
by reference to Form 8-K of the Registrant dated October 30, 2009, filed
on November 3, 2009 (File No. 000-07258, Exhibit 10.6).
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10.17
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Second
Amendment to the Second Amended and Restated Pooling and Servicing
Agreement, dated May 8, 2001, incorporated by reference to Form 8-K of the
Registrant dated October 30, 2009, filed on November 3, 2009 (File No.
000-07258, Exhibit 10.7).
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10.18
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Charming
Shoppes, Inc. 2004 Stock Award and Incentive 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 15, 2009
(File No. 000-07258).
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10.19
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2003
Non-Employee Directors Compensation Plan, Amended and Restated Effective
May 1, 2009, incorporated by reference to Form 10-Q of the Registrant for
the quarter ended August 1, 2009 (File No. 000-07258, Exhibit
10.12).
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Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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