UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON,
D.C. 20549
______________
FORM 10-K
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x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended February 2, 2008
OR
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______________ to _____________
Commission
File Number: 000-07258
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CHARMING SHOPPES,
INC.
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(Exact
Name of Registrant as Specified in Its
Charter)
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PENNSYLVANIA
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23-1721355
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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450 WINKS LANE,
BENSALEM, PA 19020
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(215)
245-9100
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(Address
of principal executive offices) (Zip
Code)
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(Registrant’s
telephone number, including Area Code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each
Class
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Name of Each Exchange
on Which Registered
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Common
Stock (par value $.10 per share)
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The
NASDAQ Stock Market LLC
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Stock
Purchase Rights
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The
NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
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None
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act:
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Yes
x
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No
o
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Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act:
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Yes
o
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No
x
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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:
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Yes
x
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No
o
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K:x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act):
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Large
Accelerated Filer x
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Accelerated
Filer o
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Non-accelerated
Filer o
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Smaller
Reporting Company o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
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Yes
o
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No
x
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The
aggregate market value of the outstanding common stock of the registrant held by
non-affiliates as of August 4, 2007 (the last day of the registrant’s most
recently completed second fiscal quarter), based on the closing price on August
3, 2007, was approximately $1,165,407,157.
As of
March 24, 2008, 113,251,845 shares of the registrant’s common stock were
outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE
Certain
information required by Part III of this Form 10-K is incorporated by reference
herein from the registrant’s definitive proxy statement for its 2008 annual
shareholders meeting, which is expected to be filed within 120 days after the
end of the fiscal year covered by this Annual Report.
CHARMING SHOPPES,
INC.
FORM 10-K ANNUAL
REPORT
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TABLE OF
CONTENTS
(Continued)
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Item
8
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Financial
Statements and Supplementary Data (Continued)
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We are a
multi-brand, multi-channel specialty apparel retailer with a leading market
share in women’s plus-size specialty apparel. Our Retail Stores
segment operates retail stores and related E-commerce websites under the
following distinct names: LANE BRYANT®, LANE BRYANT
OUTLET®, FASHION BUG®, CATHERINES PLUS
SIZES®, PETITE
SOPHISTICATE®, and PETITE
SOPHISTICATE OUTLET®. Our
Direct-to-Consumer segment operates numerous apparel, accessories, footwear, and
gift catalogs and related E-commerce websites through our Crosstown Traders
business, which we acquired in June 2005. During the year ended
February 2, 2008 (“Fiscal 2008”) the sale of plus-size apparel represented
approximately 74% of our total net sales. Through our multiple
channels, fashion content, and broad merchandise assortments, we seek to appeal
to customers from a broad range of socioeconomic, demographic, and cultural
groups. As of February 2, 2008 we operated 2,409 stores in 48
states.
LANE BRYANT® is a
widely recognized brand name in plus-size fashion. Through private
labels such as VENEZIA®, CACIQUE®, and LANE
BRYANT®, we offer
fashionable and sophisticated apparel in plus-sizes 14 – 28, including intimate
apparel, wear-to-work, and casual sportswear, as well as
accessories. LANE BRYANT has a loyal customer base, generally ranging
in age from 35 to 55 years old, which shops for fashionable merchandise in the
moderate price range. Our 795 LANE BRYANT retail stores are located
in 46 states, in a combination of destination malls, lifestyle centers, and
strip malls, and average approximately 5,900 square feet. During
Fiscal 2008 our LANE BRYANT website (lanebryant.com) averaged more
than 2.4 million unique visitors per month and has an established on-line
community.
In Fiscal
2006 we introduced the LANE BRYANT intimate apparel side-by-side store, which
pairs LANE BRYANT’s casual and wear-to-work sportswear assortments with an
expanded line of CACIQUE intimates as well as additional national brands,
presented in a double store-front. As a result of a successful
testing period during Fiscal 2006, many of our LANE BRYANT retail store openings
and relocations for Fiscal 2007 and Fiscal 2008 were in the new side-by-side
format. This larger footprint of approximately 7,300 square feet per
combined store compares with the full-line LANE BRYANT store footprint of
approximately 5,700 square feet. As of February 2, 2008 we operated 108
stores (which are included in the 795 stores operated by LANE BRYANT) in the
LANE BRYANT intimate apparel side-by-side format.
LANE BRYANT
OUTLET® is the
only national chain exclusively offering women’s plus-size apparel in the outlet
sales channel. Through our private labels and selected national
brands we offer fashionable and sophisticated apparel in plus-sizes
14 – 28, including
intimate apparel, wear-to-work, casual sportswear, and accessories, as well as
footwear and social occasion apparel. As of February 2, 2008 we operated 101
LANE BRYANT OUTLET stores in 35 states throughout the country. LANE
BRYANT OUTLET stores average approximately 5,900 square feet.
FASHION BUG® stores
specialize in selling a wide variety of plus-size, misses, junior, and girls
apparel, accessories, intimate apparel, and footwear. FASHION BUG
customers generally range in age from 20 to 49 years old and shop in the
low-to-moderate price range. Our 989 FASHION BUG stores are located
in 44 states, primarily in strip shopping centers, and average approximately
8,700 square feet. During Fiscal 2008 our FASHION BUG website (fashionbug.com) averaged more
than 900,000 unique visitors per month.
CATHERINES PLUS
SIZES® is
particularly known for extended sizes (over size 28) and petite
plus-sizes. CATHERINES offers classic apparel and accessories for
wear-to-work and casual lifestyles. CATHERINES customers generally
range in age from 40 to 65 years old, shop in the moderate price range, and are
concerned with fit and value. Our 468 CATHERINES stores are located
in 44 states, primarily in strip shopping centers, and average approximately
4,200 square feet. During Fiscal 2008 our CATHERINES website (catherines.com) averaged more
than 463,000 unique visitors per month.
PETITE SOPHISTICATE
OUTLET® is the
only national chain exclusively offering women’s petite-size apparel in the
outlet sales channel. PETITE SOPHISTICATE OUTLET targets women 35 –
55 years old and offers traditional and contemporary apparel in casual and
career assortments. We offer clothing tailored to women 4'11''
– 5'4'' who wear petite sizes 0 – 14. As of February 2, 2008 we
operated 52 PETITE SOPHISTICATE OUTLET stores in 23 states throughout the
country. These stores average approximately 2,700 square feet, and
substantially all of the stores operate with a LANE BRYANT OUTLET store in
side-by-side locations. These side-by-side locations average a
combined total of approximately 9,200 square feet. The chain also has
a marketing and informational website (petitesophisticate.com).
CROSSTOWN TRADERS is a
direct marketer of women’s apparel, footwear, accessories, and specialty
gifts. Crosstown Traders markets women’s apparel through its OLD
PUEBLO TRADERS®, BEDFORD FAIR
LIFESTYLES®, WILLOW RIDGE®, LEW MAGRAM®, BROWNSTONE
STUDIO®, INTIMATE
APPEAL®, MONTEREY BAY
CLOTHING COMPANY®, COWARD® SHOE, SHOETRADER™
and other catalog titles and related E-commerce sites, and markets food and
specialty gift products through its FIGI’S® catalog and
related E-commerce site. During Fiscal 2008 the LANE BRYANT catalog
trademark, which had been licensed to a third party, reverted to us and we
launched our LANE BRYANT WOMAN™ catalog. The LANE BRYANT WOMAN
catalog offers clothing, footwear, and intimate apparel in an expanded range of
plus sizes at a value price point. We also launched our related
website (lanebryantcatalog.com) to
complement the catalog launch. During Fiscal 2008 our Crosstown
Traders websites collectively averaged approximately 777,000 unique visitors per
month.
Financial
information by business segment for each of our last three fiscal years is
included in “Item
8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements; NOTE 19. SEGMENT
REPORTING”
below.
Stores
Our 2,409
retail stores (as of February 2, 2008) are primarily located in suburban areas
and small towns. Approximately 76% of these stores are located in
strip shopping centers and lifestyle centers, with the remainder located in
community and regional malls. The majority of our FASHION BUG,
CATHERINES, and outlet stores are strip-center based. Over the past
few years LANE BRYANT has expanded into strip and lifestyle centers, and has
demonstrated success in such locations. The percentage of LANE BRYANT
stores located in strip and lifestyle shopping centers has grown to
approximately 44%, with the remaining stores located primarily in mall
centers.
We
believe that our customers visit strip shopping centers frequently as a result
of the tenant mix and convenience of strip shopping centers. Our
long-term real estate strategy is to continue to increase the percentage of
total stores in strip and lifestyle centers, primarily through growth at the
LANE BRYANT brand. Availability of strip and lifestyle center retail
space significantly outpaces mall expansion. In addition, we benefit
in strip and lifestyle centers from substantially lower occupancy costs as
compared to occupancy costs in malls.
Our
retail store merchandise displays enable our customers to assemble coordinated
and complete outfits that satisfy many of their lifestyle needs. We
frequently test and implement new store designs and fixture packages that are
aimed at providing an effective merchandise presentation. We relocate
or remodel our stores as appropriate to convey a fresh and contemporary shopping
environment. We emphasize customer service, including the presence of
helpful salespeople in the stores, layaway plans, customer loyalty programs, and
acceptance of merchandise returns for cash or credit within a reasonable time
period. Typically, our stores are open seven days per week, eleven
hours per day Monday through Saturday and seven hours on Sunday.
Our store
openings, closings, and number of locations over the past three fiscal years are
as follows:
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Year
Ended
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||||||||||||
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February
2,
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February
3,
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January
28,
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2008
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2007
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2006
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Store Activity (1):
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Number
of stores open at beginning of
period
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2,378
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2,236
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2,221
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Opened
during
period
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103 | (2) | 198 | (3) |
70
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|||||||
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Closed
during
period
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(72 | ) | (56 | ) | (55 | ) | ||||||
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Number
of stores open at end of
period
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2,409
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2,378
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2,236
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|||||||||
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Number of Stores Open at End of
Period by Brand:
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FASHION
BUG
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989
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1,009
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1,025
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LANE
BRYANT
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896 | (4) | 859 | (4) |
748
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CATHERINES
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468
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465
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463
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Other(5)
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56
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45
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0
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Number
of stores open at end of
period
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2,409
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2,378
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2,236
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____________________
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(1) Excludes 2 outlet
stores in Fiscal 2008 and Fiscal 2007 and 3 outlet stores in Fiscal 2006
operated by Crosstown Traders, Inc.
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(2) Includes 19 LANE
BRYANT OUTLET stores, 37 LANE BRYANT intimate apparel side-by-side stores,
7 PETITE SOPHISTICATE OUTLET stores, and 4 PETITE SOPHISTICATE
stores.
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(3) Includes 82 LANE
BRYANT OUTLET stores and 45 PETITE SOPHISTICATE OUTLET
stores.
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(4) Includes 101 LANE
BRYANT OUTLET stores in Fiscal 2008 and 82 LANE BRYANT OUTLET stores in
Fiscal 2007.
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(5) Includes PETITE
SOPHISTICATE OUTLET and PETITE SOPHISTICATE stores.
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We
continue to seek additional locations that meet our financial and operational
objectives. In February 2008 we announced a significant reduction in
the number of planned store openings and the closing of approximately 150
under-performing stores during the year ending January 31, 2009 (“Fiscal 2009”)
in response to the continuing weak retail and economic environment existing at
the end of Fiscal 2008 (see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
OVERVIEW” below). Our
planned store activity by brand for Fiscal 2009 is as follows:
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Openings
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Closings
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Relocations
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FASHION
BUG
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4
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95-101
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9-12
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LANE
BRYANT
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31-38 | (1) |
41-50
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35-45 | (2) | |||||||
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CATHERINES
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6-7
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10
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4-5
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Other
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4-6 | (3) | 4-9 | (4) |
0
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|||||||
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Total
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45-55
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150-170
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48-62
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____________________
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(1) Includes 10-13 LANE
BRYANT intimate apparel side-by-side stores and 6-9 LANE BRYANT OUTLET
stores.
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(2) Includes 13-16
conversions to LANE BRYANT Intimate Apparel side-by-side
stores.
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(3) PETITE SOPHISTICATE
OUTLET stores.
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(4) Includes 0-5 PETITE
SOPHISTICATE OUTLET stores and 4 PETITE SOPHISTICATE
stores.
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All
retail stores are operated under our direct management. Each store
has a manager and an assistant manager or supervisor who is in daily operational
control of the location. We also employ district managers who travel
to all stores in their district on a frequent basis to supervise store
operations. Each district manager has responsibility for an average
of 12 stores. Regional managers who report to a Vice President of
Stores supervise the district managers. Generally, we appoint store
managers from the group of assistant managers and district managers from the
group of store managers. We seek to motivate our store personnel
through internal advancement and promotion, competitive wages, and various
incentive, medical, and retirement plans. We centrally develop store
operations, merchandising, and buying policies, and assign to individual store
management the principal duties of display, selling, and reporting through
point-of-sale terminals.
Merchandising and
Buying
We employ
a merchandising and buying strategy that is focused on providing an attractive
selection of apparel and accessories that reflect the fashion preferences of the
core customer for each of our retail store brands. Separate
merchandise groups for each of our brands conduct merchandise purchasing using
buyers supervised by one or more merchandise managers. We believe
that specialization of buyers within our brands enhances the distinctiveness of
our brands and their offerings. In addition, we use domestic and
international fashion market guidance, fashion advisory services, proprietary
design, and in-store and E-commerce testing to determine the optimal product
assortments for each of our brands. We believe that this approach
results in greater success in predicting customer preferences while reducing our
inventory investment and risk. We also seek to maintain high quality
standards with respect to merchandise fabrication, construction, and
fit. Our merchandising and buying philosophy, coupled with
enhancements in inventory management, helps facilitate the timely and orderly
purchase and flow of merchandise. This enables our stores to offer
fresh product assortments on a regular basis.
At the
end of Fiscal 2008, in connection with the consolidation of our CATHERINES
operations and additional streamlining initiatives, we consolidated the
marketing and merchandising operations for our FASHION BUG, CATHERINES, and
outlet stores at our Bensalem, Pennsylvania complex and established our
Fashion Retail Group. We expect this combined group to benefit from
improved coordination among the Retail Stores brands as well as cost savings
from the consolidation. Maintaining the specialization of buyers
within each brand will continue to enhance each brand’s identity and
distinctiveness.
We
continually refine our merchandise assortments to reflect the needs and demands
of our diverse customer groups and the demographics of each store
location. At LANE BRYANT we offer a combination of fashion basics,
seasonal fashions, and high fashion in casual and wear-to-work merchandise as
well as intimate apparel and accessories. We translate current trends
into plus-sizes and strive to be first to market with our
styles. During Fiscal 2008 we launched the “Right Fit by Lane
Bryant™” campaign, which supports our new core denim and career pant assortments
using new fit technology. At FASHION BUG we offer a broad assortment
of both casual and wear-to-work apparel in plus, misses, junior, and girls sizes
at low-to-moderate prices. FASHION BUG’s plus- and misses-size
merchandise typically reflects established fashion trends and includes a broad
offering of ready-to-wear apparel as well as footwear, accessories, intimate
apparel, and seasonal items, such as outerwear. During Fiscal 2008
our FASHION BUG stores began offering Gitano® brand fashionable
casual merchandise under our exclusive licensing agreement (Gitano® is a registered
trademark of Wrangler Apparel Corp.). At CATHERINES we offer a broad
assortment of plus-size merchandise in classic styles designed to provide
“head-to-toe” dressing for our customers. CATHERINES features casual
and career sportswear, dresses, intimate apparel, suits, and accessories in a
variety of plus-sizes, including petites and extended
sizes. CATHERINES has developed a unique expertise in the fit,
design, and manufacturing of extended sizes, making it one of the few retailers
to emphasize these sizes. During Fiscal 2008 we launched the “Right
Fit by Catherines™” campaign, which supports new core denim and career pant
assortments using new fit technology for the CATHERINES brand.
LANE
BRYANT OUTLET features products developed exclusively for our outlet stores,
which include updated key items and best-sellers from our full-line LANE BRYANT
brand. Selected national brands and expanded categories, such as
intimate apparel, footwear, and social occasion, are also offered at LANE BRYANT
OUTLET. PETITE SOPHISTICATE OUTLET offers career and casual
sportswear in sizes 0-14. The brand provides traditional, updated
classics, and collections to meet the customers’ everyday work and casual needs,
with an emphasis on outfitting.
For
stores that are identified as having certain attributes we use our distribution
capabilities to stock the stores with products specifically targeted to such
attributes. Our merchandising staff obtains store-wide and brand-wide
inventory information generated by merchandise information systems that use
point-of-sale terminals. The status of our merchandise can be tracked
from the placement of our initial order for the merchandise to the actual sale
to our customer. Based on this data, our merchandise managers compare
budgeted-to-actual sales and make merchandising decisions as needed, including
re-order, markdowns, and changes in the buying plans for upcoming
seasons. In addition, we continue to work to improve inventory
turnover by better managing the flow of seasonal merchandise to our stores
across all geographic regions.
We employ
a realistic pricing strategy for our stores that is aimed at setting the initial
price markup of fashion merchandise in order to increase the percentage of sales
at the original ticketed price. We believe this strategy has resulted
in a greater degree of credibility with the customer. However, our
pricing strategy typically does allow sufficient margin to permit merchandise
discounts in order to stimulate customer purchases when necessary.
Our
stores experience a normal seasonal sales pattern for the retail apparel
industry, with peak sales typically occurring during the spring and December
holiday seasons. We generally build inventory levels before these
peak sales periods. To maintain current and fashionable inventory we
reduce the price of slow-moving merchandise throughout the year. Much
of our merchandise is developed for one or more of our six seasons: spring,
summer, summer-fall transitional, fall, holiday, and holiday-spring
transitional. End-of-season sales are conducted with the objective of
carrying a minimal amount of seasonal merchandise over from one season to
another. Retail Stores segment sales for the four quarters of Fiscal
2008, as a percent of annual Retail Stores segment sales, were 26.4%, 26.5%,
22.7%, and 24.4%, respectively.
Marketing and
Promotions
We use
several types of advertising to stimulate retail store customer
traffic. We primarily use targeted direct-mail advertising to
preferred customers selected from a database of approximately 27.6 million
proprietary credit card, third-party credit card, and cash customers who have
purchased merchandise from us within the past three years. We may
also use radio, television, and newspaper advertising and fashion shows to
stimulate traffic at certain strategic times of the year. We also use
pricing policies, displays, store promotions, and convenient store hours to
attract customers. We maintain websites for our LANE BRYANT, FASHION
BUG, CATHERINES, and PETITE SOPHISTICATE brands that provide information
regarding current fashions and promotions. We believe that, with the
planning and guidance of our specialized home-office personnel, each brand
provides such displays and advertising as may be necessary to feature certain
merchandise or certain promotional selling prices from time to
time.
We offer
our FASHION BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE retail store
customers various loyalty card programs. Customers who join these
programs are entitled to various benefits, including discounts and rebates on
purchases during the membership period. Customers join some of these
programs by paying an annual membership fee. These membership fee
programs include those administered by our proprietary credit card programs as
well as those administered outside of our proprietary credit card
programs. The proprietary credit card programs provide customers with
the option to cancel their membership within 30 days, entitling them to a full
refund of their annual fee. Other programs are offered that do not
require the payment of a membership fee but allow cardholders to earn points for
purchases using a proprietary credit card, which may be redeemed for merchandise
coupons upon the accumulation of a specified number of
points. Additional information on our loyalty card programs is
included in “Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; CRITICAL ACCOUNTING
POLICIES; Revenue
Recognition” below.
figure® magazine, our
bi-monthly fashion and lifestyle magazine for women, features clothing and
fashions from our brands. The magazine covers topics such as: beauty;
health and fitness; home, food, and entertaining; relationships; and social and
community issues. The magazine also advertises our Crosstown Traders
catalogs. figure magazine
is available by subscription, and is also sold in all of our stores and at
selected newsstands and supermarkets, including certain national
booksellers. Since its inception in August 2003 the magazine has
grown to a per-issue circulation of more than 522,000 copies.
Sourcing
To meet
the demands of our customers we access both the domestic wholesale and overseas
markets for our retail store merchandise purchases. This allows us to
maintain flexible lead times, respond quickly to current fashion trends, and
replenish merchandise inventory as necessary. During Fiscal 2008 we
purchased merchandise from approximately 690 suppliers located throughout the
world. We use our overseas sourcing operations, which generally
require longer lead times, primarily to purchase fashion-basic merchandise for
our stores. In Fiscal 2008 our overseas sourcing operations accounted
for approximately 40% of retail store merchandise purchases. Overseas
sourcing by brand, as a percent of merchandise purchases, was approximately 37%
for FASHION BUG, 41% for LANE BRYANT, 36% for CATHERINES, and 58% for LANE
BRYANT OUTLET and PETITE SOPHISTICATE OUTLET. We also purchase a
portion of our LANE BRYANT merchandise from Mast Industries, Inc. (“Mast”), a
contract manufacturer and apparel importer that is a wholly-owned subsidiary of
Limited Brands, Inc. These purchases from Mast accounted for
approximately 5% of our total retail store merchandise purchases and
approximately 16% of merchandise purchases for LANE BRYANT during Fiscal
2008. No other vendor accounted for more than 2% of total retail
store merchandise purchases during Fiscal 2008.
We pay
for a majority of our merchandise purchases outside the United States on an open
account basis. We pay for the remainder of our purchases outside the
United States through corporate-issued letters of credit and, to a lesser
extent, through bank-issued letters of credit where we are the importer of
record. To date, we have not experienced difficulties in purchasing
merchandise overseas or importing such merchandise into the United
States. Should events such as political instability or a natural
disaster result in a disruption of normal activities in any single country with
which we do business, we believe that we would have adequate alternative sources
of supply.
Distribution and
Logistics
We
currently operate two distribution centers for our Retail Stores
segment. For our FASHION BUG, LANE BRYANT OUTLET, PETITE
SOPHISTICATE, and PETITE SOPHISTICATE OUTLET stores we operate a distribution
center in Greencastle, Indiana. This facility, which is located on a
150-acre tract of land, contains a building of approximately 1,000,000 square
feet. We estimate that this facility has the capacity to service up
to approximately 1,800 stores. For our LANE BRYANT and CATHERINES
stores we operate a distribution center in White Marsh, Maryland. The
White Marsh facility is located on 28 acres of land and contains a building of
approximately 513,000 square feet, which is currently designed to service up to
approximately 1,800 stores.
Substantially
all of our merchandise purchases are received at these distribution facilities,
where they are prepared for distribution to our stores. Automated
sorting systems in the distribution centers enhance the flow of merchandise from
receipt to quality control inspection, receiving, ticketing, packing, and final
shipment. Merchandise is shipped to each store principally by common
carriers. We use computerized automated distribution attributes to
combine shipments when possible and improve the efficiency of the distribution
operations.
Inventory
and fulfillment activities for our store-related E-commerce operations are
handled by a third-party warehouse facility in Indianapolis,
Indiana. We utilize approximately 530,000 square feet of space that
is used for merchandise receipt, storage, picking, packing, shipping, and
returns processing. A majority of this merchandise is received from
our Greencastle and White Marsh distribution centers.
Our
distribution and logistics operations provide adequate capacity for the
foreseeable future, and we continually evaluate our overall long-term
distribution and logistics requirements.
DIRECT-TO-CONSUMER
SEGMENT
We
established our Direct-to-Consumer segment in June 2005 with the acquisition of
Crosstown Traders, Inc. Crosstown Traders operates multiple catalog
titles and related websites, with the majority of revenues derived from the
catalog sales of women's apparel, footwear, and accessories, of which plus-sizes
are an important component. Crosstown Traders also derives revenues
from the catalog sales of food and gifts, a substantial majority of which occur
during the December holiday season. In addition to catalog and
catalog-related E-commerce operations, Crosstown Traders operates two catalog
outlet stores.
The
acquisition of Crosstown Traders has provided us with an infrastructure for the
development and expansion of our Direct-to-Consumer segment, which includes our
catalog and catalog-related E-commerce sales distribution
channels. In October 2007 the LANE BRYANT catalog trademark, which
had been licensed to a third party, reverted to us and we launched our LANE
BRYANT WOMAN catalog and related website.
The
Direct-to-Consumer segment provides an additional channel to serve our
customers’ lifestyle needs with targeted marketing media and merchandise
offerings in a wide range of color and size selections not generally available
in our retail stores. In addition, we believe that mail order
catalogs and catalog-related E-commerce serve as a cost-efficient means of
building brand awareness as well as testing market acceptance of new products
and new brands.
Merchandising and
Buying
Generally,
the initial sourcing of new merchandise for a catalog begins six to nine months
before the catalog is mailed. We target each of our catalogs to its
particular market by offering a focused assortment of merchandise designed to
meet the needs and preferences of each catalog’s customers. Through
market research and ongoing testing of new products and concepts, we develop a
separate merchandise strategy for each catalog, including appropriate
merchandise assortments, price points, mailing plans, and product
presentation. We seek to develop exclusive or private label products
for a number of our catalogs on an ongoing basis to further differentiate each
catalog’s identity.
Our
FIGI’S food and specialty gift catalog experiences a peak sales period during
the December holiday season, with approximately 80% of its annual sales
occurring during our fourth quarter. We generally build inventory
before this peak sales period.
Marketing and
Promotions
Our
catalogs range in size from approximately 16-120 pages, with 4-12 editions per
year depending on the seasonality and fashion content of the products
offered. We may mail each edition several times each season with
slight variations in format and content. We mailed approximately 236
million catalogs during Fiscal 2008. Our circulation strategy is
focused on mailing to existing customers and acquiring new customers through
targeted prospecting.
We use
our own creative staff or outside creative agencies to develop the designs,
layout, copy, feel, and theme of our catalogs. Each of our catalogs
has an E-commerce-enabled website that offers all of a particular catalog’s
merchandise and more extensive offerings than any single issue of a print
catalog. Customers can request catalogs and place orders not only for
website merchandise, but also for merchandise from any current print catalog
already mailed. The website for each catalog is prominently promoted
within each catalog.
We
maintain all of our catalog, internet, retail customer, and transaction data in
multi-channel customer databases. This cross-channel customer
database contains detailed purchasing information and certain demographic
information about our customers, E-mail addresses, and the names and addresses
of individuals who have requested catalogs from us. This database
enables us to analyze how our customers use our various channels to
shop.
We
continuously analyze our customers’ responses to our catalog mailings and
E-commerce promotions in order to understand our customers’ profit
contribution. We have developed our own customer selection criteria
to segment our customer list according to many variables, allowing our marketing
department to analyze each segment's buying patterns. We review the
results of each of our catalog mailings. The results are used to
further refine the frequency and selectivity of our catalog mailings in an
effort to maximize response rates and profitability. We also analyze
historical purchasing patterns of existing customers, including recency,
frequency, and monetary activity, to assist in merchandising and customer
targeting and in an effort to increase sales to existing customers.
We also
acquire lists of prospective customers by renting or exchanging lists with
database cooperatives and other sources, including direct
competitors. Our most productive prospects tend to come from customer
lists of other women's apparel catalogs. We also rent our customer
lists to others, including direct competitors. In order to determine
which prospective customers will receive a particular catalog mailing, we
analyze available information concerning such prospects, including historical
profit contribution for comparable customer segments and, to the extent
possible, use the same type of statistical modeling techniques used to target
mailings to our own customers.
We strive
to develop promotional formats that will stimulate customer purchases from our
catalogs and websites. Successful promotional formats include
different catalog wraps, multiple-unit purchase discounts, free shipping, and
promotional tag lines such as “last chance” offers. We also market
our E-commerce websites in our catalogs as well as through
e-mail marketing and in our figure
magazine. These marketing channels have been the principal marketing
mechanism to reach our E-commerce target audience.
Leveraging
its experience in handling direct-to-consumer transactions, Crosstown Traders
continues to refine its technology infrastructure and customer service processes
to make catalog shopping as convenient as possible. We maintain toll
free numbers, accessible 24 hours a day seven days a week (except for major
holidays), to accept orders and catalog requests and to answer order and
credit-account-related questions. We utilize a 900-seat call center
network in three locations in Wisconsin and Arizona supported by
integrated system platforms designed to provide uninterrupted services to our
customers. Telephone calls are answered by knowledgeable call-center
associates, who process customer orders, answer questions on merchandise and its
availability, and identify opportunities for cross-selling additional
merchandise. These customer service associates also assist customers
in the selection of merchandise and can provide detailed information regarding
size, color, fit, and other merchandise features. Many order taking,
order status, and other service inquiry functions can also be conducted on
Crosstown Traders’ E-commerce sites, allowing customers to browse and shop at
their own pace.
Our
call-center associates enter order data into an online computerized system,
which systematically updates its customer database and permits us to measure
customer responses to our individual merchandise and catalog
mailings. Much of the sales and inventory information is available to
our buying staff on a real-time basis throughout the business day. We
have achieved efficiencies in order processing and fulfillment that permit the
shipment of many orders the following business day.
Sourcing
We use
domestic and overseas wholesale markets for our Direct-to-Consumer merchandise
purchases. During Fiscal 2008 we purchased merchandise from
approximately 1,100 suppliers located throughout the United
States. Additionally, we purchased approximately 9% of our
merchandise through a third-party agent and its overseas sourcing
network. We expect to reduce our volume of purchases with the
third-party agent during Fiscal 2009 through the use of our overseas sourcing
operations. No other single vendor accounted for more than 4% of
total Direct-to-Consumer merchandise purchases during Fiscal 2008.
Distribution and
Logistics
For our
Direct-to-Consumer segment, we operate several distribution centers that handle
receiving, quality control inspection, and distribution directly to our
Direct-to-Consumer catalog and E-commerce customers and a 900-seat call center
network, which are supported by integrated systems platforms. A
288,000 square foot leased facility in Tucson, Arizona ships approximately
2,400,000 packages per year to customers of our OLD PUEBLO TRADERS, MONTEREY BAY
CLOTHING COMPANY, and INTIMATE APPEAL catalogs. A separate 108,000
square foot leased facility in Tucson, which became fully operational in the
first quarter of Fiscal 2007, ships approximately 1,200,000 packages per year
and services footwear for all catalogs and catalog-related E-commerce
sites. A 240,000 square foot leased facility in Wilmington, North
Carolina ships approximately 2,200,000 packages per year to customers of our
BEDFORD FAIR, WILLOW RIDGE, LANE BRYANT WOMAN, BROWNSTONE STUDIO, and LEW MAGRAM
catalogs. We own 125,000 square-feet of automated distribution center
space in Marshfield, Wisconsin which serves as the main distribution area for
our FIGI’S catalog and ships approximately 2,300,000 packages per
year. A 122,000 square-foot leased facility in Stevens Point,
Wisconsin and a 46,000 square-foot owned facility in Neillsville, Wisconsin also
service FIGI’S.
Our
distribution and logistics operations provide adequate capacity for the
foreseeable future and we continually evaluate our overall long-term
distribution and logistics requirements.
PROPRIETARY CREDIT
PROGRAMS
We seek
to encourage sales through the promotion of our proprietary credit
cards. We believe that our credit cards act as promotional vehicles
by engendering customer loyalty, creating a substantial base for targeted
direct-mail promotion, and encouraging incremental sales. Our FASHION
BUG, LANE BRYANT, CATHERINES, PETITE SOPHISTICATE, and Crosstown Traders brands
each offer our customers the convenience of proprietary credit card
programs.
Our
FASHION BUG credit card program accounted for approximately 33% of FASHION BUG
retail sales in Fiscal 2008 and has approximately 2.1 million active
accounts. Our CATHERINES credit card program accounted for
approximately 34% of CATHERINES retail sales in Fiscal 2008 and has
approximately 0.6 million active accounts. Our Crosstown Traders
credit card program accounted for approximately 30% of Crosstown Traders apparel
sales in Fiscal 2008 and has approximately 1.6 million active
accounts.
The LANE
BRYANT credit card program accounted for approximately 29% of LANE BRYANT retail
sales in Fiscal 2008 and has approximately 1.7 million active
accounts. Prior to November 2007 we used a third-party bank to
finance and service the LANE BRYANT credit card program. This
third-party bank provided new account approval, credit authorization, billing,
and account collection services. Under a non-recourse agreement with
the third-party bank that expired in October 2007 we were reimbursed with
respect to sales generated by the credit cards. In accordance with
the terms of the agreement, we exercised our option to purchase the LANE BRYANT
portfolio and purchased the portfolio on November 1, 2007 pursuant to a purchase
agreement with the third-party bank. Subsequent to purchasing the
portfolio, we re-launched the LANE BRYANT proprietary credit card program with
the issuance of approximately 2.4 million new credit cards in connection with a
new loyalty card program designed to stimulate store traffic and sales at our
LANE BRYANT stores.
We
launched the PETITE SOPHISTICATE credit card during the third quarter of Fiscal
2007. This program accounted for approximately 19% of PETITE
SOPHISTICATE and PETITE SOPHISTICATE OUTLET retail sales in Fiscal 2008 and has
approximately 37 thousand active accounts. In February 2008 we
announced an initiative to close our full-line PETITE SOPHISTICATE stores (which
will not affect our PETITE SOPHISTICATE OUTLET stores).
We
launched the LANE BRYANT CATALOG credit card during the third quarter of Fiscal
2008. This program accounted for approximately 29% of LANE BRYANT
WOMAN catalog apparel sales in Fiscal 2008 and has approximately 33 thousand
active accounts.
We
control credit policies and service the FASHION BUG, CATHERINES, PETITE
SOPHISTICATE, LANE BRYANT CATALOG, and Crosstown Traders proprietary credit card
files and, through various agreements, we securitize and sell the credit card
receivables generated by these programs. As of our acquisition of the
LANE BRYANT portfolio on November 1, 2007 we also control credit card policies
and service the LANE BRYANT credit card file, and securitize and sell the credit
card receivables generated by this program.
In
addition to our Crosstown Traders credit card program, FIGI’S, one of Crosstown
Traders’ non-apparel catalog brands, offers interest-free, three-payment credit
terms over three months to its customers, with the first payment due on a
defined date 30 to 60 days after a stated holiday.
A more
comprehensive description of our proprietary credit programs and our asset
securitization process is included in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations; FINANCIAL
CONDITION; Off-Balance-Sheet
Arrangements” and“Item 8. Financial
Statements and Supplementary Data: Notes to Consolidated Financial Statements;
NOTE
17. ASSET SECURITIZATION” below.
COMPETITION
The
women's specialty retail apparel and direct-to-consumer businesses are highly
competitive, with numerous competitors, including individual and chain fashion
specialty stores, department stores, discount stores, catalog retailers, and
Internet-based retailers. We cannot reasonably estimate the number of
our competitors due to the large number of women’s apparel and
direct-to-consumer retailers. The primary elements of competition
common to both our Retail Stores segment and our Direct-to-Consumer segment are
merchandise style, size, selection, fit, quality, display, price, attractive
website/catalog layout, efficient fulfillment of website and catalog mail
orders, and personalized service to our customers. For our Retail
Stores segment, store location, design, advertising, and promotion are also
significant elements of competition.
EMPLOYEES
As of the
end of Fiscal 2008 we employed approximately 30,200 associates, which included
approximately 19,900 part-time employees. In addition, we hire a
number of temporary employees during the December holiday
season. Approximately 80 of our employees are represented by unions
whose contracts are currently due to expire in August 2009. We
believe that our overall relationship with these unions and our employees in
general is satisfactory.
TRADEMARKS AND
SERVICEMARKS
We own,
or are in the process of obtaining, all rights to the trademarks and trade names
we believe are necessary to conduct our business as presently
operated. “FASHION BUG®”, “FASHION BUG
PLUS®”, “FIGURE®”, “L.A. BLUES®”, “STUDIO
1940®”, “CATHERINES®”, “CATHERINES PLUS
SIZES®”, “MAGGIE
BARNES®”, “ANNA
MAXWELL®”, “LIZ&ME®”, “SERENADA®”, “RIGHT FIT BY
CATHERINES™ “, “LANE BRYANT®”, “LANE BRYANT
OUTLET®”, LANE BRYANT
WOMAN™”, “VENEZIA®”, “CACIQUE®”, “RIGHT FIT BY
LANE BRYANT™”, “PETITE SOPHISTICATE®”, “PETITE
SOPHISTICATE OUTLET®”, “OLD PUEBLO
TRADERS®”, “BEDFORD FAIR
LIFESTYLES®”, “BEDFORD FAIR
SHOESTYLES®”, “WILLOW
RIDGE®”, “LEW MAGRAM®”, “BROWNSTONE
STUDIO®”, “INTIMATE
APPEAL®”, “MONTEREY BAY
CLOTHING COMPANY®”, “HOME ETC®”, “COWARD®”, “FIGI’S®”, “SHOETRADER™”,
and several other trademarks and servicemarks of lesser importance to us have
been registered or are in the process of being registered with the United States
Patent and Trademark Office and in other countries.
We also
own the following Internet domain name registrations: catherines.com, charming.com,
charmingshoppes.com, fashionbug.com, fashionbugcard.com, fashionbugplus.com,
figuremagazine.com, lanebryant.com, lanebryantcatalog.com,
petitesophisticate.com, bedfordfair.com, brownstonestudio.com, cowardshoe.com,
intimateappeal.com, lewmagram.com, willowridgecatalog.com, oldpueblotraders.com,
shoetrader.com, shopthebay.com, figis.com and others of lesser
importance.
EXECUTIVE OFFICES
Charming
Shoppes, Inc. was incorporated in Pennsylvania in 1969. Our principal
offices are located at 450 Winks Lane, Bensalem, Pennsylvania
19020. Our telephone number is (215) 245-9100.
Copies of
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are
available free of charge on or through our website at www.charmingshoppes.com as
soon as reasonably practicable after we electronically file such material with,
or furnish it to, the Securities and Exchange Commission (“SEC”). Our
historical filings can also be read and copied at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549 or can be accessed directly from
the SEC’s website at www.sec.gov. Information
on the operation of the Public Reference Room can be obtained by calling the SEC
at (800) 732-0330. See “PART III; Item 10. Directors,
Executive Officers, and Corporate Governance” below for additional
information that is available on our Internet website.
You
should carefully consider and evaluate all of the information in this annual
report on Form 10-K and the documents incorporated by reference into this
report, including the risk factors listed below. Any of these risks
could materially and adversely affect our business, financial condition, and
operating results, and could cause our actual results to differ materially from
our plans, projections, or other forward-looking statements included in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” below
and elsewhere in this Report on Form 10-K and in our other public
filings. The occurrence of one or more of these risks could also
materially and adversely affect the price of our common stock.
RISKS RELATED TO OUR BUSINESS AND
INDUSTRY
Our business is dependent upon our
ability to accurately predict rapidly changing fashion trends, customer
preferences, and other fashion-related factors.
Customer
tastes and fashion trends are volatile and tend to change rapidly, particularly
for women's apparel. Our success depends in part on our ability to
effectively predict and respond to quickly changing fashion tastes and consumer
demands, and to translate market trends into appropriate, saleable product
offerings. If we are unable to successfully predict or respond to
changing styles or trends and misjudge the market for our products or any new
product lines, our sales will be lower and we may be faced with a substantial
amount of unsold inventory or missed sales opportunities. In
response, we may be forced to rely on additional markdowns or promotional sales
to dispose of excess or slow-moving inventory, which could have a material
adverse effect on our business, financial condition, and results of
operations.
Existing and increased competition
in the women's retail apparel and direct-to-consumer markets may reduce our net
revenues, profits, and market share.
The
women's specialty retail apparel and direct-to-consumer markets are highly
competitive. Our competitors include individual and chain fashion
specialty stores, department stores, discount stores, catalog retailers, and
Internet-based retailers. As a result of this competition, we are
required to effectively market and competitively price our products to consumers
in diverse markets, and we may experience pricing pressures, increased marketing
expenditures, and loss of market share, which could have a material adverse
effect on our business, financial condition, and results of
operations. We believe that the principal bases upon which we compete
are merchandise style, size, selection, fit, quality, display, price, attractive
website/catalog layout, efficient fulfillment of website and catalog mail
orders, and personalized service to our customers, as well as store location,
design, advertising, and promotion. Other women's apparel and
direct-to-consumer companies with greater financial resources, marketing
capabilities, or brand recognition may enter the plus-size
business. We cannot give assurance that we will be able to compete
successfully against existing or future competitors.
During
Fiscal 2008 we made certain changes in our management as part of an effort to
improve our competitive position. We cannot assure that these changes
in management will achieve an improvement in our competitive
position.
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.
Consumer
spending habits, including spending for our products, are affected by, among
other things, prevailing economic conditions, levels of employment, salary
levels, wage rates, availability of consumer credit, consumer confidence, and
consumer perception of economic conditions. A general slowdown in the
United States economy, an uncertain economic outlook, and escalating energy
costs have adversely affected consumer spending habits and customer traffic,
which has resulted in a reduction in our net sales. A prolonged
economic downturn could have a material adverse effect on our business,
financial condition, and results of operations.
Maintaining and improving our
operating margins are dependent on our ability to successfully control our
operating costs.
In order
to maintain or improve our operating margins we need to successfully manage our
operating costs. Our inability to successfully manage labor costs,
increases in certain costs vital to catalog operations, such as postage, paper,
and acquisition of prospects, occupancy costs, or other operating costs, or our
inability to take advantage of opportunities to reduce operating costs, would
adversely affect our operating margins and our results of
operations. We are subject to the Fair Labor Standards Act and
various state and Federal laws and regulations governing such matters as minimum
wages, exempt status classification, overtime, and employee
benefits. Changes in Federal or state laws or regulations regarding
minimum wages or other employee benefits could cause us to incur additional wage
and benefit costs, which could adversely affect our results of
operations. In addition, we may be unable to obtain adequate
insurance coverage for our operations at a reasonable cost.
During
Fiscal 2008 we began the implementation of our plan for the consolidation of
operations and a new organizational structure at our CATHERINES
brand. In February 2008 we announced additional initiatives and
actions designed to: streamline our business operations and further sharpen our
focus on our core businesses, including the closing of our full-line PETITE
SOPHISTICATE stores; reduce operating expenses and capital expenditures; improve
cash flow; and enhance shareholder value. We cannot assure the
realization of our anticipated annualized expense savings or other benefits from
the implementation of these plans.
We may not be able to obtain
sufficient working capital financing.
Our
business requires substantial investment in our inventory for a long period
before sales of that inventory occur. Consequently, we require
significant amounts of working capital financing. We depend on the
availability of credit to fund our working capital, including credit we receive
from our suppliers and their agents, on our credit card securitization program,
and on our revolving credit facility. If we are unable to obtain
sufficient financing at an affordable cost, we might be unable to adequately
merchandise our stores, E-commerce, or catalog businesses, which could have a
material adverse effect on our business, financial condition, and results of
operations.
We have
traditionally relied upon the securitization market to finance our proprietary
credit card receivables. The current disruption in the securitization
market caused by, among other things, an increased default rate on residential
mortgage loans, an increase in the number of rating downgrades with respect to
bonds issued in connection with the securitization of loans, the lack of
liquidity in the bond market, and the financial condition of many companies that
typically participate in this market may negatively affect our ability to enter
into financing arrangements on terms and conditions that are favorable to
us. An inability to enter into a favorable securitization series or
satisfactory alternative financing arrangements could adversely affect our
financial condition.
Our operating results fluctuate from
season to season.
Our
retail store and direct-to-consumer operations experience seasonal fluctuations
in net sales and consequently in operating income, with peak sales typically
occurring during the Easter, Labor Day, and December holiday
seasons. In addition, extreme or unseasonable weather can affect our
sales. Any decrease in net sales or margins during our peak selling
periods, or in the availability of working capital needed in the months before
these periods, could have a material adverse effect on our business, financial
condition, and results of operations.
We
usually order merchandise in advance of peak selling periods and sometimes
before new fashion trends are confirmed by customer purchases. We
must carry a significant amount of inventory, including perishable products for
our FIGI’S food and gift catalog, before the peak selling periods. If
we are not successful in selling our inventory, especially during our peak
selling periods, we may be forced to rely on markdowns or promotional sales to
dispose of the inventory or we may not be able to sell the inventory at all,
which could have a material adverse effect on our business, financial condition,
and results of operations.
We face challenges in managing our
recent growth.
Our
operating challenges and management responsibilities are increasing as we
continue to grow and expand into new store formats and additional distribution
channels. Successful growth will require that we continue to expand
and improve our internal systems and our operations, including our distribution
infrastructure.
Our
growth plan for our Retail Stores segment depends on our ability to open and
operate new retail stores and to convert, where applicable, the formats of
existing stores on a profitable basis. In addition, we will need to
identify, hire, and retain a sufficient number of qualified personnel to work in
our stores. During Fiscal 2007 we entered the outlet distribution
channel and in Fiscal 2008 we expanded the number of stores in this
channel. During Fiscal 2008 we also expanded the number of stores
using a double-store-front format. In addition, we re-launched our
LANE BRYANT credit card program and related loyalty card program during Fiscal
2008.
During
Fiscal 2008 the LANE BRYANT catalog trademark, which was licensed to a third
party, reverted to us and we launched our LANE BRYANT WOMAN catalog and a
related website. Growth in our Direct-to-Consumer segment is
dependent on sufficient response rates to our catalogs and Internet websites and
access to new customers, which may not occur.
These
objectives have created, and may continue to create, additional demands on our
staff and on our operating systems. We cannot assure the successful
implementation of our business plan for our Retail Stores and Direct-to-Consumer
segments, or that we will achieve our objectives as quickly or as effectively as
we hope.
We depend on key personnel and may
not be able to retain or replace these employees or recruit additional qualified
personnel.
Our
success and our ability to execute our business strategy depend largely on the
efforts and abilities of our Chief Executive Officer, Dorrit J. Bern, and her
management team. The loss of services of one or more of our key
personnel could have a material adverse effect on our business, as we may not be
able to find suitable management personnel to replace departing executives on a
timely basis. We do not maintain key-person life insurance policies
with respect to any of our employees.
Our business plan is largely
dependent upon continued growth in the plus-size women’s apparel
market.
Our
business is primarily focused on sales of plus-size women’s apparel, which
represents a majority of our total net sales. Our operating results
could be adversely affected by a lack of continued growth in the plus-size
women’s apparel market.
We could be materially and adversely
affected if any of our distribution or fulfillment centers are shut
down.
We
operate distribution centers in Greencastle, Indiana, and Baltimore County,
Maryland, and we operate catalog fulfillment centers in Tucson, Arizona;
Marshfield, Wisconsin; Stevens Point, Wisconsin; and Wilmington, North
Carolina. In addition, we use third-party freight consolidators and
service providers in Indianapolis, Indiana; Abingdon, Maryland; Los Angeles,
California; Miami, Florida; and North Bergen, New Jersey. Most of the
merchandise we purchase is shipped directly to our distribution and fulfillment
centers or freight consolidators where it is prepared for shipment to the
appropriate stores or to the customer. If any of our distribution
centers, fulfillment centers, or freight consolidators were to shut down or lose
significant capacity for any reason, the other locations may not be able to
adequately support the resulting additional distribution demands, in part
because of capacity constraints and in part because each location services a
particular brand or brands. As a result, we could incur significantly
higher costs and longer lead times associated with distributing our products to
our stores or customers during the time it takes for us to reopen or replace the
affected distribution center, fulfillment center, or freight
consolidator.
The occurrence of, or threat of, a
natural disaster, war, acts of terrorism or other armed conflict on the United
States or international economies may negatively impact the availability of
merchandise and otherwise adversely impact our
business.
The
occurrence of, or threat of, a natural disaster, war, acts of terrorism, or
other armed conflict could negatively affect our ability to obtain merchandise
for sale in our stores or through our direct-to-consumer business. A
significant portion of our merchandise is imported from other
countries. If imported goods become difficult or impossible to bring
into the United States and we cannot obtain such merchandise from other sources
at similar costs, our net sales and profit margins may be adversely
impacted. If commercial transportation is curtailed or substantially
delayed our business may be adversely impacted, as we may have difficulty
shipping merchandise to our distribution centers, fulfillment centers, freight
consolidators, stores, or our direct-to-consumer customers. As a
result of the occurrence of, or threat of, a natural disaster or acts of
terrorism in the United States we may be required to suspend operations in some
or all of our stores, which could have a material adverse impact on our
business, financial condition, and results of operations.
Our inability to successfully manage
customer service or fulfillment for our E-commerce websites or our catalog
business could adversely impact our operating
results.
Successful
management of our E-commerce and catalog operations is dependent on our ability
to maintain efficient and uninterrupted customer service and order
fulfillment. Inadequate systems capacity, a disruption or slowdown in
telecommunications services, changes in technology, changes in government
regulations, systems issues, security breaches, a failure to integrate order
management systems, or customer privacy issues could result in reduced sales or
increases in operating expenses as a result of our efforts or our inability to
remedy such issues. In addition, we may not be able to hire
sufficient qualified associates to support our E-commerce or catalog operations
during peak periods, especially during the December holiday
season. The occurrence of one or more of these events could adversely
affect our E-commerce or catalog businesses.
We rely on foreign sources of
production.
We
purchase a significant portion of our apparel directly in foreign markets and
indirectly through domestic vendors with foreign sources. We face a
variety of risks generally associated with doing business in foreign markets and
importing merchandise from abroad. Such risks include (but are not
necessarily limited to):
|
●
|
political
instability;
|
|
●
|
increased
security requirements applicable to imported goods;
|
|
●
|
trade
restrictions;
|
|
●
|
imposition
of or changes in duties, quotas, taxes, and other charges on
imports;
|
|
●
|
currency
and exchange risks;
|
|
●
|
issues
relating to compliance with domestic or international labor
standards;
|
|
●
|
concerns
over anti-dumping;
|
|
●
|
delays
in shipping; or
|
|
●
|
increased
costs of transportation.
|
New
requirements could be proposed that would have an impact on the trading status
of certain countries and could include retaliatory duties or other trade
sanctions that, if enacted, could increase the cost of products purchased from
suppliers in such countries or restrict the importation of products from such
countries. In addition, the decreased value of the U.S. dollar
against foreign currencies has increased the cost of products that we purchase
from foreign markets and additional weakening of the U.S. dollar in relation to
those foreign currencies will further increase our costs. The future
performance of our business will depend on our foreign suppliers and may be
adversely affected by the factors listed above, which are beyond our
control.
Issues of global workplace
conditions may adversely affect our business.
If any
one of our manufacturers or vendors fails to operate in compliance with
applicable laws and regulations, is perceived by the public as failing to meet
certain labor standards in the United States, or employs unfair labor practices,
our business could be adversely affected. Current global workplace
concerns of the public include perceived low wages, poor working conditions, age
of employees, and various other employment standards. These
globalization issues may affect the available supply of certain manufacturers'
products, which may result in increased costs to us. Furthermore, a
negative customer perception of any of our key vendors or their products may
result in a lower customer demand for our apparel.
We depend on strip shopping center
and mall traffic and our ability to identify suitable store locations for our
Retail Stores segment.
Our sales
are dependent in part on a high volume of strip shopping center and mall
traffic. Strip shopping center and mall traffic may be adversely
affected by, among other things, economic downturns, the closing of anchor
stores, or changes in customer shopping preferences. A decline in the
popularity of strip shopping center or mall shopping among our target customers
could have a material adverse effect on our business. To take
advantage of customer traffic and the shopping preferences of our customers we
need to maintain or acquire stores in desirable locations. We cannot
assure that desirable store locations will continue to be
available. Acquisition of additional store locations is also
dependent on our ability to successfully negotiate lease terms for such
locations. In addition, the timely opening of new store locations
could be adversely affected by delays in obtaining necessary permits and
approvals, lack of availability of construction materials and labor, or work
stoppages.
We may be unable to protect our
trademarks and other intellectual property rights.
We
believe that our trademarks and servicemarks are important to our success and
our competitive position due to their name recognition with our
customers. We devote substantial resources to the establishment and
protection of our trademarks and servicemarks on a worldwide
basis. Nevertheless, there can be no assurance that the actions we
have taken to establish and protect our trademarks and servicemarks will be
adequate to prevent imitation of our products by others or to prevent others
from seeking to block sales of our products as a violation of their trademarks,
servicemarks, or proprietary rights. Also, others may assert rights
in, or ownership of, our trademarks and other proprietary rights and we may not
be able to successfully resolve these types of conflicts to our
satisfaction. In addition, the laws of certain foreign countries may
not protect proprietary rights to the same extent as do the laws of the United
States.
We may acquire or divest businesses
or enter into joint ventures or strategic alliances, which may materially affect
our business, financial condition, and operating
results.
We
continually evaluate our portfolio of businesses and may decide to buy or sell
businesses or enter into joint ventures or other strategic
alliances. Significant acquisitions and alliances may increase
demands on management, financial resources, and information and internal control
systems. Our success with respect to acquisitions and alliances will
depend, in part, on our ability to manage and integrate acquired businesses and
alliances with our existing businesses and to successfully implement, improve,
and expand our systems, procedures, and controls. In addition, we may
divest existing businesses, which would cause a decline in revenues and may make
our financial results more volatile. If we fail to integrate and
manage acquired businesses successfully or to manage the risks associated with
divestitures, joint ventures, or other alliances, our business, financial
condition, and operating results could be materially and adversely
affected.
Anti-takeover provisions in our
governing documents and Pennsylvania law may discourage other companies from
attempting to acquire us.
Some
provisions of our articles of incorporation and bylaws and of Pennsylvania law
may discourage some transactions where we would otherwise experience a change in
control. For example, our articles of incorporation and bylaws
contain provisions that:
|
●
|
classify
our board into three classes, with one class being elected each
year;
|
|
●
|
do
not permit cumulative voting;
|
|
●
|
permit
our board to issue "blank check" preferred stock without shareholder
approval;
|
|
●
|
require
certain advance notice procedures with regard to the nomination of
candidates for election as directors, other than nominations by or at the
direction of our board;
|
|
●
|
prohibit
us from engaging in some types of business combinations with a holder of
10% or more of our voting securities without super-majority shareholder or
board approval;
|
|
●
|
prevent
our directors from being removed without cause except upon super-majority
shareholder approval; and
|
|
●
|
prevent
a holder of 20% or more of our common stock from taking certain actions
without certain approvals.
|
We also
have adopted a Shareholder Rights Plan. This plan may make it more
difficult and more expensive to acquire us, and may discourage open market
purchases of our common stock or a non-negotiated tender or exchange offer for
such stock and, accordingly, may limit a shareholder's ability to realize a
premium over the market price of our common stock in connection with any such
transaction.
Failure to comply with the
provisions of the Sarbanes-Oxley Act of 2002 could adversely affect our
business.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to include our
assessment of the effectiveness of our internal control over financial reporting
in our annual reports. Our independent registered public accounting
firm is required to report on whether or not they believe that we maintained, in
all material respects, effective internal control over financial
reporting. If we are unable to maintain effective internal control
over financial reporting, we could be subject to regulatory sanctions and a
possible loss of public confidence in the reliability of our financial
reporting. Such a failure could result in our inability to provide
timely and/or reliable financial information and could adversely affect our
business.
We could be required to repurchase
our 1.125% Senior Convertible Notes due May 1, 2014 for cash prior to maturity
of the notes.
During
Fiscal 2008 we issued $275.0 million principal amount of 1.125% Senior
Convertible Notes due May 1, 2014 (the “1.125% Notes”) in a private offering for
resale to qualified institutional buyers pursuant to Rule 144A under The
Securities Act of 1933. The holders of the 1.125% Notes could require
us to repurchase the principal amount of the notes for cash before maturity of
the notes under certain circumstances (see “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; NOTE 8. LONG-TERM DEBT” below). Such a
repurchase would require significant amounts of cash and could adversely affect
our financial condition.
New accounting rules or regulations
or changes in existing rules or regulations could adversely impact our reported
results of operations.
Changes
to existing accounting rules or the adoption of new rules could have an adverse
effect on our reported results of operations. The Financial
Accounting Standards Board (“FASB”) has issued a proposed FASB Staff Position
(“FSP”) that, if adopted, would apply to any convertible debt instrument that
may be settled in whole or in part with cash upon conversion, which would
include our 1.125% Senior Convertible Notes due May 2014. If the
proposed FSP is approved in 2008 we would be required to adopt the proposal as
of February 3, 2009 (the beginning of Fiscal 2010), with retrospective
application to financial statements for periods prior to the date of
adoption. As compared to our current accounting for the 1.125% Notes,
adoption of the proposal would reduce long-term debt, increase stockholders’
equity, and reduce net income and earnings per share. Adoption of the
proposal would not affect our cash flows.
Changes in estimates related to our
evaluation of property, plant, equipment, goodwill, or intangible assets for
impairment could adversely affect our reported results of
operations.
We make
certain significant assumptions, estimates, and projections related to the
useful lives of our property, plant, and equipment and the valuation of goodwill
and 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, goodwill, or intangible assets, a write-down for impairment of the
carrying value of the assets, or acceleration of depreciation or amortization of
the assets, could result. Such a write-down or acceleration of
depreciation or amortization could have an adverse impact on our reported
results of operations. During Fiscal 2008 we recognized non-cash
impairment charges of $86.8 million related to our Crosstown Traders goodwill
and $11.4 million related to our Crosstown Traders trademarks.
Item 1B. Unresolved Staff
Comments
Not
applicable.
We lease
all our stores with the exception of three stores that we
own. Typically, our store leases have initial terms of 5 to 20 years
and generally contain provisions for co-tenancies, renewal options, additional
rents based on a percentage of sales, and payment of real estate taxes and
common area charges. In addition, we lease certain of our corporate
office, distribution center, warehouse, and other administrative
facilities. Additional information with respect to our real estate
leases is included in “Item
8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements; NOTE
18. LEASES” below.
With
respect to leased stores open as of February 2, 2008 the following table shows
the number of store leases expiring during the calendar periods indicated,
assuming the exercise of our renewal options:
|
Period
|
Number of
Leases Expiring(1)
|
|
2008
|
153(2)
|
|
2009 –
2013
|
654
|
|
2014
– 2018
|
561
|
|
2019
– 2023
|
606
|
|
2024
– 2028
|
373
|
|
2029
– 2033
|
45
|
|
Thereafter
|
14
|
|
____________________
|
|
|
(1) Excludes 2 Crosstown
Traders outlet stores.
|
|
|
(2) Includes 77 stores
on month-to-month
leases.
|
|
Additional
information with respect to facilities that we own or lease is as
follows:
|
Size in
|
Leased/
|
||
|
Sq. Feet
|
Location
|
Owned
|
Description
|
|
1,000,000
|
Greencastle,
IN
|
Owned
|
FASHION
BUG, LANE BRYANT OUTLET, and PETITE SOPHISTICATE OUTLET distribution
center
|
|
513,000
|
White
Marsh, MD
|
Owned
|
LANE
BRYANT and CATHERINES distribution center
|
|
288,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders distribution center
|
|
240,000
|
Wilmington,
NC
|
Leased
|
Crosstown
Traders distribution center
|
|
213,000
|
Memphis,
TN
|
Owned
|
Warehouse
(currently leased to a third party)
|
|
145,000
|
Bensalem,
PA
|
Owned
|
Corporate
headquarters, technology center, and administrative
offices
|
|
142,000
|
Bensalem,
PA
|
Leased
|
FASHION
BUG, CATHERINES, and outlet division home offices and corporate
administrative offices
|
|
135,000
|
Columbus,
OH
|
Leased
|
LANE
BRYANT home office
|
|
125,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders distribution center
|
|
122,000
|
Stevens
Point, WI
|
Leased
|
Crosstown
Traders distribution and call centers
|
|
108,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders distribution center
|
|
71,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders warehouse
|
|
64,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders administrative offices and call center
|
|
63,000
|
Memphis,
TN
|
Owned
|
Currently
idle
|
|
52,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders offices
|
|
46,000
|
Neillsville,
WI
|
Owned
|
Crosstown
Traders distribution center
|
|
40,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders warehouse
|
|
36,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders offices
|
|
30,000
|
Miami
Township, OH
|
Leased
|
Spirit
of America National Bank (our wholly-owned credit card bank subsidiary)
and credit operations
|
|
23,000
|
Hong
Kong, PRC
|
Owned
|
International
sourcing offices
|
|
17,000
|
New
York, NY
|
Leased
|
E-commerce
operations
|
|
16,000
|
Marshfield,
WI
|
Owned
|
Crosstown
Traders manufacturing facility
|
|
15,000
|
Tucson,
AZ
|
Leased
|
Crosstown
Traders offices
|
|
12,000
|
Hangzhou,
PRC
|
Leased
|
International
sourcing offices
|
Item 3. Legal
Proceedings
On March
7, 2008 we filed a lawsuit against Crescendo Partners II, L.P. and its general
partner Crescendo Investments II, LLC; Crescendo Partners III, L.P. and its
general partner Crescendo Investments III, LLC; and Myca Master Fund, Ltd. and
its investment manager Myca Partners, Inc. operating jointly under the name of
The Charming Shoppes Full Value Committee, and certain of their principals and
nominees for election to our Board of Directors, including Arnaud Ajdler, Eric
Rosenfeld and Robert Frankfurt, for violating federal securities
laws.
In the
Federal lawsuit, filed on March 7, 2008 in the United States District Court,
Eastern District of Pennsylvania, we asserted that the defendants have filed
with the Securities and Exchange Commission materially misleading and incomplete
documents in violation of Section 13(d) of the Securities Exchange Act of 1934
as part of their campaign to nominate three directors to our board of
directors. On March 25, 2008 we amended this complaint to add claims
that the defendants’ proposed proxy solicitation is materially misleading and
incomplete in violation of Section 14(a) of the Securities Exchange Act and that
the proposed election of any of the defendants’ nominees to the board would
violate Section 8 of the Clayton Antitrust Act.
We have
asked the Court to enjoin the defendants from making any additional false or
misleading public statements and false and misleading public filings regarding
Charming Shoppes, from taking or attempting to take any further steps in
furtherance of their unlawful conduct and scheme, to make immediate corrective
disclosure of all material facts and cure the material misstatements and
omissions and to divest themselves in an orderly fashion of any and all shares
of our stock that they unlawfully acquired in violation of the Federal
securities laws.
Other
than the foregoing and other ordinary routine litigation incidental to our
business, there are no pending material legal proceedings that we or any of our
subsidiaries are a party to, or of which any of their property is the
subject. There are no proceedings that are expected to have a
material adverse effect on our financial condition or results of
operations.
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
The
following list contains certain information relative to our executive
officers. There are no family relationships among any of our
executive officers.
Dorrit J. Bern, 57, has served
as Chairman of the Board of Directors since January 1997. She has
also served as President and Chief Executive Officer since September
1995. Ms. Bern’s term as a Director expires in June
2008. With effect from February 1, 2008 we entered into an employment
agreement with Ms. Bern describing her duties and obligations as Chief Executive
Officer.
Joseph M. Baron, 60, has
served as Executive Vice President and Chief Operating Officer since
2002.
James G. Bloise, 64, has
served as Executive Vice President – Supply Chain Management, Information
Technology, and Shared Business Services since December 2005 and as Senior Vice
President – Supply Chain Management from 2002 to December 2005.
Michel Bourlon, 48, has served
as Executive Vice President – Sourcing since March 2004. Before that,
he served as Managing Director of Eddie Bauer International (Hong Kong) Ltd.,
from September 1997 to February 2004.
Anthony A. DeSabato, 59, has
served as Executive Vice President – Corporate and Labor Relations, and Business
Ethics since July 2003. Before that, he served as Executive Vice
President and Corporate Director of Human Resources since 1990, and he has been
employed by us since 1987.
Eric M. Specter, 50, has
served as Executive Vice President – Chief Financial Officer
since January 1997, and he has been employed by us since 1983.
Colin D. Stern, 59, has served
as Executive Vice President and General Counsel since 1990, and he has been
employed by us since 1989. He has also served as Secretary since
February 1998.
Gale H. Varma, 57, has served
as Executive Vice President – Human Resources since July 2003. Before
that, she served as Division Vice President – Human Resources and Ethics Officer
for the Prudential Institutional Employee Benefits division of Prudential
Financial Services, a division of Prudential Insurance Company of America, from
September 1997 to April 2003.
Timothy M. White, 49, has
served as Executive Vice President – Chief Marketing Officer since October 2007
and as Senior Vice President – Marketing from July 2006 to October
2007. Before that he served as Senior Vice President – Marketing for
Linens-N-Things from June 2002 to June 2006.
John J. Sullivan, 61, has
served as Senior Vice President – Corporate Controller since April 2007 and as
Vice President –
Corporate Controller since October 1998.
Our
common stock is traded on the over-the-counter market and quoted on the NASDAQ
National Market (“NASDAQ”) under the symbol “CHRS,” and is listed and traded on
the Chicago Board Options Exchange (“CBOE”) and Pacific Stock Exchange (“PCX”)
under the symbol “QSR.” The following table sets forth the high and
low sale prices for our common stock during the indicated periods, as reported
by NASDAQ.
|
Fiscal
2008
|
Fiscal
2007
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
1st
Quarter
|
$ |
13.38
|
$ |
11.33
|
$ |
15.18
|
$ |
11.90
|
||||||||
|
2nd
Quarter
|
12.92
|
9.16
|
14.90
|
9.97
|
||||||||||||
|
3rd
Quarter
|
9.72
|
6.79
|
15.35
|
9.69
|
||||||||||||
|
4th
Quarter
|
7.34
|
4.01
|
15.57
|
12.30
|
||||||||||||
The
approximate number of holders of record of our common stock as of March 24, 2008
was 1,689. This number excludes individual stockholders holding stock
under nominee security position listings.
We have
not paid any dividends since 1995 and we do not expect to declare or pay any
dividends on our common stock in the near future. The payment of
future dividends is within the discretion of our Board of Directors and will
depend upon our future earnings, if any, our capital requirements, our financial
condition, and other relevant factors. Our existing revolving credit
facility allows the payment of dividends on our common stock subject to
maintaining a minimum level of Excess Availability (as defined in the facility
agreement) for 30 days before and immediately after the payment of such
dividends. (See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
FINANCIAL
CONDITION; Financing;
Long-term Debt” and “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
8. LONG-TERM DEBT” below).
Information
regarding our equity compensation plans appears in “Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” below.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers:
|
Total
|
Maximum
|
|||||||||||||||
|
Number
|
Number
of
|
|||||||||||||||
|
of
Shares
|
Shares
that
|
|||||||||||||||
|
Total
|
Purchased
as
|
May Yet
be
|
||||||||||||||
|
Number
|
Average
|
Part of
Publicly
|
Purchased
|
|||||||||||||
|
of
Shares
|
Price
Paid
|
Announced
Plans
|
Under the
Plans
|
|||||||||||||
|
Period
|
Purchased
|
per
Share
|
or
Programs
|
or
Programs
|
||||||||||||
|
|
||||||||||||||||
|
November
4, 2007 through December 1, 2007
|
503,097 | (1) | $ |
7.05
|
500,000 | (4) | ||||||||||
|
December
2, 2007 through January 5, 2008
|
801,074 | (2) |
5.12
|
800,000 | (4) | |||||||||||
|
January
6, 2008 through February 2, 2008
|
958,185 | (3) |
4.94
|
953,132 | (4) | |||||||||||
|
Total
|
2,262,356
|
$ |
5.48
|
2,253,132
|
(4)(5) | |||||||||||
|
____________________
|
||||||||||||||||
|
(1) Includes 3,097
shares ($6.55 average price paid per share) withheld for the payment of
payroll taxes on employee stock awards that vested during the period and
500,000 shares ($7.06 average price paid per share) purchased in the open
market (see Note (4) below).
|
||||||||||||||||
|
(2) Includes 1,074
shares ($4.82 average price paid per share) withheld for the payment of
payroll taxes on employee stock awards that vested during the period and
800,000 shares ($5.12 average price paid per share) purchased in the open
market (see Note (4) below)
|
||||||||||||||||
|
(3) Includes 5,053
shares ($4.94 average price paid per share) withheld for the payment of
payroll taxes on employee stock awards that vested during the period and
953,132 shares ($4.94 average price paid per share) purchased in the open
market (see Note (4) below)
|
||||||||||||||||
|
(4) In
Fiscal 1998 we publicly announced that our Board of Directors granted
authority to repurchase up to 10,000,000 shares of our common
stock. In Fiscal 2000 we publicly announced that our Board of
Directors granted authority to repurchase up to an additional 10,000,000
shares of our common stock. In Fiscal 2003 the Board of Directors
granted an additional authorization to repurchase 6,350,662 shares of
common stock issued to Limited Brands, Inc. (“Limited Brands”) in
connection with our acquisition of LANE BRYANT. From Fiscal 1998
through November 3, 2007 we repurchased a total of 22,597,969 shares of
stock, which included shares purchased on the open market as well as
shares repurchased from Limited Brands. During the period from
November 4, 2007 through February 2, 2008 we repurchased a total of
2,253,132 shares of stock ($5.48 average price paid per share) in the open
market under these programs. As of February 2, 2008, 1,499,561 shares
of our common stock remain available for repurchase under these
programs. The repurchase programs have no expiration
date.
|
||||||||||||||||
|
(5) On
November 8, 2007 we publicly announced that our Board of Directors granted
authority to repurchase shares of our common stock up to an aggregate
value of $200 million. Shares may be purchased in the open market or
through privately-negotiated transactions, as market conditions
allow. As of February 2, 2008 no shares have been purchased under
this plan. This repurchase program has no expiration
date.
|
||||||||||||||||
The
following graph shows a five-year comparison of cumulative total returns on our
Common Stock, the Russell 2000 Composite Index, and the Dow Jones U.S. Retailers
– Apparel Index:
The above
chart was plotted using the following data:
|
2/1/03
|
1/31/04
|
1/29/05
|
1/28/06
|
2/3/07
|
2/2/08
|
|
|
Charming
Shoppes, Inc.
|
$100
|
$176
|
$240
|
$375
|
$394
|
$205
|
|
Russell
2000 Composite Index
|
100
|
105
|
112
|
135
|
151
|
138
|
|
Dow
Jones U.S. Retailers – Apparel Index
|
100
|
134
|
162
|
184
|
223
|
176
|
The
following table presents selected financial data taken from our audited
financial statements for our five fiscal years ended as of January 31, 2004
through February 2, 2008 and should be read in conjunction with “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and “Item
8. Financial Statements and Supplementary Data.”
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
FIVE-YEAR COMPARATIVE
SUMMARY
|
Year
Ended
|
||||||||||||||||||||
|
Feb. 2,
|
Feb. 3,
|
Jan. 28,
|
Jan. 29,
|
Jan. 31,
|
||||||||||||||||
|
(Dollars in thousands, except
per share amounts)
|
2008(1)
|
2007(1)(2)
|
2006(1)
|
2005
|
2004
|
|||||||||||||||
|
Operating Statement
Data:
|
||||||||||||||||||||
|
Net
sales
|
$ |
3,009,953
|
$ |
3,067,517
|
$ |
2,755,725
|
$ |
2,334,736
|
$ |
2,288,363
|
||||||||||
|
Cost
of goods sold, buying, catalog, and occupancy
expenses
|
2,198,865
|
2,141,884
|
1,914,347
|
1,642,650
|
1,645,499
|
|||||||||||||||
|
Selling,
general, and administrative expenses
|
777,461
|
753,109
|
678,753
|
577,301
|
558,248
|
|||||||||||||||
|
Impairment
of goodwill and trademarks
|
98,219 | (3) |
0
|
0
|
0
|
0
|
||||||||||||||
|
Restructuring
charges
|
14,357 | (4) |
0
|
0
|
0
|
0
|
||||||||||||||
|
Expenses
related to cost reduction plan
|
0
|
0
|
0
|
605 | (5) | 11,534 | (5) | |||||||||||||
|
Total
operating expenses
|
3,088,902
|
2,894,993
|
2,593,100
|
2,220,556
|
2,215,281
|
|||||||||||||||
|
Income/(loss)
from operations
|
(78,949 | ) |
172,524
|
162,625
|
114,180
|
73,082
|
||||||||||||||
|
Other
income
|
8,793
|
8,345
|
7,687
|
3,098
|
2,192
|
|||||||||||||||
|
Interest
expense
|
(10,552 | ) | (14,746 | ) | (17,911 | ) | (15,610 | ) | (15,609 | ) | ||||||||||
|
Income/(loss)
before income taxes and extraordinary item
|
(80,708 | ) |
166,123
|
152,401
|
101,668
|
59,665
|
||||||||||||||
|
Income
tax provision
|
3,617
|
57,200
|
53,010
|
37,142
|
21,623
|
|||||||||||||||
|
Income/(loss)
before extraordinary item
|
(84,325 | ) |
108,923
|
99,391
|
64,526
|
38,042
|
||||||||||||||
|
Extraordinary
item, net of income taxes
|
912
|
0
|
0
|
0
|
0
|
|||||||||||||||
|
Net
income/(loss)
|
$ | (83,413 | ) | $ |
108,923
|
$ |
99,391
|
$ |
64,526
|
$ |
38,042
|
|||||||||
|
Basic
income/(loss) per share:
|
||||||||||||||||||||
|
Income/(loss)
before extraordinary item
|
$ | (.70 | ) | $ |
.89
|
$ |
.83
|
$ |
.56
|
$ |
.34
|
|||||||||
|
Net
income/(loss)
|
$ | (.69 | ) | $ |
.89
|
$ |
.83
|
$ |
.56
|
$ |
.34
|
|||||||||
|
Basic
weighted average common shares outstanding
|
121,160
|
122,388
|
119,831
|
116,196
|
112,491
|
|||||||||||||||
|
Diluted
income/(loss) per share:
|
||||||||||||||||||||
|
Income/(loss)
before extraordinary item
|
$ | (.70 | ) | $ |
.81
|
$ |
.76
|
$ |
.52
|
$ |
.33
|
|||||||||
|
Net
income/(loss)
|
$ | (.69 | ) | $ |
.81
|
$ |
.76
|
$ |
.52
|
$ |
.33
|
|||||||||
|
Diluted
weighted average common shares and equivalents
outstanding
|
121,160
|
139,763
|
137,064
|
133,174
|
128,558
|
|||||||||||||||
|
____________________
|
||||||||||||||||||||
|
(1) Includes the
results of operations of Crosstown Traders, Inc. from the date of
acquisition (June 2, 2005). See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
2. ACQUISITION OF CROSSTOWN TRADERS, INC.”
below.
|
||||||||||||||||||||
|
(2) Fiscal
2007 consisted of 53 weeks.
|
||||||||||||||||||||
|
(3)
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
13. IMPAIRMENT OF GOODWILL AND TRADEMARKS”
below.
|
||||||||||||||||||||
|
(4)
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
14. RESTRUCTURING CHARGES”
below.
|
||||||||||||||||||||
|
(5) In
March 2003 we announced a cost reduction plan designed to take advantage
of the centralization of corporate administrative services and to realize
certain efficiencies in order to improve profitability. Costs
incurred in connection with the plan during Fiscal 2004 included
$2,980,000 of workforce reduction costs, $3,691,000 of lease termination
and related costs, $4,195,000 of accelerated depreciation (a non-cash
charge), and $668,000 of other facility closure costs. The cost
reduction plan was substantially completed during Fiscal 2004. During
Fiscal 2005 we revised the estimated sublease income on our Hollywood,
Florida credit facility, which was closed in connection with the plan, and
recognized an additional $605,000 of lease termination
costs.
|
||||||||||||||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
FIVE-YEAR COMPARATIVE
SUMMARY
(Continued)
|
Year
Ended
|
||||||||||||||||||||
|
Feb. 2,
|
Feb. 3,
|
Jan. 28,
|
Jan. 29,
|
Jan. 31,
|
||||||||||||||||
|
(Dollars in thousands, except
per share amounts)
|
2008(1)
|
2007(1)(2)
|
2006(1)
|
2005
|
2004
|
|||||||||||||||
|
Performance
Data:
|
||||||||||||||||||||
|
Net
return on average stockholders’ equity
|
(9.9 | )% | 12.4 | % | 13.2 | % | 10.1 | % | 6.7 | % | ||||||||||
|
Net
return on average total assets
|
(5.0 | ) |
6.6
|
6.9
|
5.2
|
3.3
|
||||||||||||||
|
Excluding
impairment of goodwill and trademarks,
|
||||||||||||||||||||
|
restructuring charges,
expenses related to cost
|
||||||||||||||||||||
|
reduction plan, and
extraordinary item:
|
||||||||||||||||||||
|
Net return on average
stockholders’ equity
|
2.1 | % | 12.4 | % | 13.2 | % | 10.0 | % | 7.9 | % | ||||||||||
|
Net return on average total
assets
|
1.1
|
6.6
|
6.9
|
5.2
|
3.9
|
|||||||||||||||
|
As Of
|
||||||||||||||||||||
|
Feb. 2,
|
Feb. 3,
|
Jan. 28,
|
Jan. 29,
|
Jan. 31,
|
||||||||||||||||
|
(Dollars in
thousands)
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Balance Sheet
Data:
|
||||||||||||||||||||
|
Total
assets
|
$ |
1,613,304
|
$ |
1,705,723
|
$ |
1,572,583
|
$ |
1,303,771
|
$ |
1,173,070
|
||||||||||
|
Current
portion – long-term debt
|
8,827
|
10,887
|
14,765
|
16,419
|
17,278
|
|||||||||||||||
|
Long-term
debt
|
306,169
|
181,124
|
191,979
|
208,645
|
202,819
|
|||||||||||||||
|
Working
capital
|
467,157
|
460,620
|
344,229
|
413,989
|
266,178
|
|||||||||||||||
|
Stockholders’
equity
|
730,444
|
947,538
|
814,348
|
694,464
|
587,409
|
|||||||||||||||
|
____________________
|
|
|||||||||||||||||||
|
(1) Includes the results
of operations of Crosstown Traders, Inc. from the date of acquisition
(June 2, 2005). See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
2. ACQUISITION OF CROSSTOWN TRADERS, INC.”
below.
|
||||||||||||||||||||
|
(2) Fiscal 2007
consisted of 53 weeks.
|
||||||||||||||||||||
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) should be read in conjunction with the financial
statements and accompanying notes included in “Item 8. Financial
Statements and Supplementary Data” below. As used in this
report the terms “Fiscal 2008,” “Fiscal 2007,” and “Fiscal 2006” refer to our
fiscal years ended February 2, 2008, February 3, 2007, and January 28, 2006,
respectively. Fiscal 2008 and Fiscal 2006 each consisted of 52 weeks,
while Fiscal 2007 consisted of 53 weeks. The term “Fiscal 2009”
refers to our fiscal year which will end on January 31, 2009. The
terms “the Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc. and,
where applicable, our consolidated subsidiaries.
FORWARD-LOOKING
STATEMENTS
With the
exception of historical information, the matters contained in the following
analysis and elsewhere in this report are “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements may include, but are not limited to,
projections of revenues, income or loss, cost reductions, capital expenditures,
liquidity, financing needs or plans, and plans for future operations, as well as
assumptions relating to the foregoing. The words “expect,” “could,”
“should,” “project,” “estimate,” “predict,” “anticipate,” “plan,” “intend,”
“believes,” and similar expressions are also intended to identify
forward-looking statements.
We
operate in a rapidly changing and competitive environment. New risk
factors emerge from time to time and it is not possible for us to predict all
risk factors that may affect us. Forward-looking statements are
inherently subject to risks and uncertainties, some of which we cannot predict
or quantify. Future events and actual results, performance, and
achievements could differ materially from those set forth in, contemplated by,
or underlying the forward-looking statements, which speak only as of the date on
which they were made. We assume no obligation to update or revise any
forward-looking statement to reflect actual results or changes in, or additions
to, the factors affecting such forward-looking statements. Given
those risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
Factors
that could cause our actual results of operations or financial condition to
differ from those described in this report include, but are not necessarily
limited to, the following, which are discussed in more detail in “Item 1A. Risk
Factors,” above:
|
●
|
Our
business is dependent upon our ability to accurately predict rapidly
changing fashion trends, customer preferences, and other fashion-related
factors, which we may not be able to successfully accomplish in the
future.
|
|
●
|
A
continuing 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
cannot assure the successful implementation of our business plan for
Crosstown Traders, including our business plan for our LANE BRYANT WOMAN
catalog.
|
|
●
|
We
cannot assure the successful implementation of our business plans for our
outlet store distribution channel and expansion of our CACIQUE product
line through new store formats.
|
|
●
|
We
cannot assure the successful implementation of our business plan for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments. Recent changes in management may
fail to achieve improvement in our operating results. We cannot
assure the realization of our anticipated annualized expense savings from
our restructuring announced in February 2008.
|
|
●
|
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 third-party freight
consolidators and service providers, and could incur significantly higher
costs and longer lead times associated with distributing our products to
our stores and shipping our products to our E-commerce and catalog
customers if operations at any of these locations were to be disrupted for
any reason.
|
|
●
|
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 other armed conflict, or
the threat of any such event may negatively impact availability of
merchandise and customer traffic to our stores, or otherwise adversely
affect our business.
|
|
●
|
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. In addition, we are subject to the
Fair Labor Standards Act and various state and Federal laws and
regulations governing such matters as minimum wages, exempt status
classification, overtime, and employee benefits. Changes in
Federal or state laws or regulations regarding minimum wages or other
employee benefits could cause us to incur additional wage and benefit
costs, which could adversely affect our results of
operations.
|
|
●
|
Our
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.
|
|
●
|
Inadequate
systems capacity, a disruption or slowdown in telecommunications services,
changes in technology, changes in government regulations, systems issues,
security breaches, a failure to integrate order management systems, or
customer privacy issues could result in reduced sales or increases in
operating expenses as a result of our efforts or our inability to remedy
such issues.
|
|
●
|
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
cannot assure the realization of our anticipated benefits from our
re-launch of the LANE BRYANT credit card program.
|
|
●
|
We
make certain significant assumptions, estimates, and projections related
to the useful lives of our property, plant, and equipment and the
valuation of goodwill and other intangible assets related to
acquisitions. The carrying amount and/or useful life of these
assets are subject to periodic and/or annual valuation tests for
impairment. Impairment results when the carrying value of an
asset exceeds the undiscounted (or for goodwill and indefinite-lived
intangible assets the discounted) future cash flows associated with the
asset. If actual experience were to differ materially from the
assumptions, estimates, and projections used to determine useful lives or
the valuation of property, plant, equipment, or intangible assets, a
write-down for impairment of the carrying value of the assets, or
acceleration of depreciation or amortization of the assets, could
result. Such a write-down or acceleration of depreciation or
amortization could have an adverse impact on our reported results of
operations. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
13. IMPAIRMENT OF GOODWILL AND TRADEMARKS”
below.
|
|
●
|
Changes
to existing accounting rules or the adoption of new rules could have an
adverse impact on our reported results of operations.
|
|
●
|
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
include our assessment of the effectiveness of our internal control over
financial reporting in our annual reports. Our independent
registered public accounting firm is also required to report on whether or
not they believe that we maintained, in all material respects, effective
internal control over financial reporting. If we are unable to
maintain effective internal control over financial reporting we could be
subject to regulatory sanctions and a possible loss of public confidence
in the reliability of our financial reporting. Such a failure
could result in our inability to provide timely and/or reliable financial
information and could adversely affect our business.
|
|
●
|
The
holders of our 1.125% Senior Convertible Notes due May 1, 2014 could
require us to repurchase the principal amount of the notes for cash before
maturity of the notes under certain circumstances (see “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; NOTE
8. LONG-TERM DEBT”
below). Such a repurchase would require significant
amounts of cash and could adversely affect our financial
condition.
|
|
●
|
The
FASB has issued a proposed FSP that would apply to any convertible debt
instrument that may be settled in whole or in part with cash upon
conversion, which would include our 1.125% Notes. If the
proposed FSP is approved in 2008 we would be required to adopt the
proposal as of February 3, 2009 (the beginning of Fiscal 2010), with
retrospective application to financial statements for periods prior to the
date of adoption. As compared to our current accounting for the
1.125% Notes, adoption of the proposal would reduce long-term debt,
increase stockholders’ equity, and reduce net income and earnings per
share. Adoption of the proposal would not affect our cash
flows.
|
|
●
|
We
continually evaluate our portfolio of businesses and may decide to acquire
or divest businesses or enter into joint venture or strategic
alliances. If we fail to integrate and manage acquired
businesses successfully or fail to manage the risks associated with
divestitures, joint ventures, or other alliances, our business, financial
condition, and operating results could be materially and adversely
affected.
|
CRITICAL ACCOUNTING
POLICIES
We have
prepared the financial statements and accompanying notes included elsewhere in
this report in conformity with United States generally accepted accounting
principles. This requires us to make estimates and assumptions that
affect the amounts reported in our financial statements and accompanying
notes. These estimates and assumptions are based on historical
experience, analysis of current trends, and various other factors that we
believe to be reasonable under the circumstances. Actual results
could differ from those estimates under different assumptions or
conditions.
We
periodically reevaluate our accounting policies, assumptions, and estimates and
make adjustments when facts and circumstances warrant. Our
significant accounting policies are described in the notes accompanying the
financial statements included elsewhere in this report. However, we
consider the following accounting policies and related assumptions to be more
critical to the preparation of our financial statements and accompanying notes
and involve the most significant management judgments and
estimates.
Revenue
Recognition
We
recognize revenue in accordance with SEC Codification of Staff Accounting
Bulletins Topic 13, “Revenue
Recognition.” Our revenues from merchandise sales are net of
sales discounts, returns, and allowances and exclude sales tax. We
record a reserve for estimated future sales returns based on an analysis of
actual returns and we defer recognition of layaway sales to the date of
delivery. A change in our actual rates of sales returns and layaway
sales experience would affect the level of revenue recognized.
Catalog
and E-commerce revenues include shipping and handling fees billed to
customers. These revenues are recognized after all of the following
have occurred: execution of the customer’s order, authorization of the
customer’s credit card has been received, and the product has been shipped to
and received by the customer. We defer recognition of revenue for
product shipped but not yet received by the customer based on an estimate of the
number of days the shipments are in-transit. A change in our actual
rates of sales returns and/or the time it takes for customers to receive our
products would affect the level of revenue recognized.
We sell
gift cards to our Retail Stores segment customers through our stores,
store-related websites, and through third parties. We recognize
revenue from gift cards when the gift card is redeemed by the
customer. Our gift cards do not currently contain expiration dates or
inactivity fees. We recognize gift card breakage (unused gift card
balances for which we believe the likelihood of redemption is remote) as net
sales based on an analysis of historical redemption patterns. A
change in the historical pattern of gift card redemptions would affect the level
of revenue recognized.
Loyalty Card
Programs
We offer
our customers various loyalty card programs. Customers that join
these programs are entitled to various benefits, including discounts and rebates
on purchases during the membership period. Customers join some of
these programs by paying an annual membership fee. For these programs
we recognize revenue as a component of net sales over the life of the membership
period based on when the customer earns the benefits and when the fee is no
longer refundable. Certain loyalty card customers earn points for
purchases which may be redeemed for merchandise coupons upon the accumulation of
a specified number of points. No membership fees are charged in
connection with these programs. Costs we incur in connection with
administering these programs are recognized in cost of goods sold as
incurred.
Accounts
Receivable
Our
FIGI’S catalog offers credit to its customers using interest-free three-payment
credit terms over three months, with the first payment due on a defined date 30
to 60 days after a stated holiday. A substantial portion of the
FIGI’S catalog business is conducted during the December holiday
season. We evaluate the collectibility of our accounts receivable
based on a combination of factors, including analysis of historical trends,
aging of accounts receivable, write-off experience, past history of recoveries,
and expectations of future performance. Significant changes in future
performance relative to our historical experience could have a material impact
on the levels of our accounts receivable valuation reserves.
Inventories
We value
our merchandise inventories at the lower of cost or market using the retail
inventory method (average cost basis). We adjust the valuation of
inventories at cost and the resulting gross margins in proportion to markdowns
and shrinkage on our retail inventories. The retail inventory method
results in the valuation of inventories at the lower of cost or market when
markdowns are currently taken as a reduction of the retail value of
inventories. Our estimation of markdowns involves certain management
judgments and estimates that significantly affect the ending inventory valuation
at cost, as well as the resulting gross margins. Our failure to
properly estimate markdowns currently could result in an overstatement or
understatement of inventory cost under the lower of cost or market
principle.
EITF
Issue 02-16, “Accounting by a
Customer (Including a Reseller) for Cash Consideration Received from a
Vendor,” addresses the accounting for cash consideration received
from a vendor, including both a reseller of the vendor’s products and an entity
that purchases the vendor’s products from a reseller. In accordance
with the provisions of EITF Issue 02-16 we defer into inventory cash received
from vendors and recognize these amounts as a reduction of cost of goods sold as
the inventory is sold. We defer the recognition of cash received from
vendors during interim periods in order to better match the recognition of the
cash consideration to the period the inventory is sold.
Deferred Catalog Advertising
Costs
We
capitalize all direct costs incurred in the development, production, and
circulation of our direct-mail catalogs until such time as the related catalogs are mailed. These capitalized costs are
subsequently amortized as a component of cost of goods sold, buying, catalog,
and occupancy expenses over the expected sales realization cycle, generally
within one to six months. Our initial estimation of the expected
sales realization cycle for a particular catalog merchandise
offering is based on, among other possible considerations, our historical sales
and sell-through experience with similar catalog merchandise
offerings, our understanding of then-prevailing fashion trends and influences,
our assessment of prevailing economic conditions, and various competitive
factors. We continually track our subsequent sales realization,
compile customer feedback for indications of future performance, reassess the
marketplace, compare our findings to our previous estimate, and adjust our
amortization accordingly. A significant change in our expected sales
and sell-through experience could have a material impact on the rate of
amortization of deferred catalog advertising costs.
Impairment of Property, Plant, and
Equipment, Intangible Assets, and Goodwill
We
evaluate the recoverability of our property, plant, and equipment and
amortizable intangible assets in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” Under SFAS No.
144 we are required to assess our long-lived assets for recoverability whenever
events or changes in circumstances indicate that the carrying amounts of
long-lived assets may not be recoverable. We consider historical
performance and estimated future results in our evaluation of potential
impairment and compare the carrying amount of the asset to the estimated future
undiscounted cash flows expected to result from the use of the
asset. If the estimated future undiscounted cash flows are less than
the carrying amount of the asset, we write down the asset to its estimated fair
value and recognize an impairment loss. Our estimate of fair value is
generally based on either appraised value or the present value of future cash
flows, based on a number of assumptions and estimates.
If actual
experience were to differ materially from the assumptions, estimates, and
projections used to determine useful lives or the valuation of property, plant,
and equipment or amortizable 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.
We test
our goodwill and our indefinite-lived intangible assets in accordance with the
provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” We re-evaluate goodwill and other intangible assets
for impairment at least annually or more frequently if there is an indication of
possible impairment. We perform our annual impairment analysis during
the fourth quarter of our fiscal year because our fourth quarter operating
results are significant to us and are an integral part of our
analyses. In addition, we prepare our financial plan for the
following fiscal year, which is an important part of our impairment analyses,
during the fourth quarter of our fiscal year. If our re-evaluation
determines that our goodwill or other intangible assets have become impaired, a
write-down of the carrying value of the assets would result.
During
Fiscal 2008 we recognized non-cash impairment losses in connection with our
Crosstown Traders goodwill and intangible assets. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
6. GOODWILL AND INTANGIBLE ASSETS” and “NOTE 13. IMPAIRMENT OF
GOODWILL AND TRADEMARKS” below for additional discussion of our goodwill
and intangible assets and the impairment losses recognized during Fiscal
2008.
Acquisitions – Purchase Price
Allocation
We
account for acquisitions in accordance with the provisions of SFAS No. 141,
“Business
Combinations.” We assign to all identifiable assets acquired
(including intangible assets), and to all identifiable liabilities assumed, a
portion of the cost of the acquired company equal to the estimated fair value of
such assets and liabilities at the date of acquisition. We record the
excess of the cost of the acquired company over the sum of the amounts assigned
to identifiable assets acquired less liabilities assumed, if any, as
goodwill. We make the initial purchase price allocation based on the
evaluation of information and estimates available at the date of the financial
statements. As final information regarding the fair value of assets
acquired and liabilities assumed is evaluated and estimates are refined, we make
appropriate adjustments to the amounts allocated to those assets and liabilities
and make corresponding changes to the amount allocated to
goodwill. We use all available information to make these fair value
determinations and, for major business acquisitions, typically engage an outside
appraisal firm to assist in the fair value determination of the acquired
long-lived assets. If necessary, we have up to one year after the
closing date of an acquisition to finish these fair value determinations and
finalize the purchase price allocation.
Asset
Securitization
Our asset
securitization program primarily involves the sale of proprietary credit card
receivables to a special-purpose entity which in turn transfers the receivables
to a separate and distinct qualified special-purpose entity (“QSPE”). The
QSPE’s assets and liabilities are not consolidated in our balance sheet and the
receivables transferred to the QSPEs are isolated for purposes of the
securitization program. We use asset securitization to fund the
credit card receivables generated by our FASHION BUG, LANE BRYANT, CATHERINES,
PETITE SOPHISTICATE, and Crosstown Traders proprietary credit card
programs. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
17. ASSET SECURITIZATION” below for additional
discussion of our asset securitization facility.
We
account for our asset securitizations in accordance with SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities,” and SFAS No. 156, “Accounting and Servicing of Financial Assets
– an amendment of FASB Statement No. 140.” We record a beneficial
interest, referred to as the interest-only strip (“I/O strip”), which represents
the estimated present value of cash flows we expect to receive over the period
the receivables are outstanding. In addition to the I/O strip, we
recognize a servicing liability since the servicing fees we expect to receive
from the securitizations do not provide adequate compensation for servicing the
receivables. The servicing liability represents the present value of
the excess of the costs of servicing over the servicing fees we expect to
receive and is recorded at estimated fair value. We use the same
discount rate and estimated life assumptions in valuing the I/O strip and the
servicing liability. We amortize the I/O strip and the servicing
liability on a straight-line basis over the expected life of the credit card
receivables.
We use
certain valuation assumptions related to the average life of the receivables
sold and anticipated credit losses, as well as an appropriate market discount
rate, in determining the estimated value of the I/O strip and the servicing
liability. We estimate the values for these assumptions using
historical data, the impact of the current economic environment on the
performance of the receivables sold, and the impact of the potential volatility
of the current market for similar instruments in assessing the fair value of
these retained interests. Changes in the average life of the
receivables sold, discount rate, and credit-loss percentage could cause actual
results to differ materially from the estimates, and changes in circumstances
could result in significant future changes to the assumptions currently being
used.
The
following table presents the decrease in our I/O strip receivable that would
result from hypothetical adverse changes of 10% and 20% in the assumptions used
to determine the fair value of the I/O strip:
|
(In
millions)
|
10%
Change
|
20%
Change
|
||||||
|
Assumption:
|
||||||||
|
Payment
rate
|
$ |
1.7
|
$ |
3.3
|
||||
|
Residual
cash flows discount
rate
|
0.1
|
0.2
|
||||||
|
Credit
loss
percentage
|
1.7
|
3.4
|
||||||
Costs Associated With Exit or
Disposal Activities
In
accordance with the provisions of SFAS No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities,” we recognize
liabilities for costs associated with an exit or disposal activity when the
liabilities are incurred. Commitment to a plan by itself does not
create an obligation that meets the definition of a liability. We
recognize one-time benefit payments over time rather than “up front” if the
benefit arrangement requires employees to render future service beyond a
“minimum retention period.” The liability for one-time benefits is
recognized as employees render service over the future service period, even if
the benefit formula used to calculate an employee’s termination benefit is based
on length of service. We use fair value for the initial measurement
of liabilities associated with exit or disposal activities. The
provisions of SFAS No. 146 result in the deferral of recognition of certain
costs for restructuring plans from the date of commitment to such a plan to the
date that costs are incurred under the plan. Severance payments that
are offered in accordance with an on-going benefit arrangement and that are
attributable to employees’ service already rendered are accounted for in
accordance with SFAS No. 112, “Employers’ Accounting for
Postemployment Benefits.”
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,” and 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, as permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation.” In accordance with SFAS No. 123 we used the
Black-Scholes pricing model to estimate the fair value of stock
options.
As of the
beginning of Fiscal 2007 we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123R”), a revision of SFAS No. 123. Under SFAS No. 123R we
recognize the fair value of stock-based payments as compensation expense in our
financial statements. We elected to adopt SFAS No. 123R on the
modified prospective method and did not restate prior periods. We have
provided pro forma disclosure of stock-based compensation determined in
accordance with SFAS No. 123, as previously disclosed, for Fiscal
2006.
Under
SFAS No. 123R we 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. We elected to calculate the initial pool of
excess tax benefits related to stock-based compensation and the related
presentation of excess tax benefits in our consolidated statements of cash flows
in accordance with the provisions of paragraph 81 of SFAS No. 123R.
The
Black-Scholes model requires estimates or assumptions as to the dividend yield
and price volatility of the underlying stock, the expected life of the option,
and a relevant risk-free interest rate. The use of different
option-pricing models and different estimates or assumptions could result in
different estimates of compensation expense under the fair value
method.
Adoption
of SFAS No. 123R generally results 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 primarily
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.
See “Item 8. Financial
Statements and Supplementary Data; NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES; Stock-based
Compensation” below for further
information on our stock-based compensation expense.
Insurance
Liabilities
We use a
combination of third-party insurance and/or self-insurance for certain risks,
including workers’ compensation, medical, dental, automobile, and general
liability claims. Our insurance liabilities are a component of
“Accrued expenses” on our consolidated balance sheet, and represent our estimate
of the ultimate cost of uninsured claims incurred as of the balance sheet
date. In estimating our self-insurance liabilities we use independent
actuarial estimates of expected losses, which are based on statistical analyses
of historical data. Loss estimates are adjusted based upon actual
claim settlements and reported claims. Although we do not expect the
amounts ultimately paid to differ significantly from our estimates,
self-insurance liabilities could be affected if future claim experience differs
significantly from the historical trends and the actuarial
assumptions. We evaluate the adequacy of these liabilities on a
regular basis, modifying our assumptions as necessary, updating our records of
historical experience, and adjusting our liabilities as
appropriate.
Operating
Leases
We lease
substantially all of our store properties as well as certain of our other
facilities and account for our store leases in accordance with SFAS No. 13,
“Accounting for
Leases.” A majority of our store leases contain lease options
that we can unilaterally exercise. The lease term we use for such
operating leases includes lease option renewal periods only in instances in
which the failure to exercise such options would result in an economic penalty
for us and exercise of the renewal option is therefore reasonably assured at the
lease inception date. Store leasehold improvement assets are
depreciated over the shorter of their useful life or the lease term, as
determined above.
For
leases that contain rent escalations, the lease term for recognition of
straight-line rent expense commences on the date we take possession of the
leased property for construction purposes, which for stores is generally two
months prior to a store opening date. Similarly, landlord incentives
or allowances under operating leases (tenant improvement allowances) are
recorded as a deferred rent liability and recognized as a reduction of rent
expense on a straight-line basis over the lease term, commencing on the date we
take possession of the leased property for construction purposes.
Senior Convertible
Notes
On April
30, 2007 we issued $250.0 million in aggregate principal amount of our 1.125%
Senior Convertible Notes due May 2014 (the “1.125% Notes”) in a private offering
for resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended. On May 11, 2007 the initial
purchasers of the 1.125% Notes exercised their over-allotment option and
purchased an additional $25.0 million in aggregate principal amount of the
notes.
We
accounted for the issuance of the 1.125% Notes in accordance with the guidance
in EITF Issue 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.” Paragraph 11(a) of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” provides that contracts issued or
held by an entity that are both (1) indexed to the entity’s own common stock and
(2) classified in stockholders’ equity in its statement of financial position
are not considered to be derivative instruments under SFAS No. 133 if the
provisions of EITF Issue 00-19 are met. Accordingly, we have
recorded the 1.125% Notes as long-term debt in our condensed consolidated
balance sheet as of February 2, 2008.
Concurrent
with the issuance of the 1.125% Notes we entered into privately negotiated
common stock call options and warrants with affiliates of the initial
purchasers. We accounted for the call options and warrants in
accordance with the guidance in EITF Issue 00-19. The call options
and warrants meet the requirements of EITF Issue 00-19 to be accounted for as
equity instruments. Accordingly, the cost of the call options and the
proceeds from the sale of the warrants are included in additional paid-in
capital in our condensed consolidated balance sheet as of February 2,
2008.
In
accordance with SFAS No. 128, “Earnings Per Share,” the
1.125% Notes will have no impact on our diluted net income per share until the
price of our common stock exceeds the conversion price. Prior to
conversion we will include any dilutive effect of the 1.125% notes or the
warrants in the calculation of diluted net income per share using the treasury
stock method. The call options are excluded from the calculation of
diluted net income per share because their effect would be
anti-dilutive.
We will
be required on a quarterly basis to monitor the 1.125% Notes, call options, and
warrants for compliance with the provisions of EITF Issue 00-19 and paragraph
11(a) of SFAS No. 133. Should the issuance of the 1.125% Notes, the
purchase of the call options, or the sale of the warrants fail to continue to
qualify under the provisions of EITF Issue 00-19 or paragraph 11(a) of SFAS No.
133, we would be required to recognize derivative instruments in connection with
the transaction, include the effects of the transaction in assets or liabilities
instead of equity, and recognize changes in the fair values of the assets or
liabilities in consolidated net income as they occur until the provisions of
EITF Issue 00-19 and paragraph 11(a) of SFAS No. 133 are met.
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 8. LONG-TERM
DEBT” below for
further details of the transaction.
Income
Taxes
We
adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109,” effective as of February 4,
2007. FIN No. 48 prescribes the minimum recognition threshold a tax
position is required to meet before being recognized in the financial
statements. FIN No. 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, accounting in interim
periods, expanded disclosures regarding tax uncertainties, and
transition. FIN No. 48 applies to all tax positions related to income taxes
subject to SFAS No. 109, “Accounting for Income
Taxes.”
Under FIN
No. 48 we recognize a tax benefit when a tax position is more-likely-than-not to
be sustained upon examination, based solely on its technical
merits. We measure the recognized benefit as the largest amount of
benefit which is more-likely-than-not to be realized on ultimate settlement,
based on a cumulative probability basis. We recognize a tax position
failing to qualify for initial recognition in the first interim period in which
it meets the FIN No. 48 recognition standard, or is resolved through
negotiation, litigation, or upon expiration of the statute of
limitations. We de-recognize a previously recognized tax position if
we subsequently determine that the tax position no longer meets the
more-likely-than-not threshold of being sustained. As of February 4,
2007 we recognized a cumulative-effect adjustment of $5.0 million, increasing
our liability for unrecognized tax benefits, interest, and penalties and
reducing the February 4, 2007 balance of retained earnings for differences
between amounts recognized in our balance sheets prior to the adoption of FIN
No. 48 and amounts reported after adoption. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 7. INCOME
TAXES” below for
further details of our adoption of FIN No. 48.
We
adopted the provisions of FSP FIN 48-1, “Definition of Settlement in FASB
Interpretation No. 48,” effective with our adoption of FIN No.
48. Accordingly, we consider a tax position to be “effectively
settled” upon completion of an examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled we recognize the full amount of the tax benefit, even if (1) the tax
position is not considered more-likely-than-not to be sustained solely on the
basis of its technical merits, and (2) the statute of limitations remains
open. The adoption of FSP FIN 48-1 did not have a material effect on
our financial position or results of operations.
This
overview of our Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) presents a high-level summary of more
detailed information contained elsewhere in this Report on Form
10-K. The intent of this overview is to put this detailed information
into perspective and to introduce the discussion and analysis contained in this
MD&A. Accordingly, this overview should be read in conjunction
with the remainder of this MD&A and with the financial statements and other
detailed information included in this Report on Form 10-K and should not be
separately relied upon.
During
Fiscal 2008 we faced a number of business-specific issues that, when combined
with the challenging retail and economic environment, negatively impacted our
short-term results, particularly during the second half of the
year.
At our
Retail Stores segment, the lack of more compelling merchandise assortments and
rapidly changing customer buying preferences coupled with a rapid decline in
consumer spending resulted in decreases in store traffic and comparable store
sales at each of our Retail Stores brands.
At our
Direct-to-Consumer segment, we continued to experience declines in response
rates to our catalog offerings from both our core customers and our prospecting
efforts. During Fiscal 2008 we established a new management team,
which implemented new creative marketing programs and product offerings that
have led to a moderation of the downward-trending catalog sales that we
experienced during the first half of Fiscal 2008.
The
impact of the above business and economic challenges accelerated during the
second half of the year and resulted in a difficult and highly promotional
retail sales environment. As a result, we continued to be more aggressive
in clearing seasonal inventories, leading to deeper-than-planned markdowns that
negatively impacted our merchandise margins. However, we believe that
these efforts have resulted in a better-positioned inventory going into the
spring season.
Initiatives
that we put in place in response to our performance and the challenging retail
and economic environment during the first half of Fiscal 2008 continued
throughout the second half of the year. We continued to focus on
managing to lower inventory levels, reducing selling, general, and
administrative expenses, and reducing our capital budget spending during the
second half of Fiscal 2008 through the reduction of certain store development
and non-critical infrastructure projects.
In
November 2007 and February 2008 we announced two initiatives to streamline
operations, reduce expenses, and improve cash flow.
In
November 2007 we announced our plan to relocate our CATHERINES operations
located in Memphis, Tennessee to our corporate headquarters in Bensalem,
Pennsylvania in conjunction with the consolidation of a number of its operating
functions. We anticipate that the execution of the new organizational
structure will result in approximately $8 million of annualized pre-tax
expense savings, primarily in the areas of payroll and occupancy
costs.
In
February 2008 we announced additional initiatives and actions in response to the
continuing weak retail and economic environment to: streamline our business
operations and further sharpen our focus on our core businesses; reduce selling,
general, and administrative expenses and capital expenditures; improve cash
flow; and enhance shareholder value. These initiatives include the
following:
|
·
|
Elimination
of approximately 150 corporate and field management
positions;
|
|
·
|
Reduction
of our Fiscal 2009 capital budget by more than $40 million as compared to
Fiscal 2008, primarily through a significant reduction in the number of
planned store openings for Fiscal
2009;
|
|
·
|
Closing
of approximately 150 under-performing stores;
and
|
|
·
|
Closing
our full-line PETITE SOPHISTICATE stores (which will not impact our PETITE
SOPHISTICATE OUTLET stores).
|
We
anticipate that the execution of these additional initiatives will result in
approximately $20 million of annualized pre-tax expense savings, primarily in
non-store payroll and the elimination of losses from the under-performing
stores.
Although
it was a challenging year, we were able to achieve the following during Fiscal
2008:
|
·
|
In
October 2007 the LANE BRYANT catalog trademark, which had been licensed to
a third party, reverted to us and we launched our LANE BRYANT WOMAN
catalog and related www.lanebryantcatalog.com
website, which offer clothing, footwear, and intimate apparel in an
expanded range of plus sizes at a value price point. During
Fiscal 2008 we made an initial pre-tax investment of approximately $11
million in the launch of the LANE BRYANT WOMAN
catalog.
|
|
·
|
In
November 2007 we acquired and securitized the LANE BRYANT proprietary
credit card portfolio, which had previously been serviced under an
agreement with a third party. We subsequently re-launched the
program with the issuance of approximately 2.4 million new credit cards in
connection with a new loyalty card program designed to stimulate traffic
and sales at our LANE BRYANT brand.
|
|
·
|
We
used proceeds from our issuance in May 2007 of our 1.125% Senior
Convertible Notes as well as cash flow from operating activities to
repurchase an aggregate total of 24.2 million shares of our common
stock.
|
While we
are committed to executing our long-term growth strategy as a multi-brand,
multi-channel retailer, we are currently facing a number of challenges that
continue to negatively impact our short-term results. As a result of
uncertain economic conditions and our expectation that consumer spending will
continue to be weak, we remain cautious for at least the first half of Fiscal
2009. In addition to the initiatives discussed above, we have
implemented the following near-term actions that are designed to enable us to
manage through this difficult retail environment:
|
·
|
Reduce
merchandise receipts and store inventory levels through at least the first
half of Fiscal 2009, which should help to reduce the level of seasonal
markdowns and help protect our prices and merchandise
margins.
|
|
·
|
Continue
to selectively reduce store payroll hours to match reduced store traffic,
and reduce corporate general and administrative
expenses.
|
|
·
|
Continue
to execute on a number of new product and marketing initiatives during the
second half of Fiscal 2008 to improve traffic and sales trends, such as
our new “Right Fit by Lane Bryant™” and “Right Fit by Catherines™”
campaigns and stocking Gitano® brand
fashionable casual merchandise offerings under our exclusive licensing
agreement.
|
|
·
|
Continue
to improve our merchandise content at LANE BRYANT by including a higher
fashion component.
|
|
·
|
Continue
to initiate new creative marketing programs and product offerings for our
catalog titles, as well as streamline apparel catalog
operations.
|
We also
expect Fiscal 2009 to benefit from the first full year of operations of our LANE
BRYANT WOMAN catalog and related www.lanebryantcatalog.com
website. Our balance sheet remains strong, with ample liquidity
through our $75.2 million of cash and available-for-sale securities and our
committed $375.0 million revolving credit facility that had no outstanding
borrowings at the end of Fiscal 2008.
RESULTS OF
OPERATIONS
Financial Summary
The
following table shows our results of operations expressed as a percentage of net
sales and on a comparative basis:
|
Percentage
Increase
|
||||||||||||||||||||
|
(Decrease)
|
||||||||||||||||||||
|
Percentage of Net
Sales(1)
|
From Prior Year(3)
|
|||||||||||||||||||
|
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
||||||||||||||||
|
2008
|
2007(2)
|
2006(3)
|
2008-2007
|
2007-2006(2)
|
||||||||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | (1.9 | )% | 11.3 | % | ||||||||||
|
Cost
of goods sold, buying, catalog, and
|
||||||||||||||||||||
|
occupancy
expenses
|
73.1
|
69.8
|
69.5
|
2.7
|
11.9
|
|||||||||||||||
|
Selling,
general, and administrative expenses
|
25.8
|
24.6
|
24.6
|
3.2
|
11.0
|
|||||||||||||||
|
Impairment
of goodwill and trademarks
|
3.3
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Restructuring
charges
|
0.5
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Income/(loss)
from operations
|
(2.6 | ) |
5.6
|
5.9
|
(145.8 | ) |
6.1
|
|||||||||||||
|
Other
income
|
0.3
|
0.3
|
0.3
|
5.4
|
8.6
|
|||||||||||||||
|
Interest
expense
|
0.4
|
0.5
|
0.6
|
(28.4 | ) | (17.7 | ) | |||||||||||||
|
Income
tax provision
|
0.1
|
1.9
|
1.9
|
(93.7 | ) |
7.9
|
||||||||||||||
|
Extraordinary
item, net of income taxes
|
0.0
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Net
income/(loss)
|
(2.8 | ) |
3.6
|
3.6
|
(176.6 | ) |
9.6
|
|||||||||||||
|
____________________
|
||||||||||||||||||||
|
(1) Results may not add
due to rounding.
|
||||||||||||||||||||
|
(2) Fiscal 2007
consisted of 53 weeks.
|
||||||||||||||||||||
|
(3) Includes the results
of operations of Crosstown Traders, Inc. from the date of acquisition
(June 2, 2005).
|
||||||||||||||||||||
The
following table shows our net sales by store brand:
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||||||||||||||
|
February 2,
2008
|
February 3, 2007(1)
|
January 28,
2006
|
||||||||||||||||||||||
|
Fiscal
|
Fourth
|
Fiscal
|
Fourth
|
Fiscal
|
Fourth
|
|||||||||||||||||||
|
(In
millions)
|
Year
|
Quarter
|
Year
|
Quarter
|
Year
|
Quarter
|
||||||||||||||||||
|
LANE
BRYANT(2)
|
$ |
1,232.3
|
$ |
323.3
|
$ |
1,202.3
|
$ |
357.1
|
$ |
1,057.4
|
$ |
299.8
|
||||||||||||
|
FASHION
BUG
|
992.7
|
228.6
|
1,058.3
|
269.1
|
1,049.0
|
258.6
|
||||||||||||||||||
|
CATHERINES
|
353.2
|
76.7
|
367.7
|
91.5
|
346.2
|
83.0
|
||||||||||||||||||
|
Other
retail stores(3)
|
21.1
|
6.0
|
8.1
|
6.2
|
0.0
|
0.0
|
||||||||||||||||||
|
Total
Retail Stores segment sales
|
2,599.3
|
634.6
|
2,636.4
|
723.9
|
2,452.6
|
641.4
|
||||||||||||||||||
|
Total
Direct-to-Consumer segment sales
|
408.1
|
149.0
|
427.8
|
148.2
|
298.9 | (4) |
155.8
|
|||||||||||||||||
|
Corporate
and other(5)
|
2.6
|
1.3
|
3.3
|
1.9
|
4.2
|
2.4
|
||||||||||||||||||
|
Total
net sales
|
$ |
3,010.0
|
$ |
784.9
|
$ |
3,067.5
|
$ |
874.0
|
$ |
2,755.7
|
$ |
799.6
|
||||||||||||
|
____________________
|
||||||||||||||||||||||||
|
(1) Fiscal Year 2007 and
Fourth Quarter 2007 consisted of 53 weeks and 14 weeks,
respectively.
|
||||||||||||||||||||||||
|
(2) Fiscal 2008 and
Fiscal 2007 include LANE BRYANT OUTLET stores.
|
||||||||||||||||||||||||
|
(3) Includes PETITE
SOPHISTICATE and PETITE SOPHISTICATE OUTLET stores.
|
||||||||||||||||||||||||
|
(4) Includes the results
of operations of Crosstown Traders, Inc. from the date of acquisition
(June 2, 2005).
|
||||||||||||||||||||||||
|
(5) Revenue related to
loyalty card fees, net of loyalty card coupons.
|
||||||||||||||||||||||||
The
following table shows additional information related to changes in our net
sales:
|
Year
Ended
|
Year
Ended
|
|||||||||||||||
|
February 2, 2008(1)
|
February 3, 2007(1)
|
|||||||||||||||
|
Fiscal
|
Fourth
|
Fiscal
|
Fourth
|
|||||||||||||
|
Year
|
Quarter
|
Year
|
Quarter
|
|||||||||||||
|
Retail Stores
segment
|
||||||||||||||||
|
Increase/(decrease)
in comparable store sales:(2)
|
||||||||||||||||
|
Consolidated retail
stores
|
(5 | )% | (9 | )% | 1 | % | (1 | )% | ||||||||
|
LANE BRYANT
|
(6 | ) | (9 | ) |
1
|
(3 | ) | |||||||||
|
FASHION BUG
|
(4 | ) | (8 | ) | (1 | ) | (1 | ) | ||||||||
|
CATHERINES
|
(3 | ) | (11 | ) |
4
|
2
|
||||||||||
|
Sales
from new stores as a percentage of total
|
||||||||||||||||
|
consolidated prior-period net
sales:(3)
|
||||||||||||||||
|
LANE BRYANT(4)
|
6
|
3
|
6
|
7
|
||||||||||||
|
FASHION BUG
|
1
|
1
|
1
|
1
|
||||||||||||
|
CATHERINES
|
0
|
0
|
1
|
0
|
||||||||||||
|
Other retail stores(5)
|
0
|
2
|
0
|
1
|
||||||||||||
|
Prior-period
sales from closed stores as a percentage
|
||||||||||||||||
|
of total consolidated
prior-period net sales:
|
||||||||||||||||
|
LANE BRYANT
|
(1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||
|
FASHION BUG
|
(1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||
|
CATHERINES
|
0
|
0
|
0
|
0
|
||||||||||||
|
Increase/(decrease)
in Retail Stores segment sales
|
(1 | ) | (12 | ) |
7
|
13
|
||||||||||
|
Direct-to-Consumer
segment
|
||||||||||||||||
|
Increase/(decrease)
in Direct-to-Consumer segment sales
|
(5 | ) |
1
|
– | (6) | (5 | ) | |||||||||
|
Increase/(decrease)
in consolidated total net sales
|
(2 | ) | (10 | ) | 11 | (7) | 9 | (7) | ||||||||
|
____________________
|
||||||||||||||||
|
(1) Fiscal Year 2007
consisted of 53 weeks and Fourth Quarter 2007 consisted of 14
weeks. Comparable store sales and changes in sales from new stores
and closed stores are based on equivalent 52-week and 13-week
periods. The increase/(decrease) in Retail Stores segment sales,
increase (decrease) in Direct-to-Consumer segment sales, and
increase/(decrease) in consolidated net sales are based on the 53-week and
14-week periods for Fiscal 2007 and the 52-week and 13-week periods for
Fiscal 2008 and Fiscal 2006.
|
||||||||||||||||
|
(2) “Comparable store
sales” is not a measure that has been defined under generally accepted
accounting principles. The method of calculating comparable store
sales varies across the retail industry; 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 E-commerce sales, are excluded from the calculation of
comparable store sales.
|
||||||||||||||||
|
(3) Includes incremental
Retail Stores segment E-commerce sales.
|
||||||||||||||||
|
(4) Includes LANE BRYANT
OUTLET stores.
|
||||||||||||||||
|
(5) Includes PETITE
SOPHISTICATE and PETITE SOPHISTICATE OUTLET stores.
|
||||||||||||||||
|
(6) Comparison is not
meaningful, as prior-year period includes sales from Crosstown Traders,
Inc. from the date of acquisition on June 2, 2005 (approximately 34
weeks).
|
||||||||||||||||
|
(7) The increase in
consolidated total net sales includes an increase of 5% for Fiscal Year
2007 and a decrease of 1% for the Fourth Quarter 2007 as a result of the
acquisition of Crosstown Traders, Inc. on June 2,
2005.
|
||||||||||||||||
The
following table sets forth information with respect to store activity for Fiscal
2008 and planned store activity for Fiscal 2009:
|
FASHION
|
LANE
|
|||||||||||||||||||
|
BUG
|
BRYANT
|
CATHERINES
|
Other(1)
|
Total
|
||||||||||||||||
|
Fiscal 2008:(2)
|
||||||||||||||||||||
|
Stores
at February 3, 2007
|
1,009
|
859
|
465
|
45
|
2,378
|
|||||||||||||||
|
Stores
opened
|
7
|
76 | (3) |
9
|
11
|
103
|
||||||||||||||
|
Stores
closed
|
(27 | ) | (39 | ) | (6 | ) | (0 | ) | (72 | ) | ||||||||||
|
Net
change in stores
|
(20 | ) |
37
|
3
|
11
|
31
|
||||||||||||||
|
Stores
at February 2, 2008
|
989
|
896
|
468
|
56
|
2,409
|
|||||||||||||||
|
Stores
relocated during period
|
15
|
33
|
11
|
0
|
59
|
|||||||||||||||
|
Fiscal
2009
|
||||||||||||||||||||
|
Planned
store openings
|
4
|
31-38 | (4) |
6-7
|
4-6 | (5) |
45-55
|
|||||||||||||
|
Planned
store closings
|
95-101
|
41-50
|
10
|
4-9 | (6) |
150-170
|
||||||||||||||
|
Planned
store relocations
|
9-12
|
35-45 | (7) |
4-5
|
0
|
48-62
|
||||||||||||||
|
____________________
|
||||||||||||||||||||
|
(1) Includes PETITE
SOPHISTICATE and PETITE SOPHISTICATE OUTLET stores.
|
||||||||||||||||||||
|
(2) Excludes 2 Crosstown
Traders outlet stores that are included in our Direct-to-Consumer
segment.
|
||||||||||||||||||||
|
(3) Includes 19 LANE
BRYANT OUTLET stores and 37 LANE BRYANT intimate apparel side-by-side
stores.
|
||||||||||||||||||||
|
(4) Includes 10-13 LANE
BRYANT intimate apparel side-by-side stores and 6-9 LANE BRYANT OUTLET
stores.
|
||||||||||||||||||||
|
(5) PETITE SOPHISTICATE
OUTLET stores.
|
||||||||||||||||||||
|
(6) Includes 0-5 PETITE
SOPHISTICATE OUTLET stores and 4 PETITE SOPHISTICATE
stores.
|
||||||||||||||||||||
|
(7) Includes 13-16
conversions to LANE BRYANT intimate apparel side-by-side
stores.
|
||||||||||||||||||||
Comparison of Fiscal 2008 to Fiscal
2007
Net Sales
Consolidated Net
Sales
The
decrease in consolidated net sales for Fiscal 2008 as compared
to Fiscal 2007 was driven primarily by an extra week of sales in
Fiscal 2007 as compared to Fiscal 2008 (Fiscal 2007 was a 53-week year), as well
as by decreases in comparable Retail Stores segment sales and net sales from our
Direct-to-Consumer segment. The decrease in comparable Retail Stores
segment net sales was partially offset by net sales from our outlet business,
which began operations in July 2006, and net sales from new
stores. The decrease in our Direct-to-Consumer segment net sales was
partially offset by sales from our new LANE BRYANT WOMAN catalog and related
website, which were launched in October 2007.
Retail Stores Segment Net
Sales
Comparable
store sales for Fiscal 2008 decreased at each of our Retail Stores brands as
compared to Fiscal 2007. Net sales for all of our brands were negatively
impacted by aggressive promotional markdowns taken in response to reduced
traffic levels and weak consumer spending, especially during the latter half of
Fiscal 2008. The average number of transactions per store decreased
for each of our brands, while the average dollar sale per transaction increased
for FASHION BUG stores and decreased for LANE BRYANT stores and CATHERINES
stores.
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 Fiscal 2008 we recognized revenues of $21.8
million and during Fiscal 2007 we recognized revenues of $19.1 million in
connection with our loyalty card programs. As of November 2007 we began
offering a loyalty program in connection with the issuance of our new LANE
BRYANT proprietary credit card. Cardholders earn points for purchases
using the credit card, which may be redeemed for merchandise coupons upon the
accumulation of a specified number of points. No membership fees are
charged in connection with this program.
Direct-to-Consumer Segment Net
Sales
The
decrease in net sales from our Direct-to-Consumer segment was primarily
attributable to a continuing decline in response rates from both our core
customer and prospecting mailing lists and a decrease in the average order
value, partially offset by sales from our LANE BRYANT WOMAN catalog and website
launched in October 2007 and an increase in net sales from our FIGI’S food
and gift catalog. As discussed in the overview above, we established a new
management team, including the appointment of a new president for Crosstown
Traders, which has resulted in improved creative marketing programs and
merchandise offerings for several of our fall catalogs. These changes
significantly moderated the rate of decline in response rates during the second
half of Fiscal 2008.
Cost of Goods Sold, Buying, Catalog,
and Occupancy
Consolidated Cost of Goods Sold,
Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, and occupancy expenses increased as a percentage of
consolidated net sales in Fiscal 2008 as compared to Fiscal 2007 primarily as a
result of reduced merchandise margins for both our Retail Stores and
Direct-to-Consumer segments and negative leverage on occupancy expenses from the
decrease in comparable store sales. Consolidated cost of goods sold
increased 2.2% as a percentage of consolidated net sales and consolidated buying
and occupancy expenses increased 1.1% 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. Net
merchandise costs and freight are capitalized as inventory costs. Cost of
goods sold for our Direct-to-Consumer segment includes catalog advertising and
fulfillment costs, which are significant expenses for catalog operations, and
are therefore generally higher as a percentage of net sales than cost of goods
sold for our Retail Stores segment. Conversely, the
Direct-to-Consumer segment incurs lower levels of buying and occupancy
costs.
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.
Retail Stores Segment Cost of Goods
Sold, Buying, and Occupancy
Cost of
goods sold, buying, and occupancy expenses as a percentage of net sales
increased 2.4% for FASHION BUG, 1.3% for CATHERINES, and 3.0% for LANE
BRYANT. These increases were primarily a result of increased
promotional pricing and negative leverage on occupancy costs from the decrease
in comparable store sales. The increase in cost of goods sold at each
brand reflected the highly promotional retail environment, particularly during
the second half of Fiscal 2008 and the December holiday season. For
our LANE BRYANT OUTLET and PETITE SOPHISTICATE OUTLET stores, which began
operations in July 2006, cost of goods sold, buying, and occupancy expenses
decreased 4.3% as a percentage of net sales primarily as a result of the benefit
of a full year of operations in Fiscal 2008. Occupancy expenses for
Fiscal 2007 included approximately $4.5 million of pre-opening expenses related
to our outlet stores.
Direct-to-Consumer Segment Cost of
Goods Sold, Buying, Catalog, and Occupancy
The
decrease in the merchandise margin in our Direct-to-Consumer segment resulted
primarily from negative leverage on catalog advertising costs from reduced
sales, which were driven by decreases in catalog customer response rates and
average order value, and from expenses incurred in connection with the launch of
our LANE BRYANT WOMAN catalog.
Selling, General, and
Administrative
Consolidated Selling, General, and
Administrative
Consolidated
selling, general, and administrative expenses increased 1.2% as a percentage of
consolidated net sales, primarily as a result of negative leverage on selling
costs from the decrease in consolidated net sales. Additionally,
increases in payroll and payroll-related expenses, as well as marketing and
other corporate administrative expenses, contributed to the
increase. Selling, general, and administrative expenses for Fiscal
2008 included a benefit of approximately $6.8 million recognized in connection
with the purchase and securitization of the LANE BRYANT credit card portfolio
(see “Financing; Off-Balance-Sheet Financing; Asset
Securitization Program” below). In addition, we
recognized approximately $2.1 million of expenses during Fiscal 2008 in
connection with the issuance of 2.4 million new LANE BRYANT proprietary credit
cards (see “OVERVIEW” above). Selling,
general, and administrative expenses for Fiscal 2007 included approximately $3.3
million of pre-opening operating expenses related to our outlet
stores, which began operations in July 2006.
Retail Stores Segment Selling,
General, and Administrative Expenses
Selling,
general and administrative expenses as a percentage of net sales increased 1.3%
for FASHION BUG, 0.1% for CATHERINES, and 0.1% for LANE BRYANT. The
increases primarily reflect the lack of leverage on selling expenses at each of
the brands as a result of the decrease in comparable store sales. General
and administrative expenses as a percentage of sales were essentially flat at
each brand reflecting efforts to control and reduce such
expenses. For our outlet business, selling, general, and
administrative expenses as a percentage of net sales decreased
5.9%. The decrease was primarily related to start up costs for the
outlets incurred during the second half of Fiscal 2007 as compared
to the benefit of a full year of operations in Fiscal
2008.
Direct-to-Consumer Segment Selling,
General, and Administrative Expenses
Selling,
general, and administrative expenses as a percentage of net sales increased 1.9%
for our Direct-to-Consumer segment, primarily as a result of negative
leverage from reduced sales. Additionally, increased spending of
approximately $3.7 million on the launch of our LANE BRYANT WOMAN catalog and
increased spending on E-commerce-site-related marketing costs contributed to the
increase.
Impairment of Goodwill and
Trademarks
During
the fourth quarter of Fiscal 2008 we performed our annual goodwill impairment
test and determined that the carrying value of our Crosstown Traders goodwill
exceeded the implied fair values of those assets. Accordingly, we
recognized a non-cash impairment charge of $86.8 million related to the
Crosstown Traders goodwill. Additionally, we
recognized $11.4 million of non-cash impairment charges related to
our Crosstown Traders non-amortizable trademarks during the Fiscal 2008 Fourth
Quarter. See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
6. GOODWILL AND INTANGIBLE ASSETS” and “NOTE 13. IMPAIRMENT OF
GOODWILL AND TRADEMARKS” below.
Restructuring
Charges
In
November 2007 we announced our plan to relocate our CATHERINES operations
located in Memphis, Tennessee to our corporate headquarters in Bensalem,
Pennsylvania in conjunction with the consolidation of a number of its operating
functions and in February 2008 we announced additional cost-saving and
streamlining initiatives as discussed in the overview above. During
Fiscal 2008 we recognized one-time pre-tax charges of approximately $3.0 million
of severance, retention, and relocation costs related to these programs and
approximately $11.4 million of non-cash pre-tax charges for write-downs of
assets related to under-performing stores we expect to close and accelerated
depreciation related to the closing of the Memphis facility. We
anticipate that the execution of the new organizational structure and
cost-saving initiatives will result in approximately $28 million of annualized
expense savings, primarily in the areas of non-store payroll, elimination of
losses from under-performing stores, and occupancy costs.
Income Tax
Provision
Our tax
provision for Fiscal 2008 was $3.6 million on a loss before income taxes and
extraordinary item of $80.7 million, as compared to a tax provision of $57.2
million on income before income taxes of $166.1 million for Fiscal
2007. The primary reason for the provision on a pre-tax loss for
Fiscal 2008 was the non-deductibility for income tax purposes of the impairment
of goodwill. We adopted the provisions of FASB Interpretation No. 48
as of the beginning of Fiscal 2008 (see “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 7. INCOME
TAXES”
below).
Extraordinary
Item
During
the fourth quarter of Fiscal 2008 we recognized an extraordinary gain of $0.9
million, net of income taxes of $0.6 million, as the result of proceeds received
from an eminent domain settlement related to a portion of the land at our White
Marsh, Maryland distribution center.
Comparison of Fiscal 2007 to Fiscal
2006
Net Sales
Consolidated Net
Sales
The
increase in consolidated net sales for Fiscal 2007 as compared to Fiscal 2006
resulted primarily from the inclusion of Crosstown Traders for the entire Fiscal
2007 period, as well as increased net sales from our Retail Stores segment and
the inclusion of an additional week of operations in Fiscal 2007.
Consolidated net sales for Fiscal 2006 include net sales from Crosstown Traders
from the date of acquisition on June 2, 2005.
Retail Stores Segment Net
Sales
Consolidated
Retail Stores segment net sales increased as a result of sales from new LANE
BRYANT, LANE BRYANT OUTLET, and PETITE SOPHISTICATE OUTLET stores opened in
Fiscal 2007, an increase in comparable retail store sales at our LANE BRYANT and
CATHERINES brands, increases in E-commerce sales at all of our retail store
brands, and the additional week of operations. Our FASHION BUG brand
experienced slight decreases in both comparable retail stores and the number of
open stores.
For the
LANE BRYANT brand, a decrease in the average dollar sale per transaction
was offset by an increase in the number of transactions per store, with a
decrease in traffic levels offset by an improvement in the sales conversion
ratio. For the FASHION BUG brand, the number of transactions per
store decreased during Fiscal 2007 while the average dollar sale per transaction
was flat as compared to Fiscal 2006. CATHERINES’ strong performance
during Fiscal 2006 continued into Fiscal 2007, with significant increases in
traffic levels and the number of transactions per store as compared to the
prior-year period.
During
Fiscal 2007 we recognized revenues of $19.1 million and during Fiscal 2006 we
recognized revenues of $15.6 million in connection with our loyalty card
programs.
Direct-to-Consumer Segment Net
Sales
Total net
sales for the Direct-to-Consumer segment for Fiscal 2007 were negatively
affected by reduced response rates from our core customers to our apparel
catalog offerings. The disruption caused by the consolidation of
our catalog merchandise operations into Tucson, Arizona during Fiscal 2007 had a
greater-than-anticipated negative impact on apparel catalog sales. As
a result, we reduced our catalog prospecting and circulation levels in order to
reduce advertising expenditures. The average order value for Fiscal 2007
was above plan, while actual circulation and customer response rates were below
plan. Sales from our FIGI’S food and gift catalog met our plan for
the year.
Cost of Goods Sold, Buying, Catalog,
and Occupancy
Consolidated Cost of Goods Sold,
Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased as a
percentage of consolidated net sales in Fiscal 2007 as compared to Fiscal
2006. Fiscal 2007 included catalog costs for our Direct-to-Consumer
segment for the full fiscal year as compared to eight months of Fiscal 2006 as a
result of the acquisition of Crosstown Traders in June
2005. Consolidated cost of goods sold increased 0.7% as a percentage
of consolidated net sales, while consolidated buying and occupancy expenses
decreased 0.3% 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.
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.
Retail Stores Segment Cost of Goods
Sold, Buying, and Occupancy
Cost of
goods sold, buying, and occupancy expenses as a percentage of net sales were
flat at FASHION BUG, decreased 0.8% at CATHERINES, and decreased 0.4% at LANE
BRYANT. FASHION BUG’s cost of goods sold increased slightly, which was
offset by a reduction in buying and occupancy expenses. The decrease at
CATHERINES reflects improvements in gross margins as well as leverage on buying
and occupancy expenses on increased comparable store sales. The decrease
at LANE BRYANT is primarily the result of leverage on buying and occupancy
expenses from increased sales primarily as a result of new store openings.
The second half of Fiscal 2007 includes the results of our outlet stores,
which began operations in July 2006. Occupancy
expenses for Fiscal 2007 included approximately $4.5 million of pre-opening
expenses related to our outlet stores.
Direct-to-Consumer Segment Cost of
Goods Sold, Buying, Catalog, and Occupancy
Cost of
goods sold for our Direct-to-Consumer segment includes catalog advertising and
fulfillment costs, which are significant expenses for catalog operations, and
are therefore generally higher as a percentage of net sales than cost of goods
sold for our Retail Stores segment. Catalog advertising and fulfillment
costs as a percentage of net sales increased significantly in Fiscal 2007 as
compared to Fiscal 2006 and were the primary cause of the increase in cost of
goods sold. Conversely, the Direct-to-Consumer segment incurs lower
levels of buying and occupancy costs, which resulted in a favorable impact on
buying and occupancy expenses as a percentage of consolidated net sales in the
current-year period.
Selling, General, and
Administrative
Consolidated Selling, General, and
Administrative
Consolidated
selling, general, and administrative expenses for Fiscal 2007 were flat as a
percentage of consolidated net sales as compared to Fiscal 2006, reflecting the
benefit of our continued focus on controlling expenses and an improvement in the
contribution from our proprietary credit card operations. Selling,
general, and administrative expenses for Fiscal 2007 include approximately $3.3
million of pre-opening operating expenses related to the LANE BRYANT OUTLET
stores that began operations in July 2006. Fiscal 2007 was also
negatively impacted by a $3.6 million increase in stock-based compensation as
compared to Fiscal 2006 and by inclusion of the Direct-to-Consumer segment for
all of Fiscal 2007 as compared to eight months of Fiscal 2006.
Consolidated selling, general, and administrative expenses for Fiscal 2006
included a gain of approximately $3.4 million from the purchase and subsequent
securitization of our CATHERINES and Crosstown Traders credit card
portfolios and a gain of $1.3 million recognized in connection with our
share of the VISA/MasterCard antitrust settlement.
Retail Stores Segment Selling,
General, and Administrative
Selling,
general and administrative expenses as a percentage of net sales at our FASHION
BUG, CATHERINES and LANE BRYANT brands were flat to slightly improved in Fiscal
2007 as compared to Fiscal 2006, reflecting leverage on increased sales and
efforts to control and reduce expenses. The second half of Fiscal
2007 includes the results of our outlet stores, which began operations in July
2006.
Income Tax
Provision
The
effective income tax rate was 34.4% for Fiscal 2007 as compared to 34.8% for
Fiscal 2006. The Fiscal 2007 tax rate was favorably affected by
non-taxable insurance proceeds that were included in pre-tax income for the
period and by adjustments related to the final reconciliation of our Federal tax
return. The Fiscal 2007 tax rate was unfavorably affected by the
reconciliation of our state tax provision to our filed state tax
returns. The Fiscal 2006 tax rate was unfavorably affected by $1.5
million of taxes, net of foreign tax credits, on the planned repatriation of
profits from international operations (see “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES; Income Taxes” below), and was favorably
affected by the reconciliation of our state tax provision to our filed state tax
returns and by charitable contributions of inventories to hurricane relief
efforts.
Comparison of Fourth Quarter 2008 to
Fourth Quarter 2007
Net Sales
Consolidated
net sales decreased in the fourth quarter of Fiscal 2008 as compared to the
fourth quarter of Fiscal 2007, primarily as a result of a significant decrease
in comparable Retail Stores segment net sales and the inclusion of an extra week
in the fourth quarter of Fiscal 2007. The decrease in traffic levels
that we began to experience in the earlier part of Fiscal 2008 accelerated
during the fourth quarter. The decrease in comparable Retail Stores
segment net sales was partially offset by net sales from new
stores. Direct-to-Consumer segment net sales increased as a result of
sales from our new LANE BRYANT WOMAN catalog and related website, which were
launched in October 2007, and an increase in sales for our FIGI’S food and gift
catalog, which offset a decrease in net sales from our other catalog
offerings.
Retail Stores Segment Net
Sales
Comparable
store sales for the fourth quarter of Fiscal 2008 decreased at each of our
Retail Stores brands as compared to the fourth quarter of Fiscal 2007. Net
sales for all of the brands were negatively impacted by aggressive promotional
markdowns taken in response to reduced traffic levels, particularly during the
fourth quarter of Fiscal 2008 and the December 2007 holiday
season. Decreased comparable store sales from all of our Retail
Stores brands were partially offset by sales from new LANE BRYANT
stores. The average number of transactions per store and average
dollar sale per transaction decreased for each of our brands except for FASHION
BUG stores, which experienced an increase in the average dollar sale per
transaction.
During
the fourth quarter of Fiscal 2008 we recognized revenues of $5.4 million and
during the fourth quarter of Fiscal 2007 we recognized revenues of $5.1 million
in connection with our loyalty card programs.
Direct-to-Consumer Segment Net
Sales
The
increase in net sales from our Direct-to-Consumer segment was primarily
attributable to sales from our new LANE BRYANT WOMAN catalog and website, which
were launched in October 2007, and an increase in sales from our FIGI’S food and
gift catalog. These increases were substantially offset by a decrease
in sales from our core catalog offerings as a result of the continuing decline
in response rates from both our core customer and prospecting mailing lists and
a decrease in the average order value. As discussed in the overview and
full-year comparison above, we established a new management team, including the
appointment of a new president for Crosstown Traders, which has resulted in
improved creative marketing programs and merchandise offerings for several of
our fall catalogs. These changes significantly moderated the rate of
decline in response rates during the fourth quarter of Fiscal 2008.
Cost of Goods Sold, Buying, Catalog,
and Occupancy
Consolidated Cost of Goods Sold,
Buying, Catalog, and Occupancy
Consolidated
cost of goods sold, buying, catalog, and occupancy expenses increased as a
percentage of consolidated net sales in the fourth quarter of Fiscal 2008 as
compared the fourth quarter of Fiscal 2007 primarily as a result of a
significant reduction in merchandise margins for both our Retail Stores and
Direct-to-Consumer segments. Consolidated cost of goods sold increased 4.8%
as a percentage of consolidated net sales and consolidated buying and occupancy
expenses increased 1.9% as a percentage of consolidated net sales.
Retail Stores Segment Cost of Goods
Sold, Buying, and Occupancy
Cost of
goods sold, buying, and occupancy expenses as a percentage of net sales
increased 8.1% at FASHION BUG, 2.9% at CATHERINES, 6.0% at LANE BRYANT and 3.3%
at our outlet stores. These increases reflect the highly promotional
retail environment during the fourth quarter that resulted in
higher-than-planned markdowns in order to drive sales. Additionally,
the lack of leverage on occupancy costs at each brand as a result of lower sales
also contributed to the increase in cost of goods sold, buying, and occupancy
expenses as a percentage of net sales.
Direct-to-Consumer Segment Cost of
Goods Sold, Buying, Catalog, and Occupancy
The
reduced merchandise margin in our Direct-to-Consumer segment resulted primarily
from expenses incurred in the fourth quarter of Fiscal 2008 in connection with
the launch of our LANE BRYANT WOMAN catalog. Sales from the LANE
BRYANT WOMAN catalog and increased sales from our FIGI’S catalog partially
offset the impact of negative leverage on catalog advertising costs from reduced
sales for our other catalogs.
Selling, General, and
Administrative
Consolidated Selling, General, and
Administrative
Consolidated
selling, general, and administrative expenses increased 1.6% as a percentage of
consolidated net sales, primarily as a result of negative leverage from the
decrease in consolidated net sales.
Retail Stores Segment Selling,
General, and Administrative
Selling,
general, and administrative expenses as a percentage of net sales increased 1.9%
at FASHION BUG and 0.8% at CATHERINES, were flat at LANE BRYANT, and decreased
0.4% at our outlet stores. The increases at FASHION BUG and CATHERINES
reflect the lack of leverage on selling expenses at each of the brands as a
result of decreased sales. General and administrative expenses as a
percentage of net sales were flat to slightly improved for the fourth
quarter of Fiscal 2008 as compared to the fourth quarter of Fiscal 2007,
reflecting efforts to control and reduce expenses.
Direct-to-Consumer Segment Selling,
General, and Administrative
Selling,
general, and administrative expenses as a percentage of net sales increased 2.0%
for our Direct-to-Consumer segment, primarily as a result of negative
leverage from reduced sales. Additionally, increased spending of
approximately $1.9 million on the launch of our LANE BRYANT WOMAN catalog and
increased spending on E-commerce-site-related marketing costs contributed to the
increase.
Impairment of Goodwill and
Trademarks
During
the fourth quarter of Fiscal 2008 we performed our annual goodwill impairment
test and determined that the carrying value of our Crosstown Traders goodwill
exceeded the implied fair values of those assets. Accordingly, we
recognized an impairment charge of $86.8 million related to the Crosstown
Traders goodwill. Additionally, we recognized $11.4
million of impairment charges related to our Crosstown Traders non-amortizable
trademarks during the Fiscal 2008 Fourth Quarter.
Restructuring
Charges
In
November 2007 we announced our plan to relocate our CATHERINES operations
located in Memphis, Tennessee to our corporate headquarters in Bensalem,
Pennsylvania in conjunction with the consolidation of a number of its operating
functions and in February 2008 we announced additional cost-saving and
streamlining initiatives. During the fourth quarter of Fiscal 2008 we
recognized one-time pre-tax charges of approximately $3.0 million of severance,
retention, and relocation costs related to these programs and approximately
$11.4 million of non-cash pre-tax charges for write-downs of assets related to
under-performing stores we expect to close and accelerated depreciation related
to the closing of the Memphis facility.
Income Tax
Provision
The
effective income tax rate was a benefit of 14.3% for the fourth quarter of
Fiscal 2008 as compared to a provision of 29.8% for the fourth quarter of Fiscal
2007. The effective tax benefit rate decreased in the fourth quarter of
Fiscal 2008 as compared to the tax provision rate for the fourth quarter of
Fiscal 2007 primarily as a result of the non-deductibility for income tax
purposes of the impairment of goodwill. We adopted the provisions of
FASB Interpretation No. 48 as of the beginning of Fiscal 2008 (see “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 7. INCOME
TAXES”
below).
FINANCIAL
CONDITION
Liquidity and Capital
Resources
Our
primary sources of funding for our working capital requirements are cash flow
from operations, our proprietary credit card receivables securitization
agreements, our investment portfolio, and our revolving credit facility
described below. During Fiscal 2008 we also incurred long-term debt
financing as discussed further in “Financing; Long-term Debt” and
“Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE 8. LONG-TERM
DEBT”
below. The following table highlights certain information
related to our liquidity and capital resources:
|
Fiscal
|
Fiscal
|
Fiscal
|
||||||||||
|
(Dollars in
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Cash
and cash equivalents
|
$ |
61,842
|
$ |
143,838
|
$ |
130,132
|
||||||
|
Available-for-sale
securities
|
13,364
|
1,997
|
20,150
|
|||||||||
|
Cash
provided by operating activities
|
159,845
|
186,954
|
164,812
|
|||||||||
|
Working
capital
|
467,157
|
460,620
|
344,229
|
|||||||||
|
Current
ratio
|
2.4
|
2.2
|
1.8
|
|||||||||
|
Long-term
debt to equity ratio
|
41.9 | % | 19.1 | % | 23.6 | % | ||||||
As of
February 2, 2008 we held $75.2 million in cash, cash equivalents, and
available-for-sale securities. As is consistent with our industry, our
cash balances are seasonal in nature. During Fiscal 2008 we used
$230.8 million of net funds provided from the issuance of long-term debt and
cash from operations primarily for $252.6 million of repurchases of our common
stock and $137.7 million of investments in capital assets for new store
openings, corporate infrastructure projects, and the launch of our LANE BRYANT
WOMAN catalog and related website. In addition, during Fiscal 2008 we
redeemed $150.0 million of long-term debt due in 2012 through the issuance of
approximately 15.1 million shares of our common stock and cash payments of $0.4
million; used approximately $11.8 million of cash for long-term debt repayments;
and acquired approximately $8.0 million of equipment through capital lease
financing. During Fiscal 2007 we used cash from operations primarily
for $133.2 million of investments in capital assets and for $64.7 million of
repayments of short-term and long-term debt.
Cash Provided by Operating
Activities
The
decrease in cash provided by operating activities from Fiscal 2007 to Fiscal
2008 was primarily attributable to an $82.8 million decrease in net income
excluding $109.5 million of non-cash impairment losses and write-downs and
accelerated depreciation related to facilities to be closed. Our net
investment in inventories decreased in Fiscal 2008 as compared to Fiscal
2007. Excluding incremental inventory purchased for new stores and
our LANE BRYANT WOMAN catalog business, inventories at the end of Fiscal 2008
decreased 19% on a same-store basis as compared to the end of Fiscal 2007 as a
result of improved inventory management and aggressive promotional activities
related to our fall and winter seasonal inventories. During Fiscal 2008 we
purchased and securitized the LANE BRYANT proprietary credit card portfolio,
which had been administered under a non-recourse agreement that expired in
October 2007 with a third-party (see “Financing; Off-Balance-Sheet
Financing” below).
The
increase in cash provided by operating activities from Fiscal 2006 to Fiscal
2007 was primarily attributable to a $9.5 million increase in net
income, net collections of trade accounts receivable resulting from our
acquisition of Crosstown Traders, and improved payment terms from certain of our
vendors. During Fiscal 2007 we increased our investment in
inventories in connection with new store openings (particularly in our LANE
BRYANT, LANE BRYANT OUTLET, and PETITE SOPHISTICATE OUTLET stores), as well as
in preparation for our holiday sales. On a same-store basis,
inventories increased 15% as compared to the end of Fiscal 2006 as a result of
increases in spring and transitional merchandise to accommodate an earlier
Easter. The change in cash provided by operating activities from
Fiscal 2006 to Fiscal 2007 was also negatively affected by the timing of certain
prepaid and accrued expenses, particularly prepaid income taxes.
As a
result of the adoption of SFAS No. 123R in Fiscal 2007 (see “CRITICAL ACCOUNTING
POLICIES; Stock-Based
Compensation” above), we are reporting
certain tax benefits related to stock-based compensation as cash provided by
financing activities in Fiscal 2008 and Fiscal 2007 instead of as cash provided
by operating activities as previously permitted. This change in reporting
classification had a negative impact on cash provided by operating activities of
$0.6 million for Fiscal 2008 and $5.1 million for Fiscal 2007, which was offset
by a corresponding positive impact on cash used by financing
activities.
Capital
Expenditures
Our gross
capital expenditures, excluding construction allowances received from landlords,
were $137.7 million in Fiscal 2008, $133.2 million in Fiscal 2007, and $103.8
million in Fiscal 2006. Construction allowances received from
landlords were $22.5 million in Fiscal 2008, $26.1 million in Fiscal 2007, and
$22.6 million in Fiscal 2006. Total gross investments in property,
equipment, and leasehold improvements, including cash expenditures and capital
lease financing and excluding construction allowances, were $145.7 million in
Fiscal 2008, $133.2 million in Fiscal 2007, and $107.7 million in Fiscal
2006. Our capital expenditures in each year were primarily for the
construction, remodeling, and fixturing of new and existing retail stores,
corporate systems technology, and improvements to our corporate and brand home
offices and distribution centers. During Fiscal 2008 we continued our
new store opening plan for our LANE BRYANT brand, including our LANE
BRYANT/CACIQUE side-by-side stores and LANE BRYANT OUTLET stores, as well as new
PETITE SOPHISTICATE OUTLET stores. Capital expenditures for Fiscal
2006 included the relocation of our LANE BRYANT home office from a 130,000
square-foot leased facility in Reynoldsburg, Ohio to a new 135,000 square-foot
leased facility in Columbus, Ohio.
During
Fiscal 2008 we acquired $8.0 million of distribution center, technology, and
office equipment and in Fiscal 2006 we acquired $3.9 million of data warehousing
and information technology equipment under capital leases. These
capital leases generally have initial terms ranging from 36 months to 48 months
and contain a bargain-purchase option.
During
Fiscal 2009 we plan to significantly reduce capital expenditures for new store
development, store relocations, and corporate technology in response to the
current difficult economic environment (see “OVERVIEW”
above). We plan to open approximately 45-55 new stores in Fiscal 2009
as compared to 103 new stores in Fiscal 2008, and anticipate that our Fiscal
2009 gross capital expenditures will be approximately $95-$100 million before
construction allowances received from landlords. We expect that
approximately 60% of our Fiscal 2009 capital expenditures will support store
development, including openings, relocations, and store improvements, with the
remainder of the expenditures to be primarily for improvements to our
information technology, distribution centers, and corporate
infrastructure. We expect to finance these capital expenditures
principally through internally-generated funds and capital lease
financing.
Repurchases of Common
Stock
During
the first quarter of Fiscal 2008 we used $131.1 million of the proceeds from our
issuance of our 1.125% Senior Convertible Notes due May 1, 2014 to repurchase
10.3 million shares of our common stock (see “Financing; Long-term Debt” below). In
addition, during Fiscal 2008 we repurchased an additional aggregate total of
10.4 million shares of common stock for $100.0 million under a program announced
in May 2007 and 3.5 million shares of common stock for $21.5 million under a
prior authorization from our Board of Directors.
In
November 2007 we announced that our Board of Directors has authorized a new $200
million share repurchase program. We intend to make share purchases
from time to time in the open market or through privately-negotiated
transactions and expect to fund the repurchases primarily from operating cash
flow. The timing of such repurchases and the number of shares
repurchased will depend on market conditions and we intend to hold shares
repurchased as treasury shares. We expect to complete the program
over the next several years. Our revolving credit facility allows the
repurchase of our common stock subject to maintaining a minimum level of “Excess
Availability” (as defined in the facility agreement) for 30 days before and
immediately after such repurchase. See “Item 5. Market for the
Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities” above for additional information related to our
repurchases of common stock.
Dividends
We have
not paid any dividends since 1995, and we do not expect to declare or pay any
dividends on our common stock in the foreseeable future. The payment
of future dividends is within the discretion of our Board of Directors and will
depend upon our future earnings, if any, our capital requirements, our financial
condition, and other relevant factors. Our existing revolving credit
facility allows the payment of dividends on our common stock subject to
maintaining a minimum level of “Excess Availability” (as defined in the facility
agreement) for 30 days before and immediately after the payment of such
dividends.
Debt, Lease, and Purchase
Commitments
At
February 2, 2008, our commitments for future payments under our long-term debt
obligations, minimum lease payments under our capital leases and operating
leases, and payments due under our revolving credit facility, letters of credit,
long-term deferred compensation plans, unrecognized tax benefits, and purchase
obligations were as follows:
|
Payments Due by
Period
|
||||||||||||||||||||
|
One to
|
Three
|
More
|
||||||||||||||||||
|
Less
Than
|
Three
|
To Five
|
than
Five
|
|||||||||||||||||
|
(In
millions)
|
Total
|
One Year
|
Years
|
Years
|
Years
|
|||||||||||||||
|
Long-term
debt, including current portion(1)
|
$ |
324.5
|
$ |
7.7
|
$ |
15.0
|
$ |
17.6
|
$ |
284.2
|
||||||||||
|
Capital
leases
|
15.3
|
6.6
|
4.8
|
3.6
|
0.3
|
|||||||||||||||
|
Operating
leases(2)
|
961.5
|
229.3
|
346.3
|
201.0
|
184.9
|
|||||||||||||||
|
Revolving
credit facility(3)
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
|||||||||||||||
|
Letters
of credit(3)
|
2.0
|
2.0
|
0.0
|
0.0
|
0.0
|
|||||||||||||||
|
Stand-by
letters of credit(3)
|
11.5
|
11.5
|
0.0
|
0.0
|
0.0
|
|||||||||||||||
|
Long-term
deferred compensation(4)
|
2.1
|
1.2
|
0.5
|
0.1
|
0.3
|
|||||||||||||||
|
Unrecognized
tax benefits(5)
|
0.7
|
0.7
|
–
|
–
|
–
|
|||||||||||||||
|
Purchase
commitments(6)
|
581.8
|
581.8
|
0.0
|
0.0
|
0.0
|
|||||||||||||||
|
Total
|
$ |
1,899.4
|
$ |
840.8
|
$ |
366.6
|
$ |
222.3
|
$ |
469.7
|
||||||||||
|
____________________
|
||||||||||||||||||||
|
(1) Amounts represent
the expected cash payments (including interest) of our long-term debt
(including our convertible debt through maturity and excluding capital
leases) and do not include any fair value adjustments, bond premiums,
discounts, or revolving credit facilities.
|
||||||||||||||||||||
|
(2) Commitments under
operating leases include $8.1 million payable under the LANE BRYANT master
sublease with Limited Brands, Inc., which we have
guaranteed.
|
||||||||||||||||||||
|
(3) We currently have a
$375 million revolving credit facility that expires on July 28, 2010,
which provides for cash borrowings and the ability to issue up to $300
million of letters of credit. At February 2, 2008, there were no
borrowings outstanding under this facility.
|
||||||||||||||||||||
|
(4) Long term
compensation consists of our non-qualified deferred compensation plan and
supplemental retirement plan, which are included in “Deferred taxes and
other non-current liabilities” on our consolidated balance sheets. We
have developed estimates of projected payment obligations for participant
planned in-service distributions of the deferred compensation plan
liability as of February 2, 2008. We have excluded $45.5 million of
retirement/termination benefit distribution obligations as of February 2,
2008 from the above estimates. This amount has been excluded because
the value of the obligation and the timing of payments may vary annually
due to changes in the fair value of the plan assets and/or assumptions for
participant retirement/termination.
|
||||||||||||||||||||
|
(5) In accordance with
our adoption of FIN No. 48 (see“CRITICAL ACCOUNTING POLICIES;
Income Taxes” above) we have recorded liabilities for unrecognized
tax benefits of $26.7 million and accrued interest and penalties of $9.8
as of February 2, 2008. These liabilities are included in “Other
long-term liabilities” on our consolidated balance sheet. With the
exception of $0.7 million of unrecognized tax benefits that are reasonably
possible of being recognized within 12 months, we have excluded these
liabilities from this table because we cannot make reasonably reliable
estimates of the amounts and/or periods that we expect to pay or settle
these liabilities.
|
||||||||||||||||||||
|
(6) Purchase commitments
include agreements to purchase goods or services in the ordinary course of
business.
|
||||||||||||||||||||
Financing
Off-Balance-Sheet
Financing
Asset Securitization
Program
Our asset
securitization program primarily involves the sale of proprietary credit card
receivables to a special-purpose entity, which in turn transfers the receivables
to a separate and distinct qualified special-purpose entity
(“QSPE”). The QSPE’s assets and liabilities are not consolidated in
our balance sheet and the receivables transferred to the QSPEs are isolated for
purposes of the securitization program. We use asset securitization
to fund the credit card receivables generated by our FASHION BUG, LANE BRYANT,
CATHERINES, PETITE SOPHISTICATE, and Crosstown Traders proprietary credit card
programs. Additional information regarding our asset securitization
facility is included in “CRITICAL ACCOUNTING POLICIES;
Asset
Securitizations” above, “Item 8. Financial Statements and
Supplementary Data; Notes to Consolidated Financial Statements; NOTE 17. ASSET SECURITIZATION” below, and under the
caption “MARKET RISK”
below.
As of
February 2, 2008 we had the following securitization facilities
outstanding:
|
(Dollars in
millions)
|
Series
1999-2
|
Series
2002-1
|
Series
2004-VFC
|
Series
2004-1
|
2005-RPA(1)
|
Series
2007-1
|
|
Date
of facility
|
May
1999
|
November
2002
|
January
2004
|
August
2004
|
May
2005
|
October
2007
|
|
Type
of facility
|
Conduit
|
Term
|
Conduit
|
Term
|
Conduit
|
Term
|
|
Maximum
funding
|
$50.0
|
$100.0
|
$50.0
|
$180.0
|
$55.0
|
$320.0
|
|
Funding
as of
|
||||||
|
February 2, 2008
|
$47.7
|
$36.5
|
$0.0
|
$180.0
|
$41.5
|
$320.0
|
|
First
scheduled
|
||||||
|
principal
payment
|
Not
applicable
|
August
2007
|
Not
applicable
|
April
2009
|
Not
applicable
|
April
2012
|
|
Expected
final
|
||||||
|
principal
payment
|
Not
applicable(2)
|
May
2008
|
Not
applicable(2)
|
March
2010
|
Not
applicable(2)
|
March
2013
|
|
Renewal
|
Annual
|
Not
applicable
|
Annual
|
Not
applicable
|
Annual
|
Not
applicable
|
|
____________________
|
||||||
|
(1) Receivables Purchase
Agreement (for the Crosstown Traders catalog proprietary credit card
receivables program).
|
||||||
|
(2) Series 1999-2 and
Series 2004-VFC 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 the start of the purchase commitment by the
series purchaser currently in effect after giving effect to any
renewal.
|
||||||
Prior to
November 1, 2007 we had an agreement under which a third party provided a
proprietary credit card sales accounts receivable funding facility for our LANE
BRYANT retail and outlet stores. In accordance with the terms of the
agreement we exercised our option to purchase the LANE
BRYANT portfolio on November 1, 2007 and assigned the right to purchase the
LANE BRYANT portfolio to Spirit of America National Bank (the “Bank”), our
wholly-owned credit card bank. Concurrent with the Bank’s acquisition
of the LANE BRYANT portfolio for $231.0 million, it sold the receivables to
Charming Shoppes Receivables Corp. (“CSRC”), which transferred the receivables
to the Charming Shoppes Master Trust (the “Trust”). The purchase of
the portfolio at par value and the subsequent securitization of the purchased
portfolio resulted in the recognition of a benefit of approximately $6.8
million, which is included in selling, general, and administrative expenses for
Fiscal 2008. In addition, we recognized approximately $2.1 million of
expenses in connection with the issuance of 2.4 million new LANE BRYANT
proprietary credit cards (see “OVERVIEW” above).
On
October 17, 2007 the Trust issued $320 million of five-year asset-backed
certificates (“Series 2007-1”) in a private placement under Rule
144A. Of the $320 million of certificates issued, $289.6 million were
sold to investors, and CSRC held $30.4 million as a retained
interest. CSRC may in the future sell all or a portion of such
retained interest. Of the certificates sold to investors, $203.5
million pay interest on a floating rate basis tied to one-month LIBOR while the
remaining $86.1 million of certificates were issued at fixed
rates. The Trust used $35.0 million of the proceeds to fund
receivables and to pay down other securitization series and placed the remaining
proceeds of $285.0 million into a pre-funding cash account.
Concurrent
with the issuance of Series 2007-1, the Trust entered into a series of
fixed-rate interest-rate swap agreements with respect to $174.7 million of the
floating-rate certificates sold to investors. The notional value of
these swaps equals the face value of these certificates in excess of the
certificate’s pro-rata share of the outstanding pre-funding cash account at any
measurement date. The blended weighted-average interest rate on the
swapped certificates is 6.39%. The Trust also acquired an
interest-rate cap with respect to $28.8 million of floating-rate certificates
sold to investors. The cap counterparty will make payments to the
Trust when one-month LIBOR exceeds 10%. The fixed-rate certificates
were sold at a discount and carry a blended weighted average-yield of 6.43% and
a blended weighted average coupon of 6.34%.
The Trust
paid for its acquisition of the LANE BRYANT proprietary credit card
accounts receivable balances primarily by withdrawing $227.5 million of
proceeds from the pre-funding cash account for the Series 2007-1
Certificates. The remainder of the funds in the pre-funding cash
account will provide financing for additional receivables, including receivables
made available for financing by the amortization of the Series 2002-1
certificates issued by the Trust. Series 2002-1 has been in
amortization since July 2007 and we currently expect it to be repaid in full by
May 2008.
During
Fiscal 2006 Catalog Receivables LLC closed on a dedicated conduit credit card
securitization facility that provides funding of up to $55.0 million on a
discounted basis for a term of one year, subject to an annual
renewal. As of February 2, 2008 we had $41.5 million of credit card
receivables funded under this facility. We renewed this facility
during Fiscal 2008 on its renewal date, and expect to renew the facility during
Fiscal 2009 on its renewal date.
We
securitized $939.9 million of credit card receivables in Fiscal 2008 and $619.6
million of credit card receivables in Fiscal 2007, and had $610.7 million of
securitized credit card receivables outstanding as of February 2,
2008. We held certificates and retained interests in our
securitizations of $115.9 million as of February 2, 2008 that are generally
subordinated in right of payment to certificates issued by the QSPEs to
third-party investors. Our obligation to repurchase receivables sold
to the QSPEs is limited to those receivables that at the time of their transfer
fail to meet the QSPE’s eligibility standards under normal representations and
warranties. To date, our repurchases of receivables pursuant to this
obligation have been insignificant.
CSRC,
Charming Shoppes Seller, Inc., and Catalog Seller LLC, our consolidated wholly
owned indirect subsidiaries, are separate special-purpose entities (“SPEs”)
created for the securitization program. Our investment in
asset-backed securities as of February 2, 2008 included $51.7 million of QSPE
certificates, an interest-only (“I/O”) strip of $23.3 million, and other
retained interests of $40.9 million. These assets are first and
foremost available to satisfy the claims of the respective creditors of these
separate corporate entities, including certain claims of investors in the
QSPEs.
Additionally,
with respect to certain Trust Certificates, if either the Trust or Charming
Shoppes, Inc. does not meet certain financial performance standards, the Trust
is obligated to reallocate to third-party investors holding certain certificates
issued by the Trust, collections in an amount up to $9.45 million that otherwise
would be available to CSRC. The result of this reallocation is to
increase CSRC’s retained interest in the Trust by the same amount, with the
third-party investor retaining an economic interest in the
certificates. Subsequent to such a transfer occurring, and upon
certain conditions being met, these same investors are required to repurchase
these interests when the financial performance standards are again
satisfied. Our net loss for the third quarter of Fiscal 2008 resulted
in the requirement to begin the reallocation of collections as discussed above
and $9.45 million of collections were fully transferred as of February 2,
2008. The requirement for the reallocation of these collections will
cease and such investors would be required to repurchase such interests upon our
announcement of a quarter with net income and the fulfillment of such
conditions. The Trust was in compliance with its financial
performance standards as of February 2, 2008.
In
addition to the above, we could be affected by certain other events that would
cause the QSPEs to hold proceeds of receivables, which would otherwise be
available to be paid to us with respect to our subordinated interests, within
the QSPEs as additional enhancement. For example, if we or the QSPEs
do not meet certain financial performance standards, a credit enhancement
condition would occur and the QSPEs would be required to retain amounts
otherwise payable to us. In addition, the failure to satisfy certain
financial performance standards could further cause the QSPEs to stop using
collections on QSPE assets to purchase new receivables and would require such
collections to be used to repay investors on a prescribed basis as provided in
the securitization agreements. If this were to occur, it could result
in our having insufficient liquidity; however, we believe we would have
sufficient notice to seek alternative forms of financing through other
third-party providers although we cannot provide assurance in that
regard. As of February 2, 2008 we and the QSPEs were in
compliance with the applicable financial performance standards referred to in
this paragraph.
Amounts
placed into enhancement accounts, if any, that are not required for payment to
other certificate holders will be available to us at the termination of the
securitization series. We have no obligation to directly fund the
enhancement account of the QSPEs, other than for breaches of customary
representations, warranties, and covenants and for customary
indemnities. These representations, warranties, covenants, and
indemnities do not protect the QSPEs or investors in the QSPEs against
credit-related losses on the receivables. The providers of the credit
enhancements and QSPE investors have no other recourse to us.
As these
credit card receivables securitizations reach maturity, we plan to obtain
funding for our proprietary credit card programs through additional
securitizations, including annual renewal of our conduit
facilities. However, we can give no assurance that we will be
successful in securing financing through either replacement securitizations or
other sources of replacement financing.
These
securitization agreements are intended to improve our overall liquidity by
providing sources of funding for our proprietary credit card
receivables. The agreements provide that we will continue to service
the credit card receivables and control credit policies. This control
allows us, absent certain adverse events, to fund continued credit card
receivable growth and to provide the appropriate customer service and collection
activities. Accordingly, our relationship with our credit card
customers is not affected by these agreements.
Benefits from Operating Our
Proprietary Credit Card Programs
We manage
our proprietary credit card programs primarily to engender customer loyalty and
to allow us to integrate our direct-mail marketing strategy when communicating
with our core customers. We also earn revenue from operating the
credit card programs. As discussed above, we utilize asset
securitization as the primary funding source for our proprietary credit card
receivables programs. As a result, our primary source of benefits is
derived from the distribution of net excess spread revenue from our
QSPEs.
The
transfer of credit card receivables under our asset securitization program is
without recourse and we account for the program in accordance with SFAS No. 140,
“Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.” Under SFAS No. 140,
our benefit from the credit card receivables represents primarily the net excess
spread revenues we receive from monthly securitization distributions associated
with the collections on managed outstanding receivables. We recognize
on an accrual basis these net excess spread revenues, which generally represent
finance charge revenues in excess of securitization funding costs, net credit
card charge-offs, and the securitization servicing fee. Finance
charge revenues include finance charges and fees assessed to the credit card
customers. Net credit card charge-offs represent gross monthly
charge-offs on customer accounts less recoveries on accounts previously
charged-off. For purposes of the table provided below, we also
include any collection agency costs associated with recoveries as part of the
net excess spread revenues from credit card receivables.
In
addition to the actual net excess spread revenues described above we record our
beneficial interest in the Trust as an “interest-only strip” (“I/O
strip”), which represents the estimated present value of cash flows we
expect to receive over the estimated period the receivables are
outstanding. In addition to the I/O strip we recognize a servicing
liability, which represents the present value of the excess of the costs of
servicing over the servicing fees we expect to receive, and is recorded at
estimated fair value. We use the same discount rate and estimated
life assumptions in valuing the I/O strip and the servicing
liability. We amortize the I/O strip and the servicing liability on a
straight-line basis over the expected life of the credit card
receivables.
The benefits
from operating our proprietary credit card programs also include other
revenues generated from the programs. These other net revenues
include revenue from additional products and services that customers may
purchase with their credit cards, including debt cancellation protection,
fee-based loyalty program revenues, and net commissions from third-party
products that customers may buy through their credit cards. Other
credit card revenues also include interest income earned on funds invested in
the credit entities. The credit contribution is net of expenses
associated with operating the program. These expenses include the
costs to originate, bill, collect, and operate the credit card
programs. Except for net fees associated with the fee-based loyalty
programs that we include in net sales, we include the net credit contribution as
a reduction of selling, general, and administrative expenses in our consolidated
statements of operations and comprehensive income.
Further
details of our net credit contribution are as follows:
|
Year
Ended
|
||||||||||||
|
February
2,
|
February
3,
|
January
28,
|
||||||||||
|
(In
millions)
|
2008
|
2007
|
2006
|
|||||||||
|
Net
securitization excess spread revenues
|
$ |
79.0
|
$ |
69.8
|
$ |
54.4
|
||||||
|
Net
additions to the I/O strip and servicing liability
|
6.4
|
1.0
|
4.8
|
|||||||||
|
Other
credit card revenues, net(1)
|
11.2
|
9.4
|
7.2
|
|||||||||
|
Total
credit card revenues
|
96.6
|
80.2
|
66.4
|
|||||||||
|
Less
total credit card program expenses
|
58.5
|
44.0
|
36.8
|
|||||||||
|
Total
credit contribution
|
$ |
38.1
|
$ |
36.2
|
$ |
29.6
|
||||||
|
Average
managed receivables outstanding
|
$ |
427.4
|
$ |
363.5
|
$ |
331.1
|
||||||
|
Ending
managed receivables outstanding
|
$ |
613.2
|
$ |
366.7
|
$ |
356.7
|
||||||
|
____________________
|
||||||||||||
|
(1) Excludes
inter-company merchant fees between our credit entities and our
retail entities.
|
||||||||||||
Operating
Leases
We lease
substantially all of our operating stores and certain administrative facilities
under non-cancelable operating lease agreements. Additional details
on these leases, including minimum lease commitments, are included in “Liquidity and Capital
Resources” above, and in “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
18. LEASES” below.
Revolving Credit
Facility
Our
revolving credit facility agreement provides for a revolving credit facility
with a maximum availability of $375 million, subject to certain limitations as
defined in the facility agreement, and provides that up to $300 million of the
facility may be used for letters of credit. In addition, we may
request, subject to compliance with certain conditions, additional revolving
credit commitments up to an aggregate maximum availability of $500
million. The agreement expires on July 28, 2010. We had an
aggregate total of $2.1 million of unamortized deferred debt acquisition costs
related to the facility as of February 2, 2008, which we are amortizing on a
straight-line basis over the life of the facility as interest
expense.
The
facility includes provisions for customary representations and warranties and
affirmative covenants, and includes customary negative covenants providing for
certain limitations on, among other things, sales of assets; indebtedness;
loans, advances and investments; acquisitions; guarantees; and dividends and
redemptions. 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
assets related to our credit card securitization facilities, real property,
equipment, the assets of our non-U.S. subsidiaries, and certain other
assets. The “Excess Availability” under the facility was $280,550,000
as of February 2, 2008. As of February 2, 2008, we were not in
violation of any of the covenants included in the facility.
The
interest rate on borrowings under the facility is Prime for Prime Rate Loans and
LIBOR as adjusted for the “Reserve Percentage” (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.” The applicable rates on borrowings under the facility
were 6.43% for Prime Rate Loans and 4.26% (LIBOR plus 1%) for Eurodollar Rate
Loans as of February 2, 2008. During Fiscal 2007 we repaid $50.0
million of borrowings outstanding under the facility that were originally
incurred in connection with the acquisition of Crosstown
Traders. There were no borrowings outstanding under the facility as
of February 2, 2008.
Long-term
Debt
On April
30, 2007 we issued $250.0 million in aggregate principal amount of 1.125% Senior
Convertible Notes due May 1, 2014 (the “1.125% Notes”) in a private offering for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended. On May 11, 2007 the initial
purchasers of the 1.125% Notes exercised their over-allotment option and
purchased an additional $25.0 million in principal amount of
notes. The 1.125% Notes were issued at par, and interest is payable
semiannually in arrears on May 1 and November 1, beginning November 1,
2007. The 1.125% Notes will mature on May 1, 2014, unless earlier
repurchased by us or converted.
We
received proceeds of approximately $268.1 million from the issuance, net of
underwriting fees of approximately $6.9 million. The underwriting
fees, as well as additional transaction costs of $0.7 million incurred in
connection with the issuance of the 1.125% Notes, are included in “Other
assets,” and amortized to interest expense on an effective interest rate basis
over the remaining life of the notes (seven years).
On April
30, 2007 we called for the redemption on June 4, 2007 of our $149.999 million
outstanding aggregate principal amount of 4.75% Senior Convertible Notes due
June 1, 2012 (the “4.75% Notes”). The holders of the 4.75% Notes had
the option to convert their notes into shares of our common stock at a
conversion price of $9.88 per share until the close of business on June 1,
2007. As of June 4, 2007, the holders of $149.956 million principal
amount of the 4.75% Notes had exercised their right to convert their notes into
an aggregate of 15.146 million shares of our common stock and the remaining
notes were redeemed for $43 thousand. In addition, we paid $392
thousand in lieu of fractional shares.
Additional
information regarding our short-term and long-term borrowings is included in
“Item 8. Financial Statements
and Supplementary Data; Notes to Consolidated Financial Statements; NOTE 8. LONG-TERM
DEBT”
below.
In Fiscal
2009 we plan to continue to utilize our combined financial resources to fund our
inventory and inventory-related purchases, catalog advertising and marketing
initiatives, and our store development and infrastructure strategies. We
believe our cash on-hand, securitization facilities, and borrowing
facilities will provide adequate liquidity for our business operations and
growth opportunities during Fiscal 2009. However, our liquidity is
affected by many factors, including some that are based on normal operations and
some that are related to our industry and the economy. We may seek,
as we believe appropriate, additional debt or equity financing to provide
capital for corporate purposes or to fund strategic business
opportunities. At this time, we cannot determine the timing or amount
of such potential capital requirements, which will depend on a number of
factors, including demand for our merchandise, industry conditions, competitive
factors, the condition of financial markets, and the nature and size of
strategic business opportunities that we may elect to pursue.
We manage
our FASHION BUG, LANE BRYANT, CATHERINES, PETITE SOPHISTICATE, and Crosstown
Traders proprietary credit card programs through various operating entities
that we own. The primary activity of these entities is to service the
balances of our proprietary credit card receivables portfolio that we sell under
credit card securitization facilities. Under the securitization facilities
we can be exposed to fluctuations in interest rates to the extent that the
interest rates charged to our customers vary from the rates paid on certificates
issued by the QSPEs.
The
finance charges on most of our proprietary credit card accounts are billed using
a floating rate index (the Prime Rate), subject to a floor and limited by legal
maximums. The certificates issued under the securitization facilities
include both floating- and fixed-interest-rate certificates. The
floating-rate certificates are based on an index of either one-month LIBOR or
the commercial paper rate, depending on the issuance. Consequently, we
have basis risk exposure with respect to credit cards billed using a
floating-rate index to the extent that the movement of the floating-rate index
on the certificates varies from the movement of the Prime Rate.
Additionally, as of February 2, 2008 the floating finance charge rate on
the floating-rate indexed credit cards was below the contractual floor rate,
thus exposing us to interest-rate risk with respect to these credit cards as
well as the fixed-rate credit cards for the portion of certificates that
are funded at floating rates.
As a
result of the Trust entering into a series of fixed-rate interest rate swap
agreements with respect to $335.8 million of floating-rate certificates,
entering into an interest-rate cap with respect to an additional $28.8 million
of floating-rate certificates, and $112.1 million of certificates being issued
at fixed rates we have significantly reduced the exposure of floating-rate
certificates outstanding to interest-rate risk. To the extent that
short-term interest rates were to increase by one percentage point on a
pro-rated basis by the end of Fiscal 2009, an increase of approximately
$696 thousand in selling, general, and administrative expenses would
result.
See “PART I; Item 1A. Risk
Factors” above for a further discussion of other market risks
related to our securitization facilities.
As of
February 2, 2008 there were no borrowings outstanding under our revolving credit
facility. Future borrowings made under the facility, if any, could be
exposed to variable interest rates.
We are
not subject to material foreign exchange risk, as our foreign transactions are
primarily U.S. Dollar-denominated and our foreign operations do not constitute a
material part of our business.
IMPACT OF RECENT ACCOUNTING
PRONOUNCEMENTS
See “Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial Statements;
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES; Impact of Recent Accounting
Pronouncements” below.
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk
See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations;
MARKET RISK” above.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes
those policies and procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of our assets; (ii) provide reasonable assurance that our
transactions are recorded as necessary to permit preparation of our financial
statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and our Board of Directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect
on our financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Further, because of changes in
conditions or the degree of compliance with policies and procedures, the
effectiveness of internal control over financial reporting may vary over
time.
Management
assessed the effectiveness of our internal control over financial reporting as
of February 2, 2008. In making this assessment, our management used
the criteria set forth in “Internal Control – Integrated
Framework,”
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the “COSO criteria”). Based on this assessment, management concluded
that our internal control over financial reporting was effective as of February
2, 2008.
Ernst
& Young LLP, our independent registered public accounting firm, has audited
our internal control over financial reporting, as stated in their report that
appears on page 65 –
66.
CONTROL OVER FINANCIAL
REPORTING
Stockholders
and Board of Directors
Charming
Shoppes, Inc.
We have
audited Charming Shoppes, Inc. and subsidiaries internal control over financial
reporting as of February 2, 2008, based on criteria established in “Internal Control – Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). Charming Shoppes, Inc. and
subsidiaries’ management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Charming Shoppes, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of February 2,
2008, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Charming
Shoppes, Inc. and subsidiaries as of February 2, 2008 and February 3, 2007, and
the related consolidated statements of operations and comprehensive income,
stockholders’ equity, and cash flows for each of the three fiscal years in the
period ended February 2, 2008 of Charming Shoppes, Inc. and subsidiaries and our
report dated April 1, 2008 expressed an unqualified opinion
thereon.
|
/S/ ERNST & YOUNG
LLP
|
Philadelphia,
Pennsylvania
April 1,
2008
Stockholders
and Board of Directors
Charming
Shoppes, Inc.
We have
audited the accompanying consolidated balance sheets of Charming Shoppes, Inc.
and subsidiaries as of February 2, 2008 and February 3, 2007, and the related
consolidated statements of operations and comprehensive income, stockholders’
equity, and cash flows for each of the three fiscal years in the period ended
February 2, 2008. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Charming Shoppes, Inc.
and subsidiaries at February 2, 2008 and February 3, 2007, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended February 2, 2008, in conformity with United States
generally accepted accounting principles.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, effective as of February 4, 2007.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Charming Shoppes, Inc. and subsidiaries’
internal control over financial reporting as of February 2, 2008, based on
criteria established in “Internal Control – Integrated
Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated April 1, 2008 expressed an unqualified
opinion thereon.
|
/S/ ERNST & YOUNG
LLP
|
Philadelphia,
Pennsylvania
April 1,
2008
CONSOLIDATED BALANCE
SHEETS
|
February
2,
|
February
3,
|
|||||||
|
(In thousands, except share
amounts)
|
2008
|
2007
|
||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ |
61,842
|
$ |
143,838
|
||||
|
Available-for-sale
securities
|
13,364
|
1,997
|
||||||
|
Accounts
receivable, net of allowances of $6,262 and $5,083
|
33,535
|
33,366
|
||||||
|
Investment
in asset-backed securities
|
115,912
|
60,643
|
||||||
|
Merchandise
inventories
|
391,527
|
429,433
|
||||||
|
Deferred
advertising
|
21,274
|
21,707
|
||||||
|
Deferred
taxes
|
7,531
|
4,469
|
||||||
|
Prepayments
and other
|
151,009
|
145,385
|
||||||
|
Total current
assets
|
795,994
|
840,838
|
||||||
|
Property,
equipment, and leasehold improvements – at cost
|
1,117,559
|
996,430
|
||||||
|
Less
accumulated depreciation and amortization
|
658,410
|
573,984
|
||||||
|
Net property, equipment, and leasehold
improvements
|
459,149
|
422,446
|
||||||
|
Trademarks
and other intangible assets
|
234,959
|
249,490
|
||||||
|
Goodwill
|
66,666
|
153,370
|
||||||
|
Other
assets
|
56,536
|
39,579
|
||||||
|
Total
assets
|
$ |
1,613,304
|
$ |
1,705,723
|
||||
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ |
140,553
|
$ |
178,629
|
||||
|
Accrued
expenses
|
179,457
|
190,702
|
||||||
|
Current
portion – long-term debt
|
8,827
|
10,887
|
||||||
|
Total current
liabilities
|
328,837
|
380,218
|
||||||
|
Deferred
taxes
|
55,400
|
57,340
|
||||||
|
Other
non-current liabilities
|
192,454
|
139,503
|
||||||
|
Long-term
debt
|
306,169
|
181,124
|
||||||
|
Stockholders’
equity
|
||||||||
|
Common
stock $.10 par value
|
||||||||
|
Authorized – 300,000,000
shares
|
||||||||
|
Issued – 151,569,850 shares
and 135,762,531 shares
|
15,157
|
13,576
|
||||||
|
Additional
paid-in capital
|
407,499
|
285,159
|
||||||
|
Treasury
stock at cost – 36,477,246 shares and 12,265,993 shares
|
(336,761 | ) | (84,136 | ) | ||||
|
Accumulated
other comprehensive income
|
22
|
1
|
||||||
|
Retained
earnings
|
644,527
|
732,938
|
||||||
|
Total stockholders’
equity
|
730,444
|
947,538
|
||||||
|
Total liabilities and
stockholders’ equity
|
$ |
1,613,304
|
$ |
1,705,723
|
||||
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
||||||||
|
See Notes to Consolidated
Financial Statements.
|
||||||||
CONSOLIDATED STATEMENTS OF
OPERATIONS
AND COMPREHENSIVE
INCOME
|
Year
Ended
|
||||||||||||
|
February
2,
|
February
3,
|
January
28,
|
||||||||||
|
(In thousands, except per share
amounts)
|
2008
|
2007
|
2006
|
|||||||||
|
Net
sales
|
$ |
3,009,953
|
$ |
3,067,517
|
$ |
2,755,725
|
||||||
|
Cost
of goods sold, buying, catalog, and occupancy expenses
|
2,198,865
|
2,141,884
|
1,914,347
|
|||||||||
|
Selling,
general, and administrative expenses
|
777,461
|
753,109
|
678,753
|
|||||||||
|
Impairment
of goodwill and trademarks
|
98,219
|
0
|
0
|
|||||||||
|
Restructuring
charges
|
14,357
|
0
|
0
|
|||||||||
|
Total operating
expenses
|
3,088,902
|
2,894,993
|
2,593,100
|
|||||||||
|
Income/(loss) from
operations
|
(78,949 | ) |
172,524
|
162,625
|
||||||||
|
Other
income
|
8,793
|
8,345
|
7,687
|
|||||||||
|
Interest
expense
|
(10,552 | ) | (14,746 | ) | (17,911 | ) | ||||||
|
Income/(loss)
before income taxes and extraordinary item
|
(80,708 | ) |
166,123
|
152,401
|
||||||||
|
Income
tax provision
|
3,617
|
57,200
|
53,010
|
|||||||||
|
Income/(loss)
before extraordinary item
|
(84,325 | ) |
108,923
|
99,391
|
||||||||
|
Extraordinary
item, net of income tax provision of $582 in 2008
|
912
|
0
|
0
|
|||||||||
|
Net
income/(loss)
|
(83,413 | ) |
108,923
|
99,391
|
||||||||
|
Other comprehensive
income/(loss), net of tax:
|
||||||||||||
|
Unrealized
gains/(losses) on available-for-sale securities, net of income
tax
|
||||||||||||
|
provision/(benefit) of $14 in
2008, $3 in 2007, and $(3) in 2006
|
21
|
4
|
(3 | ) | ||||||||
|
Total
other comprehensive income/(loss)
|
21
|
4
|
(3 | ) | ||||||||
|
Comprehensive
income/(loss)
|
$ | (83,392 | ) | $ |
108,927
|
$ |
99,388
|
|||||
|
Basic net income/(loss) per
share:
|
||||||||||||
|
Income/(loss)
before extraordinary item
|
$ | (.70 | ) | $ |
.89
|
$ |
.83
|
|||||
|
Extraordinary
item, net of income taxes
|
.01
|
.00
|
.00
|
|||||||||
|
Net
income/(loss) per share
|
$ | (.69 | ) | $ |
.89
|
$ |
.83
|
|||||
|
Diluted net income/(loss) per
share:
|
||||||||||||
|
Income/(loss)
before extraordinary item
|
$ | (.70 | ) | $ |
.81
|
$ |
.76
|
|||||
|
Extraordinary
item, net of income taxes
|
.01
|
.00
|
.00
|
|||||||||
|
Net
income/(loss) per share
|
$ | (.69 | ) | $ |
.81
|
$ |
.76
|
|||||
|
See Notes to Consolidated
Financial Statements.
|
||||||||||||
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
|
Additional
|
||||||||||||||||||||
|
Common
Stock
|
Paid-in
|
Treasury
Stock
|
||||||||||||||||||
|
(Dollars in
thousands)
|
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
|||||||||||||||
|
Balance, January 29,
2005
|
132,063,290
|
$ |
13,206
|
$ |
240,770
|
(12,265,993 | ) | $ | (84,136 | ) | ||||||||||
|
Issued
to employees, net
|
51,909
|
5
|
708
|
|||||||||||||||||
|
Exercise
of stock options
|
1,865,554
|
187
|
9,384
|
|||||||||||||||||
|
Withheld
for payment of employee
|
||||||||||||||||||||
|
payroll taxes due on shares
issued
|
||||||||||||||||||||
|
under employee stock
plans
|
(25,901 | ) | (3 | ) | (216 | ) | ||||||||||||||
|
Stock-based
compensation expense
|
6,814
|
|||||||||||||||||||
|
Tax
benefit – employee stock programs
|
3,617
|
|||||||||||||||||||
|
Balance, January 28,
2006
|
133,954,852
|
13,395
|
261,077
|
(12,265,993 | ) | (84,136 | ) | |||||||||||||
|
Issued
to employees, net
|
361,477
|
36
|
783
|
|||||||||||||||||
|
Exercise
of stock options
|
1,536,580
|
154
|
9,011
|
|||||||||||||||||
|
Withheld
for payment of employee
|
||||||||||||||||||||
|
payroll taxes due on shares
issued
|
||||||||||||||||||||
|
under employee stock
plans
|
(90,378 | ) | (9 | ) | (1,217 | ) | ||||||||||||||
|
Stock-based
compensation expense
|
10,386
|
|||||||||||||||||||
|
Tax
benefit – employee stock programs
|
5,119
|
|||||||||||||||||||
|
Balance, February 3,
2007
|
135,762,531
|
13,576
|
285,159
|
(12,265,993 | ) | (84,136 | ) | |||||||||||||
|
Issued
to employees, net
|
462,724
|
46
|
163
|
|||||||||||||||||
|
Exercise
of stock options
|
304,120
|
30
|
1,412
|
|||||||||||||||||
|
Withheld
for payment of employee
|
||||||||||||||||||||
|
payroll taxes due on shares
issued
|
||||||||||||||||||||
|
under employee stock
plans
|
(105,081 | ) | (10 | ) | (1,183 | ) | ||||||||||||||
|
Issued
for redemption of convertible notes
|
15,145,556
|
1,515
|
148,049
|
|||||||||||||||||
|
Sale
of common stock warrants
|
53,955
|
|||||||||||||||||||
|
Purchase
of common stock call options
|
(90,475 | ) | ||||||||||||||||||
|
Tax
benefit – call options
|
2,705
|
|||||||||||||||||||
|
Stock-based
compensation
expense
|
7,101
|
|||||||||||||||||||
|
Tax
benefit – employee stock programs
|
613
|
|||||||||||||||||||
|
Purchases
of treasury stock
|
(24,211,253 | ) | (252,625 | ) | ||||||||||||||||
|
Balance, February 2,
2008
|
151,569,850
|
$ |
15,157
|
$ |
407,499
|
(36,477,246 | ) | $ | (336,761 | ) | ||||||||||
|
Accumulated
|
||||||||
|
Other
|
||||||||
|
Comprehensive
|
Retained
|
|||||||
|
Income
(Loss)
|
Earnings
|
|||||||
|
Balance, January 29,
2005
|
$ |
0
|
$ |
524,624
|
||||
|
Unrealized
losses, net of income taxes of $3
|
(3 | ) | ||||||
|
Net
income
|
99,391
|
|||||||
|
Balance, January 28,
2006
|
(3 | ) |
624,015
|
|||||
|
Unrealized
gains, net of income taxes of $(3)
|
4
|
|||||||
|
Net
income
|
108,923
|
|||||||
|
Balance, February 3,
2007
|
1
|
732,938
|
||||||
|
Cumulative
effect of adoption of FIN No. 48
|
(4,998 | ) | ||||||
|
Unrealized
gains, net of income taxes of $(14)
|
21
|
|||||||
|
Net
loss
|
(83,413 | ) | ||||||
|
Balance, February 2,
2008
|
$ |
22
|
$ |
644,527
|
||||
|
See Notes to Consolidated
Financial Statements.
|
||||||||
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
Year
Ended
|
||||||||||||
|
February
2,
|
February
3,
|
January
28,
|
||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Operating
activities
|
||||||||||||
|
Net
income/(loss)
|
$ | (83,413 | ) | $ |
108,923
|
$ |
99,391
|
|||||
|
Adjustments
to reconcile net income/(loss) to net cash provided by operating
activities:
|
||||||||||||
|
Impairment of goodwill and
trademarks
|
98,219
|
0
|
0
|
|||||||||
|
Depreciation and
amortization
|
97,249
|
91,244
|
84,297
|
|||||||||
|
Deferred income
taxes
|
(4,933 | ) |
20,719
|
(10,139 | ) | |||||||
|
Stock-based
compensation
|
7,101
|
10,386
|
6,814
|
|||||||||
|
Excess tax benefits related to
stock-based compensation
|
(613 | ) | (5,119 | ) |
3,617
|
|||||||
|
Net loss/(gain) from
disposition of capital assets
|
2,147
|
1,618
|
(725 | ) | ||||||||
|
Net gain from securitization
activities
|
(6,445 | ) | (1,012 | ) | (3,212 | ) | ||||||
|
Write-down of capital
assets
|
11,325
|
0
|
0
|
|||||||||
|
Extraordinary item, net of
income taxes
|
(912 | ) |
0
|
0
|
||||||||
|
Changes in operating assets and
liabilities:
|
||||||||||||
|
Accounts receivable,
net
|
(169 | ) |
5,237
|
(31,315 | ) | |||||||
|
Merchandise
inventories
|
37,906
|
(53,024 | ) | (20,051 | ) | |||||||
|
Accounts
payable
|
(38,076 | ) |
45,393
|
(6,952 | ) | |||||||
|
Deferred
advertising
|
433
|
(1,116 | ) | (7,797 | ) | |||||||
|
Prepayments and
other
|
(947 | ) | (54,390 | ) |
5,636
|
|||||||
|
Income taxes
payable
|
0
|
3,376
|
1,743
|
|||||||||
|
Accrued expenses and
other
|
40,973
|
14,719
|
43,505
|
|||||||||
|
Purchase
of credit card receivables portfolios
|
(230,975 | ) |
0
|
(56,582 | ) | |||||||
|
Securitization
of credit card receivables portfolios
|
230,975
|
0
|
56,582
|
|||||||||
|
Net cash provided by operating
activities
|
159,845
|
186,954
|
164,812
|
|||||||||
|
Investing
activities
|
||||||||||||
|
Investment
in capital assets
|
(137,709 | ) | (133,156 | ) | (103,835 | ) | ||||||
|
Gross
purchases of securities
|
(84,665 | ) | (37,022 | ) | (50,630 | ) | ||||||
|
Proceeds
from sales of securities
|
22,335
|
62,185
|
18,849
|
|||||||||
|
Proceeds
from sales of capital assets
|
0
|
0
|
3,432
|
|||||||||
|
Proceeds
from eminent domain settlement, net of taxes
|
912
|
0
|
0
|
|||||||||
|
Acquisition
of Crosstown Traders, Inc., net of cash acquired
|
0
|
0
|
(256,717 | ) | ||||||||
|
Securitization
of Crosstown Traders, Inc. apparel-related receivables
|
0
|
0
|
50,000
|
|||||||||
|
Increase
in other assets
|
(11,502 | ) | (14,399 | ) | (5,264 | ) | ||||||
|
Net cash used by investing
activities
|
(210,629 | ) | (122,392 | ) | (344,165 | ) | ||||||
|
Financing
activities
|
||||||||||||
|
Proceeds
from short-term borrowings
|
51,180
|
149,377
|
382,573
|
|||||||||
|
Repayments
of short-term borrowings
|
(51,180 | ) | (199,377 | ) | (332,573 | ) | ||||||
|
Proceeds
from issuance of senior convertible notes
|
275,000
|
0
|
0
|
|||||||||
|
Proceeds
from long-term borrowings
|
1,316
|
0
|
0
|
|||||||||
|
Repayments
of long-term borrowings
|
(11,814 | ) | (14,733 | ) | (22,212 | ) | ||||||
|
Payments
of deferred financing costs
|
(7,640 | ) |
0
|
(1,417 | ) | |||||||
|
Excess
tax benefits related to stock-based compensation
|
613
|
5,119
|
0
|
|||||||||
|
Purchase
of hedge on senior convertible notes
|
(90,475 | ) |
0
|
0
|
||||||||
|
Sale
of common stock warrants
|
53,955
|
0
|
0
|
|||||||||
|
Purchases
of treasury stock
|
(252,625 | ) | ||||||||||
|
Proceeds
from issuance of common stock
|
458
|
8,758
|
10,065
|
|||||||||
|
Net cash provided/(used) by
financing activities
|
(31,212 | ) | (50,856 | ) |
36,436
|
|||||||
|
Increase/(decrease) in cash and
cash equivalents
|
(81,996 | ) |
13,706
|
(142,917 | ) | |||||||
|
Cash and cash equivalents,
beginning of year
|
143,838
|
130,132
|
273,049
|
|||||||||
|
Cash and cash equivalents, end
of year
|
$ |
61,842
|
$ |
143,838
|
$ |
130,132
|
||||||
|
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
||||||||||||
|
(Continued on next
page)
|
||||||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Continued)
|
Year
Ended
|
||||||||||||
|
February
2,
|
February
3,
|
January
28,
|
||||||||||
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Non-cash financing and
investing activities
|
||||||||||||
|
Common
stock issued on conversion of debentures
|
$ |
149,564
|
$ |
0
|
$ |
0
|
||||||
|
Equipment
acquired through capital leases
|
$ |
8,047
|
$ |
0
|
$ |
3,892
|
||||||
|
See Notes to Consolidated
Financial Statements.
|
||||||||||||
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Business
We
operate retail specialty stores located throughout the continental United States
and related websites that merchandise plus-size, misses, and junior sportswear,
dresses, coats, and intimate apparel, as well as accessories and casual
footwear, at a wide range of prices. Effective with the acquisition
of Crosstown Traders, Inc. (“Crosstown Traders”) on June 2, 2005 (see“NOTE 2. ACQUISITION OF
CROSSTOWN
TRADERS, INC.”
below) we also conduct a direct marketing operation that merchandises women’s
apparel, footwear, accessories, and specialty gifts throughout the continental
United States through multiple catalogs and related websites.
Principles of
Consolidation
The
consolidated financial statements include the accounts of Charming Shoppes, Inc.
and our wholly-owned and majority-owned subsidiaries. The
consolidated financial statements include the results of operations of Crosstown
Traders from June 2, 2005, the date of acquisition. All inter-company
accounts and transactions have been eliminated. We have a
52 – 53 week fiscal
year ending on the Saturday nearest to January 31. The fiscal year
ended February 3, 2007 consisted of 53 weeks. As used herein, the
terms “Fiscal 2008,” “Fiscal 2007,” and “Fiscal 2006” refer to our fiscal years
ended February 2, 2008, February 3, 2007, and January 28, 2006,
respectively. The term “Fiscal 2009” refers to our fiscal year which
will end on January 31, 2009 and the term “Fiscal 2010” refers to our fiscal
year which will end on January 30, 2010. The terms “the Company,”
“we,” “us,” and “our” refer to Charming Shoppes, Inc., and, where applicable,
our consolidated subsidiaries.
Business Segments and Related
Disclosures
We
operate in two segments, Retail Stores and Direct-to-Consumer, which is
consistent with the way our chief operating decision-makers review our results
of operations. The retail store and store-related E-commerce
operations under our LANE BRYANT, FASHION BUG, CATHERINES PLUS
SIZES, and PETITE SOPHISTICATE brands are aggregated into the Retail Stores
segment. The Direct-to-Consumer segment includes catalog and
catalog-related E-commerce operations under our Crosstown Traders
brands. Our foreign sourcing operations do not constitute a material
geographic segment. See “NOTE 19. SEGMENT
REPORTING” below
for further information regarding our operations by business
segment.
Foreign
Operations
We use a
December 31 fiscal year for our foreign subsidiaries in order to expedite our
year-end closing. There were no intervening events or transactions
with respect to our foreign subsidiaries during the period from January 1, 2008
to February 2, 2008 that would have a material effect on our financial position
or results of operations.
Use of
Estimates
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires that our management make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Reclassifications
Certain
prior-year amounts for income tax liabilities in the consolidated balance sheet
as of February 3, 2007 and for securitization activities in the consolidated
statements of cash flows for the fiscal years ended February 3, 2007 and January
28, 2006 have been reclassified to conform to the current-year
presentation.
Cash
Equivalents
We
consider all highly-liquid investments with a maturity of three months or less
when purchased to be cash equivalents. These amounts are stated at
cost, which approximates market value.
Available-for-Sale
Securities
Our
investments are classified as available for sale. Securities traded
on an established market are carried at fair value and unrealized gains and
losses are reported in a separate component of stockholders’
equity. We adjust the cost of these investments for amortization of
premiums and the accretion of discounts to maturity where
applicable. Such adjustments are included in interest
income. We include interest income and realized gains and losses from
investments in other income. The cost of securities sold is based on
the specific identification method.
Short-term
available-for-sale securities include investments with an original maturity of
greater than three months and a remaining maturity of less than one
year. Long-term available-for-sale securities include investments
that have an original maturity of greater than one year but are available on an
as-needed basis to support our working capital needs.
Accounts
Receivable
Our
FIGI’S catalog offers credit to its customers using interest-free, three-payment
credit terms over three months, with the first payment due on a defined date 30
to 60 days after a stated holiday. A substantial portion of the
FIGI’S catalog business is conducted during the December holiday
season. We evaluate the collectibility of our accounts receivable
based on a combination of factors, including analysis of historical trends,
aging of accounts receivable, write-off experience, past history of recoveries,
and expectations of future performance.
Inventories
We value
merchandise inventories for our Retail Stores and Direct-to-Consumer segments at
the lower of cost or market using the retail inventory method (average cost
basis). Under the retail inventory method the valuation of
inventories at cost and the resulting gross margins are adjusted in proportion
to markdowns currently taken and shrinkage on the retail value of
inventories. In addition to markdowns that have been taken (i.e.,
selling price permanently reduced on the selling floor) we accrue an estimate
for markdowns not yet recorded that we believe will be necessary to sell
end-of-season inventory on hand at the end of the period. We purchase
inventory and track inventory quantities on hand by season in order to determine
aged inventory. We liquidate aged seasonal inventory through
markdowns or sale to liquidators. We account for store inventory
shrinkage based on periodic physical inventories on a store-by-store basis, with
supplemental observations in locations exhibiting high shrinkage
rates. We determine interim shrinkage estimates on a store-by-store
basis, based on our most recent physical inventory results. We
account for distribution and fulfillment center inventory shrinkage based on
cycle counts on a center-by-center basis.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
In
accordance with FASB Emerging Issues Task Force (“EITF”) Issue 02-16, “Accounting by a Customer (Including
a Reseller) for Cash Consideration Received from a Vendor,” we record
cash consideration received from vendors as a reduction of inventory and
recognize it in cost of goods sold as inventory is sold. We deferred
cash received from vendors of $7,286,000 as of February 2, 2008 and $8,767,000
as of February 3, 2007 into inventory in accordance with EITF Issue
02-16. We defer the recognition of cash received from vendors during
interim periods in order to better match the recognition of the cash
consideration to the period the inventory is sold.
We
adopted Financial Accounting Standards Board (“FASB”) Statement of Financial
Accounting Standards (“SFAS”) No. 151, “Inventory Costs – an Amendment of
Accounting Research Bulletin No. 43, Chapter 4,” as of the beginning of
Fiscal 2007. In accordance with SFAS No. 151 we recognize abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
costs as current-period expenses rather than capitalizing them into
inventory. Our adoption of SFAS No. 151 did not have a material
effect on our financial condition or results of operations.
Deferred and Non-Deferred
Advertising Costs
With the
exception of direct-response advertising, we expense advertising costs as
incurred. In accordance with American Institute of Certified Public
Accountants (“AICPA”) Statement of Position (“SOP”) 93-7, “Reporting on Advertising Costs,”
we capitalize all direct costs incurred in the development, production,
and circulation of our direct-mail catalogs until the related catalog is
mailed. These capitalized costs are amortized as a component of cost
of goods sold, buying, catalog, and occupancy expenses over the expected sales
realization cycle of the catalog, which is generally within one to six
months.
Our initial estimation of the expected
sales realization cycle for a particular catalog merchandise offering is based
primarily on our historical sales and sell-through experience with similar
catalog merchandise offerings, our understanding of then-prevailing fashion
trends and influences, our assessment of prevailing economic conditions, and
various competitive factors, as well as on other possible factors. We continually track our subsequent
sales realization, compile customer feedback for indications of future
performance, reassess the marketplace, compare our findings to our previous
estimate, and adjust our amortization accordingly.
Advertising
costs charged to expense as incurred were $104,170,000 in Fiscal 2008,
$81,028,000 in Fiscal 2007, and $75,387,000 in Fiscal 2006. Deferred
catalog advertising costs amortized to expense were $141,283,000 in Fiscal 2008,
$125,678,000 in Fiscal 2007 and $82,384,000 in Fiscal 2006 (from the date of
acquisition of Crosstown Traders on June 2, 2005). Deferred catalog
advertising costs were $21,274,000 as of February 2, 2008 and $21,707,000 as of
February 3, 2007.
Property and
Depreciation
For
financial reporting purposes, we compute depreciation and amortization primarily
using the straight-line method over the estimated useful lives of the
assets. We amortize leasehold improvements over the shorter of their
useful lives or the related lease term as determined under our operating lease
accounting policy (see “Lease Accounting”
below). We use accelerated depreciation methods for income tax
reporting purposes. Depreciation and amortization of property,
equipment (including equipment acquired under capital leases), and leasehold
improvements was $90,876,000 in Fiscal 2008, $84,750,000 in Fiscal 2007, and
$77,876,000 in Fiscal 2006.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
We
evaluate the recoverability of our long-lived assets in accordance
with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” We assess our long-lived
assets for recoverability whenever events or changes in circumstances indicate
that the carrying amounts of long-lived assets may not be
recoverable. We consider historical performance and future estimated
results when evaluating an asset for potential impairment, and we compare the
carrying amount of the asset to the estimated future undiscounted cash flows
expected to result from the use of the asset. If the estimated future
undiscounted cash flows are less than the carrying amount of the asset we write
down the asset to its estimated fair value and recognize an impairment
loss. Our estimate of fair value is generally based on either
appraised value or the present value of future cash flows.
Lease
Accounting
We lease
substantially all of our store properties as well as certain of our other
facilities and account for our leases in accordance with SFAS No. 13, "Accounting for
Leases." A majority of our store leases contain lease options
that we can unilaterally exercise. The lease term we use for such
operating leases includes lease option renewal periods only in instances in
which the failure to exercise such options would result in an economic penalty
for us and exercise of the renewal option is therefore reasonably assured at the
lease inception date.
For
leases that contain rent escalations, the lease term for recognition of
straight-line rent expense commences on the date we take possession of the
leased property for construction purposes, which for stores is generally two
months prior to a store opening date. Similarly, landlord incentives
or allowances under operating leases (tenant improvement allowances) are
recorded as a deferred rent liability. The deferred rent liability is
amortized as a reduction of rent expense on a straight-line basis over the lease
term, commencing on the date we take possession of the leased property for
construction purposes.
Goodwill and Other Intangible
Assets
We
account for goodwill and other intangible assets in accordance with the
provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” We own trademarks, tradenames, Internet domain names,
customer lists, customer relationships, and a covenant not to compete that we
obtained in connection with our acquisitions of LANE BRYANT and Crosstown
Traders. The values of these intangible assets were determined by an
independent appraisal using an after-tax discounted cash flow method, based on
the estimated future benefits to be received from the assets. We
allocated the excess of the cost of the acquisitions over the estimated fair
value of the identifiable tangible and intangible net assets acquired to
goodwill. In accordance with the provisions of SFAS No. 142, we are
not amortizing the goodwill.
The LANE
BRYANT and Crosstown Traders trademarks, tradenames, and Internet domain names
are well-recognized in their respective markets. We expect to renew
and protect these trademarks, tradenames, and Internet domain names
indefinitely. Therefore, we are not amortizing the appraised value of
the trademarks, tradenames, and Internet domain names. We
periodically review the trademarks, tradenames, and Internet domain names for
indicators of a limited useful life. We are amortizing the customer
lists, customer relationships, and covenant not to compete on a straight-line
basis over their estimated useful lives of four to five years.
During
Fiscal 2007 we acquired the PETITE SOPHISTICATE and Casual Corner trademarks,
tradenames, and internet domain names from third parties.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
In
accordance with the provisions of SFAS No. 142, we are required to evaluate
goodwill and other indefinite-lived intangible assets for impairment annually or
more frequently if there is an indication of possible
impairment. During the fourth quarter of Fiscal 2008 we performed our
annual impairment review and determined that the carrying value of our Crosstown
Traders goodwill and certain Crosstown Traders trademarks (which are included in
our Direct-to-Consumer segment) exceeded the implied or estimated fair values of
those assets. Accordingly, we recognized impairment charges of
$86,826,000 related to the Crosstown Traders goodwill and $11,393,000 related to
the Crosstown Traders trademarks during Fiscal 2008. During the
fourth quarters of Fiscal 2007 and Fiscal 2006 we conducted annual evaluations
of our goodwill and other indefinite-lived intangible assets and determined that
there was no impairment of these assets.
In
accordance with the provisions of SFAS No. 142, we assigned the values of the
goodwill and other indefinite-lived intangible assets recognized in connection
with our acquisitions of LANE BRYANT, CATHERINES, and Crosstown Traders to the
respective reporting units within our reportable business
segments. The calculation of the estimated fair value of our
reporting units for the purpose of evaluating goodwill for impairment and the
fair values of other intangible assets required estimates, assumptions, and
judgments. The results of our evaluations might have been materially
different if different estimates, assumptions, and judgments had been
used. Information on goodwill by business segment is included in
“NOTE 6 GOODWILL AND INTANGIBLE
ASSETS” below.
Asset
Securitization
We
account for our asset securitization facilities in accordance with the
requirements of SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.” Asset securitization primarily involves the sale
of proprietary credit card receivables to a separate and distinct
special-purpose entity, which in turn transfers the receivables to a separate
and distinct qualified special-purpose entity (“QSPE”). The QSPE’s
assets and liabilities are not consolidated in our balance sheets and the
receivables transferred to the QSPE are isolated for purposes of the
securitization program. The QSPE issues asset-backed certificates
that represent undivided interests in those credit card receivables transferred
into the QSPE. These certificates are sold to investors and we retain
any undivided interests that remain unsold. We include these
remaining undivided interests and any other retained interests in “Investment in
asset-backed securities” in our accompanying consolidated balance
sheets. The carrying value of these retained interests approximates
their fair value.
We
adopted SFAS No. 156, “Accounting and Servicing of
Financial Assets – an amendment of FASB Statement No. 140,” prospectively
as of the beginning of Fiscal 2008. Accordingly, we initially measure
servicing assets and liabilities recognized in connection with our asset
securitizations at fair value. Subsequent to initial recognition of
the servicing assets or liabilities, we amortize the servicing assets or
liabilities in proportion to, and over the period of, estimated net servicing
income or loss and assess the assets or liabilities for impairment or increased
obligation based on fair value at each reporting date. Adoption of
SFAS No. 156 did not have a material impact on our consolidated financial
statements.
Transaction
expenses related to securitizations are deferred and amortized over the
reinvestment period of the transaction. Net securitization income,
including revaluation of our interest-only strip, is included as a reduction of
selling, general, and administrative expenses in our accompanying consolidated
statements of operations and comprehensive income.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Insurance
Liabilities
We use a
combination of third-party insurance and/or self-insurance for certain risks,
including workers’ compensation, medical, dental, automobile, and general
liability claims. Our insurance liabilities are a component of
“Accrued expenses” in our consolidated balance sheets and represent an estimate
of the ultimate cost of uninsured claims incurred as of the balance sheet
date. In estimating our self-insurance liabilities we use independent
actuarial estimates of expected losses, which are based on statistical analyses
of historical data. Loss estimates are adjusted based upon actual
claim settlements and reported claims. Although we do not expect the
amounts ultimately paid to differ significantly from our estimates,
self-insurance liabilities could be affected if future claims experience differs
significantly from the historical trends and the actuarial
assumptions. We evaluate the adequacy of these liabilities on a
regular basis, modifying our assumptions as necessary, updating our records of
historical experience, and adjusting our liabilities as
appropriate.
Senior Convertible
Notes
We
accounted for the issuance of our 1.125% Senior Convertible Notes due May 2014
(the “1.125% Notes”) in accordance with the guidance in EITF Issue 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (see “NOTE 8. LONG-TERM DEBT” below). Paragraph 11(a) of SFAS
No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” provides that contracts
issued or held by an entity that are both (1) indexed to the entity’s own common
stock and (2) classified in stockholders’ equity in its statement of financial
position are not considered to be derivative instruments under SFAS No. 133 if
the provisions of EITF Issue 00-19 are met. Accordingly, we have
recorded the 1.125% Notes as long-term debt in our condensed consolidated
balance sheet as of February 2, 2008.
Concurrent
with the issuance of the 1.125% Notes we entered into privately negotiated
common stock call options with affiliates of the initial
purchasers. In addition, we sold warrants to affiliates of certain of
the initial purchasers. We accounted for the call options and
warrants in accordance with the guidance in EITF Issue 00-19. The
call options and warrants meet the requirements of EITF Issue 00-19 to be
accounted for as equity instruments. Accordingly, the cost of the
call options and the proceeds from the sale of the warrants are included in
additional paid-in capital in our condensed consolidated balance sheet as of
February 2, 2008.
We will
monitor the 1.125% Notes, call options, and warrants on a quarterly basis for
compliance with the provisions of EITF Issue 00-19 and paragraph 11(a) of SFAS
No. 133. Should the issuance of the 1.125% Notes, the purchase of the
call options, or the sale of the warrants fail to qualify under the provisions
of EITF Issue 00-19 or paragraph 11(a) of SFAS No. 133 we would be required to
recognize derivative instruments in connection with the transaction, include the
effects of the transaction in assets or liabilities instead of equity, and
recognize changes in the fair values of the assets or liabilities in
consolidated net income as they occur until the provisions of EITF Issue 00-19
and paragraph 11(a) of SFAS No. 133 are met.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Revenue
Recognition
Revenues
from merchandise sales are net of discounts, returns and allowances, and
coupons, and exclude sales tax. We record a reserve for estimated
future sales returns based on an analysis of actual returns received, and we
defer recognition of layaway sales to the date of delivery. Revenues
from sales of gift cards are recorded as deferred revenue and recognized upon
the redemption of the gift cards.
Catalog
and E-commerce revenues include shipping and handling fees billed to
customers. These revenues are recognized after the following have
occurred: execution of the customer’s order, authorization of the customer’s
credit card has been received, and the product has been shipped to and received
by the customer. We record a reserve for estimated future sales
returns based on an analysis of actual returns.
We sell
gift cards to our Retail Stores segment customers through our stores,
retail-store-related websites, and through third parties. We
recognize revenue from gift cards when the gift card is redeemed by the
customer. Our gift cards do not contain expiration dates or
inactivity fees. We recognize gift card breakage (unused gift card
balances for which we believe the likelihood of redemption is remote) as net
sales based on an analysis of historical redemption patterns.
Loyalty Card
Programs
We offer
our customers various loyalty card programs (see “NOTE 12. CUSTOMER LOYALTY
CARD PROGRAMS”
below). Customers that join these programs are entitled to various
benefits, including discounts and rebates on purchases during the membership
period. Customers join some of these programs by paying an annual
membership fee. For these programs we recognize revenue as a
component of net sales over the life of the membership period based on when the
customer earns the benefits and when the fee is no longer
refundable. Certain loyalty card customers earn points for purchases
which may be redeemed for merchandise coupons upon the accumulation of a
specified number of points. No membership fees are charged in
connection with these programs. Costs we incur in connection with
administering these programs are recognized in cost of goods sold as
incurred.
Cost of Goods Sold, Buying, Catalog,
and Occupancy Expenses
Cost of
goods sold includes merchandise costs net of discounts and allowances, freight,
inventory shrinkage, and shipping and handling costs associated with our catalog
and E-commerce businesses. We capitalize net merchandise costs and
freight as inventory costs. Cost of goods sold also includes costs
incurred in connection with our customer loyalty card programs (see “Revenue
Recognition” above). Buying
expenses include payroll, payroll-related costs, and operating expenses for our
buying departments and warehouses. Catalog expenses include the costs
of producing and distributing our merchandise catalogs (see “Deferred and Non-Deferred
Advertising Costs” above). Occupancy expenses include
rent; real estate taxes; insurance; common area maintenance; utilities;
maintenance; and depreciation for our stores, warehouse and fulfillment center
facilities, and equipment. Buying, catalog, and occupancy expenses
are treated as period costs and are not capitalized as part of
inventory.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
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
stock-based award 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, which are more fully
described below.
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; accordingly,
prior periods have not been restated. Stock-based compensation cost
recognized in Fiscal 2008 and Fiscal 2007 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 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. Stock-based
compensation for performance-based awards is initially determined using an
estimate of performance levels expected to be achieved and is periodically
reviewed and adjusted as required. We elected to calculate the
initial pool of excess tax benefits related to stock-based compensation and the
related presentation of excess tax benefits in our consolidated statements of
cash flows in accordance with the provisions of paragraph 81 of SFAS No.
123R.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The
application of SFAS No. 123R generally results 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 primarily
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 our basic and diluted net income per share.
Total
stock-based compensation recognized in our results of operations was $7,101,000
for Fiscal 2008, $10,386,000 for Fiscal 2007, and $6,814,000 for Fiscal
2006. Total stock-based compensation not yet recognized, related to the
non-vested portion of stock options and awards outstanding, was $14,387,000 as
of February 2, 2008. The weighted-average period over which we expect
to recognize this compensation is approximately 4 years.
To
determine stock-based compensation for stock options under SFAS No. 123R and
SFAS No. 123 (for Fiscal 2006 pro forma disclosures) we estimate the fair value
of each option grant on the date of grant using the Black-Scholes option-pricing
model. In applying the Black-Scholes model we used a range of
estimated stock price volatilities of 27.4 to 69.2; a dividend yield of 0.0%;
expected lives of 3 months for the Employee Stock Purchase Plan and 5 to 7 years
for stock options; and risk-free interest rates of 2.1% to 5.1% for the Employee
Stock Purchase Plan and 2.8% to 5.1% for stock options.
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. In accordance with the provisions of SFAS No.
123R we continue to reflect write-offs of deferred tax assets related to an
excess of stock-based compensation recognized in the financial statements over
amounts deductible for tax purposes as cash flows used by operating
activities. Net cash used by financing activities includes excess tax
benefits related to stock-based compensation of $613,000 for Fiscal 2008
and $5,119,000 for Fiscal 2007 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.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The
following table reconciles net income and net income per share as reported,
using the intrinsic value method under APB No. 25, to pro forma net income and
pro forma net income per share using the fair value method under SFAS No.
123:
|
Year
Ended
|
||||
|
January
28,
|
||||
|
(In thousands, except per share
amounts)
|
2006
|
|||
|
Net
income as reported
|
$ |
99,391
|
||
|
Add
stock-based employee compensation as reported, using intrinsic value
method,
|
||||
|
net of income
taxes
|
4,429
|
|||
|
Less
stock-based employee compensation, using fair-value method, net of income
taxes
|
(5,307 | ) | ||
|
Pro
forma net income
|
$ |
98,513
|
||
|
Basic
net income per share:
|
||||
|
As reported
|
$ |
.83
|
||
|
Pro
forma
|
.82
|
|||
|
Diluted
net income per share:
|
||||
|
As
reported
|
.76
|
|||
|
Pro
forma
|
.75
|
|||
Costs Associated With Exit or
Disposal Activities
We
recognize liabilities for costs associated with exit or disposal activities when
the liabilities are incurred and value the liabilities at fair value in
accordance with SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities.” One-time benefit payments
are recognized as employees render service over future periods if the benefit
arrangement requires employees to render future service beyond a minimum
retention period. We account for severance payments that are offered
in accordance with an on-going benefit arrangement and that are attributable to
employees’ services already rendered in accordance with SFAS No. 112, “Employers’ Accounting for
Postemployment Benefits.”
Income
Taxes
We use
the liability method of accounting for income taxes as prescribed by SFAS No.
109, “Accounting for Income
Taxes.”
We
adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109.” effective as
of the beginning of Fiscal 2008. In accordance with FIN No. 48 we
recognize a tax benefit for a tax position that is more-likely-than-not to be
sustained upon examination, based solely on its technical merits. We
measure the recognized benefit as the largest amount that is
more-likely-than-not to be realized on ultimate settlement, based on a
cumulative probability basis. We record interest and penalties
related to unrecognized tax benefits in income tax expense.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
For tax
positions that initially fail to qualify for recognition, we recognize a
benefit in the first interim period in which the position meets the FIN No. 48
recognition standard or is resolved through negotiation, litigation, or upon
expiration of the statute of limitations. We subsequently
de-recognize a previously recognized tax benefit if we subsequently determine
that the tax position no longer meets the more-likely-than-not threshold of
being sustained.
In
accordance with FIN No. 48 we recognized a cumulative-effect adjustment as of
the beginning of Fiscal 2008 of $4,998,000, increasing our liability for
unrecognized tax benefits, interest, and penalties and reducing the February 4,
2007 balance of retained earnings.
We
adopted the provisions of FSP FIN 48-1, “Definition of Settlement in FASB
Interpretation No. 48,” effective with our adoption of FIN No.
48. Accordingly, we consider a tax position to be “effectively
settled” upon completion of an examination by a taxing authority without being
legally extinguished. For tax positions considered effectively
settled we recognize the full amount of the tax benefit, even if (1) the tax
position is not considered more-likely-than-not to be sustained solely on the
basis of its technical merits, and (2) the statute of limitations remains
open. The adoption of FSP FIN 48-1 did not have a material effect on
our financial position or results of operations.
On
October 22, 2004 the President of the United States of America signed into law
H.R. 4250, “The American Jobs Creation Act of 2004” (the “Act”). The
Act includes among its provisions certain tax benefits related to the
repatriation to the United States of profits from a company’s international
operations provided that certain criteria are met, including the implementation
of a qualifying reinvestment plan for the repatriated earnings. The
Act permitted the repatriation of profits from international operations at a tax
rate not to exceed 5.25% for approximately a one-year period, subject to certain
limitations. During Fiscal 2006, based on a formal reinvestment plan
approved by our Board of Directors, we repatriated $44,000,000 of profits from
our international operations, which resulted in $2,667,000 of United States
income taxes, $1,135,000 of applicable foreign tax credits, and net taxes of
$1,532,000. Prior to and subsequent to Fiscal 2006 we have
permanently reinvested undistributed profits from our international operations
and therefore have not provided for incremental United States income taxes on
such undistributed profits.
Net Income (Loss) Per
Share
Net
income (loss) per share is based on the weighted-average number of common shares
outstanding during each fiscal year. Common shares that we hold as
treasury stock are excluded from the computation of net income (loss) per
share. Net income per share assuming dilution is based on the
weighted-average number of common shares and share equivalents
outstanding. Common share equivalents include the effect of dilutive
stock options and stock awards, using the treasury stock
method. Common share equivalents also include the effect of assumed
conversion of our convertible debt, using the “if-converted” method, when the
effect of such assumed conversion is dilutive. Share equivalents are
not included in the weighted-average shares outstanding for determining net loss
per share, as the result would be anti-dilutive.
Comprehensive
Income
The
consolidated statements of operations and comprehensive income include
transactions from non-owner sources that affect stockholders’
equity. Unrealized gains and losses recognized in comprehensive
income are reclassified to net income upon their realization.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Deferred Debt Acquisition
Costs
Debt
acquisition costs are deferred and amortized to interest expense on a
straight-line basis over the life of the related debt agreement.
Costs of Computer Software Developed
or Obtained for Internal Use
Costs
related to the development of internal-use software, other than those incurred
during the application development stage, are expensed as
incurred. Costs incurred during the application development stage are
capitalized and amortized over the estimated useful life of the
software.
Extraordinary
Item
We
recognized the proceeds from eminent domain proceedings as a gain in accordance
with the provisions of FIN No. 30, “Accounting for Involuntary
Conversions of Nonmonetary Assets to Monetary Assets” and have
classified the gain as an extraordinary item in accordance with the
provisions of APB Opinion No. 30, “Reporting the Results of Operations
– Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions.”
Impact of Recent Accounting
Pronouncements
In
September 2006 the FASB ratified the consensus of EITF Issue No. 06-4, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Agreements.” EITF Issue No. 06-4 addresses
accounting for separate agreements that split life insurance policy benefits
between an employer and an employee. EITF Issue No. 06-4 requires
employers to recognize a liability for future benefits payable to the employee
under such agreements. The effect of applying the provisions of Issue
No. 06-4 should be recognized either through a change in accounting principle by
a cumulative-effect adjustment to equity or through the retrospective
application to all prior periods. The provisions of EITF Issue No.
06-4 will be effective as of the beginning of Fiscal 2009 with earlier
application permitted. We are currently analyzing the impact of
adoption of EITF Issue No. 06-4, and have not yet determined the impact of
adoption, if any, on our consolidated financial position or results of
operations.
In
September 2006 the FASB ratified the consensus of EITF Issue No. 06-5, “Accounting for Purchases of Life
Insurance – Determining the Amount That Could be Realized in Accordance with
FASB Technical Bulletin 85-4.” EITF Issue No. 06-5 addresses
the determination of the amount that could be realized under a life insurance
contract in accordance with Technical Bulletin 85-4. EITF Issue No.
06-5 requires a policyholder to consider any additional amounts included in the
contractual terms of the policy other than the cash surrender value in
determining the amount that could be realized under the insurance
contract. Policyholders should determine the amount that could be
realized under the life insurance contract assuming the surrender of an
individual-life by individual-life policy (or certificate-by-certificate in a
group policy). Any amount that is ultimately realized by the
policyholder upon the assumed surrender of the final policy (or final
certificate in a group policy) shall be included in the amount that could be
realized under the insurance contract. The effect of applying the
provisions of Issue No. 06-5 should be recognized either through a change in
accounting principle by a cumulative-effect adjustment to equity or through the
retrospective application to all prior periods. We adopted the
provisions of Issue No. 06-5 prospectively as of the beginning of Fiscal
2008. Adoption of EITF Issue No. 06-5 did not have a material impact
on our consolidated financial statements.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
In
September 2006 the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 provides a single definition of
fair value along with a framework for measuring it, and requires additional
disclosure about using fair value to measure assets and
liabilities. SFAS No. 157 emphasizes that fair value measurement is
market-based, not entity-specific, and establishes a fair value hierarchy which
places the highest priority on the use of quoted prices in active markets to
determine fair value. It also requires, among other things, that
entities are to include their own credit standing when measuring their
liabilities at fair value.
In
November 2007, the FASB drafted a proposed FASB Staff Position (“FSP”) that
would partially defer the effective date of SFAS No. 157 for one year for
non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a non-recurring basis. The
proposed FSP would not defer recognition and disclosure requirements for
financial assets and liabilities or for non-financial assets and liabilities
that are re-measured at least annually.
In
February 2008 the FASB issued FSP FAS 157-1, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease classification or Measurement
under Statement 13.” The FSP amends SFAS No. 157 to exclude
SFAS No. 13, “Accounting for
Leases,” and certain related accounting pronouncements that address fair
value measurements for purposes of lease classification or measurement under
SFAS No. 13. The scope exception of FSP FAS 157-1 does not apply to
assets acquired or liabilities assumed in a business combination that are
required to be measured at fair value under SFAS No. 141, “Business Combinations,” or
SFAS No. 141(R) (see below), regardless of whether those assets and liabilities
are related to leases. The scope exception also does not apply to
fair value measurements required by SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities,” or FASB Interpretation No. 21, “Accounting for Leases in a Business
Combination.” FSP FAS 157-1 is effective on the initial
adoption of SFAS No. 157.
In
February 2008 the FASB also issued FSP FAS No. 157-2, “Effective Date of FASB Statement
No. 157,” which delays the effective date of SFAS 157 for non-financial
assets and non-financial liabilities that are not currently recognized or
disclosed at fair value on a recurring basis until fiscal years beginning after
November 15, 2008. With the exception of assets and liabilities
included within the scope of FSP FAS No. 157-2, we will be required to adopt the
provisions of SFAS No. 157 prospectively effective as of the beginning of Fiscal
2009. For assets included within the scope of FSP FAS No. 157-2, we
will be required to adopt the provisions of SFAS No. 157 prospectively as of the
beginning of Fiscal 2010. We are evaluating the impact that adoption
of SFAS No. 157 would have on our financial position or results of
operations.
In
February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities–Including an amendment of FASB Statement No.
115,” which permits an entity to measure certain financial assets and
financial liabilities at fair value. The intent of SFAS No. 159 is to
reduce volatility in reported earnings caused by the measurement of related
assets and liabilities using different attributes without the need for applying
hedge accounting. Entities that elect the fair value option will
report unrealized gains and losses in earnings as of each subsequent reporting
date. Generally, the fair value option may be elected on an
instrument-by-instrument basis as long as it is applied to the instrument in its
entirety. Election of the fair value option is irrevocable unless a
new election date occurs.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
We will
be required to adopt the provisions of SFAS No. 159 prospectively effective as
of the beginning of Fiscal 2009. We do not expect that our adoption
of SFAS No. 159 will have a material effect on our financial position or results
of operations.
In
December 2007 the FASB issued SFAS No. 141(R), “Business Combinations,” and
SFAS No. 160,“Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51.” As compared to SFAS No. 141 and ARB No. 51, these
statements change the accounting for business combinations and noncontrolling
interests in subsidiaries by requiring:
|
·
|
The
measurement of additional assets acquired and liabilities assumed at fair
value as of the acquisition date;
|
|
·
|
Re-measurement
of liabilities related to contingent consideration at fair value in
periods subsequent to acquisition;
|
|
·
|
The
expensing in pre-acquisition periods of acquisition-related costs incurred
by the acquirer; and
|
|
·
|
The
initial measurement of non-controlling interests in subsidiaries at fair
value and classification of the interest as a separate component of
equity.
|
We will
be required to adopt the provisions of SFAS No. 141(R) and SFAS No. 160
prospectively effective as of the beginning of Fiscal 2010.
In
February 2008 the FASB issued FSP FAS 140-3, “Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions.” FSP
FAS 140-3 addresses whether there are circumstances that would permit a
transferor and a transferee to evaluate the accounting for the transfer of a
financial asset separately from a repurchase financing when the counterparties
to the two transactions are the same. The FSP presumes that the
initial transfer of a financial asset and a repurchase financing are considered
part of the same arrangement (a linked transaction) under SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.” However, if certain criteria specified in FSP
FAS 140-3 are met, the initial transfer and repurchase financing may be
evaluated separately under SFAS No. 140.
The
provisions of FSP FAS No. 140-3 would be effective prospectively as of the
beginning of Fiscal 2010. We do not expect that the adoption of FSP
FAS No. 140-3 would have a material effect on our financial position or results
of operations.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE 2. ACQUISITION OF
CROSSTOWN TRADERS, INC.
On June
2, 2005 we acquired 100% of the outstanding stock of Crosstown Traders, Inc.
("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.
Under the
terms of the acquisition agreement we paid $218,015,000 in cash for Crosstown
Traders and assumed Crosstown Traders’ debt of $40,728,000. We also
incurred direct costs related to the acquisition (primarily advisory, legal, and
statutory fees) of approximately $3,789,000. Subsequent to the
acquisition we securitized Crosstown Traders’ apparel-related accounts
receivable under a new conduit funding facility established specifically for
funding the Crosstown Traders receivables. The majority of the
proceeds of approximately $50,000,000 from the securitization were used to
retire Crosstown Traders’ debt. We financed the acquisition with
$102,200,000 of our existing cash and cash equivalents (net of cash acquired of
$5,815,000) and $110,000,000 of borrowings under a revolving credit
facility.
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. We recorded assets acquired
and liabilities assumed at their estimated fair values. In accordance
with the provisions of SFAS No. 141, “Business Combinations,” we
recognized certain acquired intangible assets (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. During Fiscal 2007 we increased the fair value of liabilities
assumed by $1,100,000 for customer refunds related to the pre-acquisition
period. We allocated the excess of the cost of the acquisition over
the estimated fair value of the identifiable net assets acquired to goodwill,
which is not deductible for tax purposes.
As of the
end of Fiscal 2007 we finalized the purchase price with JPMorgan Partners and,
as a result, reduced the purchase price and related goodwill by
$1,750,000. In addition, we finalized the purchase price allocation,
which resulted in a decrease in the deferred tax effect of the acquisition and a
corresponding decrease in goodwill. The final purchase price allocation for
the identifiable tangible and intangible assets and liabilities of Crosstown
Traders is as follows:
|
Purchase
|
||||
|
Price
|
||||
|
(In
thousands)
|
Allocation
|
|||
|
Fair
value of assets acquired
|
$ |
177,579
|
||
|
Fair
value of liabilities assumed
|
(59,785 | ) | ||
|
Intangible
assets subject to amortization
|
13,100
|
|||
|
Intangible
assets not subject to amortization (trademarks and
tradenames)
|
70,000
|
|||
|
Deferred
tax effect of acquisition
|
(26,816 | ) | ||
|
Goodwill
|
86,704
|
|||
|
Total
purchase price
|
$ |
260,782
|
||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Concurrent
with our acquisition of Crosstown Traders we began preparing a formal
integration plan (the “Plan”) for Crosstown Traders’ operations that included
exiting and consolidating certain activities of Crosstown Traders, lease
terminations, severance, unfavorable contract costs, 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 EITF Issue 95-3, “Recognition of Liabilities in
Connection with a Purchase Business Combination.” Liabilities
recorded in connection with the Plan (which we recorded as adjustments to
goodwill and deferred income taxes) and adjustments, payments, or settlements of
these liabilities for Fiscal 2007 and Fiscal 2008 were as follows:
|
Beginning
|
Payments/
|
Ending
|
||||||||||||||
|
(In
thousands)
|
Balance
|
Adjustments
|
Settlements
|
Balance
|
||||||||||||
|
Fiscal
2008
|
||||||||||||||||
|
Lease
termination and related costs
|
$ |
1,820
|
$ | (746 | ) | $ | (1,074 | ) | $ |
0
|
||||||
|
Other
costs
|
239
|
(153 | ) | (86 | ) |
0
|
||||||||||
|
Total
|
$ |
2,059
|
$ | (899 | ) | $ | (1,160 | ) | $ |
0
|
||||||
|
Fiscal
2007
|
||||||||||||||||
|
Severance
and related costs
|
$ |
4,380
|
$ | (728 | ) | $ | (3,652 | ) | $ |
0
|
||||||
|
Lease
termination and related costs
|
2,180
|
564
|
(924 | ) |
1,820
|
|||||||||||
|
Unfavorable
contract costs
|
900
|
(900 | ) |
0
|
0
|
|||||||||||
|
Other
costs
|
1,154
|
(62 | ) | (853 | ) |
239
|
||||||||||
|
Total
|
$ |
8,614
|
$ | (1,126 | ) | $ | (5,429 | ) | $ |
2,059
|
||||||
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.
During
Fiscal 2007 we finalized the lease termination and related costs and adjusted
severance and related costs for employees who left voluntarily and opted to
forego their severance. As a result of our decision to utilize the
remaining term of the acquired unfavorable contract, the unfavorable contract
costs accrual was reduced. During Fiscal 2008 we reached an agreement
with the landlord to terminate the lease on Crosstown Traders’ manufacturing
facility for approximately $570,000 and paid or settled the remaining
liabilities in connection with the integration plan. Accordingly, we
adjusted the severance and related costs, lease termination and related costs,
unfavorable contract costs, and other costs accruals, deferred income taxes, and
goodwill.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
|
Year
Ended
|
||||
|
January
28,
|
||||
|
(In thousands, except per share
amounts)
|
2006
|
|||
|
Net
sales
|
$ |
2,897,904
|
||
|
Net
income
|
98,317
|
|||
|
Net
income per share:
|
||||
|
Basic
|
$ |
.82
|
||
|
Diluted
|
.75
|
|||
The
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 31, 2004. 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 and 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 31, 2004 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.
NOTE 3. AVAILABLE-FOR-SALE
SECURITIES
|
Estimated
|
||||||||
|
(In
thousands)
|
Cost
|
Fair
Value
|
||||||
|
February 2,
2008
|
||||||||
|
U.S.
Treasury Bills
|
$ |
12,929
|
$ |
12,964
|
||||
|
Other
|
400
|
400
|
||||||
| $ |
13,329
|
$ |
13,364
|
|||||
|
February 3,
2007
|
||||||||
|
U.S.
Treasury Bills
|
$ |
1,497
|
$ |
1,497
|
||||
|
Other
|
500
|
500
|
||||||
| $ |
1,997
|
$ |
1,997
|
|||||
During
Fiscal 2008, Fiscal 2007 and Fiscal 2006 there were no realized gains or losses
on available-for-sale securities. The contractual maturities of
available-for-sale securities at February 2, 2008 were one year or
less.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE 4. ACCOUNTS
RECEIVABLE
Accounts
receivable consist of trade receivables from sales through our FIGI’S
catalog. Details of our accounts receivable are as
follows:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Due
from customers
|
$ |
39,797
|
$ |
38,449
|
||||
|
Allowance
for doubtful accounts
|
(6,262 | ) | (5,083 | ) | ||||
|
Net
accounts receivable
|
$ |
33,535
|
$ |
33,366
|
||||
Details
of the allowance for doubtful accounts are as follows:
|
Year
Ended
|
||||||||||||
|
February
2,
|
February
3,
|
January
28,
|
||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Beginning
balance
|
$ | (5,083 | ) | $ | (6,588 | ) | $ | 0 | (1) | |||
|
Provision
for doubtful accounts
|
(6,327 | ) | (4,924 | ) | (5,661 | ) | ||||||
|
Collections
of accounts previously written off
|
(994 | ) | (1,274 | ) | (1,030 | ) | ||||||
|
Accounts
written off
|
6,142
|
7,703
|
103
|
|||||||||
|
Ending
balance
|
$ | (6,262 | ) | $ | (5,083 | ) | $ | (6,588 | ) | |||
|
____________________
|
||||||||||||
|
(1) Balance as of June
2, 2005 (date of acquisition).
|
||||||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE 5. PROPERTY,
EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
|
Lives
|
||||||||||||
|
(Dollars in
thousands)
|
(Years)
|
2008
|
2007
|
|||||||||
|
Land
|
$ |
5,829
|
$ |
5,829
|
||||||||
|
Buildings
and improvements
|
10
to 40
|
79,805
|
74,125
|
|||||||||
|
Store
fixtures
|
5
to 10
|
185,934
|
162,879
|
|||||||||
|
Equipment
|
3
to 10
|
276,381
|
232,095
|
|||||||||
|
Equipment
acquired under capital leases
|
7
|
57,215
|
71,909
|
|||||||||
|
Leasehold
improvements
|
10(1)
|
500,324
|
433,439
|
|||||||||
|
Construction
in progress
|
–
|
12,071
|
16,154
|
|||||||||
|
Total
at cost
|
1,117,559
|
996,430
|
||||||||||
|
Less:Accumulated
depreciation and amortization
|
622,832
|
528,912
|
||||||||||
|
Accumulated amortization of
capital lease assets
|
35,578
|
45,072
|
||||||||||
|
Total
accumulated depreciation and amortization
|
658,410
|
573,984
|
||||||||||
|
Net
property, equipment, and leasehold improvements
|
$ |
459,149
|
$ |
422,446
|
||||||||
|
____________________
|
||||||||||||
|
(1) Or the life of the
lease, if shorter.
|
||||||||||||
NOTE 6. INTANGIBLE ASSETS
AND GOODWILL
Our
intangible assets are as follows:
|
Life
|
|||||||||
|
(Dollars in
thousands)
|
(Years)
|
2008
|
2007
|
||||||
|
Trademarks,
tradenames, and Internet domain names
|
$ |
230,595
|
$ |
241,850
|
|||||
|
Customer
lists, customer relationships,
|
|||||||||
|
and covenant not to
compete
|
4
to 5
|
16,400
|
16,400
|
||||||
|
Total
at cost
|
246,995
|
258,250
|
|||||||
|
Less:accumulated
amortization of customer lists,
|
|||||||||
|
customer relationships, and
covenant not to compete
|
12,036
|
8,760
|
|||||||
|
Net
trademarks and other intangible assets
|
$ |
234,959
|
$ |
249,490
|
|||||
Total
amortization of other intangible assets was $3,276,000 in Fiscal 2008,
$3,634,000 in Fiscal 2007, and $2,844,000 in Fiscal 2006. Estimated
amortization of intangible assets for the next five fiscal years is: Fiscal
2009 – $3,275,000;
Fiscal 2010 –
$1,089,000; thereafter – $0.
During
Fiscal 2008 we recognized impairment charges of $11,393,000 related to our
Crosstown Traders trademarks (see “NOTE 13. IMPAIRMENT OF
GOODWILL AND TRADEMARKS” below).
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Our
goodwill by reportable business segment is as follows:
|
February
2,
|
February
3,
|
|||||||
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Retail
Stores:
|
||||||||
|
LANE
BRYANT
|
$ |
23,436
|
$ |
23,436
|
||||
|
CATHERINES
|
43,230
|
43,230
|
||||||
|
Direct-to-Consumer:
|
||||||||
|
Crosstown
Traders
|
0
|
86,704
|
||||||
| $ |
66,666
|
$ |
153,370
|
|||||
During
Fiscal 2008 we recognized impairment charges of $86,826,000 related to the
Crosstown Traders goodwill (see “NOTE 13. IMPAIRMENT OF
GOODWILL AND TRADEMARKS” below).
NOTE 7. INCOME
TAXES
Income/(loss)
before income taxes:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Domestic
|
$ | (95,947 | ) | $ |
154,025
|
$ |
144,753
|
|||||
|
Foreign
|
15,239
|
12,098
|
7,648
|
|||||||||
| $ | (80,708 | ) | $ |
166,123
|
$ |
152,401
|
||||||
Income
tax provision:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | (1,028 | ) | $ |
38,066
|
$ |
50,097
|
|||||
|
State
|
5,101
|
5,007
|
4,255
|
|||||||||
|
Foreign
|
2,092
|
1,649
|
892
|
|||||||||
|
6,165
|
44,722
|
55,244
|
||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(3,321 | ) |
12,815
|
(547 | ) | |||||||
|
State
|
773
|
(337 | ) | (1,687 | ) | |||||||
| (2,548 | ) |
12,478
|
(2,234 | ) | ||||||||
| $ |
3,617
|
$ |
57,200
|
$ |
53,010
|
|||||||
We made
income tax payments of $21,332,000 during Fiscal 2008, $78,138,000 during Fiscal
2007, and $45,354,000 during Fiscal 2006.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Reconciliation
of the statutory Federal income tax rate to the effective tax rate:
|
2008
|
2007
|
2006
|
||||||||||
|
Statutory
Federal income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State
income tax, net of Federal income tax
|
(6.5 | ) |
2.8
|
1.2
|
||||||||
|
Foreign
income
|
4.0
|
(1.5 | ) | (1.2 | ) | |||||||
|
Employee
benefits
|
1.3
|
(0.3 | ) | (0.6 | ) | |||||||
|
Impairment
of goodwill
|
(37.7 | ) |
–
|
–
|
||||||||
|
Charitable
contributions
|
1.2
|
(0.3 | ) | (0.3 | ) | |||||||
|
Other,
net
|
(1.8 | ) | (1.1 | ) |
0.7
|
|||||||
|
Effective
tax rate
|
(4.5 | )% | 34.4 | % | 34.8 | % | ||||||
Components
of deferred tax assets and liabilities:
|
Net
Current
|
Net
Long-Term
|
|||||||
|
Assets
|
Assets
|
|||||||
|
(In
thousands)
|
(Liabilities)
|
(Liabilities)
|
||||||
|
February 2,
2008
|
||||||||
|
Property,
equipment, and leasehold improvements
|
$ | (14,166 | ) | |||||
|
Accounts
receivable
|
$ | (6,098 | ) | |||||
|
Tax
credit and loss carry-forwards
|
14,399
|
|||||||
|
Prepaid
and accrued expenses
|
(8,840 | ) | ||||||
|
Inventory
|
4,060
|
|||||||
|
Deferred
compensation
|
18,026
|
|||||||
|
Goodwill
and intangible assets
|
(56,785 | ) | ||||||
|
Investments
|
(908 | ) | ||||||
|
Deferred
rent
|
6,752
|
|||||||
|
Credit
card late fees
|
(17,436 | ) | ||||||
|
Other
|
4,010
|
9,117
|
||||||
| $ |
7,531
|
$ | (55,400 | ) | ||||
|
February 3,
2007
|
||||||||
|
Property,
equipment, and leasehold improvements
|
$ | (11,064 | ) | |||||
|
Accounts
receivable
|
$ | (4,409 | ) | |||||
|
Tax
credit and loss carryforwards
|
9,303
|
|||||||
|
Prepaid
and accrued expenses
|
(6,367 | ) | ||||||
|
Inventory
|
2,983
|
|||||||
|
Deferred
compensation
|
17,548
|
|||||||
|
Goodwill
and intangible assets
|
(60,187 | ) | ||||||
|
Investments
|
(556 | ) | ||||||
|
Deferred
rent
|
12,611
|
|||||||
|
Credit
card late fees
|
(15,428 | ) | ||||||
|
Other
|
2,959
|
(264 | ) | |||||
| $ |
4,469
|
$ | (57,340 | ) | ||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
We have
state tax losses that are generally fully offset by a valuation allowance as
such losses are not more than likely to be realized in the future.
We
received approval from the U. S. Internal Revenue Service during Fiscal 2006 to
change our tax accounting method for credit card late fees and, as such, have
recorded deferred tax liabilities and related tax credit
carry-forwards. Deferred taxes related to prepaid and accrued
expenses were affected by an adjustment to prepaid rent resulting from the
additional week included in Fiscal 2007, which was a 53-week fiscal
year. A substantial portion of the “Other” net long-term assets for
Fiscal 2008 represents deferred tax assets related to the adoption of FIN No.
48.
We
adopted the provisions of FIN No. 48 effective as of February 4,
2007. In accordance with FIN No. 48, we recognized a
cumulative-effect adjustment of $4,998,000, increasing our liability for
unrecognized tax benefits, interest, and penalties and reducing the February 4,
2007 balance of retained earnings.
Reconciliation
of the change in our liability for unrecognized tax benefits for Fiscal
2008:
|
Year
Ended
|
||||
|
February
2,
|
||||
|
(In thousands, except per share
amounts)
|
2008
|
|||
|
Gross
unrecognized tax benefits as of February 4, 2007
|
$ |
22,474
|
||
|
Additions
for tax positions related to prior years
|
4,271
|
|||
|
Additions
for tax positions related to Fiscal 2008
|
492
|
|||
|
Reductions
resulting from lapse of applicable statute of limitations
|
(463 | ) | ||
|
Reductions
for tax positions related to prior years
|
(82 | ) | ||
|
Settlements
|
(27 | ) | ||
|
Gross
unrecognized tax benefits as of February 2, 2008
|
$ |
26,665
|
||
The
portion of the liability for gross unrecognized tax benefits that, if
recognized, would decrease our provision for income taxes and increase our net
income was $15,534,000 as of February 4, 2007 and $18,587,000 as of February 2,
2008.
Reconciliation
of accrued interest and penalties for Fiscal 2008:
|
Year
Ended
|
||||
|
February
2,
|
||||
|
(In thousands, except per share
amounts)
|
2008
|
|||
|
Accrued
interest and penalties as of February 4, 2007
|
$ |
7,412
|
||
|
Interest
and penalties recognized during Fiscal 2008
|
2,401
|
|||
|
Accrued
interest and penalties as of February 2, 2008
|
$ |
9,813
|
||
As of
February 2, 2008 it is reasonably possible that the total amount of unrecognized
tax benefits will decrease within the next twelve months by as much as $682,000
due to resolutions of audits or expirations of statutes of limitations related
to U.S. Federal and state tax positions.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Our U.S.
Federal income tax returns for Fiscal 2005 and beyond remain subject to
examination by the U.S. Internal Revenue Service (“IRS”). The IRS is
not currently examining any of our tax returns. We file returns in
numerous state jurisdictions, with varying statutes of
limitations. Our state tax returns for Fiscal 2004 and beyond,
depending upon the jurisdiction, generally remain subject to
examination. The statute of limitations on a limited number of
returns for years prior to Fiscal 2004 has been extended by agreement between us
and the particular state jurisdiction. The earliest year still
subject to examination by state tax authorities is Fiscal 1999.
On
October 22, 2004 the President of the United States of America signed into law
H.R. 4250, “The American Jobs Creation Act of 2004” (the “Act”). The
Act included among its provisions certain tax benefits related to the
repatriation to the United States of profits from a company’s international
operations provided that certain criteria are met, including the implementation
of a qualifying reinvestment plan for the repatriated earnings. The
Act permitted the repatriation of profits at a tax rate not to exceed 5.25% for
approximately a one-year period, subject to certain
limitations. During Fiscal 2006, based on a formal reinvestment plan
approved by our Board of Directors, we repatriated $44,000,000 of profits from
our international operations, which resulted in $2,667,000 of United States
income taxes, $1,135,000 of applicable foreign tax credits, and net taxes of
$1,532,000.
NOTE 8. LONG-TERM
DEBT
|
(In
thousands)
|
2008
|
2007
|
||||||
|
1.125%
Senior Convertible Notes due May 2014
|
$ |
275,000
|
$ |
0
|
||||
|
4.75%
Senior Convertible Notes due June 2012(1)
|
0
|
149,999
|
||||||
|
Capital
lease obligations
|
13,698
|
12,853
|
||||||
|
6.07%
mortgage note, due October 2014
|
11,078
|
11,696
|
||||||
|
6.53%
mortgage note, due November 2012
|
6,650
|
8,050
|
||||||
|
7.77%
mortgage note due December 2011
|
7,897
|
8,496
|
||||||
|
Other
long-term debt
|
673
|
917
|
||||||
|
Total
long-term debt
|
314,996
|
192,011
|
||||||
|
Less
current portion
|
8,827
|
10,887
|
||||||
| $ |
306,169
|
$ |
181,124
|
|||||
|
____________________
|
||||||||
|
(1) On April 30, 2007 we
called these notes for redemption on June 4, 2007 (see
below).
|
||||||||
On April
30, 2007 we issued $250,000,000 in aggregate principal amount of 1.125% Senior
Convertible Notes due May 1, 2014 (the “1.125% Notes”) in a private offering for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended. On May 11, 2007 the initial
purchasers of the 1.125% Notes exercised their over-allotment option and
purchased an additional $25,000,000 in aggregate principal amount of the
notes. The 1.125% Notes were issued at par plus accrued interest, if
any, from April 30, 2007 and interest is payable semiannually in arrears on May
1 and November 1, beginning November 1, 2007. The 1.125% Notes will
mature on May 1, 2014 unless earlier repurchased by us or
converted.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
We
received combined proceeds of approximately $268,125,000 from the issuance, net
of underwriting fees of approximately $6,875,000. The underwriting
fees, as well as additional transaction costs of $765,000 incurred in connection
with the issuance of the 1.125% Notes, are included in “Other assets” on our
condensed consolidated balance sheets and are being amortized to interest
expense on an effective interest rate basis over the life of the notes (seven
years).
Holders
of the 1.125% Notes may convert their notes based on a conversion rate of
65.0233 shares of our common stock per $1,000 principal amount of notes (the
equivalent of $15.379 per share), subject to adjustment upon certain events,
only under the following circumstances as described in the Indenture for the
1.125% Notes (the “Indenture”): (i) during specified periods, if the price of
our common stock reaches specified thresholds; (ii) if the trading price of the
1.125% Notes is below a specified threshold; (iii) at any time after November
15, 2013; or (iv) upon the occurrence of certain corporate
transactions.
Upon
conversion we intend to deliver an amount in cash equal to the lesser of the
aggregate principal amount of notes to be converted or our total conversion
obligation. If our conversion obligation exceeds the aggregate
principal amount of the 1.125% Notes we will deliver shares of our common stock
in respect of the excess. However, we have the option, subject to the
approval of our Board of Directors, to elect to satisfy our conversion
obligation entirely in shares of our common stock. In connection with
a “Fundamental Change” as defined in the Indenture, we also will deliver upon
conversion of the notes additional shares of common stock as described in the
Indenture. In addition, if we undergo a Fundamental Change before
maturity of the 1.125% Notes, we may be required to repurchase for cash all or a
portion of the 1.125% Notes. This repurchase would be priced at 100%
of the principal amount of the notes being repurchased, plus accrued and unpaid
interest, including additional amounts, if any, up to but excluding the date of
purchase. As of February 2, 2008 none of the conditions allowing
holders of the 1.125% Notes to convert had been met.
Under a
registration rights agreement that we entered into with the initial purchasers
of the 1.125% Notes, we agreed to file a shelf registration statement with the
Securities and Exchange Commission (“SEC”) covering re-sales of the 1.125% Notes
and the shares of our common stock issuable on conversion of the
notes. On August 24, 2007 we filed with the SEC an automatic shelf
registration statement covering re-sales of the 1.125% Notes and the shares
issuable on conversion of the notes.
We
accounted for the issuance of the 1.125% Notes in accordance with the guidance
in EITF Issue 90-19, “Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion” and EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.” Accordingly, we have recorded the 1.125% Notes as
long-term debt in our condensed consolidated balance sheet as of February 2,
2008.
Concurrent
with the issuance of the 1.125% Notes we entered into privately negotiated
common stock call options with affiliates of the initial
purchasers. The call options allow us to purchase up to 17,881,000
shares of our common stock at an initial strike price of $15.379 per
share. The call options expire on May 1, 2014 and must be net-share
settled. The cost of the call options was $90,475,000.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
In
addition, we sold warrants to affiliates of certain of the initial purchasers
that give them the option to purchase up to 18,775,000 shares of our common
stock at an initial strike price of $21.607 per share. The warrants
expire on various dates from July 30, 2014 through December 18, 2014 and must be
net-share settled. We received $53,955,000 in cash proceeds from the
sale of these warrants.
The call
options are intended to reduce the potential dilution to our common stock upon
conversion of the 1.125% Notes by effectively increasing the initial conversion
price of the notes to $21.607 per share, representing a 73% conversion premium
over the closing price of $12.49 per share for our common stock on April 30,
2007.
Paragraph
11(a) of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” provides that contracts issued or
held by an entity that are both indexed to the entity’s own common stock and
classified in stockholders’ equity in its statement of financial position are
not considered to be derivative instruments under SFAS No. 133 if the provisions
of EITF Issue 00-19 are met.
We
accounted for the call options and warrants in accordance with the guidance in
EITF Issue 00-19. The call options and warrants meet the requirements
of EITF Issue 00-19 to be accounted for as equity
instruments. Accordingly, the cost of the call options and the
proceeds from the sale of the warrants are included in additional paid-in
capital in our accompanying condensed consolidated balance sheet as of February
2, 2008. We used a portion of the net proceeds from the 1.125% Notes
to pay the $36,520,000 net cost of the call options and warrants.
In
accordance with SFAS No. 128, “Earnings Per Share,” the
1.125% Notes will have no impact on our diluted net income per share until the
price of our common stock exceeds the conversion price of $15.379 per share
because the principal amount of the 1.125% Notes will be settled in cash upon
conversion. Prior to conversion we will include the effect of the
additional shares that may be issued if our common stock price exceeds $15.379
per share using the treasury stock method. For the first $1.00 by
which the price of our common stock exceeds $15.379 per share there would be
dilution of approximately 1,093,000 shares. Further increases in the
share price would result in additional dilution at a declining rate, such that a
price of $21.607 per share would result in cumulative dilution of approximately
5,156,000 shares. Should the stock price exceed $21.607 per share we
would also include the dilutive effect of the additional potential shares that
may be issued related to the warrants using the treasury stock
method. The 1.125% Notes and warrants would have a combined dilutive
effect such that, for the first $1.00 by which the stock price exceeds $21.607
per share, there would be cumulative dilution of approximately 6,552,000 shares
prior to conversion. Further increases in the share price would
result in additional dilution at a declining rate.
The call
options are not included in the calculation of diluted net income per share
because their effect would be anti-dilutive. Upon conversion of the
1.125% Notes the call options will serve to neutralize the dilutive effect of
the notes up to a stock price of $21.607 per share. For the first
$1.00 by which the stock price exceeds $21.607 per share the call options would
reduce the cumulative dilution of approximately 6,552,000 shares in the example
above to approximately 833,000 shares.
The
preceding calculations assume that the average price of our common stock exceeds
the respective conversion prices during the period for which diluted net income
per share is calculated and exclude any potential adjustments to the conversion
ratio provided under the terms of the 1.125% Notes.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
On April
30, 2007 we called for the redemption on June 4, 2007 of our $149,999,000
outstanding aggregate principal amount of 4.75% Senior Convertible Notes, due
June 2012 (the “4.75% Notes”). The holders of the 4.75% Notes had the
option to convert their notes into shares of our common stock at a conversion
price of $9.88 per share until the close of business on June 1,
2007. As of June 4, 2007, the holders of $149,956,000 principal
amount of the 4.75% Notes had exercised their right to convert their notes into
an aggregate of 15,145,556 shares of our common stock and the remaining notes
were redeemed for $43,000. In addition, we paid $392,000 in lieu of
fractional shares.
Our
revolving credit facility agreement provides for a revolving credit facility
with a maximum availability of $375,000,000, subject to certain limitations as
defined in the facility agreement, and provides that up to $300,000,000 of the
facility may be used for letters of credit. In addition, we may
request, subject to compliance with certain conditions, additional revolving
credit commitments up to an aggregate maximum availability of
$500,000,000. The agreement expires on July 28, 2010. As
of February 2, 2008 we had an aggregate total of $2,106,000 of unamortized
deferred debt acquisition costs related to the facility that are being amortized
on a straight-line basis over the life of the amended facility agreement as
interest expense. As of February 2, 2008 no cash borrowings were
outstanding, and $1,976,000 of documentary letters of credit and
$11,486,000 of issued but undrawn standby letters of credit were
outstanding under the credit facility.
The
facility includes provisions for customary representations and warranties and
affirmative covenants, and includes customary negative covenants providing for
certain limitations on, among other things, sales of assets; indebtedness;
loans, advances and investments; acquisitions; guarantees; and dividends and
redemptions. 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. The “Excess Availability” under the facility
was $280,550,000 as of February 2, 2008. As of February 2, 2008 we
were not in violation of any of the covenants included in the
facility.
The
interest rate on borrowings under the facility is Prime for Prime Rate Loans and
LIBOR as adjusted for the “Reserve Percentage” (as defined in the facility
agreement) plus 1.0% to 1.5% per annum for Eurodollar Rate Loans. The
applicable rate is determined monthly, based on our average “Excess
Availability.” As of February 2, 2008 the applicable rates on
borrowings under the facility were 6.43% for Prime Rate Loans and 4.26% (LIBOR
plus 1%) for Eurodollar Rate Loans.
During
Fiscal 2008 we acquired $8,047,000 of distribution center, technology, and
office equipment and in Fiscal 2006 we acquired $3,892,000 of data warehousing
and information technology equipment under capital leases. These
capital leases generally have initial terms ranging from 36 months to 48 months
and contain a bargain purchase option. As of February 2, 2008 the
imputed interest rates on our outstanding capital leases ranged from 5.00% to
7.35%.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Repayment
of the 6.07% mortgage note is based on a 15-year amortization schedule, with 119
monthly installments of principal and interest of $110,000 and a balloon payment
of $5,800,000 at the end of 10 years. The note may be prepaid upon
the payment of a premium or, upon certain other events, without the payment of a
premium. The note is secured by a mortgage on real property at our
distribution center in Greencastle, Indiana and an Assignment of Lease and Rents
and Security Agreement related to the Greencastle facility. The
proceeds from this borrowing were used to repay the scheduled maturities of
other debt and for other general corporate purposes.
The 6.53%
mortgage note has a ten-year term with 120 monthly installments of
principal of $117,000 plus interest. The note is secured by a
mortgage on land, a building, and certain fixtures we own at our distribution
center in White Marsh, Maryland. The net proceeds from this borrowing
were used to finance a substantial portion of the acquisition of the White Marsh
facility.
The 7.77%
mortgage note has a ten-year term with 119 monthly installments of principal and
interest of $103,000 and a final payment of any remaining unpaid principal and
interest in December 2011. The note is secured by a mortgage on land,
buildings, and fixtures we own at our offices in Bensalem, Pennsylvania and by
leases we own or rents we receive, if any, from tenants of the Bensalem
facility. The net proceeds from this borrowing were used to repay a
portion of borrowings that were outstanding under our then-existing revolving
credit facility.
We made
interest payments of $8,881,000 during fiscal 2008, $12,752,000 during Fiscal
2007, and $15,824,000 during Fiscal 2006, and did not capitalize any interest
expense during these three fiscal years.
Aggregate
maturities of long-term debt during the next five fiscal years are as
follows:
|
(In
thousands)
|
2009
|
2010
|
2011
|
2012
|
2013
|
|||||||||||||||
|
Capital
lease obligations
|
$ |
5,870
|
$ |
2,237
|
$ |
1,906
|
$ |
1,982
|
$ |
1,381
|
||||||||||
|
Mortgage
notes
|
2,707
|
2,801
|
2,901
|
7,984
|
1,893
|
|||||||||||||||
|
Other
long-term debt
|
250
|
258
|
120
|
15
|
16
|
|||||||||||||||
| $ |
8,827
|
$ |
5,296
|
$ |
4,927
|
$ |
9,981
|
$ |
3,290
|
|||||||||||
Minimum
lease payments under capital leases for the next five fiscal years
are: 2009 –
$6,546,000; 2010 –
$2,636,000; 2011 –
$2,184,000; 2012 –
$2,137,000; 2013 –
$1,466,000; thereafter –
$326,000. Included in these minimum lease payments is aggregate
imputed interest of $1,596,000.
NOTE 9. STOCKHOLDERS’
EQUITY
Our
authorized shares consist of:
|
|
·
|
1,000,000
shares of Series Participating Preferred Stock, $1.00 par value, of which
500,000 shares of Participating Series A Junior Preferred Stock, $1.00 par
value, have been authorized;
|
|
|
·
|
300,000,000
shares of common stock, $.10 par
value.
|
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
In Fiscal
1998 we publicly announced that our Board of Directors granted authority to
repurchase up to 10,000,000 shares of our common stock. In Fiscal
2000 we publicly announced that our Board of Directors granted authority to
repurchase up to an additional 10,000,000 shares of our common
stock. In Fiscal 2003 the Board of Directors granted an additional
authorization to repurchase 6,350,662 shares of common stock issued to Limited
Brands, Inc. (“Limited Brands”) in connection with our acquisition of LANE
BRYANT. The repurchase programs have no expiration date.
From
Fiscal 1998 through Fiscal 2003 we repurchased an aggregate total of 21,370,993
shares of common stock under these programs, which included shares purchased on
the open market as well as the 6,350,662 shares repurchased from Limited
Brands. During Fiscal 2008 we repurchased an aggregate total of
3,480,108 shares for $21,523,000 under these programs. As of February
2, 2008, 1,499,561 shares of our common stock remain available for repurchase
under these programs. As conditions may allow we may from time to
time repurchase additional shares of our common stock under these programs and
such shares would be held as treasury shares.
During
Fiscal 2008 we also repurchased 10,314,900 shares of our common stock using
$131,102,000 of the proceeds from our issuance of 1.125% Senior Convertible
Notes due May 1, 2014 (see “NOTE 8. LONG-TERM DEBT”
above). In addition, we repurchased an aggregate total of 10,416,245
shares of common stock for $100,000,000 under a share repurchase program we
announced in May 2007 and completed during Fiscal 2008.
In
November 2007 we announced that our Board of Directors authorized a new
$200,000,000 share repurchase program. We intend to make share
purchases from time to time in the open market or through privately-negotiated
transactions and expect to fund the repurchases primarily from operating cash
flow. The timing of such repurchases and the number of shares
repurchased will depend on market conditions and we intend to hold shares
repurchased as treasury shares. We expect to complete the program
over the next several years. As of February 2, 2008 no shares have
been repurchased under this program.
As of
February 2, 2008 we held an aggregate total of 36,477,246 treasury shares with
an aggregate cost of $336,761,000. Our revolving credit facility
allows the repurchase of our common stock subject to maintaining a minimum level
of “Excess Availability” (as defined in the facility agreement) for 30 days
before and immediately after such repurchase.
NOTE 10. SHAREHOLDER
RIGHTS PLAN
We have a
Rights Agreement between our company and American Stock Transfer & Trust
Company, as Rights Agent. On April 12, 1999, pursuant to the Rights
Agreement, our Board of Directors declared a dividend distribution of one Right
for each outstanding share of our common stock, payable upon the close of
business on April 26, 1999. Each Right entitles the registered holder
to purchase from us one three-hundredth of a share of Series A Junior
Participating Preferred Stock, or, under certain circumstances, a combination of
securities and assets of equivalent value, at a purchase price of $20.00,
subject to adjustment. The purchase price may be paid in cash or, if
we permit, by the delivery of Rights under certain circumstances. The
description and terms of the Rights are set forth in the Rights
Agreement. Initially, ownership of the Rights will be evidenced by
the certificates representing shares of common stock then outstanding, and no
separate Rights certificates will be distributed.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The
Rights will separate from the common stock and a “Distribution Date” will occur
upon the earlier of: (i) 10 days following a public announcement that a person
or group of affiliated or associated persons (an “Acquiring Person”) has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of our outstanding common stock (the “Stock Acquisition Date”); or (ii) the
close of business on such date as may be fixed by our Board of Directors after
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 20% or more of our outstanding common
stock. Until the Distribution Date: (i) the Rights will be evidenced
by the certificates representing shares of common stock and will be transferred
with, and only with, such certificates; (ii) certificates issued after April 26,
1999 will contain a notation incorporating the Rights Agreement by reference;
and (iii) the surrender for transfer of any certificates for our common stock
outstanding will also constitute the transfer of the Rights associated with the
common stock represented by such certificate.
In the
event that, at any time following the Distribution Date, a person becomes an
Acquiring Person, each holder of a Right will thereafter have the right to
receive, upon exercise, our common stock (or, in certain circumstances, cash,
property, or other securities of our company) having a value equal to two times
the exercise price of the Right. In lieu of requiring payment of the
purchase price upon exercise of the Rights following any such event, we may
permit the holders simply to surrender the Rights under certain circumstances,
in which event they will be entitled to receive our common stock (and other
property, as the case may be) with a value of 50% of what could be purchased by
payment of the full purchase price. Notwithstanding any of the
foregoing, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by the Acquiring Person will be null
and void. Rights are not exercisable until such time as the Rights
are no longer redeemable by us as set forth in the Rights
Agreement.
In the
event that, at any time following the Stock Acquisition Date: (i) we are
acquired in a merger or other business combination transaction in which we are
not the surviving corporation (other than a merger that is described in, or that
follows a tender offer or exchange offer described above); or (ii) 50% or more
of our assets or earning power is sold or transferred, each holder of a Right
(except Rights that previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the exercise price of the
Right. Again, provision is made to permit surrender of the Rights in
exchange for one-half of the value otherwise purchasable. The events
set forth in this paragraph and above are referred to as the “Triggering
Events.”
The
purchase price payable and the number of shares of our common stock or other
securities or property to be issued upon exercise of the Rights are subject to
certain anti-dilution adjustments. With certain exceptions, no
adjustment in the purchase price will be required until cumulative adjustments
amount to at least 1% of the purchase price. Instead of fractional
shares of our common stock, an adjustment in cash will be made based on the
market price of our common stock on the last trading date before the date of
exercise.
At any
time until ten days following the Stock Acquisition Date we may redeem the
Rights in whole, but not in part, at a redemption price of $.01 per Right,
subject to adjustment. Our Board of Directors may extend the ten-day
period as long as the Rights are still redeemable. Immediately upon
the order of our Board of Directors to redeem the Rights, the Rights will
terminate and the holders of Rights will only be able to receive the redemption
price. Until a Right is exercised the holder of the Right will have
no rights as a shareholder of our company, including, without limitation, the
right to vote or to receive dividends.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE 11. STOCK-BASED
COMPENSATION PLANS
2004 Stock Award and Incentive
Plan
Our 2004
Stock Award and Incentive Plan (the “2004 Plan”) was approved by our Board of
Directors on April 30, 2004 and by our shareholders on June 24,
2004. This plan replaces our 1993 Employees’ Stock Incentive Plan
(the “1993 Plan”), our 1999 Associates’ Stock Incentive Plan (the “1999 Plan”),
and our 2000 Associates’ Stock Incentive Plan (the “2000 Plan”), which are
described below. The plan is administered by our Board of Directors
and its Compensation Committee.
The 2004
Plan provides for the grant of options (including both incentive and
non-qualified stock options), restricted stock awards (“RSAs”), stock
appreciation rights (“SARs”), restricted stock units (“RSUs”), and a variety of
other types of awards. Awards representing an aggregate of up to
6,500,000 shares of our common stock, together with shares remaining available
under the 1993 Plan and shares recaptured from outstanding awards under the 1993
Plan, 1999 Plan, and 2000 Plan, may be issued under this plan. Of the
aggregate shares available, up to 2,000,000 shares may be issued in connection
with “full-value” awards (equity awards for which a participant does not pay at
least the grant-date fair market value of the award, such as RSAs or
RSUs). Additional shares may be used for full-value awards by
reducing the number of shares that remain available for options, SARs, and other
non-full-value awards by three shares for each share to be used for full-value
awards in excess of the 2,000,000 share limit.
The
aggregate number of shares subject to awards granted under the 2004 Plan in any
fiscal year will not exceed 2% of our common stock on a fully diluted basis as
of the last day of the preceding fiscal year. The 2004 Plan prohibits
the amendment or replacement of options or SARs granted under the plan in a
transaction that constitutes a “re-pricing” under generally accepted accounting
principles without shareholder approval.
Additional
information related to our 2004 Plan is as follows:
|
2008
|
2007
|
2006
|
||||||||||
|
Restricted
stock awards/RSUs granted
|
1,035,422
|
926,346
|
1,092,915
|
|||||||||
|
Weighted
average market price at date of grant
|
$11.98
|
$13.21
|
$8.51
|
|||||||||
|
Stock
awards/RSUs vested with issuance deferred
|
240,979
|
305,250
|
104,000
|
|||||||||
|
Shares
issued under stock awards/RSUs
|
64,196
|
17,312
|
5,769
|
|||||||||
|
Cancellations
of stock awards/RSUs
|
720,795
|
11,131
|
37,500
|
|||||||||
|
Restricted
awards/RSUs outstanding at year-end
|
1,800,651
|
1,791,199
|
1,198,546
|
|||||||||
2003 Non-Employee Directors
Compensation Plan
Our 2003
Non-Employee Directors Compensation Plan (the “2003 Plan”) was approved by
shareholders on June 26, 2003. Directors who are not employed by our
company are eligible to participate in the plan. Our Board of
Directors administers the plan and approves the form and amount of awards under
the plan. This plan provides for the grant of stock options, SARs,
RSAs, RSUs, or deferred shares of up to an aggregate total of 600,000 shares of
our common stock. No more than 50% of the shares reserved for
issuance under the plan may be issued as restricted stock awards or
RSUs.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
During
Fiscal 2006 and Fiscal 2007 the plan provided for a one-time RSA to a newly
elected or appointed non-employee director of 10,000 shares of common stock
vesting over three years and annual grants of options for 7,500 shares of common
stock and 7,500 RSUs vesting in one year to each non-employee director serving
at the date of our Annual Meeting of Shareholders. During Fiscal 2008
we amended the plan to eliminate the one-time RSA to a newly elected or
appointed non-employee director and to grant annual RSUs for a number of shares
equivalent to $135,000 of aggregate market value on the date of grant to each
non-employee director serving at the date of our Annual Meeting of Shareholders
instead of the two 7,500-share awards.
Each RSU
represents a right to receive one share of common stock or cash of equal value,
at the company’s option, at the date of vesting or, if deferred by the director,
at a later date after termination of service. Non-employee directors
may also elect to receive deferred shares of common stock of an equivalent
market value instead of cash director’s fees.
The
exercise price of options or SARs granted under the 2003 Plan may not be less
than the fair market value of our common stock on the date of
grant. The maximum term of options and SARs issued under the plan is
ten years. The plan includes a provision that options previously
granted under the plan will not be amended or replaced in a transaction that
constitutes a “re-pricing” as defined in the plan without shareholder
approval.
Additional
information related to our 2003 Plan is as follows:
|
2008
|
2007
|
2006
|
||||||||||
|
One-time
restricted stock awards granted
|
0
|
10,000
|
10,000
|
|||||||||
|
Weighted
average market price at date of grant
|
$
–
|
$13.84
|
$12.48
|
|||||||||
|
RSUs
granted
|
80,703
|
61,233
|
55,582
|
|||||||||
|
Weighted
average market price at date of grant
|
$11.71
|
$11.33
|
$9.29
|
|||||||||
|
Shares
issued under stock awards/RSUs
|
24,999
|
8,482
|
29,167
|
|||||||||
|
RSUs
vested with issuance deferred
|
42,536
|
37,500
|
9,000
|
|||||||||
|
Cancellations
of restricted stock awards/RSUs
|
9,131
|
0
|
0
|
|||||||||
|
Restricted
awards/RSUs outstanding at year-end
|
87,370
|
83,333
|
58,082
|
|||||||||
|
Options
exercisable at year-end
|
341,587
|
283,140
|
455,225
|
|||||||||
2000 Associates’ Stock Incentive
Plan
The 2000
Plan, adopted by our Board of Directors on January 27, 2000, provided for the
grant of options, SARS, RSAs, deferred stock, or other stock-based awards of up
to an aggregate total of 5,000,000 shares of our common stock. The
form of the grants, exercise price, and maximum term, where applicable, were at
the discretion of our Board of Directors and its Compensation
Committee.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Additional
information related to our 2000 Plan is as follows:
|
2008
|
2007
|
2006
|
||||||||||
|
Shares
issued under stock awards
|
158,420
|
57,815
|
46,551
|
|||||||||
|
Cancellations
of restricted stock awards
|
17,990
|
91,950
|
53,000
|
|||||||||
|
Restricted
awards outstanding at year-end
|
198,090
|
374,500
|
524,265
|
|||||||||
|
Options
exercisable at year-end
|
659,759
|
750,857
|
1,030,009
|
|||||||||
1999 Associates’ Stock Incentive
Plan
The 1999
Plan, adopted by our Board of Directors in February 1999, provided for the grant
of options to purchase up to an aggregate total of 1,000,000 shares of our
common stock. The exercise price of such options could not be less
than the fair market value on the date of grant. The maximum term of
options issued under the plan is ten years. Options exercisable under
this plan were 92,500 as of February 2, 2008, 96,095 as of February 3, 2007, and
120,700 as of January 28, 2006.
As a
result of our adoption of the 2004 Plan, no further options or awards may be
granted under the 2000 Plan or the 1999 Plan.
1993 Employees’ Stock Incentive
Plan
The 1993
Plan provided for the grant of options or awards for up to an aggregate total of
10,898,726 shares of common stock plus 1,843,258 unissued shares available under
our discontinued 1990 Employees’ Stock Incentive Plan. The form of
the grants and exercise price, where applicable, were at the discretion of our
Board of Directors and its Compensation Committee (formerly the Compensation and
Stock Option Committee). The maximum term of options issued under the
1993 Plan is ten years. As a result of the adoption of the 2004 Plan,
we no longer intend to issue options or awards under this plan.
Additional
information related to our 1993 Plan is as follows:
|
2008
|
2007
|
2006
|
||||||||||
|
Shares
issued under stock awards
|
160,060
|
160,960
|
42,810
|
|||||||||
|
Stock
awards vested with issuance deferred
|
0
|
0
|
90,000
|
|||||||||
|
Restricted
awards outstanding at year-end
|
276,290
|
436,350
|
597,310
|
|||||||||
|
Options
exercisable at year-end
|
724,640
|
932,540
|
1,461,360
|
|||||||||
1988 Key Employee Stock Option
Plan
Our 1988
Key Employee Stock Option Plan (the “1998 Plan”) provides for the grant of
options to our key employees to purchase up to an aggregate total of 3,000,000
shares of our common stock. The exercise price of options granted
under this plan is $1.00 per share. Options exercisable under this
plan were 16,028 as of February 2, 2008, 14,032 as of February 3, 2007, and
23,321 as of January 28, 2006
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The
shares issued and options granted under the above plans are subject to
forfeiture if the employees do not remain employed by us for a specified period
of time. Service-based awards issued under the 2004 plan generally
vest over 5 years for awards to executive officers and over 3 years for other
awards. Vesting of performance-based awards under the 2004 plan is
generally based on attaining a specified level of “free cash flows” (as defined
in the agreement) over a 3-year period and vesting occurs at the end of that
period. Under the 2003 Plan, shares issued and options granted are
subject to forfeiture if the individual does not remain a Director of the
Company for a specified period of time except, under certain circumstances, in
the case of retirement or voluntary termination. Awards currently
being issued under the 2003 Plan generally vest on June 1 of the following
year. Options issued under the 1988 Plan are service-based and
generally vest over 5 years.
As of
February 2, 2008 the following shares were available for grant under our various
stock plans: 2004 Plan – 4,980,095 shares; 2003 Plan – 122,968 shares; and 1988
Plan – 106,916
shares.
The table
below summarizes option activity in the above stock-based compensation
plans:
|
Average
|
||||||||||||||||||||
|
Option
|
Option
|
Option
Prices
|
||||||||||||||||||
|
Shares
|
Price
|
Per
Share
|
||||||||||||||||||
|
Outstanding at January 29,
2005
|
5,504,466
|
$ |
5.549
|
$ |
1.000
|
–
|
$ |
8.460
|
||||||||||||
|
Granted – option price equal to
market price
|
55,582
|
9.287
|
9.100
|
–
|
12.480
|
|||||||||||||||
|
Canceled/forfeited
|
(22,386 | ) |
5.516
|
1.000
|
–
|
8.250
|
||||||||||||||
|
Exercised
|
(1,865,554 | ) |
5.130
|
1.000
|
–
|
8.460
|
||||||||||||||
|
Outstanding at January 28,
2006
|
3,672,108
|
5.819
|
1.000
|
–
|
12.480
|
|||||||||||||||
|
Granted – option price equal to
market price
|
61,233
|
11.332
|
11.280
|
–
|
13.840
|
|||||||||||||||
|
Granted – option price less than
market price
|
31,600
|
1.000
|
1.000
|
–
|
1.000
|
|||||||||||||||
|
Canceled/forfeited
|
(10,571 | ) |
1.502
|
1.000
|
–
|
6.650
|
||||||||||||||
|
Exercised
|
(1,536,580 | ) |
5.965
|
1.000
|
–
|
9.100
|
||||||||||||||
|
Outstanding at February 3,
2007
|
2,217,790
|
5.822
|
1.000
|
–
|
13.840
|
|||||||||||||||
|
Granted – option price less than
market price
|
18,000
|
1.000
|
1.000
|
–
|
1.000
|
|||||||||||||||
|
Canceled/forfeited
|
(36,796 | ) |
5.724
|
1.000
|
–
|
11.280
|
||||||||||||||
|
Exercised
|
(304,120 | ) |
4.741
|
1.000
|
–
|
8.460
|
||||||||||||||
|
Outstanding at February 2,
2008
|
1,894,874
|
$ |
5.952
|
$ |
1.000
|
–
|
$ |
13.840
|
||||||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The table
below summarizes information regarding weighted average exercise price and
weighted average remaining contractual life in years for options outstanding and
options exercisable as of February 2, 2008 for the ranges of exercise prices
shown:
|
Weighted
|
||||||||||||
|
Weighted
|
Average
|
|||||||||||
|
Average
|
Remaining
|
|||||||||||
|
Option
|
Option
|
Life
|
||||||||||
|
Ranges of Option
Prices
|
Shares
|
Price
|
(Years)
|
|||||||||
|
$0.00 – $1.00:
|
||||||||||||
|
Options
outstanding
|
76,388
|
$ |
1.000
|
2.4
|
||||||||
|
Options
exercisable
|
16,028
|
1.000
|
||||||||||
|
$1.01 – $5.00:
|
||||||||||||
|
Options
outstanding
|
375,833
|
$ |
3.758
|
1.3
|
||||||||
|
Options
exercisable
|
375,833
|
3.758
|
||||||||||
|
$5.01 –
$10.00:
|
||||||||||||
|
Options
outstanding
|
1,381,091
|
$ |
6.580
|
2.7
|
||||||||
|
Options
exercisable
|
1,381,091
|
6.580
|
||||||||||
|
$10.01 –
$13.84:
|
||||||||||||
|
Options
outstanding
|
61,562
|
$ |
11.391
|
8.4
|
||||||||
|
Options
exercisable
|
61,562
|
11.391
|
||||||||||
The table
below summarizes certain additional information with respect to our options and
awards:
|
(In
thousands)
|
2008
|
2007
|
||||||
|
Aggregate
intrinsic value of options outstanding at year-end(1)
|
$ |
1,777
|
$ |
16,473
|
||||
|
Aggregate
intrinsic value of options exercisable at year-end(1)
|
1,422
|
15,501
|
||||||
|
Aggregate
market value of unvested stock awards at year-end
|
16,711
|
37,418
|
||||||
|
Aggregate
intrinsic value of options exercised during the year(2)
|
1,014
|
11,556
|
||||||
|
Aggregate
market value of stock awards vested during the year
|
6,755
|
8,180
|
||||||
|
____________________
|
||||||||
|
(1) Aggregate market
value at year-end less aggregate exercise price.
|
||||||||
|
(2) Aggregate market
value on date of exercise less aggregate exercise
price.
|
||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The
weighted average grant date fair values for options and awards granted under the
above plans, using the Black-Scholes model and assumptions described in “NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES; Stock-based
Compensation” above, are as
follows:
|
2008
|
2007
|
2006
|
||||||||||
|
Option
price equal to market price
|
$ |
–
|
$ |
5.41
|
$ |
2.44
|
||||||
|
Option
price less than market price
|
11.95
|
13.06
|
8.67
|
|||||||||
Employee Stock Purchase
Plan
Our 1994
Employee Stock Purchase Plan permits employees to purchase shares of our common
stock during quarterly offering periods at a price equal to 85% of the lower of
the stock’s market price on the first day of, or the fifth business day after
the end of, the offering period. Employees purchase shares through
accumulation of payroll deductions of up to 10% of the employee’s compensation
during each offering period. An aggregate total of 2,000,000 shares
are reserved for grant under this plan. Shares purchased under this
plan were 139,910 during Fiscal 2008, 79,522 during Fiscal 2007, and 67,514
during Fiscal 2006. The weighted average grant date market value for
shares purchased during the year was $10.14 for Fiscal 2008, $13.15 for Fiscal
2007, and $9.35 for Fiscal 2006. At February 2, 2008, 1,016,758
shares were available for future purchases under this plan.
NOTE 12. CUSTOMER LOYALTY
CARD PROGRAMS
We offer
our customers various loyalty card programs. Customers that join
these programs are entitled to various benefits, including discounts and rebates
on purchases during the membership period. Customers join some of
these programs by paying an annual membership fee. For these programs
we recognize revenue as a component of net sales over the life of the membership
period based on when the customer earns the benefits and when the fee is no
longer refundable. We recognize costs we incur in connection with
administering these programs as cost of goods sold when incurred.
Our
FASHION BUG brand offers a customer loyalty card program that we operate under
our FASHION BUG proprietary credit card program. Like our other
loyalty programs, this program entitles customers to various rebates, discounts,
and other benefits upon payment of an annual membership fee. Through
Fiscal 2007 this program also provided customers with the option to cancel their
membership within 90 days, entitling them to a full refund of their annual
fee. Additionally, after 90 days customers that cancelled their
memberships were entitled to a pro rata fee refund based on the number of months
remaining on the annual membership. Accordingly, we recognized 25% of
the annual membership fee as revenue after 90 days, with the remaining fee
recognized on a pro rata basis over nine months. Effective February
22, 2007 this program was changed to provide customers with the option to cancel
their membership within 30 days, entitling them to a full refund of their annual
fee. We recognized revenues of $12,837,000 during Fiscal 2008,
$10,634,000 during Fiscal 2007, and $8,085,000 during Fiscal 2006 in connection
with this program. The FASHION BUG brand also offers a loyalty card program that
does not charge membership fees.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Our
CATHERINES brand also offers a loyalty card program. We recognized
revenues of $8,980,000 during Fiscal 2008, $8,499,000 during Fiscal 2007, and
$7,553,000 during Fiscal 2006 in connection with this program.
During
the third quarter of Fiscal 2008 we began offering loyalty programs in
connection with the issuance of our LANE BRYANT and PETITE SOPHISTICATE
proprietary credit cards. Cardholders earn points for purchases using
the credit card, which may be redeemed for merchandise coupons upon the
accumulation of a specified number of points. No membership fees are
charged in connection with these programs.
We
accrued $2,000,000 as of the end of Fiscal 2008 and $1,050,000 as of the end of
Fiscal 2007 and Fiscal 2006 for the estimated costs of discounts earned and
coupons issued and not redeemed.
NOTE 13. IMPAIRMENT OF
GOODWILL AND TRADEMARKS
Our
intangible assets, consisting primarily of goodwill and trademarks, tradenames,
and internet domain names, resulting from business acquisitions, are carried at
cost. Separate intangible assets that are not deemed to have an
indefinite life are amortized over their useful lives. In accordance
with SFAS No. 142, “Goodwill
and Other Intangible Assets” (“SFAS 142”), we test goodwill and other
intangible assets with indefinite lives for impairment on an annual basis or
more frequently if we believe indicators of impairment exist. We
perform our review of goodwill and other intangible assets with indefinite lives
for possible impairment during the fourth quarter as our fourth quarter
operating results are significant to us and are therefore integral to our
ability to prepare our annual impairment analyses. In addition, we
prepare our financial plan for the following fiscal year, which is an important
part of our impairment analyses, during the fourth quarter of our fiscal
year.
The
performance of the impairment test for goodwill involves a two-step
process. The first step of the test involves comparing the fair
values of the applicable reporting units with their aggregate carrying values,
including goodwill. We generally determine the fair value of our
reporting units using the income approach of valuation, which includes the
discounted cash flow method as well as other generally accepted valuation
methodologies. If the carrying amount of a reporting unit exceeds the
reporting unit’s fair value, we perform the second step of the goodwill
impairment test to determine the amount of impairment loss. The
second step of the goodwill impairment test involves comparing the implied fair
value of the affected reporting unit’s goodwill with the carrying value of that
goodwill.
We
performed our annual impairment test of goodwill during the fourth quarter in
accordance with SFAS 142 and determined that our Direct-to-Consumer segment
goodwill was impaired, necessitating a charge of $86,826,000. The
impairment was caused by decreased sales and cash flows in our Crosstown Traders
group in Fiscal 2008 as a result of continued deterioration in response rates
from our core and prospecting customers. In accordance with our
financial plan for Fiscal 2009, we are projecting more conservative growth and
earnings for the Crosstown Traders group. In addition, our investment
in our LANE BRYANT WOMAN catalog business, which was launched in the fourth
quarter of Fiscal 2008, is not expected to generate sufficient sales and cash
flows in the near term to offset the reductions in sales and cash flows from the
existing catalog businesses.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
We also
performed an impairment test of our intangible assets during the fourth quarter.
In accordance with SFAS No. 142, we are required to perform the impairment
test at the individual intangible asset level. Accordingly, each acquired
catalog title for our Crosstown Traders group was evaluated
separately. Based on our sales results for Fiscal 2008 and our Fiscal 2009
financial plan, we determined that the trademarks, tradenames, and internet
domain names for our Crosstown Traders group are impaired, and we recognized a
charge of $11,393,000. This impairment was also caused by the
decreased sales as a result of continued deterioration in response rates from
our core and prospecting customers as discussed above.
NOTE 14. RESTRUCTURING
CHARGES
In
November 2007 we announced our plan to relocate our CATHERINES operations
located in Memphis, Tennessee to our corporate headquarters in Bensalem,
Pennsylvania in conjunction with the consolidation of a number of its operating
functions. We expect to complete the relocation by the end of March
2008.
We are
accounting for the plan in accordance with the provisions of SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities” and SFAS No. 112, “Employers’ Accounting for
Postemployment Benefits.” The total estimated pre-tax costs
related to the plan are approximately $7,432,000, of which $4,236,000 were
recognized in the fourth quarter of Fiscal 2008. We expect to incur
the majority of the remaining costs in connection with the plan by the end of
the first quarter of Fiscal 2009.
The total
estimated costs related to the plan consist of approximately $2,101,000 for
severance and retention, approximately $1,500,000 for relocation, and
approximately $3,831,000 of non-cash pre-tax charges for acceleration of
depreciation related to the closing of the Memphis facility.
Severance
and retention costs represent involuntary termination benefits for approximately
80 employees who will not be relocating from the Memphis facility to our
Bensalem headquarters. Relocation costs represent estimated costs to
relocate approximately 30 employees from Memphis to Bensalem. The
accelerated depreciation represents the change in the estimated useful life of
the Memphis facility and will be recognized over the period from the inception
of the plan to the closing date of the facility.
In
February 2008 we announced additional initiatives and actions we are taking as a
result of our on-going business review and in response to the continuing weak
retail and economic environment in which we are currently
operating. These additional actions are being taken in order to:
streamline our business operations and further sharpen our focus on our core
businesses; reduce selling, general, and administrative expenses and capital
expenditures; improve cash flow; and enhance shareholder value. The
additional initiatives and actions include: the elimination of approximately 150
corporate and field management positions; a decrease in the capital budget for
Fiscal 2009, primarily through a significant reduction in the number of planned
store openings for Fiscal 2009; the closing of approximately 150
under-performing stores; and the closing of our full-line PETITE SOPHISTICATE
stores.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The total
estimated pre-tax costs related to this plan are approximately $20,117,000, of
which $10,122,000 were recognized in the fourth quarter of Fiscal
2008. We expect to incur the remaining costs in connection with this
plan by the end of Fiscal 2009.
The total
estimated costs related to this plan consist of approximately $10,836,000 for
severance, benefits, and lease termination costs and approximately $9,281,000 of
non-cash pre-tax charges for the write-down of store assets.
Costs
incurred in connection with these plans during Fiscal 2008, excluding
$11,325,000 of non-cash write-downs and accelerated depreciation of assets,
payments or settlements of the costs, and costs accrued as of February 2, 2008
were as follows:
|
Costs
for
|
||||||||||||
|
Quarter
Ended
|
Accrued as
of
|
|||||||||||
|
February
2,
|
Payments/
|
February
2,
|
||||||||||
|
(In
thousands)
|
2008
|
Settlements
|
2008
|
|||||||||
|
Fiscal
2008
|
||||||||||||
|
Severance,
retention, and related costs
|
$ |
2,792
|
$ | (104 | ) | $ |
2,688
|
|||||
|
Store
lease termination costs
|
–
|
–
|
–
|
|||||||||
|
Relocation
and other closing costs
|
241
|
(241 | ) |
0
|
||||||||
|
Total
|
$ |
3,033
|
$ | (345 | ) | $ |
2,688
|
|||||
NOTE 15. EMPLOYEE
RETIREMENT BENEFIT PLANS
We
provide a comprehensive retirement benefit program for our
employees. This program provides for a noncontributory profit-sharing
plan that covers substantially all full-time employees who meet age and service
requirements. Contributions to this plan are completely discretionary
and are determined by our Board of Directors on an annual basis.
The
program also includes a 401(k) employee savings plan under which eligible
participating employees may elect to contribute up to 80% of their compensation
to an investment trust. The 401(k) plan includes a matching company
contribution of 50% of the participant’s elective contribution on up to 6% of
the participant’s compensation. Participating employees are
immediately vested in their own contributions. Full vesting in the
matching company contribution occurs on the earlier of the participant’s
attainment of 5 years of service or upon retirement, death, or disability, as
defined in the plan. Company matching contributions are made in cash,
and the available trust investment options do not include investment in our own
common stock.
As of the
date of our acquisition of Crosstown Traders, they provided a 401(k) savings
plan for their employees with benefits similar to our
plan. Participant account balances in the Crosstown Traders plan were
transferred to our plan as of January 1, 2006 and participants in the Crosstown
Traders plan retained credited years of service earned under that
plan.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
The total
expense for the above plans was $3,228,000 for Fiscal 2008, $5,514,000 for
Fiscal 2007, and $3,737,000 for Fiscal 2006.
We
provide a non-qualified deferred compensation plan to officers and certain key
executives. Under this plan participants may contribute up to 77% of
their base compensation and 100% of bonus compensation. This plan
includes a matching company contribution of 50% of the participant’s
contribution on up to 6% of the participant’s compensation, less any matching
contributions made for the participant under our 401(k) plan. The
total expense for this plan was $1,531,000 for Fiscal 2008, $297,000 for Fiscal
2007, and $599,000 for Fiscal 2006.
We also
provide a non-qualified defined contribution supplemental retirement plan for
certain management and key executives. Under this plan we contribute
amounts to participant accounts based on age and years of plan service, as well
as earnings as defined in the plan. The total expense for this plan
was $867,000 for Fiscal 2008 $1,098,000 for Fiscal 2007, and $1,677,000 for
Fiscal 2006.
NOTE 16. NET INCOME/(LOSS)
PER SHARE
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Basic
weighted average common shares outstanding
|
121,160
|
122,388
|
119,831
|
|||||||||
|
Dilutive
effect of assumed conversion of 4.75% Senior Convertible Notes(1)(2)
|
0
|
15,182
|
15,182
|
|||||||||
|
Dilutive
effect of stock options and awards(2)
|
0
|
2,193
|
2,051
|
|||||||||
|
Diluted
weighted average common shares and equivalents outstanding
|
121,160
|
139,763
|
137,064
|
|||||||||
|
Net
income/(loss)
|
$ | (83,413 | ) | $ |
108,923
|
$ |
99,391
|
|||||
|
Decrease
in interest expense from assumed conversion
|
||||||||||||
|
of 4.75% Senior Convertible
Notes, net of income taxes(1)(2)
|
0
|
4,514
|
4,514
|
|||||||||
|
Net
income/(loss) used to determine diluted earnings per share
|
$ | (83,413 | ) | $ |
113,437
|
$ |
103,905
|
|||||
|
____________________
|
||||||||||||
|
(1) The 4.75% Senior
Convertible Notes were converted or redeemed on June 4, 2007 (see “NOTE 8. LONG-TERM DEBT”
above).
|
||||||||||||
|
(2) The 4.75% Senior
Convertible Notes, stock options, and awards are excluded from the
computation of diluted net loss per share for 2008 as their effect would
have been anti-dilutive.
|
||||||||||||
Options
with weighted average exercise price greater than market price,excluded from
computation of diluted earnings per share:
|
2008
|
2007
|
2006
|
||||||||||
|
Number
of shares (thousands)
|
77
|
1
|
0
|
|||||||||
|
Weighted
average exercise price per share
|
$ |
9.27
|
$ |
13.84
|
$ |
0.00
|
||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Grants of
stock awards under our restricted stock award programs generally require
continuing employment for a specified period of time as a condition for vesting
of the award. Grants that have not vested and are subject to a risk
of forfeiture are included in the calculation of diluted earnings per share
using the treasury stock method if the impact of the award is
dilutive. Upon vesting, shares issued under these award programs are
included in the calculation of basic earnings per share.
Our
1.125% Notes have no impact on our diluted net income per share until the price
of our common stock exceeds the conversion price of $15.379 per share because we
expect to settle the principal amount of the 1.125% Notes in cash upon
conversion. The call options are not included in the calculation of
diluted net income per share because their effect would be
anti-dilutive. Should the price of our common stock exceed $21.607
per share we would also include the dilutive effect of the additional potential
shares that may be issued related to the warrants, using the treasury stock
method. See “NOTE 8. LONG-TERM
DEBT” above for
further information regarding the 1.125% Notes, related call options and
warrants, and the conversion of our 4.75% Notes.
NOTE 17. ASSET
SECURITIZATION
Our
FASHION BUG, LANE BRYANT, CATHERINES, PETITE SOPHISTICATE, and Crosstown Traders
proprietary credit card receivables are originated by Spirit of America National
Bank (the “Bank”), our wholly-owned credit card bank, which transfers its
interest in all the receivables, including LANE BRYANT CATALOG credit card
receivables but excluding other Crosstown Traders receivables, to the Charming
Shoppes Master Trust (the “Trust”) through Charming Shoppes Receivables Corp.
(“CSRC”), a separate and distinct special-purpose entity. The Trust
is an unconsolidated qualified special-purpose entity (“QSPE”).
Through
Fiscal 2007 our Crosstown Traders apparel-related catalog proprietary credit
card receivables, which we securitized subsequent to our acquisition of
Crosstown Traders, were originated in a non-bank program by Crosstown
Traders. Crosstown Traders transferred its interest in the
receivables to Catalog Receivables LLC, a separate and distinct unconsolidated
QSPE, through a separate and distinct special-purpose entity. On
February 5, 2007, the Bank acquired the account relationships of the Crosstown
Traders catalog proprietary credit cards and all subsequent new receivables are
originations of the Bank. This acquisition did not cause a change in
the securitization entities used by the Crosstown Traders proprietary credit
card program.
The QSPEs
can sell interests in these receivables on a revolving basis for a specified
term. At the end of the revolving period, an amortization period
begins during which the QSPEs make principal payments to the parties that have
entered into the securitization agreement with the QSPEs. All assets
of the QSPEs (including the receivables) are isolated and support the securities
issued by those entities.
We record
gains or losses on the securitization of our proprietary credit card receivables
based on the estimated fair value of the assets retained and liabilities
incurred in the sale. Gains represent the present value of the
estimated cash flows that we have retained over the estimated outstanding period
of the receivables. This excess cash flow essentially represents an
“interest-only” (“I/O”) strip, consisting of the present value of the finance
charges and late fees in excess of the amounts paid to certificate holders,
credit losses, and servicing fees.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
During
Fiscal 2008, Fiscal 2007, and Fiscal 2006 we recognized the following activity
related to the I/O strip:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Additions
to the I/O strip
|
$ |
38,024
|
$ |
25,425
|
$ |
24,861
|
||||||
|
Amortization
and valuation adjustments
|
30,643
|
24,608
|
20,190
|
|||||||||
|
Value
of the I/O strip at end of year
|
23,259
|
15,878
|
15,061
|
|||||||||
In
addition, we recognized a servicing liability in Fiscal Years 2008, 2007, and
2006 because the servicing fees we expect to receive from the securitizations do
not provide adequate compensation for servicing the receivables. The
servicing liability represents the present value of the excess of our cost of
servicing over the servicing fees received and is recorded at its estimated fair
value. Because quoted market prices are generally not available for
the servicing of proprietary credit card portfolios of comparable credit
quality, we determine the fair value of the cost of servicing by calculating all
costs associated with billing, collecting, maintaining, and providing customer
service during the expected life of the securitized credit card receivable
balances. We discount the amount of these costs in excess of the
servicing fees over the estimated life of the receivables sold. The discount rate
and estimated life assumptions used for the present value calculation of the
servicing liability are consistent with those used for the I/O
strip.
During
Fiscal 2008, Fiscal 2007, and Fiscal 2006 we recognized the following activity
related to the servicing liability:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Additions
to the servicing liability
|
$ |
4,659
|
$ |
2,972
|
$ |
3,661
|
||||||
|
Amortization
of the servicing liability
|
3,724
|
3,166
|
3,768
|
|||||||||
|
Value
of the servicing liability at end of year
|
3,038
|
2,103
|
2,297
|
|||||||||
We
amortize the I/O strip and servicing liability on a straight-line basis over the
expected life of the credit card receivables, which is generally less than one
year. We estimate the expected life primarily by using the historical
average of principal payments as a percent of outstanding trust receivables
sold.
The
following table presents additional information relating to the QSPEs for Fiscal
2008, Fiscal 2007, and Fiscal 2006:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Proceeds
from sales of new receivables to QSPE
|
$ |
939,888
|
$ |
619,597
|
$ |
638,624
|
||||||
|
Collections
reinvested in revolving-period securitizations
|
804,866
|
701,859
|
616,336
|
|||||||||
|
Cash
flows received on retained interests
|
84,085
|
73,899
|
63,586
|
|||||||||
|
Servicing
fees received
|
8,211
|
6,981
|
6,510
|
|||||||||
|
Net
credit losses
|
26,838
|
16,822
|
21,229
|
|||||||||
|
Investor
certificates outstanding at end of year
|
628,085
|
358,100
|
354,040
|
|||||||||
|
Credit
card balances 90 or more days delinquent at end of year
|
22,240
|
9,904
|
9,037
|
|||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
We are
the servicer of the receivables transferred to the QSPEs and we receive a
servicing fee of approximately 2% of the investor interest. The
investor certificates outstanding as of February 2, 2008 mature as follows:
$128,085,000 in the fiscal year ending January 31, 2009, $144,900,000 in the
fiscal year ending January 30, 2010, $35,100,000 in the fiscal year ending
January 29, 2011, $260,800,000 in the fiscal year ending February 2, 2013, and
$59,200,000 in the fiscal year ending February 1, 2014. We held
certificates and retained interests in our securitizations, which aggregated
$115,912,000 at February 2, 2008 and $60,643,000 at February 3, 2007, that are
generally subordinated in right of payment to certificates issued by the QSPEs
to third-party investors. Our obligation to repurchase receivables
sold to the QSPEs is limited to those receivables that, at the time of their
transfer, fail to meet the QSPE’s eligibility standards under normal
representations and warranties. To date, our repurchases of
receivables pursuant to this obligation have been insignificant.
During
Fiscal 2004 the Trust closed on a new conduit credit card securitization
facility of $132,000,000 that provided additional funding of up to $100,000,000
for a term of up to two years, subject to an annual renewal. During
Fiscal 2006 this facility was modified to reduce the funding limit to
$50,000,000. As of February 2, 2008 no credit card receivables were
funded under this facility. We renewed this facility during Fiscal
2008 on its renewal date and expect to renew the facility during Fiscal 2009 on
its renewal date.
On August
5, 2004 the Trust issued $180,000,000 of new five-year asset-backed certificates
(“Series 2004-1”) in a private placement under Rule 144A. Of the
$180,000,000 of certificates issued, $161,100,000 were sold to investors and
CSRC held $18,900,000 as a retained interest. The certificates pay
interest to investors on a floating-rate basis tied to one-month
LIBOR. Concurrent with the issuance of Series 2004-1 the Trust
entered into a series of fixed-rate interest rate swap agreements with respect
to the $161,100,000 of certificates sold to investors. The blended
weighted-average interest rate on the hedged certificates is
4.90%. The Trust used $61,500,000 of the proceeds to pay down other
securitization series and placed the remaining proceeds of $118,500,000 into a
pre-funding cash account. During Fiscal 2005 and Fiscal 2006 the
Trust used funds from the securitization facilities, including the proceeds from
the pre-funding cash account, to fund $88,600,000 of Series 1999-1 amortization
as well as to provide financing for additional receivables, including the
$54,600,000 acquisition of the CATHERINES proprietary credit card portfolio in
March 2005 (see below). During Fiscal 2005 CSRC sold to investors
$9,450,000 of the $18,900,000 of Series 2004-1 certificates that we held as a
retained interest.
During
Fiscal 2006 Catalog Receivables LLC closed on a dedicated conduit credit card
securitization facility that provides funding of up to $55,000,000 on a
discounted basis for a term of one year, subject to an annual
renewal. As of February 2, 2008, $41,500,000 of credit card
receivables were funded under this facility. We renewed this facility
during Fiscal 2008 on its renewal date and expect to renew the facility during
Fiscal 2009 on its renewal date.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Prior to
November 1, 2007 we had an agreement under which a third party provided a
proprietary credit card sales accounts receivable funding facility for our LANE
BRYANT retail and outlet stores. In accordance with the terms of the
agreement, we exercised our option to purchase the LANE
BRYANT portfolio and, pursuant to a purchase agreement with the third-party
bank, assigned the right to purchase the LANE BRYANT portfolio to the Bank,
which purchased the portfolio on November 1, 2007. Concurrent with
the Bank’s acquisition of the LANE BRYANT portfolio for $230,975,000 it sold the
receivables to CSRC, which transferred the receivables to the
Trust. The purchase of the portfolio at par value and the subsequent
securitization of the purchased portfolio resulted in the recognition of a gain
of approximately $6,830,000, which is included in selling, general, and
administrative expenses for Fiscal 2008. In addition, we recognized
approximately $2,120,000 of selling, general, and administrative expenses in
connection with the issuance of approximately 2.4 million new LANE BRYANT
proprietary credit cards.
Under the
previous agreement the third party reimbursed us daily with respect to the
proprietary credit card sales generated by the LANE BRYANT credit card
accounts. Additional information for Fiscal 2008 (through November 1,
2007), Fiscal 2007, and Fiscal 2006 regarding the agreement is as
follows:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Net
funding received from sales of LANE BRYANT receivables
|
$ |
256,889
|
$ |
350,270
|
$ |
332,885
|
||||||
|
Net
LANE BRYANT accounts receivable balance held by third Party at end
of year(1)
|
0
|
233,793
|
209,368
|
|||||||||
|
____________________
|
||||||||||||
|
(1) The LANE BRYANT net
accounts receivable balances include amounts allocated to the use of the
LANE BRYANT credit card at our LANE BRYANT stores and amounts allocated to
the use of the LANE BRYANT credit card through a third-party catalog
program. Our purchase of the LANE BRYANT credit card receivables
applied only to the receivables associated with accounts whose primary use
of the credit card was at our LANE BRYANT stores.
|
||||||||||||
In March
2005, we exercised our option under a similar non-recourse agreement to purchase
the CATHERINES credit card portfolio for a final purchase price of
$54,600,000. The purchase was funded through our securitization
facilities, including a portion of the proceeds from the sale of certificates
under our Series 2004-1 securitization facility (see above).
On
October 17, 2007 the Trust issued $320,000,000 of five-year asset-backed
certificates (“Series 2007-1”) in a private placement under Rule
144A. Of the $320,000,000 of certificates issued, $289,600,000 were
sold to investors and CSRC held $30,400,000 as a retained
interest. CSRC may in the future sell all or a portion of such
retained interest. Of the certificates sold to investors,
$203,500,000 pay interest on a floating rate basis tied to one-month LIBOR and
the remaining $86,100,000 of certificates were issued at fixed
rates. The Trust used $35,000,000 of the proceeds to fund receivables
and to pay down other securitization series and placed the remaining proceeds of
$285,000,000 into a pre-funding cash account.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Concurrent
with the issuance of Series 2007-1 the Trust entered into a series of fixed-rate
interest-rate swap agreements with respect to $174,700,000 of the floating-rate
certificates sold to investors. The notional value of these swaps
equals the face value of these certificates in excess of the certificate’s
pro-rata share of the outstanding pre-funding cash account at any measurement
date. The blended weighted-average interest rate on the swapped
certificates is 6.39%. The Trust also acquired an interest-rate cap
with respect to $28,800,000 of floating-rate certificates sold to
investors. The interest-rate cap counterparty will make payments to
the Trust when one-month LIBOR exceeds 10%. The fixed-rate
certificates were sold at a discount and carry a blended weighted average-yield
of 6.43% and a blended weighted average coupon of 6.34%.
The Trust
paid for its acquisition of the LANE BRYANT proprietary credit card
accounts receivable balances primarily by withdrawing $227,500,000 of
proceeds from the pre-funding cash account for the Series 2007-1
Certificates. The remainder of the funds in the pre-funding cash
account will provide financing for additional receivables, including receivables
made available for financing by the amortization of the Series 2002-1
certificates issued by the Trust. Series 2002-1 has been in
amortization since July 2007 and we currently expect it to be repaid in full by
May 2008.
Our
management uses various valuation assumptions in determining the fair value of
our I/O strip. We estimate the values for these assumptions using
historical data, the impact of the current economic environment on the
performance of the receivables sold, and the impact of the potential volatility
of the current market for similar instruments in assessing the fair value of the
retained interests.
The key
assumptions used to value our retained interest were as follows:
|
February
2,
|
February
3,
|
|
|
2008
|
2007
|
|
|
Payment
rate
|
12.7
– 16.4%
|
12.1
- 17.6%
|
|
Residual
cash flows discount rate
|
15.5
– 16.5%
|
15.5
- 16.5%
|
|
Net
credit loss percentage
|
4.75
- 13.45%
|
6.0
- 11.0%
|
|
Average
life of receivables sold
|
0.5
- 0.7 years
|
0.5
- 0.7 years
|
The
following table presents the decrease in our I/O strip receivable that would
result from hypothetical adverse changes of 10% and 20% in the assumptions used
to determine the fair value of the I/O strip. This information is
presented in accordance with the requirements of SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.”
|
(In
thousands)
|
10%
Change
|
20%
Change
|
||||||
|
Payment
rate
|
$ |
1,690
|
$ |
3,273
|
||||
|
Residual
cash flows discount rate
|
82
|
163
|
||||||
|
Credit
loss percentage
|
1,689
|
3,355
|
||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
As of
February 2, 2008 our investment in asset-backed securities included $51,685,000
of QSPE certificates, an I/O strip of $23,259,000, and other retained interests
of $40,968,000. These assets are first and foremost available to
satisfy the claims of the respective creditors of these separate corporate
entities, including certain claims of investors in the QSPEs.
Additionally,
with respect to certain Trust Certificates, if either the Trust or Charming
Shoppes, Inc. does not meet certain financial performance standards, the Trust
is obligated to reallocate to third-party investors holding certain certificates
issued by the Trust, collections in an amount up to $9,450,000 that otherwise
would be available to CSRC. The result of this reallocation is to increase
CSRC’s retained interest in the Trust by the same amount, with the third-party
investor retaining an economic interest in the certificates. Subsequent to
such a transfer occurring, and upon certain conditions being met, these same
investors are required to repurchase these interests when the financial
performance standards are again satisfied. Our net loss for the third
quarter of Fiscal 2008 has resulted in the requirement to reallocate collections
as discussed above. Accordingly, $9,450,000 of collections were fully
transferred as of December 17, 2007. The requirement for the
reallocation of these collections will cease and such investors would be
required to repurchase such interests upon our announcement of a quarter with
net income and the fulfillment of such conditions. As of February 2,
2008 the Trust was in compliance with its financial performance
standards.
In
addition to the above, we could be affected by certain other events that would
cause the QSPEs to hold proceeds of receivables, which would otherwise be
available to be paid to us with respect to our subordinated interests, within
the QSPEs as additional enhancement. For example, if we or the QSPEs do
not meet certain financial performance standards, a credit enhancement condition
would occur, and the QSPEs would be required to retain amounts otherwise payable
to us. In addition, the failure to satisfy certain financial performance
standards could further cause the QSPEs to stop using collections on QSPE assets
to purchase new receivables, and would require such collections to be used to
repay investors on a prescribed basis, as provided in the securitization
agreements. As of February 2, 2008 we and the QSPEs were in compliance
with the applicable financial performance standards referred to in this
paragraph.
Amounts
placed into enhancement accounts, if any, that are not required for payment to
other certificate holders will be available to us at the termination of the
securitization series. We have no obligation to directly fund the
enhancement account of the QSPEs other than for breaches of customary
representations, warranties, and covenants and for customary indemnities.
These representations, warranties, covenants, and indemnities do not
protect the QSPEs or investors in the QSPEs against credit-related losses on the
receivables. The providers of the credit enhancements and QSPE investors
have no other recourse to us.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE
18. LEASES
We lease
substantially all of our store properties under non-cancelable operating lease
agreements. These leases generally have initial periods of 5 to 20
years and contain provisions for co-tenancies, renewal options, additional rents
based on a percentage of sales, and payment of real estate taxes and common area
charges. We also lease certain other buildings and
equipment.
Our rent
expense for the fiscal years indicated was as follows:
|
(In
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Minimum
rent
|
$ |
243,119
|
$ |
236,839
|
$ |
207,534
|
||||||
|
Contingent
rent
|
41,122
|
39,364
|
34,785
|
|||||||||
| $ |
284,241
|
$ |
276,203
|
$ |
242,319
|
|||||||
Minimum
annual rent commitments for all non-cancelable leases for the next five fiscal
years and thereafter are: Fiscal 2009 – $229,312,000; Fiscal
2010 –
$190,400,000; Fiscal 2011 – $155,859,000; Fiscal
2012 –
$116,039,000; Fiscal 2013 – $84,978,000;
Thereafter –
$184,899,000.
Rent
expense for Fiscal 2006 includes charges from Limited Brands, Inc. (“Limited
Brands”) for office space in Reynoldsburg, Ohio under an agreement that expired
in February 2006. In January 2005 we entered into an agreement with a
separate third party that provides for the leasing of a 135,000 square foot
facility in Columbus, Ohio to replace the Reynoldsburg facility as a new home
office for LANE BRYANT. Minimum annual rent under the lease for the
Columbus facility is $1,704,000 per annum in year one through year five and
$1,759,000 in year six through year ten. The lease commenced on
January 20, 2006. The lease provides for two five-year renewal
periods and contains customary termination rights.
LANE
BRYANT currently subleases 24 properties from Limited Brands pursuant to a
Master Sublease. The properties subject to the Master Sublease were
operated as LANE BRYANT stores prior to our acquisition of LANE
BRYANT. We have guaranteed the obligations of LANE BRYANT under the
Master Sublease. The minimum annual rent commitments shown above
include amounts payable under the LANE BRYANT master sublease with Limited
Brands that we have guaranteed as follows: Fiscal 2009 – $3,779,000; Fiscal
2010 – $1,818,000;
Fiscal 2011 –
$1,205,000; Fiscal 2012 – $518,000; Fiscal
2013 – $403,000;
Thereafter –
$377,000.
During
Fiscal 2006 we signed an agreement to assume the leases on 76 outlet store
locations. These leases represent the majority of the outlet
locations previously operated by Retail Brand Alliance, which ceased its outlet
operations early in 2006. The agreement was effective on April 1,
2006 and provided an entry into multiple outlet centers for our LANE BRYANT
brand. These stores opened during Fiscal 2007 and average 9,400
square feet. The outlet stores are being operated under the LANE
BRYANT OUTLET and PETITE SOPHISTICATE OUTLET nameplates.
Deferred
rent liabilities related to rent escalations and landlord incentives or
allowances of $113,696,000 as of February 2, 2008 and $86,348,000 as of February
3, 2007 are included in other non-current liabilities on our consolidated
balance sheets.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE 19. SEGMENT
REPORTING
Effective
with the acquisition of Crosstown Traders on June 2, 2005 (see “NOTE 2. ACQUISITION OF
CROSSTOWN TRADERS, INC.’ above) we operate and report in two segments:
Retail Stores and Direct-to-Consumer. We determine our operating
segments based on the way our chief operating decision-makers review our results
of operations. We consider our retail stores and store-related
E-commerce as operating segments that are similar in terms of economic
characteristics, production processes, and operations. Accordingly,
we have aggregated our retail stores and store-related E-commerce into a single
reporting segment (the “Retail Stores” segment). Our catalog and
catalog-related E-commerce operations, which resulted from our acquisition of
Crosstown Traders, are separately reported under the Direct-to-Consumer
segment.
The
accounting policies of the segments are generally the same as those described in
“NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” above. Our chief
operating decision-makers evaluate the performance of our operating segments
based on a measure of their contribution to operations, which consists of net
sales less the cost of merchandise sold and certain directly identifiable and
allocable operating costs. We do not allocate certain corporate
costs, such as shared services costs, information systems support costs, and
insurance costs to our Retail Stores or Direct-to-Consumer
segments. Operating costs for our Retail Stores segment consist
primarily of store-related selling, buying, occupancy, and warehousing
costs. Operating costs for our Direct-to-Consumer segment consist
primarily of catalog development, production, and circulation costs; E-commerce
advertising costs; warehousing costs; and order processing costs.
“Corporate
and Other” includes unallocated general and administrative costs; shared
services costs; insurance costs; information systems support costs; corporate
depreciation and amortization; corporate occupancy costs; the results of our
proprietary credit card operations; and other non-routine
charges. Operating contribution for the Retail Stores and
Direct-to-Consumer segments less Corporate and Other net expenses equals income
before interest and income taxes.
Operating
segment assets are those directly used in, or allocable to, that segment’s
operations. Operating assets for the Retail Stores segment consist
primarily of inventories; the net book value of store facilities; goodwill; and
intangible assets. Operating assets for the Direct-to-Consumer
segment consist primarily of trade receivables; inventories; deferred
advertising costs; the net book value of catalog operating facilities; goodwill;
and intangible assets. Corporate and Other assets include corporate
cash and cash equivalents; the net book value of corporate facilities; deferred
income taxes; and other corporate long-lived assets.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
Selected
financial information for our operations by reportable segments and a
reconciliation of the information by segment to our consolidated totals is as
follows:
|
Retail
|
Direct-to-
|
Corporate
|
||||||||||||||
|
(In
thousands)
|
Stores(1)
|
Consumer(2)
|
and
Other
|
Consolidated
|
||||||||||||
|
Fiscal
2008
|
||||||||||||||||
|
Net
sales
|
$ |
2,599,283
|
$ |
408,084
|
$ |
2,586
|
$ |
3,009,953
|
||||||||
|
Depreciation
and amortization
|
59,440
|
823
|
36,986
|
97,249
|
||||||||||||
|
Income
before interest and taxes
|
176,875
|
(2,411 | ) | (244,620 | )(3) | (70,156 | ) | |||||||||
|
Interest
expense
|
(10,552 | ) | (10,552 | ) | ||||||||||||
|
Income
tax provision
|
(3,617 | ) | (3,617 | ) | ||||||||||||
|
Extraordinary
item, net of income taxes
|
912
|
912
|
||||||||||||||
|
Net
income/(loss)
|
176,875
|
(2,411 | ) | (257,877 | ) | (83,413 | ) | |||||||||
|
Capital
expenditures
|
109,510
|
3,387
|
24,812
|
137,709
|
||||||||||||
|
As of February 2,
2008
|
||||||||||||||||
|
Total
assets
|
$ |
887,862
|
$ |
226,204
|
$ |
499,238
|
$ |
1,613,304
|
||||||||
|
Fiscal 2007 (53
weeks)
|
||||||||||||||||
|
Net
sales
|
$ |
2,636,409
|
$ |
427,760
|
$ |
3,348
|
$ |
3,067,517
|
||||||||
|
Depreciation
and amortization
|
54,289
|
797
|
36,158
|
91,244
|
||||||||||||
|
Income
before interest and taxes
|
253,594
|
26,164
|
(98,889 | ) |
180,869
|
|||||||||||
|
Interest
expense
|
(14,746 | ) | (14,746 | ) | ||||||||||||
|
Income
tax provision
|
(57,200 | ) | (57,200 | ) | ||||||||||||
|
Net
income
|
253,594
|
26,164
|
(170,835 | ) |
108,923
|
|||||||||||
|
Capital
expenditures
|
100,930
|
5,969
|
26,257
|
133,156
|
||||||||||||
|
As of February 3,
2007
|
||||||||||||||||
|
Total
assets
|
$ |
869,776
|
$ |
346,741
|
$ |
489,206
|
$ |
1,705,723
|
||||||||
|
Fiscal
2006
|
||||||||||||||||
|
Net
sales
|
$ |
2,452,657
|
$ |
298,888
|
$ |
4,180
|
$ |
2,755,725
|
||||||||
|
Depreciation
and amortization
|
44,031
|
1,235
|
39,031
|
84,297
|
||||||||||||
|
Income
before interest and taxes
|
237,462
|
19,918
|
(87,068 | ) |
170,312
|
|||||||||||
|
Interest
expense
|
(17,911 | ) | (17,911 | ) | ||||||||||||
|
Income
tax provision
|
(53,010 | ) | (53,010 | ) | ||||||||||||
|
Net
income
|
237,462
|
19,918
|
(157,989 | ) |
99,391
|
|||||||||||
|
Capital
expenditures
|
74,598
|
2,394
|
26,843
|
103,835
|
||||||||||||
|
As of January 28,
2006
|
||||||||||||||||
|
Total
assets
|
$ |
745,751
|
$ |
345,357
|
$ |
481,475
|
$ |
1,572,583
|
||||||||
|
____________________
|
||||||||||||||||
|
(1) Fiscal 2008 and
Fiscal 2007 include LANE BRYANT OUTLET and PETITE SOPHISTICATE OUTLET
stores.
|
||||||||||||||||
|
(2) From date of
acquisition of Crosstown Traders, Inc. on June 2, 2005. Fiscal 2008
includes LANE BRYANT WOMAN catalog.
|
||||||||||||||||
|
(3) Includes $98,219 of
impairment of goodwill and trademarks related to the Direct-to-Consumer
segment and $14,357 of restructuring charges related to the Retail Stores
segment (see “NOTE
13. IMPAIRMENT OF GOODWILL AND TRADEMARKS” and “NOTE 14. RESTRUCTURING
CHARGES” above).
|
||||||||||||||||
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE 20. FAIR VALUE OF
FINANCIAL INSTRUMENTS
The
carrying amounts and estimated fair values of our financial instruments are as
follows:
|
February 2,
2008
|
February 3,
2007
|
|||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
|
(In
thousands)
|
Amount
|
Value
|
Amount
|
Value
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$ |
61,842
|
$ |
61,842
|
$ |
143,838
|
$ |
143,838
|
||||||||
|
Available-for-sale
securities
|
13,364
|
13,364
|
1,997
|
1,997
|
||||||||||||
|
Investment
in asset-backed securities
|
115,912
|
115,912
|
60,643
|
60,643
|
||||||||||||
|
Liabilities:
|
||||||||||||||||
|
1.125%
Senior Convertible Notes due 2014
|
275,000
|
196,676
|
0
|
0
|
||||||||||||
|
4.75%
Senior Convertible Notes due 2012(1)
|
0
|
0
|
149,999
|
205,686
|
||||||||||||
|
6.07%
mortgage note, due October 2014
|
11,078
|
11,626
|
11,696
|
11,410
|
||||||||||||
|
6.53%
mortgage note, due November 2012
|
6,650
|
6,863
|
8,050
|
7,939
|
||||||||||||
|
7.77%
mortgage note, due December 2011
|
7,897
|
8,585
|
8,496
|
8,675
|
||||||||||||
|
Other
long-term debt
|
673
|
651
|
917
|
854
|
||||||||||||
|
____________________
|
||||||||||||||||
|
(1) The 4.75% Senior
Convertible Notes were converted or redeemed on June 4, 2007 (see “NOTE 8. LONG-TERM DEBT”
above).
|
||||||||||||||||
The fair
value of cash and cash equivalents approximates their carrying amount because of
the short maturities of such instruments. The fair value of
available-for-sale securities is based on quoted market prices of the
securities. The fair values of our convertible notes are based on
quoted market prices for the securities. The fair values of the
mortgage notes and other long-term debt are based on estimated current interest
rates that we could obtain on similar borrowings.
CHARMING SHOPPES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
YEAR ENDED FEBRUARY 2,
2008
(Continued)
NOTE 21. QUARTERLY
FINANCIAL INFORMATION (Unaudited)
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
(In thousands, except per share
amounts)
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
||||||||||||
|
Fiscal 2008(1)
|
||||||||||||||||
|
Net
sales
|
$ |
784,712
|
$ |
770,925
|
$ |
669,389
|
$ |
784,927
|
||||||||
|
Gross
profit
|
238,515
|
219,593
|
182,870
|
170,110
|
||||||||||||
|
Income/(loss)
before extraordinary item
|
26,298
|
18,279
|
(3,568 | )(2) | (125,334 | )(3) | ||||||||||
|
Net
income/(loss)
|
26,298
|
18,279
|
(3,568 | ) | (124,422 | )(3) | ||||||||||
|
Basic
net income/(loss) per share:
|
||||||||||||||||
|
Before extraordinary
item
|
$ |
.21
|
$ |
.15
|
$ | (.03 | ) | $ | (1.08 | )(3) | ||||||
|
Net income/(loss)
|
.21
|
.15
|
(.03 | ) | (1.07 | )(3) | ||||||||||
|
Diluted
net income/(loss) per share:
|
||||||||||||||||
|
Before extraordinary
item
|
.20
|
.14
|
(.03 | ) | (1.08 | )(3) | ||||||||||
|
Net
income/(loss)
|
.20
|
.14
|
(.03 | ) | (1.07 | )(3) | ||||||||||
|
Fiscal 2007(1)
|
||||||||||||||||
|
Net
sales
|
$ |
734,922
|
$ |
763,353
|
$ |
695,278
|
$ |
873,964
|
||||||||
|
Gross
profit
|
233,850
|
228,753
|
214,460
|
248,570
|
||||||||||||
|
Net
income
|
32,061
|
32,563
|
19,357
|
24,942
|
||||||||||||
|
Basic
net income per share
|
$ |
.26
|
$ |
.27
|
$ |
.16
|
$ |
.20
|
||||||||
|
Diluted
net income per
share
|
.24
|
.24
|
.15
|
.19
|
||||||||||||
|
____________________
|
||||||||||||||||
|
(1) Fiscal 2008 is a
52-week fiscal year consisting of three 12-week quarters and a fourth
quarter of 16 weeks. Fiscal 2007 is a 53-week fiscal year consisting
of three 12-week quarters and a fourth quarter of 17
weeks.
|
||||||||||||||||
|
(2) Includes gain of
$6,830 from the purchase and subsequent securitization of the LANE BRYANT
credit card portfolio (see “NOTE 17. ASSET
SECURITIZATION”
above).
|
||||||||||||||||
|
(3) Includes impairment
of goodwill and trademarks of $98,219 ($93,913 after tax or $(.78) per
diluted share) and restructuring charges of $14,357 ($8,901 after tax or
$(.07) per diluted share) (see “NOTE 13. IMPAIRMENT OF
GOODWILL AND TRADEMARKS” and “NOTE 14. RESTRUCTURING
CHARGES”
above).
|
||||||||||||||||
Not
applicable.
Evaluation of Disclosure Controls and
Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports we file under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate and in such a manner as to
allow timely decisions regarding required disclosure. Our Disclosure
Committee, which is made up of several key management employees and reports
directly to the CEO and CFO, assists our management, including our CEO and CFO,
in fulfilling their responsibilities for establishing and maintaining such
controls and procedures and providing accurate, timely, and complete
disclosure.
As of the
end of the period covered by this report on Form 10-K (the “Evaluation Date”),
our Disclosure Committee, under the supervision and with the participation of
management, including our CEO and CFO, carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our management, including our
CEO and CFO, has concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective.
Evaluation of Internal Control Over
Financial Reporting
Management’s
Report on Internal Control Over Financial Reporting as of February 2, 2008
appears on page 64 of this Report on Form 10-K, and is incorporated herein by
reference. The Report of our Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting appears on pages 65-66 of this
Report on Form 10-K, and is incorporated herein by reference.
Changes in Internal Control Over
Financial Reporting
There has
been no change in our internal control over financial reporting that occurred
during the fiscal quarter ended February 2, 2008 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other
Information
Not
applicable.
Information
regarding our directors and executive officers is included under the captions
“Directors Standing for
Election,”“Biographies
of Directors,”“Corporate
Governance at Charming Shoppes,”“Compensation of Directors,”
and “Section 16(a) Beneficial
Ownership Reporting Compliance” in our definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days of the end of
our fiscal year, which is incorporated herein by
reference. Information regarding Executive Officers is included under
“Additional Part I Information
– Our Executive Officers,” in Part I of this Report.
We have
adopted the Charming Shoppes, Inc. Business Ethics and Standards of Conduct
Policy (the “Policy”) that applies to all of our directors, officers, and
associates, including our principal executive officer, principal financial
officer, and principal accounting officer. The Policy has been filed
as Exhibit 14 to this report on Form 10-K. We have also adopted the
Charming Shoppes, Inc. Complete Principles of Corporate Governance (the
“Principles”) and charters (the “Charters”) for the audit committee, the
compensation committee, the corporate governance and nominating committee, and
the finance committee of our Board of Directors. The Policy,
Principles, and Charters are available on our Internet website, www.charmingshoppes.com, in
the “About Us” section,
under “Corporate
Governance”. A copy of the Policy, Principles, and Charters
are also available, at no charge, upon written request to Charming Shoppes,
Inc., Attn. Director of Investor Relations, 450 Winks Lane, Bensalem, PA,
19020.
Our Board
of Directors has sole authority for making any amendments to, or granting
waivers from, any provision of the Policy that affects our executive officers or
directors, including our principal executive officer, principal financial
officer, or principal accounting officer. We intend to satisfy the
disclosure requirement under Item 5.05 of Form 8-K regarding any such amendment
or waiver by disclosing the nature of such amendment or waiver in a report on
Form 8-K within four days.
Information
regarding executive compensation is included under the captions “Compensation of Executive
Officers” and “Report of
the Compensation Committee” in our definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days of the end of our
fiscal year, which is incorporated herein by reference.
Information
regarding the security ownership of certain beneficial owners and management and
securities authorized for issuance under equity compensation plans is included
under the captions “Equity
Compensation Plan Information” and “Principal Shareholders and
Management Ownership” in our definitive proxy statement to be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year, which is incorporated herein by reference.
Information
regarding certain relationships and director independence is included under the
captions “Corporate Governance
at Charming Shoppes” and “Compensation Committee Interlocks
and Insider Participation” in our definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days of the end of our
fiscal year, which is incorporated herein by reference.
Information
regarding principal accountant fees and services is included under the caption
“Audit and Other Fees”
in our definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days of the end of our fiscal year, which is incorporated
herein by reference.
(a)(1) Financial
Statements
The
following Consolidated Financial Statements of Charming Shoppes, Inc. and its
subsidiaries are included in Part II, Item 8:
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Page
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64
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65-66
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|
|
67
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|
|
68
|
|
|
69
|
|
|
70
|
|
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71
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|
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73
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(a)(2) Financial
Statement Schedules
All
schedules required by Rule 5-04 of Regulation S-X have been omitted as they are
not applicable, not required, or the information has been provided in the Notes
to Consolidated Financial Statements included in Part II, Item 8 of this Report
on Form 10-K.
(b) Exhibits,
including those incorporated by reference
The
following is a list of Exhibits filed as part of this Annual Report on Form
10-K. Where so indicated, Exhibits that were previously filed are
incorporated by reference. For Exhibits incorporated by reference,
the location of the Exhibit in the previous filing is indicated in
parenthesis.
Plan of Acquisition, Reorganization,
Arrangement, Liquidation, or Succession
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2.1
|
Covenant
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31, 2001. (File No.
000-07258, Exhibit 2.3).
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|
2.2
|
Master
Sublease, dated as of August 16, 2001, between Limited Brands, Inc. and
Lane Bryant, Inc., incorporated by reference to Form 8-K of the Registrant
dated August 16, 2001, filed on August 31, 2001. (File No. 000-07258,
Exhibit 2.4).
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|
2.3
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto and
J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June 2,
2005, filed on June 8, 2005. (File No. 000-07258, Exhibit
2.1).
|
Articles of Incorporation and
By-Laws
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 1994. (File
No. 000-07258, Exhibit 3.1).
|
|
3.2
|
Amended
Article 5, Subsection (d) to the Articles of Incorporation of Charming
Shoppes, Inc., incorporated by reference to Form 8-K of the Registrant
dated September 25, 2007, filed on September 26, 2007 (File No. 000-07258,
Exhibit 3.1).
|
|
3.3
|
By-Laws,
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).
|
Instruments Defining the Rights of
Security Holders, Including Indentures
|
4.1
|
Amended
and Restated Rights Agreement, dated as of February 1, 2001, between
Charming Shoppes, Inc. and American Stock Transfer & Trust Company, as
Rights Agent, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 3, 2001. (File No. 000-07258,
Exhibit 4.1).
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|
4.2
|
Registration
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31,
2001. (File No. 000-07258, Exhibit 4.1).
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|
4.3
|
Indenture,
dated as of May 28, 2002, between Charming Shoppes, Inc. and Wachovia
Bank, National Association, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended May 4, 2002. (File No.
000-07258, Exhibit 4.1).
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|
|
4.4
|
Registration
Rights Agreement, dated as of May 28, 2002, by and among Charming Shoppes,
Inc., as Issuer, and J. P. Morgan Securities, Inc., Bear Stearns &
Co., Inc., First Union Securities, Inc., Lazard Freres & Co., LLC, and
McDonald Investments, Inc., as Initial Purchasers, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended May 4,
2002. (File No. 000-07258, Exhibit 4.2).
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|
|
4.5
|
Second
Amended and Restated Loan and Security Agreement, dated July 28, 2005, by
and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI
Industries, Inc., FB Apparel, Inc., Catherines Stores Corporation, Lane
Bryant, Inc., and Crosstown Traders, Inc. as borrowers; a syndicate of
banks and other financial institutions as lenders, including Wachovia
Bank, National Association as agent for the lenders; and certain of the
Company’s subsidiaries as guarantors, incorporated by reference to Form
8-K of the Registrant dated July 28, 2005, filed on August 3,
2005. (File No. 000-07258, Exhibit 10.1).
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|
|
4.6
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated Loan and
Security Agreement, dated July 28, 2005, by and among Charming Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc., and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 29, 2006. (File No.
000-07258, Exhibit 99.1).
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|
|
4.7
|
Indenture
between the Company and Wells Fargo Bank, National Association, dated as
of April 30, 2007, incorporated by reference to Form 8-K of the Registrant
dated April 30, 2007, filed on May 3, 2007 (File No. 000-07258, Exhibit
4.1).
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|
|
4.8
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.7).
|
|
Our
miscellaneous long-term debt instruments and credit facility agreements, under
which the underlying authorized debt is equal to less than 10% of our
consolidated total assets, may not be filed as exhibits to this
report. We agree to furnish to the Commission, upon request, copies
of any such instruments not filed.
Material
Contracts
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10.1.1
|
Second
Amended and Restated Pooling and Servicing Agreement, dated as of November
25, 1997, as amended on July 22, 1999, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and First Union
National Bank as Trustee, incorporated by reference to Form 8-K of
Charming Shoppes Master Trust and Charming Shoppes Receivables Corp.,
dated July 22, 1999. (File No. 333-71757, Exhibit No.
4.1).
|
|
10.1.2
|
Fourth
Amendment, dated as of August 5, 2004, to Second Amended and Restated
Pooling and Servicing Agreement, dated as of November 25, 1997, as amended
on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association (formerly known as First Union National Bank) as
Trustee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended July 31, 2004 (File No. 000-07258, Exhibit
10.4).
|
|
10.1.3
|
Amendment,
dated as of March 18, 2005, to Second Amended and Restated Pooling and
Servicing Agreement, dated as of November 25, 1997, as amended on July 22,
1999, May 8, 2001, and August 5, 2004, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association, as Trustee, incorporated by reference to Form 10-K
of the Registrant for the fiscal year ended January 29,
2005. (File No. 000-07258, Exhibit 10.1.3).
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|
10.1.4
|
Amendment
dated as of October 17, 2007 to Second Amended and Restated Pooling and
Servicing Agreement dated as of November 25, 1997 and heretofore amended
among Charming Shoppes Receivables Corp. (“CSRC”), Spirit of America, Inc.
(“SOAI”), and U.S. Bank National Association, as Trustee (“Trustee”),
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.1).
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|
10.1.5
|
Series
1999-1 Supplement, dated as of July 22, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $150,000,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-1, incorporated by reference to Form
8-K of Charming Shoppes Master Trust and Charming Shoppes Receivables
Corp., dated July 22, 1999. (File No. 333-71757, Exhibit No.
4.2).
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|
10.1.6
|
Receivables
Purchase Agreement, dated as of May 28, 1999, among Charming Shoppes
Seller, Inc. as Seller, Spirit of America, Inc., as Servicer, Clipper
Receivables Corporation, as Purchaser, State Street Capital Corporation,
as Administrator, and State Street Bank & Trust Company, as
Relationship Bank, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 2, 2002. (File
No. 000-07258, Exhibit 10.1.4).
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|
10.1.7
|
Series
1999-2 Supplement, dated as of May 28, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $55,750,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-2, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29,
2000. (File No. 000-07258, Exhibit 10.1.23).
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|
10.1.8
|
Series
2000-VFC Supplement, dated as of November 9, 2000, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997,
among Charming Shoppes Receivables Corp., as Seller, Spirit of America,
Inc., as Servicer, and First Union National Bank, as Trustee, on behalf of
the Series 2000-VFC Certificateholders, for up to $60,122,700 Charming
Shoppes Master Trust Series 2000-VFC, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 3,
2001. (File No. 000-07258, Exhibit 10.1.16).
|
|
10.1.9
|
Certificate
Purchase Agreement, dated as of November 9, 2000, among Charming Shoppes
Receivables Corp. as Seller and as the Class B Purchaser, Spirit of
America, Inc. as Servicer, Monte Rosa Capital Corporation as the Conduit
Purchaser, and ING Baring (U.S.) Capital Markets LLC as Administrator for
the Conduit Purchaser, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2001. (File
No. 000-07258, Exhibit 10.1.17).
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|
10.1.10
|
Purchase
Agreement dated as of March 14, 2005 between Citibank USA, N.A., Spirit of
America National Bank and Catherines, Inc., incorporated by reference to
Form 8-K of the Registrant dated March 18, 2005, filed on March 22,
2005. (File No. 000-07258, Exhibit 99).
|
|
10.1.11
|
Credit
Card Processing Agreement, among World Financial Network National Bank,
Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated as of January
31, 1996, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 2, 2002. (File No. 000-07258,
Exhibit 10.1.9).
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|
10.1.12
|
Amendment
to Credit Card Processing Agreement, among World Financial Network
National Bank, Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated
as of January 28, 2005, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 2005. (File
No. 000-07258, Exhibit 10.1.12).
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|
10.1.13
|
Purchase
Agreement dated as of October 31, 2007 between World Financial Network
National Bank, Spirit of America National Bank, Lane Bryant, Inc., Sierra
Nevada Factoring, Inc., and Charming Shoppes Outlet Stores, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 31,
2007, filed on November 5, 2007 (File No. 000-07258, Exhibit
99.1).
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|
10.1.14
|
Purchase
and Sale Agreement, among Spirit of America National Bank, as Seller, and
Charming Shoppes Receivables Corp., as Purchaser, dated as of November 25,
1997, incorporated by reference to Form S-1/A of Charming Shoppes
Receivables Corp. (File No. 333-71757, Exhibit
10.1(a)).
|
|
10.1.15
|
First
Amendment to Purchase and Sale Agreement, among Spirit of America National
Bank, as Seller, and Charming Shoppes Receivables Corp., as Purchaser,
dated as of July 22, 1999, incorporated by reference to Form 8-K of
Charming Shoppes Receivables Corp. (File No. 333-71757, Exhibit
10.1).
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|
10.1.16
|
Series
2002-1 Supplement, dated as of November 20, 2002, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee, for $100,000,000 Charming
Shoppes Master Trust Asset-Backed Certificates Series 2002-1, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended November
2, 2002. (File No. 000-07258, Exhibit 10.1).
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|
10.1.17
|
Charming
Shoppes Master Trust $63,500,000 Fixed Rate Class A Asset Backed
Certificates, Series 2002-1 and $16,500,000 Fixed Rate Class B Asset
Backed Certificates, Series 2002-1 Certificate Purchase Agreement, dated
as of November 22, 2002, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002. (File No.
000-07258, Exhibit 10.2).
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|
10.1.18
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class C Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002. (File No.
000-07258, Exhibit 10.3).
|
|
10.1.19
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class D Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002. (File No.
000-07258, Exhibit 10.4).
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|
10.1.20
|
$14,000,000
Promissory Note, dated October 2002, between White Marsh Distribution,
LLC, as Borrower, and General Electric Capital Business Asset Funding
Corporation, as Payee and Holder, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended November 2, 2002. (File
No. 000-07258, Exhibit 10.5).
|
|
10.1.21
|
Commercial
Deed of Trust, Security Agreement, Assignment of Leases and Rents, and
Fixture Filing, made as of October 2002, among the Grantor, White Marsh
Distribution, LLC, as Borrower, in favor of James M. Smith, as Trustee,
for the benefit of the Beneficiary, General Electric Capital Business
Asset Funding Corporation, as Lender, incorporated by reference to Form
10-Q of the Registrant for the quarter ended November 2,
2002. (File No. 000-07258, Exhibit 10.6).
|
|
10.1.22
|
Certificate
Purchase Agreement, dated as of January 21, 2004, among Charming Shoppes
Receivables Corp., as Seller and as the Class B Purchaser, Spirit of
America, Inc., as Servicer, Sheffield Receivables Corporation, as the
Conduit Purchaser, and Barclay’s Bank PLC as Administrator for the Conduit
Purchaser, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 31, 2004. (File No. 000-07258,
Exhibit 10.1.17).
|
|
10.1.23
|
Series
2004-VFC Supplement, dated as of January 21, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 and
amended as of July 22, 1999 and as of May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee on behalf of the Series
2004-VFC Certificateholders, for up to $132,000,000 Charming Shoppes
Master Trust Asset-Backed Certificates Series 2004-VFC, incorporated by
reference to Form 10-K of the Registrant for the fiscal year ended January
31, 2004. (File No. 000-07258, Exhibit
10.1.18).
|
|
10.1.24
|
Series
2004-1 Supplement, dated as of August 5, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 (as
amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among
Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as
Servicer, and Wachovia Bank, National Association, as Trustee, on behalf
of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes
Master Trust Series 2004-1, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.5).
|
|
10.1.25
|
Certificate
Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes
Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and
Barclay’s Capital Inc. (as representative of the Initial Purchasers),
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended July 31, 2004 (File No. 000-07258, Exhibit 10.6).
|
|
10.1.26
|
Certificate
Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables
Company LLC as Initial Class C Holder, incorporated by reference to Form
10-Q of the Registrant for the quarter ended July 31, 2004 (File No.
000-07258, Exhibit 10.7).
|
|
10.1.27
|
Mortgage,
Assignment of Leases and Rents and Security Agreement, dated as of October
6, 2004, between FB Distro Distribution Center, LLC, as Mortgagor, and
BankAtlantic Commercial Mortgage Capital, LLC, as Mortgagee, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended October
30, 2004 (File No. 000-07258, Exhibit 10.9).
|
|
10.1.28
|
$13,000,000
Mortgage Note, dated October 6, 2004, between FB Distro Distribution
Center, LLC, as Maker, and BankAtlantic Commercial Mortgage Capital, LLC,
as Payee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.10).
|
|
10.1.29
|
Guaranty,
executed as of October 6, 2004, by Charming Shoppes, Inc., as Guarantor,
for the benefit of BankAtlantic Commercial Mortgage Capital, LLC, as
Lender, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.11).
|
|
10.1.30
|
Hazardous
Substances Indemnity Agreement, dated October 6, 2004, by FB Distro
Distribution Center, LLC and by Charming Shoppes, Inc., jointly and
severally as Indemnitors, in favor of BankAtlantic Commercial Mortgage
Capital, LLC, as Holder, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.12).
|
|
10.1.31
|
Amended
and Restated Class D Certificate Purchase Agreement, dated as of August
25, 2004, among Wachovia Bank, National Association as Trustee, Charming
Shoppes Receivables Corp. as Seller and as Initial Class D-1 Holder,
Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC,
as the Class D-1 Holder, incorporated by reference to Form 8-K of the
Registrant dated August 24, 2004, filed on August 27,
2004. (File No. 000-07258, Exhibit 99.1).
|
|
10.1.32
|
Amended
and Restated Certificate Purchase Agreement, dated as of November 22, 2004
and Amended and Restated as of November 18, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and the Class D-2
Certificateholders Described Herein, incorporated by reference to Form
10-Q of the Registrant for the quarter ended October 30, 2004 (File No.
000-07258, Exhibit 10.13).
|
|
10.1.33
|
Series
2007-1 Supplement dated as of October 17, 2007 to the Second Amended and
Restated Pooling and Servicing Agreement dated as of November 25, 1997 and
heretofore amended among CSRC, SOAI and Trustee, incorporated by reference
to Form 8-K of the Registrant dated October 17, 2007, filed on October 22,
2007 (File No. 000-07258, Exhibit 10.2).
|
|
10.1.34
|
Class
A, Class M, and Class B Certificate Purchase Agreement dated as of October
10, 2007 among CSRC, SOAI, Barclays Capital, Inc. and Fashion Service
Corp, incorporated by reference to Form 8-K of the Registrant dated
October 17, 2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.3).
|
|
10.1.35
|
Class
C Purchase Agreement dated as of October 17, 2007 among CSRC, SOAI,
Trustee, Galleon Capital, LLC, and Clipper Receivables Company, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.4).
|
|
10.1.36
|
Amended
and Restated Receivables Purchase Agreement, dated as of June 2, 2005,
among Catalog Receivables LLC as Seller, Spirit of America, Inc. as
Servicer, Sheffield Receivables Corporation as Purchaser, and Barclays
Bank PLC as Administrator, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.1.31).
|
|
10.1.37
|
Registration
Rights Agreement among the Company and Banc of America Securities LLC and
J.P. Morgan Securities Inc., dated as of April 30, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 30, 2007, filed on May
3, 2007 (File No. 000-07258, Exhibit 10.1).
|
|
10.1.38
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Bank of America, N.A., dated April 24, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 25, 2007, filed on May
1, 2007 (File No. 000-07258, Exhibit 10.1).
|
|
10.1.39
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and JPMorgan Chase Bank, National Association, dated April 24,
2007, incorporated by reference to Form 8-K of the Registrant dated April
25, 2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.2).
|
|
10.1.40
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.3).
|
|
10.1.41
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Bank of America, N.A., dated April 24, 2007, incorporated by reference
to Form 8-K of the Registrant dated April 25, 2007, filed on May 1, 2007
(File No. 000-07258, Exhibit 10.4).
|
|
10.1.42
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and JPMorgan Chase Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.5).
|
|
10.1.43
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.6).
|
Management Contracts and Compensatory
Plans and Arrangements
|
10.2.1
|
The
1988 Key Employee Stock Option Plan of Charming Shoppes, Inc., as amended
and restated January 25, 2006, incorporated by reference to Form 10-K of
the Registrant for the fiscal year ended January 28, 2006 (File No.
000-07258, Exhibit 10.2.1).
|
|
10.2.2
|
Form
of Charming Shoppes, Inc. 1988 Key Employee Stock Option Plan Key Employee
Stock Option Agreement, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.2.2).
|
|
10.2.3
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999. (File No.
000-07258, Exhibit 10.1).
|
|
10.2.4
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated at June 27, 2002, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 1,
2003. (File No. 000-07258, Exhibit 10.2.6).
|
|
10.2.5
|
The
Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan,
Amended and Restated Effective January 1, 2005, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 3,
2007. (File No. 000-07258, Exhibit 10.2.5).
|
|
10.2.6
|
Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, amended and
restated effective June 21, 2007, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended August 4, 2007 (File No.
000-07258, Exhibit 10.8).
|
|
10.2.7
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program Stock
Option Agreement, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended July 31, 1999. (File No. 000-07258,
Exhibit 10.2).
|
|
10.2.8
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program
Restricted Stock Agreement, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999. (File No.
000-07258, Exhibit 10.3).
|
|
10.2.9
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Stock Option Agreement, incorporated by reference to Form 8-K of the
Registrant dated June 23, 2005, filed on June 29, 2005. (File
No. 000-07258, Exhibit 10.1).
|
|
10.2.10
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Restricted Share Units Agreement, incorporated by reference to Form 8-K of
the Registrant dated June 23, 2005, filed on June 29,
2005. (File No. 000-07258, Exhibit 10.2).
|
|
10.2.11
|
The
1993 Employees’ Stock Incentive Plan of Charming Shoppes, Inc.,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 29, 1994. (File No. 000-07258, Exhibit
10.2.10).
|
|
10.2.12
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of February 11, 2002, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.8).
|
|
10.2.13
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (regular vesting schedule), incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.20).
|
|
10.2.14
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (accelerated vesting schedule), incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.21).
|
|
10.2.15
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan
Performance-Accelerated Stock Option Agreement, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.22).
|
|
10.2.16
|
The
Charming Shoppes, Inc. Employee Stock Purchase Plan, as amended,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 3, 1996. (File No. 000-07258, Exhibit
10.2.10).
|
|
10.2.17
|
The
Charming Shoppes Inc. 1999 Associates’ Stock Incentive Plan, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 30, 1999. (File No. 000-07258, Exhibit
10.2.24).
|
|
10.2.18
|
Charming
Shoppes, Inc. 1999 Associates’ Stock Incentive Plan Stock Option
Agreement, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1999. (File No. 000-07258,
Exhibit 10.2.25).
|
|
10.2.19
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2001. (File No.
000-07258, Exhibit 10.2.29).
|
|
10.2.20
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (regular vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002. (File No. 000-07258, Exhibit
10.2.23).
|
|
10.2.21
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (accelerated vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002. (File No. 000-07258, Exhibit
10.2.24).
|
|
10.2.22
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Restricted Stock Agreement, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.25).
|
|
10.2.23
|
2004
Stock Award and Incentive Plan, incorporated by reference to Appendix B of
the Registrant’s Proxy Statement Pursuant to Section 14 of the Securities
Exchange Act of 1934, filed on May 19, 2004 (File No.
000-07258).
|
|
10.2.24
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Stock Option Agreement,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended October 30, 2004 (File No. 000-07258, Exhibit
10.15).
|
|
10.2.25
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement – Section 16 Officers, incorporated by reference to Form
8-K of the Registrant dated February 7, 2005, filed on February 11,
2005. (File No. 000-07258, Exhibit 99.2)
|
|
10.2.26
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement, incorporated by reference to Form 8-K of the Registrant
dated February 7, 2005, filed on February 11, 2005. (File No.
000-07258, Exhibit 99.4)
|
|
10.2.27
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement, incorporated by reference to Form 8-K of the
Registrant dated March 15, 2006, filed on March 20, 2006. (File
No. 000-07258, Exhibit 99.1)
|
|
10.2.28
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement – Associates Other Than Section 16 Officers, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended October 30,
2004 (File No. 000-07258, Exhibit 10.17).
|
|
10.2.29
|
Charming
Shoppes, Inc. Supplemental Retirement Plan, effective February 1, 2003,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended May 3, 2003. (File No. 000-07258, Exhibit
10.1).
|
|
10.2.30
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes, Inc. Supplemental
Retirement Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2007. (File No.
000-07258, Exhibit 10.2.29).
|
|
10.2.31
|
2003
Incentive Compensation Plan, incorporated by reference to Appendix C of
the Registrant’s Proxy Statement Pursuant to Section 14 of the Securities
Exchange Act of 1934, filed on May 22, 2003 (File No.
000-07258).
|
|
10.2.32
|
Charming
Shoppes Variable Deferred Compensation Plan For Executives, Amended and
Restated Effective January 1, 2005, incorporated by reference to Form 8-K
of the Registrant dated December 13, 2005, filed December 16,
2005. (File No. 000-07258, Exhibit 99.1).
|
|
10.2.33
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes Variable Deferred
Compensation Plan for Executives and the Charming Shoppes Non-Employee
Director Compensation Plan, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2007. (File
No. 000-07258, Exhibit 10.2.32).
|
|
10.2.34
|
Form
of Bonus Agreement by and between Charming Shoppes, Inc. and the Executive
Officer named in the Agreement, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.14).
|
|
10.2.35
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 19,
2005, incorporated by reference to Form 8-K of the Registrant dated
January 19, 2005, filed January 25, 2005. (File No. 000-07258,
Exhibit 99.1).
|
|
10.2.36
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated February 2,
2006, incorporated by reference to Form 8-K of the Registrant dated
February 2, 2006, filed February 8, 2006. (File No. 000-07258,
Exhibit 99.1).
|
|
10.2.37
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 24,
2007, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 3, 2007. (File No. 000-07258,
Exhibit 10.2.36).
|
|
10.2.38
|
Employment
Agreement, dated as of January 1, 2005, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated January 3, 2005, filed on January 4, 2005. (File No.
000-07258, Exhibit 99.1)
|
|
10.2.39
|
Employment
Agreement, dated as of December 31, 2007, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated December 31, 2007, filed on January 2, 2008. (File No.
000-07258, Exhibit 99.1)
|
|
10.2.40
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc.
and Dorrit J. Bern, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.8).
|
|
10.2.41
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement, dated as of January 3, 2005, between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 29, 2005. (File No.
000-07258, Exhibit 10.2.37).
|
|
10.2.42
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005. (File No. 000-07258, Exhibit
99.1)
|
|
10.2.43
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005. (File No. 000-07258, Exhibit
99.3)
|
|
10.2.44
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006. (File No. 000-07258, Exhibit
99.2)
|
|
10.2.45
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006. (File No. 000-07258, Exhibit
99.3)
|
|
10.2.46
|
Forms
of Executive Severance Agreements by and between Charming Shoppes, Inc.,
the named executive officers in the company’s Proxy Statement for the
Annual Meeting held on June 15, 2000, and certain other executive officers
and officers of Charming Shoppes, Inc. and its subsidiaries, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 29, 2000. (File No. 000-07258, Exhibit
10.2.33).
|
|
10.2.47
|
Forms
of First Amendment, dated as of February 6, 2003, to Forms of Executive
Severance Agreements, dated July 15, 1999, by and between Charming
Shoppes, Inc., and the executive officers and officers named in the
Agreements, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 1, 2003. (File No. 000-07258,
Exhibit 10.2.30).
|
|
Form
of Second Amendment to Form of Executive Severance Agreement, dated July
15, 1999, as amended by First Amendment, dated as of February 6, 2003, by
and between Charming Shoppes, Inc. and the executive officers and officers
named in the agreements.
|
|
|
10.2.49
|
Form
of Executive Severance Agreement, dated February 6, 2003, by and between
Charming Shoppes, Inc. and certain executive officers and officers of
Charming Shoppes, Inc. and its subsidiaries, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 1,
2003. (File No. 000-07258, Exhibit 10.2.31).
|
|
10.2.50
|
Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain executive vice presidents named in the
agreements, incorporated by reference to Form 8-K of the Registrant dated
February 1, 2008, Filed on February 5, 2008. (File No.
000-07258, Exhibit 10.1).
|
|
10.2.51
|
Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain senior vice presidents named in the agreements,
incorporated by reference to Form 8-K of the Registrant dated February 1,
2008, Filed on February 5, 2008. (File No. 000-07258, Exhibit
10.2).
|
Other Exhibits
|
Charming
Shoppes, Inc. Business Ethics and Standards of Conduct
Policy.
|
|
|
Subsidiaries
of Registrant.
|
|
|
Consent
of independent registered public accounting firm.
|
|
|
Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Charming Shoppes, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
CHARMING SHOPPES,
INC.
|
|
|
(Registrant)
|
|
|
Date: April
1, 2008
|
/S/ DORRIT J.
BERN
|
|
Dorrit
J. Bern
|
|
|
Chairman
of the Board
|
|
|
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of Charming Shoppes, Inc. and in
the capacities and on the dates indicated:
|
/S/ DORRIT J.
BERN
|
/S/ ERIC M.
SPECTER
|
|
Dorrit
J. Bern
|
Eric
M. Specter
|
|
Chairman
of the Board
|
Executive
Vice President
|
|
President
and Chief Executive Officer
|
Chief
Financial Officer
|
|
April
1, 2008
|
April
1, 2008
|
|
/S/ JOHN J.
SULLIVAN
|
/S/ WILLIAM O.
ALBERTINI
|
|
John
J. Sullivan
|
William
O. Albertini
|
|
Vice
President, Corporate Controller
|
Director
|
|
Chief
Accounting Officer
|
April
1, 2008
|
|
April
1, 2008
|
|
|
/S/ YVONNE M.
CURL
|
/S/ CHARLES T.
HOPKINS
|
|
Yvonne
M. Curl
|
Charles
T. Hopkins
|
|
Director
|
Director
|
|
April
1, 2008
|
April
1, 2008
|
|
/S/ KATHERINE M.
HUDSON
|
/S/ PAMELA
DAVIES
|
|
Katherine
M. Hudson
|
Pamela
Davies
|
|
Director
|
Director
|
|
April
1, 2008
|
April
1, 2008
|
|
/S/ JEANNINE
STRANDJORD
|
/S/ ALAN
ROSSKAMM
|
|
Jeannine
Strandjord
|
Alan
Rosskamm
|
|
Director
|
Director
|
|
April
1, 2008
|
April
1, 2008
|
|
2.1
|
Covenant
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31, 2001. (File No.
000-07258, Exhibit 2.3).
|
|
|
2.2
|
Master
Sublease, dated as of August 16, 2001, between Limited Brands, Inc. and
Lane Bryant, Inc., incorporated by reference to Form 8-K of the Registrant
dated August 16, 2001, filed on August 31, 2001. (File No. 000-07258,
Exhibit 2.4).
|
|
|
2.3
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto and
J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June 2,
2005, filed on June 8, 2005. (File No. 000-07258, Exhibit
2.1).
|
|
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 1994. (File
No. 000-07258, Exhibit 3.1).
|
|
|
3.2
|
Amended
Article 5, Subsection (d) to the Articles of Incorporation of Charming
Shoppes, Inc., incorporated by reference to Form 8-K of the Registrant
dated September 25, 2007, filed on September 26, 2007 (File No. 000-07258,
Exhibit 3.1).
|
|
|
3.3
|
By-Laws,
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).
|
|
|
4.1
|
Amended
and Restated Rights Agreement, dated as of February 1, 2001, between
Charming Shoppes, Inc. and American Stock Transfer & Trust Company, as
Rights Agent, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 3, 2001. (File No. 000-07258,
Exhibit 4.1).
|
|
|
4.2
|
Registration
Agreement, dated as of August 16, 2001, between Charming Shoppes, Inc. and
Limited Brands, Inc., incorporated by reference to Form 8-K of the
Registrant dated August 16, 2001, filed on August 31,
2001. (File No. 000-07258, Exhibit 4.1).
|
|
|
4.3
|
Indenture,
dated as of May 28, 2002, between Charming Shoppes, Inc. and Wachovia
Bank, National Association, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended May 4, 2002. (File No.
000-07258, Exhibit 4.1).
|
|
|
4.4
|
Registration
Rights Agreement, dated as of May 28, 2002, by and among Charming Shoppes,
Inc., as Issuer, and J. P. Morgan Securities, Inc., Bear Stearns &
Co., Inc., First Union Securities, Inc., Lazard Freres & Co., LLC, and
McDonald Investments, Inc., as Initial Purchasers, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended May 4,
2002. (File No. 000-07258, Exhibit 4.2).
|
|
|
4.5
|
Second
Amended and Restated Loan and Security Agreement, dated July 28, 2005, by
and among Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI
Industries, Inc., FB Apparel, Inc., Catherines Stores Corporation, Lane
Bryant, Inc., and Crosstown Traders, Inc. as borrowers; a syndicate of
banks and other financial institutions as lenders, including Wachovia
Bank, National Association as agent for the lenders; and certain of the
Company’s subsidiaries as guarantors, incorporated by reference to Form
8-K of the Registrant dated July 28, 2005, filed on August 3,
2005. (File No. 000-07258, Exhibit 10.1).
|
|
|
4.6
|
Amendment
No. 1, dated as of May 17, 2006, to Second Amended and Restated Loan and
Security Agreement, dated July 28, 2005, by and among Charming Shoppes,
Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., FB
Apparel, Inc., Catherines Stores Corporation, Lane Bryant, Inc., and
Crosstown Traders, Inc. as borrowers; a syndicate of banks and other
financial institutions as lenders, including Wachovia Bank, National
Association as agent for the lenders; and certain of the Company’s
subsidiaries as guarantors, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 29, 2006. (File No.
000-07258, Exhibit 99.1).
|
|
|
4.7
|
Indenture
between the Company and Wells Fargo Bank, National Association, dated as
of April 30, 2007, incorporated by reference to Form 8-K of the Registrant
dated April 30, 2007, filed on May 3, 2007 (File No. 000-07258, Exhibit
4.1).
|
|
|
4.8
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.7).
|
|
|
10.1.1
|
Second
Amended and Restated Pooling and Servicing Agreement, dated as of November
25, 1997, as amended on July 22, 1999, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and First Union
National Bank as Trustee, incorporated by reference to Form 8-K of
Charming Shoppes Master Trust and Charming Shoppes Receivables Corp.,
dated July 22, 1999. (File No. 333-71757, Exhibit No.
4.1).
|
|
|
10.1.2
|
Fourth
Amendment, dated as of August 5, 2004, to Second Amended and Restated
Pooling and Servicing Agreement, dated as of November 25, 1997, as amended
on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association (formerly known as First Union National Bank) as
Trustee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended July 31, 2004 (File No. 000-07258, Exhibit
10.4).
|
|
|
10.1.3
|
Amendment,
dated as of March 18, 2005, to Second Amended and Restated Pooling and
Servicing Agreement, dated as of November 25, 1997, as amended on July 22,
1999, May 8, 2001, and August 5, 2004, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank,
National Association, as Trustee, incorporated by reference to Form 10-K
of the Registrant for the fiscal year ended January 29,
2005. (File No. 000-07258, Exhibit 10.1.3).
|
|
|
10.1.4
|
Amendment
dated as of October 17, 2007 to Second Amended and Restated Pooling and
Servicing Agreement dated as of November 25, 1997 and heretofore amended
among Charming Shoppes Receivables Corp. (“CSRC”), Spirit of America, Inc.
(“SOAI”), and U.S. Bank National Association, as Trustee (“Trustee”),
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.1).
|
|
|
10.1.5
|
Series
1999-1 Supplement, dated as of July 22, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $150,000,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-1, incorporated by reference to Form
8-K of Charming Shoppes Master Trust and Charming Shoppes Receivables
Corp., dated July 22, 1999. (File No. 333-71757, Exhibit No.
4.2).
|
|
10.1.6
|
Receivables
Purchase Agreement, dated as of May 28, 1999, among Charming Shoppes
Seller, Inc. as Seller, Spirit of America, Inc., as Servicer, Clipper
Receivables Corporation, as Purchaser, State Street Capital Corporation,
as Administrator, and State Street Bank & Trust Company, as
Relationship Bank, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 2, 2002. (File
No. 000-07258, Exhibit 10.1.4).
|
|
10.1.7
|
Series
1999-2 Supplement, dated as of May 28, 1999, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999, among Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and First Union National
Bank, as Trustee, for $55,750,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-2, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29,
2000. (File No. 000-07258, Exhibit 10.1.23).
|
|
10.1.8
|
Series
2000-VFC Supplement, dated as of November 9, 2000, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997,
among Charming Shoppes Receivables Corp., as Seller, Spirit of America,
Inc., as Servicer, and First Union National Bank, as Trustee, on behalf of
the Series 2000-VFC Certificateholders, for up to $60,122,700 Charming
Shoppes Master Trust Series 2000-VFC, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 3,
2001. (File No. 000-07258, Exhibit 10.1.16).
|
|
10.1.9
|
Certificate
Purchase Agreement, dated as of November 9, 2000, among Charming Shoppes
Receivables Corp. as Seller and as the Class B Purchaser, Spirit of
America, Inc. as Servicer, Monte Rosa Capital Corporation as the Conduit
Purchaser, and ING Baring (U.S.) Capital Markets LLC as Administrator for
the Conduit Purchaser, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2001. (File
No. 000-07258, Exhibit 10.1.17).
|
|
10.1.10
|
Purchase
Agreement dated as of March 14, 2005 between Citibank USA, N.A., Spirit of
America National Bank and Catherines, Inc., incorporated by reference to
Form 8-K of the Registrant dated March 18, 2005, filed on March 22,
2005. (File No. 000-07258, Exhibit 99).
|
|
10.1.11
|
Credit
Card Processing Agreement, among World Financial Network National Bank,
Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated as of January
31, 1996, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 2, 2002. (File No. 000-07258,
Exhibit 10.1.9).
|
|
10.1.12
|
Amendment
to Credit Card Processing Agreement, among World Financial Network
National Bank, Lane Bryant, Inc., and Sierra Nevada Factoring, Inc., dated
as of January 28, 2005, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 2005. (File
No. 000-07258, Exhibit 10.1.12).
|
|
10.1.13
|
Purchase
Agreement dated as of October 31, 2007 between World Financial Network
National Bank, Spirit of America National Bank, Lane Bryant, Inc., Sierra
Nevada Factoring, Inc., and Charming Shoppes Outlet Stores, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 31,
2007, filed on November 5, 2007 (File No. 000-07258, Exhibit
99.1).
|
|
10.1.14
|
Purchase
and Sale Agreement, among Spirit of America National Bank, as Seller, and
Charming Shoppes Receivables Corp., as Purchaser, dated as of November 25,
1997, incorporated by reference to Form S-1/A of Charming Shoppes
Receivables Corp. (File No. 333-71757, Exhibit
10.1(a)).
|
|
10.1.15
|
First
Amendment to Purchase and Sale Agreement, among Spirit of America National
Bank, as Seller, and Charming Shoppes Receivables Corp., as Purchaser,
dated as of July 22, 1999, incorporated by reference to Form 8-K of
Charming Shoppes Receivables Corp. (File No. 333-71757, Exhibit
10.1).
|
|
10.1.16
|
Series
2002-1 Supplement, dated as of November 20, 2002, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997, as
amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee, for $100,000,000 Charming
Shoppes Master Trust Asset-Backed Certificates Series 2002-1, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended November
2, 2002. (File No. 000-07258, Exhibit 10.1).
|
|
10.1.17
|
Charming
Shoppes Master Trust $63,500,000 Fixed Rate Class A Asset Backed
Certificates, Series 2002-1 and $16,500,000 Fixed Rate Class B Asset
Backed Certificates, Series 2002-1 Certificate Purchase Agreement, dated
as of November 22, 2002, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002. (File No.
000-07258, Exhibit 10.2).
|
|
10.1.18
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class C Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002. (File No.
000-07258, Exhibit 10.3).
|
|
10.1.19
|
Certificate
Purchase Agreement, dated as of November 22, 2002, among Wachovia Bank,
National Association, as Trustee, Charming Shoppes Receivables Corp., as
Seller, Spirit of America, Inc., as Servicer, and The Class D Holders
described therein, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended November 2, 2002. (File No.
000-07258, Exhibit 10.4).
|
|
10.1.20
|
$14,000,000
Promissory Note, dated October 2002, between White Marsh Distribution,
LLC, as Borrower, and General Electric Capital Business Asset Funding
Corporation, as Payee and Holder, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended November 2, 2002. (File
No. 000-07258, Exhibit 10.5).
|
|
10.1.21
|
Commercial
Deed of Trust, Security Agreement, Assignment of Leases and Rents, and
Fixture Filing, made as of October 2002, among the Grantor, White Marsh
Distribution, LLC, as Borrower, in favor of James M. Smith, as Trustee,
for the benefit of the Beneficiary, General Electric Capital Business
Asset Funding Corporation, as Lender, incorporated by reference to Form
10-Q of the Registrant for the quarter ended November 2,
2002. (File No. 000-07258, Exhibit 10.6).
|
|
10.1.22
|
Certificate
Purchase Agreement, dated as of January 21, 2004, among Charming Shoppes
Receivables Corp., as Seller and as the Class B Purchaser, Spirit of
America, Inc., as Servicer, Sheffield Receivables Corporation, as the
Conduit Purchaser, and Barclay’s Bank PLC as Administrator for the Conduit
Purchaser, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 31, 2004. (File No. 000-07258,
Exhibit 10.1.17).
|
|
10.1.23
|
Series
2004-VFC Supplement, dated as of January 21, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 and
amended as of July 22, 1999 and as of May 8, 2001, among Charming Shoppes
Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and
Wachovia Bank, National Association, as Trustee on behalf of the Series
2004-VFC Certificateholders, for up to $132,000,000 Charming Shoppes
Master Trust Asset-Backed Certificates Series 2004-VFC, incorporated by
reference to Form 10-K of the Registrant for the fiscal year ended January
31, 2004. (File No. 000-07258, Exhibit
10.1.18).
|
|
10.1.24
|
Series
2004-1 Supplement, dated as of August 5, 2004, to Second Amended and
Restated Pooling and Service Agreement, dated as of November 25, 1997 (as
amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among
Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as
Servicer, and Wachovia Bank, National Association, as Trustee, on behalf
of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes
Master Trust Series 2004-1, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.5).
|
|
10.1.25
|
Certificate
Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes
Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and
Barclay’s Capital Inc. (as representative of the Initial Purchasers),
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended July 31, 2004 (File No. 000-07258, Exhibit 10.6).
|
|
10.1.26
|
Certificate
Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables
Company LLC as Initial Class C Holder, incorporated by reference to Form
10-Q of the Registrant for the quarter ended July 31, 2004 (File No.
000-07258, Exhibit 10.7).
|
|
10.1.27
|
Mortgage,
Assignment of Leases and Rents and Security Agreement, dated as of October
6, 2004, between FB Distro Distribution Center, LLC, as Mortgagor, and
BankAtlantic Commercial Mortgage Capital, LLC, as Mortgagee, incorporated
by reference to Form 10-Q of the Registrant for the quarter ended October
30, 2004 (File No. 000-07258, Exhibit 10.9).
|
|
10.1.28
|
$13,000,000
Mortgage Note, dated October 6, 2004, between FB Distro Distribution
Center, LLC, as Maker, and BankAtlantic Commercial Mortgage Capital, LLC,
as Payee, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.10).
|
|
10.1.29
|
Guaranty,
executed as of October 6, 2004, by Charming Shoppes, Inc., as Guarantor,
for the benefit of BankAtlantic Commercial Mortgage Capital, LLC, as
Lender, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 30, 2004 (File No. 000-07258, Exhibit
10.11).
|
|
10.1.30
|
Hazardous
Substances Indemnity Agreement, dated October 6, 2004, by FB Distro
Distribution Center, LLC and by Charming Shoppes, Inc., jointly and
severally as Indemnitors, in favor of BankAtlantic Commercial Mortgage
Capital, LLC, as Holder, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.12).
|
|
10.1.31
|
Amended
and Restated Class D Certificate Purchase Agreement, dated as of August
25, 2004, among Wachovia Bank, National Association as Trustee, Charming
Shoppes Receivables Corp. as Seller and as Initial Class D-1 Holder,
Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC,
as the Class D-1 Holder, incorporated by reference to Form 8-K of the
Registrant dated August 24, 2004, filed on August 27,
2004. (File No. 000-07258, Exhibit 99.1).
|
|
10.1.32
|
Amended
and Restated Certificate Purchase Agreement, dated as of November 22, 2004
and Amended and Restated as of November 18, 2004, among Wachovia Bank,
National Association as Trustee, Charming Shoppes Receivables Corp. as
Seller, Spirit of America, Inc. as Servicer, and the Class D-2
Certificateholders Described Herein, incorporated by reference to Form
10-Q of the Registrant for the quarter ended October 30, 2004 (File No.
000-07258, Exhibit 10.13).
|
|
10.1.33
|
Series
2007-1 Supplement dated as of October 17, 2007 to the Second Amended and
Restated Pooling and Servicing Agreement dated as of November 25, 1997 and
heretofore amended among CSRC, SOAI and Trustee, incorporated by reference
to Form 8-K of the Registrant dated October 17, 2007, filed on October 22,
2007 (File No. 000-07258, Exhibit 10.2).
|
|
10.1.34
|
Class
A, Class M, and Class B Certificate Purchase Agreement dated as of October
10, 2007 among CSRC, SOAI, Barclays Capital, Inc. and Fashion Service
Corp, incorporated by reference to Form 8-K of the Registrant dated
October 17, 2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.3).
|
|
10.1.35
|
Class
C Purchase Agreement dated as of October 17, 2007 among CSRC, SOAI,
Trustee, Galleon Capital, LLC, and Clipper Receivables Company, LLC,
incorporated by reference to Form 8-K of the Registrant dated October 17,
2007, filed on October 22, 2007 (File No. 000-07258, Exhibit
10.4).
|
|
10.1.36
|
Amended
and Restated Receivables Purchase Agreement, dated as of June 2, 2005,
among Catalog Receivables LLC as Seller, Spirit of America, Inc. as
Servicer, Sheffield Receivables Corporation as Purchaser, and Barclays
Bank PLC as Administrator, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.1.31).
|
|
10.1.37
|
Registration
Rights Agreement among the Company and Banc of America Securities LLC and
J.P. Morgan Securities Inc., dated as of April 30, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 30, 2007, filed on May
3, 2007 (File No. 000-07258, Exhibit 10.1).
|
|
10.1.38
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Bank of America, N.A., dated April 24, 2007, incorporated by
reference to Form 8-K of the Registrant dated April 25, 2007, filed on May
1, 2007 (File No. 000-07258, Exhibit 10.1).
|
|
10.1.39
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and JPMorgan Chase Bank, National Association, dated April 24,
2007, incorporated by reference to Form 8-K of the Registrant dated April
25, 2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.2).
|
|
10.1.40
|
Convertible
Bond Hedge Transaction Confirmation entered into by and between the
Company and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.3).
|
|
10.1.41
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Bank of America, N.A., dated April 24, 2007, incorporated by reference
to Form 8-K of the Registrant dated April 25, 2007, filed on May 1, 2007
(File No. 000-07258, Exhibit 10.4).
|
|
10.1.42
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and JPMorgan Chase Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.5).
|
|
10.1.43
|
Issuer
Warrant Transaction Confirmation entered into by and between the Company
and Wachovia Bank, National Association, dated April 24, 2007,
incorporated by reference to Form 8-K of the Registrant dated April 25,
2007, filed on May 1, 2007 (File No. 000-07258, Exhibit
10.6).
|
|
10.2.1
|
The
1988 Key Employee Stock Option Plan of Charming Shoppes, Inc., as amended
and restated January 25, 2006, incorporated by reference to Form 10-K of
the Registrant for the fiscal year ended January 28, 2006 (File No.
000-07258, Exhibit 10.2.1).
|
|
10.2.2
|
Form
of Charming Shoppes, Inc. 1988 Key Employee Stock Option Plan Key Employee
Stock Option Agreement, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 2006 (File No. 000-07258,
Exhibit 10.2.2).
|
|
10.2.3
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999. (File No.
000-07258, Exhibit 10.1).
|
|
10.2.4
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program, As
Amended and Restated at June 27, 2002, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 1,
2003. (File No. 000-07258, Exhibit 10.2.6).
|
|
10.2.5
|
The
Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan,
Amended and Restated Effective January 1, 2005, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 3,
2007. (File No. 000-07258, Exhibit 10.2.5).
|
|
10.2.6
|
Charming
Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan, amended and
restated effective June 21, 2007, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended August 4, 2007 (File No.
000-07258, Exhibit 10.8).
|
|
10.2.7
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program Stock
Option Agreement, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended July 31, 1999. (File No. 000-07258,
Exhibit 10.2).
|
|
10.2.8
|
The
Charming Shoppes, Inc. Non-Employee Directors Compensation Program
Restricted Stock Agreement, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 1999. (File No.
000-07258, Exhibit 10.3).
|
|
10.2.9
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Stock Option Agreement, incorporated by reference to Form 8-K of the
Registrant dated June 23, 2005, filed on June 29, 2005. (File
No. 000-07258, Exhibit 10.1).
|
|
10.2.10
|
Form
of Charming Shoppes, Inc. 2003 Non-Employee Directors Compensation Plan
Restricted Share Units Agreement, incorporated by reference to Form 8-K of
the Registrant dated June 23, 2005, filed on June 29,
2005. (File No. 000-07258, Exhibit 10.2).
|
|
10.2.11
|
The
1993 Employees’ Stock Incentive Plan of Charming Shoppes, Inc.,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 29, 1994. (File No. 000-07258, Exhibit
10.2.10).
|
|
10.2.12
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of February 11, 2002, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.8).
|
|
10.2.13
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (regular vesting schedule), incorporated by reference to Form
10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.20).
|
|
10.2.14
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Stock Option
Agreement (accelerated vesting schedule), incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.21).
|
|
10.2.15
|
The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan
Performance-Accelerated Stock Option Agreement, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.22).
|
|
10.2.16
|
The
Charming Shoppes, Inc. Employee Stock Purchase Plan, as amended,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 3, 1996. (File No. 000-07258, Exhibit
10.2.10).
|
|
10.2.17
|
The
Charming Shoppes Inc. 1999 Associates’ Stock Incentive Plan, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 30, 1999. (File No. 000-07258, Exhibit
10.2.24).
|
|
10.2.18
|
Charming
Shoppes, Inc. 1999 Associates’ Stock Incentive Plan Stock Option
Agreement, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 30, 1999. (File No. 000-07258,
Exhibit 10.2.25).
|
|
10.2.19
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2001. (File No.
000-07258, Exhibit 10.2.29).
|
|
10.2.20
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (regular vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002. (File No. 000-07258, Exhibit
10.2.23).
|
|
10.2.21
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Stock Option Agreement (accelerated vesting schedule),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended February 2, 2002. (File No. 000-07258, Exhibit
10.2.24).
|
|
10.2.22
|
The
Charming Shoppes, Inc. Amended and Restated 2000 Associates’ Stock
Incentive Plan Restricted Stock Agreement, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 2,
2002. (File No. 000-07258, Exhibit 10.2.25).
|
|
10.2.23
|
2004
Stock Award and Incentive Plan, incorporated by reference to Appendix B of
the Registrant’s Proxy Statement Pursuant to Section 14 of the Securities
Exchange Act of 1934, filed on May 19, 2004 (File No.
000-07258).
|
|
10.2.24
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Stock Option Agreement,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended October 30, 2004 (File No. 000-07258, Exhibit
10.15).
|
|
10.2.25
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement – Section 16 Officers, incorporated by reference to Form
8-K of the Registrant dated February 7, 2005, filed on February 11,
2005. (File No. 000-07258, Exhibit 99.2)
|
|
10.2.26
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement, incorporated by reference to Form 8-K of the Registrant
dated February 7, 2005, filed on February 11, 2005. (File No.
000-07258, Exhibit 99.4)
|
|
10.2.27
|
Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement, incorporated by reference to Form 8-K of the
Registrant dated March 15, 2006, filed on March 20, 2006. (File
No. 000-07258, Exhibit 99.1)
|
|
10.2.28
|
Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement – Associates Other Than Section 16 Officers, incorporated by
reference to Form 10-Q of the Registrant for the quarter ended October 30,
2004 (File No. 000-07258, Exhibit 10.17).
|
|
10.2.29
|
Charming
Shoppes, Inc. Supplemental Retirement Plan, effective February 1, 2003,
incorporated by reference to Form 10-Q of the Registrant for the quarter
ended May 3, 2003. (File No. 000-07258, Exhibit
10.1).
|
|
10.2.30
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes, Inc. Supplemental
Retirement Plan, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended February 3, 2007. (File No.
000-07258, Exhibit 10.2.29).
|
|
10.2.31
|
2003
Incentive Compensation Plan, incorporated by reference to Appendix C of
the Registrant’s Proxy Statement Pursuant to Section 14 of the Securities
Exchange Act of 1934, filed on May 22, 2003 (File No.
000-07258).
|
|
10.2.32
|
Charming
Shoppes Variable Deferred Compensation Plan For Executives, Amended and
Restated Effective January 1, 2005, incorporated by reference to Form 8-K
of the Registrant dated December 13, 2005, filed December 16,
2005. (File No. 000-07258, Exhibit 99.1).
|
|
10.2.33
|
Amendment
2007-1, Charming Shoppes, Inc. Supplemental Benefit Trust Agreement, dated
as of January 25, 2007, to the Charming Shoppes Variable Deferred
Compensation Plan for Executives and the Charming Shoppes Non-Employee
Director Compensation Plan, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended February 3, 2007. (File
No. 000-07258, Exhibit 10.2.32).
|
|
10.2.34
|
Form
of Bonus Agreement by and between Charming Shoppes, Inc. and the Executive
Officer named in the Agreement, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended October 30, 2004 (File No. 000-07258,
Exhibit 10.14).
|
|
10.2.35
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 19,
2005, incorporated by reference to Form 8-K of the Registrant dated
January 19, 2005, filed January 25, 2005. (File No. 000-07258,
Exhibit 99.1).
|
|
10.2.36
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated February 2,
2006, incorporated by reference to Form 8-K of the Registrant dated
February 2, 2006, filed February 8, 2006. (File No. 000-07258,
Exhibit 99.1).
|
|
10.2.37
|
Charming
Shoppes, Inc. Annual Incentive Program As Amended and Restated January 24,
2007, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended February 3, 2007. (File No. 000-07258,
Exhibit 10.2.36).
|
|
10.2.38
|
Employment
Agreement, dated as of January 1, 2005, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated January 3, 2005, filed on January 4, 2005. (File No.
000-07258, Exhibit 99.1)
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10.2.39
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Employment
Agreement, dated as of December 31, 2007, by and between Charming Shoppes,
Inc. and Dorrit J. Bern, incorporated by reference to Form 8-K of the
Registrant dated December 31, 2007, filed on January 2, 2008. (File No.
000-07258, Exhibit 99.1)
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10.2.40
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The
Charming Shoppes, Inc. 1993 Employees’ Stock Incentive Plan Restricted
Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc.
and Dorrit J. Bern, incorporated by reference to Form 10-Q of the
Registrant for the quarter ended July 31, 2004 (File No. 000-07258,
Exhibit 10.8).
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10.2.41
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Charming
Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock
Agreement, dated as of January 3, 2005, between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 29, 2005. (File No.
000-07258, Exhibit 10.2.37).
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10.2.42
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Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005. (File No. 000-07258, Exhibit
99.1)
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10.2.43
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Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 7,
2005, filed on February 11, 2005. (File No. 000-07258, Exhibit
99.3)
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10.2.44
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Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted
Stock Units Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006. (File No. 000-07258, Exhibit
99.2)
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10.2.45
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Form
of Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Performance
Share Agreement between Charming Shoppes, Inc. and Dorrit J. Bern,
incorporated by reference to Form 8-K of the Registrant dated February 2,
2006, filed on February 8, 2006. (File No. 000-07258, Exhibit
99.3)
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10.2.46
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Forms
of Executive Severance Agreements by and between Charming Shoppes, Inc.,
the named executive officers in the company’s Proxy Statement for the
Annual Meeting held on June 15, 2000, and certain other executive officers
and officers of Charming Shoppes, Inc. and its subsidiaries, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 29, 2000. (File No. 000-07258, Exhibit
10.2.33).
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10.2.47
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Forms
of First Amendment, dated as of February 6, 2003, to Forms of Executive
Severance Agreements, dated July 15, 1999, by and between Charming
Shoppes, Inc., and the executive officers and officers named in the
Agreements, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended February 1, 2003. (File No. 000-07258,
Exhibit 10.2.30).
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Form
of Second Amendment to Form of Executive Severance Agreement, dated July
15, 1999, as amended by First Amendment, dated as of February 6, 2003, by
and between Charming Shoppes, Inc. and the executive officers and officers
named in the agreements.
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10.2.49
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Form
of Executive Severance Agreement, dated February 6, 2003, by and between
Charming Shoppes, Inc. and certain executive officers and officers of
Charming Shoppes, Inc. and its subsidiaries, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended February 1,
2003. (File No. 000-07258, Exhibit 10.2.31).
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10.2.50
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Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain executive vice presidents named in the
agreements, incorporated by reference to Form 8-K of the Registrant dated
February 1, 2008, Filed on February 5, 2008. (File No.
000-07258, Exhibit 10.1).
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10.2.51
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Form
of Severance Agreement, dated February 1, 2008, by and between Charming
Shoppes, Inc. and certain senior vice presidents named in the agreements,
incorporated by reference to Form 8-K of the Registrant dated February 1,
2008, Filed on February 5, 2008. (File No. 000-07258, Exhibit
10.2).
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Charming
Shoppes, Inc. Business Ethics and Standards of Conduct
Policy.
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Subsidiaries
of Registrant.
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Consent
of independent registered public accounting firm.
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Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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