PENNSYLVANIA
|
23-1721355
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
450
WINKS LANE, BENSALEM, PA 19020
|
(215)
245-9100
|
|||
(Address
of principal executive offices) (Zip Code)
|
(Registrant’s
telephone number, including Area Code)
|
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-accelerated
Filer o
|
Page
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
2
|
Item
1.
|
Financial
Statements (Unaudited)
|
2
|
Condensed
Consolidated Balance Sheets
|
||
May
5, 2007 and February 3, 2007
|
2
|
|
Condensed
Consolidated Statements of Operations and Comprehensive
Income
|
||
Thirteen
weeks ended May 5, 2007 and April 29, 2006
|
3
|
|
Condensed
Consolidated Statements of Cash Flows
|
||
Thirteen
weeks ended May 5, 2007 and April 29, 2006
|
4
|
|
Notes
to Condensed Consolidated Financial Statements
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
Forward-looking
Statements
|
19
|
|
Critical
Accounting Policies
|
21
|
|
Recent
Developments
|
24
|
|
Results
of Operations
|
25
|
|
Liquidity
and Capital Resources
|
29
|
|
Financing
|
33
|
|
Market
Risk
|
35
|
|
Impact
of Recent Accounting Pronouncements
|
36
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
36
|
Item
4.
|
Controls
and Procedures
|
36
|
PART
II.
|
OTHER
INFORMATION
|
37
|
Item
1.
|
Legal
Proceedings
|
37
|
Item
1A.
|
Risk
Factors
|
37
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
38
|
Item
6.
|
Exhibits
|
39
|
SIGNATURES
|
41
|
|
Exhibit
Index
|
42
|
May
5,
|
February
3,
|
|||||||
(In
thousands, except share amounts)
|
2007
|
2007
|
||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ |
240,913
|
$ |
143,838
|
||||
Available-for-sale
securities
|
300
|
1,997
|
||||||
Accounts
receivable, net of allowances of $5,627 and $5,083
|
6,831
|
33,366
|
||||||
Investment
in asset-backed securities
|
61,564
|
60,643
|
||||||
Merchandise
inventories
|
469,508
|
429,433
|
||||||
Deferred
advertising
|
20,701
|
21,707
|
||||||
Deferred
taxes
|
5,573
|
4,469
|
||||||
Prepayments
and other
|
139,010
|
145,385
|
||||||
Total
current assets
|
944,400
|
840,838
|
||||||
Property,
equipment, and leasehold improvements – at cost
|
1,026,396
|
996,430
|
||||||
Less
accumulated depreciation and amortization
|
592,835
|
573,984
|
||||||
Net
property, equipment, and leasehold improvements
|
433,561
|
422,446
|
||||||
Trademarks
and other intangible assets
|
248,809
|
249,490
|
||||||
Goodwill
|
153,370
|
153,370
|
||||||
Other
assets
|
54,789
|
44,798
|
||||||
Total
assets
|
$ |
1,834,929
|
$ |
1,710,942
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities
|
||||||||
4.75%
Senior convertible notes
|
$ |
149,999
|
$ |
0
|
||||
Accounts
payable
|
197,125
|
178,629
|
||||||
Accrued
expenses
|
168,153
|
190,702
|
||||||
Income
taxes payable
|
1,233
|
0
|
||||||
Current
portion – long-term debt
|
10,134
|
10,887
|
||||||
Total
current liabilities
|
526,644
|
380,218
|
||||||
Deferred
taxes
|
56,944
|
57,340
|
||||||
Other
non-current liabilities
|
164,492
|
144,722
|
||||||
Long-term
debt
|
279,129
|
181,124
|
||||||
Stockholders’
equity
|
||||||||
Common
Stock $.10 par value:
|
||||||||
Authorized
– 300,000,000 shares
|
||||||||
Issued
– 136,020,034 shares and 135,762,531 shares
|
13,602
|
13,576
|
||||||
Additional
paid-in capital
|
255,120
|
285,159
|
||||||
Treasury
stock at cost – 22,580,893 shares and 12,265,993 shares
|
(215,238 | ) | (84,136 | ) | ||||
Accumulated
other comprehensive income/(loss)
|
(2 | ) |
1
|
|||||
Retained
earnings
|
754,238
|
732,938
|
||||||
Total
stockholders’ equity
|
807,720
|
947,538
|
||||||
Total
liabilities and stockholders’ equity
|
$ |
1,834,929
|
$ |
1,710,942
|
||||
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
||||||||
See
Notes to Condensed Consolidated Financial
Statements
|
Thirteen
Weeks Ended
|
||||||||
May
5,
|
April
29,
|
|||||||
(In
thousands, except per share amounts)
|
2007
|
2006
|
||||||
Net
sales
|
$ |
784,712
|
$ |
734,922
|
||||
Cost
of goods sold, buying, catalog, and occupancy expenses
|
546,197
|
501,072
|
||||||
Selling,
general, and administrative expenses
|
195,620
|
181,447
|
||||||
Total
operating expenses
|
741,817
|
682,519
|
||||||
Income
from operations
|
42,895
|
52,403
|
||||||
Other
income
|
1,330
|
1,547
|
||||||
Interest
expense
|
(3,263 | ) | (4,124 | ) | ||||
Income
before income taxes
|
40,962
|
49,826
|
||||||
Income
tax provision
|
14,664
|
17,765
|
||||||
Net
income
|
26,298
|
32,061
|
||||||
Other
comprehensive income, net of tax
|
||||||||
Unrealized
(losses)/gains on available-for-sale securities,
|
||||||||
net
of income tax
benefit/(provision) of $1 in 2007 and ($2) in 2006
|
(3 | ) |
3
|
|||||
Comprehensive
income
|
$ |
26,295
|
$ |
32,064
|
||||
Basic
net income per share
|
$ |
.21
|
$ |
.26
|
||||
Diluted
net income per share
|
$ |
.20
|
$ |
.24
|
||||
Certain
prior-year amounts have been reclassified to conform to the current-year
presentation.
|
||||||||
See
Notes to Condensed Consolidated Financial
Statements
|
Thirteen
Weeks Ended
|
||||||||
May
5,
|
April
29,
|
|||||||
(In
thousands)
|
2007
|
2006
|
||||||
Operating
activities
|
||||||||
Net
income
|
$ |
26,298
|
$ |
32,061
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||
Depreciation
and amortization
|
22,744
|
20,158
|
||||||
Deferred
income taxes
|
(395 | ) | (1,665 | ) | ||||
Stock-based
compensation
|
2,924
|
2,551
|
||||||
Excess
tax benefits related to stock-based compensation
|
(636 | ) | (2,035 | ) | ||||
Net
loss from disposition of capital assets
|
460
|
353
|
||||||
Net
gain from securitization activities
|
(193 | ) | (152 | ) | ||||
Changes
in operating assets and liabilities
|
||||||||
Accounts
receivable, net
|
26,535
|
30,118
|
||||||
Merchandise
inventories
|
(40,075 | ) | (72,206 | ) | ||||
Accounts
payable
|
18,496
|
49,720
|
||||||
Deferred
advertising
|
1,006
|
(953 | ) | |||||
Prepayments
and other
|
4,625
|
(11,127 | ) | |||||
Income
taxes payable
|
1,869
|
18,274
|
||||||
Accrued
expenses and other
|
(3,476 | ) | (6,160 | ) | ||||
Net
cash provided by operating activities
|
60,182
|
58,937
|
||||||
Investing
activities
|
||||||||
Investment
in capital assets
|
(37,511 | ) | (23,854 | ) | ||||
Gross
purchases of securities
|
(1,598 | ) | (3,251 | ) | ||||
Proceeds
from sales of securities
|
2,563
|
9,463
|
||||||
Increase
in other assets
|
(3,523 | ) | (7,042 | ) | ||||
Net
cash used by investing activities
|
(40,069 | ) | (24,684 | ) | ||||
Financing
activities
|
||||||||
Proceeds
from short-term borrowings
|
5,383
|
96,418
|
||||||
Repayments
of short-term borrowings
|
(5,383 | ) | (106,418 | ) | ||||
Proceeds
from issuance of senior convertible notes
|
250,000
|
0
|
||||||
Repayments
of long-term borrowings
|
(2,749 | ) | (3,766 | ) | ||||
Payments
of deferred financing costs
|
(6,250 | ) |
0
|
|||||
Excess
tax benefits related to stock-based compensation
|
636
|
2,035
|
||||||
Purchase
of hedge on senior convertible notes
|
(82,250 | ) |
0
|
|||||
Sale
of common stock warrants
|
49,050
|
0
|
||||||
Purchases
of treasury stock
|
(131,102 | ) |
0
|
|||||
Net
proceeds/(payments) from shares issued under employee stock
plans
|
(373 | ) |
2,223
|
|||||
Net
cash provided/(used) by financing activities
|
76,962
|
(9,508 | ) | |||||
Increase
in cash and cash equivalents
|
97,075
|
24,745
|
||||||
Cash
and cash equivalents, beginning of period
|
143,838
|
130,132
|
||||||
Cash
and cash equivalents, end of period
|
$ |
240,913
|
$ |
154,877
|
||||
See
Notes to Condensed Consolidated Financial
Statements
|
Average
|
||||||||||||||||||||
Option
|
Option
|
Option
Prices
|
||||||||||||||||||
Shares
|
Price
|
Per
Share
|
||||||||||||||||||
Outstanding
at February 3, 2007
|
2,217,790
|
$ |
5.82
|
$ |
1.00
|
–
|
$ |
13.84
|
||||||||||||
Granted
– option price less than market price
|
18,000
|
1.00
|
1.00
|
–
|
1.00
|
|||||||||||||||
Canceled/forfeited
|
(4,254 | ) |
7.72
|
1.00
|
–
|
11.28
|
||||||||||||||
Exercised
|
(62,377 | ) |
5.38
|
1.00
|
–
|
8.46
|
||||||||||||||
Outstanding
at May 5, 2007
|
2,169,159
|
$ |
5.79
|
$ |
1.00
|
–
|
$ |
13.84
|
||||||||||||
Exercisable
at May 5, 2007
|
2,040,863
|
$ |
5.80
|
$ |
1.00
|
–
|
$ |
13.84
|
Balance
at
|
Thirteen
Weeks Ended
|
Balance
at
|
||||||||||
February
3,
|
May
5, 2007
|
May
5,
|
||||||||||
(In
thousands)
|
2007
|
Payments/Settlements
|
2007
|
|||||||||
Lease
termination and related costs
|
$ |
1,820
|
$ | (219 | ) | $ |
1,601
|
|||||
Other
costs
|
239
|
(72 | ) |
167
|
||||||||
Total
|
$ |
2,059
|
$ | (291 | ) | $ |
1,768
|
May
5,
|
February
3,
|
|||||||
(In
thousands)
|
2007
|
2007
|
||||||
Due
from customers
|
$ |
12,458
|
$ |
38,449
|
||||
Allowance
for doubtful accounts
|
(5,627 | ) | (5,083 | ) | ||||
Net
accounts receivable
|
$ |
6,831
|
$ |
33,366
|
May
5,
|
February
3,
|
|||||||
(In
thousands)
|
2007
|
2007
|
||||||
Trademarks,
tradenames, and internet domain names
|
$ |
241,988
|
$ |
241,850
|
||||
Customer
lists, customer relationships, and covenant not to compete
|
16,400
|
16,400
|
||||||
Total
at cost
|
258,388
|
258,250
|
||||||
Less
accumulated amortization of customer lists, customer
|
||||||||
relationships,
and covenant not
to compete
|
9,579
|
8,760
|
||||||
Net
trademarks and other intangible assets
|
$ |
248,809
|
$ |
249,490
|
May
5,
|
February
3,
|
|||||||
(In
thousands)
|
2007
|
2007
|
||||||
Short-term
borrowings
|
||||||||
4.75%
Senior Convertible Notes, due June 2012(1)
|
$ |
149,999
|
$ |
0
|
||||
Long-term
debt
|
||||||||
1.125%
Senior Convertible Notes, due May 2014
|
$ |
250,000
|
$ |
0
|
||||
4.75%
Senior Convertible Notes, due June 2012(1)
|
0
|
149,999
|
||||||
Capital
lease obligations
|
10,814
|
12,853
|
||||||
6.07%
mortgage note, due October 2014
|
11,542
|
11,696
|
||||||
6.53%
mortgage note, due November 2012
|
7,700
|
8,050
|
||||||
7.77%
mortgage note, due December 2011
|
8,350
|
8,496
|
||||||
Other
long-term debt
|
857
|
917
|
||||||
Total
long-term debt
|
289,263
|
192,011
|
||||||
Less
current portion
|
10,134
|
10,887
|
||||||
Long-term
debt
|
$ |
279,129
|
$ |
181,124
|
||||
____________________
|
||||||||
(1)
On April 30, 2007, we called these notes for redemption on June 4,
2007. As of June 4, 2007, holders of $149,956,000 aggregate principal
amount of these 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 cash (see “Note 12. Subsequent
Events” below).
|
Thirteen
|
||||
Weeks
Ended
|
||||
May
5,
|
||||
(Dollars
in thousands)
|
2007
|
|||
Total
stockholders’ equity, beginning of period
|
$ |
947,538
|
||
Cumulative
effect of adoption of FIN No. 48(1)
|
(4,998 | ) | ||
Net
income
|
26,298
|
|||
Issuance
of common stock (149,808 shares), net of shares withheld for payroll
taxes
|
(373 | ) | ||
Purchase
of treasury shares (10,314,900 shares)
|
(131,102 | ) | ||
Sale
of common stock warrants(2)
|
49,050
|
|||
Purchase
of common stock call options(2)
|
(82,250 | ) | ||
Stock-based
compensation expense
|
2,924
|
|||
Excess
tax benefits related to stock-based compensation
|
636
|
|||
Unrealized
losses on available-for-sale securities, net of tax
|
(3 | ) | ||
Total
stockholders’ equity, end of period
|
$ |
807,720
|
||
____________________
|
||||
(1)
See “Note
8. Income
Taxes” below.
|
||||
(2)
See “Note
4. Short-term
Borrowings and Long-term Debt” above.
|
Thirteen
Weeks Ended
|
||||||||
May
5,
|
April
29,
|
|||||||
(In
thousands, except per share amounts)
|
2007
|
2006
|
||||||
Basic
weighted average common shares outstanding
|
123,003
|
121,813
|
||||||
Dilutive
effect of assumed conversion of 4.75% Senior Convertible
Notes
|
15,182
|
15,182
|
||||||
Dilutive
effect of stock options and awards
|
1,753
|
2,432
|
||||||
Diluted
weighted average common shares and equivalents outstanding
|
139,938
|
139,427
|
||||||
Net
income
|
$ |
26,298
|
$ |
32,061
|
||||
Decrease
in interest expense from assumed conversion of 4.75% Senior
Convertible
|
||||||||
Notes,
net of income
taxes
|
1,128
|
1,128
|
||||||
Net
income used to determine diluted net income per share
|
$ |
27,426
|
$ |
33,189
|
||||
Options
with weighted average exercise price greater than market price, excluded
from
|
||||||||
computation
of net income per share:
|
||||||||
Number
of shares
|
1
|
0
|
||||||
Weighted
average exercise price per share
|
$ |
13.84
|
$ |
0.00
|
Retail
|
Direct-to-
|
Corporate
|
||||||||||||||
(In
thousands)
|
Stores
|
Consumer
|
and
Other
|
Consolidated
|
||||||||||||
Thirteen
weeks ended May 5, 2007(1)
|
||||||||||||||||
Net
sales
|
$ |
685,522
|
$ |
98,372
|
$ |
818
|
$ |
784,712
|
||||||||
Depreciation
and amortization
|
12,361
|
56
|
10,327
|
22,744
|
||||||||||||
Income
before interest and taxes
|
74,030
|
1,490
|
(31,295 | ) |
44,225
|
|||||||||||
Interest
expense
|
(3,263 | ) | (3,263 | ) | ||||||||||||
Income
tax provision
|
(14,664 | ) | (14,664 | ) | ||||||||||||
Net
income
|
74,030
|
1,490
|
(49,222 | ) |
26,298
|
|||||||||||
Capital
expenditures
|
29,834
|
127
|
7,550
|
37,511
|
||||||||||||
Thirteen
weeks ended April 29, 2006
|
||||||||||||||||
Net
sales
|
$ |
627,404
|
$ |
107,405
|
$ |
113
|
$ |
734,922
|
||||||||
Depreciation
and amortization
|
11,094
|
32
|
9,032
|
20,158
|
||||||||||||
Income
before interest and taxes
|
75,213
|
5,326
|
(26,589 | ) |
53,950
|
|||||||||||
Interest
expense
|
(4,124 | ) | (4,124 | ) | ||||||||||||
Income
tax provision
|
(17,765 | ) | (17,765 | ) | ||||||||||||
Net
income
|
75,213
|
5,326
|
(48,478 | ) |
32,061
|
|||||||||||
Capital
expenditures
|
15,413
|
28
|
8,413
|
23,854
|
||||||||||||
____________________
|
||||||||||||||||
(1)
Retail Stores segment includes 82 LANE BRYANT OUTLET stores and 45
PETITE
SOPHISTICATE OUTLET stores opened in the second half of Fiscal
2007.
|
·
|
Amortization
method – 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.
|
·
|
Fair
value measurement method – Measure the servicing assets or liabilities at
fair value at each reporting date and report changes in fair value
in
earnings in the period in which the changes
occur.
|
·
|
Our
business is dependent upon our ability to accurately predict rapidly
changing fashion trends, customer preferences, and other fashion-related
factors, which we may not be able to successfully accomplish in the
future.
|
·
|
A
slowdown in the United States economy, an uncertain economic outlook,
and
escalating energy costs could lead to reduced consumer demand for
our
products in the future.
|
·
|
The
women’s specialty retail apparel and direct-to-consumer markets are highly
competitive and we may be unable to compete successfully against
existing
or future competitors.
|
·
|
We
may be unable to successfully integrate the operations of Crosstown
Traders, Inc. (“Crosstown Traders”) with the operations of Charming
Shoppes, Inc. In addition, we cannot assure the successful
implementation of our business plan for Crosstown Traders, including
the
successful launch of our LANE BRYANT
catalog.
|
·
|
We
cannot assure the successful implementation of our business plans
for
entry into the outlet store distribution channel and expansion of
our
CACIQUE®
product line through new store
formats.
|
·
|
We
cannot assure the successful implementation of our business plan
for
increased profitability and growth in our Retail Stores or
Direct-to-Consumer segments.
|
·
|
Our
business plan is largely dependent upon continued growth in the plus-size
women’s apparel market, which may not
occur.
|
·
|
We
depend on key personnel, particularly our Chief Executive Officer,
Dorrit
J. Bern, and we may not be able to retain or replace these employees
or
recruit additional qualified
personnel.
|
·
|
We
depend on our distribution and fulfillment centers and 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 either may negatively impact availability of merchandise
and
customer traffic to our stores, or otherwise adversely affect our
business.
|
·
|
We
rely significantly on foreign sources of production and face a variety
of
risks generally associated with doing business in foreign markets
and
importing merchandise from abroad. Such risks include (but are not
necessarily limited to) political instability; imposition of, or
changes
in, duties or quotas; trade restrictions; increased security requirements
applicable to imports; delays in shipping; increased costs of
transportation; and issues relating to compliance with domestic or
international labor standards.
|
·
|
Our
Retail Stores and Direct-to-Consumer segments experience seasonal
fluctuations in net sales and operating income. Any decrease in
sales or margins during our peak sales periods, or in the availability
of
working capital during the months preceding such periods, could have
a
material adverse effect on our business. In addition, extreme or
unseasonable weather conditions may have a negative impact on our
sales.
|
·
|
We
may be unable to obtain adequate insurance for our operations at
a
reasonable cost.
|
·
|
We
may be unable to protect our trademarks and other intellectual property
rights, which are important to our success and our competitive
position.
|
·
|
We
may be unable to hire and retain a sufficient number of suitable
sales
associates at our stores. 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
make certain significant assumptions, estimates, and projections
related
to the useful lives of our property, plant, and equipment and the
valuation of intangible assets related to acquisitions. The carrying
amount and/or useful life of these assets are subject to periodic
valuation tests for impairment. Impairment results when the carrying
value of an asset exceeds the undiscounted (or for goodwill and
indefinite-lived intangible assets the discounted) future cash flows
associated with the asset. If actual experience were to differ
materially from the assumptions, estimates, and projections used
to
determine useful lives or the valuation of property, plant, equipment,
or
intangible assets, a write-down for impairment of the carrying value
of
the assets, or acceleration of depreciation or amortization of the
assets,
could result. Such a write-down or acceleration of depreciation or
amortization would have an adverse impact on our reported results
of
operations.
|
·
|
Changes
to existing accounting rules or the adoption of new rules could have
an
adverse impact on our reported results of
operations.
|
·
|
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required
to
include our assessment of the effectiveness of our internal control
over
financial reporting in our annual reports. Our independent
registered public accounting firm is also currently required to attest
to
whether or not our assessment is fairly stated in all material respects
and to separately report on whether or not they believe that we
maintained, in all material respects, effective internal control
over
financial reporting. If we are unable to maintain effective internal
control over financial reporting, or if our independent registered
public
accounting firm is unable to timely attest to our assessment, we
could be
subject to regulatory sanctions and a possible loss of public confidence
in the reliability of our financial reporting. Such a failure could
result in our inability to provide timely and/or reliable financial
information and could adversely affect our
business.
|
·
|
The
holders of our 1.125% Senior Convertible Notes due May 1, 2014 (the
“1.125% Notes”) could require us to repurchase the principal amount of the
notes for cash before maturity of the notes upon the occurrence of
a
“Fundamental Change,” as defined in the indenture relating to the 1.125%
Notes. Such a repurchase would require significant amounts of
cash and could adversely affect our financial
condition.
|
·
|
The
Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force
(“EITF”) is currently reviewing the accounting for convertible debt
instruments with terms similar to our 1.125% Notes. The EITF is
considering a requirement to allocate a portion of the debt to the
embedded conversion feature, thereby creating an original issue discount
on the carrying value of the debt portion of the
instrument. This original issue discount would subsequently be
amortized as interest expense over the term of the instrument, resulting
in an increase in reported interest expense. Implementation of
such a change would not affect our cash
flows.
|
Percentage
|
||||||||||||
Thirteen
Weeks Ended(1)
|
Change
|
|||||||||||
May
5,
|
April
29,
|
From
Prior
|
||||||||||
2007
|
2006
|
Period
|
||||||||||
Net
sales
|
100.0 | % | 100.0 | % | 6.8 | % | ||||||
Cost
of goods sold, buying, catalog, and occupancy
expenses
|
69.6
|
68.2
|
9.0
|
|||||||||
Selling,
general, and administrative expenses
|
24.9
|
24.7
|
7.8
|
|||||||||
Income
from operations
|
5.5
|
7.1
|
(18.1 | ) | ||||||||
Other
income
|
0.2
|
0.2
|
(14.0 | ) | ||||||||
Interest
expense
|
0.4
|
0.6
|
(20.9 | ) | ||||||||
Income
tax provision
|
1.9
|
2.4
|
(17.5 | ) | ||||||||
Net
income
|
3.4
|
4.4
|
(18.0 | ) | ||||||||
____________________
|
||||||||||||
(1)
Results may not add due to rounding.
|
Thirteen
Weeks Ended
|
||||||||
May
5,
|
April
29,
|
|||||||
(In
millions)
|
2007
|
2006
|
||||||
FASHION
BUG
|
$ |
257.7
|
$ |
255.9
|
||||
LANE
BRYANT(1)
|
322.4
|
277.0
|
||||||
CATHERINES
|
100.6
|
94.5
|
||||||
Other
retail stores(2)
|
4.8
|
0.0
|
||||||
Total
Retail Stores segment
sales
|
685.5
|
627.4
|
||||||
Total
Direct-to-Consumer segment
sales
|
98.4
|
107.4
|
||||||
Corporate
and other(3)
|
0.8
|
0.1
|
||||||
Total
net
sales
|
$ |
784.7
|
$ |
734.9
|
||||
____________________
|
||||||||
(1)
Includes LANE BRYANT OUTLET stores in the thirteen weeks ended May
5,
2007.
|
||||||||
(2)
Includes PETITE SOPHISTICATE OUTLET stores in the thirteen weeks
ended May
5, 2007.
|
||||||||
(3)
Primarily revenue related to loyalty card fees.
|
Thirteen
Weeks Ended
|
||
May
5,
|
April
29,
|
|
2007
|
2006
|
|
Retail
Stores segment
|
||
Increase
(decrease) in comparable store sales(1)
:
|
|
|
Consolidated
retail stores
|
0%
|
1%
|
FASHION
BUG
|
(2)
|
(1)
|
LANE
BRYANT
|
0
|
2
|
CATHERINES
|
5
|
5
|
Sales
from new stores as a percentage of total
|
||
consolidated
prior-period
sales(2):
|
||
FASHION
BUG
|
1
|
2
|
LANE
BRYANT(3)
|
9
|
4
|
CATHERINES
|
1
|
1
|
Other
retail stores(4)
|
1
|
—
|
Prior-period
sales from closed stores as a percentage
|
||
of
total consolidated
prior-period sales:
|
||
FASHION
BUG
|
(1)
|
(1)
|
LANE
BRYANT
|
(2)
|
(1)
|
CATHERINES
|
(0)
|
(1)
|
Increase
in Retail Stores segment sales
|
9
|
4
|
Direct-to-Consumer
segment
|
||
Decrease
in Direct-to-Consumer segment sales
|
(8)
|
—
|
Increase
in consolidated total net sales
|
7
|
22(5)
|
____________________
|
||
(1)
“Comparable store sales” is not a measure that has been defined under
generally accepted accounting principles. The method of calculating
comparable store sales varies across the retail industry and, therefore,
our calculation of comparable store sales is not necessarily comparable
to
similarly-titled measures reported by other companies. We define
comparable store sales as sales from stores operating in both the
current
and prior-year periods. New stores are added to the comparable store
sales base 13 months after their open date. Sales from stores that
are relocated within the same mall or strip-center, remodeled, or
have a
legal square footage change of less than 20% are included in the
calculation of comparable store sales. Sales from stores that are
relocated outside the existing mall or strip-center, or have a legal
square footage change of 20% or more, are excluded from the calculation
of
comparable store sales until 13 months after the relocated store
is
opened. Stores that are temporarily closed for a period of 4 weeks
or more are excluded from the calculation of comparable store sales
for
the applicable periods in the year of closure and the subsequent
year. Non-store sales, such as catalog and internet sales, are
excluded from the calculation of comparable store
sales.
|
||
(2)
Includes incremental Retail Stores segment E-commerce
sales.
|
||
(3)
Includes LANE BRYANT OUTLET stores.
|
||
(4)
Includes PETITE SOPHISTICATE OUTLET stores.
|
||
(5)
The increase in consolidated total net sales for the thirteen weeks
ended
April 29, 2006 includes an 18% increase as a result of the acquisition
of
Crosstown Traders, Inc. on June 2, 2005.
|
||
FASHION
|
LANE
|
|||||||||||||||||||
BUG
|
BRYANT
|
CATHERINES
|
Other(1)
|
Total
|
||||||||||||||||
Fiscal
2008 Year-to-Date(2):
|
||||||||||||||||||||
Stores
at February 3, 2007
|
1,009
|
859
|
465
|
45
|
2,378
|
|||||||||||||||
Stores
opened
|
5
|
24 | (3) |
2
|
1
|
32
|
||||||||||||||
Stores
closed
|
(6 | ) | (6 | ) | (2 | ) | (0 | ) | (14 | ) | ||||||||||
Net
change in stores
|
(1 | ) |
18
|
0
|
1
|
18
|
||||||||||||||
Stores
at May 5, 2007
|
1,008
|
877
|
465
|
46
|
2,396
|
|||||||||||||||
Stores
relocated during period
|
6
|
10
|
5
|
0
|
21
|
|||||||||||||||
Fiscal
2008:
|
||||||||||||||||||||
Planned
store openings
|
10
|
65-75 | (4) |
10
|
10 | (5) |
95-107
|
|||||||||||||
Planned
store closings
|
18-22
|
15-18 | (6) |
7-10
|
0
|
40-50
|
||||||||||||||
Planned
store relocations
|
20-25
|
45-50 | (7) |
10-15
|
0
|
75-90
|
||||||||||||||
____________________
|
||||||||||||||||||||
(1)
Includes PETITE SOPHISTICATE OUTLET stores.
|
||||||||||||||||||||
(2)
Excludes 2 Crosstown Traders outlet stores that are included in our
Direct-to-Consumer segment.
|
||||||||||||||||||||
(3)
Includes 5 LANE BRYANT OUTLET stores.
|
||||||||||||||||||||
(4)
Includes approximately 35 LANE BRYANT intimate apparel side-by-side
stores and 15 LANE BRYANT OUTLET stores.
|
||||||||||||||||||||
(5)
Includes 5 PETITE SOPHISTICATE OUTLET stores and 5 full-line PETITE
SOPHISTICATE stores.
|
||||||||||||||||||||
(6)
Includes 1 LANE BRYANT OUTLET store.
|
||||||||||||||||||||
(7)
Includes approximately 32 conversions to LANE BRYANT intimate apparel
side-by-side stores.
|
May
5,
|
February
3,
|
|||||||
(Dollars
in millions)
|
2007
|
2007
|
||||||
Cash
and cash equivalents
|
$ |
240.9
|
$ |
143.8
|
||||
Available-for-sale
securities
|
0.3
|
2.0
|
||||||
Working
capital
|
$ |
417.8
|
$ |
460.6
|
||||
Current
ratio
|
1.8
|
2.2
|
||||||
Long-term
debt to equity ratio
|
34.6 | % | 19.1 | % |
(Dollars
in millions)
|
Series
1999-2
|
Series
2002-1
|
Series
2004
|
Series
2004-1
|
2005-RPA(1)
|
Date
of facility
|
May
1999
|
November
2002
|
January
2004
|
August
2004
|
May
2005
|
Type
of facility
|
Conduit
|
Term
|
Conduit
|
Term
|
Conduit
|
Maximum
funding
|
$50.0
|
$100.0
|
$50.0
|
$180.0
|
$55.0
|
Funding
as of May 5, 2007
|
$36.0
|
$100.0
|
$0.0
|
$180.0
|
$44.5
|
First
scheduled principal payment
|
Not
applicable
|
August
2007
|
Not
applicable
|
April
2009
|
Not
applicable
|
Expected
final principal payment
|
Not
applicable(2)
|
May
2008
|
Not
applicable(2)
|
March
2010
|
Not
applicable(2)
|
Renewal
|
Annual
|
Not
applicable
|
Annual
|
Not
applicable
|
Annual
|
____________________
|
|||||
(1)
Receivables Purchase Agreement (for the Crosstown Traders catalog
proprietary credit card receivables program).
|
|||||
(2)
Series 1999-2 and Series 2004 have scheduled final payment dates
that
occur in the twelfth month following the month in which the series
begins
amortizing. These series and 2005-RPA generally begin
amortizing 364 days after start of the purchase commitment by the
series
purchaser currently in effect.
|
Total
|
Maximum
|
|||||||||||||||
Number
|
Number
of
|
|||||||||||||||
of
Shares
|
Shares
that
|
|||||||||||||||
Purchased
as
|
May
Yet be
|
|||||||||||||||
Total
|
Part
of Publicly
|
Purchased
|
||||||||||||||
Number
|
Average
|
Announced
|
Under
the
|
|||||||||||||
of
Shares
|
Price
Paid
|
Plans
or
|
Plans
or
|
|||||||||||||
Period
|
Purchased
|
per
Share
|
Programs(3)
|
Programs(3)
|
||||||||||||
February
4, 2007 through
|
||||||||||||||||
March
3, 2007
|
10,478 | (1) | $ |
12.79
|
—
|
—
|
||||||||||
March
4, 2007 through
|
||||||||||||||||
April
7, 2007
|
66,019 | (1) |
12.05
|
—
|
—
|
|||||||||||
April
8, 2007 through
|
||||||||||||||||
May
5, 2007
|
10,317,510 | (2) |
12.71
|
—
|
—
|
|||||||||||
Total
|
10,394,007
|
$ |
12.71
|
—
|
—
|
|||||||||||
____________________
|
||||||||||||||||
(1)
Shares withheld for the payment of payroll taxes on employee stock
awards
that vested during the period.
|
||||||||||||||||
(2)
Includes 2,610 shares ($12.45 average price paid per share) withheld
for
the payment of payroll taxes on employee stock awards that vested
during
the period. Also includes 10,314,900 shares ($12.71 average price
paid per share) purchased through negotiated transactions with
institutional investors in anticipation of the exercise by holders
of our
4.75% Senior Convertible Notes Due 2012 of their right to convert
their
notes to shares of our common stock as the result of our call for
redemption on April 30, 2007 (see “PART 1. Item 1. Notes to
Condensed Consolidated Financial Statements; Note 4. Short-term Borrowings
and Long-term Debt” and “Note 12. Subsequent
Events” above).
|
||||||||||||||||
(3)
In Fiscal 1998, we publicly announced that our Board of Directors
granted
authority to repurchase up to 10,000,000 shares of our common
stock. In Fiscal 2000, we publicly announced that our Board of
Directors granted authority to repurchase up to an additional 10,000,000
shares of our common stock. In Fiscal 2003, the Board of Directors
granted an additional authorization to repurchase 6,350,662 shares
of
common stock issued to Limited Brands in connection with our acquisition
of LANE BRYANT. From Fiscal 1998 through Fiscal 2003, pursuant to
these authorizations, we repurchased a total of 21,370,993 shares
of
common stock, which included shares purchased on the open market
as well
as shares repurchased from Limited Brands. As of May 5, 2007,
4,979,669 shares of our common stock remain available for repurchase
under
these programs. Our revolving credit facility allows the repurchase
of our common stock subject to maintaining a minimum level of Excess
Availability (as defined in the facility agreement) immediately before
and
after such repurchase. As conditions may allow, we may from time to
time acquire additional shares of our common stock under these
programs. Such shares, if purchased, would be held as treasury
shares. No shares were acquired under these programs during the
thirteen weeks ended May 5, 2007. The repurchase programs have no
expiration date.
|
2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June
2,
2005, filed on June 8, 2005. (Exhibit 2.1).
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K
of the
Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258,
Exhibit 3.1).
|
3.2
|
Bylaws,
as Amended and Restated, incorporated by reference to Form 10-Q of
the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 3.2).
|
4.1
|
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. (Exhibit
4.1).
|
4.2
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.1)
|
10.1
|
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. (Exhibit 10.1).
|
10.2
|
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. (Exhibit 10.1).
|
10.3
|
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. (Exhibit
10.2).
|
10.4
|
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. (Exhibit 10.3).
|
10.5
|
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. (Exhibit 10.4).
|
10.6
|
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. (Exhibit 10.5).
|
10.7
|
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. (Exhibit
10.6).
|
31.1
|
Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
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Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
|
CHARMING
SHOPPES, INC.
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|
(Registrant)
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|
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Date:
June 7, 2007
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/S/
DORRIT J. BERN
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|
Dorrit
J. Bern
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|
Chairman
of the Board
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President
and Chief Executive Officer
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|
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|
|
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Date:
June 7, 2007
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/S/
ERIC M. SPECTER
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Eric
M. Specter
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Executive
Vice President
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Chief
Financial Officer
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Exhibit
No.
|
Item
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2.1
|
Stock
Purchase Agreement dated May 19, 2005 by and among Chestnut Acquisition
Sub, Inc., Crosstown Traders, Inc., the Securityholders of Crosstown
Traders, Inc. whose names are set forth on the signature pages thereto,
and J.P. Morgan Partners (BHCA), L.P., as the Sellers’ Representative,
incorporated by reference to Form 8-K of the Registrant dated June
2,
2005, filed on June 8, 2005. (Exhibit 2.1).
|
3.1
|
Restated
Articles of Incorporation, incorporated by reference to Form 10-K
of the
Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258,
Exhibit 3.1).
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3.2
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Bylaws,
as Amended and Restated, incorporated by reference to Form 10-Q of
the
Registrant for the quarter ended July 31, 1999 (File No. 000-07258,
Exhibit 3.2).
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4.1
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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. (Exhibit
4.1).
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4.2
|
Form
of 1.125% Senior Convertible Note due 2012 (included in Exhibit
4.1)
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10.1
|
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. (Exhibit 10.1).
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10.2
|
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. (Exhibit 10.1).
|
10.3
|
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. (Exhibit
10.2).
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10.4
|
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. (Exhibit 10.3).
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10.5
|
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. (Exhibit 10.4).
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10.6
|
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. (Exhibit 10.5).
|
10.7
|
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. (Exhibit
10.6).
|
Exhibit
No.
|
Item
|
31.1
|
Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|