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 July 29, 2006
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the
transition period from ______________ to _______________
Commission
File No. 000-07258
CHARMING
SHOPPES, INC.
(Exact
name of registrant as specified in its charter)
|
PENNSYLVANIA
|
|
23-1721355
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
450
WINKS LANE, BENSALEM, PA 19020
|
|
(215)
245-9100
|
|
|
(Address
of principal executive offices) (Zip Code)
|
|
(Registrant’s
telephone number, including Area Code)
|
|
NOT
APPLICABLE
(Former
name, former address, and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days:
Yes
x
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-accelerated
Filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
Yes
o No
x
The
number of shares outstanding of the issuer’s Common Stock (par value $.10 per
share), as of August 29, 2006, was 122,621,071 shares.
TABLE
OF CONTENTS
|
|
Page
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
2
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
July
29, 2006 and January 28,
2006
|
2
|
|
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive
Income
|
|
|
Thirteen
weeks ended July 29,
2006 and July 30, 2005
|
3
|
|
Twenty-six
weeks ended July 29,
2006 and July 30, 2005
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
Twenty-six
weeks ended July 29,
2006 and July 30, 2005
|
5
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
17
|
|
|
|
|
Forward-looking
Statements
|
17
|
|
|
|
|
Critical
Accounting Policies
|
19
|
|
|
|
|
Recent
Developments
|
21
|
|
|
|
|
Results
of Operations
|
21
|
|
|
|
|
Liquidity
and Capital Resources
|
28
|
|
|
|
|
Financing
|
31
|
|
|
|
|
Market
Risk
|
32
|
|
|
|
|
Impact
of Recent Accounting Pronouncements
|
32
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
32
|
|
|
|
Item
4.
|
Controls
and Procedures
|
33
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
34
|
|
|
|
Item
1A.
|
Risk
Factors
|
34
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
35
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
36
|
|
|
|
Item
6.
|
Exhibits
|
36
|
|
|
|
|
SIGNATURES
|
37
|
|
|
|
|
Exhibit
Index
|
38
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
July
29,
|
|
January
28,
|
|
(In
thousands, except share amounts)
|
|
2006
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
211,819
|
|
$
|
130,132
|
|
Available-for-sale
securities
|
|
|
22,200
|
|
|
20,150
|
|
Accounts
receivable, net of allowances of $2,044 and $6,588
|
|
|
3,145
|
|
|
38,603
|
|
Investment
in asset-backed securities
|
|
|
64,535
|
|
|
66,828
|
|
Merchandise
inventories
|
|
|
381,533
|
|
|
376,409
|
|
Deferred
advertising
|
|
|
16,080
|
|
|
20,591
|
|
Deferred
taxes
|
|
|
18,550
|
|
|
13,848
|
|
Prepayments
and other
|
|
|
100,133
|
|
|
89,245
|
|
Total
current
assets
|
|
|
817,995
|
|
|
755,806
|
|
|
|
|
|
|
|
|
|
Property,
equipment, and leasehold improvements – at cost
|
|
|
911,384
|
|
|
888,481
|
|
Less
accumulated depreciation and amortization
|
|
|
537,926
|
|
|
525,882
|
|
Net
property, equipment, and
leasehold improvements
|
|
|
373,458
|
|
|
362,599
|
|
|
|
|
|
|
|
|
|
Trademarks
and other intangible assets
|
|
|
249,606
|
|
|
250,074
|
|
Goodwill
|
|
|
154,020
|
|
|
154,553
|
|
Other
assets
|
|
|
50,994
|
|
|
43,963
|
|
Total
assets
|
|
$
|
1,646,073
|
|
$
|
1,566,995
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
20,000
|
|
$
|
50,000
|
|
Accounts
payable
|
|
|
173,659
|
|
|
133,236
|
|
Accrued
expenses
|
|
|
195,215
|
|
|
217,421
|
|
Income
taxes payable
|
|
|
8,528
|
|
|
1,743
|
|
Current
portion – long-term debt
|
|
|
12,672
|
|
|
14,765
|
|
Total
current
liabilities
|
|
|
410,074
|
|
|
417,165
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
51,147
|
|
|
45,046
|
|
Other
non-current liabilities
|
|
|
108,751
|
|
|
98,457
|
|
Long-term
debt
|
|
|
186,472
|
|
|
191,979
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
Common
Stock $.10 par value:
|
|
|
|
|
|
|
|
Authorized
–
300,000,000
shares
|
|
|
|
|
|
|
|
Issued
–
134,829,765
shares and
133,954,852 shares
|
|
|
13,483
|
|
|
13,395
|
|
Additional
paid-in capital
|
|
|
271,642
|
|
|
261,077
|
|
Treasury
stock at cost – 12,265,993 shares
|
|
|
(84,136
|
)
|
|
(84,136
|
)
|
Accumulated
other comprehensive loss
|
|
|
1
|
|
|
(3
|
)
|
Retained
earnings
|
|
|
688,639
|
|
|
624,015
|
|
Total
stockholders’
equity
|
|
|
889,629
|
|
|
814,348
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,646,073
|
|
$
|
1,566,995
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Thirteen
Weeks Ended
|
|
|
|
July
29,
|
|
July
30,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
763,353
|
|
$
|
689,075
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
532,244
|
|
|
467,014
|
|
Selling,
general, and administrative expenses
|
|
|
178,941
|
|
|
157,067
|
|
Total
operating expenses
|
|
|
711,185
|
|
|
624,081
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
52,168
|
|
|
64,994
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
2,866
|
|
|
1,985
|
|
Interest
expense
|
|
|
(3,811
|
)
|
|
(4,712
|
)
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
51,223
|
|
|
62,267
|
|
Income
tax provision
|
|
|
18,660
|
|
|
22,843
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
32,563
|
|
|
39,424
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
Unrealized
gains on available-for-sale securities, net of income tax provision
of $1
in 2006
|
|
|
1
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
32,564
|
|
$
|
39,424
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
.27
|
|
$
|
.33
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
.24
|
|
$
|
.30
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
Twenty-six
Weeks Ended
|
|
|
|
July
29,
|
|
July
30,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,498,275
|
|
$
|
1,292,428
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
|
|
1,031,532
|
|
|
869,717
|
|
Selling,
general, and administrative expenses
|
|
|
362,173
|
|
|
308,005
|
|
Total
operating expenses
|
|
|
1,393,705
|
|
|
1,177,722
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
104,570
|
|
|
114,706
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
4,414
|
|
|
3,581
|
|
Interest
expense
|
|
|
(7,935
|
)
|
|
(8,637
|
)
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
101,049
|
|
|
109,650
|
|
Income
tax provision
|
|
|
36,425
|
|
|
40,209
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
64,624
|
|
|
69,441
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
Unrealized
gains on available-for-sale securities, net of income tax provision
of $3
in 2006
|
|
|
4
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
64,628
|
|
$
|
69,441
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
.53
|
|
$
|
.58
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
.48
|
|
$
|
.53
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Twenty-six
Weeks Ended
|
|
|
|
July
29,
|
|
July
30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
income
|
|
$64,624
|
|
$69,441
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
Depreciation
and
amortization
|
|
45,129
|
|
38,982
|
|
Deferred
income
taxes
|
|
1,290
|
|
889
|
|
Stock-based
compensation
|
|
5,015
|
|
2,913
|
|
Excess
tax benefits related to
stock-based compensation
|
|
(2,516)
|
|
2,178
|
|
Net
(gain)/loss from disposition
of capital assets
|
|
139
|
|
(939)
|
|
Net
gain from sale of
available-for-sale securities
|
|
(57)
|
|
0
|
|
Net
gain from securitization
activities
|
|
(451)
|
|
(3,577)
|
|
Changes
in operating assets and
liabilities
|
|
|
|
|
|
Accounts
receivable
|
|
35,458
|
|
0
|
|
Merchandise
inventories
|
|
(5,124)
|
|
(36,717)
|
|
Accounts
payable
|
|
40,423
|
|
34,821
|
|
Deferred
advertising
|
|
4,511
|
|
(2,766)
|
|
Prepayments
and
other
|
|
(10,888)
|
|
10,143
|
|
Income
taxes
payable
|
|
9,301
|
|
10,164
|
|
Accrued
expenses and
other
|
|
(11,273)
|
|
7,757
|
|
Net
cash provided by operating activities
|
|
175,581
|
|
133,289
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Investment
in capital assets
|
|
(54,971)
|
|
(37,393)
|
|
Proceeds
from sales of capital assets
|
|
0
|
|
2,432
|
|
Gross
purchases of securities
|
|
(17,127)
|
|
(48,064)
|
|
Proceeds
from sales of securities
|
|
17,885
|
|
11,078
|
|
Acquisition
of Crosstown Traders, Inc., net of cash acquired
|
|
0
|
|
(256,467)
|
|
Purchase
of Catherines receivables portfolio
|
|
0
|
|
(56,582)
|
|
Securitization
of Catherines receivables portfolio
|
|
0
|
|
56,582
|
|
Securitization
of Crosstown apparel-related receivables
|
|
0
|
|
50,000
|
|
Increase
in other assets
|
|
(7,719)
|
|
(2,220)
|
|
Net
cash used by investing activities
|
|
(61,932)
|
|
(280,634)
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
131,410
|
|
177,880
|
|
Repayments
of short-term borrowings
|
|
(161,410)
|
|
(117,880)
|
|
Proceeds
from long-term borrowings
|
|
0
|
|
50,000
|
|
Repayments
of long-term borrowings
|
|
(7,600)
|
|
(8,413)
|
|
Payments
of deferred financing costs
|
|
0
|
|
(850)
|
|
Excess
tax benefits related to stock-based compensation
|
|
2,516
|
|
0
|
|
Proceeds
from issuance of common stock
|
|
3,122
|
|
5,007
|
|
Net
cash provided/(used) by financing activities
|
|
(31,962)
|
|
105,744
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
81,687
|
|
(41,601)
|
|
Cash
and cash equivalents, beginning of period
|
|
130,132
|
|
273,049
|
|
Cash
and cash equivalents, end of period
|
|
$211,819
|
|
$231,448
|
|
|
|
|
|
|
|
Non-cash
financing and investing activities
|
|
|
|
|
|
Equipment
acquired through capital leases
|
|
$
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
|
See
Notes to Condensed Consolidated Financial
Statements
|
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
We
have
prepared our condensed consolidated balance sheet as of July 29, 2006, our
condensed consolidated statements of operations and comprehensive income
for the
thirteen weeks and twenty-six weeks ended July 29, 2006 and July 30, 2005,
and
our condensed consolidated statements of cash flows for the twenty-six weeks
ended July 29, 2006 and July 30, 2005 without audit. In our opinion, we have
made all adjustments (which include only normal recurring adjustments) necessary
to present fairly our financial position, results of operations and
comprehensive income, and cash flows. Certain prior-year amounts in the
condensed consolidated balance sheets, condensed consolidated statements
of
operations and comprehensive income, and condensed consolidated statements
of
cash flows have been reclassified to conform to the current-year presentation.
We have condensed or omitted certain information and footnote disclosures
normally included in financial statements prepared in accordance with United
States generally accepted accounting principles. These financial statements
and
related notes should be read in conjunction with our financial statements
and
related notes included in our January 28, 2006 Annual Report on Form 10-K.
The
results of operations for the thirteen weeks and twenty-six weeks ended July
29,
2006 and July 30, 2005 are not necessarily indicative of operating results
for
the full fiscal year.
As
used
in these notes, the terms “Fiscal 2007” and “Fiscal 2006” refer to our fiscal
year ending February 3, 2007 and our fiscal year ended January 28, 2006,
respectively. The term “Fiscal 2008” refers to our fiscal year ending February
2, 2008. The terms “the Company,” “we,” “us,” and “our” refer to Charming
Shoppes, Inc. and, where applicable, our consolidated subsidiaries.
Segment
Reporting
Effective
with our acquisition of Crosstown Traders, Inc. (“Crosstown Traders”) on June 2,
2005, we operate and report in two segments, Retail Stores and
Direct-to-Consumer, which are consistent with the way our chief operating
decision-makers review our results of operations. The Retail Stores segment
derives its revenues from sales through retail stores, including store-related
E-commerce sales, under our LANE BRYANT® (including LANE BRYANT
OUTLET™), FASHION BUG®, and CATHERINES PLUS
SIZES® brands. The Direct-to-Consumer segment derives its revenues
from catalog sales and catalog-related E-commerce sales under our Crosstown
Traders catalogs. See “Note 11. Segment Reporting” below for
further information regarding our segment reporting.
Stock-based
Compensation
As
of
July 29, 2006, we had various stock-based compensation plans under which
we are
currently granting awards, which are more fully described in “Item 8.
Financial Statements and Supplementary Data; Note 10. Stock Option and Stock
Incentive Plans” and “Note 11. Employee Stock Purchase Plan”
in our January 28, 2006 Annual Report on Form
10-K.
Our
2003
Non-Employee Directors Compensation Plan provides for the grant of stock
options, stock appreciation rights (“SARs”), restricted stock awards, restricted
stock units (“RSUs”), or deferred shares of up to an aggregate total of 600,000
shares of our common stock to members of our Board of Directors that are
not
employed by the Company. The exercise price of options or SARs granted under
the
plan may not be less than the fair market value of our common stock on the
date
of grant. Non-employee directors may also elect to receive deferred shares
of
common stock of an equivalent market value instead of cash director’s fees. The
plan provides for a one-time restricted stock award of 10,000 shares of common
stock that vest in equal amounts over three years to a newly elected or
appointed non-employee director. The plan also provides for annual grants
of
options for 7,500 shares of common stock that vest in one year and annual
grants
of 7,500 RSUs that vest in one year to each non-employee director serving
at the
date of our Annual Meeting of Shareholders. As of July 29, 2006, 191,787
shares
were available for future grants under this plan.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
Our
2004
Stock Award and Incentive Plan (the “2004 Plan”) provides for the grant of
options (including both incentive and non-qualified stock options), restricted
stock, stock appreciation rights, restricted stock units, and a variety of
other
types of awards of up to an aggregate of 6,500,000 shares of our common stock
plus shares remaining available under certain of our previous plans. Of the
aggregate shares available, up to 2,000,000 shares may be issued in connection
with “full-value” awards. Additional shares may be used for full-value awards by
reducing the number of shares that remain available for options, SARs, and
other
non-full-value awards at a three-to-one ratio. The aggregate number of shares
subject to awards granted under the 2004 Plan in any fiscal year will not
exceed
2% of our common stock on a fully diluted basis as of the last day of the
preceding fiscal year. As of July 29, 2006, 7,301,041 shares were available
for
future grants under this plan.
Our
1988
Key Employee Stock Option Plan provides for the grant of options to our key
employees to purchase up to an aggregate total of 3,000,000 shares of our
common
stock. The exercise price of options granted under this plan is $1.00 per
share.
As of July 29, 2006, 115,437 shares were available for future grants under
this
plan.
The
table
below summarizes stock option activity for the twenty-six weeks ended July
29,
2006:
|
|
|
|
Average
|
|
|
|
|
|
Option
|
|
Option
|
|
Option
Prices
|
|
|
|
Shares
|
|
Price
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 28, 2006
|
|
|
3,672,108
|
|
$
|
5.82
|
|
$
|
1.00
|
|
|
–
|
|
$
|
12.48
|
|
Granted
– option price equal to market price
|
|
|
61,233
|
|
|
11.33
|
|
|
11.28
|
|
|
–
|
|
|
13.84
|
|
Granted
– option price less than market price
|
|
|
31,600
|
|
|
1.00
|
|
|
1.00
|
|
|
–
|
|
|
1.00
|
|
Canceled/forfeited
|
|
|
(6,902
|
)
|
|
3.21
|
|
|
1.00
|
|
|
–
|
|
|
6.65
|
|
Exercised
|
|
|
(658,410
|
)
|
|
5.93
|
|
|
1.00
|
|
|
–
|
|
|
9.10
|
|
Outstanding
at July 29, 2006
|
|
|
3,099,629
|
|
$
|
5.86
|
|
$
|
1.00
|
|
|
–
|
|
$
|
13.84
|
|
Exercisable
at July 29, 2006
|
|
|
2,858,963
|
|
$
|
5.86
|
|
$
|
1.00
|
|
|
–
|
|
$
|
13.84
|
|
The
aggregate intrinsic value of options outstanding at July 29, 2006 (aggregate
market value on July 29, 2006 less aggregate exercise price) was
$13,388,000.
Our
1994
Employee Stock Purchase Plan permits employees to purchase shares of our
common
stock during quarterly offering periods at a price equal to 85% of the lower
of
the stock’s market price on the first day of, or the fifth business day after
the end of, the offering period. Employees purchase shares through accumulation
of payroll deductions of up to 10% of the employee’s compensation during each
offering period. An aggregate total of 2,000,000 shares are reserved for
grant
under this plan. As of July 29, 2006, 1,198,322 shares were available for
future
purchases under this plan.
Through
Fiscal 2006, we accounted for stock-based compensation using the intrinsic
value
method in accordance with Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” as permitted by Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” We
recorded compensation expense for restricted stock and restricted stock unit
awards and for stock options with an exercise price less than the market
price
of our common stock at the date of grant, based on the difference between
the
market price and the exercise price of the option at the date of grant. The
compensation expense was recognized on a straight-line basis over the vesting
period of each award or option. We did not recognize compensation expense
for
options having an exercise price equal to the market price on the date of
grant
or for shares purchased under our Employee Stock Purchase Plan.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
We
disclosed, as pro forma information, compensation expense for all stock options,
restricted stock awards, and restricted stock unit awards based on an estimated
fair value of the option or award. In accordance with SFAS No. 123, we used
the
Black-Scholes pricing model to estimate the fair value of stock options.
The
Black-Scholes model required estimates or assumptions as to the dividend
yield
and price volatility of the underlying stock, the expected life of the option,
and a relevant risk-free interest rate, which are more fully described in
“Item 8. Financial Statements and Supplementary
Data;
Note 1. Summary of Significant Accounting Policies; Common
Stock Plans” in our January 28, 2006 Annual
Report on Form 10-K.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS No. 123R”), a revision of SFAS No. 123. Under SFAS No.
123R, we are required to recognize the fair value of stock-based payments
as
compensation expense in our financial statements beginning in Fiscal 2007.
Pro
forma disclosures are no longer permitted.
We
elected to adopt SFAS No. 123R on the modified prospective method and,
accordingly, prior periods have not been restated. Stock-based compensation
cost
recognized in the thirteen weeks and twenty-six weeks ended July 29, 2006
includes (i) compensation cost for all stock-based awards granted prior to
the
beginning of Fiscal 2007 but not fully vested as of the beginning of Fiscal
2007, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123, and (ii) compensation cost for all stock-based
awards granted subsequent to the beginning of Fiscal 2007, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
No.
123R. The impact of the change from using actual forfeitures to determine
compensation expense under the intrinsic value method to using estimated
forfeitures in accordance with the provisions of SFAS No. 123R was immaterial.
Current grants of stock-based compensation consist primarily of restricted
stock
and restricted stock unit awards. Under SFAS No. 123R, we will continue to
use
the Black-Scholes valuation model to estimate the fair value of stock options,
using assumptions consistent with our pro forma disclosures under SFAS No.
123,
and straight-line amortization of stock-based compensation.
Adoption
of SFAS No. 123R will generally result in the recognition of additional
stock-based compensation in the financial statements as compared to use of
the
intrinsic value method. However, beginning in Fiscal 2005, we changed the
composition of our stock-based compensation awards to include mainly restricted
stock and restricted stock unit awards, which generally yield the same
compensation expense under both the intrinsic value method and SFAS No. 123R.
In
addition, we did not have significant unvested stock options as of the beginning
of Fiscal 2007. Accordingly, the adoption of SFAS No. 123R did not have a
material incremental impact on our income before taxes and net income, or
on our
basic and diluted net income per share. Total stock-based compensation
recognized in our results of operations for the thirteen weeks ended July
29,
2006 and July 30, 2005 was $2,464,000 and $1,687,000, respectively. Total
stock-based compensation for the twenty-six weeks ended July 29, 2006 and
July
30, 2005 was $5,015,000 and $2,913,000, respectively. Total stock-based
compensation not yet recognized, related to the non-vested portion of stock
options and awards outstanding, was $19,717,000 as of July 29, 2006. The
weighted-average period over which we expect to recognize this compensation
is
approximately 2.9 years.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
1. Condensed Consolidated Financial Statements (Continued)
The
following table reconciles net income and net income per share as reported
for
the thirteen weeks and twenty-six weeks ended July 30, 2005 using the intrinsic
value method under APB No. 25, to pro forma net income and net income per
share
using the fair value method under FASB Statement of Financial Accounting
Standards (“SFAS”) No. 123, “Accounting for Stock-based
Compensation:”
|
|
Thirteen
|
|
Twenty-six
|
|
|
|
Weeks
Ended
|
|
Weeks
Ended
|
|
|
|
July
30,
|
|
July
30,
|
|
(In
thousands, except per share amounts)
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
Net
income as reported
|
|
$
|
39,424
|
|
$
|
69,441
|
|
Add
stock-based employee compensation using intrinsic value
method,
|
|
|
|
|
|
|
|
net
of income
taxes
|
|
|
940
|
|
|
1,737
|
|
Less
stock-based employee compensation using fair value method,
|
|
|
|
|
|
|
|
net
of income
taxes
|
|
|
(1,107
|
)
|
|
(2,164
|
)
|
Pro
forma net income
|
|
$
|
39,257
|
|
$
|
69,014
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
.33
|
|
$
|
.58
|
|
Pro
forma
|
|
|
.33
|
|
|
.58
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
As
reported
|
|
|
.30
|
|
|
.53
|
|
Pro
forma
|
|
|
.29
|
|
|
.52
|
|
Under
the
provisions of SFAS No. 123R, we are required to present gross excess tax
benefits related to stock-based compensation as cash flows from financing
activities in our statements of cash flows instead of as cash flows from
operating activities as previously required. Write-offs of deferred tax assets
related to an excess of stock-based compensation recognized in the financial
statements over amounts deductible for tax purposes will continue to be
reflected as cash flows used by operating activities. Net cash used by financing
activities for the twenty-six weeks ended July 29, 2006 includes $2,516,000
of
excess tax benefits related to stock-based compensation that would have been
classified as a cash inflow in net cash provided by operating activities
if we
had not adopted the provisions of SFAS No. 123R.
Note
2. Acquisition of Crosstown Traders, Inc.
On
June
2, 2005, we acquired 100% of the outstanding stock of Crosstown Traders,
a
direct marketer of women’s apparel, footwear, accessories, and specialty gifts,
from JPMorgan Partners, the private equity arm of J.P. Morgan Chase & Co. We
accounted for the acquisition under the purchase method of accounting, and
included the results of operations of Crosstown Traders in our results of
operations from the date of acquisition. Prior-period results have not been
restated for the acquisition. Assets acquired and liabilities assumed were
recorded at their estimated fair values. During the twenty-six weeks ended
July
29, 2006, we increased the fair value of liabilities assumed by $1,100,000
for
customer refunds related to the pre-acquisition period. In accordance with
the
provisions of SFAS No. 141, “Business Combinations,” we recognized
certain intangible assets acquired, primarily trademarks, tradenames, internet
domain names, and customer relationships, separately from goodwill. The fair
values of acquired intangible assets, property, and equipment were based
on an
independent appraisal. Other assets acquired and liabilities assumed were
recorded at their estimated fair values.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
2. Acquisition of Crosstown Traders, Inc. (Continued)
Concurrent
with the acquisition of Crosstown Traders, we began preparing a formal
integration plan for Crosstown Traders’ operations, which included exiting and
consolidating certain activities of Crosstown Traders, lease terminations,
unfavorable contract costs, severance, and certain other exit costs. As of
January 28, 2006, we finalized the plan and recorded a liability for the
costs
of the plan, which we recorded as a component of the purchase price of the
acquisition in accordance with FASB Emerging Issues Task Force (“EITF”) Issue
95-3, “Recognition of Liabilities in Connection with a Purchase Business
Combination.”
Liabilities
recorded in connection with the integration plan (which we recorded as
adjustments to goodwill and deferred income taxes), adjustments, payments
or settlements of these liabilities for the twenty-six weeks ended July 29,
2006, and the remaining accrual as of July 29, 2006 were as
follows:
|
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
|
|
Balance
at
|
|
July
29, 2006
|
|
Balance
at
|
|
|
|
January
28,
|
|
|
|
Payments/
|
|
July
29,
|
|
(In
thousands)
|
|
2006
|
|
Adjustments
|
|
Settlements
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and related costs
|
|
$
|
4,380
|
|
$
|
(982
|
)
|
$
|
(1,041
|
)
|
$
|
2,357
|
|
Lease
termination and related costs
|
|
|
2,180
|
|
|
564
|
|
|
(30
|
)
|
|
2,714
|
|
Unfavorable
contract costs
|
|
|
900
|
|
|
(900
|
)
|
|
|
|
|
0
|
|
Other
costs
|
|
|
1,154
|
|
|
(62
|
)
|
|
(193
|
)
|
|
899
|
|
Total
|
|
$
|
8,614
|
|
$
|
(1,380
|
)
|
$
|
(1,264
|
)
|
$
|
5,970
|
|
Severance
and related costs represent involuntary termination benefits for approximately
275 employees as a result of the decision to close Crosstown Traders’
manufacturing facility and two of its offices, and to consolidate certain
back-office operations into our shared-services operations. Lease termination
and related costs primarily represent the estimated lease termination
obligations related to the closing of Crosstown Traders’ leased manufacturing
facility. The unfavorable contract costs represent the estimated costs related
to an unfavorable service contract Crosstown Traders entered into prior to
the
acquisition. Other costs are principally employee relocation costs to relocate
certain key Crosstown Traders employees from the closed facilities to Crosstown
Traders’ headquarters in Tucson, Arizona. We expect to complete our integration
plan by the end of Fiscal 2007.
During
the twenty-six weeks ended July 29, 2006, we finalized the lease termination
and
related costs and entered into a sublease agreement for the manufacturing
facility for a term ending in December 2009, which represents a portion of
the
remaining lease term. Additionally, severance and related costs were adjusted
for employees voluntarily leaving the Company and opting to forego their
severance. As a result of our decision during the quarter to utilize the
remaining term of the acquired unfavorable contract, the unfavorable contract
costs accrual was reduced. Accordingly, we have adjusted the severance and
related costs, lease termination and related costs, unfavorable contract
costs,
and other costs accruals; deferred income taxes; and goodwill.
The
following unaudited pro forma information is based on historical data, and
gives
effect to our acquisition of Crosstown Traders as if the acquisition had
occurred on January 29, 2005. The pro forma information includes adjustments
having a continuing impact on our consolidated results of operations as a
result
of using the purchase method of accounting for the acquisition. These
adjustments consist of: additional depreciation of fair value adjustments
for
property, equipment, and leasehold improvements; amortization of the fair
value
of customer relationships acquired; additional interest expense from borrowings
incurred to finance the acquisition and amortization of deferred financing
costs
related to amending our credit facility; reduced interest expense from the
repayment of Crosstown Traders’ debt; and a reduction in interest income from
the use of cash and cash equivalents to fund a portion of the acquisition
cost.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
2. Acquisition of Crosstown Traders, Inc. (Continued)
The
unaudited pro forma information has been prepared based on our purchase price
allocations, using assumptions that our management believes are reasonable.
It
is not necessarily indicative of the actual results of operations that would
have occurred if the acquisition had occurred as of January 29, 2005, and
is not
necessarily indicative of the results that may be achieved in the future.
The
unaudited pro forma information does not reflect adjustments for the effect
of
non-recurring items or for operating synergies that we may realize as a result
of the acquisition.
Unaudited
pro forma results of operations:
|
|
Thirteen
|
|
Twenty-six
|
|
|
|
Weeks
Ended
|
|
Weeks
Ended
|
|
|
|
July
30,
|
|
July
30,
|
|
(In
thousands, except per share amounts)
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
729,677
|
|
$
|
1,441,443
|
|
Net
income
|
|
|
36,984
|
|
|
66,388
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.31
|
|
$
|
.56
|
|
Diluted
|
|
|
.28
|
|
|
.50
|
|
Note
3. Accounts Receivable
Accounts
receivable consist of trade receivables from sales through our
FIGI’S® catalog, acquired on June 2, 2005 as part of our acquisition
of Crosstown Traders. Details of our accounts receivable are as
follows:
|
|
July
29,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Due
from customers
|
|
$
|
5,189
|
|
$
|
45,191
|
|
Allowance
for doubtful accounts
|
|
|
(2,044
|
)
|
|
(6,588
|
)
|
Net
accounts receivable
|
|
$
|
3,145
|
|
$
|
38,603
|
|
Note
4. Trademarks and Other Intangible Assets
|
|
July
29,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Trademarks,
tradenames, and internet domain names
|
|
$
|
240,300
|
|
$
|
238,800
|
|
Customer
lists, customer relationships, and covenant not to compete
|
|
|
16,400
|
|
|
16,400
|
|
Total
at cost
|
|
|
256,700
|
|
|
255,200
|
|
Less
accumulated amortization of customer lists, customer
|
|
|
|
|
|
|
|
relationships,
and covenant not
to compete
|
|
|
7,094
|
|
|
5,126
|
|
Net
trademarks and other intangible assets
|
|
$
|
249,606
|
|
$
|
250,074
|
|
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
5. Short-term Borrowings and Long-term Debt
|
|
July
29,
|
|
January
28,
|
|
(In
thousands)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
|
|
|
Revolving
credit facility
|
|
$
|
20,000
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
|
|
|
|
4.75%
Senior Convertible Notes, due June 2012
|
|
$
|
150,000
|
|
$
|
150,000
|
|
Capital
lease obligations
|
|
|
18,591
|
|
|
24,825
|
|
6.07%
mortgage note, due October 2014
|
|
|
11,989
|
|
|
12,261
|
|
6.53%
mortgage note, due November 2012
|
|
|
8,750
|
|
|
9,450
|
|
7.77%
mortgage note, due December 2011
|
|
|
8,778
|
|
|
9,050
|
|
Other
long-term debt
|
|
|
1,036
|
|
|
1,158
|
|
Total
long-term debt
|
|
|
199,144
|
|
|
206,744
|
|
Less
current portion
|
|
|
12,672
|
|
|
14,765
|
|
Long-term
debt
|
|
$
|
186,472
|
|
$
|
191,979
|
|
Note
6. Stockholders’ Equity
|
|
Twenty-six
|
|
|
|
Weeks
Ended
|
|
|
|
July
29,
|
|
(Dollars
in thousands)
|
|
2006
|
|
|
|
|
|
Total
stockholders’ equity, beginning of period
|
|
$
|
814,348
|
|
Net
income
|
|
|
64,624
|
|
Issuance
of common stock (874,913 shares)
|
|
|
3,122
|
|
Stock-based
compensation expense
|
|
|
5,015
|
|
Excess
tax benefits related to stock-based compensation
|
|
|
2,516
|
|
Unrealized
gains on available-for-sale securities, net of tax
|
|
|
4
|
|
Total
stockholders’ equity, end of period
|
|
$
|
889,629
|
|
Note
7. Customer Loyalty Card Programs
We
offer
our customers various loyalty card programs. Customers that join these programs
are entitled to various benefits, including discounts and rebates on purchases
during the membership period. Customers generally join these programs by
paying
an annual membership fee. We recognize revenue from these loyalty programs
as
sales over the life of the membership period based on when the customer earns
the benefits and when the fee is no longer refundable. We recognize costs
in
connection with administering these programs as cost of goods sold when
incurred. During the thirteen weeks ended July 29, 2006 and July 30, 2005,
we
recognized revenues of $5,101,000 and $4,269,000, respectively, in connection
with our loyalty card programs. During the twenty-six weeks ended July 29,
2006
and July 30, 2005, we recognized revenues of $9,171,000 and $7,431,000,
respectively, in connection with our loyalty card programs.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
8. Net Income Per Share
|
|
Thirteen
Weeks Ended
|
|
Twenty-six
Weeks Ended
|
|
|
|
July
29,
|
|
July
30,
|
|
July
29,
|
|
July
30,
|
|
(In
thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
122,125
|
|
|
119,452
|
|
|
121,969
|
|
|
119,219
|
|
Dilutive
effect of assumed conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
notes
|
|
|
15,182
|
|
|
15,182
|
|
|
15,182
|
|
|
15,182
|
|
Dilutive
effect of stock options and awards
|
|
|
2,047
|
|
|
1,975
|
|
|
2,240
|
|
|
1,775
|
|
Diluted
weighted average common shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents
outstanding
|
|
|
139,354
|
|
|
136,609
|
|
|
139,391
|
|
|
136,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
32,563
|
|
$
|
39,424
|
|
$
|
64,624
|
|
$
|
69,441
|
|
Decrease
in interest expense from assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion
of notes, net of
income taxes
|
|
|
1,128
|
|
|
1,128
|
|
|
2,257
|
|
|
2,257
|
|
Net
income used to determine diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
income per
share
|
|
$
|
33,691
|
|
$
|
40,552
|
|
$
|
66,881
|
|
$
|
71,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
with weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater
than market price,
excluded from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
computation
of net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
4
|
|
|
0
|
|
|
1
|
|
|
11
|
|
Weighted
average exercise price
per share
|
|
$
|
12.87
|
|
$
|
0.00
|
|
$
|
13.84
|
|
$
|
9.10
|
|
Note
9. Income Taxes
The
effective income tax rate was 36.0% for the twenty-six weeks ended July 29,
2006, as compared to 36.7% for the twenty-six weeks ended July 30, 2005.
The tax
rate for the twenty-six weeks ended July 29, 2006 was favorably affected
by
non-taxable insurance proceeds which were included in pre-tax income for
the
period.
Note
10. Asset Securitization
Our
FASHION BUG and CATHERINES proprietary credit card receivables are originated
by
Spirit of America National Bank (our wholly-owned credit card bank), which
transfers its interest in the receivables to the Charming Shoppes Master
Trust
(the “Trust”) through a special-purpose entity. The Trust is an unconsolidated
qualified special-purpose entity (“QSPE”). Our Crosstown Traders apparel-related
catalog proprietary credit card receivables are originated in a non-bank
program
by Crosstown Traders, which transfers its interest in the receivables to
Catalog
Receivables LLC, a separate and distinct unconsolidated QSPE, through a
special-purpose entity. The QSPEs can sell interests in these receivables
on a
revolving basis for a specified term. At the end of the revolving period,
an
amortization period begins during which the QSPEs make principal payments
to the
parties that have entered into the securitization agreement with the
QSPEs.
In
March
2005, Spirit of America National Bank purchased the CATHERINES credit card
portfolio. Prior to purchasing the portfolio, we had a non-recourse agreement,
scheduled to expire in March 2005, under which a third party provided a
proprietary credit card sales accounts receivable funding facility for the
CATHERINES proprietary credit cards. The purchase of the portfolio at par
value
and the subsequent securitization of the purchased portfolio resulted in
the
recognition of a gain during the twenty-six weeks ended July 30, 2005 of
approximately $2,000,000, which is included in selling, general, and
administrative expenses.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
11. Segment Reporting
Effective
with the acquisition of Crosstown Traders on June 2, 2005, we operate and
report
in two segments, Retail Stores and Direct-to-Consumer, which are consistent
with
the way our chief operating decision-makers review our results of operations.
The Retail Stores segment derives its revenues from sales through retail
stores
and store-related E-commerce sales under our LANE BRYANT (including LANE
BRYANT
OUTLET), FASHION BUG, and CATHERINES PLUS SIZES brands. The
Direct-to-Consumer segment derives its revenues from catalog sales and
catalog-related E-commerce sales under our Crosstown Traders
catalogs.
The
accounting policies of the segments are generally the same as those described
in
“Item 8. Financial Statements and Supplementary
Data;
Note 1. Summary of Significant Accounting Policies” in our January 28,
2006 Annual Report on Form 10-K. Our direct-response advertising production
costs are expensed over the estimated revenue stream, generally within one
to
six months. We use income before interest and taxes excluding unallocated
corporate costs to evaluate segment profitability. Corporate costs that are
currently allocated to the segments include shared service center costs,
information systems support costs, and warehousing costs. Unallocated costs
include corporate general and administrative costs, corporate depreciation
and
amortization, corporate occupancy costs, the results of our proprietary credit
card operations, interest, taxes, and other non-routine charges. Unallocated
assets include corporate cash and cash equivalents, the net book value of
corporate facilities, deferred income taxes, and other corporate long-lived
assets.
Selected
financial information for our operations by reportable segment and a
reconciliation of the information by segment to our consolidated totals is
as
follows:
|
|
Retail
|
|
Direct-to-
|
|
Corporate
|
|
|
|
(In
thousands)
|
|
Stores(1)
|
|
Consumer
|
|
and
Other
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended July 29, 2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
669,808
|
|
$
|
92,348
|
|
$
|
1,197
|
|
$
|
763,353
|
|
Depreciation
and amortization
|
|
|
15,383
|
|
|
755
|
|
|
8,833
|
|
|
24,971
|
|
Income
before interest and taxes
|
|
|
55,186
|
|
|
424
|
|
|
(576
|
)
|
|
55,034
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(3,811
|
)
|
|
(3,811
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(18,660
|
)
|
|
(18,660
|
)
|
Net
income
|
|
|
55,186
|
|
|
424
|
|
|
(23,047
|
)
|
|
32,563
|
|
Capital
expenditures
|
|
|
22,698
|
|
|
2,030
|
|
|
6,389
|
|
|
31,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended July 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,297,212
|
|
$
|
199,753
|
|
$
|
1,310
|
|
$
|
1,498,275
|
|
Depreciation
and amortization
|
|
|
26,477
|
|
|
1,300
|
|
|
17,352
|
|
|
45,129
|
|
Income
before interest and taxes
|
|
|
115,473
|
|
|
3,396
|
|
|
(9,885
|
)
|
|
108,984
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(7,935
|
)
|
|
(7,935
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(36,425
|
)
|
|
(36,425
|
)
|
Net
income
|
|
|
115,473
|
|
|
3,396
|
|
|
(54,245
|
)
|
|
64,624
|
|
Capital
expenditures
|
|
|
38,111
|
|
|
2,990
|
|
|
13,870
|
|
|
54,971
|
|
____________________
|
(1)Includes
76 LANE BRYANT OUTLET stores opened in July 2006 (see “Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations; RECENT DEVELOPMENTS” below).
|
|
(Table
continued on next 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(1)
|
|
and
Other
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended July 30, 2005
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
638,813
|
|
$
|
49,439
|
|
$
|
823
|
|
$
|
689,075
|
|
Depreciation
and amortization
|
|
|
10,327
|
|
|
277
|
|
|
9,650
|
|
|
20,254
|
|
Income
before interest and taxes
|
|
|
74,594
|
|
|
66
|
|
|
(7,681
|
)
|
|
66,979
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(4,712
|
)
|
|
(4,712
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(22,843
|
)
|
|
(22,843
|
)
|
Net
income
|
|
|
74,594
|
|
|
66
|
|
|
(35,236
|
)
|
|
39,424
|
|
Capital
expenditures
|
|
|
13,939
|
|
|
297
|
|
|
5,460
|
|
|
19,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
weeks ended July 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,242,080
|
|
$
|
49,439
|
|
$
|
909
|
|
$
|
1,292,428
|
|
Depreciation
and amortization
|
|
|
20,821
|
|
|
277
|
|
|
17,884
|
|
|
38,982
|
|
Income
before interest and taxes
|
|
|
132,242
|
|
|
66
|
|
|
(14,021
|
)
|
|
118,287
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
(8,637
|
)
|
|
(8,637
|
)
|
Income
tax provision
|
|
|
|
|
|
|
|
|
(40,209
|
)
|
|
(40,209
|
)
|
Net
income
|
|
|
132,242
|
|
|
66
|
|
|
(62,867
|
)
|
|
69,441
|
|
Capital
expenditures
|
|
|
27,851
|
|
|
297
|
|
|
9,245
|
|
|
37,393
|
|
____________________
|
(1)From
date of acquisition of Crosstown Traders, Inc. on June 2,
2005.
|
Note
12. Impact of Recent Accounting Pronouncements
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an Amendment
of Accounting Research Bulletin No. 43, Chapter 4.” SFAS No. 151 clarifies,
among other things, that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials costs should be recognized as
current-period expenses rather than being capitalized into inventory. SFAS
No.
151 became effective as of the beginning of Fiscal 2007. The adoption of
SFAS
No. 151 did not have a material effect on our financial condition or results
of
operations.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections.” SFAS No. 154 replaces APB Opinion No. 20, “Accounting
Changes,” and supersedes SFAS No. 3, “Reporting Accounting Changes in
Interim Financial Statements – an amendment of APB Opinion No. 28.” SFAS
No. 154 generally requires retrospective application to prior-period financial
statements of a change in accounting principle unless it is impracticable
to
determine either the period-specific effects or cumulative effects of the
change. SFAS No. 154 became effective as of the beginning of Fiscal 2007.
The
adoption of SFAS No. 154 did not have a material effect on our financial
position or results of operations.
In
October 2005, the FASB issued FASB Staff Position (“FSP”) FAS 13-1,
“Accounting for Rental Costs Incurred during a Construction Period.”
FSP FAS 13-1 concludes that rental costs incurred during and after a
construction period are for the right to control the use of a leased asset
during and after construction of a lessee asset. There is no distinction
between
the right to use a leased asset during the construction period and the right
to
use that asset after the construction period. Therefore, rental costs associated
with ground or building operating leases that are incurred during a construction
period shall be recognized as rental expense and included in income from
continuing operations. FSP FAS 13-1 became effective as of the beginning
of
Fiscal 2007. The adoption of FSP FAS 13-1 did not have a material effect
on our
financial position or results of operations.
CHARMING
SHOPPES, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Note
12. Impact of Recent Accounting Pronouncements (Continued)
In
June
2006, the FASB ratified the consensus of EITF Issue No. 06-3, “How Taxes
Collected from Customers and Remitted to Governmental Authorities Should
Be
Presented in the Income Statement (That Is, Gross versus Net
Presentation).” EITF Issue No. 06-3 provides that gross or net presentation
is an accounting policy decision that is dependent on the type of tax, and
that
similar taxes are to be presented in a consistent manner. The provisions
of EITF
Issue No. 06-3 will be effective as of the beginning of Fiscal 2008, with
early
application permitted. Our current accounting policy is to present taxes
within
the scope of EITF Issue No. 06-3 on a net basis. Our adoption of EITF Issue
No.
06-3 will not result in a change in our accounting policy and, accordingly,
will
have no effect on our results of operations.
In
July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48,
“Accounting for Uncertainty in Income Taxes—an interpretation of
FASB Statement No. 109.” FIN No. 48 clarifies the accounting for
income taxes by prescribing the minimum recognition threshold a tax position
is
required to meet before being recognized in the financial statements. FIN
No. 48
also provides guidance on de-recognition, measurement, classification, interest
and penalties, accounting in interim periods, expanded disclosures regarding
tax
uncertainties, and transition.
FIN
No.
48 applies to all tax positions related to income taxes subject to SFAS No.
109,
“Accounting for Income Taxes.” Under FIN No. 48, recognition
of a tax benefit occurs when a tax position is more-likely-than-not to be
sustained upon examination, based solely on its technical merits. The recognized
benefit is measured as the largest amount of benefit which is
more-likely-than-not to be realized on ultimate settlement, based on a
cumulative probability basis. A tax position failing to qualify for initial
recognition is recognized in the first interim period in which it meets the
FIN
No. 48 recognition standard, or is resolved through negotiation, litigation,
or
upon expiration of the statute of limitations. De-recognition of a previously
recognized tax position would occur if it is subsequently determined that
the
tax position no longer meets the more-likely-than-not threshold of being
sustained. Differences between amounts recognized in balance sheets prior
to the adoption of FIN No. 48 and amounts reported after adoption (except
for
items not recognized in earnings) will be accounted for as a cumulative effect
adjustment to retained earnings as of the date of adoption of FIN No. 48,
if
material.
We
will
be required to adopt the provisions of FIN No. 48 effective as of the beginning
of Fiscal 2008. We are currently analyzing the impact of adoption of FIN
No. 48,
and have not yet determined the impact of adoption on our consolidated financial
position or results of operations.
This
management’s discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes included in Item 1 of this report. It should also be read
in
conjunction with the management’s discussion and analysis of financial condition
and results of operations, financial statements, and accompanying notes
appearing in our Annual Report on Form 10-K for the fiscal year ended January
28, 2006. As used in this management’s discussion and analysis, the terms
“Fiscal 2007” and “Fiscal 2006” refer to our fiscal year ending February 3, 2007
and our fiscal year ended January 28, 2006, respectively. The terms “Fiscal 2007
Second Quarter” and “Fiscal 2006 Second Quarter” refer to the thirteen weeks
ended July 29, 2006 and July 30, 2005, respectively. The terms “Fiscal 2007
Third Quarter” and “Fiscal 2007 Fourth Quarter” refer to the thirteen weeks
ending October 28, 2006 and the fourteen weeks ending February 3, 2007,
respectively. The term “Fiscal 2008” refers to our fiscal year ending February
2, 2008. The terms “the Company,” “we,” “us,” and “our” refer to Charming
Shoppes, Inc. and, where applicable, our consolidated subsidiaries.
With
the
exception of historical information, the matters contained in the following
analysis and elsewhere in this report are “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements may include, but are not limited to, projections of revenues,
income
or loss, cost reductions, capital expenditures, liquidity, financing needs
or
plans, and plans for future operations, as well as assumptions relating to
the
foregoing. The words “expect,” “should,” “project,” “estimate,” “predict,”
“anticipate,” “plan,” “believes,” and similar expressions are also intended to
identify forward-looking statements. Forward-looking statements are inherently
subject to risks and uncertainties, some of which we cannot predict or quantify.
Future events and actual results, performance, and achievements could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements. We assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements.
Factors
that could cause our actual results of operations or financial condition
to
differ from those described in this report include, but are not necessarily
limited to, the following:
|
·
|
Our
business is dependent upon our ability to accurately predict rapidly
changing fashion trends, customer preferences, and other fashion-related
factors, which we may not be able to successfully accomplish in
the
future.
|
|
·
|
A
slowdown in the United States economy, an uncertain economic outlook,
and
escalating energy costs could lead to reduced consumer demand for
our
products in the future.
|
|
·
|
The
women’s specialty retail apparel and direct-to-consumer markets are highly
competitive and we may be unable to compete successfully against
existing
or future competitors.
|
|
·
|
We
may be unable to successfully integrate the operations of Crosstown
Traders, Inc. (“Crosstown Traders”) with the operations of Charming
Shoppes, Inc. In addition, we cannot assure the successful implementation
of our business plan for Crosstown
Traders.
|
|
·
|
We
cannot assure the successful implementation of our business plans
for
entry into the outlet store distribution channel and expansion
of our
CACIQUE® product line through new store
formats.
|
|
·
|
We
cannot assure the successful implementation of our business plan
for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments.
|
|
·
|
Our
business plan is largely dependent upon continued growth in the
plus-size
women’s apparel market, which may not
occur.
|
|
·
|
We
depend on key personnel, particularly our Chief Executive Officer,
Dorrit
J. Bern, and we may not be able to retain or replace these employees
or
recruit additional qualified
personnel.
|
|
·
|
We
depend on our distribution and fulfillment centers, and could incur
significantly higher costs and longer lead times associated with
distributing our products to our stores and shipping our products
to our
E-commerce and catalog customers if operations at any of these
distribution and fulfillment centers were to be disrupted for any
reason.
|
|
·
|
We
depend on the availability of credit for our working capital needs,
including credit we receive from our suppliers and their agents,
and on
our credit card securitization facilities. If we were unable to
obtain
sufficient financing at an affordable cost, our ability to merchandise
our
stores, E-commerce, or catalog businesses would be adversely
affected.
|
|
·
|
Natural
disasters, as well as war, acts of terrorism, or the threat of
either may
negatively impact availability of merchandise and customer traffic
to our
stores, or otherwise adversely affect our
business.
|
|
·
|
We
rely significantly on foreign sources of production and face a
variety of
risks generally associated with doing business in foreign markets
and
importing merchandise from abroad. Such risks include (but are
not
necessarily limited to) political instability; imposition of, or
changes
in, duties or quotas; trade restrictions; increased security requirements
applicable to imports; delays in shipping; increased costs of
transportation; and issues relating to compliance with domestic
or
international labor standards.
|
|
·
|
Our
Retail Stores and Direct-to-Consumer segments experience seasonal
fluctuations in net sales and operating income. Any decrease in
sales or
margins during our peak sales periods, or in the availability of
working
capital during the months preceding such periods, could have a
material
adverse effect on our business. In addition, extreme or unseasonable
weather conditions may have a negative impact on our
sales.
|
|
·
|
We
may be unable to obtain adequate insurance for our operations at
a
reasonable cost.
|
|
·
|
We
may be unable to protect our trademarks and other intellectual
property
rights, which are important to our success and our competitive
position.
|
|
·
|
We
may be unable to hire and retain a sufficient number of suitable
sales
associates at our stores.
|
|
·
|
Our
manufacturers may be unable to manufacture and deliver merchandise
to us
in a timely manner or to meet our quality
standards.
|
|
·
|
Our
Retail Stores segment sales are dependent upon a high volume of
traffic in
the strip centers and malls in which our stores are located, and
our
future retail store growth is dependent upon the availability of
suitable
locations for new stores.
|
|
·
|
Successful
operation of our E-commerce websites and our catalog business is
dependent
on our ability to maintain efficient and uninterrupted customer
service
and fulfillment operations.
|
|
·
|
We
may be unable to manage significant increases in certain costs
vital to
catalog operations, including postage, paper, and acquisition of
prospects, which could adversely affect our results of
operations.
|
|
·
|
Response
rates to our catalogs and access to new customers could decline,
which
would adversely affect our net sales and results of
operations.
|
|
·
|
We
may be unable to successfully implement our plan to improve merchandise
assortments in our Retail Stores or Direct-to-Consumer
segments.
|
|
·
|
We
make certain significant assumptions, estimates, and projections
related
to the useful lives of our property, plant, and equipment and the
valuation of intangible assets related to acquisitions. The carrying
amount and/or useful life of these assets are subject to periodic
valuation tests for impairment. Impairment results when the carrying
value
of an asset exceeds the undiscounted (or for goodwill and indefinite-lived
intangible assets the discounted) future cash flows associated
with the
asset. If actual experience were to differ materially from the
assumptions, estimates, and projections used to determine useful
lives or
the valuation of property, plant, equipment, or intangible assets,
a
write-down for impairment of the carrying value of the assets,
or
acceleration of depreciation or amortization of the assets, could
result.
Such a write-down or acceleration of depreciation or amortization
would
have an adverse impact on our reported results of
operations.
|
|
·
|
Changes
to existing accounting rules or the adoption of new rules could
have an
adverse impact on our reported results of
operations.
|
|
·
|
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required
to
include our assessment of the effectiveness of our internal control
over
financial reporting in our annual reports. Our independent registered
public accounting firm is also required to attest to whether or
not our
assessment is fairly stated in all material respects and to separately
report on whether or not they believe that we maintained, in all
material
respects, effective internal control over financial reporting.
If we are
unable to maintain effective internal control over financial reporting,
or
if our independent registered public accounting firm is unable
to timely
attest to our assessment, we could be subject to regulatory sanctions
and
a possible loss of public confidence in the reliability of our
financial
reporting. Such a failure could result in our inability to provide
timely
and/or reliable financial information and could adversely affect
our
business.
|
We
have
prepared the financial statements and accompanying notes included in Item
1 of
this report in conformity with United States generally accepted accounting
principles. This requires us to make estimates and assumptions that affect
the
amounts reported in our financial statements and accompanying notes. These
estimates and assumptions are based on historical experience, analysis of
current trends, and various other factors that we believe to be reasonable
under
the circumstances. Actual results could differ from those estimates under
different assumptions or conditions.
We
periodically reevaluate our accounting policies, assumptions, and estimates
and
make adjustments when facts and circumstances warrant. Historically, actual
results have not differed materially from those determined using required
estimates. Our critical accounting policies are discussed in the management’s
discussion and analysis of financial condition and results of operations
and
notes accompanying the consolidated financial statements that appear in our
Annual Report on Form 10-K for the fiscal year ended January 28, 2006. Except
as
disclosed below and in the financial statements and accompanying notes included
in Item 1 of this report, there were no material changes in, or additions
to,
our critical accounting policies or in the assumptions or estimates we used
to
prepare the financial information appearing in this report.
Stock-based
Compensation
Through
Fiscal 2006, we accounted for stock-based compensation using the intrinsic
value
method in accordance with Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” as permitted by SFAS No.
123, “Accounting for Stock-Based Compensation.” We recorded
compensation expense for restricted stock and restricted stock unit awards
and
for stock options with an exercise price less than the market price of our
common stock at the date of grant, based on the difference between the market
price and the exercise price of the option at the date of grant. The
compensation expense was recognized on a straight-line basis over the vesting
period of each award or option. We did not recognize compensation expense
for
options having an exercise price equal to the market price on the date of
grant
or for shares purchased under our Employee Stock Purchase Plan.
We
disclosed, as pro forma information, compensation expense for all stock options,
restricted stock awards, and restricted stock unit awards based on an estimated
fair value of the option or award. In accordance with SFAS No. 123, we used
the
Black-Scholes pricing model to estimate the fair value of stock options.
The
Black-Scholes model required estimates or assumptions as to the dividend
yield
and price volatility of the underlying stock, the expected life of the option,
and a relevant risk-free interest rate. Our use of different option-pricing
models and different estimates or assumptions could have resulted in materially
different estimates of compensation expense under the fair value
method.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS No. 123R”), a revision of SFAS No. 123. Under SFAS No.
123R, we are required to recognize the fair value of stock-based payments
as
compensation expense in our financial statements beginning in Fiscal 2007.
Pro
forma disclosures are no longer permitted.
We
elected to adopt SFAS No. 123R on the modified prospective method and,
accordingly, prior periods have not been restated. We have provided pro forma
disclosure of stock-based compensation determined in accordance with SFAS
No.
123, as previously disclosed, for the comparable prior-year periods. The
impact
of the change from using actual forfeitures to determine compensation expense
under the intrinsic value method to using estimated forfeitures in accordance
with the provisions of SFAS No. 123R was immaterial. Current grants of
stock-based compensation consist primarily of restricted stock and restricted
stock unit awards. Under SFAS No. 123R, we will continue to use the
Black-Scholes valuation model to estimate the fair value of stock options,
using
assumptions consistent with our pro forma disclosures under SFAS No. 123,
and
straight-line amortization of stock-based compensation.
Adoption
of SFAS No. 123R will generally result in the recognition of additional
stock-based compensation in the financial statements as compared to use of
the
intrinsic value method. However, beginning in Fiscal 2005, we changed the
composition of our stock-based compensation awards to include mainly restricted
stock and restricted stock unit awards, which generally yield the same
compensation expense under both the intrinsic value method and SFAS No. 123R.
In
addition, we did not have significant unvested stock options as of the beginning
of Fiscal 2007. Accordingly, the adoption of SFAS No. 123R did not have a
material incremental impact on our income before taxes and net income, or
on our
basic and diluted net income per share.
Under
the
provisions of SFAS No. 123R, we are required to present gross excess tax
benefits related to stock-based compensation as cash flows from financing
activities in our statements of cash flows instead of as cash flows from
operating activities as previously required. Write-offs of deferred tax assets
related to an excess of stock-based compensation recognized in the financial
statements over amounts deductible for tax purposes will continue to be
reflected as cash flows used by operating activities. Net cash used by financing
activities for the twenty-six weeks ended July 29, 2006 includes $2.5 million
of
excess tax benefits related to stock-based compensation that would have been
classified as a cash inflow in net cash provided by operating activities
if we
had not adopted the provisions of SFAS No. 123R.
See
“Item 1. Financial Statements (Unaudited); Notes to Condensed
Consolidated Financial Statements; Note 1. Condensed Consolidated Financial
Statements; Stock-based
Compensation” above for further information on
our stock-based compensation expense for the thirteen weeks and twenty-six
weeks
ended July 29, 2006 and for pro forma disclosures for the comparable prior-year
periods. See “Part II, Item 8. Financial Statements and Supplementary
Data; Notes to Consolidated Financial Statements; Note 1. Summary of Significant
Accounting Policies; Common Stock
Plans” of our Annual Report on Form 10-K for the
fiscal year ended January 28, 2006 for further information on the estimates
and
assumptions we used to determine stock-based compensation expense for our
pro
forma disclosures in accordance with SFAS No. 123. Total stock-based
compensation not yet recognized, related to the non-vested portion of stock
options and awards outstanding, was $19.7 million as of July 29, 2006. The
weighted-average period over which we expect to recognize this compensation
is
approximately 2.9 years.
In
December 2005, we announced plans to enter the outlet channel through the
assumption of approximately 75 outlet store leases from Retail Brand Alliance,
and to operate those locations under the name LANE BRYANT OUTLETTM. A
majority of these locations had been operated as side-by-side locations selling
more than one brand. Subsequently, in January 2006, we acquired the trademark
and internet domain rights to the PETITE SOPHISTICATE® name. We plan
to operate both a LANE BRYANT OUTLET store and a PETITE SOPHISTICATE OUTLET™
store in approximately 45 of the side-by-side locations acquired from Retail
Brand Alliance. During July 2006, we opened 73 LANE BRYANT OUTLET stores
in
locations that we assumed from Retail Brand Alliance and converted 3 existing
LANE BRYANT stores to LANE BRYANT OUTLET stores. We expect to open approximately
7 additional LANE BRYANT OUTLET stores and the PETITE SOPHISTICATE OUTLET
stores
primarily during the Fiscal 2007 Third Quarter.
The
following table shows our results of operations expressed as a percentage
of net
sales and on a comparative basis:
|
|
|
|
Percentage
|
|
|
|
Percentage
|
|
|
|
Thirteen
Weeks Ended(1)
|
|
Change
|
|
Twenty-six
Weeks Ended(1)
|
|
Change
|
|
|
|
July
29,
|
|
July
30,
|
|
From
Prior
|
|
July
29,
|
|
July
30,
|
|
From
Prior
|
|
|
|
2006
|
|
2005(2)
|
|
Period
|
|
2006
|
|
2005(2)
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
10.8
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
15.9
|
%
|
Cost
of goods sold, buying, catalog,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
occupancy
expenses
|
|
|
69.7
|
|
|
67.8
|
|
|
14.0
|
|
|
68.8
|
|
|
67.3
|
|
|
18.6
|
|
Selling,
general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
|
23.4
|
|
|
22.8
|
|
|
13.9
|
|
|
24.2
|
|
|
23.8
|
|
|
17.6
|
|
Income
from operations
|
|
|
6.8
|
|
|
9.4
|
|
|
(19.7
|
)
|
|
7.0
|
|
|
8.9
|
|
|
(8.8
|
)
|
Other
income
|
|
|
0.4
|
|
|
0.3
|
|
|
44.4
|
|
|
0.3
|
|
|
0.3
|
|
|
23.3
|
|
Interest
expense
|
|
|
0.5
|
|
|
0.7
|
|
|
(19.1
|
)
|
|
0.5
|
|
|
0.7
|
|
|
(8.1
|
)
|
Income
tax provision
|
|
|
2.4
|
|
|
3.3
|
|
|
(18.3
|
)
|
|
2.4
|
|
|
3.1
|
|
|
(9.4
|
)
|
Net
income
|
|
|
4.3
|
|
|
5.7
|
|
|
(17.4
|
)
|
|
4.3
|
|
|
5.4
|
|
|
(6.9
|
)
|
____________________
|
(1)Results
may not add due to rounding.
|
(2)Includes
the results of operations of Crosstown Traders, Inc. from the date
of
acquisition on June 2, 2005.
|
The
following table shows details of our consolidated total net sales:
|
|
Thirteen
Weeks Ended
|
|
Twenty-six
Weeks Ended
|
|
|
|
July
29,
|
|
July
30,
|
|
July
29,
|
|
July
30,
|
|
(In
millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
$
|
292.7
|
|
$
|
292.9
|
|
$
|
548.5
|
|
$
|
549.4
|
|
LANE
BRYANT(1)
|
|
|
281.2
|
|
|
252.9
|
|
|
558.3
|
|
|
510.4
|
|
CATHERINES
|
|
|
95.9
|
|
|
93.0
|
|
|
190.4
|
|
|
182.3
|
|
Total
Retail Stores segment sales
|
|
|
669.8
|
|
|
638.8
|
|
|
1,297.2
|
|
|
1,242.1
|
|
Total
Direct-to-Consumer segment sales(2)
|
|
|
92.3
|
|
|
49.4
|
|
|
199.8
|
|
|
49.4
|
|
Corporate
and other(3)
|
|
|
1.2
|
|
|
0.9
|
|
|
1.3
|
|
|
0.9
|
|
Total
net sales
|
|
$
|
763.3
|
|
$
|
689.1
|
|
$
|
1,498.3
|
|
$
|
1,292.4
|
|
____________________
|
(1)Includes
76 LANE BRYANT OUTLET stores opened in July 2006 (see “RECENT
DEVELOPMENTS” above).
|
(2)Includes
the results of operations of Crosstown Traders, Inc. from the date
of
acquisition on June 2, 2005.
|
(3)Revenue
related to loyalty card
fees.
|
The
following table shows information related to the change in our consolidated
total net sales:
|
|
Thirteen
Weeks Ended
|
|
Twenty-six
Weeks Ended
|
|
|
|
July
29,
|
|
July
30,
|
|
July
29,
|
|
July
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Stores segment
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in comparable store sales(1) :
|
|
|
|
|
|
|
|
|
|
Consolidated
retail
stores
|
|
|
2
|
%
|
|
3
|
%
|
|
1
|
%
|
|
1
|
%
|
FASHION
BUG
|
|
|
(1
|
)
|
|
1
|
|
|
(1
|
)
|
|
0
|
|
LANE
BRYANT
|
|
|
4
|
|
|
2
|
|
|
3
|
|
|
1
|
|
CATHERINES
|
|
|
2
|
|
|
10
|
|
|
4
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
from new stores as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total consolidated
prior-period sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
1
|
|
LANE
BRYANT
|
|
|
4
|
|
|
4
|
|
|
5
|
|
|
4
|
|
CATHERINES
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-period
sales from closed stores as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total consolidated
prior-period sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
BUG
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(2
|
)
|
LANE
BRYANT
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
CATHERINES
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Retail Stores segment sales
|
|
|
5
|
|
|
4
|
|
|
4
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Direct-to-Consumer segment sales
|
|
|
—
|
(2)
|
|
—
|
|
|
—
|
(2)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in consolidated total net sales
|
|
|
11
|
|
|
13
|
|
|
16
|
|
|
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)Comparison
not meaningful, as prior-year periods include sales from Crosstown
Traders, Inc. from the date of acquisition on June 2, 2005 (approximately
8 weeks).
|
The
following table sets forth information with respect to our year-to-date retail
store activity for Fiscal 2007 and planned store activity for all of Fiscal
2007:
|
|
|
|
|
|
|
|
|
|
|
|
FASHION
|
|
LANE
|
|
|
|
|
|
|
|
BUG
|
|
BRYANT
|
|
CATHERINES
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007 Year-to-Date(1):
|
|
|
|
|
|
|
|
|
|
Stores
at January 28, 2006
|
|
|
1,025
|
|
|
748
|
|
|
463
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
opened
|
|
|
4
|
|
|
95
|
(2)
|
|
6
|
|
|
105
|
|
Stores
closed
|
|
|
(8
|
)
|
|
(13
|
)
|
|
(3
|
)
|
|
(24
|
)
|
Net
change in stores
|
|
|
(4
|
)
|
|
82
|
|
|
3
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
at July 29, 2006
|
|
|
1,021
|
|
|
830
|
|
|
466
|
|
|
2,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores
relocated during period
|
|
|
14
|
|
|
14
|
|
|
4
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned
store openings
|
|
|
13
|
|
|
134
|
(4)
|
|
8
|
|
|
155
|
|
Planned
store closings
|
|
|
20
|
|
|
16
|
|
|
8
|
|
|
44
|
|
Planned
store relocations
|
|
|
26
|
|
|
35
|
|
|
11
|
|
|
72
|
|
____________________
|
(1)Excludes
2 Crosstown Traders outlet stores.
|
(2)Includes
76 LANE BRYANT OUTLET stores opened in July 2006 (see “RECENT
DEVELOPMENTS” above).
|
(3)Does
not include approximately 45 PETITE SOPHISTICATE OUTLET stores
(see
“RECENT DEVELOPMENTS” above).
|
(4)Includes
83 LANE BRYANT OUTLET stores (see “RECENT DEVELOPMENTS”
above).
|
Comparison
of Thirteen Weeks Ended July 29, 2006 and July 30, 2005
Net
Sales
Consolidated
net sales increased in the Fiscal 2007 Second Quarter as compared to the
Fiscal
2006 Second Quarter, primarily as a result of the inclusion of Crosstown
Traders
for the full Fiscal 2007 Second Quarter, as well as increased net sales from
our
Retail Stores segment. We acquired Crosstown Traders (our Direct-to-Consumer
segment) on June 2, 2005. The increase in the Retail Stores segment’s net sales
was primarily a result of sales from new LANE BRYANT stores (including 73
LANE
BRYANT OUTLET stores opened in July 2006), an increase in comparable retail
store sales at our LANE BRYANT and CATHERINES brands, and increases in
E-commerce sales at all of our Retail Stores brands. The increases in the
consolidated net sales and Retail Stores segment’s net sales met our plan for
low single-digit increases for the quarter. We operated 2,317 stores in our
Retail Stores segment as of July 29, 2006, as compared to 2,236 stores as
of
July 30, 2005. Additionally, Crosstown Traders operated two outlet stores
that
are included in our Direct-to-Consumer segment in the Fiscal 2007 Second
Quarter.
Total
net
sales for the LANE BRYANT brand increased as a result of sales from new stores
(including the outlet stores), an increase in comparable retail store sales
(which exceeded our plan for the quarter), and an increase in E-commerce
sales.
LANE BRYANT experienced an increase in the number of transactions per store,
which was partially offset by a decrease in the average dollar sale per
transaction as compared to the prior-year quarter, while traffic levels were
consistent with the prior-year quarter.
Total
net
sales for the FASHION BUG brand decreased as a result of a decrease in
comparable retail store sales and reduced sales as a result of the closure
of
six stores, and were slightly below plan for the quarter. The decrease in
retail
store sales was partially offset by an increase in store-related E-commerce
sales. A decrease in store traffic levels during the current-year quarter
was
partially offset by a slight increase in the average dollar sale per transaction
as compared to the prior-year quarter.
Total
net
sales for the CATHERINES brand increased as a result of an increase in
comparable retail store sales, and met our plan for the quarter. Traffic
levels
increased as compared to the prior-year quarter, while the average dollar
sale
per transaction was consistent with the prior-year quarter.
Net
sales
from Crosstown Traders were $92.3 million for the Fiscal 2007 Second Quarter
as
compared to net sales of $49.4 million for the Fiscal 2006 Second Quarter
from
the date of acquisition on June 2, 2005. Net sales from Crosstown Traders
were
12.1% of consolidated net sales for the Fiscal 2007 Second Quarter as compared
to 7.2% of consolidated net sales for the Fiscal 2006 Second Quarter.
Crosstown’s Fiscal 2007 Second Quarter sales were at the low end of our plan for
the quarter. Actual circulation and customer response rates that were below
plan
in the current-year quarter were partially offset by a better-than-expected
average dollar sale per transaction.
We
offer
various loyalty card programs to our Retail Stores segment customers. Customers
who join these programs are entitled to various benefits, including discounts
and rebates on purchases during the membership period. Customers generally
join
these programs by paying an annual membership fee. We recognize revenue on
these
loyalty programs as sales over the life of the membership period based on
when
the customer earns the benefits and when the fee is no longer refundable.
Costs
we incur in connection with administering these programs are recognized in
cost
of goods sold as incurred. During the Fiscal 2007 Second Quarter and Fiscal
2006
Second Quarter, we recognized revenues of $5.1 million and $4.3 million,
respectively, in connection with our loyalty card programs.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 1.9%
as a
percentage of consolidated net sales in the Fiscal 2007 Second Quarter as
compared to the Fiscal 2006 Second Quarter. The increase was primarily as
a
result of inclusion of catalog costs for our Direct-to-Consumer segment for
the
full Fiscal 2007 Second Quarter as compared to two months of the Fiscal 2006
Second Quarter and reduced merchandise margins for our Retail Stores segment
related to higher levels of promotional activity in the current-year quarter.
Consolidated cost of goods sold increased 2.3% as a percentage of consolidated
net sales.
For
our
Retail Stores segment, cost of goods sold, buying, and occupancy expenses
as a
percentage of net sales were 1.6% higher in the Fiscal 2007 Second Quarter
as
compared to the Fiscal 2006 Second Quarter, primarily as a result of the
increased levels of promotional activity and pre-opening expenses related
to
LANE BRYANT OUTLET stores opened in July 2006.
Cost
of
goods sold for our Direct-to-Consumer segment includes catalog advertising
and
fulfillment costs, which are significant expenses for catalog operations.
Cost
of goods sold for the Direct-to-Consumer segment is generally higher as a
percentage of net sales than cost of goods sold for our Retail Stores segment,
and therefore contributed to the increase in consolidated cost of goods sold
as
a percentage of consolidated net sales.
Cost
of
goods sold includes merchandise costs net of discounts and allowances; freight;
inventory shrinkage; shipping and handling costs associated with our
Direct-to-Consumer and E-commerce businesses; and amortization of
direct-response advertising costs for our Direct-to-Consumer business for
periods subsequent to the Crosstown acquisition. Net merchandise costs and
freight are capitalized as inventory costs.
Consolidated
buying and occupancy expenses as a percentage of consolidated net sales were
0.4% lower in the Fiscal 2007 Second Quarter as compared to the Fiscal 2006
Second Quarter, primarily as a result of the lower levels of buying and
occupancy costs associated with our Direct-to-Consumer segment. For our Retail
Stores segment, buying and occupancy expenses as a percentage of net sales
were
0.7% higher in the Fiscal 2007 Second Quarter as compared to the Fiscal 2006
Second Quarter. Occupancy expenses for the Retail Stores segment for the
Fiscal
2007 Second Quarter included approximately $3.3 million of pre-opening expenses
related to LANE BRYANT OUTLET stores. The Direct-to-Consumer segment, which
operates only two outlet stores, incurs lower levels of buying and occupancy
costs, which resulted in a favorable impact on consolidated buying and occupancy
expenses as a percentage of consolidated net sales.
Buying
expenses include payroll, payroll-related costs, and operating expenses for
our
buying departments, warehouses, and fulfillment centers. Occupancy expenses
include rent; real estate taxes; insurance; common area maintenance; utilities;
maintenance; and depreciation for our stores, warehouse and fulfillment center
facilities, and equipment. Buying, catalog, and occupancy costs are treated
as
period costs and are not capitalized as part of inventory.
Selling,
General, and Administrative
Consolidated
selling, general, and administrative expenses for the Fiscal 2007 Second
Quarter
increased 0.6% as a percentage of consolidated net sales as compared to the
prior-year period. Fiscal 2007 Second Quarter selling, general, and
administrative expenses included approximately $2.3 million of pre-opening
operating expenses related to LANE BRYANT OUTLET stores. Fiscal 2007 Second
Quarter consolidated selling, general, and administrative expenses were also
negatively impacted by higher expenses related to incentive-based employee
compensation and benefit programs, and inclusion of the Direct-to-Consumer
segment for the full quarter.
Selling
expenses for the Fiscal 2007 Second Quarter were 0.1% higher as a percentage
of
net sales, while general and administrative expenses were 0.5% higher as
a
percentage of net sales, reflecting higher levels of general and administrative
expenses in the Direct-to-Consumer segment as compared to the Retail Stores
segment. General and administrative expenses for the Fiscal 2007 Second Quarter
were also negatively impacted by a $0.8 million increase in stock-based
compensation as compared to the prior-year period (see “CRITICAL
ACCOUNTING POLICIES” above).
Other
Income
Interest
income increased $0.3 million and other income increased $0.6 million in
the
Fiscal 2007 Second Quarter as compared to the Fiscal 2006 Second
Quarter.
Income
Tax Provision
The
effective income tax rate was 36.4% for the Fiscal 2007 Second Quarter as
compared to 36.7% for the Fiscal 2006 Second Quarter.
Comparison
of Twenty-six Weeks Ended July 29, 2006 and July 30, 2005
Net
Sales
Consolidated
net sales increased in the first half of Fiscal 2007 as compared to the first
half of Fiscal 2006, primarily as a result of the inclusion of Crosstown
Traders
for the entire first half of Fiscal 2007, as well as increased net sales
from
our Retail Stores segment. Consolidated net sales for the first half of Fiscal
2006 include net sales from Crosstown Traders from the date of acquisition
on
June 2, 2005. The increase in the Retail Stores segment’s net sales was
primarily a result of sales from new LANE BRYANT stores (including 73 LANE
BRYANT OUTLET stores opened in July 2006), an increase in comparable retail
store sales at our LANE BRYANT and CATHERINES brands, and increases in
E-commerce sales at all of our Retail Stores brands. The increases in the
Retail
Stores segment’s net sales and consolidated net sales met our plan for low
single-digit increases for the period.
Total
net
sales for the LANE BRYANT brand increased as a result of sales from new stores,
an increase in comparable retail store sales, and an increase in E-commerce
sales, and met our plan for the period. As compared to the prior-year period,
a
slight decrease in the average dollar sale per transaction was offset by
an
increase in the number of transactions per store, while traffic levels were
relatively flat.
Total
net
sales for the FASHION BUG brand decreased as a result of a decrease in
comparable retail store sales and reduced sales as a result of the closure
of
eight stores, and were slightly below plan for the period. The decrease in
retail store sales was partially offset by an increase in store-related
E-commerce sales. A decrease in the number of transactions per store during
the
current-year period was partially offset by an increase in the average dollar
sale per transaction as compared to the prior-year period.
Total
net
sales for the CATHERINES brand increased as a result of an increase in
comparable retail store sales, and met our plan for the period. Significantly
increased traffic levels during the first half of Fiscal 2007 were partially
offset by a lower average dollar sale per transaction as a result of increased
promotional activity as compared to the prior-year period.
Net
sales
from Crosstown Traders were $199.8 million for the first half of Fiscal 2007
as
compared to net sales of $49.4 million for the first half of Fiscal 2006
from
the date of acquisition on June 2, 2005. Net sales from Crosstown Traders
were
13.3% of consolidated net sales for the first half of Fiscal 2007 as compared
to
3.8% of consolidated net sales for the first half of Fiscal 2006. Crosstown’s
sales for the first half of Fiscal 2007 were at the low end of our sales
plan
for the period. Actual circulation and customer response rates that were
below
plan in the current-year period were partially offset by a better-than-expected
average dollar sale per transaction.
During
the first half of Fiscal 2007 and the first half of Fiscal 2006, we recognized
revenues of $9.2 million and $7.4 million, respectively, in connection with
our
loyalty card programs.
Cost
of Goods Sold, Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased 1.5%
as a
percentage of consolidated net sales in the first half of Fiscal 2007 as
compared to the first half of Fiscal 2006. The increase was primarily a result
of inclusion of catalog costs for our Direct-to-Consumer segment for the
entire
first half of Fiscal 2007 as compared to two months for the first half of
Fiscal
2006 and reduced merchandise margins for our Retail Stores segment related
to
higher levels of promotional activity in the current-year period. Consolidated
cost of goods sold increased 2.7% as a percentage of consolidated net
sales.
For
our
Retail Stores segment, cost of goods sold, buying, and occupancy expenses
as a
percentage of net sales were 0.7% higher in the first half of Fiscal 2007
as
compared to the first half of Fiscal 2006 as a result of the increased levels
of
promotional activity and pre-opening expenses related to LANE BRYANT OUTLET
stores opened in July 2006.
Cost
of
goods sold for our Direct-to-Consumer segment includes catalog advertising
and
fulfillment costs, which are significant expenses for catalog operations.
Cost
of goods sold for the Direct-to-Consumer segment is generally higher as a
percentage of net sales than cost of goods sold for our Retail Stores segment,
and therefore contributed to the increase in consolidated cost of goods sold
as
a percentage of consolidated net sales.
Cost
of
goods sold includes merchandise costs net of discounts and allowances; freight;
inventory shrinkage; shipping and handling costs associated with our
Direct-to-Consumer and E-commerce businesses; and amortization of
direct-response advertising costs for our Direct-to-Consumer business for
periods subsequent to the Crosstown acquisition. Net merchandise costs and
freight are capitalized as inventory costs.
Consolidated
buying and occupancy expenses as a percentage of consolidated net sales were
1.2% lower in the first half of Fiscal 2007 as compared to the first half
of
Fiscal 2006, primarily as a result of lower levels of buying and occupancy
costs
associated with our Direct-to-Consumer segment. For our Retail Stores segment,
buying and occupancy expenses as a percentage of net sales were 0.4% higher
in
the first half of Fiscal 2007 as compared to the first half of Fiscal 2006.
Occupancy expenses for the Retail Stores segment for the first half of Fiscal
2007 included approximately $4.5 million of pre-opening expenses related
to LANE
BRYANT OUTLET stores. The Direct-to-Consumer segment, which operates only
two
outlet stores, incurs lower levels of buying and occupancy costs, which resulted
in a favorable impact on consolidated buying and occupancy expenses as a
percentage of consolidated net sales.
Buying
expenses include payroll, payroll-related costs, and operating expenses for
our
buying departments, warehouses, and fulfillment centers. Occupancy expenses
include rent; real estate taxes; insurance; common area maintenance; utilities;
maintenance; and depreciation for our stores, warehouse and fulfillment center
facilities, and equipment. Buying, catalog, and occupancy costs are treated
as
period costs and are not capitalized as part of inventory.
Selling,
General, and Administrative
Consolidated
selling, general, and administrative expenses for the first half of Fiscal
2007
increased 0.4% as a percentage of consolidated net sales as compared to the
prior-year period. Selling, general, and administrative expenses for the
first
half of Fiscal 2007 included approximately $3.3 million of pre-opening operating
expenses related to LANE BRYANT OUTLET stores. Consolidated selling, general,
and administrative expenses for the first half of Fiscal 2007 were also
negatively impacted by higher expenses related to incentive-based employee
compensation and benefit programs, and inclusion of the Direct-to-Consumer
segment for the full period. Consolidated selling, general, and administrative
expenses for the first half of Fiscal 2006 included a gain of $2.0 million
from
the purchase and subsequent securitization of out CATHERINES credit card
portfolio (see “Item 1. Financial Statements (Unaudited); Notes to
Condensed Consolidated Financial Statements; Note 10. Asset
Securitization” above).
Selling
expenses for the first half of Fiscal 2007 were 1.2% lower as a percentage
of
net sales, while general and administrative expenses were 1.6% higher as
a
percentage of net sales, reflecting lower levels of selling expenses and
higher
levels of general and administrative expenses in the Direct-to-Consumer segment
as compared to the Retail Stores segment. General and administrative expenses
for the first half of Fiscal 2007 were also negatively impacted by a $2.1
million increase in stock-based compensation as compared to the prior-year
period (see “CRITICAL ACCOUNTING POLICIES” above).
Other
Income
Interest
income increased $0.1 million and other income increased $0.7 million in
the
first half of Fiscal 2007 as compared to the first half of Fiscal
2006.
Income
Tax Provision
The
effective income tax rate was 36.0% for the first half of Fiscal 2007 as
compared to 36.7% for the first half of Fiscal 2006. The tax rate for the
first
half of Fiscal 2007 was favorably affected by non-taxable insurance proceeds
which were included in pre-tax income for the period.
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary sources of working capital are cash flow from operations, our
proprietary credit card receivables securitization agreements, our investment
portfolio, and our revolving credit facility. The following table highlights
certain information related to our liquidity and capital resources:
|
|
July
29,
|
|
January
28,
|
|
(Dollars
in millions)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
211.8
|
|
$
|
130.1
|
|
Available-for-sale
securities
|
|
|
22.2
|
|
|
20.2
|
|
Working
capital
|
|
$
|
407.9
|
|
$
|
338.6
|
|
Current
ratio
|
|
|
2.0
|
|
|
1.8
|
|
Long-term
debt to equity ratio
|
|
|
21.0
|
%
|
|
23.6
|
%
|
Our
net
cash provided by operating activities increased to $175.6 million for the
first
half of Fiscal 2007 from $133.3 million for the first half of Fiscal 2006.
The
$42.3 million increase was primarily attributable to a $35.5 million decrease
in
accounts receivable, which resulted from collections on holiday-season sales
of
food and gifts from our FIGI’S Direct-to-Consumer catalog. Our net investment in
inventories decreased $37.2 million in the first half of Fiscal 2007 as compared
to the first half of Fiscal 2006, primarily as a result of our continued
management of inventory levels. Higher levels of promotional activity in
the
current-year period also contributed to the reduced levels of inventory as
compared to the prior-year period. The timing of payments of deferred, prepaid,
and accrued expenses resulted in a $33.6 million decrease in cash provided
by
operating activities in the first half of Fiscal 2007 as compared to the
first
half of Fiscal 2006.
As
a
result of the adoption of SFAS No. 123R in Fiscal 2007 (see “CRITICAL
ACCOUNTING POLICIES” above), we are reporting certain tax benefits
related to stock-based compensation as cash provided by financing activities
in
Fiscal 2007 instead of as cash provided by operating activities as permitted
in
the prior-year period. This change in reporting classification had a $2.5
million negative impact on cash provided by operating activities for the
first
half of Fiscal 2007, which was offset by a corresponding positive impact
on cash
provided by financing activities.
Capital
Expenditures
Our
gross
capital expenditures, excluding construction allowances received from landlords,
were $55.0 million during the first half of Fiscal 2007. Construction allowances
received from landlords for the first half of Fiscal 2007 were $9.3 million.
During Fiscal 2007, we are accelerating our new store opening plan, primarily
in
our LANE BRYANT brand, which includes a new LANE BRYANT/CACIQUE side-by-side
retail store concept and the opening of our new outlet store channel. We
also
plan to continue to build our infrastructure for the launch of new catalog
offerings, as well as further expansion of our E-commerce
operations.
For
all
of Fiscal 2007, we anticipate incurring capital expenditures of approximately
$140 – $150 million before construction allowances received from landlords. We
expect that a majority of these capital expenditures will support store
development, including openings, relocations, and store improvements. The
remainder of the expenditures will primarily be for improvements to our
information technology and corporate infrastructure. We expect to finance
these
additional capital expenditures primarily through internally-generated
funds.
Dividends
We
have
not paid any dividends since 1995, and we do not expect to declare or pay
any
dividends on our common stock in the foreseeable future. The payment of future
dividends is within the discretion of our Board of Directors and will depend
upon our future earnings, if any, our capital requirements, our financial
condition, and other relevant factors. Our existing revolving credit facility
allows the payment of dividends on our common stock subject to maintaining
a
minimum level of Excess Availability (as defined in the facility agreement)
for
30 days before and immediately after the payment of such dividends.
Off-Balance-Sheet
Financing
Our
FASHION BUG and CATHERINES proprietary credit card receivables are originated
by
Spirit of America National Bank (our wholly-owned credit card bank), which
transfers its interest in the receivables to the Charming Shoppes Master
Trust
(the “Trust”) through a special-purpose entity. The Trust is an unconsolidated
qualified special-purpose entity (“QSPE”). Our Crosstown Traders catalog
proprietary credit card receivables, which we securitized subsequent to our
acquisition of Crosstown Traders, are originated in a non-bank program by
Crosstown Traders, which transfers its interest in the receivables to Catalog
Receivables LLC, a separate and distinct unconsolidated QSPE, through a
special-purpose entity. The QSPEs can sell interests in these receivables
on a
revolving basis for a specified term. At the end of the revolving period,
an
amortization period begins during which the QSPEs make principal payments
to the
parties that have entered into the securitization agreement with the
QSPEs.
As
of
July 29, 2006, we had the following securitization facilities
outstanding:
(Dollars
in millions)
|
Series
1999-2
|
Series
2002-1
|
Series
2004
|
Series
2004-1
|
2005-RPA(1)
|
|
|
|
|
|
|
Date
of facility
|
May
1999
|
November
2002
|
January
2004
|
August
2004
|
May
2005
|
Type
of facility
|
Conduit
|
Term
|
Conduit
|
Term
|
Conduit
|
Maximum
funding
|
$50.0
|
$100.0
|
$50.0
|
$180.0
|
$55.0
|
Funding
as of July 29, 2006
|
$27.9
|
$100.0
|
$00.0
|
$180.0
|
$51.5
|
First
scheduled principal payment
|
Not
applicable
|
August
2007
|
Not
applicable
|
April
2009
|
Not
applicable
|
Expected
final principal payment
|
Not
applicable(2)
|
May
2008
|
Not
applicable(2)
|
March
2010
|
Not
applicable(2)
|
Renewal
|
Annual
|
Not
applicable
|
Annual
|
Not
applicable
|
Annual
|
____________________
|
(1)Receivables
Purchase Agreement (for the Crosstown Traders catalog proprietary
credit
card receivables program).
|
(2)Series
1999-2 and Series 2004 have scheduled final payment dates that
occur in
the twelfth month following the month in which the series begins
amortizing. These series and 2005-RPA generally begin amortizing
364 days
after start of the purchase commitment by the series purchaser
currently
in effect.
|
As
these
credit card receivables securitizations reach maturity, we plan to obtain
funding for the proprietary credit card programs through additional
securitizations, including annual renewal of our conduit facilities. However,
we
can give no assurance that we will be successful in securing financing through
either replacement securitizations or other sources of replacement
financing.
We
securitized $304.0 million of private label credit card receivables in the
first
half of Fiscal 2007 and had $364.7 million of securitized credit card
receivables outstanding as of July 29, 2006. We held certificates and retained
interests in our securitizations of $64.5 million as of July 29, 2006, which
are
generally subordinated in right of payment to certificates issued by the
QSPEs
to third-party investors. Our obligation to repurchase receivables sold to
the
QSPEs is limited to those receivables that, at the time of their transfer,
fail
to meet the QSPE’s eligibility standards under normal representations and
warranties. To date, our repurchases of receivables pursuant to this obligation
have been insignificant.
Charming
Shoppes Receivables Corp. (“CSRC”), Charming Shoppes Seller, Inc., and Catalog
Seller LLC, our consolidated wholly-owned indirect subsidiaries, are separate
special-purpose entities (“SPEs”) created for the securitization program. As of
July 29, 2006, our investment in asset-backed securities included $10.8 million
of QSPE certificates, an I/O strip of $15.5 million, and other retained
interests of $38.2 million. These assets are first and foremost available
to
satisfy the claims of the respective creditors of these separate corporate
entities, including certain claims of investors in the QSPEs. Additionally,
with
respect to certain Trust Certificates, if either the Trust or Charming Shoppes,
Inc. fails to meet certain financial performance standards, the Trust would
be
obligated to reallocate to third-party investors holding certain certificates
issued by the Trust, collections in an amount up to $9.5 million that otherwise
would be available to CSRC. The result of this reallocation would be to increase
CSRC’s retained interest in the Trust by the same amount. Subsequent to such a
transfer occurring, and upon certain conditions being met, these same investors
would be required to repurchase these interests. As of July 29, 2006, we
were in
compliance with these performance standards and, as a result, there were
no
reallocated collections.
In
addition to the above, we could be affected by certain other events that
would
cause the QSPEs to hold proceeds of receivables, which would otherwise be
available to be paid to us with respect to our subordinated interests, within
the QSPEs as additional enhancement. For example, if we fail or the QSPEs
fail
to meet certain financial performance standards, a credit enhancement condition
would occur, and the QSPEs would be required to retain amounts otherwise
payable
to us. In addition, the failure to satisfy certain financial performance
standards could further cause the QSPEs to stop using collections on QSPE
assets
to purchase new receivables, and would require such collections to be used
to
repay investors on a prescribed basis, as provided in the securitization
agreements. If this were to occur, it could result in our having insufficient
liquidity; however, we believe we would have sufficient notice to seek
alternative forms of financing through other third-party providers. As of
July
29, 2006, the QSPEs were in compliance with all applicable financial performance
standards. Amounts placed into enhancement accounts, if any, that are not
required for payment to other certificate holders will be available to us
at the
termination of the securitization series. We have no obligation to directly
fund
the enhancement account of the QSPEs, other than for breaches of customary
representations, warranties, and covenants and for customary indemnities.
These
representations, warranties, covenants, and indemnities do not protect the
QSPEs
or investors in the QSPEs against credit-related losses on the receivables.
The
providers of the credit enhancements and QSPE investors have no other recourse
to us.
These
securitization agreements are intended to improve our overall liquidity by
providing sources of funding for our proprietary credit card receivables.
The
agreements provide that we will continue to service the credit card receivables
and control credit policies. This control allows us, absent certain adverse
events, to fund continued credit card receivable growth and to provide the
appropriate customer service and collection activities. Accordingly, our
relationship with our credit card customers is not affected by these
agreements.
We
have a
non-recourse agreement under which a third party provides a proprietary credit
card sales accounts receivable funding facility for our LANE BRYANT retail
and
outlet stores. The facility expires in October 2007. Under this agreement,
the
third party reimburses us daily for sales generated by LANE BRYANT’s proprietary
credit card accounts. Upon termination of this agreement, we have the right
to
purchase the receivables allocated to the LANE BRYANT stores under such
agreement at book value from the third party.
Additional
information regarding our asset securitization facility and our LANE BRYANT
agreement is included in “Part II, Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and
“Part II, Item 8. Financial Statements and Supplementary
Data; Notes to
Consolidated Financial Statements; Note 17. Asset Securitization” of
our Annual Report on Form 10-K for the fiscal year ended January 28,
2006.
We
lease
substantially all of our operating stores under non-cancelable operating
lease
agreements. Additional details on these leases, including minimum lease
commitments, are included in “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; Note 18.
Leases” of our Annual Report on Form 10-K for the fiscal year ended
January 28, 2006.
Revolving
Credit Facility
Our
revolving credit facility agreement provides for a revolving credit facility
with a maximum availability of $375 million, subject to certain limitations
as
defined in the facility agreement, and provides that up to $300 million of
the
facility may be used for letters of credit. In addition, we may request,
subject
to compliance with certain conditions, additional revolving credit commitments
up to an aggregate maximum availability of $500 million. The agreement expires
on July 28, 2010. As of July 29, 2006, we had an aggregate total of $3.4
million
of unamortized deferred debt acquisition costs related to the facility, which
we
are amortizing on a straight-line basis over the life of the facility as
interest expense.
The
facility includes provisions for customary representations and warranties
and
affirmative covenants, and includes customary negative covenants providing
for
certain limitations on, among other things, sales of assets; indebtedness;
loans, advances and investments; acquisitions; guarantees; and dividends
and
redemptions. Under certain circumstances involving a decrease in “Excess
Availability” (as defined in the facility agreement), we may be required to
maintain a minimum “Fixed Charge Coverage Ratio” (as defined in the facility
agreement). The facility is secured by our general assets, except for (i)
assets
related to our credit card securitization facilities, (ii) real property,
(iii)
equipment, (iv) the assets of our non-U.S. subsidiaries, and (v) certain
other
assets. As of July 29, 2006, we were not in violation of any of the covenants
included in the facility.
The
interest rate on borrowings under the facility is Prime for Prime Rate Loans,
and LIBOR as adjusted for the Reserve Percentage (as defined in the facility
agreement) plus 1.0% to 1.5% per annum for Eurodollar Rate Loans. The applicable
rate is determined monthly, based on our average excess availability, as
defined
in the facility agreement. As of July 29, 2006, the applicable rates on
borrowings under the facility were 8.25% for Prime Rate Loans and 6.40% (LIBOR
plus 1%) for Eurodollar Rate Loans. All borrowings outstanding under the
facility as of July 29, 2006 were Eurodollar Rate Loans, with a weighted-average
interest rate of 6.26% (LIBOR plus 1%).
Additional
information regarding our long-term borrowings is included in “Part II,
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and “Part II, Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; Note 8.
Short-term Borrowings and Long-term Debt” of our Annual Report on Form
10-K for the fiscal year ended January 28, 2006.
We
believe that our capital resources and liquidity position are sufficient
to
support our current operations. Our requirements for working capital, capital
expenditures, and repayment of debt and other obligations are expected to
be
funded from operations, supplemented as needed by short-term or long-term
borrowings available under our credit facility, our proprietary credit card
receivables securitization agreements, leases, and other available financing
sources.
We
manage
our FASHION BUG, CATHERINES, and catalog proprietary credit card
programs through various operating entities that we own. The primary
activity of these entities is to service the balances of our proprietary
credit
card receivables portfolio that we sell under credit card securitization
facilities. Under the securitization facilities, we can be exposed to
fluctuations in interest rates to the extent that the interest rates charged
to
our customers vary from the rates paid on certificates issued by the
QSPEs.
The
finance charges on most of our FASHION BUG proprietary credit card accounts
are
billed using a floating rate index (the Prime Rate), subject to a floor and
limited by legal maximums. The finance charges on most of our CATHERINES
and
catalog proprietary credit card accounts are billed at a fixed rate of interest.
The certificates issued under the securitization facilities include both
floating- and fixed-interest-rate certificates. The floating-rate certificates
are based on an index of either one-month LIBOR or the commercial paper rate,
depending on the issuance. Consequently, we have basis risk exposure with
respect to credit cards billed using a floating-rate index to the extent
that
the movement of the floating rate index on the certificates varies from the
movement of the Prime Rate. Additionally, as of July 29, 2006, the floating
finance charge rate on the floating-rate indexed credit cards was below the
contractual floor rate, thus exposing us to interest-rate risk with respect
to
these credit cards as well as the fixed-rate credit cards for the portion
of certificates that are funded at floating rates. However, as a result of
the
Trust entering into a series of fixed-rate interest rate swap agreements
with
respect to the $161.1 million of Series 2004-1certificates, and $89.5
million of Series 2002-1 being issued at fixed rates, we have significantly
reduced the exposure of floating-rate certificates outstanding to interest-rate
risk. To the extent that short-term interest rates were to increase by one
percentage point by the end of Fiscal 2007, an increase of approximately
$0.3
million in selling, general, and administrative expenses would
result.
As
of
July 29, 2006, there were $20.0 million of borrowings outstanding under our
revolving credit facility. We intend to repay these borrowings during
Fiscal 2007. Such borrowings are exposed to variable interest rates. A one
percentage point change in market interest rates would result in a
corresponding change of approximately $0.2 million per year in our interest
expense and cash flows.
We
are
not subject to material foreign exchange risk, as our foreign transactions
are
primarily U.S. Dollar-denominated and our foreign operations do not constitute
a
material part of our business.
See
“Item 1. Notes To Condensed Consolidated Financial Statements
(Unaudited); Note 12. Impact of Recent Accounting Pronouncements”
above.
See
“Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; MARKET RISK,” above.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports we file under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate and in such a manner as to
allow timely decisions regarding required disclosure. We have a Disclosure
Committee, which is made up of several key management employees and which
reports directly to the CEO and CFO, to centralize and enhance these controls
and procedures and assist our management, including our CEO and CFO, in
fulfilling their responsibilities for establishing and maintaining such controls
and procedures and providing accurate, timely, and complete
disclosure.
As
of the
end of the period covered by this report on Form 10-Q (the “Evaluation Date”),
our Disclosure Committee, under the supervision and with the participation
of
management, including our CEO and CFO, carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our management, including our CEO and
CFO,
has concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective.
As
we
continue with the integration of our June 2, 2005 acquisition of Crosstown
Traders, Inc. (“Crosstown Traders”) and the execution of our plan to migrate
certain of the Crosstown Traders transaction-based processes to our existing
financial processes and systems, we are modifying the Crosstown Traders internal
control over financial reporting. As of January 28, 2006, we had completed
the
migration of the cash management activities and the conversion of payroll
processing to our respective processes and systems. During the period covered
by
this report on Form 10-Q, we completed the conversion of Crosstown Traders’
general ledger, non-merchandise and other accounts payable processing, and
fixed
assets accounting to our general ledger and respective financial processes
and
systems. Additionally, we completed the conversion of the Crosstown Traders
credit card program and related cardholder accounting to our credit platform,
thereby consolidating the management of credit programs for our stores,
e-commerce, and catalogs onto a single operating platform. Crosstown Traders
integration activities are expected to continue through our current fiscal
year.
Other than changes arising out of the Crosstown Traders acquisition, there
has
been no change in our internal control over financial reporting that occurred
during the period covered by this report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Other
than ordinary routine litigation incidental to our business, there are no
other
pending material legal proceedings that we or any of our subsidiaries are
a
party to, or of which any of their property is the subject. There are no
proceedings that are expected to have a material adverse effect on our financial
condition or results of operations.
As
discussed in “Part I; Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations; RECENT
DEVELOPMENTS” above, in December 2005, we announced
plans to enter the outlet channel through the assumption of approximately
75
outlet store leases from Retail Brand Alliance, and to operate those locations
under the name LANE BRYANT OUTLETTM. Subsequently, in January 2006,
we acquired the trademark and internet domain rights to the PETITE
SOPHISTICATE® name. In approximately 45 of the locations acquired
from Retail Brand Alliance, we plan to operate both a LANE BRYANT OUTLET
store
and a PETITE SOPHISTICATE OUTLET store. During July 2006 we opened 76 LANE
BRYANT OUTLET stores. We expect to open seven additional LANE BRYANT OUTLET
stores and the PETITE SOPHISTICATE OUTLET stores by the end of Fiscal
2007.
As
indicated in the risk factors previously disclosed in “Part I; Item 1A.
Risk Factors” of our annual report on Form 10-K for the fiscal year
ended January 28, 2006, we face challenges in managing our recent growth.
Our
operating challenges and management responsibilities are increasing as we
continue to grow and expand into additional distribution channels. We cannot
assure the successful implementation of our business plan for entry into
the
outlet store distribution channel, or that we will achieve our objectives
as
quickly or as effectively as we hope.
Other
than the above, we have not become aware of any material changes since January
28, 2006 in the risk factors previously disclosed in “Part I; Item 1A.
Risk Factors” of our annual report on Form 10-K for the fiscal year
ended January 28, 2006. See also “Part I; Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
FORWARD-LOOKING STATEMENTS”
above.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers:
|
|
|
|
|
|
Total
|
|
Maximum
|
|
|
|
|
|
|
|
Number
|
|
Number
of
|
|
|
|
|
|
|
|
of
Shares
|
|
Shares
that
|
|
|
|
|
|
|
|
Purchased
as
|
|
May
Yet be
|
|
|
|
Total
|
|
|
|
Part
of Publicly
|
|
Purchased
|
|
|
|
Number
|
|
Average
|
|
Announced
|
|
Under
the
|
|
|
|
of
Shares
|
|
Price
Paid
|
|
Plans
or
|
|
Plans
or
|
|
Period
|
|
Purchased
|
|
per
Share
|
|
Programs(2)
|
|
Programs(2)
|
|
|
|
|
|
|
|
|
|
|
|
April
30, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
27, 2006
|
|
|
1,209
|
(1)
|
$
|
13.96
|
|
|
-
|
|
|
-
|
|
May
28, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1, 2006
|
|
|
7,052
|
|
|
11.48
|
|
|
-
|
|
|
-
|
|
July
2, 2006 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
29, 2006
|
|
|
861
|
|
|
10.93
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
9,122
|
|
$
|
11.75
|
|
|
-
|
|
|
-
|
|
____________________
|
(1) Shares
withheld for the payment of payroll taxes on employee stock awards
that
vested during the period.
|
(2) In
Fiscal 1998, we publicly announced that our Board of Directors
granted
authority to repurchase up to 10,000,000 shares of our common
stock. In
Fiscal 2000, we publicly announced that our Board of Directors
granted
authority to repurchase up to an additional 10,000,000 shares
of our
common stock. In Fiscal 2003, the Board of Directors granted
an additional
authorization to repurchase 6,350,662 shares of common stock
issued to
Limited Brands in connection with our acquisition of LANE BRYANT.
From
Fiscal 1998 through Fiscal 2003, we repurchased a total of 21,370,993
shares of common stock, which included shares purchased on the
open market
as well as shares repurchased from Limited Brands. As of July
30, 2005,
4,979,669 shares of our common stock remain available for repurchase
under
these programs. Our revolving credit facility allows the repurchase
of our
common stock subject to maintaining a minimum level of Excess
Availability
(as defined in the facility agreement) immediately before and
after such
repurchase. As conditions may allow, we may from time to time
acquire
additional shares of our common stock under these programs. Such
shares,
if purchased, would be held as treasury shares. No shares were
acquired
under these programs during the thirteen weeks ended July 29,
2006. The
repurchase programs have no expiration
date.
|
Our
Annual Meeting of Shareholders was held on June 22, 2006.
William
O. Albertini, Charles T. Hopkins, and Yvonne M. Curl were nominated for
reelection, in our Proxy Statement, to serve three-year terms as Class A
Directors, and M. Jeannine Strandjord was nominated for reelection, in our
Proxy
Statement, to serve a two-year term as a Class C Director. The total number
of
shares represented at the Annual Meeting were 115,766,002 shares, representing
94.6% of the total number of shares outstanding as of the close of business
on
May 3, 2006 (the record date fixed by the Board of Directors). The following
table indicates the number of votes cast in favor of election and the number
of
votes withheld with respect to each of the Directors nominated:
Name
|
Votes
For
|
Votes
Withheld
|
William
O. Albertini
|
113,385,288
|
2,380,714
|
Charles
T. Hopkins
|
101,717,914
|
14,048,088
|
Yvonne
M. Curl
|
113,622,693
|
2,143,309
|
M.
Jeannine Strandjord
|
113,619,877
|
2,146,125
|
Item
6. Exhibits
The
following is a list of Exhibits filed as part of this Quarterly Report on
Form
10-Q. Where so indicated, Exhibits that were previously filed are incorporated
by reference. For Exhibits incorporated by reference, the location of the
Exhibit in the previous filing is indicated in parentheses.
2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages
thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June
2,
2005, filed on June 8, 2005. (Exhibit 2.1).
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K
of the
Registrant for the fiscal year ended January 29, 1994 (File No.
000-07258,
Exhibit 3.1).
|
3.2
|
Bylaws,
as Amended and Restated, incorporated by reference to Form 10-Q
of the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 3.2).
|
31.1
|
Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
99.1
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated
Loan and
Security Agreement, dated July 28, 2005, by and among Charming
Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc.,
FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc.,
and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and
other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
CHARMING
SHOPPES, INC.
|
|
(Registrant)
|
|
|
|
|
|
|
Date:August
31, 2006
|
/S/
DORRIT J. BERN
|
|
Dorrit
J. Bern
|
|
Chairman
of the Board
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
Date:August
31, 2006
|
/S/
ERIC M. SPECTER
|
|
Eric
M. Specter
|
|
Executive
Vice President
|
|
Chief
Financial Officer
|
Exhibit
No.
|
Item
|
2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages
thereto and
J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June
2,
2005, filed on June 8, 2005. (Exhibit 2.1).
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K
of the
Registrant for the fiscal year ended January 29, 1994 (File No.
000-07258,
Exhibit 3.1).
|
3.2
|
Bylaws,
as Amended and Restated, incorporated by reference to Form 10-Q
of the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 3.2).
|
31.1
|
Certification
By Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
By Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
99.1
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated
Loan and
Security Agreement, dated July 28, 2005, by and among Charming
Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc.,
FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc.,
and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and
other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors.
|