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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 2, 2005
Charming Shoppes, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Pennsylvania
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(State or Other Jurisdiction of Incorporation)
000-07258 23-1721355
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(Commission File Number) (I.R.S. Employer Identification No.)
450 Winks Lane, Bensalem, Pennsylvania 19020
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(Address of Principal Executive Offices) Zip Code)
(215) 245-9100
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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This Report on Form 8-K/A amends and supplements the report on Form 8-K
dated June 2, 2005 and filed by Charming Shoppes, Inc. (the "Company" or the
"Registrant") on June 8, 2005 (the "Report on Form 8-K"). The Report on Form 8-K
was filed to report the acquisition by Chestnut Acquisition Sub, Inc., a
subsidiary of the Registrant, of all of the outstanding capital stock of
Crosstown Traders, Inc. ("Crosstown Traders") held by affiliates of JPMorgan
Partners, the private equity arm of J.P. Morgan Chase & Co., and the other
stockholders and optionholders of Crosstown Traders. The disclosures required by
Items 1.01, 2.01, and 2.03 were included in the Report on Form 8-K. In
accordance with the requirements of Items 9.01(a)(4) and 9.01(b)(2) of the
Report on Form 8-K, this Report on Form 8-K/A is being filed within 71 days
after June 8, 2005 (the date that the initial Report on Form 8-K was required to
be filed), to amend and supplement the Report on Form 8-K to include the
financial statements and pro forma financial information required by Item 9.01.
Item 9.01. Financial Statements and Exhibits.
Item 9.01(a) is hereby amended and supplemented as follows:
a) Financial Statements of Businesses Acquired.
The Consolidated Financial Statements of Crosstown Traders, Inc. and
Subsidiaries for the fiscal years ended January 29, 2005 and January 31, 2004,
together with the Notes thereto, are incorporated herein by reference to Exhibit
99.1 of this Report on Form 8-K/A.
The Consolidated Financial Statements of Crosstown Traders, Inc. and
Subsidiaries (Unaudited) for the thirteen-week periods ended April 30, 2005 and
May 1, 2004, together with the Notes thereto, are incorporated herein by
reference to Exhibit 99.2 of this Report on Form 8-K/A.
Item 9.01(b) is hereby amended and supplemented as follows:
(b) Pro Forma Financial Information.
The unaudited pro forma financial information included herein gives effect
to the Company's acquisition of Crosstown Traders, Inc. The Unaudited Pro Forma
Condensed Consolidated Statements of Operations are based on historical data as
reported by the separate companies, and reflect adjustments prepared as if the
acquisition had occurred on February 1, 2004. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet is based on historical data as reported by the
separate companies, and reflects adjustments prepared as if the acquisition had
occurred on April 30, 2005. As used herein, the terms "the Company," "we," and
"our" refer to Charming Shoppes, Inc., and, where applicable, its consolidated
subsidiaries.
The Unaudited Pro Forma Condensed Consolidated Financial Statements
contained herein (the "Statements") include adjustments having a continuing
impact on the consolidated company as a result of using the purchase method of
accounting for the acquisition. The pro forma adjustments are described in the
notes accompanying the Statements (the "Notes").
1
The Statements have been prepared based on available information, using
assumptions that our management believes are reasonable. The Statements do not
purport to represent the actual financial position or results of operations that
would have occurred if the acquisition had taken place on the dates specified.
The Statements are not necessarily indicative of the results of operations that
may be achieved in the future. The Statements do not reflect any adjustments for
the effect of non-recurring items or operating synergies that we may realize as
a result of the acquisition. The Statements include certain reclassifications to
conform the historical financial information of Crosstown Traders to our
presentation.
The assumptions used and adjustments made in preparing the Statements are
described in the Notes, which should be read in conjunction with the Statements.
The Statements and related Notes contained herein should be read in conjunction
with the consolidated financial statements and related notes included in our
Annual Report on Form 10-K for the year ended January 29, 2005, the unaudited
condensed consolidated financial statements and related notes included in our
Quarterly Report on Form 10-Q for the quarter ended April 30, 2005, and the
consolidated financial statements and related notes of Crosstown Traders filed
as exhibits to this Report on Form 8-K/A and incorporated by reference in Item
9.01(a).
The unaudited pro forma adjustments made in preparing the Statements are
based on preliminary purchase price allocations and on certain management
judgments. These preliminary allocations are based on an analysis of the
estimated fair values of assets acquired and liabilities assumed, including
identifiable tangible and intangible assets, deferred tax assets and
liabilities, and estimates of the useful lives of tangible and amortizable
intangible assets. The final purchase price allocations will be completed after
we obtain third-party appraisals, review all available data, and complete our
own internal assessments. Any additional adjustments resulting from finalization
of the purchase price allocations for Crosstown will affect the amount assigned
to goodwill.
2
CHARMING SHOPPES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
April 30, 2005
As Reported
--------------------- Pro Forma
Charming Crosstown Pro Forma Combined
(In thousands) Shoppes Traders* Adjustments Notes Company
------- -------- ----------- ----- -------
ASSETS
Current assets
Cash and cash equivalents ... $ 254,801 $ 5,099 $ (264,451) 1
110,000 1
(1,150) 2 $ 104,299
Available-for-sale securities 84,639 0 84,639
Accounts receivable, net .... 0 59,371 2,200 1 61,571
Merchandise inventories ..... 347,794 73,679 421,473
Deferred advertising ........ 0 14,062 14,062
Deferred taxes .............. 15,500 (932) 9,781 1 24,349
Prepayments and other ....... 91,671 2,554 94,225
---------- ---------- ---------- ----------
Total current assets ........ 794,405 153,833 (143,620) 804,618
---------- ---------- ---------- ----------
Net property, equipment, and
leasehold improvements . 318,508 4,952 15,000 1 338,460
---------- ---------- ---------- ----------
Tradenames and other
intangible assets ...... 169,653 0 70,000 1
20,000 1 259,653
Goodwill .................... 66,666 4,149 80,469 1
(4,149) 1 147,135
Available-for-sale securities 240 0 240
Other assets ................ 35,987 3,768 1,150 2
(996) 1 39,909
---------- ---------- ---------- ----------
Total assets ................ $1,385,459 $ 166,702 $ 37,854 $1,590,015
========== ========== ========== ==========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
* Amounts include certain reclassifications to conform the historical financial
information of Crosstown Traders to the Company's presentation.
3
CHARMING SHOPPES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
April 30, 2005
As Reported
--------------------- Pro Forma
Charming Crosstown Pro Forma Combined
(In thousands) Shoppes Traders* Adjustments Notes Company
------- -------- ----------- ----- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings........ $ 110,000 1 $ 110,000
Accounts payable............. $ 171,781 $ 9,735 181,516
Accrued expenses............. 156,571 40,268 5,962 1
(680) 1 202,121
Income taxes payable......... 3,942 0 3,942
Current portion -- long-term
debt.................... 20,822 0 20,822
---------- ---------- ---------- ----------
Total current liabilities.... 353,116 50,003 115,282 518,401
---------- ---------- ---------- ----------
Deferred taxes and other
non-current liabilities. 106,040 421 38,850 1 145,311
Long-term debt............... 199,862 42,897 (42,897) 1 199,862
Stockholders' equity
Common stock................. 13,208 1 (1) 1 13,208
Additional paid-in capital... 258,367 33,436 (33,436) 1 258,367
Treasury stock at cost....... (84,136) 0 (84,136)
Deferred employee
compensation............ (15,639) 0 (15,639)
Retained earnings............ 554,641 39,944 (39,944) 1 554,641
---------- ---------- ---------- ----------
Total stockholders' equity... 726,441 73,381 (73,381) 726,441
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.... $1,385,459 $ 166,702 $ 37,854 $1,590,015
========== ========== ========== ==========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
* Amounts include certain reclassifications to conform the historical financial
information of Crosstown Traders to the Company's presentation.
4
CHARMING SHOPPES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 2005
1. The Pro Forma Adjustments to the Unaudited Pro Forma Condensed Consolidated
Balance Sheet reflect the allocation of the purchase price to the assets
acquired and liabilities assumed, based on a preliminary estimate of their
respective fair values at the date of acquisition.
The preliminary pro forma allocation of the purchase price of
Crosstown Traders is as follows (in thousands):
Cash paid .............................................. $ 218,015
Payment of assumed debt ................................ 42,897
Fees and other direct costs of the acquisition ......... 3,539
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Total purchase price ................................... $ 264,451
=========
Net assets of Crosstown Traders at April 30, 2005 ...... $ 73,381
Estimated fair market value of identifiable intangible
assets acquired:
Trademarks, tradenames, and internet domain names .. 70,000
Customer relationships ............................. 20,000
Payment of assumed debt ................................ 42,897
Estimated fair value adjustment for accounts receivable 2,200
Estimated fair value adjustment for other assets ....... (996)
Estimated fair value adjustment for accrued expenses ... 680
Estimated fair value adjustment for property, equipment,
and leasehold improvements ......................... 15,000
Write-off of pre-acquisition goodwill .................. (4,149)
Adjustment to deferred taxes ........................... (29,069)
Estimated expenses for lease and contract cancellations,
severance, and certain other exit activities ....... (5,962)
---------
Estimated fair value of identifiable net assets acquired $ 183,982
---------
Excess of cost of acquisition over estimated fair value
of net assets acquired ............................. $ 80,469
=========
The cash paid for the acquisition was funded with approximately
$108,015,000 of our existing cash and cash equivalents and $110,000,000 of
borrowings obtained under our then existing $300,000,000 revolving credit
facility.
Subsequent to the acquisition, we securitized Crosstown Traders'
apparel-related accounts receivable of approximately $54 million under a
new conduit funding facility established specifically for funding the
Crosstown receivables. The majority of the proceeds from the securitization
were used to retire Crosstown's debt.
5
CHARMING SHOPPES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 2005
(Continued)
2. Subsequent to the acquisition of Crosstown Traders, on July 28, 2005, we
amended our existing $300,000,000 revolving credit facility, which was due
to expire on August 15, 2008. The amended facility 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. The
amended facility expires on July 28, 2010. In connection with the
amendment, we incurred approximately $1,150,000 of expenses that were
capitalized and are being amortized on a straight-line basis over the life
of the amended facility.
6
CHARMING SHOPPES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
Thirteen Weeks Ended April 30, 2005
As Reported
--------------------- Pro Forma
Charming Crosstown Pro Forma Combined
(In thousands) Shoppes Traders* Adjustments Notes Company
------- -------- ----------- ----- -------
Net sales.................... $603,255 $106,487 $709,742
-------- -------- --------
Cost of goods sold, buying,
and occupancy expenses.. 403,824 80,616 $ 750 (A) 485,190
Selling, general, and
administrative expenses. 150,938 23,190 1,250 (A) 175,378
-------- -------- ------- --------
Total operating expenses..... 554,762 103,806 2,000 660,568
-------- -------- ------- --------
Income from operations....... 48,493 2,681 (2,000) 49,174
Other income (expense)....... 2,815 (99) (621) (B) 2,095
Interest expense............. 3,925 1,474 1,243 (C)
(1,040) (C) 5,602
--------- -------- ------- --------
Income before
income taxes............ 47,383 1,108 (2,824) 45,667
Income tax provision......... 17,366 430 (1,072) (D) 16,724
-------- -------- ------- --------
Net income................... $ 30,017 $ 678 $(1,752) $ 28,943
======== ======== ======= ========
Basic income per share....... $0.25 $0.24
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Weighted average shares
outstanding............. 118,984 118,984
Diluted income per share..... $0.23 $0.22
===== =====
Weighted average shares and
equivalents outstanding. 135,743 135,743
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
* Amounts include certain reclassifications to conform the historical financial
information of Crosstown Traders to the Company's presentation.
7
CHARMING SHOPPES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
Year Ended January 29, 2005
As Reported
--------------------- Pro Forma
Charming Crosstown Pro Forma Combined
(In thousands) Shoppes Traders* Adjustments Notes Company
------- -------- ----------- ----- -------
Net sales..................... $2,332,334 $444,805 $2,777,139
---------- -------- ----------
Cost of goods sold, buying,
and occupancy expenses.. 1,640,248 323,355 $ 3,000 (A) 1,966,603
Selling, general, and
administrative expenses. 577,301 95,691 5,000 (A) 677,992
Expenses related to cost
reduction plan.......... 605 605
---------- -------- --------- ----------
Total operating expenses..... 2,218,154 419,046 8,000 2,645,200
---------- -------- --------- ----------
Income from operations....... 114,180 25,759 (8,000) 131,939
Other income................. 3,098 182 (1,532) (B) 1,748
Interest expense............. 15,610 5,687 3,684 (C)
(3,192) (C) 21,789
---------- -------- --------- ----------
Income before
income taxes............ 101,668 20,254 (10,024) 111,898
Income tax provision......... 37,142 8,749 (4,643) (D) 41,248
---------- -------- --------- ----------
Net income................... $ 64,526 $ 11,505 $ (5,381) $ 70,650
========== ======== ========= ==========
Basic income per share....... $0.56 $0.61
===== =====
Weighted average shares
outstanding............. 116,196 116,196
Diluted income per share .... $0.52 $0.56
===== =====
Weighted average shares and
equivalents outstanding. 133,174 133,174
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
* Amounts include certain reclassifications to conform the historical financial
information of Crosstown Traders to the Company's presentation.
8
CHARMING SHOPPES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 29, 2005
AND THE THIRTEEN WEEKS ENDED APRIL 30, 2005
A. The fair value adjustment for property, equipment, and leasehold
improvements results in additional depreciation expense, which is included
in cost of goods sold, buying, and occupancy expenses. The recognition of
the fair value of Crosstown's customer relationships results in additional
amortization expense, which is included in selling, general, and
administrative expenses. The pro forma effects on depreciation and
amortization expense are as follows:
Thirteen
Year Ended Weeks Ended
Fair Value Useful January 29, April 30,
(Dollars in thousands) Adjustment Life 2005 2005
---------- ---- ---- ----
Property, equipment, and
leasehold improvements.. $15,000 5 yrs. $3,000 $ 750
Customer relationships...... 20,000 4 yrs. 5,000 1,250
B. The use of our existing cash and cash equivalents to fund the acquisition
results in a reduction of funds available for investment in cash
equivalents and/or available-for-sale securities. As a result, we will earn
less interest income. The pro forma effect of the reduction in interest
income is as follows:
Thirteen
Year Ended Weeks Ended
Interest January 29, April 30,
(Dollars in thousands) Principal Rate 2005 2005
--------- ---- ---- ----
Cash and cash equivalents
used to fund the acquisition $108,015 1.4% $1,532 $ --
2.3% -- 621
The interest rate used is an estimated average rate of return on
securities that would have been available for investment during the
respective periods.
9
CHARMING SHOPPES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 29, 2005
AND THE THIRTEEN WEEKS ENDED APRIL 30, 2005
(Continued)
C. As a result of the revolving loan used to finance a portion of the
acquisition and the expenses incurred in connection with the amendment of
the revolving credit facility, we will incur additional interest expense
and amortization of deferred debt acquisition costs. In addition, as a
result of the repayment of Crosstown's debt as of the date of acquisition,
Crosstown will not incur interest expense on its outstanding term loans and
will incur interest expense on revolving working capital borrowings at a
reduced rate subsequent to the date of acquisition. The pro forma effect of
the additional interest expense on the revolving loan, amortization of
deferred debt acquisition costs, and the reduction of Crosstown's interest
expense is as follows:
Interest Thirteen
Rate or Year Ended Weeks Ended
Amortization January 29, April 30,
(Dollars in thousands) Principal Period 2005 2005
--------- ------ ---- ----
Revolving loan................ $110,000 3.1% $ 3,454 $ --
4.3% -- 1,243
Amortization of deferred debt
acquisition costs......... 1,150 5 yrs. 230 58
Reduction of Crosstown's
interest expense.......... (3,192) (1,040)
The interest rate for the revolving loan used in the above table
represents the interest rate that was in effect for the loan during the
respective periods. Amortization of deferred debt acquisition costs is
included in interest expense on the Company's statement of operations.
D. The income tax provision has been adjusted for the estimated tax effect of
the pro forma adjustments to income before income taxes for the respective
periods.
Weighted average shares and equivalents outstanding used to calculate
diluted income per share include the effect of assumed conversion of our
convertible debt, using the "if-converted" method. After-tax interest
expense related to the convertible debt of $4,539,000 for the year ended
January 29, 2005 and $1,128,000 for the thirteen weeks ended April 30, 2005
has been added back to net income for the respective periods for the
purpose of calculating diluted income per share.
10
Item 901(c) is hereby amended and supplemented as follows:
(c) Exhibits.
23 Consent of Deloitte & Touche LLP.
99.1 Consolidated Financial Statements of Crosstown Traders, Inc. and
Subsidiaries for the fiscal years ended January 29, 2005 and January 31,
2004.
99.2 Consolidated Financial Statements of Crosstown Traders, Inc. and
Subsidiaries (Unaudited) for the thirteen-week periods ended April 30, 2005
and May 1, 2004.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHARMING SHOPPES, INC.
(Registrant)
Dated: August 17, 2005 /S/ ERIC M. SPECTER
-------------------
Eric M. Specter
Executive Vice President
Chief Financial Officer
12
EXHIBIT INDEX
Exhibit No. Description
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23 Consent of Deloitte & Touche LLP.
99.1 Consolidated Financial Statements of Crosstown Traders, Inc. and
Subsidiaries for the fiscal years ended January 29, 2005 and
January 31, 2004.
99.2 Consolidated Financial Statements of Crosstown Traders, Inc. and
Subsidiaries (Unaudited) for the thirteen-week periods ended April
30, 2005 and May 1, 2004.
13